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 December 31, 1997
[ ] 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
Indicate by check mark whether the registrant has filed documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court since there was a distribution of securities under a plan confirmed by a
court. Yes X No
Common Shares outstanding at February 13, 1998 - 18,307,390
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
December 31, 1997 and June 30, 1997 3
Consolidated Statements of Operations for the
Three months and six months ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three months and six months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 28
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31, June 30,
1997 1997
(Unaudited)
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 53,770 $ 41,704
Accounts receivable, net 76,875 45,230
Inventories 10,182 5,171
Prepaid expenses and other 1,954 1,228
- -------------------------------------------------------------------------------
Total current assets 142,781 93,333
- -------------------------------------------------------------------------------
Property and equipment, at cost:
Oilfield service equipment 327,410 186,895
Oilfield drilling equipment 28,522 6,319
Oil and gas properties, using the successful
efforts accounting method 28,713 23,622
Other property and equipment 27,956 10,419
- -------------------------------------------------------------------------------
412,601 227,255
Less accumulated depreciation and depletion 31,065 19,069
- -------------------------------------------------------------------------------
Property and equipment, net 381,536 208,186
- -------------------------------------------------------------------------------
Other assets 63,266 18,576
- -------------------------------------------------------------------------------
$ 587,583 $ 320,095
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 16,842 $ 15,339
Other accrued liabilities 21,005 12,507
Accrued interest 3,314 2,102
Accrued income taxes 448 1,664
Deferred taxes 126 126
Current portion of long-term debt 1,945 1,404
- -------------------------------------------------------------------------------
Total current liabilities 43,680 33,142
- -------------------------------------------------------------------------------
Long-term debt, net of current portion 330,292 172,763
Noncurrent accrued expenses 4,015 4,017
Deferred taxes 77,243 35,738
Minority interest - 1,256
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value per share;
25,000,000 shares authorized,
18,356,296 and 12,297,752 shares issued at
December 31, 1997 and June 30, 1997,
respectively 1,836 1,230
Additional paid-in capital 110,998 55,031
Treasury stock, at cost; 416,666
shares at December 31, 1997 (9,682) -
Retained earnings 29,201 16,918
- -------------------------------------------------------------------------------
Total stockholders' equity 132,353 73,179
- -------------------------------------------------------------------------------
$ 587,583 $ 320,095
===============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------
Revenues:
Oilfield services $ 97,542 $ 31,708 $ 167,040 $ 59,019
Oilfield drilling 8,689 2,359 11,512 4,683
Oil and gas 1,949 2,088 4,067 3,613
Other, net 1,493 42 2,574 344
- -------------------------------------------------------------------------------
Total revenues 109,673 36,197 185,193 67,659
- -------------------------------------------------------------------------------
Costs and expenses:
Oilfield services 68,354 23,066 116,592 42,766
Oilfield drilling 6,590 1,963 8,853 3,844
Oil and gas 893 773 1,831 1,286
General and administrative 10,370 3,735 18,036 7,262
Depreciation, depletion and
amortization 7,740 2,342 12,886 4,437
Interest expense 3,879 1,296 7,317 2,646
- -------------------------------------------------------------------------------
Total costs and expenses 97,826 33,175 165,515 62,241
- -------------------------------------------------------------------------------
Income before income taxes and
minority interest 11,847 3,022 19,678 5,418
Income tax provision 4,502 1,029 7,395 1,813
Minority interest in income - (50) - 8
- -------------------------------------------------------------------------------
Net income $ 7,345 $ 2,043 $ 12,283 $ 3,597
===============================================================================
Net income per share:
Basic $ 0.40 $ 0.19 $ 0.76 $ 0.34
Diluted $ 0.36 $ 0.16 $ 0.62 $ 0.29
Weighted average shares outstanding:
Basic 18,151 10,850 16,137 10,635
Diluted 25,571 17,027 22,720 16,815
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
KEY ENERGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 7,345 $ 2,043 $ 12,283 $ 3,597
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation, depletion
and amortization 7,740 2,342 12,886 4,437
Deferred income taxes 1,177 1,029 4,070 1,813
Minority interest in net income - (50) - 8
Changes in assets and liabilities,
net of effects
from acquisitions:
Accounts receivable 1,890 (1,761) (4,334) (3,673)
Other current assets (1,742) 352 (342) (97)
Accounts payable and
accrued liabilities (8,666) (3,922) (9,638) (3,069)
Accrued interest 3,041 (947) 1,213 (283)
Other assets and liabilities (3,424) (175) (4,717) (806)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 7,361 (1,089) 11,421 1,927
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Property and equipment additions
related to:
Oilfield service operations (12,268) (3,049) (18,962) (5,949)
Oilfield drilling operations (1,315) (268) (3,373) (591)
Oil and gas operations (1,926) (975) (2,265) (1,297)
Acquisitions of:
Oilfield service operations,
net of cash acquired (29,933) (13,228) (134,660) (13,228)
Oilfield drilling operations,
net of cash acquired (7,256) - (21,866) -
Oil and gas operations,
net of cash acquired (600) - (600) -
Minority interest - - (3,426) -
- -------------------------------------------------------------------------------
Net cash used in investing
activities (53,298) (17,520) (185,152) (21,065)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on debt (2,229) (154) (2,547) (1,053)
Repayment of long-term debt (19,337) - (216,337) (35,413)
Borrowings under line of credit 65,000 368 199,000 1,307
Purchase of treasury stock (9,682) - (9,682) -
Proceeds from convertible
subordinated debentures, net - - - 50,440
Proceeds from long-term
commercial paper debt, net 14,000 - 208,500 -
Procceds from other
long-term debt 1,638 10,500 1,699 10,500
Proceeds from exercise
of warrants 99 - 4,222 -
Proceeds from exercise
stock options 942 - 942 58
- -------------------------------------------------------------------------------
Net cash provided by financing
activities 50,431 10,714 185,797 25,839
- -------------------------------------------------------------------------------
Net increase (decrease) in cash 4,494 (7,895) 12,066 6,701
Cash, beginning of period 49,276 18,807 41,704 4,211
- -------------------------------------------------------------------------------
Cash, end of period $ 53,770 $ 10,912 $ 53,770 $ 10,912
===============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated
financial statements of Key Energy Group, Inc. (the "Company" or "Key") and its
wholly-owned subsidiaries are prepared in conformity with generally accepted
accounting principals, but do not purport to be a complete presentation in as
much as all note disclosures required are not included. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of the Company and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1997.
In the opinion of management, the Company's unaudited consolidated financial
statements as of December 31, 1997 and for the three months and six months ended
December 31, 1997 and 1996 contain all adjustments and accruals, consisting only
of normal recurring accrual adjustments, necessary for a fair presentation of
the results of the interim periods. These interim results are not necessarily
indicative of results for a full year.
Earnings per Share
The Company implemented the 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 of basic EPS and diluted EPS is presented below:
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
--------------------- --------------------
Basic EPS Computation:
Numerator-
Net Income $ 7,345 $ 2,043 $12,283 $ 3,597
--------------------- --------------------
Denominator-
Weighted Average Common
Shares Outstanding 18,151 10,850 16,137 10,635
--------------------- --------------------
Basic EPS $ 0.40 $ 0.19 $ 0.76 $ 0.34
===================== ====================
Diluted EPS Computation:
Numerator-
Net Income $ 7,345 $ 2,043 $12,283 $ 3,597
Effect of Dilutive
Securities,
Tax Effected:
Convertible Debentures 1,738 609 1,882 1,219
-------------------- --------------------
$ 9,083 $ 2,652 $14,165 $4,816
-------------------- --------------------
- 6 -
<PAGE>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
-------------------- --------------------
Denominator-
Weighted Average Common
Shares Outstanding 18,151 10,850 16,137 10,635
Warrants 82 319 235 320
Stock Options 1,256 525 1,294 527
7% Convertible Debentures 472 5,333 2,096 5,333
5% Convertible Debentures 5,610 - 2,958 -
-------------------- --------------------
25,571 17,027 22,720 16,815
-------------------- --------------------
Diluted EPS $ 0.36 $ 0.16 $ 0.62 $ 0.29
==================== ====================
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 February 13, 1998, the Company owned a fleet of approximately 820 well
service rigs, 628 oilfield fluid hauling and other trucks, and 59 drilling rigs,
including 16 service rigs, 14 trucks and 6 drilling rigs in Argentina.
Acquisitions Completed During the Six Months Ended December 31, 1997
The following acquisitions have been completed during the six months ended
December 31, 1997. 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 six months ended December 31, 1997 (effective as of
the date of completion of the acquisition unless otherwise noted). 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 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 on a re-calculation of the working
capital of the acquired company as of the closing date.
Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc.
Effective 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 consisted of five land drilling rigs, five well service rigs
and other related equipment in Michigan.
- 7 -
<PAGE>
Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation
Effective 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.
Effective 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 hauling trucks in Southeast Texas.
Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc.
Effective 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
Frontier Well Service, Inc.
Effective 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.
Effective 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.
Effective 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.
- 8 -
<PAGE>
Landmark Fishing & Rental, Inc.
Effective 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.
Waco Oil & Gas Co., Inc.
Effective 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.
Effective 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
Mosley Well Service, Inc.
Effective 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 September 1, 1997.
Kenting Holdings (Argentina) S.A.
Effective 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.
Effective July 17, 1997, the Company completed the acquisition of Patrick Well
Service, Inc. ("Patrick") for $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.
Effective 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.
- 9 -
<PAGE>
Acquisitions Completed After December 31, 1997
The following acquisitions were completed after December 31, 1997. Except as
otherwise noted, the results of operations from these acquisitions are not
included in the Company's results of operations for the three and six months
ended December 31, 1997.
Sitton Drilling Company
Effective 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.
J.W. Gibson Well Service Company
Effective 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.
Since July 31, 1997, 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 net income from Gibson's operations less $25,000
per month and received a one-time management fee of $300,000.
Hot Oil Plus
Effective January 29, 1998, the Company completed the acquisition of Hot Oil
Plus, Inc. ("Hot Oil Plus") for approximately $1.9 million in cash. Hot Oil Plus
operates eight hot oil trucks, a pump truck and a steam heater in Southeast
Texas.
Legacy Drilling Co.
Effective January 30, 1998, the Company completed the acquisition of Legacy
Drilling Co. ("Legacy") for approximately $2.9 million in cash. Legacy operates
four drilling rigs in the Permian Basin region of West Texas.
Circle M Vacuum Services
Effective January 30, 1998, the Company completed the acquisition of Circle M
Vacuum Services ("Circle M") for approximately $800,000 in cash. Circle M
operates four vacuum trucks, trailers and a salt water disposal well in
Southeast Texas.
Four Corners Drilling Company
Effective February 4, 1998, the Company completed the acquisition of Four
Corners Drilling Company ("Four Corners") for $10.0 million in cash. Four
Corners owns 12 drilling rigs in the Four Corners region of the Southwestern
United States.
- 10 -
<PAGE>
Updike Brothers, Inc.
Effective February 6, 1998, the Company completed the acquisition of Updike
Brothers, Inc. ("Updike") for approximately for $10.6 million in cash. Updike
operates 25 well service rigs in Wyoming.
3. LONG-TERM DEBT
At December 31, 1997, 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 the 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 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 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 and, 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 December 31, 1997, the principal balance of the Amended Credit Agreement, as
amended, was $107 million and the unused credit facility aggregated
approximately $143 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
- 11 -
<PAGE>
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.
As of December 31, 1997, $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 December 31, 1997, $4,600,000 of Debentures remained outstanding.
5% 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 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.
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.
- 12 -
<PAGE>
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 holde'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 December 31, 1997, $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.
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 six
months ended December 31, 1997 and 1996 follows:
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------------------ -----------------
Interest paid $ 2,667 $2,243 $6,105 $2,929
Taxes paid 3,568 - 3,568 -
- 13 -
<PAGE>
Supplemental non-cash investing and financing disclosures (in thousands) for the
three and six months ended December 31, 1997 and 1996 follows:
Fair Value
of Issued Assumption Assumption Acquisition of
Common of of Property
Stock Debt Working Capital* and Equipment
----------- ---------- --------------- --------------
Three months ended
December 31, 1996 $12,476 $2,354 $12,220 $ 37,450
Six months ended
December 31, 1996 $12,476 $2,354 $12,220 $ 37,450
Three months ended
December 31, 1997 $ 5,812 $3,391 $ 6,798 $101,612
Six months ended
December 31, 1997 $ 5,812 $7,655 $ (970) $151,979
* - excluding current maturities of long-term debt.
7. TREASURY STOCK
During the three months ended December 31, 1997, 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.
8. CHANGES APPROVED BY SHAREHOLDERS
At the Company's annual meeting of shareholders held on January 13, 1998, the
Company's shareholders approved an increase in the Company's authorized capital
stock from 25,000,000 shares, par value $.10 per share, to 100,000,000 shares,
par value $.10 per share, and approved the adoption of the Company's 1997
Incentive Plan.
The Company's 1997 Incentive Plan is an amendment and restatement of the
Company's 1995 Stock Option Plan and 1995 Outside Directors Stock Option Plan
(collectively, the "Prior Plans"), which authorized the issuance of up to
1,400,000 shares of Common Stock to key employees, officers and directors of the
Company, subject to the terms and conditions of options granted to such
individuals. The 1997 Incentive Plan authorizes the granting of stock options
and other stock-based incentive awards covering an aggregate of the greater of
(i) 3,000,000 shares of Common Stock or (ii) 10% of the number of shares of
Common Stock issued and outstanding on the last day of each calendar quarter,
provided, however, that a decrease in the number of issued and outstanding
shares of Common Stock from the previous calendar quarter; shall not result in a
decrease in the Common Stock available for issuance under the Company's 1997
Incentive Plan. Presently, 3,000,000 shares of Common Stock are authorized under
the 1997 Incentive Plan. Options previously granted under the Prior Plans were
assumed and continued by the 1997 Incentive Plan.
As of January 13, 1998, options to purchase 2,306,224 shares of Common Stock are
outstanding under the 1997 Incentive Plan.
- 14 -
<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 six months ended December 31, 1997, the Company purchased the
remaining 37% minority interest in Servicios and completed the acquisition of
the following well servicing, trucking and drilling 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
Justice Supply Co., Inc.
GSI Trucking Company, Inc., Kahlden Production
Services, Inc. and 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.
These acquisitions (which are more fully described in Note 2 to the consolidated
financial statements) involve 192 well service rigs (including six well service
rigs in Argentina), 210 fluid hauling and other trucks and 28 drilling rigs
(including three drilling rigs in Argentina). The total purchase price of these
acquisitions totaled approximately $152 million, compromised of approximately
$142 million in cash and 365,000 shares of Common Stock.
Subsequent to December 31, 1997 and through February 13, 1998, the Company has
completed the acquisition of four well servicing companies and three contract
drilling companies involving 99 well service rigs, 21 drilling rigs and 24 fluid
hauling and other trucks. The total purchase price of these subsequent
acquisitions aggregate approximately $63.4 million, compromised of approximately
$60 million in cash and 200,000 shares of Common Stock.
These acquisitions were financed primarily through long-term debt borrowings
(see Note 3 to the consolidated financial statements) and, to a lesser extent,
through internally generated funds.
Including these recent acquisitions, as of February 13, 1998, the Company owns
820 oilfield servicing rigs, 628 oilfield fluid hauling and other trucks and 59
land drilling rigs. Management believes that, as of February 13, 1998, 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.
- 15 -
Impact of Declining Crude Oil Prices
During the quarter ended December 31, 1997, 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 $17 per barrel. From December
31, 1997 through February 13, 1998, the West Texas Crude Oil Price remained in
the range of $15.50 to $17.50 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, an announced increase
in crude oil production quotas for OPEC countries and a possible decline in
demand in certain Asian markets.
If such a decline in the West Texas Crude Oil Price worsens or persists for a
protracted period, the Company's oilfield service and drilling operations would
likely be affected by postponements of drilling commitments and delays in
scheduled maintenance service for marginally producing wells which, in turn,
could adversely effect the Company's service and drilling rig utilization rates,
pricing structures, revenues, net income and cash flows from operations.
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 eighteen months, the Company has been the leading consolidator of
this industry, completing 35 acquisitions of well servicing and drilling
operations through December 31, 1997 and 42 such acquisitions through February
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.
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.
- 16 -
<PAGE>
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 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.
- 17 -
<PAGE>
QUARTER ENDED DECEMBER 31, 1997 VERSUS THE QUARTER ENDED DECEMBER 31, 1996
Net Income
For the quarter ended December 31, 1997, the Company reported net income of
$7,345,000 ($.40 per share - basic) as compared to $2,043,000 ($.19 per share -
basic) for the quarter ended December 31, 1996, representing an increase of
$5,302,000, or 260%. The increase in net income is primarily attributable to the
Company's acquisitions completed between October 1, 1996 and December 31, 1997,
increased service and drilling rig utilization rates and price increases.
Revenues
The Company's total revenues for the quarter ended December 31, 1997 increased
by $73,476,000, or 203%, to $109,673,000 compared to $36,197,000 reported for
the quarter ended December 31, 1996. 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 recent price increases for oilfield services. From October
1, 1996 through December 31, 1997, the Company has added 387 well servicing
rigs, 413 fluid hauling trucks and 31 drilling rigs to its fleet.
Oilfield service revenues for the current quarter increased by $65,834,000, or
208%, to $97,542,000 compared to $31,708,000 reported for the quarter ended
December 31, 1996. The increase is primarily attributable to recent
acquisitions, increased demand for oilfield service equipment and recent price
increases for oilfield services.
Drilling revenues for the quarter ended December 31, 1997 increased by
$6,330,000, or 268%, to $8,689,000 compared to $2,359,000 reported for the
quarter ended December 31, 1996. The increase is primarily attributable to
recent drilling rig acquisitions, higher rig utilization and price increases.
Oil and gas revenues for the quarter ended December 31, 1997 decreased by
$139,000, or 7%, to $1,949,000 compared to $2,088,000 reported for the quarter
ended December 31, 1996. The decrease is primarily attributable to lower crude
oil and natural gas prices.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the quarter ended December 31, 1997
increased by $64,651,000, or 195%, to $97,826,000 compared to $33,175,000
reported for the quarter ended December 31, 1996. 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 December 31, 1997 increased by
$45,288,000, or 196%, to $68,354,000 compared to $23,066,000 reported for the
quarter ended December 31, 1996. Oilfield service margins (revenues less direct
costs and expenses) increased for the quarter ended December 31, 1997 by
$20,546,000, or 238%, to $29,188 compared to $8,642,000 for the quarter ended
December 31, 1996. Oilfield service margins as a percentage of oilfield service
revenue for the quarters ended December 31, 1997 and 1996 was 30% and 27%,
respectively. Such increases are due primarily to acquisitions, increased demand
for oilfield services and increased operating efficiencies. In addition, the
Company has continued to expand its services, offering higher margin ancillary
services and equipment such as well fishing tools, blow-out preventers and frac
tanks.
- 18 -
<PAGE>
The Company's contract drilling costs and expenses for the quarter ended
December 31, 1997 increased by $4,627,000, or 236%, to $6,590,000 compared to
$1,963,000 for the quarter ended December 31, 1996. Oilfield drilling margins
for the Company's drilling operations during the quarter ended December 31, 1997
increased by $1,703,000, or 430%, to $2,099,000 compared to $396,000 for the
quarter ended December 31, 1996. Oilfield drilling margin as a percentage of
oilfield drilling revenue for the quarters ended December 31, 1997 and 1996 was
24% and 17%, respectively. Such increases are attributable to the Company's
recent acquisition of drilling rig companies and increased operating
efficiencies.
There was no significant change in oil and gas production costs and expenses for
the quarter ended December 31, 1997.
General and administrative expenses for the quarter ended December 31, 1997
increased by $6,635,000, or 180%, to $10,370,000 compared to $3,735,000 for the
quarter ended December 31, 1996. 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 10.3% during the
quarter ended December 31, 1996 to 9.5% for the quarter ended December 31, 1997.
Depreciation, depletion and amortization expense for the quarter ended December
31, 1997 increased by $5,398,000, or 230%, to $7,740,000 compared to $2,342,000
for the quarter ended December 31, 1996. The increase is directly related to the
increase in property and equipment 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 December 31, 1997 increased by
$2,583,000, or 199%, to $3,879,000 compared to $1,296,000 for the quarter ended
December 31, 1996. The increase was primarily the result of increased
indebtedness as a result of the Company's acquisition program.
Income tax expense for the quarter ended December 31, 1997 increased by
$3,473,000, or 338%, to $4,502,000 compared to $1,029,000 for the quarter ended
December 31, 1996. 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 December 31,
1997 increased by $8,450,000, to $7,361,000 compared to the $1,089,000 used by
operating activities for the quarter ended December 31, 1996. The increase is
primarily attributable the acquisitions, increased service and drilling
operating margins, increased service and drilling utilization rates, increased
operating efficiencies and, to a lesser extent, increased prices for oilfield
service and drilling.
Net cash used in investing activities for the quarter ended December 31, 1997
increased by $35,778,000, or 204%, to $53,298,000 compared to $17,520,000 used
for the quarter ended December 31, 1996. This increase is primarily related to
the Company's recent acquisitions.
Net cash provided by financing activities for the quarter ended December 31,
1997 increased by $39,717,000, or 371%, to $50,431,000 compared to $10,714,000
provided during the quarter ended December 31, 1996. The increase is primarily
the result of the proceeds from long-term debt (see Note 3 to consolidated
financial statements) and partially offset by the repayment of such debt.
- 19 -
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1997 VERSUS THE SIX MONTHS ENDED DECEMBER 31, 1996
Net Income
For the six months ended December 31, 1997, the Company reported net income of
$12,283,000 ($.76 per share - basic) as compared to $3,597,000 ($.34 per share -
basic) for the six months ended December 31, 1996, an increase of $8,686,000, or
241%. The increase in net income is primarily attributable to the Company's
acquisitions completed between October 1, 1996 and December 31, 1997, increased
service and drilling rig utilization rates, increased operational efficiencies
and price increases.
Revenues
The Company's total revenues for the six months ended December 31, 1997
increased by $117,534, or 174%, to $185,193,000 compared to $67,659,000 for the
six months ended December 31, 1996. 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 six months ended December 31, 1997 increased
by $108,021,000, or 183%, to $167,040,000 compared to $59,019,000 reported for
the six months ended December 31, 1996. 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 six months ended December 31, 1997 increased by
$6,829,000, or 146%, to $11,512,000 compared to $4,683,000 reported for the six
months ended December 31, 1996. The revenue increase is primarily attributable
to recent drilling rig acquisitions, higher rig utilization and price increases.
Oil and gas revenues for the six months ended December 31, 1997 increased by
$454,000, or 13%, to $4,067,000 compared to $3,613,000 for the six months ended
December 31, 1996. The increase is directly attributable to increased oil and
gas production as a result of the Company's oil and gas acquisitions for the
fiscal year ended June 30, 1997 and was partially offset by lower crude oil and
natural gas prices during the last three months of calendar 1997.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the six months ended December 31,
1997 increased by $103,274,000, or 166%, to $165,515,000 compared to $62,241,000
reported for the six months ended December 31, 1996. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's recent acquisitions.
Oilfield service expenses for the six months ended December 31, 1997 increased
by $73,826,000, or 173%, to $116,592,000 compared to $42,766,000 reported for
the six months ended December 31, 1996. Oilfield service margins (revenues less
direct costs and expenses) for the six months ended December 31, 1997 increased
$34,195,000, or 210%, to $50,448, compared to $16,253,000 for the six months
ended December 31, 1996. Oilfield service margins as a percentage of oilfield
service revenues for the six months ended December 31, 1997 and 1996 was 30% and
28%, 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 well frac tanks, and increased
operating efficiencies.
- 20 -
<PAGE>
Drilling costs and expenses for the six months ended December 31, 1997 increased
by $5,009,000, or 130%, to $8,853,000 compared to $3,844,000 for the six months
ended December 31, 1996. Drilling margins during the six months ended December
31, 1997 increased by $1,820,000, or 217%, to $2,659,000 compared to $839,000
for the six months ended December 31, 1996. Oilfield drilling margin as a
percentage of oilfield drilling revenue for the six months ended December 31,
1997 and 1996 was 23% and 18%, respectively. These increases are attributable to
the Company's recent acquisition of drilling rig companies and increased rig
utilization and operating efficiencies.
Oil and gas production cost for the six months ended December 31, 1997 increased
by $545,000, or 42%, to $1,831,000 compared to $1,286,000 for the six months
ended December 31, 1996. The increased costs were attributable to an increase in
the number of producing oil and gas wells.
General and administrative expenses for the six months ended December 31, 1997
increased by $10,774,000, or 148%, to $18,036,000 compared to $7,262,000 for the
six months ended December 31, 1996. 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 six months
ended December 31, 1997 and 1996 were 9.7% and 10.7%, respectively.
Depreciation, depletion and amortization expense for the six months ended
December 31, 1997 increased by $8,449,000, or 190%, to $12,886,000 compared to
$4,437,000 for the six months ended December 31, 1996. The increase is directly
related to the increase in property and equipment and long-term debt issuance
costs incurred by the Company over the past eighteen months in conjunction with
its acquisitions.
Interest expense for the six months ended December 31, 1997 increased by
$4,671,000, or 177%, to $7,317,000 compared to $2,646,000 for the six months
ended December 31, 1996. The increase was primarily the result of increased
indebtedness as a result of the Company's acquisitions.
Income tax expense for the six months ended December 31, 1997 increased by
$5,582,000, or 308%, to $7,395,000 compared to $1,813,000 for the six months
ended December 31, 1996. 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.
Cash Flows
Net cash provided by operating activities for the six months ended December 31,
1997 increased by $9,494,000, or 493%, to $11,421,000 compared to $1,927,000 for
the six months ended December 31, 1996. 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 six months ended December 31, 1997
increased by $164,087,000, or 779%, to $185,152,000 compared to $21,065,000 used
for the six months ended December 31, 1996. This increase is primarily related
to the Company's recent acquisitions.
Net cash provided by financing activities for the six months ended December 31,
1997 increased by $159,958,000, or 619%, to $185,797,000 compared to $25,839,000
provided during the six months ended December 31, 1996. The increase is
primarily the result of the proceeds from long-term debt (see Note 3 to
consolidated financial statements).
- 21 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash of $53.8 million compared to $41.7
million at June 30, 1997 and $9.3 million at December 31, 1996. At December 31,
1997, the Company had working capital of $99.1 million compared to $60.2 million
at June 30, 1997 and $17.1 million at December 31, 1996.
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. Capital expenditures for
service and drilling rig improvements for the six months ended December 31, 1997
and 1996 were $22.3 million and $6.5 million, respectively. The Company expects
to finance these capital expenditures through internally generated operating
cash flows.
The Company has projected $10.2 million of capital expenditures for oil and gas
exploration for fiscal 1998 as compared to $8.2 million expended for fiscal
1997. For the six months ended December 31, 1997 and 1996, the Company expended
$2.3 million and $1.3, respectively. Financing of these costs is expected to
come from operations and available credit facilities.
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 the Initial Credit Agreement with 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 the 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 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 the Amended Credit
Agreement with PNC 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 and, 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 December 31, 1997, the principal balance of the Amended Credit Agreement, as
amended, was $107 million and the unused credit facility aggregated
approximately $143 million, with approximately $3 million reserved for existing
letters of credit.
- 22 -
<PAGE>
In July 1996, the Company completed a $52,000,000 private offering Debentures,
pursuant to Rule 144A under 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 December 31, 1997, $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 December 31, 1997, $4,600,000 of Debentures remained outstanding.
On September 25, 1997, the Company completed an initial closing of its private
placement of $200 million 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 December 31, 1997, $216,000,000
principal amount of the Notes was outstanding.
Year 2000 Issue
The Company has made an assessment of its Year 2000 issues. The Company has
determined that certain operating systems which the Company currently utilizes
for its financial reporting will be adversely impacted by the year 2000. The
Company is currently in the process of selecting a new operating system which
will not be adversely impacted by the year 2000. Conversion to the new operating
system is expected to begin on July 1, 1998 and be completed by June 30, 1999.
The cost of the new operating system and conversion is not expected to be
material to the Company's operations or financial condition.
- 23 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities:
During the three months ended December 31, 1997, the Company
effected the following sales of unregistered securities:
Effective October 1, 1997, the Company issued 125,000 shares of
Common Stock as part of the consideration paid in the acquisition by
Key Four Corners, Inc., a wholly-owned subsidiary of the Company, of
substantially all of the assets of Big A Well Service Co., Sunco
Trucking Co. and Justis Supply Co., Inc., each a closely held New
Mexico corporation (collectively, the "Sellers"). The issuance of the
Common Stock to the sole shareholder of the Sellers was exempt from
registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2), as a sale of securities
not involving any public offering.
Effective October 7, 1997, the Company issued $16 million in
principal amount of its 5% Convertible Subordinated Notes due 2004
(the "Notes") pursuant to an over-allotment option exercised by
McMahan Securities Co. L.P. and Lehman Brothers Inc., the initial
purchasers in the Company's September 25, 1997 private placement of
the Notes. The Notes are generally convertible at the holders' option
at any time into shares of Common Stock at a conversion price of
$38.50 per share. The issuance of the Notes was exempt from
registration under the Securities Act because the sale of the Notes
was only to qualified institutional buyers in compliance with rule
144A and outside the United States to persons other than U.S. persons
in reliance on Regulation S of the Securities Act.
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.
("Wellcorps"). 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
- 24 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of the Form 10-Q:
Number Description
10(a)
Stock Purchase Agreement by and among Nabors Acquisition Corp IV,
as Seller, Key Rocky Mountain, Inc., as Buyer, and Key Energy Group,
Inc., dated July 31, 1997, (the "Gibson Stock Purchase Agreement")
(incorporated by reference to Exhibit 10(c) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, File No.
1-8038)
10(b)
Amendment One to the Gibson Stock Purchase Agreement, dated as of
October 10, 1997 (incorporated by reference to Exhibit 10(d) of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, File No. 1-8038
10(c)
Asset Purchase Agreement among Key Four Corners, Inc., Key Energy
Group, Inc., Coleman Oil & Gas Co., Big A Well Service Co., Sunco
Trucking Co., Justis Supply Co., Inc. and George E. Coleman dated as
of September 2, 1997 (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated October 1, 1997, File No.
1-8038).
10(d)
Asset Purchase Agreement among WellTech Eastern, Inc. and McCurdy
Well Service, Inc. effective as of October 3, 1997.
10(e)
Asset Purchase Agreement among WellTech Eastern, Inc. and GSI
Trucking Company, Inc. effective as of October 3, 1997.
10(f)
Asset Purchase Agreement among WellTech Eastern, Inc. and Kahlden
Production Services, Inc. effective as of October 3, 1997.
10(g)
Stock Purchase Agreement between WellTech Eastern, Inc. and
Donald Jeter, effective as of November 11, 1997.
10(h)
Stock Purchase Agreement between Key Energy Drilling, Inc. and
Robert C. Jones and Dana Lunette Jones, effective as of November 24,
1997.
10(i)
Asset Purchase Agreement among WellTech Eastern, Inc., Key Energy
Group, Inc. and White Rhino Drilling, Inc. and Jeff Critchfield,
effective as of December 2, 1997.
10(j)
Asset Purchase Agreement among WellTech Eastern, Inc., Key Energy
Group, Inc., S&R Cable, Inc., Jeff Critchfield, Royce D. Thomas,
Ronnie Shaw and Donald Tinker, effective as of December 2, 1997.
10(k)
Asset Purchase Agreement among WellTech Eastern, Inc., Wellcorps,
L.L.C. and Jeff Critchfield, Terra Energy, Ltd. And Brian Fries,
effective as of December 2, 1997.
10(l)
Stock Purchase Agreement between Key Energy Group, Inc., Key
Energy Drilling, Inc. and Ronald M. Sitton and Frank R. Sitton,
effective as of December 12, 1997.
- 25 -
<PAGE>
10(m)
Asset Purchase Agreement between Brooks Well Servicing, Inc. and
Sam F. McKee, Individually and d/b/a Circle M Vacuum Services,
effective as of January 30, 1998.
10(n)
Stock Purchase Agreement between Key Energy Drilling, Inc. and
Jack B. Loveless, Jim Mayfield and J.W. Miller, effective as of
January 30, 1998.
10(o)
Asset Purchase Agreement between Key Four Corners, Inc. and Four
Corners Drilling, R.L. Andes and W.E. Lang, effective as of January
30, 1998.
10(p)
Asset Purchase Agreement among Key Rocky Mountain, Inc., Updike
Brothers, Inc. Employee Stock Ownership Retirement Plan and Trust,
David W. Updike Trust, Dorothy A. Updike Trust, Dorothy R. Updike
Trust, Mary E. Updike, Ralph O. Updike and Daniel Updike effective
February 6, 1998.
10(q)
Asset Purchase Agreement among Brooks Well Servicing, Inc., Hot
Oil Plus, Inc., Thomas N. Novosad, Jr. and Patricia Novosad effective
January 29, 1998.
10(r)
Registration Rights Agreement among Key Energy Group, Inc.,
Lehman Brothers Inc., and McMahan Securities Co. L.P. dated as of
September 25, 1997.
10(s)
Amended and Restated Credit Agreement among Key Energy Group, Inc
and several other financial institutions dated November 6, 1997.
10(t)
First Amendment to the Amended and Restated Credit Agreement
June 6, 1997, as amended and restated through November 6, 1997 dated
December 3, 1997.
27(a) Statement - Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1997:
The Company's Current Report on Form 8-K dated October 2, 1997,
File No. 1-8038. The Report on Form 8-K concerned the Company's
private placement pursuant to Rule 144A of $200 million 5% convertible
subordinated notes.
The Company's Current Report on Form 8-K/A-1 dated October 9,
1997, File No. 1-8038. The Report on Form 8-K/A-1 concerned the
Company's private placement of an additional $16 million of 5%
convertible subordinated notes pursuant to an over-allotment option
exercised by the initial purchasers in the Company's private placement
of $200 million 5% convertible subordinated notes pursuant to Rule
144A.
The Company's Current Report on Form 8-K dated October 14, 1997,
File No. 1-8038. The Report on Form 8-K concerned the appointment of
David J. Brezzano to the Company's Board of Directors replacing Van D.
Greenfield.
- 26 -
<PAGE>
The Company's Current Report on Form 8-K dated October 14, 1997,
File No. 1-8038. The Report on Form 8-K concerned the Company's
acquisition of substantially all of the assets of Big A Well Service
Co., Sunco Trucking Co. and Justice Supply Co.
The Company's Current Report on Form 8-K/A-1 dated November 17,
1997, File No. 1-8038. The Report on Form 8-K/A-1 was filed to include
the financial statements of Ram Oil Well Service, Inc. and Rowland
Trucking Co., Inc., the stock purchases of which were reported on Form
8-K on September 1, 1997.
The Company's Current Report on Form 8-K/A-1 dated December 15,
1997, File No. 1-8038. The Report on Form 8-K/A-1 was filed to include
the financial statements of Big A Well Service Co., Sunco Trucking Co.
and Justice Supply Co., the acquisition of whose assets was reported
on Form 8-K on October 14, 1997.
- 27 -
<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: February 14, 1998 President and Chief Executive Officer
By /s/ Stephen E. McGregor
Dated: February 14, 1998 Chief Financial Officer
- 28 -
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") dated October ___, 1997 between
MCCURDY WELL SERVICE, INC., a Texas corporation ("Seller" or "MCCURDY"), and
WELLTECH EASTERN, INC., a Delaware corporation ("Purchaser" or "WellTech"),
evidences that Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller all of the assets of Seller other than the Excluded Assets
(as hereinafter defined) on the terms and conditions hereinafter specified, that
in connection with such sale and purchase Seller and Purchaser desire to enter
into certain agreements and that, therefore, in consideration of the premises
and of the mutual covenants and obligations specified herein, the parties hereto
agree as follows:
1. Purchase and Sale of Assets.
On the date hereof, in accordance with and subject to the other terms and
conditions hereof, Seller shall sell, assign, transfer and deliver to Purchaser,
and Purchaser shall purchase, acquire and accept from Seller, effective for all
purposes as of the opening of business on the date the following assets
(collectively, the "Assets"):
1.1 Trucks, Pickups, Trailers, and Equipment. All of the trucks, pickups,
trailers, and associated equipment described in Exhibit "A" (the "Vehicles").
1.2 Inventories. All inventories of supplies, parts, materials and other goods
properly classifiable as inventories owned by Seller as of the opening of
business on the date hereof (the "Inventories").
1.3 Other Assets. All contract rights of Seller with suppliers, customers,
dealers or other persons and relating to any of the Assets; all customer sales
and service records and similar assets owned by Seller and relating to the
Assets (provided, however, that upon reasonable notice Purchaser shall provide
Seller access to all such records and information at all reasonable times for a
period of five years after the date hereof); all customer lists, trade secrets,
proprietary or confidential information used in connection with any of the
Assets; all licenses, certificates and permits from governmental authorities
required for or incident to the use or operation of any of the Assets; and all
service and maintenance records for all the Assets (in each case, such as are
owned by Seller as of the opening of business on the date hereof, and being
collectively referred to herein as the "Other Assets").
2. Excluded Assets.
Notwithstanding any other provision hereof to the contrary, the "Excluded
Assets" are (and the Assets specifically do not include) the following:
2.1 Real Property. The real property owned by Seller, together with all
improvements thereon and all rights, titles and interests appurtenant thereto
and described as follows:
LOT 3, BLOCK 3 IN EAST BRAZOS COUNTY INDUSTRIAL PARK AT 1559 CROSSWINDS DRIVE
2.2 Cash. All cash owned by Seller.
2.3 Accounts Receivable. All accounts and notes receivable from account, note
and other debtors owned by Seller.
2.4 Tax Refunds. All federal or state income or other tax refunds or other tax
receipts with respect to Seller or any of the Assets.
2.5 Certain Books and Records. All books of account and accounting records of
Seller, including all books and records of Seller related to federal or state
income tax payments or liabilities of Seller, and all minute books, stockbooks
and other corporate records of Seller.
2.6 Insurance. All insurance policies and agreements with respect to which
Seller is an insured or beneficiary and all rights, refunds or benefits
thereunder or arising in connection therewith.
3. Obligations and Liabilities Not Assumed by Purchaser. Seller expressly agrees
that it shall be responsible for the payment or other satisfaction of all of
Seller's obligations and liabilities, which shall include, but not be limited
to, the following:
(a) Any liability of Seller for any federal, state, local or foreign income or
franchise taxes, state or local property taxes, state, county, municipal or
regional sales or use taxes, or other taxes of any kind or description;
(b) Any obligation or liability (contingent or otherwise) of Seller arising out
of any threatened or pending litigation;
(c) Any sales taxes relating to the acquisition by Seller of any of the Assets;
and
(d) Any other obligations or liabilities of Seller which are not specifically
assumed by Purchaser hereunder.
From and after the date hereof, Seller shall pay, perform and discharge, and
indemnify and hold Purchaser harmless from, the Seller's obligations.
4. Purchase Price.
Upon execution hereof and delivery of ownership and possession of the Assets to
Purchaser, free and clear of all liens and encumbrances and satisfaction of
Seller's other obligations hereunder, Purchaser shall pay to Seller a price (the
"Purchase Price") of $342,000.00 for the Assets.
5. Representations and Warranties by Seller.
In order to induce Purchaser to enter into this Agreement and each transaction
contemplated hereby, Seller represents and warrants to Purchaser as follows:
5.1 Organization. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas.
5.2 Authority. Seller has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Seller of this Agreement. The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated hereby
will not result in a breach of any of the terms and provisions of, constitute a
default under or conflict with (a) the articles of incorporation or bylaws of
Seller, (b) any judgment, decree, order or award of any court, governmental body
or arbitrator, or any law, rule or regulation applicable to Seller.
5.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
5.4 Absence of Changes. From December 31, 1996, to the date of this Agreement,
other than in connection with or pursuant to this Agreement, Seller has:
(a) used all reasonable efforts to preserve its relationship with its customers,
suppliers and others having business relations with it;
(b) not sold, disposed, leased or encumbered any property or other assets,
except in the ordinary course of its business;
(c) not entered into any transaction other than in the ordinary course of its
business; and
(d) not agreed to do any of the foregoing.
5.5 Ownership of Assets; Absence of Liens. Seller has good, marketable and valid
title to the Assets free and clear of all liens, mortgages, security interests,
pledges, preferential purchase rights or other encumbrances or claims of any
kind.
5.6 Customer Relations. During the calendar year ended December 31, 1996 and in
the current calendar year through the date hereof, as the case may be:
(a) None of the customers of Seller has lodged any written complaint regarding
the service or products provided by Seller which has not since been satisfied by
Seller;
(b) There have been no prepayments of any obligations to Seller by any
customers, and Seller has not made any promises, written or oral, to provide
services or products at other than market price to any such customer; and
(c) Seller has not received any security deposits on or related to any of the
Assets.
5.7 Inventories and Purchase Orders. The Inventories have been acquired by
Seller in the ordinary course of business, consistent with past practices.
5.8 Litigation. There are no lawsuits, proceedings, claims or governmental
investigations pending or, to the knowledge of Seller, threatened affecting the
Assets. There is no action, suit, proceeding or investigation pending or, to the
knowledge of Seller, threatened which questions the legality, validity or
propriety of the transactions contemplated by this Agreement.
5.9 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Seller or are necessary for the execution, delivery and performance by Seller of
this Agreement or any of the documents to be executed and delivered by Seller in
connection herewith.
5.10 Compliance with Law. Seller's business as conducted within the past three
years has not violated, and on the date hereof, does not violate, in any
material respect, any federal, state, local or foreign laws, regulations or
orders, the enforcement of which would have a material and adverse effect on the
Assets or Seller's business, and Seller has not received any notice within three
years of the date hereof of any such violation.
5.11 Taxes. Seller has paid all assessments, levies, fines, fees and other such
charges which are due and payable. Seller has paid all federal, state, local or
foreign income taxes or franchise taxes, state or local property taxes, state,
county, municipal or regional sales or use taxes, or other taxes of any kind or
description which are due and payable.
5.12 Other Information. To the knowledge of Seller, the information provided by
Seller to Purchaser in this Agreement or in the exhibits hereto or in any other
writing pursuant hereto does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements and facts contained herein or
therein, in light of the circumstances in which they are made, not false or
misleading. Copies of all documents heretofore delivered by Seller to Purchaser
or made available by Seller to Purchaser pursuant hereto were complete and
accurate records of such documents.
5.13 No Broker or Finder. Neither Seller nor any party acting on its behalf has
agreed to pay any party a commission, finder's fee or similar payment in regard
to this Agreement or any matter related hereto or taken any action on which a
claim for any such payment could be based.
6. Representations and Warranties by Purchaser.
In order to induce Seller to enter into this Agreement and each transaction
contemplated hereby, Purchaser represents and warrants to Seller as follows:
6.1. Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
6.2 Authority. Purchaser has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Purchaser of this Agreement. The execution and delivery of this Agreement by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not result in a breach of any of the terms and provisions of,
constitute a default under or conflict with (a) the certificate of incorporation
or bylaws of Purchaser, (b) any material agreement, indenture or other
instrument to which Purchaser is a party or by which Purchaser is bound, or (c)
any judgment, decree, order or award of any court, governmental body or
arbitrator, or any law, rule or regulation applicable to Purchaser.
6.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
6.4 Litigation. There is no action, suit, proceeding or investigation pending
or, to the knowledge of Purchaser, threatened which questions the legality,
validity or propriety of the transactions contemplated by this Agreement.
6.5 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Purchaser or are necessary for the execution, delivery and performance by
Purchaser of this Agreement or any of the documents to be executed and delivered
by Purchaser in connection herewith.
6.6 No Broker or Finder. Neither Purchaser nor any party acting on its behalf
has agreed to pay any party a commission, finder's fee or similar payment in
regard to this Agreement or any matter related hereto or taken any action on
which a claim for any such payment could be based.
7. Deliveries Upon Execution.
7.1 Purchaser's Obligations Upon Execution. Upon execution hereof, Purchaser
shall deliver or cause to be delivered to Seller the following instruments,
which shall be duly executed and dated on the date hereof:
Executed Lease Agreement dated October ___, 1997, including, but not limited to,
the Office, Yard, Wash Bays and Hi Pressure Washing Equipment (and building
housing this equipment located at 1559 Crosswinds Drive, Bryan, Texas 77808.
7.2 Seller's Obligations Upon Execution. Upon execution hereof, Seller shall
deliver or cause to be delivered to Purchaser the following instruments, all of
which shall be duly executed and dated as of the date hereof, unless otherwise
indicated:
(a) an assignment and bill of sale (the "Assignment") in the form attached
hereto as Exhibit "B" conveying the Assets to Purchaser;
(b) certificates of title and related transfer documents, duly executed for
transfer to Purchaser, as to all certificated vehicles included in the Assets;
and
(c) Executed Lease Agreement dated October ___, 1997, including, but not limited
to, the Office, Yard, Wash Bays and Hi Pressure Washing Equipment (and Building
housing this equipment located at 1559 Crosswinds Drive, Bryan, Texas 77808.
(d) a certificate of the secretary or an assistant secretary of Seller
certifying (i) the names and true signatures of the officers of Seller
authorized to sign this Agreement and the other instruments or certificates to
be delivered pursuant hereto and (ii) the resolutions of the shareholders and
board of directors of Seller approving this Agreement and the transactions
contemplated hereby.
8. Indemnification.
From and after the date hereof, Seller will indemnify and hold harmless
Purchaser against any claim, loss, liability or expense incurred by Purchaser
and arising out of or attributable to any inaccuracy of any representation or
warranty or any breach of any covenant or agreement made by Seller herein or in
any instrument or agreement referred to herein or contemplated hereby. Purchaser
will indemnify and hold harmless Seller against any claim, loss, liability or
expense incurred by Seller and arising out of or attributable to any inaccuracy
of any representation or warranty or any breach of any covenant or agreement
made by Purchaser herein or in any instrument or agreement referred to herein or
contemplated hereby. As used in this Section 8, "expense" shall include, without
limitation, attorneys' fees and costs of any investigation of an alleged breach
which is ultimately determined to constitute a matter for which indemnification
is required.
9. Miscellaneous Agreements.
9.1 Ad Valorem Taxes. Upon execution hereof, Seller shall pay to Purchaser the
amount of $2,000.00 for Seller's share of all ad valorem taxes in respect of
Seller's ownership of the Assets from January 1, 1997 to the opening of business
on the date hereof, and Purchaser shall assume and agree to pay all ad valorem
taxes in respect of the Assets for 1997.
9.2 Cooperation in Litigation. Each party shall fully cooperate with the other
in the defense or prosecution of any litigation or proceeding which may be
instituted hereafter against or by any third party relating to or arising out of
the Assets prior to or after the date hereof. Subject to Section 8 hereof, the
party requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing such cooperation
and of its officers, directors, employees and agents reasonably incurred in
connection with providing such cooperation, but shall not be responsible to
reimburse the party providing such cooperation for such party's time spent in
such cooperation or expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
9.3 Press Releases. Seller hereby agrees to allow Purchaser's issuance of a
press release announcing the completion of this asset acquisition. Other than
that announcement, except as mutually agreed, neither Purchaser, Seller, nor any
of their respective directors, officers, employees, or agents shall issue any
press release or public announcement of this asset acquisition.
9.4 Further Assurance. From time to time at the reasonable request of Purchaser,
without further consideration, Seller will execute and deliver such further
instruments of conveyance and transfer and will take such actions as Purchaser
may reasonably request in order more effectively to convey and transfer to
Purchaser the Assets as contemplated by this Agreement.
9.5 Notice. All notices hereunder shall be in writing and shall be mailed first
class or express mail, postage prepaid, or sent by telegram, facsimile, or other
similar form of rapid transmission confirmed by mailing (by first class or
express mail, postage prepaid) written confirmation at substantially the same
time as such rapid transmission, or personally delivered to any individual
designated below of the receiving party. All such notices shall be mailed, sent
or delivered as follows:
If to Seller: McCurdy Well Service, Inc.
P. O. Box 3951
Bryan, Texas 77803
If to Purchaser: WellTech Eastern, Inc.
6010 Highway 191, Suite 212
Odessa, Texas 79762
Attention: Mr. James J. Carter
Fax Number: (915) 550-0302
With a copy to: Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
Facsimile: (908) 247-5148
Any notice so addressed and mailed shall be deemed to be given three days after
the date so mailed. Any notice so sent by rapid transmission shall be deemed to
be given when receipt of such transmission is acknowledged. Any communication so
delivered in person shall be deemed to be given when receipted for by, or
actually received by, such person. Seller or Purchaser may, by proper written
notice hereunder to the other party, change the address, individual or facsimile
number to which notice shall thereafter be sent to such party.
9.6 Severability. If any provision of this Agreement or of any instrument or
agreement executed in connection herewith or its application to any person or in
any circumstance shall be found invalid or unenforceable to any extent, the
remainder of such provisions in this Agreement (or such other instrument or
agreement) and the application thereof to other persons and in other
circumstances shall not be effected and all provisions hereof and thereof shall
be enforced to the greatest extent permitted by law.
9.7 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
9.8 Assignment. Nothing contained herein, expressed or implied, is intended to
confer upon any person or entity other than the parties hereto and their
permitted successors and assigns any rights or remedies under or by reason of
this Agreement. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.9 Expenses. Each party to this Agreement shall pay and discharge all of the
expenses incurred by it in connection with the negotiation of this Agreement and
the consummation of the transactions contemplated hereby.
9.10 Survival. The representations, warranties, covenants and agreements set
forth herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and shall expire in
accordance with the applicable statute of limitations.
9.11 Sales or Use Taxes. Seller shall pay any sales or use taxes relating to the
acquisition by Purchaser of any of the Assets pursuant to this Agreement.
9.12 Waiver. No waiver of any provision hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, either of similar or different nature, unless expressly so stated in
writing.
9.13 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS TO BE
PERFORMED ENTIRELY WITHIN THAT STATE.
9.14 Exhibits and Headings. Each exhibit referenced herein and attached hereto
is hereby incorporated herein, and each reference to the "Agreement" shall be
deemed to include all exhibits hereto. The headings or captions under sections
of this Agreement are intended for convenience and reference only and shall not
affect in any way the construction or interpretation of this Agreement.
9.15 Complete Agreement and Amendment. This Agreement constitutes the final
understanding of the parties and supersedes all prior oral or written
correspondence and agreements and all contemporaneous oral agreements and
understandings of the parties relating to the subject matter hereof. This
Agreement shall be amended only by a written instrument signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first written above.
McCURDY WELL SERVICE, INC.
By:_________________________________
W. C. McCURDY, President
SELLER
WELLTECH EASTERN , INC.
By:_________________________________
JIMMY CHASTEEN, Vice President
PURCHASER
<PAGE>
EXHIBIT A
LIST OF ASSETS
PETERBILT 94' MODEL 379 EXTENDED HOOD, CAT 43406E 435HP, 15 SPEED, JAKE BRAKE
AIR SLIDE FIFTH WHEEL, TOOL BOXES, 3:90S, PETERBILT 8 BAG AIR SUSPENSION WITH
AIR RIDE CAB, 63" HI-RISE UNIBUILT DOUBLE BUNK SLEEPER WITH SEPARATE AIR
CONDITIONING AND HEATING COMPONENTS, ALL ALUMINUM WHEELS, 11:00 X 24.5 TIRES
MILEAGE 525+- RODS AND MAINS AT 425K MILES.
PETERBILT 94' MODEL 379 EXTENDED HOOD, CAT 43406B 425HP, 15 SPEED, JAKE BRAKE
AIR SLIDE FIFTH WHEEL, TOOL BOXES, 3:70S, PETERBILT 8 BAG AIR SUSPENSION WITH
AIR RIDE CAB, 63" HI-RISE UNIBUILT DOUBLE BUNK SLEEPER WITH SEPARATE AIR
CONDITIONING AND HEATING COMPONENTS, ALL ALUMINUM, WHEELS, 11:00 X 24.5 TIRES
MILEAGE 392K+-.
1982 MACK R686 283 HP MACK 6 SPEED SINGLE STICK WITH AIR SHIFT AUX. DOUBLE
FRAME, WINCH/POLE TRUCK MILEAGE ABOUT 325K TWO WINCHES (64 AND 32) LIVE POLES,
WITH POLE RAISER, MACK 44K REARS, 20K FRONTS, OILFIELD BED WITH FULL WIDTH
FOLLER, INCLUDING RIGGING, CHAINS, ETC.
1988 MACK R686 DOUBLE FRAME 300 HP, MACK 6 SPEED TWO STICK, DOUBLE FRAME, WINCH
TRUCK LOW 500K MILES (RODS AND MAINS BEARINGS AT ABOUT 475K) MACK 44K REARS,
OILFIELD BED WITH FULL WIDTH ROLLING TAILBOARD, INCLUDING RIGGING, CHAINS ETC.
1988 MACK R686 DOUBLE FRAME 300 HP, MACK 6 SPEED TWO STICK, DOUBLE FRAME, WINCH
TRUCK LOW 500K MILES (RODS AND MAINS BEARINGS AT ABOUT 475K) MACK 44K REARS,
OILFIELD BED WITH FULL WIDTH ROLLING TAILBOARD, INCLUDING RIGGING, CHAINS ETC.
CHEVROLET 3500HD, 1994, 1 TON, 6.5 TURBO DIESEL, WITH FLAT BED BODY, HOTSHOT
STYLE TRUCK, TIRE SIZES 255R19 MILEAGE 200+.
FORD SUPERDUTY, 1987, 1 TON FLATBED WITH WINCH AND POLES, OILFIELD STYLE BED
WITH ROLLING TAILBOARD, 7.3 DIESEL WITH 5 SPEED MANUAL TRANS. MILEAGE 100+.
LOWBOY TRAILER FIXED WIDE NECK, 3 AXLE, 38 FOOT CLEAR DECK, 50 TON, 10:00 X 15
SPOKE WHEELS.
LOWBOY TRAILER FIXED NARROW NECK, 3 AXLE 32 FOOT CLEAR DECK, 50 TON 10:00 X 15
SPOKE WHEELS.
LOWBOY TRAILER REMOVABLE NARROW NECK, 2 AXLE, 32 CLEAR DECK, 10:00 X 15 SPOKE
WHEELS.
FLOAT 40' NARROW NECK FOR USE WITH POLE TRUCK WITH POLES IN RAISED POSITION BY
FOLDED OVER TRUCK CAB FOR HIGHWAY TRAVEL, 10:00 X 20" TANDEM AXLES, FLOOR IN
GOOD CONDITION (METAL WITH WOODEN INSERTS, FULL WIDTH TAIL ROLLER, WITH RATCHETS
AND STRAPS.
GOOSENECK TRAILER, 36' TANDEM 12,000# AXLES WITH VACUUM/HYDRAULIC BRAKES ROLLING
TAILBOARD. RACHETS AND STRAPS, TIRE SIZE 235R16.
GOOSENECK TRAILER, 36' TANDEM 10,000# AXLES WITH ELECTRIC BRAKES, TIRE SIZES
235R16.
POWER SWIVEL, BOWEN S2.0 W/4-71 DETROIT FACTORY TRAILER MOUNTED (GOOSENECK) WITH
REMOTE CONTROLS, GOOD CONDITION, NEEDS NO REPAIRS.
PIPE RACKS, FIVE (5) SETS.
(1) STEEL STORAGE BUILDING, 8' X 12 SKIDDED STEEL RUNNERS WITH ENTRY DOOR.
PORTABLE BUILDING, ONE 2 OFFICE 14' X 30' A/C AND HEAT, SET UP FOR TWO OFFICES
WITH ON FRONT ENTRY AND ONE REAR ENTRY.
MUD TANK, WALLS AND SKID ARE IN GOOD CONDITION, HOWEVER THE BOTTOM NEEDS SOME
WELDING.
CATWALK 4'X32' PIPE CONSTRUCTED.
ONAN 6.5 GENERATOR SET.
OFFICE EQUIPMENT
(1) 486/120/1GIG COMPUTER WITH MONITOR AND (2) DOT MATRIX PRINTERS
COMPUTER DESK AND SIDE TABLES FOR PRINTERS
(1) LEGAL FIRE PROOF FILE CABINET 4 DRAWER
DISPATCH DESK, CHAIR, MAT
(1) LETTER FIRE FILE CABINET 4 DRAWER
(1) METAL 2 DOOR GENERAL OFFICE STORAGE CABINET
(5) INSTRUMENT MERIDIAN PHONE SYSTEM
<PAGE>
EXHIBIT B
ASSIGNMENT AND BILL OF SALE
McCURDY WELL SERVICE, INC., a Texas corporation ("Seller"), for and in
consideration of Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, has BARGAINED,
SOLD, TRANSFERRED, ASSIGNED, CONVEYED and DELIVERED, and does by these presents
BARGAIN, SELL, TRANSFER, ASSIGN, CONVEY and DELIVER, unto WELLTECH EASTERN,
INC., a Delaware corporation ("Purchaser"), all of the right, title and interest
of Seller in and to all of the Assets (as defined in that certain Asset Purchase
Agreement (the "Purchase Agreement") dated October _____, 1997, between Seller
and Purchaser), including, but not limited to the assets listed on Exhibit "A"
attached hereto.
TO HAVE AND TO HOLD the Assets, together with all and singular the rights and
appurtenances thereto in anywise belonging, unto Purchaser, its successors and
assigns, forever; and Seller does hereby bind itself, its successors and
assigns, to warrant and forever defend title to the Assets unto Purchaser, its
successors and assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof.
Seller hereby agrees to execute any and all certificates of transfer,
assignments or other documents as may be necessary to evidence the conveyance
described herein and to take such further action as may be reasonably necessary
to convey the Assets to Purchaser.
Seller hereby acknowledges that nothing herein shall be construed as an
assumption by Purchaser of any of the liabilities or obligations of Seller
except as expressly set forth in the Purchase Agreement.
WITNESS THE EXECUTION HEREOF, effective as of the opening of business on October
___, 1997.
McCURDY WELL SERVICE, INC.
By:___________________________
W. C. McCURDY
President
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") dated October ___, 1997 between GSI
TRUCKING COMPANY, INC., a Texas corporation ("Seller" or "GSI"), and WELLTECH
EASTERN, INC., a Delaware corporation ("Purchaser" or "Welltech"), evidences
that Seller desires to sell to Purchaser and Purchaser desires to purchase from
Seller all of the assets of Seller other than the Excluded Assets (as
hereinafter defined) on the terms and conditions hereinafter specified, that in
connection with such sale and purchase Seller and Purchaser desire to enter into
certain agreements and that, therefore, in consideration of the premises and of
the mutual covenants and obligations specified herein, the parties hereto agree
as follows:
1. Purchase and Sale of Assets.
On the date hereof, in accordance with and subject to the other terms and
conditions hereof, Seller shall sell, assign, transfer and deliver to Purchaser,
and Purchaser shall purchase, acquire and accept from Seller, effective for all
purposes as of the opening of business on the date hereof(as hereinafter
defined) the following assets (collectively, the "Assets"):
1.1 Vehicles and Trailers. All of the trucks and trailers associated equipment
described in Exhibits "A" and "D" hereto (the "Vehicles").
1.2 Inventories. All inventories of supplies, parts, materials and other goods
properly classifiable as inventories owned by Seller as of the opening of
business on the date hereof (the "Inventories").
1.3 Name. Any and all rights to the use of the name "GSI Trucking Company, Inc."
and all similar names in all jurisdictions and locations (the "Name").
1.4 Other Assets. All contract rights of Seller with suppliers, customers,
dealers or other persons and relating to any of the Assets; all customer sales
and service records and similar assets owned by Seller and relating to the
Assets (provided, however, that upon reasonable notice Purchaser shall provide
Seller access to all such records and information at all reasonable times for a
period of five years after the date hereof); all customer lists, trade secrets,
proprietary or confidential information used in connection with any of the
Assets; all licenses, certificates and permits from governmental authorities
required for or incident to the use or operation of any of the Assets; and all
service and maintenance records for all the Assets (in each case, such as are
owned by Seller as of the opening of business on the date hereof, and being
collectively referred to herein as the "Other Assets").
2. Excluded Assets.
Notwithstanding any other provision hereof to the contrary, the "Excluded
Assets" are (and the Assets specifically do not include) the following:
2.1 Real Property. All real property owned by Seller, together with all
improvements thereon and all rights, titles and interests appurtenant thereto.
2.2 Cash. All cash owned by Seller.
2.3 Accounts Receivable. All accounts and notes receivable from account, note
and other debtors owned by Seller.
2.4 Tax Refunds. All federal or state income or other tax refunds or other tax
receipts with respect to Seller or any of the Assets.
2.5 Certain Books and Records. All books of account and accounting records of
Seller, including all books and records of Seller related to federal or state
income tax payments or liabilities of Seller, and all minute books, stockbooks
and other corporate records of Seller.
2.6 Insurance. All insurance policies and agreements with respect to which
Seller is an insured or beneficiary and all rights, refunds or benefits
thereunder or arising in connection therewith.
3. Assumption of Obligations and Liabilities.
3.1 Obligations and Liabilities Assumed by Purchaser. Upon the execution hereof,
Purchaser shall assume and agree to pay, perform and discharge those and only
those obligations and liabilities of Seller described below (the "Assumed
Obligations"):
Obligations for new equipment to expand the service capability of the business
which Seller had initiated prior to the date hereof and which are described on
Exhibit "D" attached hereto.
From and after the date hereof, Purchaser shall pay, perform, discharge, and
indemnify and hold Seller harmless from, the Assumed Obligations.
3.2 Obligations and Liabilities Not Assumed by Purchaser. Seller expressly
agrees that with the exception of the Assumed Obligations, it shall be
responsible for the payment or other satisfaction of all of Seller's obligations
and liabilities (the "Unassumed Obligations"), which shall include, but not be
limited to, the following:
(a) Any liability of Seller for any federal, state, local or foreign income or
franchise taxes, state or local property taxes, state, county, municipal or
regional sales or use taxes, or other taxes of any kind or description;
<PAGE>
(b) Any obligation or liability (contingent or otherwise) of Seller arising out
of any threatened or pending litigation;
(c) Any sales taxes relating to the acquisition by Seller of any of the Assets;
and
(d) Any other obligations or liabilities of Seller which are not specifically
assumed by Purchaser hereunder.
From and after the date hereof, Seller shall pay, perform, discharge, and
indemnify and hold Purchaser harmless from, the Unassumed Obligations.
4. Purchase Price.
4.1 Amount. Subject to Section 4.2 hereof, upon execution hereof and delivery of
ownership and possession of the Assets to Purchaser, free and clear of all liens
and encumbrances and satisfaction of Seller's other obligations hereunder,
Purchaser shall pay to Seller a price (the "Purchase Price") of $617,557.45 for
the Assets, which includes $5,949.45 paid by Seller for the Additional Equipment
Delivered or on Order described in Exhibit "D" hereto and the consideration
payable for the covenants not to compete which are required to be delivered to
Purchaser under Section 7 hereto.
4.2 Partial Withholding of Purchase Price. Purchaser will withhold $20,000.00 of
the Purchase Price from Seller on the date hereof until Unit No. T104,
contemplated to be part of the original asset purchase, is repaired to
Purchaser's satisfaction or replaced with a trailer of comparable value to Unit
No. T104 before it was damaged at which time, the $20,000.00 will be paid in
full to Seller. If such trailer is not repaired or replaced by Seller within
thirty (30) days of the date hereof, Purchaser shall take possession of the
trailer in its damaged condition and will have no further obligation to pay
Seller the $20,000.
4.3 Allocation. Seller and Purchaser agree that the Purchase Price shall be
allocated by Seller and Purchaser for all purposes among the Assets and the
covenants not to compete provided for in Section 8 in the manner set forth on
Exhibit "B", the parties acknowledging that each of the Assets and such
covenants have been bargained for separately.
5. Representations and Warranties by Seller.
In order to induce Purchaser to enter into this Agreement and each transaction
contemplated hereby, Seller represents and warrants to Purchaser as follows:
5.1 Organization. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas.
5.2 Authority. Seller has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Seller of this Agreement. The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated hereby
will not result in a breach of any of the terms and provisions of, constitute a
default under or conflict with (a) the articles of incorporation or bylaws of
Seller, (b) any judgment, decree, order or award of any court, governmental body
or arbitrator, or any law, rule or regulation applicable to Seller.
5.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
5.4 Absence of Changes. From December 31, 1996, to the date of this Agreement,
other than in connection with or pursuant to this Agreement, Seller has:
(a) used all reasonable efforts to preserve its relationship with its customers,
suppliers and others having business relations with it;
(b) not sold, disposed, leased or encumbered any property or other assets,
except in the ordinary course of its business;
(c) not entered into any transaction other than in the ordinary course of its
business; and
(d) not agreed to do any of the foregoing.
5.5 Ownership of Assets; Absence of Liens. Seller has good, marketable and valid
title to the Assets free and clear of all liens, mortgages, security interests,
pledges, preferential purchase rights or other encumbrances or claims of any
kind.
5.6 Customer Relations. During the calendar year ended December 31, 1996, and in
the current calendar year through the date hereof, as the case may be:
(a) None of the customers of Seller has lodged any written complaint regarding
the service or products provided by Seller which has not since been satisfied by
Seller;
(b) There have been no prepayments of any obligations to Seller by any
customers, and Seller has not made any promises, written or oral, to provide
services or products at other than market price to any such customer; and
(c) Seller has not received any security deposits on or related to any of the
Assets.
5.7 Inventories and Purchase Orders. The Inventories have been acquired by
Seller in the ordinary course of business, consistent with past practices.
5.8 Litigation. There are no lawsuits, proceedings, claims or governmental
investigations pending or, to the knowledge of Seller, threatened affecting the
Assets. There is no action, suit, proceeding or investigation pending or, to the
knowledge of Seller, threatened which questions the legality, validity or
propriety of the transactions contemplated by this Agreement.
5.9 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Seller or are necessary for the execution, delivery and performance by Seller of
this Agreement or any of the documents to be executed and delivered by Seller in
connection herewith.
5.10 Compliance with Law. Seller's business as conducted within the past three
years has not violated, and on the date hereof, does not violate, in any
material respect, any federal, state, local or foreign laws, regulations or
orders, the enforcement of which would have a material and adverse effect on the
Assets or Seller's business, and Seller has not received any notice within three
years of the date hereof of any such violation.
5.11 Taxes. Seller has paid all assessments, levies, fines, fees and other such
charges which are due and payable. Seller has paid all federal, state, local or
foreign income taxes or franchise taxes, state or local property taxes, state,
county, municipal or regional sales or use taxes, or other taxes of any kind or
description which are due and payable, except any sales or use taxes relating to
the acquisition by Purchaser of any of the Assets pursuant to this Agreement.
5.12 Other Information. To the knowledge of Seller, the information provided by
Seller to Purchaser in this Agreement or in the exhibits hereto or in any other
writing pursuant hereto does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements and facts contained herein or
therein, in light of the circumstances in which they are made, not false or
misleading. Copies of all documents heretofore delivered by Seller to Purchaser
or made available by Seller to Purchaser pursuant hereto were complete and
accurate records of such documents.
5.13 Broker or Finder. Seller or a party acting on its behalf has agreed to pay
a party a commission, finder's fee or similar payment in regard to this
Agreement. Seller agrees that it will be solely responsible for any monies due
any such broker or finder. Seller further indemnifies and holds harmless
Purchaser or any party acting on Purchaser's behalf for any such monies due any
broker or finder or claims brought by any broker or finder against Seller or
Purchaser as a result of this Agreement.
6. Representations and Warranties by Purchaser.
In order to induce Seller to enter into this Agreement and each transaction
contemplated hereby, Purchaser represents and warrants to Seller as follows:
6.1. Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
6.2 Authority. Purchaser has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Purchaser of this Agreement. The execution and delivery of this Agreement by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not result in a breach of any of the terms and provisions of,
constitute a default under or conflict with (a) the certificate of incorporation
or bylaws of Purchaser, (b) any material agreement, indenture or other
instrument to which Purchaser is a party or by which Purchaser is bound, or (c)
any judgment, decree, order or award of any court, governmental body or
arbitrator, or any law, rule or regulation applicable to Purchaser.
6.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
6.4 Litigation. There is no action, suit, proceeding or investigation pending
or, to the knowledge of Purchaser, threatened which questions the legality,
validity or propriety of the transactions contemplated by this Agreement.
6.5 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Purchaser or are necessary for the execution, delivery and performance by
Purchaser of this Agreement or any of the documents to be executed and delivered
by Purchaser in connection herewith.
6.6 No Broker or Finder. Neither Purchaser nor any party acting on its behalf
has agreed to pay any party a commission, finder's fee or similar payment in
regard to this Agreement or any matter related hereto or taken any action on
which a claim for any such payment could be based.
7. Deliveries Upon Execution.
Upon execution hereof, Seller shall deliver or cause to be delivered to
Purchaser the following instruments, all of which shall be duly executed and
dated as of the date hereof, unless otherwise indicated:
(a) an assignment and bill of sale (the "Assignment") in the form attached
hereto as Exhibit "C" conveying the Assets to Purchaser;
(b) certificates of title and related transfer documents, duly executed for
transfer to Purchaser, as to all certificated vehicles included in the Assets;
and
(c) Non-Compete Agreement executed by Ronnie Gross;
(d) Non-Compete Agreement executed by Kimberly Gross;
(e) Assignment of Corporate Name executed by Ronnie Gross; and
(f) a certificate of the secretary or an assistant secretary of Seller
certifying (i) the names and true signatures of the officers of Seller
authorized to sign this Agreement and the other instruments or certificates to
be delivered pursuant hereto and (ii) the resolutions of the shareholders or
board of directors of Seller approving this Agreement and the transactions
contemplated hereby.
8. Noncompetition
Seller agrees that for a period of five (5) years from the date hereof, Seller
will not, directly or indirectly, acting alone or as a member of a partnership
or as an officer, director, employee, consultant, representative, holder of, or
investor in as much as 3% of any security of any class of any corporation or
other business entity (i) engage in competition with GSI, Purchaser, or any
affiliate of Purchaser by providing or marketing water hauling services, mud
hauling services, vacuum truck services, water disposal services or
transportation of produced water as of the date hereof in the following counties
of the State of Texas- Austin, Bastrop, Bell, Brazos, Burleson, Colorado, Falls,
Fayette, Grimes, Harris, Lee, Leon, Limestone, Madison, McLennan, Milam,
Montgomery, Robertson, Travis, Walker, Waller, Washington, and Williamson; (ii)
request any present customers or suppliers of GSI to curtail or cancel their
business with GSI, Purchaser or any affiliate of Purchaser; (iii) disclose to
any person, firm or corporation any trade, technical or technological secrets of
GSI, Purchaser or any affiliate of Purchaser or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of GSI, Purchaser or any affiliate of Purchaser to terminate his or
her employment. Seller agrees that if either the length of time or geographical
area set forth in this Section 8 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 8
are in addition to any other obligations that the Seller may have under the laws
of the State of Texas requiring an employee of a business or a shareholder who
sells his or her stock in a corporation (including a disposition in a merger) to
limit his or her activities so that the goodwill and business relations of his
or her employer and of the corporation whose stock he or she has sold (and any
successor corporation) will not be materially impaired. Seller further agrees
and acknowledges that GSI, Purchaser, and its affiliates do not have any
adequate remedy at law for the breach or threatened breach by Seller of this
covenant, and agree that GSI, Purchaser, or any affiliate of Purchaser may, in
addition to the other remedies which may be available to it hereunder, file a
suit in equity to enjoin Seller from such breach or threatened breach. If any
provisions of this Section 8 are held to be invalid or against public policy,
the remaining provisions shall not be affected thereby. Seller acknowledges that
the covenants set forth in this Section 8 are being executed and delivered by
Seller in consideration of the covenants of Purchaser contained in this
Agreement, and for other good and valuable consideration, receipt of which is
hereby acknowledged.
9. Indemnification.
From and after the date hereof, Seller will indemnify and hold harmless
Purchaser against any claim, loss, liability or expense incurred by Purchaser
and arising out of or attributable to any inaccuracy of any representation or
warranty or any breach of any covenant or agreement made by Seller herein or in
any instrument or agreement referred to herein or contemplated hereby. Purchaser
will indemnify and hold harmless Seller against any claim, loss, liability or
expense incurred by Seller and arising out of or attributable to any inaccuracy
of any representation or warranty or any breach of any covenant or agreement
made by Purchaser herein or in any instrument or agreement referred to herein or
contemplated hereby. As used in this Section 9, "expense" shall include, without
limitation, attorneys' fees and costs of any investigation of an alleged breach
which is ultimately determined to constitute a matter for which indemnification
is required.
10. Miscellaneous Agreements.
10.1 Ad Valorem Taxes. Upon execution hereof, Seller shall pay to Purchaser the
amount of $1,000.00 for Seller's share of all ad valorem taxes in respect of
Seller's ownership of the Assets from January 1, 1997 to the opening of business
on the date hereof, and Purchaser shall assume and agree to pay all ad valorem
taxes in respect of the Assets for 1997.
10.2 Cooperation in Litigation. Each party shall fully cooperate with the other
in the defense or prosecution of any litigation or proceeding which may be
instituted hereafter against or by any third party relating to or arising out of
the Assets prior to or after the date hereof. Subject to Section 9 hereof, the
party requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing such cooperation
and of its officers, directors, employees and agents reasonably incurred in
connection with providing such cooperation, but shall not be responsible to
reimburse the party providing such cooperation for such party's time spent in
such cooperation or expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
10.3 Press Releases. Seller hereby agrees to allow Purchaser's issuance of a
press release announcing the completion of this asset acquisition. Other than
that announcement, except as mutually agreed, neither Purchaser, Seller, nor any
of their respective directors, officers, employees, or agents shall issue any
press release or public announcement of this asset acquisition.
10.4 Further Assurance. From time to time at the reasonable request of
Purchaser, without further consideration, Seller will execute and deliver such
further instruments of conveyance and transfer and will take such actions as
Purchaser may reasonably request in order more effectively to convey and
transfer to Purchaser the Assets as contemplated by this Agreement.
10.5 Notice. All notices hereunder shall be in writing and shall be mailed first
class or express mail, postage prepaid, or sent by telegram, facsimile, or other
similar form of rapid transmission confirmed by mailing (by first class or
express mail, postage prepaid) written confirmation at substantially the same
time as such rapid transmission, or personally delivered to any individual
designated below of the receiving party. All such notices shall be mailed, sent
or delivered as follows:
If to Seller: GSI Trucking Company, Inc.
Attn: Mr. Ronnie Gross
Gooseneck Drive
Bryan, Texas 77808
If to Purchaser: WellTech Eastern, Inc.
6010 Highway 191, Suite 212
Odessa, Texas 79762
Attention: Mr. James J. Carter
Fax Number: (915) 550-0302
With a copy to: Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
Facsimile: (908) 247-5148
Any notice so addressed and mailed shall be deemed to be given three days after
the date so mailed. Any notice so sent by rapid transmission shall be deemed to
be given when receipt of such transmission is acknowledged. Any communication so
delivered in person shall be deemed to be given when receipted for by, or
actually received by, such person. Seller or Purchaser may, by proper written
notice hereunder to the other party, change the address, individual or facsimile
number to which notice shall thereafter be sent to such party.
10.6 Severability. If any provision of this Agreement or of any instrument or
agreement executed in connection herewith or its application to any person or in
any circumstance shall be found invalid or unenforceable to any extent, the
remainder of such provisions in this Agreement (or such other instrument or
agreement) and the application thereof to other persons and in other
circumstances shall not be effected and all provisions hereof and thereof shall
be enforced to the greatest extent permitted by law.
10.7 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
10.8 Assignment. Nothing contained herein, expressed or implied, is intended to
confer upon any person or entity other than the parties hereto and their
permitted successors and assigns any rights or remedies under or by reason of
this Agreement. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
10.9 Expenses. Each party to this Agreement shall pay and discharge all of the
expenses incurred by it in connection with the negotiation of this Agreement and
the consummation of the transactions contemplated hereby.
10.10 Survival. The representations, warranties, covenants and agreements set
forth herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and shall expire in
accordance with the applicable statute of limitations.
10.11 Sales or Use Taxes. Seller shall pay any sales or use taxes relating to
the acquisition
by Purchaser of any of the Assets pursuant to this Agreement.
10.12 Waiver. No waiver of any provision hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, either of similar or different nature, unless expressly so stated in
writing.
10.13 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS TO BE
PERFORMED ENTIRELY WITHIN THAT STATE.
10.14 Exhibits and Headings. Each exhibit referenced herein and attached hereto
is hereby incorporated herein, and each reference to the "Agreement" shall be
deemed to include all exhibits hereto. The headings or captions under sections
of this Agreement are intended for convenience and reference only and shall not
affect in any way the construction or interpretation of this Agreement.
10.15 Complete Agreement and Amendment. This Agreement constitutes the final
understanding of the parties and supersedes all prior oral or written
correspondence and agreements and all contemporaneous oral agreements and
understandings of the parties relating to the subject matter hereof. This
Agreement shall be amended only by a written instrument signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first written above.
GSI TRUCKING COMPANY, INC.
By:_________________________________
RONNIE GROSS, President
SELLER
WELLTECH SERVICES, INC.
By:_________________________________
JIMMY CHASTEEN,Vice President
PURCHASER
<PAGE>
EXHIBIT A
LIST OF ASSETS
Unit No. 102 1989 Mack Tractor Tandem Axle, w/GD pump
Unit No. T102 1990 Pioneer Vacuum Trailer
Unit No. 103 1989 Mack Tractor Tandem Axle, w/GD pump
Unit No. T103 1991 Eagle Vacuum Trailer
Unit No. 104 1991 Mack RD688S VIN# 1M2P267Y2MM010708
Unit No. T104 1984 Fruehauf Vacuum Trailer
Unit No. 106 1991 Mack Tractor Tandem Axle, w/GD pump
Unit No. T106 1980 Shop made Vacuum Trailer
Unit No. 107 1990 Peterbilt Tractor, Tandem Axle, w/GD pump
Unit No. T107 1997 Pioneer Vacuum Trailer
Unit No. 108 1990 Peterbilt Tractor, Tandem Axle, w/GD pump
Unit No. T108 1983 Shop made Vacuum Trailer
Unit No. 109 1998 Mack Tractor, Tandem Axle, w/GD pump
Unit No. T109 1989 Shop made Vacuum Trailer
Unit No. T110 1990 Dorsey 40' x 96" Flatbed Trailer
Unit No. xxxx 1997 Ford F150 pickup
Unit No. xxxx 1996 GMC Suburban, SLE model
Miscellaneous Shop Equipment
Shop Tools
Spare Tire Inventory
Air, Water, and Brake Hoses
Spare Truck and Trailer parts
Shop and Truck Supplies
Stock Oil, Air, and other Filters
Stock of Motor Oils, and other Lubricants
Phone System
Computers
Office Supplies
<PAGE>
EXHIBIT B
ASSET PURCHASE ALLOCATION
Trucks, Trailer and Equipment $ 436,608.00
Additional Equipment Delivered or on Order $ 5,949.45
Non-Compete Covenants
GSI Trucking Company, Inc. $ 33,334
Ronnie Gross $ 33,333
Kimberly Gross $ 33,333 $ 100,000.00
Goodwill $ 75,000.00
$ 617,557.45
<PAGE>
EXHIBIT C
ASSIGNMENT AND BILL OF SALE
GSI TRUCKING COMPANY, INC., a Texas corporation ("Seller"), for and in
consideration of Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, has BARGAINED,
SOLD, TRANSFERRED, ASSIGNED, CONVEYED and DELIVERED, and does by these presents
BARGAIN, SELL, TRANSFER, ASSIGN, CONVEY and DELIVER, unto WELLTECH EASTERN,
INC., a Delaware corporation ("Purchaser"), all of the right, title and interest
of Seller in and to all of the Assets (as defined in that certain Asset Purchase
Agreement (the "Purchase Agreement") dated October _____, 1997, between Seller
and Purchaser), including, but not limited to the assets listed on Exhibit "A"
attached hereto.
TO HAVE AND TO HOLD the Assets, together with all and singular the rights and
appurtenances thereto in anywise belonging, unto Purchaser, its successors and
assigns, forever; and Seller does hereby bind itself, its successors and
assigns, to warrant and forever defend title to the Assets unto Purchaser, its
successors and assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof.
Seller hereby agrees to execute any and all certificates of transfer,
assignments or other documents as may be necessary to evidence the conveyance
described herein and to take such further action as may be reasonably necessary
to convey the Assets to Purchaser.
Seller hereby acknowledges that nothing herein shall be construed as an
assumption by Purchaser of any of the liabilities or obligations of Seller
except as expressly set forth in the Purchase Agreement.
WITNESS THE EXECUTION HEREOF, effective as of the opening of business on October
___, 1997.
GSI TRUCKING COMPANY, INC.
By:___________________________
RONNIE GROSS
President
<PAGE>
EXHIBIT D
ADDITIONAL EQUIPMENT DELIVERED OR ON ORDER
Paid By Key to
GSI Assume Total
Vacuum Pump- Tractor #8 $ 5,949.45 -0- $ 5,949.45
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") dated October ___, 1997 between
KAHLDEN PRODUCTION SERVICES, INC., a Texas corporation ("Seller" or "Kahlden
Production"), and WELLTECH EASTERN, INC., a Delaware corporation ("Purchaser" or
"Brooks"), evidences that Seller desires to sell to Purchaser and Purchaser
desires to purchase from Seller all of the assets of Seller other than the
Excluded Assets (as hereinafter defined) on the terms and conditions hereinafter
specified, that in connection with such sale and purchase Seller and Purchaser
desire to enter into certain agreements and that, therefore, in consideration of
the premises and of the mutual covenants and obligations specified herein, the
parties hereto agree as follows:
1. Purchase and Sale of Assets.
On the date hereof, in accordance with and subject to the other terms and
conditions hereof, Seller shall sell, assign, transfer and deliver to Purchaser,
and Purchaser shall purchase, acquire and accept from Seller, effective for all
purposes as of the opening of business on the date hereof the following assets
(collectively, the " Assets"):
1.1 Vehicles and Trailers. All of the trucks and trailers associated equipment
described in Exhibits "A" and "D" hereto (the "Vehicles").
1.2 Inventories. All inventories of supplies, parts, materials and other goods
properly classifiable as inventories owned by Seller as of the opening of
business on the date hereof (the "Inventories").
1.3 Name. Any and all rights to the use of the name "Kahlden Production
Services, Inc." and all similar names in all jurisdictions and locations (the
"Name").
1.4 Other Assets. All contract rights of Seller with suppliers, customers,
dealers or other persons and relating to any of the Assets; all customer sales
and service records and similar assets owned by Seller and relating to the
Assets (provided, however, that upon reasonable notice Purchaser shall provide
Seller access to all such records and information at all reasonable times for a
period of five years after the date hereof); all customer lists, trade secrets,
proprietary or confidential information used in connection with any of the
Assets; all licenses, certificates and permits from governmental authorities
required for or incident to the use or operation of any of the Assets; and all
service and maintenance records for all Assets (in each case, such as are owned
by Seller as of the opening of business on the date hereof, and being
collectively referred to herein as the "Other Assets").
2. Excluded Assets.
Notwithstanding any other provision hereof to the contrary, the "Excluded
Assets" are (and the Assets specifically do not include) the following:
2.1 Real Property. All real property owned by Seller, together with all
improvements thereon and all rights, titles and interests appurtenant thereto.
2.2 Cash. All cash owned by Seller.
2.3 Accounts Receivable. All accounts and notes receivable from account, note
and other debtors owned by Seller.
2.4 Tax Refunds. All federal or state income or other tax refunds or other tax
receipts with respect to Seller or any of the Assets.
2.5 Certain Books and Records. All books of account and accounting records of
Seller, including all books and records of Seller related to federal or state
income tax payments or liabilities of Seller, and all minute books, stockbooks
and other corporate records of Seller.
2.6 Insurance. All insurance policies and agreements with respect to which
Seller is an insured or beneficiary and all rights, refunds or benefits
thereunder or arising in connection therewith.
3. Assumption of Obligations and Liabilities.
3.1 Obligations and Liabilities Assumed by Purchaser. Upon the execution hereof,
Purchaser shall assume and agree to pay, perform and discharge those and only
those obligations and liabilities of Seller described below (the "Assumed
Obligations"):
Obligations for new equipment to expand the service capability of the business
which Seller had initiated prior to the date hereof and which are described on
Exhibit "D" attached hereto.
From and after the date hereof, Purchaser shall pay, perform, discharge , and
indemnify and hold Seller harmless from the Assumed Obligations.
3.2 Obligations and Liabilities Not Assumed by Purchaser. Seller expressly
agrees that with the exception of the Assumed Obligations, it shall be
responsible for the payment or other satisfaction of all of Seller's obligations
and liabilities (the "Unassumed Obligations"), which shall include, but not be
limited to, the following :
(a) Any liability of Seller for any federal, state, local or foreign income or
franchise taxes, state or local property taxes, state, county, municipal or
regional sales or use taxes, or other taxes of any kind or description;
(b) Any obligation or liability (contingent or otherwise) of Seller arising out
of any threatened or pending litigation;
(c) Any sales taxes relating to the acquisition by Seller of any of the Assets;
and
(d) Any other obligations or liabilities of Seller which are not specifically
assumed by Purchaser hereunder.
From and after the date hereof, Seller shall pay, perform and discharge, and
indemnify and hold Purchaser harmless from, the Unassumed Obligations.
4. Purchase Price.
4.1 Amount. Upon execution hereof and delivery of ownership and possession of
the Assets to Purchaser, free and clear of all liens and encumbrances and
satisfaction of Seller's other obligations hereunder, Purchaser shall pay to
Seller a price (the "Purchase Price") of $637,779.88 for the Assets, which
includes $37,779.88 paid by Seller for the Additional Equipment Delivered or on
Order described in Exhibit "D" hereto and the consideration payable for
covenants not to compete which are required to be delivered to Purchaser under
Section 7 hereto.
4.2 Allocation. Seller and Purchaser agree that the Purchase Price shall be
allocated by Seller and Purchaser for all purposes among the Assets and the
covenant not to compete provided for in Section 8 in the manner set forth on
Exhibit "B", the parties acknowledging that each of the Assets and such covenant
has been bargained for separately.
5. Representations and Warranties by Seller.
In order to induce Purchaser to enter into this Agreement and each transaction
contemplated hereby, Seller represents and warrants to Purchaser as follows:
5.1 Organization. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas.
5.2 Authority. Seller has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Seller of this Agreement. The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated hereby
will not result in a breach of any of the terms and provisions of, constitute a
default under or conflict with (a) the articles of incorporation or bylaws of
Seller, (b) any judgment, decree, order or award of any court, governmental body
or arbitrator, or any law, rule or regulation applicable to Seller.
5.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
5.4 Absence of Changes. From December 31, 1996, to the date of this Agreement,
other than in connection with or pursuant to this Agreement, Seller has:
(a) used all reasonable efforts to preserve its relationship with its customers,
suppliers and others having business relations with it;
(b) not sold, disposed, leased or encumbered any property or other assets,
except in the ordinary course of its business;
(c) not entered into any transaction other than in the ordinary course of its
business; and
(d) not agreed to do any of the foregoing.
5.5 Ownership of Assets; Absence of Liens. Seller has good, marketable and valid
title to the Assets free and clear of all liens, mortgages, security interests,
pledges, preferential purchase rights or other encumbrances or claims of any
kind.
5.6 Customer Relations. During the calendar year ended December 31, 1996, and in
the current calendar year through the date hereof, as the case may be:
(a) None of the customers of Seller has lodged any written complaint regarding
the service or products provided by Seller which has not since been satisfied by
Seller;
(b) There have been no prepayments of any obligations to Seller by any
customers, and Seller has not made any promises, written or oral, to provide
services or products at other than market price to any such customer; and
(c) Seller has not received any security deposits on or related to any of the
Assets.
5.7 Inventories and Purchase Orders. The Inventories have been acquired by
Seller in the ordinary course of business, consistent with past practices.
5.8 Litigation. There are no lawsuits, proceedings, claims or governmental
investigations pending or, to the knowledge of Seller, threatened affecting the
Assets. There is no action, suit, proceeding or investigation pending or, to the
knowledge of Seller, threatened which questions the legality, validity or
propriety of the transactions contemplated by this Agreement.
5.9 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Seller or are necessary for the execution, delivery and performance by Seller of
this Agreement or any of the documents to be executed and delivered by Seller in
connection herewith.
5.10 Compliance with Law. Seller's business as conducted within the past three
years has not violated, and on the date hereof does not violate, in any material
respect any federal, state, local or foreign laws, regulations or orders, the
enforcement of which would have a material and adverse effect on the Assets or
Seller's business, and Seller has not received any notice within three years of
the date hereof of any such violation.
5.11 Taxes. Seller has paid all assessments, levies, fines, fees and other such
charges which are due and payable. Seller has paid all federal, state, local or
foreign income taxes or franchise taxes, state or local property taxes, state,
county, municipal or regional sales or use taxes, or other taxes of any kind or
description which are due and payable, except any sales or use taxes relating to
the acquisition by Purchaser of any of the Assets pursuant to this Agreement.
5.12 Other Information. To the knowledge of Seller, the information provided by
Seller to Purchaser in this Agreement or in the exhibits hereto or in any other
writing pursuant hereto does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated herein or
therein or necessary to make the statements and facts contained herein or
therein, in light of the circumstances in which they are made, not false or
misleading. Copies of all documents heretofore delivered by Seller to Purchaser
or made available by Seller to Purchaser pursuant hereto were complete and
accurate records of such documents.
5.13 No Broker or Finder. Neither Seller nor any party acting on its behalf has
agreed to pay any party a commission, finder's fee or similar payment in regard
to this Agreement or any matter related hereto or taken any action on which a
claim for any such payment could be based.
6. Representations and Warranties by Purchaser.
In order to induce Seller to enter into this Agreement and each transaction
contemplated hereby, Purchaser represents and warrants to Seller as follows:
6.1. Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
6.2 Authority. Purchaser has full corporate power necessary, and has taken all
corporate action necessary, to authorize the execution, delivery and performance
by Purchaser of this Agreement. The execution and delivery of this Agreement by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not result in a breach of any of the terms and provisions of,
constitute a default under or conflict with (a) the certificate of incorporation
or bylaws of Purchaser, (b) any material agreement, indenture or other
instrument to which Purchaser is a party or by which Purchaser is bound, or (c)
any judgment, decree, order or award of any court, governmental body or
arbitrator, or any law, rule or regulation applicable to Purchaser.
6.3 Validity and Enforceability. This Agreement is a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
6.4 Litigation. There is no action, suit, proceeding or investigation pending
or, to the knowledge of Purchaser, threatened which questions the legality,
validity or propriety of the transactions contemplated by this Agreement.
6.5 Consents. No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation must be obtained or satisfied by
Purchaser or are necessary for the execution, delivery and performance by
Purchaser of this Agreement or any of the documents to be executed and delivered
by Purchaser in connection herewith.
6.6 No Broker or Finder. Neither Purchaser nor any party acting on its behalf
has agreed to pay any party a commission, finder's fee or similar payment in
regard to this Agreement or any matter related hereto or taken any action on
which a claim for any such payment could be based.
7. Deliveries Upon Execution. Upon execution hereof, Seller shall deliver or
cause to be delivered to Purchaser the following instruments, all of which shall
be duly executed and dated as of the date hereof, unless otherwise indicated:
(a) an assignment and bill of sale (the "Assignment") in the form attached
hereto as Exhibit "C" conveying the Assets to Purchaser;
(b) certificates of title and related transfer documents, duly executed for
transfer to Purchaser, as to all certificated vehicles included in the Assets;
(c) Non-Compete Agreement executed by Thomas Kahlden;
(d) Non-Compete Agreement executed by Mickey Tucker;
(e) Assignment of Corporate Name executed by Thomas Kahlden; and
(f) a certificate of the secretary or an assistant secretary of Seller
certifying (i) the names and true signatures of the officers of Seller
authorized to sign this Agreement and the other instruments or certificates to
be delivered pursuant hereto and (ii) the resolutions of the shareholders and
board of directors of Seller approving this Agreement and the transactions
contemplated hereby.
8. Noncompetition
Seller agrees that for a period of five (5) years from the date hereof, Seller
will not, directly or indirectly, acting alone or as a member of a partnership
or as an officer, director, employee, consultant, representative, holder of, or
investor in as much as 3% of any security of any class of any corporation or
other business entity (i) engage in competition with Kahlden, Purchaser, or any
affiliate of Purchaser by providing or marketing water hauling services, mud
hauling services, vacuum truck services, water disposal services or
transportation of produced water as of the date hereof in the following counties
of the State of Texas- Austin, Bastrop, Bell, Brazos, Burleson, Colorado, Falls,
Fayette, Grimes, Harris, Lee, Leon, Limestone, Madison, McLennan, Milam,
Montgomery, Robertson, Travis, Walker, Waller, Washington, and Williamson; (ii)
request any present customers or suppliers of Kahlden Production to curtail or
cancel their business with Kahlden Production, Purchaser or any affiliate of
Purchaser; (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of Kahlden Production, Purchaser or any
affiliate of Purchaser or any details of their organization or business affairs
or (iv) induce or actively attempt to influence any employee of Kahlden
Production, Purchaser or any affiliate of Purchaser to terminate his or her
employment. Seller agrees that if either the length of time or geographical area
set forth in this Section 8 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 8 are in addition
to any other obligations that the Seller may have under the laws of the State of
Texas requiring an employee of a business or a shareholder who sells his or her
stock in a corporation (including a disposition in a merger) to limit his or her
activities so that the goodwill and business relations of his or her employer
and of the corporation whose stock he or she has sold (and any successor
corporation) will not be materially impaired. Seller further agrees and
acknowledges that Kahlden Production, Purchaser, and its affiliates do not have
any adequate remedy at law for the breach or threatened breach by Seller of this
covenant, and agree that Kahlden, Purchaser, or any affiliate of Purchaser may,
in addition to the other remedies which may be available to it hereunder, file a
suit in equity to enjoin Seller from such breach or threatened breach. If any
provisions of this Section 8 are held to be invalid or against public policy,
the remaining provisions shall not be affected thereby. Seller acknowledges that
the covenants set forth in this Section 8 are being executed and delivered by
Seller in consideration of the covenants of Purchaser contained in this
Agreement, and for other good and valuable consideration, receipt of which is
hereby acknowledged.
9. Indemnification.
From and after the date hereof, Seller will indemnify and hold harmless
Purchaser against any claim, loss, liability or expense incurred by Purchaser
and arising out of or attributable to any inaccuracy of any representation or
warranty or any breach of any covenant or agreement made by Seller herein or in
any instrument or agreement referred to herein or contemplated hereby. Purchaser
will indemnify and hold harmless Seller against any claim, loss, liability or
expense incurred by Seller and arising out of or attributable to any inaccuracy
of any representation or warranty or any breach of any covenant or agreement
made by Purchaser herein or in any instrument or agreement referred to herein or
contemplated hereby. As used in this Section 9, "expense" shall include, without
limitation, attorneys' fees and costs of any investigation of an alleged breach
which is ultimately determined to constitute a matter for which indemnification
is required.
10. Miscellaneous Agreements.
10.1 Ad Valorem Taxes. Upon execution hereof, Seller shall pay to Purchaser the
amount of $1000.00 for Seller's share of all ad valorem taxes in respect of
Seller's ownership of the Assets from January 1, 1997 to the opening of business
on the date hereof, and Purchaser shall assume and agree to pay all ad valorem
taxes in respect of the Assets for 1997.
10.2 Cooperation in Litigation. Each party shall fully cooperate with the other
in the defense or prosecution of any litigation or proceeding which may be
instituted hereafter against or by any third party relating to or arising out of
the Assets prior to or after the date hereof. Subject to Section 9 hereof, the
party requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing such cooperation
and of its officers, directors, employees and agents reasonably incurred in
connection with providing such cooperation, but shall not be responsible to
reimburse the party providing such cooperation for such party's time spent in
such cooperation or expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
10.3 Press Releases. Seller hereby agrees to allow Purchaser's issuance of a
press release announcing the completion of this asset acquisition. Other than
that announcement, except as mutually agreed, neither Purchaser, Seller, nor any
of their respective directors, officers, employees, or agents shall issue any
press release or public announcement of this asset acquisition.
10.4 Further Assurance. From time to time at the reasonable request of
Purchaser, without further consideration, Seller will execute and deliver such
further instruments of conveyance and transfer and will take such actions as
Purchaser may reasonably request in order more effectively to convey and
transfer to Purchaser the Assets as contemplated by this Agreement.
10.5 Notice. All notices hereunder shall be in writing and shall be mailed first
class or express mail, postage prepaid, or sent by telegram, facsimile, or other
similar form of rapid transmission confirmed by mailing (by first class or
express mail, postage prepaid) written confirmation at substantially the same
time as such rapid transmission, or personally delivered to any individual
designated below of the receiving party. All such notices shall be mailed, sent
or delivered as follows:
If to Seller: Kahlden Production Services, Inc.
P. O. Box 909
Caldwell, Texas 77836
Attention: Thomas Kahlden
If to Purchaser: WellTech Eastern, Inc.
6010 Highway 191, Suite 212
Odessa, Texas 79762
Attention: Mr. James J. Carter
Fax Number: (915) 550-0302
With a copy to: Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
Facsimile: (908) 247-5148
Any notice so addressed and mailed shall be deemed to be given three days after
the date so mailed. Any notice so sent by rapid transmission shall be deemed to
be given when receipt of such transmission is acknowledged. Any communication so
delivered in person shall be deemed to be given when receipted for by, or
actually received by, such person. Seller or Purchaser may, by proper written
notice hereunder to the other party, change the address, individual or facsimile
number to which notice shall thereafter be sent to such party.
10.6 Severability. If any provision of this Agreement or of any instrument or
agreement executed in connection herewith or its application to any person or in
any circumstance shall be found invalid or unenforceable to any extent, the
remainder of such provisions in this Agreement (or such other instrument or
agreement) and the application thereof to other persons and in other
circumstances shall not be effected and all provisions hereof and thereof shall
be enforced to the greatest extent permitted by law.
10.7 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
10.8 Assignment. Nothing contained herein, expressed or implied, is intended to
confer upon any person or entity other than the parties hereto and their
permitted successors and assigns any rights or remedies under or by reason of
this Agreement. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
10.9 Expenses. Each party to this Agreement shall pay and discharge all of the
expenses incurred by it in connection with the negotiation of this Agreement and
the consummation of the transactions contemplated hereby.
10.10 Survival. The representations, warranties, covenants and agreements set
forth herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and shall expire in
accordance with the applicable statute of limitations.
10.11 Sales or Use Taxes. Seller shall pay any sales or use taxes relating to
the acquisition by Purchaser of any of the Assets pursuant to this Agreement.
10.12 Waiver. No waiver of any provision hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, either of similar or different nature, unless expressly so stated in
writing.
10.13 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS TO BE
PERFORMED ENTIRELY WITHIN THAT STATE.
10.14 Exhibits and Headings. Each exhibit referenced herein and attached hereto
is hereby incorporated herein, and each reference to the "Agreement" shall be
deemed to include all exhibits hereto. The headings or captions under sections
of this Agreement are intended for convenience and reference only and shall not
affect in any way the construction or interpretation of this Agreement.
10.15 Complete Agreement and Amendment. This Agreement constitutes the final
understanding of the parties and supersedes all prior oral or written
correspondence and agreements and all contemporaneous oral agreements and
understandings of the parties relating to the subject matter hereof. This
Agreement shall be amended only by a written instrument signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first written above.
KAHLDEN PRODUCTION SERVICES, INC.
By:_______________________________________
THOMAS KAHLDEN, President &
Sole Shareholder
SELLER
WELLTECH EASTERN, INC.
By:________________________________________
JIMMY CHASTEEN, Vice President
PURCHASER
<PAGE>
EXHIBIT A
LIST OF ASSETS
Trucks (includes vacuum Pump) VIN
1988 Model 9370 International 1HSFBG2R3JO12041
1988 Model 9300 International 2HSFBG2R9JC012044
1988 Model 9300 International 2HSFBG2R0JC009047
1988 Model 9370 International 2HSFBG2R3JC009057
1990 Model 9300 International 2HSFEGUR5LC037949
Trailers
1981 Maverick Tank 130 bbl. 1F9AD52B4CA009013
1981 MD Tank 150 bbl. MD141411
1982 Proco Tank 130 bbl. 1F9AD52B4CA00901
1982 Fruehauf Tank 130 bbl. 1H4T0422XCL003201
1983 Reynolds Tank 130 bbl. 20860
<PAGE>
EXHIBIT B
ASSET PURCHASE ALLOCATION
Trucks, Trailer and Equipment $200,000.00
Additional Equipment Delivered or on Order $ 37,779.88
Non-Compete Covenants
Kahlden Production Services $50,000.00
Thomas Kahlden $25,000.00
Mickey Tucker $25,000.00 $100,000.00
Goodwill $300,000.00
TOTAL $ 637,779.88
<PAGE>
EXHIBIT C
ASSIGNMENT AND BILL OF SALE
KAHLDEN PRODUCTION SERVICES, INC., a Texas corporation ("Seller"), for and in
consideration of Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, has BARGAINED,
SOLD, TRANSFERRED, ASSIGNED, CONVEYED and DELIVERED, and does by these presents
BARGAIN, SELL, TRANSFER, ASSIGN, CONVEY and DELIVER, unto WELLTECH EASTERN,
INC., a Delaware corporation ("Purchaser"), all of the right, title and interest
of Seller in and to all of the Assets (as defined in that certain Asset Purchase
Agreement (the "Purchase Agreement") dated October _____, 1997, between Seller
and Purchaser), including, but not limited to the assets listed on Exhibit "A"
attached hereto.
TO HAVE AND TO HOLD the Assets, together with all and singular the rights and
appurtenances thereto in anywise belonging, unto Purchaser, its successors and
assigns, forever; and Seller does hereby bind itself, its successors and
assigns, to warrant and forever defend title to the Assets unto Purchaser, its
successors and assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof.
Seller hereby agrees to execute any and all certificates of transfer,
assignments or other documents as may be necessary to evidence the conveyance
described herein and to take such further action as may be reasonably necessary
to convey the Assets to Purchaser.
Seller hereby acknowledges that nothing herein shall be construed as an
assumption by Purchaser of any of the liabilities or obligations of Seller
except as expressly set forth in the Purchase Agreement.
WITNESS THE EXECUTION HEREOF, effective as of the opening of business on October
___, 1997.
KAHLDEN PRODUCTION SERVICES, INC.
By:___________________________
THOMAS KAHLDEN
President
<PAGE>
EXHIBIT D
ADDITIONAL EQUIPMENT DELIVERED OR ON ORDER
Paid By Key to
Kahlden Assume Total
Tractor #6-1992 International
#mc054191 $21,918.23 -0- $21,918.23
Vacuum Pump-Tractor #6 5,861.65 -0- 5,861.65
Tractor #7-1991 International
#mc042660 5,000.00 17,294.55 22,294.55
Trailer #6-Challenger-Norman, OK 5,000.00 15,000.00 20,000.00
TOTAL $37,779.88 $32,294.55 $70,074.43
Stock Purchase Agreement
between
WellTech Eastern, Inc.,
and
Donald R. Jeter
Dated as of November 18, 1997
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this Agreement) is entered into as of November
18, 1997, by and between WellTech Eastern, Inc., a Delaware corporation
(Buyer), and Donald R. Jeter (the Shareholder).
- ------------------------------------------------------------------------------
WITNESSETH:
- ------------------------------------------------------------------------------
Whereas, Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its principal executive offices at Two Tower
Center, Tenth Floor, East Brunswick, New Jersey 08816; and
Whereas, Jeter Service Co. (the Company) is a corporation duly organized and
validly existing under the laws of the State of Oklahoma, with its principal
executive offices at 502 48th, Woodward, Oklahoma 73801; and
Whereas, the Shareholder owns 1,000 shares (the Company Shares) of common
stock, par value $1.00 per share, of the Company (the Company Common Stock ),
which constitutes all of the issued and outstanding shares of capital stock of
the Company; and
Whereas, the Company owns all of the issued and outstanding shares of capital
stock of each of (i) Industrial Oilfield Supply, Inc., an Oklahoma corporation
(Industrial), (ii) Jeter Well Service, Inc., an Oklahoma corporation (Jeter)
and (iii) Jeter Transportation, Inc., an Oklahoma corporation (Transportation);
and
Whereas, Industrial, Jeter and Transportation are sometimes referred to
collectively herein as the Company Subsidiaries and individually as a Company
Subsidiary; and
Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to purchase
from the Shareholder all of the issued and outstanding capital stock of the
Company.
Now, Therefore, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale
1.1. Purchase and Sale of the Company Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, the Shareholder agrees to sell
and convey to Buyer, free and clear of all Encumbrances (as defined in Section
2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholder,
all of the Company Shares. In consideration of the sale of the Company Shares,
Buyer shall pay to the Shareholder $6,690,000 in cash by wire transfer of
immediately available funds, and the Cash Adjustment Payment (as defined in
Section 1.3 hereof), if any, in accordance with Section 1.4 hereof.
1.2. Delivery of the Company Certificates. The Shareholder shall deliver to
Buyer on the date hereof duly and validly issued certificate(s) representing all
of the Company Shares, each such certificate having been duly endorsed in blank
and in good form for transfer or accompanied by stock powers duly executed in
blank, sufficient and in good form to properly transfer such shares to Buyer.
1.4 Adjustment of Purchase Price. Buyer shall cause to be prepared and delivered
to the Shareholder a consolidated balance sheet of the Company and the Company
Subsidiaries as of the date hereof (the Final Balance Sheet) within 60 days
after the date hereof. Buyer and the Shareholder shall jointly review the Final
Balance Sheet, endeavor in good faith to resolve all disagreements regarding the
entries thereon and reach a final determination thereof within 90 days from the
date hereof. Within 10 days of reaching such final determination, the following
adjusting payments shall be made:
(1) If the sum of (A) the Final Net Current Value of the Company (defined
below) plus (B) $64,234.19, which represents the amount of funds expended
by the Company since the Balance Sheet Date (as defined in Section 2.1.6
hereof) for the purchase of capital equipment that the parties hereto have
agreed expands the capability of the Company's business (the Capital
Expenditure Amount), exceeds the 8/31 Net Current Value of the Company
(defined below), Buyer shall pay to the Shareholder the amount of such
excess (the Cash Adjustment Payment).
<PAGE>
(2) If the sum of (A) the Final Net Current Value of the Company plus (B) the
Capital Expenditure Amount is less than the 8/31 Net Current Value of the
Company, the Shareholder shall pay to Buyer the amount of such difference.
The term Final Net Current Value of the Company means the dollar value of the
amount by which (i) the Total Current Assets plus the Total Other Assets as
recorded on the Final Balance Sheet exceeds (ii) the Total Liabilities as
recorded on the Final Balance Sheet. The term Net Current Value of the
Company means the dollar value of the amount by which (i) the Total Current
Assets plus the Total Other Assets as recorded on the 8/31 Balance Sheet (as
defined in Section 2.1.6 hereof) exceeds (ii) the Total Liabilities as recorded
on the 8/31 Balance Sheet.
ARTICLE 2
Representations and Warranties
2.1. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to Buyer as follows:
2.1.1. Organization and Standing. Each of the Company and the Company
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary.
2.1.2. Agreement Authorized and its Effect on Other Obligations. The Shareholder
is a resident of Texas, above the age of 18 years, and has the legal capacity
and requisite power and authority to enter into, and perform his or her
obligations under this Agreement. This Agreement is a valid and binding
obligation of the Shareholder enforceable against the Shareholder (subject to
normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement by the Shareholder will
not conflict with or result in a violation or breach of any term or provision
of, nor constitute a default under (i) the charter or bylaws of the Company or
(ii) any obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which the Company or the Shareholder is a party or by which
the Company or the Shareholder or their respective properties are bound.
<PAGE>
2.1.3. Capitalization. The authorized capitalization of the Company consists of
3,000 shares of Company Common Stock, of which, as of the date hereof, 1,000
shares (the Company Shares ) were issued and outstanding and held beneficially
and of record by the Shareholder. On the date hereof, the Company does not have
any outstanding options, warrants, calls or commitments of any character
relating to any of its authorized but unissued shares of capital stock. All
issued and outstanding shares of Company Common Stock are validly issued, fully
paid and non-assessable and are not subject to preemptive rights. None of the
outstanding shares of Company Common Stock is subject to any voting trusts,
voting agreement or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect thereto. The authorized
capitalization of Industrial consists of 50,000 shares of common stock, par
value $1.00 per share (Industrial Common Stock ), of which, as of the date
hereof, 375 shares (the Industrial Shares ) were issued and outstanding and
held beneficially and of record by the Company. On the date hereof, Industrial
does not have any outstanding options, warrants, calls or commitments of any
character relating to any of its authorized but unissued shares of capital
stock. All issued and outstanding shares of Industrial Common Stock are validly
issued, fully paid and non-assessable and are not subject to preemptive rights.
None of the outstanding shares of Industrial Common Stock is subject to any
voting trusts, voting agreement or other agreement or understanding with respect
to the voting thereof, nor is any proxy in existence with respect thereto. The
authorized capitalization of Jeter consists of 25,000 shares of common stock,
par value $1.00 per share (Jeter Common Stock ), of which, as of the date
hereof, 500 shares (the Jeter Shares ) were issued and outstanding and held
beneficially and of record by the Company. On the date hereof, Jeter does not
have any outstanding options, warrants, calls or commitments of any character
relating to any of its authorized but unissued shares of capital stock. All
issued and outstanding shares of Jeter Common Stock are validly issued, fully
paid and non-assessable and are not subject to preemptive rights. None of the
outstanding shares of Jeter Common Stock is subject to any voting trusts, voting
agreement or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect thereto. The authorized
capitalization of Transportation consists of 50,000 shares of common stock, par
value $1.00 per share (Transportation Common Stock ), of which, as of the date
hereof, 892.86 shares (the Transportation Shares ) were issued and outstanding
and held beneficially and of record by the Company. On the date hereof,
Transportation does not have any outstanding options, warrants, calls or
commitments of any character relating to any of its authorized but unissued
shares of capital stock. All issued and outstanding shares of Transportation
Common Stock are validly issued, fully paid and non-assessable and are not
subject to preemptive rights. None of the outstanding shares of Transportation
Common Stock is subject to any voting trusts, voting agreement or other
agreement or understanding with respect to the voting thereof, nor is any proxy
in existence with respect thereto.
2.1.4. Ownership of Shares. The Shareholder holds good and valid title to all of
the Company Shares, free and clear of all Encumbrances. The Shareholder
possesses full authority and legal right to sell, transfer and assign to Buyer
the Company Shares, free and clear of all Encumbrances. Upon transfer to Buyer
by the Shareholder of the Company Shares, Buyer will own the Company Shares free
and clear of all Encumbrances. There are no claims pending or, to the knowledge
of the Shareholder, threatened, against the Company or the Shareholder that
concern or affect title to the Company Shares, or that seek to compel the
issuance of capital stock or other securities of the Company. The Company holds
good and valid title to all of the Industrial Shares, the Jeter Shares and the
Transportation Shares, free and clear of all Encumbrances. There are no claims
pending or, to the knowledge of the Shareholder, threatened, against Industrial,
Jeter, Transportation or the Shareholder that concern or affect title to the
Industrial Shares, the Jeter Shares or the Transportation Shares, or that seek
to compel the issuance of capital stock or other securities of Industrial, Jeter
or Transportation.
<PAGE>
2.1.5. No Subsidiaries. Other than the Company Subsidiaries, there is no
corporation, partnership, joint venture, business trust or other legal entity in
which the Company, either directly or indirectly through one or more
intermediaries, owns or holds beneficial or record ownership of at least a
majority of the outstanding voting securities.
2.1.6. Financial Statements. The Company has delivered to Buyer copies of the
consolidated unaudited balance sheet of the Company and the Company Subsidiaries
(the 8/31 Balance Sheet ) and related consolidated statement of income, copies
of each of which are attached hereto as Schedule 2.1.6 (collectively, the 8/31
Financial Statements ), as at and for the two(2) months ended August 31, 1997
(the Balance Sheet Date ). The 8/31 Financial Statements are complete in all
respects, except as hereinafter described. The 8/31 Financial Statements present
fairly the consolidated financial condition of the Company and the Company
Subsidiaries as at the dates and for the periods indicated, except as
hereinafter described. The 8/31 Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, except that Federal and State income taxes were not accrued. The accounts
receivable reflected in the 8/31 Balance Sheet, or which have been thereafter
acquired by the Company or the Company Subsidiaries, have been collected or are
collectible at the aggregate recorded amounts thereof less applicable reserves,
which reserves are adequate. The inventories of the Company and the Company
Subsidiaries reflected in the 8/31 Balance Sheet, or which have thereafter been
acquired by them, consist of items of a quality usable and salable in the normal
course of their business, and the values at which inventories are carried are at
the lower of cost or market.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, neither the
Company nor any of the Company Subsidiaries has any liabilities or obligations,
either accrued, absolute or contingent, nor does the Shareholder have any
knowledge of any potential liabilities or obligations, other than those (i)
incurred in the ordinary course of business since the Balance Sheet Date that
would not adversely affect the value and conduct of the business of the Company
or any of the company Subsidiaries or (ii) reflected or reserved against in the
8/31 Balance Sheet.
2.1.8. Additional Company Information. Attached as
Schedule 2.1.8 hereto are true, complete and correct lists of the following
items:
2.1.8.1. Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by the Company
or any of the Company Subsidiaries, with a description of the nature and amount
of any Encumbrances (defined below) thereon. The term Encumbrances means all
liens, security interests, pledges, mortgages, deed of trust, claims, rights of
first refusal, options, charges, restrictions or conditions to transfer or
assignment, liabilities, obligations, privileges, equities, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances of
any kind or nature;
2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery,
transportation equipment, tools, equipment, furnishings, and fixtures owned,
leased or subject to a contract of purchase and sale, or lease commitment, by
the Company or any of the Company Subsidiaries with a description of the nature
and amount of any Encumbrances thereon;
<PAGE>
2.1.8.3. Inventory. All inventory items or groups of inventory items owned by
the Company or any of the Company Subsidiaries, excluding raw materials and work
in process, which raw materials and work in process are valued on the 8/31
Balance Sheet, together with the amount of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes receivable of the Company or any of
the Company Subsidiaries, together with (i)aging schedules by invoice date and
due date, (ii)the amounts provided for as an allowance for bad debts, (iii)the
identity and location of any asset in which the Company or any of the Company
Subsidiaries holds a security interest to secure payment of the underlying
indebtedness, and (iv)a description of the nature and amount of any
Encumbrances on such accounts and notes receivable;
2.1.8.5. Payables. All accounts and notes payable of the Company or any of the
Company Subsidiaries, together with an appropriate aging schedule.
2.1.8.6. Insurance. All insurance policies (including title insurance policies)
or bonds currently maintained by the Company or any of the Company Subsidiaries,
including those covering the Company's (and the Company Subsidiaries)
properties, rigs, machinery, equipment, fixtures, employees and operations, as
well as a listing of any premiums, audit adjustments or retroactive adjustments
due or pending on such policies or any predecessor policies;
2.1.8.7. Contracts. All contracts, including leases under which the Company or
any of the Company Subsidiaries is lessor or lessee, which are to be performed
in whole or in part after the date hereof;
2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other employee benefit or fringe benefit plans,
arrangements or trust agreements of the Company or any of the Company
Subsidiaries and any employee benefit plan maintained by the Company or any of
the Company Subsidiaries (collectively, Employee Plans ), together with copies
of the most recent reports with respect to such plans, arrangements, or trust
agreements filed with any governmental agency and all Internal Revenue Service
determination letters and other correspondence from governmental entities that
have been received with respect to such plans, arrangements or agreements;
2.1.8.9. Certain Salaries. The names and salary rates of all present employees
of the Company and all employees of each of the Company Subsidiaries, and, to
the extent existing on the date of this Agreement, all arrangements with respect
to any bonuses to be paid to them from and after the date of this Agreement;
<PAGE>
2.1.8.10. Bank Accounts. The name of each bank in which the Company or any of
the Company Subsidiaries has an account and the names of all persons authorized
to draw thereon;
2.1.8.11. Employee Agreements. Any collective bargaining agreements of the
Company or any of the Company Subsidiaries with any labor union or other
representative of employees, including amendments, supplements, and written or
oral understandings, and all employment and consulting and severance agreements
of the Company and the Company Subsidiaries;
2.1.8.12. Intellectual Property. All patents, patent applications, trademarks
and service marks (including registrations and applications therefor), trade
names, copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the
Intellectual Property ) used by the Company or any of the Company Subsidiaries;
2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used
or held by the Company or any of the Company Subsidiaries, whether and where
such names are registered and where used;
2.1.8.14. Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the Permits ) of the Company and each of the Company
Subsidiaries under which they conducts their business.
2.1.8.15. Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of the Company or any of the Company Subsidiaries relating thereto or
with respect to collateral securing the same;
2.1.8.16. Guaranties. All indebtedness, liabilities and commitments of others
and as to which the Company or any of the Company Subsidiaries is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is contingently liable
therefor and all letters of credit, whether stand-by or documentary, issued by
any third party;
2.1.8.17. Reserves and Accruals. All accounting reserves and accruals maintained
in the 8/31 Balance Sheet;
2.1.8.18. Leases. All leases to which the Company or any of the Company
Subsidiaries is a party; and
<PAGE>
2.1.8.19. Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by the Company and the Company Subsidiaries and all environmental
audits, assessments, investigations and reviews conducted by the Company or any
of the Company Subsidiaries within the last five years or otherwise in the
possession of the Company or any of the Company Subsidiaries on any property
owned, leased or used by the Company or any of the Company Subsidiaries.
2.1.9. No Defaults. Except as disclosed on Schedule 2.1.8 hereto, neither the
Company nor any of the Company Subsidiaries is a party to, or bound by, any
contract or arrangement of any kind to be performed after the date hereof, nor
is the Company or any of the Company Subsidiaries in default in any obligation
or covenant on its part to be performed under any obligation, lease, contract,
order, plan or other arrangement.
2.1.10. Absence of Certain Changes and Events. Except as disclosed on Schedule
2.1.10 hereto, since the Balance Sheet Date, there has not been:
2.1.10.1. Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of the Company or any of
the Company Subsidiaries;
2.1.10.2. Property Damage. Any damage, destruction, or loss to the business or
properties of the Company or any of the Company Subsidiaries (whether or not
covered by insurance);
2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the Company Common Stock, the Industrial
Common Stock, the Jeter Common Stock, or the Transportation Common Stock or any
direct or indirect redemption, purchase or any other acquisition of any such
stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of the authorized or outstanding capital stock of
the Company or any of the Company Subsidiaries as described in Section 2.1.3
hereof;
2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature
involving employees of the Company or any of the Company Subsidiaries; or
2.1.10.6. Other Adverse Changes. Any other event or condition known to the
Shareholder particularly pertaining to and adversely affecting the operations,
assets or business of the Company or any of the Company Subsidiaries.
<PAGE>
2.1.11. Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by the
Company and each of the Company Subsidiaries for each period for which any such
returns, reports, or estimates were due (taking into account any extensions of
time to file before the date hereof); all such returns are true and correct; the
Company and each of the Company Subsidiaries have only done business in Oklahoma
and Texas; all taxes shown by such returns to be payable and any other taxes due
and payable have been paid other than those being contested in good faith by the
Company or the applicable Company Subsidiary; and the tax provision reflected in
the 8/31 Balance Sheet is adequate, in accordance with generally accepted
accounting principles, to cover liabilities of the Company and each of the
Company Subsidiaries at the date thereof for all taxes, including any assessed
interest, assessed penalties and additions to taxes of any character whatsoever
applicable to the Company or any of the Company Subsidiaries or their assets or
business, except that no Federal or State income taxes were accrued on the 8/31
Balance Sheet. No waiver of any statute of limitations executed by the Company
or any of the Company Subsidiaries with respect to any income or other tax is in
effect for any period. The income tax returns of the Company and each of the
Company Subsidiaries have never been examined by the Internal Revenue Service or
the taxing authorities of any other jurisdiction, except as set out in Schedule
2.1.11.. There are no tax liens on any assets of the Company or any of the
Company Subsidiaries except for taxes not yet currently due. Neither the Company
nor any of the Company Subsidiaries is subject to any tax-sharing or allocation
agreement. Neither the Company nor any of the Company Subsidiaries is, or has
ever attempted to become, a Subchapter S-Corporation under the Internal Revenue
Code of 1986, as amended (the Code ). Neither the Company nor any of the
Company Subsidiaries is, or has ever been, a member of a consolidated group
subject to Treasury Regulation 1.1502-6 or any similar provision adopted under
the Code.
2.1.12. Intellectual Property. The Company owns or possesses licenses to use all
Intellectual Property that is either material to the business of the Company or
any of the Company Subsidiaries or that is necessary for the rendering of any
services rendered by the Company or any of the Company Subsidiaries and the use
or sale of any equipment or products used or sold by the Company or any of the
Company Subsidiaries, including all such Intellectual Property listed in
Schedule 2.1.8 hereto (the Required Intellectual Property ). The Required
Intellectual Property is owned or licensed by the Company or one of the Company
Subsidiaries free and clear of any Encumbrance. Neither the Company nor any of
the Company Subsidiaries have granted to any other person any license to use any
Required Intellectual Property. Neither the Company nor any of the Company
Subsidiaries have received any notice of infringement, misappropriation, or
conflict with, the Intellectual Property rights of others in connection with the
use by their use of the Required Intellectual Property or otherwise in
connection with the operation of their businesses.
<PAGE>
2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule 2.1.13
hereto, the Company and each of the Company Subsidiaries have good, indefeasible
and marketable title to all of their properties, interests in properties, and
assets, real and personal, reflected in the 8/31 Balance Sheet or in
Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature
whatsoever, except (i)Encumbrances reflected in the 8/31 Balance Sheet or in
Schedule 2.1.8 hereto, (ii)liens for current taxes not yet due and payable, and
(iii)such imperfections of title, easements and Encumbrances, if any, as are
not substantial in character, amount, or extent and do not and will not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby, or otherwise materially impair
business operations. All leases pursuant to which the Company or any of the
Company Subsidiaries leases (whether as lessee or lessor) any substantial amount
of real or personal property are in good standing, valid, and effective; and
there is not, under any such leases, any existing default or event of default or
event which with notice or lapse of time, or both, would constitute a default by
the Company or the applicable Company Subsidiary and in respect to which neither
the Company nor the applicable Company Subsidiary has not taken adequate steps
to prevent a default from occurring. The buildings and premises of the Company
and each of the Company Subsidiaries that are used in its business are in good
operating condition and repair, subject only to ordinary wear and tear. All
rigs, rig equipment, machinery, transportation equipment, tools and other major
items of equipment of the Company and each of the Company Subsidiaries are in
good operating condition and in a state of reasonable maintenance and repair,
ordinary wear and tear excepted, and are free from any known defects except as
may be repaired by routine maintenance and such minor defects as to not
substantially interfere with the continued use thereof in the conduct of normal
operations. To the best of the Shareholders knowledge, all such assets conform
to all applicable laws governing their use. No notice of any violation of any
law, statute, ordinance, or regulation relating to any such assets has been
received by the Company, any of the Company Subsidiaries or the Shareholder,
except such as have been fully complied with.
2.1.14. Contracts. All contracts, leases, plans or other arrangements to which
the Company or any of the Company Subsidiaries is a party, by which any of them
are bound or to which any of them or their assets are subject are in full force
and effect, and constitute valid and binding obligations of the Company or the
applicable Company Subsidiary. Neither the Company nor any of the Company
Subsidiaries is, and to the knowledge of the Shareholder, no other party to any
such contract, lease, plan or other arrangement is, in default thereunder, and
no event has occurred which (with or without notice, lapse of time, or the
happening of any other event) would constitute a default thereunder. No contract
has been entered into on terms which could reasonably be expected to have an
adverse effect on the Company or any of the Company Subsidiaries. The
Shareholder has not received any information which would cause the Shareholder
to conclude that any customer of the Company or any of the Company Subsidiaries
will (or is likely to) cease doing business with the Company or the applicable
Company Subsidiary (or their successors) as a result of the consummation of the
transactions contemplated hereby.
<PAGE>
2.1.15. Licenses and Permits. The Company and each of the Company Subsidiaries
possess all Permits necessary under law or otherwise for the Company and each of
the Company Subsidiaries to conduct their businesses as now being conducted and
to construct, own, operate, maintain and use their assets in the manner in which
they are now being constructed, operated, maintained and used, including all
such Permits listed in Schedule 2.1.8 hereto (collectively, the Required
Permits ). Each of the Required Permits and the rights of the Company and each
of the Company Subsidiaries with respect thereto are valid and subsisting, in
full force and effect, and enforceable by the Company or the applicable Company
Subsidiary subject to administrative powers of regulatory agencies having
jurisdiction. The Company and each of the Company Subsidiaries is in compliance
in all respects with the terms of each of the Required Permits. None of the
Required Permits have been, or to the knowledge of the Shareholder, is
threatened to be, revoked, canceled, suspended or modified.
2.1.16. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no
suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Company or any of the Company
Subsidiaries is a party or, to the knowledge of the Shareholder, might become a
party or which particularly affects the Company, any of the Company Subsidiaries
or their assets, nor is any change in the zoning or building ordinances directly
affecting the real property or leasehold interests of the Company or any of the
Company Subsidiaries, pending or, to the knowledge of the Shareholder,
threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. There are no environmental conditions or
circumstances, including, without limitation, the presence or release of any
Substance of Environmental Concern (defined below), on any property presently or
previously owned, leased or operated by the Company or any of the Company
Subsidiaries, or on any property to which any Substance of Environmental Concern
or waste generated by the operations of the Company or any of the Company
Subsidiaries or the use of their assets were disposed of, which would have an
adverse effect on the business or business prospects of the Company. The term
Substance of Environmental Concern means (a) any gasoline, petroleum (including
crude oil or any fraction thereof), petroleum product, polychlorinated
biphenyls, urea-formaldehyde insulation, asbestos, pollutant, contaminant,
radiation and any other substance of any kind, whether or not any such substance
is defined as toxic or hazardous under any Environmental Law (as defined in
Section 2.1.17.3 hereof), that is regulated pursuant to or could give rise to
liability under any Environmental Law;
<PAGE>
2.1.17.2. Permits, etc. The Company and each of the Company Subsidiaries have,
and within the period of all applicable statute of limitations have had, in full
force and effect all environmental Permits required to conduct their operations,
and are, within the period of all applicable statutes of limitations has been,
operating in compliance thereunder;
2.1.17.3. Compliance. The operations of the Company and each of the Company
Subsidiaries and the use of their assets are, and within the period of all
applicable statutes of limitations, have been in compliance with applicable
Environmental Law. Environmental Law as used herein means any and all laws,
rules, orders, regulations, statutes, ordinances, codes, decrees, and other
legally enforceable requirements (including, without limitation, common law) of
the United States, or any State, local, municipal or other governmental
authority or quasi-governmental authority, regulating, relating to, or imposing
liability or standards of conduct concerning protection of the environmental or
of human health, or employee health and safety as from time to time has been or
is now in effect.
2.1.17.4. Environmental Claims. No notice has been received by the Company, any
of the Company Subsidiaries or the Shareholder from any entity, governmental
agency or individual regarding any existing, pending or threatened
investigation, inquiry, enforcement action. litigation, or liability, including,
without limitation any claim for remedial obligations, response costs or
contribution, relating to any Environmental Law;
2.1.17.5. Enforcement. Neither the Company nor any of the Company Subsidiaries
nor, to the knowledge of the Shareholder, any predecessor of the Company or any
of the Company Subsidiaries or other party acting on behalf of the Company or
any of the Company Subsidiaries, has entered into or agreed to any consent,
decree, order, settlement or other agreement, nor is subject to any judgment,
decree, order or other agreement, in any judicial, administrative, arbitral, or
other forum, relating to compliance with or liability under any Environmental
Law;
2.1.17.6. Liabilities. Neither the Company nor any of the Company Subsidiaries
has not assumed or retained, by contract or operation of law, any liabilities of
any kind, fixed or contingent, known or unknown, under any Environmental Law;
2.1.17.7. Renewals. The Shareholder does not know of any reason the Company or
any of the Company Subsidiaries (or their successors) would not be able to renew
without material expense any of the permits, licenses, or other authorizations
required pursuant to any Environmental Law to use any of the assets or conduct
any of the current or planned operations of the Company or any of the Company
Subsidiaries; and
<PAGE>
2.1.17.8. Asbestos and PCBs. No material amounts of friable asbestos currently
exist on any property owned or operated by the Company or any of the Company
Subsidiaries, nor do polychlorinated biphenyls exist in concentrations of 50
parts per million or more in electrical equipment owned or being used by the
Company or any of the Company Subsidiaries in their operations or on their
properties.
2.1.18. Compliance with Other Laws. Neither the Company nor any of the Company
Subsidiaries is not in violation of or in default with respect to, or in alleged
violation of or alleged default with respect to, the Occupational Safety and
Health Act (29 U.S.C. ''651 et seq.) as amended, or any other applicable law or
any applicable rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, or
delinquent with respect to any report required to be filed with any governmental
commission, board, bureau, agency or instrumentality.
2.1.19. ERISA Plans or Labor Issues. For purposes of this Section 2.1.19., the
term Company shall collectively refer to the Company, each Company Subsidiary
and each other entity which is treated as a single employer with the Company or
a Company Subsidiary under Section 414 of he Code. Except as identified in
Schedule 2.1.8., the Company does not currently sponsor, maintain or contribute
to, and has not at any time sponsored, maintained or contributed to any Employee
Plan (as defined in Section 2.1.8.8. hereof) or any other employee benefit plan
which is or was subject to any of the provisions of the Employee Retirement
Income Security Act of 1974, as amended (ERISA ), in which any of its employees
are or were participants (whether or not on an active or frozen basis). Each
Employee Plan set forth in Schedule 2.1.8. hereto complies currently, and has
complied in the past, in form and operation, with the applicable provisions of
ERISA, the Code and other applicable laws including, without limitation, the
timely filing of all 5500 series forms. Also, with respect to each employee
Plan, the Company has not engaged in any prohibited transaction or any violation
of its fiduciary duties to such plan. All contributions required to be made to
each Employee Plan under the terms of such Employee Plan, ERISA or other
applicable law have been timely made and there are no delinquent contributions
as of the Closing Date. None of the Employee Plans (i) is a multiemployer plan
(as defined in Section 3(37) of ERISA), (ii) is a defined benefit pension plan
subject to Title IV of ERISA, (iii) is a voluntary employees beneficiary
association within the meaning of Code Section 501(c)(9), (iv) provides for
medical or other insurance benefits to current or future retired employees or
former employees of the Company (other than as required for group health plan
continuation coverage under Code Section 4980B (COBRA ) or applicable state
law), or (v) obligates the Company to pay any benefits solely as a result of any
change in control of the Company. During the six years preceding the Closing
Date, (i) no under-funded pension plan subject to Section 412 of the Code has
been transferred out of the Company and (ii) the Company has not participated in
or contributed to, or had an obligation to contribute to any multiemployer plan
(as defined in ERISA Section 3(37)) and has no withdrawal liability with respect
to any multiemployer plan. There are no claims or lawsuits which have been
asserted, instituted or threatened against any Employee Plan by any fiduciary or
participant of such plan, except routine claims for benefits thereunder. The
Company has no collective bargaining agreements with any labor union or other
representative of employees. The Company has not engaged in any unfair labor
practices. The Company has no pending or threatened dispute with any of its
existing or former employees.
<PAGE>
2.1.20. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Company or any of the Company
Subsidiaries or any of the transactions contemplated by this Agreement is
pending or, to the knowledge of the Shareholder, threatened, nor has any
governmental entity indicated to the Company or any of the Company Subsidiaries
an intention to conduct the same, and there is no action, suit or proceeding
pending or, to the knowledge of the Shareholder, threatened against or affecting
the Company or any of the Company Subsidiaries at law or in equity, or before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that either individually or in the
aggregate, does or is likely to result in an adverse change in the financial
condition, properties or business of the Company or any of the Company
Subsidiaries.
2.1.21. Absence of Certain Business Practices. Neither the Company nor any of
the Company Subsidiaries nor any of their officers, employees or agents, nor any
other person acting on their behalf, has, directly or indirectly, within the
past five years, given or agreed to give any gift or similar benefit to any
customer, supplier, government employee or other person who is or may be in a
position to help or hinder the business of the Company or any of the Company
Subsidiaries(or to assist them in connection with any actual or proposed
transaction) which (i) might subject the Company or any of the Company
Subsidiaries to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had an
adverse effect on the assets, business or operations of the Company or any of
the Company Subsidiaries, or (iii) if not continued in the future, might
adversely affect the assets, business operations or prospects of the Company or
any of the Company Subsidiaries or which might subject the Company or any of the
Company Subsidiaries to suit or penalty in a private or governmental litigation
or proceeding.
2.1.22. No Untrue Statements. The Shareholder has made available to Buyer true,
complete and correct copies of all contracts, documents concerning all
litigation and administrative proceedings, licenses, permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the assets and businesses of the Company and each of the Company Subsidiaries,
and such information covers all commitments and liabilities of the Company and
each of the Company Subsidiaries relating to their business or the assets. This
Agreement and the agreements and instruments to be entered into in connection
herewith do not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements made herein and therein not
misleading in any material respect.
2.1.23. Consents and Approvals. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by the Shareholder in
connection with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.1.24. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Shareholder and his
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, finders fee or any similar
payments.
<PAGE>
2.2. Representations and Warranties of Buyer. Buyer represents and warrants to
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 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. 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.
<PAGE>
2.2.4. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Buyer and its counsel
directly with the Company and the Shareholder and his 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, finders fee or any similar payments.
ARTICLE 3
Additional Agreements
3.1. Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, the Shareholder agrees that for a period of 42 months from the date
hereof, he will not, directly or indirectly, acting alone or as a member of a
partnership or as an officer, director, employee, consultant, representative,
holder of, or investor in as much as 5% of any security of any class of any
corporation or other business entity (i) engage in competition with the business
or businesses conducted by the Company, any of the Company Subsidiaries, on the
date hereof, or in any service business the services of which are provided and
marketed by the Company, any of the Company Subsidiaries, on the date hereof in
any state of the United States, or any foreign country in which the Company, any
of the Company Subsidiaries, transacts business on the date hereof; (ii) request
any present customers or suppliers of the Company, any of the Company
Subsidiaries, to curtail or cancel their business with the Company, any of the
Company Subsidiaries, (iii) disclose to any person, firm or corporation any
trade, technical or technological secrets of the Company, any of the Company
Subsidiaries, Buyer or any affiliate of Buyer or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of the Company, any of the Company Subsidiaries, Buyer or any
affiliate of Buyer to terminate his employment with such entity. The Shareholder
agrees that if either the length of time or geographical area set forth in this
Section 3.1 is deemed too restrictive in any court proceeding, the court may
reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 3.1 are in addition to
any other obligations that the Shareholder may have under the laws of any
jurisdiction in which they do business requiring an employee of a business or a
shareholder who sells his stock in a corporation (including a disposition in a
merger) to limit his activities so that the goodwill and business relations of
his employer and of the corporation whose stock he has sold (and any successor
corporation) will not be materially impaired. The Shareholder further agrees and
acknowledges that the Company, each of the Company Subsidiaries and Buyer do not
have any adequate remedy at law for the breach or threatened breach by the
Shareholder of this covenant, and agree that the Company, each of the Company
Subsidiaries or Buyer may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin the Shareholder from
such breach or threatened breach. If any provisions of this Section 3.1 are held
to be invalid or against public policy, the remaining provisions shall not be
affected thereby. The Shareholder acknowledges that the covenants set forth in
this Section 3.1 are being executed and delivered by such Shareholder in
consideration of the covenants of Buyer contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
3.2. Facility Lease. From the date hereof, the Shareholder hereby agrees to
lease to the Company its current facilities in Woodward, Oklahoma pursuant to
the terms and provisions of those certain Lease Agreements of even date herewith
by and between the Company and the Shareholder executed and delivered in
connection herewith.
3.3. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
<PAGE>
ARTICLE 4
Indemnification
4.1. Indemnification by the Shareholder. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, the Shareholder
shall indemnify, defend and hold harmless the Company, Buyer and their
affiliates and their respective officers, directors, employees, agents and
stockholders (collectively, the Buyer Indemnified Parties ), against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable fees and expenses of attorneys, consultants
and experts (collectively, the Damages ) that the Buyer Indemnified Parties
shall incur or suffer, which arise, result from or relate to (i) any breach by
the Shareholder of (or the failure of the Shareholder to perform) his
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Buyer by the Shareholder under this Agreement or (ii) [scheduled liabilities].
4.2. Indemnification by Buyer. In addition to any other remedies available to
the Shareholder under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless the Shareholder against and with respect to
any and all Damages that such indemnitees shall incur or suffer, which arise,
result from or relate to any breach of, or failure by Buyer to perform, any of
its representations, warranties, covenants or agreements in this Agreement or in
any schedule, certificate, exhibit or other instrument furnished or delivered to
the Shareholder by or on behalf of Buyer under this Agreement.
4.3. Indemnification Procedure. In the event that any party hereto discovers or
otherwise becomes aware of an indemnification claim arising under Section 4.1 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to Section 4.1 hereof, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
<PAGE>
ARTICLE 5
Miscellaneous
5.1. Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive
indefinitely 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:
WellTech Eastern, Inc. Porter & Hedges, L.L.P.
Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel Attn: Samuel N. Allen
Facsimile: (908) 247-5148 Facsimile: (713) 228-1331
If to Shareholder
Addressed to: With a copy to:
Donald R. Jeter Donald C. Gaston, Esq.
HC 51 Box 122E, Suite 302 P. O. Box 887
Graford, Texas 76449 Woodward, Oklahoma 73802
Facsimile: (580) 254-5314
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
5.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
5.6. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Oklahoma.
IN WITNESS WHEREOF, the Shareholder has executed this Agreement and Buyer has
caused this Agreement to be signed in its corporate names by its duly authorized
representative, all as of the day and year first above written.
WELLTECH EASTERN, INC.
By:
Name:
Title:
SHAREHOLDER
Donald R. Jeter
Stock Purchase Agreement
among
Key Energy Drilling, Inc.
and
Robert C. Jones
and
Dana Lunette Jones
Dated as of November 24, 1997
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of
November 24, 1997 by and among Key Energy Drilling, Inc., a Delaware corporation
("Buyer"), and Robert C. Jones and Dana Lunette Jones (the "Shareholders").
- --------------------------------------------------------------------------------
WITNESSETH
- --------------------------------------------------------------------------------
Whereas, Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its principal executive offices at Two Tower
Center, Tenth Floor, East Brunswick, New Jersey 08816; and
Whereas, Win-Tex Drilling Co., Inc. ("Win-Tex Drilling") and Win-Tex Trucking
Corporation ("Win-Tex Trucking") are each corporations duly organized and
validly existing under the laws of the state of Texas, with their principal
executive offices at 4549 Loop 322, Abilene, Texas 79602; and
Whereas, the Shareholders own (a) 1,000 shares (the "Win-Tex Drilling Shares")
of common stock, $1.00 par value, of Win-Tex Drilling (the "Win-Tex Drilling
Common Stock"), which constitutes all of the issued and outstanding shares of
capital stock of Win-Tex Drilling and (b) 1,000 shares (the "Win-Tex Trucking
Shares") of common stock, $1.00 par value, of Win-Tex Trucking (the "Win-Tex
Trucking Common Stock") which constitutes all of the issued and outstanding
shares of capital stock of Win-Tex Trucking; and
Whereas the Shareholders desire to sell to Buyer, and Buyer desires to purchase
from the Shareholders all of the issued and outstanding capital stock of Win-Tex
Drilling and Win-Tex Trucking (individually, a "Company" and collectively, the
"Companies").
Now, Therefore, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale
1.1. Purchase and Sale of the Win-Tex Drilling Shares and the Win-Tex Trucking
Shares. Subject to the terms and conditions of this Agreement, on the date
hereof, the Shareholders agree to sell and convey to Buyer, free and clear of
all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to
purchase and accept from the Shareholders, all of the Win-Tex Drilling Shares
and all of the Win-Tex Trucking Shares. In consideration of the sale of the
Win-Tex Drilling Shares and the Win-Tex Trucking Shares, Buyer shall pay to the
Shareholders a purchase price equal to the sum of the following:
(a) $5,000,000 ($50,000 of which is acknowledged by the parties to be
consideration for the covenant against competition set forth in Section 3.1
hereof) ;
(b) $36,029.00, being the amount expended by the Companies for capital
equipment purchased since October 17, 1997, all of which purchases have
been discussed with the Buyer and all of which are described on Schedule
1.1(b) hereto;
(c) $1,520,000.00 (the "80% Payment"), being approximately 80% of the Estimated
Net Closing Date Value of the Companies (defined below); and
(d) The Cash Adjustment Payment (as defined in Section 1.3 hereof), if any.
The amounts payable to the Shareholders pursuant to 1.1(a) and (c) above shall
be payable upon execution hereof by wire transfer of immediately available
funds.
The term "Estimated Net Closing Date Value of the Companies" means the dollar
amount by which the "Total Current Assets" plus $323,834.89 plus $262,843.00
exceeds "Total Liabilities" as reflected on the Estimated Closing Date Balance
Sheet (defined below).
The term "Estimated Closing Date Balance Sheet" means the consolidated balance
sheet of the Companies as of the date hereof prepared by the Shareholders in
accordance with the requirements for preparation of the Final Closing Date
Balance Sheet set forth in Section 1.3 hereof, a copy of which is attached
hereto as Schedule 1.1(c).
The Buyer acknowledges and agrees that the Companies will remain liable for all
liabilities of the Companies in existence on the date hereof or incurred by the
Companies after the date hereof; provided, however, that the foregoing shall not
in any way relieve the Shareholders from their indemnification obligations set
forth in Section 4.1 hereof.
1.2. Delivery of the Stock Certificates. The Shareholders shall deliver to Buyer
on the date hereof duly and validly issued certificates representing all of the
Win-Tex Drilling Shares and all of the Win-Tex Trucking Shares, each such
certificate having been duly endorsed in blank and in good form for transfer or
accompanied by stock powers duly executed in blank, sufficient and in good form
to properly transfer such shares to Buyer.
1.3 Adjustment of Purchase Price. Buyer shall cause to be prepared and delivered
to the Shareholders a consolidated balance sheet of the Companies as of the date
hereof (the "Final Closing Date Balance Sheet") within thirty (30) days after
the date hereof. The Final Closing Date Balance Sheet shall be accurately
compiled to reflect all of the Companies' accounts receivable, accounts payable
and other current assets and its current and long-term liabilities as of the
date hereof, including an accurate reflection of the income taxes payable by the
Companies which have accrued through the date hereof. Buyer and the Shareholders
shall jointly review the Final Closing Date Balance Sheet, endeavor in good
faith to resolve all disagreements regarding the entries thereon and reach a
final determination thereof within forty-five (45) days from the date hereof.
Within 10 days of reaching such final determination, the following adjusting
payments shall be made.
(1) If the Final Closing Date Value of the Companies (defined below) exceeds
the 80% Payment, Buyer shall pay to the Shareholders the amount of such
excess (the "Cash Adjustment Payment").
(2) If the Final Closing Date Value of the Companies is less than 80% Payment,
the Shareholders shall pay to Buyer the amount of such difference.
The term "Final Closing Date Value of the Companies" means the dollar amount by
which the "Total Current Assets" plus $323,834.89 plus $262,843.00 exceeds the
"Total Liabilities" as reflected on the Final Closing Date Balance Sheet.
<PAGE>
ARTICLE 2
Representations and Warranties
2.1. Representations and Warranties of the Shareholders. Each of the
Shareholders jointly and severally represents and warrants to Buyer as follows:
2.1.1. Organization and Standing. Each of the Companies is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Texas, has full requisite corporate power and authority to carry on its business
as it is currently conducted, and to own and operate the properties currently
owned and operated by it, and is duly qualified or licensed to do business and
is in good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on its financial condition, properties or
business.
2.1.2. Agreement Authorized and its Effect on Other Obligations. Each of the
Shareholders is a resident of Taylor County, Texas, above the age of 18 years
and has the legal capacity and requisite power and authority to enter into, and
perform his or her obligations under this Agreement. This Agreement is a valid
and binding obligation of the Shareholders enforceable against each of the
Shareholders (subject to normal equitable principles) in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement by the
Shareholders will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (i) the Articles of
Incorporation or Bylaws of either of the Companies or (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
either of the Companies or either of the Shareholders is a party or by which
either of the Companies or either of the Shareholders or their respective
properties are bound.
2.1.3. Capitalization. The authorized capitalization of the Win-Tex Drilling
consists of 1,000 shares of Win-Tex Drilling Common Stock, of which, as of the
date hereof, 1,000 shares are issued and outstanding and held beneficially and
of record by the Shareholders. The authorized capitalization of Win-Tex Trucking
consists of 1,000,000 shares of Win-Tex Trucking Common Stock, of which, as of
the date hereof, 1,000 shares are issued and outstanding and held of record by
the Shareholders. On the date hereof, neither of the Companies has any
outstanding options, warrants, calls or commitments of any character relating to
any of their authorized but unissued shares of capital stock. All issued and
outstanding shares of the Win-Tex Drilling Common Stock and the Win-Tex Trucking
Common Stock are validly issued, fully paid and non-assessable and are not
subject to preemptive rights. The outstanding shares of Win-Tex Drilling Common
Stock and Win-Tex Trucking Common Stock are not subject to any voting trusts,
voting agreement or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect thereto.
2.1.4. Ownership of the Win-Tex Drilling Shares and the Win-Tex Trucking Shares.
The Shareholders hold good and valid title to all of the Win-Tex Drilling Shares
and all of the Win-Tex Trucking Shares, free and clear of all Encumbrances. The
Shareholders possess full authority and legal right to sell, transfer and assign
to Buyer the Win-Tex Drilling Shares and the Win-Tex Trucking Shares, free and
clear of all Encumbrances. Upon transfer to Buyer by the Shareholders of the
Win-Tex Drilling Shares and the Win-Tex Trucking Shares, Buyer will own the
Win-Tex Drilling Shares and the Win-Tex Trucking Shares free and clear of all
Encumbrances. There are no claims pending or, to the knowledge of the
Shareholders, threatened, against either of the Companies or the Shareholders
that concern or affect title to the Win-Tex Drilling Shares and the Win-Tex
Trucking Shares, or that seek to compel the issuance of capital stock or other
securities of either of the Companies.
2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture,
business trust or other legal entity in which either of the Companies, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of at least a majority of the outstanding voting
securities.
2.1.6. Financial Statements. Each of the Companies has delivered to Buyer copies
of its unaudited balance sheet (the "9/30 Balance Sheets") and related
statements of income as, at and for the nine months ended September 30, 1997
(the "Balance Sheet Date"), copies of which are attached hereto as Schedule
2.1.6 (collectively, the "9/30 Financial Statements"). The 9/30 Financial
Statements are complete in all material respects. Except for the exclusion of
accounts receivable and accounts payable on the 9/30 Balance Sheets, the 9/30
Financial Statements present fairly the financial condition of the Companies in
accordance with accounting practices used for Federal income tax purposes
applied on a consistent basis at the date and for the period indicated. All
accounts receivable of the Companies as of the Balance Sheet Date have been
collected or are collectible in full. The inventories of each of the Companies
consist of items of a quality usable and salable in the normal course of the
Companies= businesses.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, neither of the
Companies has any liabilities or obligations, either accrued, absolute or
contingent, nor do the Shareholders have any knowledge of any potential
liabilities or obligations, other than those (i) reflected or reserved against
in the 9/30 Balance Sheets or (ii) incurred in the ordinary course of business
since the Balance Sheet Date, none of which would materially adversely affect
the value and conduct of the business of either of the Companies.
2.1.8. Additional Win-Tex Drilling and Win-Tex Trucking Information. Attached as
Schedule 2.1.8 hereto are true, complete and correct lists of the following
items:
2.1.8.1. Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by each of the
Companies (by Company), with a description of the nature and amount of any
Encumbrances (defined below) thereon. The term "Encumbrances" means all liens,
security interests, pledges, mortgages, deed of trust, claims, rights of first
refusal, options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights-of-way,
limitations, reservations, restrictions and other encumbrances of any kind or
nature;
2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery,
transportation equipment, tools, equipment, furnishings and fixtures owned,
leased or subject to a contract of purchase and sale, or lease commitment, by
each of the Companies (by Company) with a description of the nature and amount
of any Encumbrances thereon;
2.1.8.3. Inventory. All inventory items or groups of inventory items owned by
each of the Companies (by Company) together with the amount of any Encumbrances
thereon;
2.1.8.4. Receivables. All accounts and notes receivable of each of the Companies
(by Company), together with (i) aging schedules by invoice date and due date,
(ii) the amounts provided for as an allowance for bad debts, (iii) the identity
and location of any asset in which either of the Companies hold a security
interest to secure payment of the underlying indebtedness, and (iv) a
description of the nature and amount of any Encumbrances on such accounts and
notes receivable;
2.1.8.5. Payables. All accounts and notes payable of each of the Companies (by
Company), together with appropriate aging schedules;
2.1.8.6. Insurance. All insurance policies or bonds currently maintained by each
of the Companies (by Company), including title insurance policies and those
covering the Companies= properties, rigs, carriers, rig equipment, machinery,
transportation equipment, fixtures, employees and operations, as well as a
listing of any premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
2.1.8.7. Contracts; Leases. All contracts, including leases under which either
of the Companies is lessor or lessee, which are to be performed in whole or in
part after the date hereof;
2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other employee benefit or fringe benefit plans,
arrangements or trust agreements of each of the Companies (by Company) or any
employee benefit plan maintained by either of the Companies (collectively, the
"Employee Plans"), together with copies of the most recent reports with respect
to such plans, arrangements, or trust agreements filed with any governmental
agency and all Internal Revenue Service determination letters and other
correspondence from governmental entities that have been received with respect
to such plans, arrangements or agreements;
2.1.8.9. Certain Salaries. The names and salary rates of all present employees
of each of the Companies (by Company), and, to the extent existing on the date
of this Agreement, all arrangements with respect to any bonuses to be paid to
them from and after the date of this Agreement;
2.1.8.10. Bank Accounts. The name of each bank in which either of the Companies
has an account and the names of all persons authorized to draw thereon;
2.1.8.11. Labor Agreements. Any collective bargaining agreements of either of
the Companies (by Company) with any labor union or other representative of
employees, including amendments, supplements, and written or oral
understandings, and all employment and consulting and severance agreements of
either of the Companies;
2.1.8.12. Intellectual Property. All patents, patent applications, trademarks
and service marks (including registrations and applications therefor), trade
names, copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the
"Intellectual Property") used by either of the Companies;
2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used
or held by either of the Companies, whether and where such names are registered
and where used;
2.1.8.14. Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of either of the Companies under which such
Company conducts its business.
2.1.8.15. Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of either of the Companies relating thereto or with respect to
collateral securing the same;
2.1.8.16. Guaranties. All indebtedness, liabilities and commitments of others
and as to which either of the Companies is a guarantor, endorser, co-maker,
surety, or accommodation maker, or is contingently liable therefor and all
letters of credit, whether stand-by or documentary, issued by any third party;
2.1.8.17. Reserves and Accruals. All accounting reserves and accruals maintained
in the 9/30 Balance Sheets; and
2.1.8.18. Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by either of the Companies and all environmental audits, assessments,
investigations and reviews conducted by either of the Companies within the last
five years or otherwise in the possession of either of the Companies on any
property owned, leased or used by either of the Companies.
2.1.9. No Defaults. Neither Company is not a party to, or bound by, any contract
or arrangement of any kind to be performed after the date hereof (except as
provided in Schedule 2.1.8.7 hereto), nor is either of the Companies in default
in any obligation or covenant on its part to be performed under any obligation,
lease, contract, order, plan or other arrangement.
2.1.10. Absence of Certain Changes and Events. Other than as specified in
Schedule 2.1.10 hereto, since the Balance Sheet Date, there has not been:
2.1.10.1. Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of either of the Companies;
2.1.10.2. Property Damage. Any material damage, destruction, or loss to the
business or properties of either of the Companies (whether or not covered by
insurance);
2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the Win Tex Drilling Common Stock or the
Win-Tex Trucking Common Stock, or any direct or indirect redemption, purchase or
any other acquisition by either of the Companies of any such stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of the authorized or outstanding capital stock of
either of the Companies as described in Section2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature; or
2.1.10.6. Other Adverse Changes. Any other event or condition known to the
Shareholders particularly pertaining to and adversely affecting the operations,
assets or business of either of the Companies.
2.1.11. Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by each
of the Companies for each period for which any such returns, reports, or
estimates were due (taking into account any extensions of time to file before
the date hereof); all such returns are true and correct; the Companies have only
done business in the State of Texas; all taxes shown by such returns to be
payable and any other taxes due and payable have been paid; and the tax
provisions reflected in the 9/30 Balance Sheets are sufficient to cover
liabilities of each of the Companies at the date thereof for all taxes,
including any assessed interest, assessed penalties and additions to taxes of
any character whatsoever applicable to the Companies or their assets or
businesses. No waiver of any statute of limitations executed by either of the
Companies with respect to any income or other tax is in effect for any period.
The income tax returns of the Companies have never been examined by the Internal
Revenue Service or the taxing authorities of any other jurisdiction. There are
no tax liens on any assets of either of the Companies except for taxes not yet
currently due. Neither of the Companies is subject to any tax-sharing or
allocation agreement. Neither of the Companies is, nor has it ever attempted to
become a Subchapter S-Corporation under the Internal Revenue Code of 1986, as
amended. Neither of the Companies is or ever has been, a member of a
consolidated group subject to Treasury Regulation 1.1502-6 or any similar
provision.
2.1.12. Intellectual Property. Each of the Companies owns or possesses licenses
to use all Intellectual Property that is either material to the business of such
Company or that is necessary for the rendering of any services rendered by such
Company and the use or sale of any equipment or products used or sold by such
Company, including all such Intellectual Property listed in Schedule 2.1.8.12
hereto (the "Required Intellectual Property"). The Required Intellectual
Property is owned or licensed by the Company using the same free and clear of
any Encumbrance. Neither Company has granted to any other person any license to
use any Required Intellectual Property. Neither Company has received any notice
of infringement, misappropriation, or conflict with, the Intellectual Property
rights of others in connection with the use by such Company of the Required
Intellectual Property or otherwise in connection with such Company's operation
of its business.
2.1.13. Title to and Condition of Assets. Each of the Companies has good,
indefeasible and marketable title to all its properties, interests in properties
and assets, real and personal, reflected in the 9/30 Balance Sheets or in
Schedule 2.1.8.1 hereto, free and clear of any Encumbrance of any nature
whatsoever, except (i) Encumbrances reflected in the 9/30 Balance Sheets or in
Schedule 2.1.8.1 hereto, (ii) liens for current taxes not yet due and payable,
and (iii) such imperfections of title, easements and Encumbrances, if any, as
are not substantial in character, amount, or extent and do not and will not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby, or otherwise materially impair
business operations. All leases pursuant to which either of the Companies leases
(whether as lessee or lessor) any substantial amount of real or personal
property are in good standing, valid, and effective; and there is not, under any
such leases, any existing default or event of default or event which with notice
or lapse of time, or both, would constitute a default by either of the Companies
and in respect to which such Company has not taken adequate steps to prevent a
default from occurring. The buildings and premises of each of the Companies that
are used in its business are in good operating condition and repair, subject
only to ordinary wear and tear. All rigs, carriers, rig equipment, machinery,
transportation equipment, tools and other major items of equipment of each of
the Companies are, to the best knowledge of the Shareholders, in good operating
condition and in a state of reasonable maintenance and repair, ordinary wear and
tear excepted, and are free from any known defects except as may be repaired by
routine maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal operations. To the best
of the Shareholders= knowledge, all such assets conform to all applicable laws
governing their use. No notice of any violation of any law, statute, ordinance,
or regulation relating to any such assets has been received by either of the
Companies or the Shareholders, except such as have been fully complied with.
2.1.14. Contracts. All contracts, leases, plans or other arrangements to which
either of the Companies is a party, by which it is bound or to which it or its
assets are subject are in full force and effect, and constitute valid and
binding obligations of such Company. Neither of the Companies is, and to the
knowledge of the Shareholders, no other party to any such contract, lease, plan
or other arrangement is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No contract has been entered into on
terms which could reasonably be expected to have an adverse effect on either of
the Companies. The Shareholders have not received any information which would
cause either of the Shareholders to conclude that any customer of the Company
will (or is likely to) cease doing business with either of the Companies (or its
successors) as a result of the consummation of the transactions contemplated
hereby.
2.1.15. Licenses and Permits. Each of the Companies possesses all Permits
necessary under law or otherwise for such Company to conduct its business as now
being conducted and to construct, own, operate, maintain and use its assets in
the manner in which they are now being constructed, operated, maintained and
used, including all such Permits listed in Schedule 2.1.8.15 hereto
(collectively, the "Required Permits"). Each of the Required Permits and the
rights of each of the Companies with respect thereto is valid and subsisting, in
full force and effect, and enforceable by such Company subject to administrative
powers of regulatory agencies having jurisdiction. Each of the Companies is in
compliance in all respects with the terms of each of the Required Permits. None
of the Required Permits has been, or to the knowledge the Shareholders, is
threatened to be, revoked, canceled, suspended or modified.
2.1.16. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no
suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which either of the Companies is a party
or, to the knowledge of the Shareholders, might become a party or which
particularly affects the either of Companies or their assets, nor is any change
in the zoning or building ordinances directly affecting the real property or
leasehold interests of either of the Companies, pending or, to the knowledge of
the Shareholders, threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. There are no environmental conditions or
circumstances, including, without limitation, the presence or release of any
Substance of Environmental Concern or Waste on any property presently or
previously owned, leased or operated by either of the Companies, or on any
property on which any Substance of Environmental Concern or Waste generated by
either of the Companies= operations or use of its assets were disposed of, which
would have a material adverse effect on the business or business prospects of
such Company. The term "Substance of Environmental Concern or Waste" means (a)
any gasoline, petroleum (including crude oil or any fraction thereof), petroleum
product, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutant, contaminant, radiation and any other substance of any kind, whether
or not any such substance is defined as toxic or hazardous under any
Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated
pursuant to or could give rise to liability under any Environmental Law;
2.1.17.2. Permits, etc. Each Company has, and within the period of all
applicable statutes of limitations has had, in full force and effect all
Environmental Permits required to conduct its operations. Each Company is, and
within the period of all applicable statutes of limitations has been, operating
in compliance under such Environmental Permits. "Environmental Permits" as used
in this Agreement means any and all permits, licenses, registrations, approvals,
notifications, exemptions and any other authorizations required under
Environmental Laws (as defined in Section 2.1.17.3 hereof);
2.1.17.3. Compliance. Each Company's operations and use of its assets are, and
within the period of all applicable statutes of limitations, have been in
compliance with applicable Environmental Law. "Environmental Law" as used in
this Agreement means any and all laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, and other legally enforceable requirements
(including, without limitation, common law) of the United States, or any State,
local, municipal or other governmental authority or quasi-governmental
authority, regulating, relating to, or imposing liability or standards of
conduct concerning protection of the environmental or of human health, or
employee health and safety as from time to time has been or is now in effect.
2.1.17.4. Environmental Claims. No notice has been received by either of the
Companies or the Shareholders, or to the knowledge of either of the Companies or
the Shareholders, by any predecessor of either of the Companies or the
Shareholders, from any entity, governmental agency or individual regarding (nor
is either of the Companies or either of the Shareholders otherwise aware of) any
existing, pending or threatened investigation, inquiry, enforcement action.
litigation, or liability, including, without limitation any claim for remedial
obligations, response costs or contribution, relating to any Environmental Law;
2.1.17.5. Enforcement. Neither of the Companies, and to the knowledge of the
Shareholders, no predecessor of either of the Companies or other party acting on
behalf of either of the Companies, has entered into or agreed to any consent
decree, order, settlement or other agreement, nor is subject to any judgment,
decree, order or other agreement, in any judicial, administrative, arbitral, or
other forum, relating to compliance with or liability under any Environmental
Law;
2.1.17.6. Liabilities. Neither of the Companies has assumed or retained, by
contract or operation of law, any liabilities of any kind, fixed or contingent,
known or unknown, under any Environmental Law;
2.1.17.7. Renewals. Neither the Companies nor the Shareholders know of any
reason either of the Companies (or their successors) would not be able to renew
without material expense any Environmental Permit required pursuant to any
Environmental Law to conduct and use any of either of the Companies= current or
planned operations; and
2.1.17.8. Asbestos and PCBs. No friable asbestos currently exists on any
property owned or operated by either of the Companies, nor do polychlorinated
biphenyls exist in concentrations of 50 parts per million or more in electrical
equipment owned or being used by either of the Companies in their operations or
on their properties.
2.1.18. Compliance with Other Laws. Neither of the Companies is in violation of
or in default with respect to, or in alleged violation of or alleged default
with respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et
seq.) as amended, or any other applicable law or any applicable rule,
regulation, or any writ or decree of any court or any governmental commission,
board, bureau, agency, or instrumentality, or delinquent with respect to any
report required to be filed with any governmental commission, board, bureau,
agency or instrumentality.
2.1.19. ERISA Plans and Labor Issues. Other than the plans (the "Qualified
Plans") described in Schedule 2.1.8.8 hereto, the Companies do not currently
sponsor, maintain or contribute to, and have not at any time sponsored,
maintained or contributed to any employee benefit plan which is or was subject
to any provisions of the Employee Retirement Income Security Act of 1974, as
Amended ("ERISA"). The Qualified Plans comply with and have been administered in
a form and in operation in compliance with all applicable laws, including
without limitation, ERISA, the Internal Revenue Code of 1986, as amended (the
"Code") and the Consolidated Omnibus budget Reconciliation Act of 1985, as
amended ("COBRA"), and neither of the Shareholders has received any notice from
any governmental authority questioning or challenging such compliance. The
Qualified Plans have not been conducted in such a manner as would give rise to
any material fine, penalties, taxes, claims or charges against the Companies by
a governmental entity or any third party or otherwise result in a material
adverse effect on the financial condition of either Company. No claims, demands
or causes of action exist with respect to the Qualified Plans except routine
claims for benefits thereunder. All contributions required to be made to the
Qualified Plans have been timely made prior to the date hereof. The execution,
delivery and performance of this agreement will not cause the Qualified Plans to
be terminated or otherwise adversely affect the administration or operation
thereof. The Companies' administration of their Qualified Plans following the
date hereof in the same manner as such Qualified Plans were administered by the
Companies prior to the date here of will not violate any applicable laws or
otherwise result in any material adverse effect on the financial condition of
the Companies. The Companies do not maintain any plan, program, policy, contract
or other arrangement that provide retirement, medical, dental, disability, life
insurance or other benefits to any current or former employees of the Companies,
including any retired employees, or their beneficiaries or dependents. During
the six years preceding the date hereof (i) the Companies have not participated
in or contributed to or had any obligation to contribute to any multiemployer
plan (as defined in ERISA Section 3(7)) and has no withdrawal liability with
respect to any multiemployer plan, and (ii) have not maintained any pension plan
subject to ERISA. The Companies are not obligated to pay any severance or
benefits to any employee or former employee of the Companies as the result of
any change in the ownership or control of the Companies. The Companies have not
engaged in any unfair labor practices which could reasonably be expected to
result in an adverse effect on their operations or assets. The Companies do not
have any dispute with any of their existing or former employees. The Companies
are not subject to any collective bargaining agreement with any labor union or
other representative of employees. There are no labor disputes or, to the
knowledge of either of the Shareholders, any disputes threatened by current or
former employees of the Companies.
2.1.20. Investigations; Litigation. No investigation or review by any
governmental entity with respect to either of the Companies or any of the
transactions contemplated by this Agreement is pending or, to the knowledge of
the Shareholders, threatened, nor has any governmental entity indicated to
either of the Companies an intention to conduct the same, and there is no
action, suit or proceeding pending or, to the knowledge of the Shareholders,
threatened against or affecting either of the Companies at law or in equity, or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, that either individually
or in the aggregate, does or is likely to result in any material adverse change
in the financial condition, properties or business of either of the Companies.
2.1.21. Absence of Certain Business Practices. Neither of the Companies nor any
officer, employee or agent of either of the Companies, nor any other person
acting on either Company's behalf, has, directly or indirectly, within the past
five years, given or agreed to give any gift or similar benefit to any customer,
supplier, government employee or other person who is or may be in a position to
help or hinder the business of either of the Companies (or to assist either of
the Companies in connection with any actual or proposed transaction) which (i)
might subject either of the Companies to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in the
past, might have had a material adverse effect on the assets, business or
operations of either of the Companies as reflected in the 9/30 Financial
Statements, or (iii) if not continued in the future, might materially adversely
effect the assets, business operations or prospects of either of the Companies
or which might subject the Companies to suit or penalty in a private or
governmental litigation or proceeding.
2.1.22. No Untrue Statements. Each of the Companies and each of the Shareholders
have made available to Buyer true, complete and correct copies of all contracts,
documents concerning all litigation and administrative proceedings, licenses,
permits, insurance policies, lists of suppliers and customers, and records
relating principally to the Companies= assets and business, and such information
covers all commitments and liabilities of the Companies relating to their
businesses and assets. This Agreement and the agreements and instruments to be
entered into in connection herewith do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading in any material respect.
2.1.23. Consents and Approvals. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity other than the Shareholders, is required to be made or
obtained by either of the Companies or either of the Shareholders in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.1.24. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by 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 the
Buyer or the Companies for a brokerage commission, finder's fee or any similar
payments.
2.2. Representations and Warranties of Buyer. Buyer represents and warrants to
the Shareholders 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, except where the failure to be so qualified or licensed would not
have a material adverse effect on its financial condition, properties or
business.
2.2.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of 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 Companies 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.
<PAGE>
ARTICLE 3
Additional Agreements
3.1. Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, each Shareholder agrees that for a period of 60 months from the date
hereof, he or she will not, directly or indirectly, acting alone or as a member
of a partnership or as an officer, director, employee, consultant,
representative, holder of, or investor in as much as 5% of any security of any
class of any corporation or other business entity (i) engage in the contract oil
and gas drilling business within a two hundred (200) mile radius of Abilene,
Texas, (ii) request any present customers or suppliers of either of the
Companies, Buyer or any affiliate of Buyer to curtail or cancel their business
with either of the Companies, Buyer or any affiliate of Buyer; (iii) disclose to
any person, firm or corporation any trade, technical or technological secrets of
either of the Companies, Buyer or any affiliate of Buyer or any details of their
organization or business affairs or (iv) induce or actively attempt to influence
any employee of either of the Companies, Buyer or any affiliate of Buyer to
terminate his employment. Each Shareholder agrees that if either the length of
time or geographical area set forth in this Section 3.1 is deemed too
restrictive in any court proceeding, the court may reduce such restrictions to
those which it deems reasonable under the circumstances. The obligations
expressed in this Section 3.1 are in addition to any other obligations that the
Shareholders may have under the laws of the states in which they do business
requiring an employee of a business or a Shareholders who sells his stock in a
corporation (including a disposition in a merger) to limit his or her activities
so that the goodwill and business relations of his or her employer and of the
corporation whose stock he or she has sold (and any successor corporation) will
not be materially impaired. Each Shareholder further agrees and acknowledges
that the Companies, Buyer and its affiliates do not have any adequate remedy at
law for the breach or threatened breach by the Shareholders of this covenant,
and agree that each of the Companies, Buyer or any affiliate of Buyer may, in
addition to the other remedies which may be available to them hereunder, file a
suit in equity to enjoin 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. Each Shareholder
acknowledges that the covenants set forth in this Section 3.1 are being executed
and delivered by the Shareholders in consideration of the covenants of Buyer
contained in this Agreement, and for other good and valuable consideration,
including the payment of the sum of $50,000, receipt of all of which is hereby
acknowledged.
3.2. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
3.3. Companies= Stock Not Registered. Each Company is a privately held
corporation and Buyer acknowledges such. The stock of the Companies has not been
registered under the Securities Act of 1933, as amended (the "Act") or under any
applicable state securities laws, and the stock, therefore, cannot be offered
for sale, sold, transferred, pledged or otherwise hypothecated except in
accordance with the registration requirements of the Act and other such state
laws as may be applicable. Buyer acknowledges that the Shareholders have made
available to it such information and documents, and that Buyer understands the
risk associated with ownership of the capital stock of the Companies, and Buyer
is capable of bearing the financial risk associated therewith. The Companies=
shares and the dealings with Buyer are proceeding in reliance on exceptions from
registration or qualification requirements pursuant to state law.
3.4. Opinion of Shareholders= Counsel. Buyer shall have received a favorable
opinion, dated as of the date hereof, from George Scott Bishop, counsel to the
Shareholders, in form and substance satisfactory to Buyer, to the effect that
(i) each of the Companies has been duly incorporated and is validly existing as
a corporation and is in good standing under the laws of the State of Texas; (ii)
each of the Companies has fully requisite corporate power and authority to carry
on its business as it is currently conducted and to own and operate the
properties currently used and operated by it, and is duly qualified to do
business and is in good standing as a foreign corporation in each state in which
the nature of its business requires such qualification; (iii) all outstanding
shares of the common stock of each of the Companies have been validly issued and
are fully paid and non-assessable; (iv) the Shareholders hold good and valid
title to all of the shares of each of the Companies free and clear of all
Encumbrances; and (v) this Agreement has been duly executed and delivered by,
and is the legal, valid and binding obligation of the Shareholders, and is
enforceable against the Shareholders in accordance with its terms, except as the
enforceability may be limited by (a) equitable principles of general
applicability or (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may rely upon certificates of public
officials and of officers of each of the Companies or the Shareholders as to
matters of fact.
3.5. Opinion of Buyer=s Counsel. Shareholders shall have received a favorable
opinion, dated as of the date hereof, from Lynch, Chappell & Alsup, a
Professional Corporation, counsel for Buyer, in form and substance satisfactory
to the Shareholders, 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 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 the State of Texas; (ii) all corporate proceedings required to be
taken by or on the part of Buyer to authorize the execution of this Agreement
and the implementation of the transactions contemplated hereby have been taken;
(iii) this Agreement has been duly executed and delivered by, and is the legal,
valid and binding obligation of Buyer and is enforceable against Buyer in
accordance with its terms, except as the enforceability may be limited by (a)
equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon
certificates of public officials and of officers of Buyer as to matters of fact.
3.6. Fees and Expenses. Except as otherwise expressly provided in this
Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors and accountants incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fee or expense by or on the date hereof.
<PAGE>
ARTICLE 4
Indemnification
4.1. Indemnification by the Shareholders. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, the
Shareholders shall indemnify, defend and hold harmless each of the Companies,
Buyer and their affiliates and their respective officers, directors, employees,
agents and stockholders (collectively, the "Buyer Indemnified Parties"), against
and with respect to any and all claims, costs, damages, losses, expenses,
obligations, liabilities, recoveries, suits, causes of action and deficiencies,
including interest, penalties and reasonable fees and expenses of attorneys,
consultants and experts (collectively, the "Damages") that the Buyer Indemnified
Parties shall incur or suffer, which arise, result from or relate to (i) any
breach by the Shareholders of (or the failure of the Shareholders to perform)
their representations, warranties, covenants or agreements in this Agreement or
in any schedule, certificate, exhibit or other instrument furnished or delivered
to Buyer by the Shareholders under this Agreement (including, specifically,
those set forth in Section 2.1.17 hereto), (ii) the ownership and/or operation
by either of the Companies of those assets distributed to the Shareholders prior
to the date hereof (which are described in Schedule 2.1.10 hereto), and the
assumption by the Shareholders of the liabilities applicable to those assets.
Notwithstanding the foregoing, the Shareholders' obligations to indemnify,
defend and hold harmless the Buyer Indemnified Parties for liabilities resulting
from Damages that the Buyer Indemnified Parties may incur as a result of a
breach of the representations and warranties contained in Section 2.1.17 above
shall be limited to those Damages which exceed $150,000 in the aggregate.
4.2. Indemnification by Buyer. In addition to any other remedies available to
the Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless the Shareholders against and with respect to
any and all Damages that the Shareholders shall incur or suffer, which arise,
result from or relate to any breach of, or failure by Buyer to perform, any of
its representations, warranties, covenants or agreements in this Agreement or in
any schedule, certificate, exhibit or other instrument furnished or delivered to
the Shareholders by or on behalf of Buyer under this Agreement.
4.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Article 4 of this
Agreement, such indemnified party shall give written notice to the indemnifying
party, specifying such claim, and may thereafter exercise any remedies available
to such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to Sections 4.1 or 4.2 hereof, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
<PAGE>
ARTICLE 5
Miscellaneous
5.1. Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive the execution of this
Agreement and the closing of the transaction contemplated hereunder for a period
of two (2) years; provided, however, the representations and warranties
contained in Section 2.1.11 shall survive until the expiration of the applicable
statute of limitations associated with tax issues. 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, as of the date hereof,
except for information furnished as of a specific date as noted on the Schedules
hereto, and shall survive for a period of two (2) years from the date hereof
despite any investigation made by any party hereto or on its behalf. All
covenants and agreements contained herein shall survive as provided herein.
5.2. Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
5.3. Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
5.4. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Energy Drilling, Inc. Lynch, Chappell & Alsup
Two Tower Center, Tenth Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup
Facsimile: (908) 247-5148 Facsimile: (915) 683-2587
- --------------------------------------------------------------------------------
If to Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mr. Robert C. Jones Mr. George Scott Bishop
Ms. Dana Lunette Jones Attorney at Law
1225 Canterbury Suite 210, First National West Building
Abilene, Texas 79602 401 Cypress
Telephone: (915) 677-4234 Abilene, Texas 79601-5145
Facsimile: (915) 672-6986
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
5.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
5.6. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
5.9. Multiple Counterparts. This Agreement is executed in duplicate and multiple
originals and multiple signature pages. Each duplicate is considered an original
and has the same force and effect as if executed with an original signature by
all of the parties hereto.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the Buyer
has caused this Agreement to be signed in its corporate name by its respective
duly authorized representative, all as of the day and year first above written.
Shareholders
__________________________________________
Robert C. Jones
__________________________________________
Dana Lunette Jones
KEY ENERGY DRILLING, INC.
By:
Name:
Title:
Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Key Energy Group, Inc.,
and
White Rhino Drilling, Inc.
and
Jeff Critchfield
December 2, 1997
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this Agreement) is entered into as of December 2,
1997, among WellTech Eastern, Inc., a Delaware corporation (Buyer), Key Energy
Group, Inc., a Maryland corporation (Key), White Rhino Drilling, Inc., a
Michigan corporation (White Rhino), and Jeff Critchfield (Shareholder). White
Rhino is referred herein as the Seller. The effective date of this transaction
is December 2, 1997, at 7:00 a.m. (herein, Effective Date).
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
I.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all of the assets of the Seller existing on the
Effective Date other than the Excluded Assets (defined below), whether personal,
tangible or intangible, including, without limitation, the following assets of
the Seller relating to or used or useful in the operation of the businesses as
conducted by the Seller on and before the Effective Date (the Businesses) (all
such assets being sold hereunder are referred to collectively herein as the
Assets):
(a) all tangible personal property of the Seller (such as machinery, equipment,
and vehicles), including, without limitation, that which is more fully
described on Schedule 1.1(a) hereto (collectively, the Tangible Personal
Property);
(b) all of the inventory of the Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively, the
Inventories);
<PAGE>
(c) all of the Sellers intangible assets, including without limitation, (i)
all of the Sellers rights to the names under which it is incorporated or
under which it currently does business, (ii) all of the Sellers rights to
any patents, patent applications, trademarks and service marks (including
registrations and applications therefor), trade names, and copyrights and
written know-how, trade secrets, licenses and sublicenses and all other
similar proprietary data and the goodwill associated therewith
(collectively, the Intellectual Property) used or held in connection with
the Businesses, including without limitation, that which is more fully
described on Schedule 1.1(c) hereto (the Seller Intellectual Property)
and (iii) the Sellers account ledgers, sales and promotional literature,
computer software, books, records, files and data (including customer and
supplier lists), and all other records of the Seller relating to the Assets
or the Businesses, excluding the corporate minute books of the Seller
(collectively, the Intangibles);
(d) those leases and subleases relating to the Assets, as well as contracts,
contract rights, and agreements relating to the Assets or the operation of
the Businesses specifically listed on Schedule 1.1(d) hereto (collectively,
the Contracts);
(e) all of the permits, authorizations, certificates, approvals, registrations,
variances, waivers, exemptions, rights-of-way, franchises, ordinances,
orders, licenses and other rights of every kind and character
(collectively, the Permits) relating principally to all or any of the
Assets or to the operation of the Businesses, including, but not limited
to, that which is more fully described on Schedule 1.1(e) hereto
(collectively, the Seller Permits);
(f) the goodwill and going concern value of the Businesses; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever located
that are used in the Businesses or intended for use in the Businesses in
connection with, or that are necessary for the continued conduct of, the
Businesses, except for the Excluded Assets, as defined below.
The Assets shall not include the following (collectively, the Excluded Assets):
(i) all of the Sellers accounts receivable and all other rights of the Seller
to payment for services rendered by the Seller before the Effective Date; (ii)
all cash accounts of the Seller and all petty cash of the Seller kept on hand
for use in the Businesses; (iii) all right, title and interest of the Seller in
and to all prepaid rentals, other prepaid expenses, bonds, deposits and
financial assurance requirements, and other current assets relating to any of
the Assets or the Businesses; (iv) all assets in possession of the Seller but
owned by third parties; (v) the corporate charter, related organizational
documents and minute books of the Seller; (vi) the Cash Consideration (as
hereinafter defined) and the Key Shares (as hereinafter defined) paid or
delivered by Buyer or Key to Seller and/or Seller's designee pursuant to Section
1.2 hereof, (vii) all real property, leasehold improvements, furniture, fixtures
and leases and/or subleases relating to real property and (viii) those assets
listed on Schedule 1.1(h).
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the covenants and agreements of the Seller and the Shareholder
contained herein:
(a) Buyer agrees on the Effective Date to pay Seller, and the Sellers designee,
in the form of a cashiers check or bank check or wire transfer of
immediately available funds to an account or accounts designated by the
Seller and Seller's designee (the Cash Consideration), the following:
Seller: $629,380
Jordan Exploration Company, L.L.C.: $847,700
<PAGE>
b) Key, for the benefit of Buyer, agrees to issue in accordance with Section
4.8, hereof, the following shares of common stock of Key, par value $0.10
per share (Key Shares) to the Seller, or the Sellers designee, the
following:
Seller: 140,256 shares to be issued effective Jan. 2, 1998
Jordan Exploration
Company, L.L.C.: 72,240 shares to be issued effective on the Effective
Date
The Cash Consideration and the value of the Key Shares on the day immediately
preceding the Effective Date shall cumulatively be referred to as the Purchase
Price.
I.3 Liabilities. As of the Effective Date, Buyer shall assume those, and only
those, liabilities and obligations of the Seller to perform the Contracts to the
extent that the Contracts have not been performed and are not in default on the
Effective Date (the Assumed Liabilities). On and after the Effective Date, the
Seller shall be responsible for any and all other liabilities and obligations of
the Seller other than the Assumed Liabilities, including, without limitation,
any obligations or liabilities arising prior to the Effective Date from (i) the
Sellers employment of those employees of the Seller listed on Schedule 4.2
hereto, (ii) any violations of Environmental Law (as defined in Section 2.2.10
hereof), (iii) any environmental conditions or circumstances on any property
owned or leased by Seller or any property on which Seller performed services or
used the Assets, and (iv) the Sellers ownership or operation of the Assets or
conduct of the Businesses prior to the Effective Date (collectively, the
Retained Liabilities). The Buyer shall be responsible for any and all
liabilities and obligations arising with respect to the ownership and operation
of the Assets from and after the Effective Date, except to the extent that such
liabilities or obligations arise out of a breach by Seller or Shareholder of any
of their respective representations, warranties or covenants contained herein.
Article II
Representations and Warranties
II.1 General Representations and Warranties of the Seller and the Shareholder.
The Seller and the Shareholder jointly and severally represent and warrant to
Buyer as follows:
II.1.1. Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary.
<PAGE>
II.1.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholder and other action on the part of the Seller and the Shareholder, and
this Agreement is the valid and binding obligation of the Seller and the
Shareholder enforceable (subject to normal equitable principals) against each of
such parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the charter or
bylaws (or other organizational documents) of the Seller, (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
the Seller or the Shareholder is a party or by which the Seller or the
Shareholder or their respective properties are bound; or (iii) to the knowledge
of the Seller and Shareholder 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 Seller or the Shareholder or any of their respective properties are
subject.
II.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
Effective Date. All of the Contracts are in full force and effect, and
constitute valid and binding obligations of the applicable Seller. The Seller is
not in default, and to the knowledge of Seller and Shareholder no other party to
any of the Contracts is in default, thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Contract has been entered into on
terms which could reasonably be expected to have an adverse effect on the use of
the Assets by Buyer. The Seller or the Shareholder have received no 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. All of the Contracts are assignable (and are hereby validly assigned) to
Buyer without the consent of any other party thereto, or such consent has been
received.
<PAGE>
II.1.4. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). To the knowledge of Seller and Shareholder all of the Assets
are in a state of good operating condition and repair, ordinary wear and tear
excepted, and are free from any known defects except as may be repaired by
routine maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal operations. All of the
Assets conform to all applicable laws governing their use. No notice of any
violation of any law, statute, ordinance, or regulation relating to any of the
Assets has been received by the Seller or the Shareholder, except such as have
been fully complied with. The term Encumbrances means all liens, security
interests, pledges, mortgages, deeds of trust, claims, rights of first refusal,
options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights of way,
limitations, reservations, restrictions, and other encumbrances of any kind or
nature.
II.1.5. Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list
of all Permits necessary under law or otherwise for the operation, maintenance
and use of the Assets in the manner in which they are now being operated,
maintained and used. Each of the Seller Permits and the Sellers rights with
respect thereto is valid and subsisting, in full force and effect, and
enforceable by the Seller subject to administrative powers of regulatory
agencies having jurisdiction and further subject to applicable laws. The Seller
is in compliance in all material respects with the terms of each of the Seller
Permits. The Seller Permits have not been, or are not, to the knowledge of the
Seller or the Shareholder, threatened to be, revoked, canceled, suspended or
modified. To the knowledge of Seller and the Shareholder upon consummation of
the transactions contemplated hereby, all of the Seller Permits shall be
assignable (and are hereby assigned) to Buyer without the consent of any
regulatory agency or in accordance with applicable laws. On and after the
Effective Date, to the knowledge of Seller and the Shareholder each of the
Seller Permits and Buyers rights with respect thereto will be valid and
subsisting in full force and effect, and enforceable by Buyer subject only to
the administrative powers of regulatory agencies having jurisdiction over the
assigned Seller Permits and applicable laws.
II.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list
of all Intellectual Property material to or necessary for the continued conduct
of the Assets.
II.1.7. Financial Statements. The Seller has delivered to Buyer copies of an
unaudited financial statement of Seller, a copy of which is attached hereto as
Schedule 2.1.7 (the Seller Financial Statement), and includes an unaudited
balance sheet (the Unaudited Balance Sheet) as of September 30, 1997 (the
Balance Sheet Date). The Seller Financial Statement is true, correct and
complete in all material respects and presents fairly and fully the financial
condition of the Seller on that date and for the period indicated thereon as
accounted for under a tax basis accounting. The Seller Financial Statement has
been prepared using a tax basis for management purposes only. The account
classifications have been determined to derive the best tax benefit for the
Shareholder.
II.1.8. Absence of Certain Changes and Events. Since the Balance Sheet Date,
there has not been:
(a) Financial Change. Any material adverse change in the Assets, the Businesses
or the financial condition, operations, liabilities or prospects of the
Seller;
(b) Property Damage. Any material damage, destruction, or loss to any of the
Assets or the Businesses (whether or not covered by insurance);
<PAGE>
(c) Waiver. Any waiver or release of a material right of or claim held by the
Seller;
(d) Change in Assets. Except as set forth on Schedule 2.1.8(d), any material
acquisition, disposition, transfer, encumbrance, mortgage, pledge or other
encumbrance of any Asset of the Seller other than in the ordinary course of
business or other than the Excluded Assets;
(e) Labor Disputes. Any material labor disputes between the Seller and its
employees; or
(f) Other Changes. Any other event or condition known to the Seller or the
Shareholder that particularly pertains to and has or might have a material
adverse effect on the Assets, the operations of the Businesses or the
financial condition or prospects of the Seller.
For the purposes of this Section 2.1.8 a change will be considered material@ if
it has a value of $10,000, or more.
II.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, if any, in order to
validly transfer the Assets hereunder, including, without limitation, any
consents required to assign the Contracts and the Seller Permits.
<PAGE>
II.1.10. Environmental Matters. To the knowledge of Seller none of the current
or past operations of any of the Businesses 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). The Seller or the Shareholder has received no
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 Businesses, nor, to the knowledge of the Seller or
the Shareholder, is there any basis for any of the foregoing. To the knowledge
of Seller Buyer is not required to obtain any permits, licenses or similar
authorizations pursuant to any Environmental Law in effect as of the Effective
Date to operate and use any of the Assets for their current 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. There are no environmental conditions or
circumstances caused by Seller in whole or in part or exacerbated by Seller,
including the presence or release of any Hazardous Materials, on any property on
which Seller performed services or used the Assets which would result in an
adverse change in the Businesses 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.
II.1.11. No ERISA Plans or Labor Issues. Seller has no employee benefit plan.
The Seller has not engaged in any unfair labor practices which could reasonably
be expected to result in an adverse effect on the Assets. The Seller has no
dispute with any of its existing or former employees, and there are no labor
disputes or, to the knowledge of the Seller or the Shareholder, any labor
disputes threatened by current or former employees of the Seller.
II.1.12. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Seller or
the Shareholder, threatened, nor has any governmental entity indicated to the
Seller or the Shareholder an intention to conduct the same. There is no suit,
action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Seller or the Shareholder is a
party or, to the knowledge of the Seller or the Shareholder, might become a
party which would adversely affect the Assets or the Buyers future conduct of
the Businesses.
II.1.13. Absence of Certain Business Practices. The Seller, nor any officer,
employee or agent of the Seller, or any other person acting on behalf of the
Seller, has not, directly or indirectly, within the past five years, given or
agreed to give any material gift to any customer, supplier, government employee
or other person who is or may be in a position to help or hinder the profitable
conduct of the Businesses or the profitable use of the Assets (or to assist the
Seller in connection with any actual or proposed transaction). A gift will be
considered material if it is worth more than $5,000.
<PAGE>
II.1.14. Solvency. The Seller is not presently insolvent, and the Seller will
not 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 Sellers assets does not and
will not exceed its debts and other probable liabilities, and the term debts
includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
II.1.15. Untrue Statements. This Agreement and all other agreements executed by
the Seller or the Shareholder and delivered to Buyer in connection with the
transaction contemplated does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Seller has also made available to Buyer true,
complete and correct copies of all Contracts, documents concerning all
litigation and administrative proceedings, Licenses, Permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the Businesses and the Assets, and such information covers all commitments and
liabilities of Buyer relating principally to the Businesses and the Assets,
except for the Excluded Assets.
II.1.16. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller and the
Shareholder and their counsel directly with Buyer and its counsel, without the
intervention of any other person as a result of any act of Seller or the
Shareholder in such manner as to give rise to any valid claim against any of the
parties hereto for a brokerage commission, finders fee or any similar payment.
II.1.17. Taxes. All taxes of the Seller with respect to the Assets and the
Businesses for that period of time before the Effective Date, including any and
all sales taxes, use taxes, and unemployment compensation taxes or personal
property taxes, have been paid or will be paid by Seller.
II.2 Investment Representations of the Seller and the Shareholder. The Seller
and Shareholder acknowledge, represent and agree that:
(a) Each of the Seller and Jordan Exploration Company, L.L.C. ( collectively,
the Key Share Recipients) is an accredited investor as such term is defined
in Regulation D under the Securities Act of 1993, as amended (the
Securities Act).
<PAGE>
(b) (i) Each Key Share Recipient, through its own operations, is knowledgeable
in operations of the type conducted by Key, (ii) Key has made available to
each Key Share Recipient extensive legal, financial, accounting and other
business records for examination by each Key Share Recipient, (iii) Key has
made its principal executive and operating personnel available for
consultation with the designated representatives of each Key Share
Recipient, (iv) each Key Share Recipient has made an extensive
investigation of Keys assets and liabilities, business and financial
affairs, and operations, (v) each Key Share Recipient is aware of the risks
associated with ownership of the Key Shares, (vi) each Key Share Recipient
is capable of bearing the financial risks associated with such ownership,
and (vii) while recognizing that it cannot effectively waive the
protections afforded to it under the Securities Act, each Key Share
Recipient regards itself as an entity of such financial capacity,
sophistication, and prudence that it does not require the protections
afforded to it by the Securities Act, and is relying upon its own
investigation of Key in making its decision to enter into this Agreement.
(c) The Key Shares have not been registered under the Securities Act, or
registered or qualified under any applicable state securities laws;
(d) The Key Shares are being issued to each Key Share Recipient in reliance
upon exemptions from such registration or qualification requirements, and
the availability of such exemptions depends in part upon the bona fide
investment intent of Seller and the Shareholder with respect to the Key
Shares;
(e) The acquisition of the Key Shares by each Key Share Recipient is solely for
its own account for investment, and each Key Share Recipient is not
acquiring the Key Shares for the account of any other person or with a view
toward resale, assignment, fractionalization, or distribution thereof. This
representation does not prohibit any Key Share Recipient from making any
sale or transfer not otherwise prohibited by law or this Agreement;
(f) Each Key Share Recipient shall not offer for sale, sell, transfer, pledge,
hypothecate or otherwise dispose of any of the Key Shares except in
accordance with the registration requirements of the Securities Act and
applicable state securities laws or upon delivery to Key of an opinion of
legal counsel reasonably satisfactory to Key that an exemption from
registration is available;
(g) Since the Key Shares have not been registered under the Securities Act or
applicable state securities laws, each Key Share Recipient must bear the
economic risk of holding the Key Shares for an indefinite period of time,
and each Key Share Recipient is capable of bearing such risk; and
(h) In addition to any other legends required by law or the other agreements
entered into in connection herewith, the certificate evidencing the Key
Shares will bear a conspicuous restrictive legend substantially as follows:
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (ACT), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS,
AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF
LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
II.3 General Representations and Warranties of Buyer. Buyer represents and
warrants to the Seller and Shareholder as follows:
II.3.1. 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.
II.3.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholder and other action on the part of the Buyer, and this Agreement is the
valid and binding obligation of the Buyer and enforceable (subject to normal
equitable principals) against the Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of the Buyer, (ii)
any obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Buyer is a party or by which the Buyer is bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Buyer is
subject.
II.3.3. 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.
II.3.4. Finders 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, finders fee or any similar payments.
II.4 General Representations and Warranties of Key. Key represents and warrants
to the Key Share Recipients as follows:
<PAGE>
II.4.1. Organization and Good Standing. Key is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on its financial condition, properties or
business.
II.4.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholder and other action on the part of Key, and this Agreement is the valid
and binding obligation of Key and enforceable (subject to normal equitable
principals) against Key in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of Key, (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Key is a party or by which Key is bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which Key or is subject.
<PAGE>
II.4.3. Reports and Financial Statements. Key has previously furnished to the
Seller and Shareholder true and complete copies of the following (collectively,
the Key SEC Documents: (i) Keys annual report filed with the Securities and
Exchange Commission (the Commission) pursuant to the Securities and Exchange
Act of 1934, as amended (the Exchange Act), for Keys fiscal year ended June 30,
1997; (ii) Keys quarterly and other reports filed with the Commission since
June 30, 1997; (iii) all definitive proxy solicitation materials filed with the
Commission since June 30, 1997; (iv) any registration statements (other than
those relating to employee benefit plans) declared effective by the Commission
since June 30, 1997; (v) Keys Private Offering Memorandum dated September 18,
1997, relating to the 5% Convertible Subordinated Notes due 2004. The
consolidated financial statements of Key and its consolidated subsidiaries
included in Keys most recent annual report on Form 10-K and most recent
quarterly reports on Form 10-Q were prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as noted
therein) during the periods involved and fairly present the consolidated
financial position of Key and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended; and the Key SEC Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading as of
the date of such documents or such other date specified therein. Key further
represents that there has been no material adverse change in the consolidated
financial condition of Key since September 30, 1997.
II.4.4. Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Key in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby, other than what is
required by the American Stock Exchange for the listing of the Key Shares to be
issued hereunder.
II.4.5. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key 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 Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finders fee or any similar payments.
Article III
Closing
III.1 Closing Date. Consummation of the sale and the purchase contemplated by
this Agreement shall take place on the Effective Date at the offices of Lynch,
Gallagher, Lynch & Martineau, P.L.L.C., 555 N. Main Street, Mt. Pleasant,
Michigan.
III.2 Duties of Seller and the Shareholder at Closing. Contemporaneously with
the performance by Buyer and Key of their obligations to be performed at the
Closing, Seller and the Shareholder agree to, and shall deliver to Buyer at the
Closing the following:
(a) Bills of Sale conveying all of the Assets to Buyer sufficient to convey,
transfer to, and vest in Buyer, good and marketable title to all rights in
the Assets, free and clear of any and all Encumbrances;
(b) Duly endorsed Certificates of Title conveying from Seller to Buyer all of
those Assets for which a Certificate of Title is issued or required by an
applicable governmental entity sufficient to convey, transfer to, and vest
in Buyer, good and marketable title to all rights in those Assets, free and
clear of any and all Encumbrances;
(c) Assignments conveying all of the Seller Permits, if any, to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and marketable
title to all rights in the Seller Permits, free and clear of any and all
Encumbrances;
<PAGE>
(d) An Assignment of Contracts conveying all of the Contracts to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and marketable
title to all rights in the Contracts, free and clear of any and all
Encumbrances;
(e) A legal opinion from Sellers counsel in a form acceptable to Buyer; and
(f) Such other items that Buyer deems necessary or convenient to effect the
transactions contemplated hereby.
III.3 Duties of Buyer and Key at Closing. Contemporaneously with the performance
by Seller and the Shareholder of their obligations to be performed at the
Closing, Buyer and Key agree to, and shall deliver to Seller, the Shareholder or
Sellers designee at the Closing the following:
(a) The Cash Consideration;
(b) A copy of the Listing Application (as defined in Section 4.8);
(c) The Key Shares for Jordan Exploration Company, L.L.C.;
(d) A legal opinion from Buyers counsel in a form acceptable to Seller and
Shareholder; and
(e) Such other items that Seller deems necessary or convenient to effect the
transactions contemplated hereby.
Article IV
Additional Agreements
<PAGE>
IV.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, the Seller and the Shareholder agree that for a period of 60 months
following the Effective Date, such party will not, directly or indirectly,
acting alone or as a member of a partnership or a holder of, or investor in 5%
or more of any security of any class of any corporation or other business entity
(i) in the States of Michigan, Indiana, Ohio, Pennsylvania, West Virginia or New
York engage in the Businesses of Seller as it existed on or before the Effective
Date or perform trucking services; (ii) request any present customers or
suppliers of the Seller or Buyer (or any affiliate of Buyer) to curtail or
cancel their business with Buyer (or any of Buyers affiliates); (iii) disclose
to any person, firm or corporation any trade, technical or technological secrets
of Buyer (or any of Buyers affiliates) or of the Seller or any details of their
organization or business affairs which constitute confidential information; (iv)
induce or actively attempt to influence any employee of Buyer (or any of Buyers
affiliates) to terminate his employment; or (v) for a period of one year employ
any of those individuals set forth in Schedule 4.1. The Seller and the
Shareholder agree that if either the length of time or geographical area as set
forth in this Section 4.1 is deemed too restrictive in any court proceeding, the
court may reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 4.1 are in addition to
any other obligations that the Seller or the Shareholder may have under the laws
of any state requiring a corporation selling its assets (or a shareholders of
such corporation) to limit its activities so that the goodwill and business
relations being transferred with such assets will not be materially impaired.
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 4.1, 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 4.1 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 4.1 are being executed and delivered by such
party in consideration of the covenants of Buyer contained in this Agreement,
and for other good and valuable consideration, the receipt of which is hereby
acknowledged. Notwithstanding any other provision the Shareholder shall not be
in violation of this Section 4.1 if he continues to operate Phoenix Operating
Co., Inc., but only to the extent that Phoenix Operating Co., Inc. performs
engineering, supervision and consulting services in the oil and gas business
and/or provides well testing equipment for gas wells in accordance with business
practices of Phoenix Operating Co., Inc. as of the Effective Date.
IV.2 Hiring Employees. Schedule 4.2 hereto is a complete and accurate listing of
all employees of the Seller that devote their full time and effort in the
conduct of the Businesses (the Employees). Buyer shall have no liability or
obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employees= employment with Buyer on or
after the Effective Date. Notwithstanding any other provision hereof, this
Section 4.2 shall not be deemed to create any right or claim for the benefit of,
and shall not be enforceable by, any person that is not a party to this
Agreement.
IV.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
4.3 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 Effective Date.
<PAGE>
IV.4 Name Change. The Seller shall, within ten (10) days from the Effective
Date, caused to be filed (i) with the appropriate state office of the Sellers
state of organization an amendment to the charter (or other applicable
organization document) of the Seller changing the name of the Seller from its
current name to a name that is not similar to such name, and (ii) with the
appropriate authorities of the Sellers state of organization and any other
states such documents as are required to effect such name change, including
without limitation, amendments or withdrawals of certificates of authority to do
business and assumed name filings. The Seller shall, within five (5) 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. The Shareholder shall take all steps necessary for the Seller to
complete the obligations set forth in this Section 4.4.
IV.5 First Call. Shareholder agrees to comply with the covenants given by
Shareholder in Section 4.5.2 of an Asset Purchase Agreement dated December 2,
1997, between Wellcorps, L.L.C., and others, and WellTech Eastern, Inc.
IV.6 Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer as of the Effective
Date. Seller will notify Buyer of the location of the Tangible Personal Property
and Inventories and all such Assets shall be located in the State of Michigan on
the Effective Date.
IV.7 Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(a) All utility charges incurred by Seller in the Businesses prior to the date
of Closing shall be paid by Seller. The Buyer shall be responsible for the
utility charges incurred by the Assets purchased by Buyer after the
Effective Date.
(b) The Seller shall pay a prorata share of the personal property taxes for the
Assets sold by the Seller to Buyer for all years prior to the Closing and a
prorata share of all such taxes for 1997, prorated to the Effective Date,
in accordance with the standards of practice in Grand Traverse County,
Michigan. If the actual taxes for the current year are not known as of the
Effective Date, the apportionment of taxes shall be upon the basis of taxes
for the immediate preceding year, provided that, if taxes for the current
year are thereafter determined to be more or less than the taxes for the
preceding year (after any appeal of the assessed valuation thereof is
concluded), Seller and Buyer promptly shall adjust the proration of such
taxes and Seller and/or Buyer, as the case may be, shall pay to the other
any amount required as a result of such adjustment and as a covenant shall
survive the Closing.
(c) The Seller shall pay all taxes, whether federal, state or local, assessed
against the Assets or the Businesses for that period of time prior to the
Effective Date, including any and all sales taxes, use taxes, unemployment
compensation taxes or taxes arising out of the fact that Seller hired
employees.
(d) The Seller shall pay all other costs or expenses arising out of the Assets
or the Businesses prior to the Effective Date.
(e) The Buyer shall pay all sales taxes and/or use taxes, if any, charged as a
result of the transfer of title of any and all Assets from the Seller to
Buyer with respect to this transaction.
<PAGE>
(f) The Buyer shall pay all costs or expenses arising out of the Assets or the
use of the Assets by the Buyer after the Effective Date.
IV.8 Issuance of Key Shares. On the Effective Date, Key shall file an additional
Listing Application with the American Stock Exchange requesting the listing of
Key Shares (the Listing Application@). In addition, Key shall send written
instructions to its transfer agent to issue, countersign and register one or
more certificates representing the Key Shares in the name of the Key Share
Recipients in accordance with Section 1.2(b) and deliver such certificate(s) to
Seller at the address specified in Section 6.4 hereof. In the event that the
American Stock Exchange does not approve the Listing Application by December 15,
1997, the parties hereto shall negotiate in good faith the appropriate
consideration to replace such shares.
If the parties are unable to resolve any issue as to the adjustments to be made
pursuant to the preceding sentence within thirty (30) days after the closing,
then either party, within fifteen (15) days thereafter, but no later than
forty-five (45) calendar days after the closing, may file for arbitration in
accordance with the rules of the American Arbitration Association (AAA) then
currently in effect, with arbitration to take place in Isabella County,
Michigan, or such other place as the parties shall agree. Notice of demand for
arbitration shall be filed in writing with the other party to this agreement and
with AAA. The award rendered by the arbitrator or arbitrators shall be final,
and judgment may be entered on it in accordance with applicable law in any court
having jurisdiction on the matter. However, the time for filing arbitration
shall be of the essence and shall be strictly limited to the time period
provided in this agreement, and the timely filing shall be a condition precedent
to the exercise of the right of arbitration; if arbitration is not filed within
such scope, any right to arbitrate shall be barred. Further the scope of any
arbitration shall be limited solely to the issue of amount of any adjustments to
the purchase price pursuant to this section and shall not extend to any other
issue or matter that may arise out of this agreement. The arbitrator shall have
no power or authority to order or determine any thing or matter other than the
dollar amount of, and procedure for payment of, any adjustment.
IV.9 Registration Rights.
IV.9.1. Agreement to Register Resales. Key agrees that no later than December
31, 1997, it will file with the Commission on Form S-3, or if Form S-3 is not
available to Key, on such other form as is available to Key for registration of
its securities under the Securities Act, a shelf registration statement pursuant
to Rule 415 of the Securities Act (the Shelf Registration Statement) covering
the offer and resale by the Key Share Recipients of 88,540 of the Key Shares
issued pursuant to this Agreement (herein the Covered Shares) and will use its
best efforts to cause the Shelf Registration Statement to be declared effective
by March 31, 1998, by the Commission. The Covered Shares shall be issued as
follows:
30,100 Key Shares: Jordan Exploration Company, L.L.C.
58,440 Key Shares: Seller
<PAGE>
IV.9.2. Effectiveness of Shelf Registration Statement. Key agrees to maintain
the Shelf Registration in effect until the earlier of (i) the date that the Key
Share Recipients can transfer the Covered Shares without restriction pursuant to
Rule 144 promulgated under the Securities Act (or any successor rule) and (ii)
the date that the Key Share Recipients no longer own any of the Covered Shares.
In addition, Key shall amend the Shelf Registration Statement and supplement the
prospectus included therein as and when required by Form S-3 or the applicable
form, or by the Securities Act. Key shall promptly deliver upon request from
time to time to Key Share Recipients copies of the prospectus, as supplemented,
in order to facilitate resale of the Covered Shares.
IV.9.3. Blue Sky Qualification. In any offering pursuant to this Section, Key
will use its best efforts to effect any such registration and use its best
efforts to effect such qualification and compliance as may be required and as
would permit or facilitate the resale of such Covered Shares, including, without
limitation, registration under the Securities Act, appropriate qualifications
under applicable blue-sky or other state securities laws and, appropriate
compliance with any other governmental requirements.
IV.9.4. Registration Expenses. All expenses (except for any legal fees for the
Key Share Recipients counsel) relating to the obligations of Key pursuant to
this Section 4.9 (including, but not limited to, the expenses of any
qualifications under the blue-sky or other state securities laws and compliance
with governmental requirements of preparing and filing any post-effective
amendments or prospectus supplements required for the lawful distribution of the
Covered Shares to the public in connection with such registration) will be paid
by Key.
IV.9.5. Rights Non-Transferable. The registration rights under this Section 4.9
are for the sole benefit of the Key Share Recipients, are personal in nature,
and shall not be transferrable or otherwise available to any subsequent
shareholder of the Covered Shares; provided, however, that Seller may transfer
its registration rights under this Section 4.9 to the Shareholder in the event
the Covered Shares are distributed to the Shareholder, and upon such transfer,
the Shareholder shall have all of the rights, duties and obligations of Seller
under this Section 4.9 with respect to the Covered Shares so transferred.
<PAGE>
IV.9.6. Undertaking to File Reports and Cooperate in Transactions. For as long
as Key Share Recipients are subject to Rule 144 or Rule 145 of the Securities
Act with respect to the Key Shares, Key will use reasonable commercial efforts
to timely file all annual, quarterly and other reports required to be file by it
under Section 13 or 15(d) of the Exchange Act and the rules and regulations of
the Commission thereunder, as amended from time to time, or make other
information publicly available as required by Rule 144 or 145 (or such Rules=
successor). If the Key Share Recipients propose to sell any of the Covered
Shares pursuant to the Shelf Registration, or any of the Key Shares pursuant to
Rule 144 or Rule 145, Key shall cooperate with the Key Share Recipients so as to
enable such sales to be made in accordance with applicable laws, rules and
regulations, the requirements of Key's transfer agent, and the reasonable
requirements of the broker through which the sales are proposed to be executed.
Without limiting the generality of the foregoing, Key shall, upon request,
furnish with respect to each such sale (i) a written statement certifying that
Key has complied with the public information requirements of Rule 144 and 145
and (ii) an opinion of Key's counsel regarding such matters as Key's transfer
agents or such Key Share Recipients broker may reasonably request.
IV.9.7. Remedies. As long as an Event of Default (as defined below) has occurred
and is continuing on the date that Key receives the Default Notice (as defined
below), Key shall, upon receipt of written notice from a Key Share Recipient
(the Default Notice@) and within ten (10) days of receiving the Default Notice,
purchase those number of Covered Shares still owned by the Key Share Recipient
specified in the Default Notice at a price equal to the average closing price of
Key Common Stock on the American Stock Exchange, or if the Key Common Stock is
not trading on the American Stock Exchange on the applicable trading day, on the
national securities exchange on which Key Common Stock was traded on such date,
for the twenty (20) trading days immediately preceding the day on which Key
receives the Default Notice. As used in this Section 4.9.7, the term Event of
Default@ means the occurrence of (i) Keys failure to cause the Shelf
Registration Statement to be declare effective by the Commission on or before
March 31, 1998, or (ii) Keys failure to maintain the effectiveness of the Shelf
Registration Statement as herein required.
IV.10 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
Article V
Indemnification
<PAGE>
V.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 (collectively, the Buyer Indemnified Parties@), against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable attorneys= fees and expenses (collectively,
the Damages@) that any of the Buyer Indemnified Parties shall incur or suffer,
which arise, result from or relate to (i) any 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 (ii) except to the extent
the Damages are exacerbated by Buyer or Key, the Retained Liabilities. The
indemnification obligations of Seller and the Shareholder under this Section 5.1
shall not exceed the Purchase Price; provided, however, that the indemnification
obligations of Seller and the Shareholder under this Section 5.1 for Damages
incurred or suffered which arise from or relate to the Retained Liabilities
shall be unlimited in amount.
V.2 Indemnification by Buyer and Key. In addition to any other remedies
available to the Seller and the Shareholder under this Agreement, or at law or
in equity, Buyer and Key shall, jointly and severally, indemnify, defend and
hold harmless the Seller and the Shareholder and their respective officers,
directors, employees and agents (collectively, the Seller Indemnified Parties@)
against and with respect to any and all Damages that any of the Seller
Indemnified Parties shall incur or suffer, which arise, result from or relate to
(i) any breach of, or failure by Buyer or Key to perform, any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to the
Seller or the Shareholder by or on behalf of Buyer or Key under this Agreement;
and (ii) except to the extent that any Damages arise out of a breach by Seller
and/or Shareholder of any of their respective representations, warranties or
covenants contained herein, any Damages arising out of the use of the Assets by
Buyer after the Effective Date.
<PAGE>
V.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 5.1 or 5.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
amount of the claim is not increased by the timing of, or failure to give such
notice. Further, promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Article 5, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of any
obligations hereunder, to the extent the amount of the claim is not increased by
the timing of, or failure to give such notice. 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 VI
Miscellaneous
VI.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
for sixty (60) months after the Effective Date notwithstanding any investigation
made by or on behalf of any of the parties hereto unless otherwise provided by
this Agreement or applicable law. All statements contained in any certificate,
schedule, exhibit or other instrument delivered pursuant to this Agreement shall
be deemed to have been representations and warranties by the respective party or
parties, as the case may be, and shall also survive for sixty (60) months after
the Effective Date despite any investigation made by any party hereto or on its
behalf unless otherwise provided by this Agreement or applicable law.
VI.2 Entirety. This Agreement with the attached Schedules 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.
VI.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.
VI.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:
<PAGE>
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Energy Group, Inc. Steven W. Martineau
Two Tower Center, Twentieth Floor Lynch, Gallagher, Lynch & Martineau, PLLC
East Brunswick, New Jersey 08816 555 N. Main Street, P.O. Box 446
Attn: General Counsel Mt. Pleasant, Michigan 48804-0446
Facsimile: (908) 247-5148 Facsimile: (517) 773-2107
- --------------------------------------------------------------------------------
If to any of the Sellers or any of the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jeff Critchfield Michael Rhodes
1623 Northern Star Drive Loomis, Ewert, Parsley, Davis & Gotting
Traverse City, Michigan 49686 232 S. Capitol Avenue, #1000
Facsimile: (616) 929-7110 Lansing, Michigan 48933-1525
Facsimile: (517) 482-0555
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
VI.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.
VI.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.
VI.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.
VI.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
WELLTECH EASTERN, INC.
By:
Name: Francis D. John
Title: President
KEY:
KEY ENERGY GROUP, INC.
By:
Name: Francis D. John
Title: President
SELLERS:
WHITE RHINO DRILLING, INC.
By:
Name:
Title:
SHAREHOLDER:
_________________________________
Jeff Critchfield
<PAGE>
SCHEDULE 2.1.8(d)
CHANGE IN ASSETS
On November 25, 1997, Seller purchased three (3) rigs from Jordan Exploration
Company, L.L.C.
Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Key Energy Group, Inc.,
S&R Cable, Inc.,
and
Jeff Critchfield,
Royce D. Thomas,
Ronnie R. Shaw,
and
Donald W. Tinker
December 2, 1997
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this Agreement) is entered into as of December
2, 1997, among WellTech Eastern, Inc., a Delaware corporation (Buyer), Key
Energy Group, Inc., a Maryland corporation (Key), S&R Cable, Inc., a Michigan
corporation (S&R), Jeff Critchfield (Shareholder-1), Royce D. Thomas
(Shareholder-2), Ronnie R. Shaw (Shareholder-3) and Donald W. Tinker
(Shareholder-4). S&R is referred herein as the Seller. Shareholder-1,
Shareholder-2, Shareholder-3 and Shareholder-4 are referred to collectively
herein as the Shareholders and individually as a Shareholder.The effective date
of this transaction is December 2, 1997, at 7:00 a.m. (the Effective Date).
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
I.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey,
transfer, assign and deliver to Buyer all of the assets of the Seller
existing on the Effective Date other than the Excluded Assets (defined
below), whether personal, tangible or intangible, including, without
limitation, the following assets of the Seller relating to or used or
useful in the operation of the businesses as conducted by the Seller on and
before the Effective Date (the Businesses) (all such assets being sold
hereunder are referred to collectively herein as the Assets):
(a) all tangible personal property of the Seller (such as machinery,
equipment, and vehicles), including, without limitation, that which is
more fully described on Schedule 1.1(a) hereto (collectively, the
Tangible Personal Property);
(b) all of the inventory of the Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively,
the Inventories);
<PAGE>
(c) all of the Sellers intangible assets, including without limitation,
(i) all of the Sellers rights to the names under which it is
incorporated or under which it currently does business, (ii) all of
the Sellers rights to any patents, patent applications, trademarks
and service marks (including registrations and applications therefor),
trade names, and copyrights and written know-how, trade secrets,
licenses and sublicenses and all other similar proprietary data and
the goodwill associated therewith (collectively, the Intellectual
Property) used or held in connection with the Businesses, including
without limitation, that which is more fully described on Schedule
1.1(c) hereto (the Seller Intellectual Property) and (iii) the
Sellers account ledgers, sales and promotional literature, computer
software, books, records, files and data (including customer and
supplier lists), and all other records of the Seller relating to the
Assets or the Businesses, excluding the corporate minute books of the
Seller (collectively, the Intangibles);
(d) those leases and subleases relating to the Assets, as well as
contracts, contract rights, and agreements relating to the Assets or
the operation of the Businesses specifically listed on Schedule 1.1(d)
hereto (collectively, the Contracts);
(e) all of the permits, authorizations, certificates, approvals,
registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, orders, licenses and other rights of every
kind and character (collectively, the Permits) relating principally
to all or any of the Assets or to the operation of the Businesses,
including, but not limited to, that which is more fully described on
Schedule 1.1(e) hereto (collectively, the Seller Permits);
(f) the goodwill and going concern value of the Businesses; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever
located that are used in the Businesses or intended for use in the
Businesses in connection with, or that are necessary for the continued
conduct of, the Businesses, except for the Excluded Assets as
described below.
The Assets shall not include the following (collectively, the Excluded
Assets): (i) all of the Sellers accounts receivable and all other rights
of the Seller to payment for services rendered by the Seller before the
Effective Date; (ii) all cash accounts of the Seller and all petty cash of
the Seller kept on hand for use in the Businesses; (iii) all right, title
and interest of the Seller in and to all prepaid rentals, other prepaid
expenses, bonds, deposits and financial assurance requirements, and other
current assets relating to any of the Assets or the Businesses; (iv) all
assets in possession of the Seller but owned by third parties; (v) the
corporate charter, related organizational documents and minute books of the
Seller; (vi) the Cash Consideration (as hereinafter defined) and the Key
Shares (as hereinafter defined) paid or delivered by Buyer or Key to Seller
pursuant to Section 1.2 hereof, (vii) all real property, leasehold
improvements, furniture, fixtures and leases and/or subleases relating to
real property and (viii) those assets listed on Schedule 1.1(h).
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the covenants and agreements of the Seller and the Shareholders
contained herein:
(a) Buyer agrees on the Effective Date to pay Seller in the form of a
cashiers check, bank check or wire transfer of immediately available
funds to an account designated by Seller (the Cash Consideration),
the following:
Seller: $22,920
<PAGE>
(b) Key, for the benefit of Buyer, agrees to issue in accordance with
Section 4.8, hereof, the following shares of common stock of Key, par
value $0.10 per share (Key Shares) to the Seller the following:
Seller: 27,504 shares to be issued effective Jan. 2, 1998
The value of the Key Shares on the day immediately preceding the Effective Date
and the Cash Consideration, if any, shall cumulatively be referred to as the
Purchase Price.
I.3 Liabilities. As of the Effective Date, Buyer shall assume those, and only
those, liabilities and obligations of the Seller to perform the Contracts to the
extent that the Contracts have not been performed and are not in default on the
Effective Date (the Assumed Liabilities). On and after the Effective Date, the
Seller shall be responsible for any and all other liabilities and obligations of
the Seller other than the Assumed Liabilities, including, without limitation,
any obligations or liabilities arising prior to the Effective Date from (i) the
Sellers employment of those employees of the Seller listed on Schedule 4.2
hereto, (ii) any violations of Environmental Law (as defined in Section 2.2.10
hereof), (iii) any environmental conditions or circumstances on any property
owned or leased by Seller or any property on which Seller performed services or
used the Assets, and (iv) the Sellers ownership or operation of the Assets or
conduct of the Businesses prior to the Effective Date (collectively, the
Retained Liabilities). The Buyer shall be responsible for any and all
liabilities and obligations arising with respect to the ownership and operation
of the Assets from and after the Effective Date, except to the extent that such
liabilities or obligations arise out of a breach by Seller or Shareholders of
any of their respective representations, warranties or covenants contained
herein.
Article II
Representations and Warranties
II.1 General Representations and Warranties of the Seller and the Shareholders.
The Seller and each of the Shareholders, jointly and severally, represent and
warrant to Buyer as follows:
II.1.1. Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary.
<PAGE>
II.1.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholder and other action on the part of the Seller and each of the
Shareholders, and this Agreement is the valid and binding obligation of the
Seller and each of the Shareholders enforceable (subject to normal equitable
principals) against each of such parties in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of the Seller,
(ii) any obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which the Seller or any of the Shareholders is a party or by
which the Seller or any of the Shareholders or their respective properties are
bound; or (iii) to the knowledge of the Seller and the Shareholders 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 Seller or any of
the Shareholders or any of their respective properties are subject.
II.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
Effective Date. All of the Contracts are in full force and effect, and
constitute valid and binding obligations of the applicable Seller. The Seller is
not in default, and to the knowledge of Seller and Shareholders no other party
to any of the Contracts is in default, thereunder, and no event has occurred
which (with or without notice, lapse of time, or the happening of any other
event) would constitute a default thereunder. No Contract has been entered into
on terms which could reasonably be expected to have an adverse effect on the use
of the Assets by Buyer. The Seller or the Shareholders have received no
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. All of the Contracts are assignable (and are hereby validly assigned) to
Buyer without the consent of any other party thereto, or such consent has been
received.
II.1.4. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). To the knowledge of Seller and Shareholders all of the Assets
are in a state of good operating condition and repair, ordinary wear and tear
excepted, and are free from any known defects except as may be repaired by
routine maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal operations. All of the
Assets conform to all applicable laws governing their use. No notice of any
violation of any law, statute, ordinance, or regulation relating to any of the
Assets has been received by the Seller or any of the Shareholders, except such
as have been fully complied with. The term Encumbrances means all liens,
security interests, pledges, mortgages, deeds of trust, claims, rights of first
refusal, options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights of way,
limitations, reservations, restrictions, and other encumbrances of any kind or
nature.
<PAGE>
II.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 Seller Permits and the Sellers 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 and further subject to applicable laws. The Seller
is in compliance in all material respects with the terms of each of the Seller
Permits. The Seller Permits have not been, or are not, to the knowledge of the
Seller or any of the Shareholders, threatened to be, revoked, canceled,
suspended or modified. To the knowledge of Seller and each Shareholder upon
consummation of the transactions contemplated hereby, all of the Seller Permits
shall be assignable (and are hereby assigned) to Buyer without the consent of
any regulatory agency or in accordance with applicable laws. On and after the
Effective Date, to the knowledge of Seller and each Shareholder each of the
Seller Permits and Buyers rights with respect thereto will be valid and
subsisting in full force and effect, and enforceable by Buyer subject only to
the administrative powers of regulatory agencies having jurisdiction over the
assigned Seller Permits and applicable laws.
II.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list
of all Intellectual Property material to or necessary for the continued conduct
of the Assets.
II.1.7. Financial Statements. The Seller has delivered to Buyer copies of an
unaudited financial statement of Seller, a copy of which is attached hereto as
Schedule 2.1.7 (the Seller Financial Statement), and includes an unaudited
balance sheet (the Unaudited Balance Sheet) as of September 30, 1997 (the
Balance Sheet Date). The Seller Financial Statement is true, correct and
complete in all material respects and presents fairly and fully the financial
condition of the Seller on that date and for the period indicated thereon as
accounted for under a tax basis accounting. The Seller Financial Statement has
been prepared using a tax basis for management purposes only. The account
classifications have been determined to derive the best tax benefit for the
Shareholders.
II.1.8. Absence of Certain Changes and Events. Since the Balance Sheet Date,
there has not been:
(a) Financial Change. Any material adverse change in the Assets, the
Businesses or the financial condition, operations, liabilities or
prospects of the Seller;
(b) Property Damage. Any material damage, destruction, or loss to any of
the Assets or the Businesses (whether or not covered by insurance);
(c) Waiver. Any waiver or release of a material right of or claim held by
the Seller;
<PAGE>
(d) Change in Assets. Except as set forth on Schedule 2.1.8(d), any
material acquisition, disposition, transfer, encumbrance, mortgage,
pledge or other encumbrance of any Asset of the Seller other than in
the ordinary course of business or other than the Excluded Assets;
(e) Labor Disputes. Any material labor disputes between the Seller and its
employees; or
(f) Other Changes. Any other event or condition known to the Seller or any
of the Shareholders that particularly pertains to and has or might
have a material adverse effect on the Assets, the operations of the
Businesses or the financial condition or prospects of the Seller.
For the purposes of this Section 2.1.8 a change will be considered material if
it has a value of $10,000, or more.
II.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, if any, in order to
validly transfer the Assets hereunder, including, without limitation, any
consents required to assign the Contracts and the Seller Permits.
<PAGE>
II.1.10. Environmental Matters. To the knowledge of Seller none of the current
or past operations of any of the Businesses 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). The Seller or the Shareholders has received
no 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 any of the
Shareholders, threatened relating to the ownership, use, maintenance or
operation of the Assets or the conduct of the Businesses, nor, to the knowledge
of the Seller or any of the Shareholders, is there any basis for any of the
foregoing. To the knowledge of Seller Buyer is not required to obtain any
permits, licenses or similar authorizations pursuant to any Environmental Law in
effect as of the Effective Date to operate and use any of the Assets for their
current purposes and uses. To the knowledge of the Seller or any of the
Shareholders, the Assets include all environmental and pollution control
equipment necessary for compliance with applicable Environmental Law. There are
no environmental conditions or circumstances caused by Seller in whole or in
part or exacerbated by Seller, including the presence or release of any
Hazardous Materials, on any property on which Seller performed services or used
the Assets which would result in an adverse change in the Businesses 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.
II.1.11. No ERISA Plans or Labor Issues. Seller has no employee benefit plan.
The Seller has not engaged in any unfair labor practices which could reasonably
be expected to result in an adverse effect on the Assets. The Seller has no
dispute with any of its existing or former employees, and there are no labor
disputes or, to the knowledge of the Seller or any of the Shareholders, any
labor disputes threatened by current or former employees of the Seller.
II.1.12. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Seller or
any of the Shareholders, threatened, nor has any governmental entity indicated
to the Seller or any of the Shareholders an intention to conduct the same. There
is no suit, action, or legal, administrative, arbitration, or other proceeding
or governmental investigation pending to which the Seller or any of the
Shareholders is a party or, to the knowledge of the Seller or any of the
Shareholders, might become a party which would adversely affect the Assets or
the Buyers future conduct of the Businesses.
II.1.13. Absence of Certain Business Practices. The Seller, nor any officer,
employee or agent of the Seller, or any other person acting on behalf of the
Seller, has not, directly or indirectly, within the past five years, given or
agreed to give any material gift to any customer, supplier, government employee
or other person who is or may be in a position to help or hinder the profitable
conduct of the Businesses or the profitable use of the Assets (or to assist the
Seller in connection with any actual or proposed transaction). A gift will be
considered material if it is worth more than $5,000.
II.1.14. Solvency. The Seller is not presently insolvent, and the Seller will
not 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 Sellers 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.
<PAGE>
II.1.15. Untrue Statements. This Agreement and all other agreements executed by
the Seller or any of the Shareholders and delivered to Buyer in connection with
the transaction contemplated does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Seller has also made available to Buyer true,
complete and correct copies of all Contracts, documents concerning all
litigation and administrative proceedings, Licenses, Permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the Businesses and the Assets, and such information covers all commitments and
liabilities of Buyer relating principally to the Businesses and the Assets,
except for the Excluded Assets.
II.1.16. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller and the
Shareholders and their counsel directly with Buyer and its counsel, without the
intervention of any other person as a result of any act of Seller or any of the
Shareholders in such manner as to give rise to any valid claim against any of
the parties hereto for a brokerage commission, finders fee or any similar
payment.
II.1.17. Taxes. All taxes of the Seller with respect to the Assets and the
Businesses for that period of time before the Effective Date, including any and
all sales taxes, use taxes, and unemployment compensation taxes or personal
property taxes, have been paid or will be paid by Seller.
II.2 Investment Representations of the Seller and the Shareholders. The Seller
and Shareholders acknowledge, represent and agree that:
(a) The Seller (the Key Share Recipient) is an accredited investor as such
term is defined in Regulation D under the Securities Act of 1993, as
amended (the Securities Act).
<PAGE>
(b) (i) Each Key Share Recipient, through its own operations, is
knowledgeable in operations of the type conducted by Key, (ii) Key has
made available to each Key Share Recipient extensive legal, financial,
accounting and other business records for examination by each Key
Share Recipient, (iii) Key has made its principal executive and
operating personnel available for consultation with the designated
representatives of each Key Share Recipient, (iv) each Key Share
Recipient has made an extensive investigation of Keys assets and
liabilities, business and financial affairs, and operations, (v) each
Key Share Recipient is aware of the risks associated with ownership of
the Key Shares, (vi) each Key Share Recipient is capable of bearing
the financial risks associated with such ownership, and (vii) while
recognizing that it cannot effectively waive the protections afforded
to it under the Securities Act, each Key Share Recipient regards
itself as an entity of such financial capacity, sophistication, and
prudence that it does not require the protections afforded to it by
the Securities Act, and is relying upon its own investigation of Key
in making its decision to enter into this Agreement.
(c) The Key Shares have not been registered under the Securities Act, or
registered or qualified under any applicable state securities laws;
(d) The Key Shares are being issued to each Key Share Recipient in
reliance upon exemptions from such registration or qualification
requirements, and the availability of such exemptions depends in part
upon the bona fide investment intent of Seller and the Shareholders
with respect to the Key Shares;
(e) The acquisition of the Key Shares by each Key Share Recipient is
solely for its own account for investment, and each Key Share
Recipient is not acquiring the Key Shares for the account of any other
person or with a view toward resale, assignment, fractionalization, or
distribution thereof. This representation does not prohibit any Key
Share Recipient from making any sale or transfer not otherwise
prohibited by law or this Agreement;
(f) Each Key Share Recipient shall not offer for sale, sell, transfer,
pledge, hypothecate or otherwise dispose of any of the Key Shares
except in accordance with the registration requirements of the
Securities Act and applicable state securities laws or upon delivery
to Key of an opinion of legal counsel reasonably satisfactory to Key
that an exemption from registration is available;
(g) Since the Key Shares have not been registered under the Securities Act
or applicable state securities laws, each Key Share Recipient must
bear the economic risk of holding the Key Shares for an indefinite
period of time, and each Key Share Recipient is capable of bearing
such risk; and
(h) In addition to any other legends required by law or the other
agreements entered into in connection herewith, the certificate
evidencing the Key Shares will bear a conspicuous restrictive legend
substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (ACT@), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN
ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF
LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
<PAGE>
II.3 General Representations and Warranties of Buyer. Buyer represents and
warrants to the Seller and the Shareholders as follows:
II.3.1. 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.
II.3.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholders and other action on the part of the Buyer, and this Agreement is
the valid and binding obligation of the Buyer and enforceable (subject to normal
equitable principals) against the Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of the Buyer, (ii)
any obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Buyer is a party or by which the Buyer is bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Buyer is
subject.
II.3.3. 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.
II.3.4. Finders 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, finders fee or any similar payments.
II.4 General Representations and Warranties of Key. Key represents and warrants
to the Seller and the Shareholders as follows:
<PAGE>
II.4.1. Organization and Good Standing. Key is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on its financial condition, properties or
business.
II.4.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholders and other action on the part of Key, and this Agreement is the
valid and binding obligation of Key and enforceable (subject to normal equitable
principals) against Key in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of Key, (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which Key is a party or by which Key is bound; or (iii) any
provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which Key or is subject.
<PAGE>
II.4.3. Reports and Financial Statements. Key has previously furnished to the
Seller and the Shareholders true and complete copies of the following
(collectively, the Key SEC Documents: (i) Keys annual report filed with the
Securities and Exchange Commission (the Commission) pursuant to the Securities
and Exchange Act of 1934, as amended (the Exchange Act), for Keys fiscal year
ended June 30, 1997; (ii) Keys quarterly and other reports filed with the
Commission since June 30, 1997; (iii) all definitive proxy solicitation
materials filed with the Commission since June 30, 1997; (iv) any registration
statements (other than those relating to employee benefit plans) declared
effective by the Commission since June 30, 1997; and (v) Keys Private Offering
Memorandum dated September 18, 1997, relating to the 5% Convertible Subordinated
Notes due 2004. The consolidated financial statements of Key and its
consolidated subsidiaries included in Keys most recent annual report on Form
10-K and most recent quarterly reports on Form 10-Q were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as noted therein) during the periods involved and fairly present the
consolidated financial position of Key and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and changes
in financial position for the periods then ended; and the Key SEC Documents did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading as
of the date of such documents or such other date specified therein. Key further
represents that there has been no material adverse change in the consolidated
financial condition of Key since September 30, 1997.
II.4.4. Consents and Approvals. No consent, approval or authorization of, or
filing of a registration with, any governmental or regulatory authority, or any
other person or entity is required to be made or obtained by Key in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby, other than what is
required by the American Stock Exchange for the listing of the Key Shares to be
issued hereunder.
II.4.5. Finders Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key and its counsel
directly with the Seller and Shareholders and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties hereto for
any brokerage commission, finders fee or any similar payments.
Article III
Closing
III.1 Closing Date. Consummation of the sale and the purchase contemplated by
this Agreement shall take place on the Effective Date at the offices of Lynch,
Gallagher, Lynch & Martineau, P.L.L.C., 555 N. Main Street, Mt. Pleasant,
Michigan.
III.2 Duties of Seller and the Shareholders at Closing. Contemporaneously with
the performance by Buyer and Key of their obligations to be performed at the
Closing, Seller and each of the Shareholders agree to, and shall deliver to
Buyer at the Closing the following:
(a) Bills of Sale conveying all of the Assets to Buyer sufficient to
convey, transfer to, and vest in Buyer, good and marketable title to
all rights in the Assets, free and clear of any and all Encumbrances;
(b) Duly endorsed Certificates of Title conveying from Seller to Buyer all
of those Assets for which a Certificate of Title is issued or required
by an applicable governmental entity sufficient to convey, transfer
to, and vest in Buyer, good and marketable title to all rights in
those Assets, free and clear of any and all Encumbrances;
(c) Assignments conveying all of the Seller Permits, if any, to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and
marketable title to all rights in the Seller Permits, free and clear
of any and all Encumbrances;
<PAGE>
(d) An Assignment of Contracts conveying all of the Contracts to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and
marketable title to all rights in the Contracts, free and clear of any
and all Encumbrances;
(e) A legal opinion from Sellers counsel in a form acceptable to Buyer;
and
(f) Such other items that Buyer deems necessary or convenient to effect
the transactions contemplated hereby.
III.3 Duties of Buyer and Key at Closing. Contemporaneously with the performance
by Seller and each of the Shareholders of their obligations to be performed at
the Closing, Buyer and Key agree to, and shall deliver to Seller, the
Shareholders, or Sellers designee, at the Closing the following:
(a) A copy of the Listing Application (as defined in Section 4.8);
(b) The Cash Consideration;
(c) A legal opinion from Buyers counsel in a form acceptable to Seller
and Shareholders; and
(d) Such other items that Seller deems necessary or convenient to effect
the transactions contemplated hereby.
Article IV
Additional Agreements
<PAGE>
IV.1 Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, the Seller and the Shareholders agree that for a period of sixty (60)
months following the Effective Date, such party will not, directly or
indirectly, acting alone or as a member of a partnership or a holder of, or
investor in 5% or more of any security of any class of any corporation or other
business entity (i) in the States of Michigan, Indiana, Ohio, Pennsylvania, West
Virginia or New York engage in the Businesses of Seller as it existed on or
before the Effective Date or own, perform or operate oil and gas workover rigs
or drilling rigs; (ii) request any present customers or suppliers of the Seller
or Buyer (or any affiliate of Buyer) to curtail or cancel their business with
Buyer (or any of Buyers affiliates); (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of Buyer (or any of
Buyers affiliates) or of the Seller or any details of their organization or
business affairs which constitute confidential information or (iv) induce or
actively attempt to influence any employee of Buyer (or any of Buyers
affiliates) to terminate his employment. The Seller and the Shareholders agree
that if either the length of time or geographical as set forth in this Section
4.1 is deemed too restrictive in any court proceeding, the court may reduce such
restrictions to those which it deems reasonable under the circumstances. The
obligations expressed in this Section 4.1 are in addition to any other
obligations that the Seller or the Shareholders may have under the laws of any
state requiring a corporation selling its assets (or a shareholders of such
corporation) to limit its activities so that the goodwill and business relations
being transferred with such assets will not be materially impaired. 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 4.1, 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 4.1 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 4.1 are being executed and delivered by such party in
consideration of the covenants of Buyer contained in this Agreement, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged. Notwithstanding any other provision Shareholder-1 shall not be in
violation of this Section 4.1 if he performs those services identified as
permissible activity for Shareholder-1 in Section 4.1 of a certain Asset
Purchase Agreement dated December 2, 1997, between the Buyer, and others, and
White Rhino Drilling, Inc. and Shareholder-1 in his role as the sole shareholder
of White Rhino Drilling, Inc.
IV.2 Hiring Employees. Schedule 4.2 hereto is a complete and accurate listing of
all employees of the Seller that devote their full time and effort in the
conduct of the Businesses (the Employees). Buyer shall have no liability or
obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employees employment with Buyer on or
after the Effective Date. Notwithstanding any other provision hereof, this
Section 4.2 shall not be deemed to create any right or claim for the benefit of,
and shall not be enforceable by, any person that is not a party to this
Agreement.
IV.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
4.3 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 Effective Date.
<PAGE>
IV.4 Name Change. The Seller shall, within ten (10) days from the Effective
Date, caused to be filed (i) with the appropriate state office of the Sellers
state of organization an amendment to the charter (or other applicable
organization document) of the Seller changing the name of the Seller from its
current name to a name that is not similar to such name, and (ii) with the
appropriate authorities of the Sellers state of organization and any other
states such documents as are required to effect such name change, including
without limitation, amendments or withdrawals of certificates of authority to do
business and assumed name filings. The Seller shall, within five (5) 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. The Shareholders shall take all steps necessary for the Seller to
complete the obligations set forth in this Section 4.4.
IV.5 First Call. Shareholder-1 agrees to comply with the covenants given by
Shareholder-1 in Section 4.5.2 of an Asset Purchase Agreement dated December 2,
1997, between Wellcorps, L.L.C., and others, and WellTech Eastern, Inc.
IV.6 Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer as of the Effective
Date. Seller will notify Buyer of the location of the Tangible Personal Property
and Inventories and all such Assets shall be located in the State of Michigan on
the Effective Date.
IV.7 Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(a) All utility charges incurred by Seller in the Businesses prior to the
date of Closing shall be paid by Seller. The Buyer shall be
responsible for the utility charges incurred by the Assets purchased
by Buyer after the Effective Date.
(b) The Seller shall pay a prorata share of the personal property taxes
for the Assets sold by the Seller to Buyer for all years prior to the
Closing and a prorata share of all such taxes for 1997, prorated to
the Effective Date, in accordance with the standards of practice in
Grand Traverse County, Michigan. If the actual taxes for the current
year are not known as of the Effective Date, the apportionment of
taxes shall be upon the basis of taxes for the immediate preceding
year, provided that, if taxes for the current year are thereafter
determined to be more or less than the taxes for the preceding year
(after any appeal of the assessed valuation thereof is concluded),
Seller and Buyer promptly shall adjust the proration of such taxes and
Seller and/or Buyer, as the case may be, shall pay to the other any
amount required as a result of such adjustment and as a covenant shall
survive the Closing.
(c) The Seller shall pay all taxes, whether federal, state or local,
assessed against the Assets or the Businesses for that period of time
prior to the Effective Date, including any and all sales taxes, use
taxes, unemployment compensation taxes or taxes arising out of the
fact that Seller hired employees.
(d) The Seller shall pay all other costs or expenses arising out of the
Assets or the Businesses prior to the Effective Date.
(e) The Buyer shall pay all sales taxes and/or use taxes, if any, charged
as a result of the transfer of title of any and all Assets from the
Seller to Buyer with respect to this transaction.
<PAGE>
(f) The Buyer shall pay all costs or expenses arising out of the Assets or
the use of the Assets by the Buyer after the Effective Date.
IV.8 Issuance of Key Shares. On the Effective Date, Key shall file an additional
Listing Application with the American Stock Exchange requesting the listing of
Key Shares (the Listing Application). In addition, Key shall send written
instructions to its transfer agent to issue, countersign and register one or
more certificates representing the Key Shares in the name of the Key Share
Recipients in accordance with Section 1.2(b) and deliver such certificate(s) to
Seller at the address specified in Section 6.4 hereof. In the event that the
American Stock Exchange does not approve the Listing Application by December 15,
1997, the parties hereto shall negotiate in good faith the appropriate
consideration to replace such shares.
If the parties are unable to resolve any issue as to the adjustments to be made
pursuant to the preceding sentence within thirty (30) days after the closing,
then either party, within fifteen (15) days thereafter, but no later than
forty-five (45) calendar days after the closing, may file for arbitration in
accordance with the rules of the American Arbitration Association (AAA) then
currently in effect, with arbitration to take place in Isabella County,
Michigan, or such other place as the parties shall agree. Notice of demand for
arbitration shall be filed in writing with the other party to this agreement and
with AAA. The award rendered by the arbitrator or arbitrators shall be final,
and judgment may be entered on it in accordance with applicable law in any court
having jurisdiction on the matter. However, the time for filing arbitration
shall be of the essence and shall be strictly limited to the time period
provided in this agreement, and the timely filing shall be a condition precedent
to the exercise of the right of arbitration; if arbitration is not filed within
such scope, any right to arbitrate shall be barred. Further the scope of any
arbitration shall be limited solely to the issue of amount of any adjustments to
the purchase price pursuant to this section and shall not extend to any other
issue or matter that may arise out of this agreement. The arbitrator shall have
no power or authority to order or determine any thing or matter other than the
dollar amount of, and procedure for payment of, any adjustment.
IV.9 Registration Rights.
IV.9.1. Agreement to Register Resales. Key agrees that no later than December
31, 1997, it will file with the Commission on Form S-3, or if Form S-3 is not
available to Key, on such other form as is available to Key for registration of
its securities under the Securities Act, a shelf registration statement pursuant
to Rule 415 of the Securities Act (the "Shelf Registration Statement") covering
the offer and resale by the Key Share Recipient of 11,460 of the Key Shares
issued pursuant to this Agreement (herein the Covered Shares) and will use its
best efforts to cause the Shelf Registration Statement to be declared effective
by March 31, 1998, by the Commission. The Covered Shares shall be issued as
follows:
11,460 Key Shares: Seller
<PAGE>
IV.9.2. Effectiveness of Shelf Registration Statement. Key agrees to maintain
the Shelf Registration in effect until the earlier of (i) the date that the Key
Share Recipient can transfer the Covered Shares without restriction pursuant to
Rule 144 promulgated under the Securities Act (or any successor rule) and (ii)
the date that the Key Share Recipient no longer own any of the Covered Shares.
In addition, Key shall amend the Shelf Registration Statement and supplement the
prospectus included therein as and when required by Form S-3 or the applicable
form, or by the Securities Act. Key shall promptly deliver upon request from
time to time to Key Share Recipient copies of the prospectus, as supplemented,
in order to facilitate resale of the Covered Shares.
IV.9.3. Blue Sky Qualification. In any offering pursuant to this Section, Key
will use its best efforts to effect any such registration and use its best
efforts to effect such qualification and compliance as may be required and as
would permit or facilitate the resale of such Covered Shares, including, without
limitation, registration under the Securities Act, appropriate qualifications
under applicable blue-sky or other state securities laws and, appropriate
compliance with any other governmental requirements.
IV.9.4. Registration Expenses. All expenses (except for any legal fees for the
Key Share Recipients counsel) relating to the obligations of Key pursuant to
this Section 4.9 (including, but not limited to, the expenses of any
qualifications under the blue-sky or other state securities laws and compliance
with governmental requirements of preparing and filing any post-effective
amendments or prospectus supplements required for the lawful distribution of the
Covered Shares to the public in connection with such registration) will be paid
by Key.
IV.9.5. Rights Non-Transferable. The registration rights under this Section 4.9
are for the sole benefit of the Key Share Recipient, are personal in nature, and
shall not be transferrable or otherwise available to any subsequent shareholder
of the Covered Shares; provided, however, that Seller may transfer its
registration rights under this Section 4.9 to the Shareholders in the event the
Covered Shares are distributed to the Shareholders, and upon such transfer, the
Shareholder shall have all of the rights, duties and obligations of Seller under
this Section 4.9 with respect to the Covered Shares so transferred.
<PAGE>
IV.9.6. Undertaking to File Reports and Cooperate in Transactions. For as long
as Key Share Recipient is subject to Rule 144 or Rule 145 of the Securities Act
with respect to the Key Shares, Key will use reasonable commercial efforts to
timely file all annual, quarterly and other reports required to be file by it
under Section 13 or 15(d) of the Exchange Act and the rules and regulations of
the Commission thereunder, as amended from time to time, or make other
information publicly available as required by Rule 144 or 145 (or such Rules
successor). If the Key Share Recipient proposes to sell any of the Covered
Shares pursuant to the Shelf Registration, or any of the Key Shares pursuant to
Rule 144 or Rule 145, Key shall cooperate with the Key Share Recipients so as to
enable such sales to be made in accordance with applicable laws, rules and
regulations, the requirements of Key's transfer agent, and the reasonable
requirements of the broker through which the sales are proposed to be executed.
Without limiting the generality of the foregoing, Key shall, upon request,
furnish with respect to each such sale (i) a written statement certifying that
Key has complied with the public information requirements of Rule 144 and 145
and (ii) an opinion of Key's counsel regarding such matters as Key's transfer
agents or such Key Share Recipients broker may reasonably request.
IV.9.7. Remedies. As long as an Event of Default (as defined below) has occurred
and is continuing on the date that Key receives the Default Notice (as defined
below), Key shall, upon receipt of written notice from a Key Share Recipient
(the Default Notice) and within ten (10) days of receiving the Default Notice,
purchase those number of Covered Shares still owned by the Key Share Recipient
specified in the Default Notice at a price equal to the average closing price of
Key Common Stock on the American Stock Exchange, or if the Key Common Stock is
not trading on the American Stock Exchange on the applicable trading day, on the
national securities exchange on which Key Common Stock was traded on such date,
for the twenty (20) trading days immediately preceding the day on which Key
receives the Default Notice. As used in this Section 4.9.7, the term Event of
Default means the occurrence of (i) Keys failure to cause the Shelf Registration
Statement to be declare effective by the Commission on or before March 31, 1998,
or (ii) Keys failure to maintain the effectiveness of the Shelf Registration
Statement as herein required.
IV.10 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
Article V
Indemnification
V.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 (collectively, the Buyer Indemnified Parties), against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable attorneys fees and expenses (collectively,
the Damages) that any of the Buyer Indemnified Parties shall incur or suffer,
which arise, result from or relate to (i) any 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 any of the Shareholders under this Agreement; and (ii) except to the
extent that the Damages are exacerbated by Buyer or Key, the Retained
Liabilities. The indemnification obligations of Seller and the Shareholders
under this Section 5.1 shall not exceed the Purchase Price; provided, however,
that the indemnification obligations of Seller and the Shareholders under this
Section 5.1 for Damages incurred or suffered which arise from or relate to the
Retained Liabilities shall be unlimited in amount.
<PAGE>
V.2 Indemnification by Buyer and Key. In addition to any other remedies
available to the Seller and the Shareholders under this Agreement, or at law or
in equity, Buyer and Key shall, jointly and severally, indemnify, defend and
hold harmless the Seller and each of the Shareholders and their respective
officers, directors, employees and agents (collectively, the Seller Indemnified
Parties) against and with respect to any and all Damages that any of the Seller
Indemnified Parties shall incur or suffer, which arise, result from or relate to
(i) any breach of, or failure by Buyer or Key to perform, any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to the
Seller or any of the Shareholders by or on behalf of Buyer or Key under this
Agreement; and (ii) except to the extent that the Damages arise out of a breach
by Seller or Shareholders of any of their respective representations, warranties
or covenants contained herein, any Damages arising out of the use of the Assets
by Buyer after the Effective Date.
<PAGE>
V.3 Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 5.1 or 5.2 of
this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
amount of the claim is not increased by the timing of, or failure to give such
notice. Further, promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Article 5, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of any
obligations hereunder, to the extent the amount of the claim is not increased by
the timing of, or failure to give such notice. 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 VI
Miscellaneous
VI.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
for sixty (60) months after the Effective Date notwithstanding any investigation
made by or on behalf of any of the parties hereto unless otherwise provided by
this Agreement or applicable law. All statements contained in any certificate,
schedule, exhibit or other instrument delivered pursuant to this Agreement shall
be deemed to have been representations and warranties by the respective party or
parties, as the case may be, and shall also survive for sixty (60) months after
the Effective Date despite any investigation made by any party hereto or on its
behalf unless otherwise provided by this Agreement or applicable law.
VI.2 Entirety. This Agreement with the attached Schedules 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.
VI.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.
VI.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. Steven W. Martineau
Two Tower Center, Twentieth Floor Lynch, Gallagher, Lynch & Martineau, PLLC
East Brunswick, New Jersey 08816 555 N. Main Street, P.O. Box 446
Attn: General Counsel Mt. Pleasant, Michigan 48804-0446
Facsimile: (908) 247-5148 Facsimile: (517) 773-2107
- --------------------------------------------------------------------------------
<PAGE>
If to any of the Sellers or any of the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jeff Critchfield Michael Rhodes
1623 Northern Star Drive Loomis, Ewert, Parsley, Davis & Gotting
Traverse City, Michigan 49686 232 S. Capitol Avenue, #1000
Facsimile: (616) 929-7110 Lansing, Michigan 48933-1525
Facsimile: (517) 482-0555
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
VI.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.
VI.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.
VI.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.
VI.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
WELLTECH EASTERN, INC.
By:
Name: Francis D. John
Title: President
KEY:
KEY ENERGY GROUP, INC.
By:
Name: Francis D. John
Title: President
SELLER:
S&R CABLE, INC.
By:
Name:
Title:
SHAREHOLDERS:
_________________________________
Jeff Critchfield
_________________________________
Royce D. Thomas
_________________________________
Ronnie R. Shaw
_________________________________
Donald W. Tinker
<PAGE>
SCHEDULE 1.1(a)
TANGIBLE PERSONAL PROPERTY
See Attachment.
<PAGE>
SCHEDULE 1.1(b)
INVENTORIES
None.
<PAGE>
SCHEDULE 1.1(c)
SELLER INTELLECTUAL PROPERTY
None.
<PAGE>
SCHEDULE 1.1(d)
CONTRACTS
None.
<PAGE>
SCHEDULE 1.1(e)
SELLER PERMITS
None.
<PAGE>
SCHEDULE 1.1(h)
EXCLUDED ASSETS
Cash
Operating accounts receivable
Other accounts and notes receivable (e.g. from shareholders)
Prepaid expenses
<PAGE>
SCHEDULE 2.1.7
SELLER FINANCIAL STATEMENT
See Attachment.
<PAGE>
SCHEDULE 2.1.8(d)
CHANGE IN ASSETS
None.
<PAGE>
SCHEDULE 4.1
INDIVIDUALS THAT WILL NOT BE EMPLOYED FOR ONE YEAR
<PAGE>
SCHEDULE 4.2
EMPLOYEES
None.
Asset Purchase Agreement
among
WellTech Eastern, Inc.,
Wellcorps, L.L.C.
and
Jeff Critchfield,
Terra Energy, Ltd.
and
Brian Fries
December 2, 1997
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this Agreement) is entered into as of December 2,
1997, among WellTech Eastern, Inc., a Delaware corporation (Buyer), Wellcorps,
L.L.C., a Michigan limited liability company (Wellcorps), and Jeff Critchfield
(Member-1), Terra Energy, Ltd., a Michigan corporation (Member-2), and Brian
Fries (Member-3). Wellcorps is referred herein as the Seller. Member-1,
Member-2, and Member-3 are referred to collectively herein as the Members and
individually as a Member. The effective date of this transaction is December 2,
1997, at 7:00 a.m. (the Effective Date).
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
Article I
Purchase and Sale of Assets
W I T N E S S E T H: WHEREAS, the Seller desires to sell substantially all of
its assets, and Buyer desires to acquire such assets.NOW, THEREFORE, in
consideration of the premises and of the mutual representations, warranties,
covenants and agreements, and subject to the terms and conditions herein
contained, the parties hereto hereby agree as follows:
Article I Purchase and Sale of Assets
I.1 Purchase and Sale of the AssetsI.1 Purchase and Sale of the Assets. Subject
to the terms and conditions set forth in this Agreement, the Seller hereby
agrees to sell, convey, transfer, assign and deliver to Buyer all of the assets
of the Seller existing on the Effective Date other than the Excluded Assets
(defined below), whether personal, tangible or intangible, including, without
limitation, the following assets of the Seller relating to or used or useful in
the operation of the businesses as conducted by the Seller on and before the
Effective Date (the Businesses) (all such assets being sold hereunder are
referred to collectively herein as the Assets):
(a) all tangible personal property of the Seller (such as machinery,
equipment, and vehicles), including, without limitation, that which is
more fully described on Schedule 1.1(a) hereto (collectively, the
Tangible Personal Property);
(b) all of the inventory of the Seller, including without limitation, that
which is more fully described on Schedule 1.1(b) hereto (collectively,
the Inventories);
<PAGE>
(c) all of the Sellers intangible assets, including without limitation,
(i) all of the Sellers rights to the names under which it is
organized or under which it currently does business, (ii) all of the
Sellers rights to any patents, patent applications, trademarks and
service marks (including registrations and applications therefor),
trade names, and copyrights and written know-how, trade secrets,
licenses and sublicenses and all other similar proprietary data and
the goodwill associated therewith (collectively, the Intellectual
Property) used or held in connection with the Businesses, including
without limitation, that which is more fully described on Schedule
1.1(c) hereto (the Seller Intellectual Property) and (iii) the Sellers
account ledgers, sales and promotional literature, computer software,
books, records, files and data (including customer and supplier
lists), and all other records of the Seller relating to the Assets or
the Businesses, excluding the corporate minute books of the Seller
(collectively, the Intangibles);
(d) those leases and subleases relating to the Assets, as well as
contracts, contract rights, and agreements relating to the Assets or
the operation of the Businesses specifically listed on Schedule 1.1(d)
hereto (collectively, the Contracts);
(e) all of the permits, authorizations, certificates, approvals,
registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, orders, licenses and other rights of every
kind and character (collectively, the Permits) relating principally
to all or any of the Assets or to the operation of the Businesses,
including, but not limited to, that which is more fully described on
Schedule 1.1(e) hereto (collectively, the Seller Permits);
(f) the goodwill and going concern value of the Businesses; and
(g) all other or additional privileges, rights, interests, properties and
assets of the Seller of every kind and description and wherever
located that are used in the Businesses or intended for use in the
Businesses in connection with, or that are necessary for the continued
conduct of, the Businesses, except for the Excluded Assets, as defined
below.
The Assets shall not include the following (collectively, the Excluded Assets):
(i) all of the Sellers accounts receivable and all other rights of the Seller to
payment for services rendered by the Seller before the Effective Date; (ii) all
cash accounts of the Seller and all petty cash of the Seller kept on hand for
use in the Businesses; (iii) all right, title and interest of the Seller in and
to all prepaid rentals, other prepaid expenses, bonds, deposits and financial
assurance requirements, and other current assets relating to any of the Assets
or the Businesses; (iv) all assets in possession of the Seller but owned by
third parties; (v) the charter of the limited liability company, related
organizational documents and minute books of the Seller; (vi) the Cash
Consideration (as hereinafter defined) paid or payable by Buyer to Seller
pursuant to Section 1.2 hereof, (vii) all real property, leasehold improvements,
furniture, fixtures and leases and/or subleases relating to real property and
(viii) those assets listed on Schedule 1.1(h).
I.2 Consideration for Assets
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the covenants and agreements of the Seller and the Members
contained herein:
Buyer agrees on the Effective Date to pay Seller, or the Sellers designee, in
the form of a cashiers check or bank check or wire transfer of immediately
available funds to an account designated by the Seller (the Cash Consideration),
the following:
Seller: $1,200,000
<PAGE>
The Cash Consideration is referred to as the Purchase Price.
I.3 LiabilitiesI.3 Liabilities. As of the Effective Date, Buyer shall assume
those, and only those, liabilities and obligations of the Seller to perform the
Contracts to the extent that the Contracts have not been performed and are not
in default on the Effective Date (the Assumed Liabilities). On and after the
Effective Date, the Seller shall be responsible for any and all other
liabilities and obligations of the Seller other than the Assumed Liabilities,
including, without limitation, any obligations or liabilities arising prior to
the Effective Date from (i) the Sellers employment of those employees of the
Seller listed on Schedule 4.2 hereto, (ii) any violations of Environmental Law
(as defined in Section 2.2.10 hereof), (iii) any environmental conditions or
circumstances on any property owned or leased by Seller or any property on which
Seller performed services or used the Assets, and (iv) the Sellers ownership or
operation of the Assets or conduct of the Businesses prior to the Effective Date
(collectively, the Retained Liabilities). The Buyer shall be responsible for any
and all liabilities and obligations arising with respect to the ownership and
operation of the Assets from and after the Effective Date, except to the extent
that such liabilities or obligations arise out of a breach by Seller or Members
of any of their respective representations, warranties or covenants contained
herein.
Article II
Representations and Warranties
Article II Representations and Warranties II.1 General Representations and
Warranties of the Seller and the Members. The Seller and each of the Members
jointly and severally represent and warrant to Buyer as follows:
II.1.1. Organization and Good StandingII.1.1. Organization and Good Standing.
The Seller is a limited liability company duly organized, validly existing and
in good standing under the laws of its state of organization, has full requisite
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
limited liability company 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.
<PAGE>
II.1.2. Agreement Authorized and its Effect on Other Obligations.II.1.2.
Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this Agreement have been authorized by all necessary action by the
limited liability company or the members, and this Agreement is the valid and
binding obligation of the Seller and each of the Members enforceable (subject to
normal equitable principals) against each of such parties in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (i) the charter or bylaws (or other organizational documents) of
the Seller or Member-2, (ii) any obligation, indenture, mortgage, deed of trust,
lease, contract or other agreement to which the Seller or any of the Members is
a party or by which the Seller or any of the Members or their respective
properties are bound; or (iii) to the knowledge of Seller and the Members 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 Seller or any of
the Members or any of their respective properties are subject.
II.1.3. ContractsII.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 Effective Date. All of the Contracts are in full force and effect, and
constitute valid and binding obligations of the applicable Seller. The Seller is
not in default, and to the Seller's and Members' knowledge no other party to any
of the Contracts is in default, thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Contract has been entered into on
terms which could reasonably be expected to have an adverse effect on the use of
the Assets by Buyer. The Seller or the Members have received no 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. All of the Contracts are assignable (and are hereby validly assigned) to
Buyer without the consent of any other party thereto, or such consent has been
received.
II.1.4. Title to and Condition of AssetsII.1.4. Title to and Condition of
Assets. The Seller has good, indefeasible and marketable title to all of the
Assets, free and clear of any Encumbrances (defined below). To the knowledge of
Seller and the Members all of the Assets are in a state of good operating
condition and repair, ordinary wear and tear excepted, and are free from any
known defects except as may be repaired by routine maintenance and such minor
defects as to not substantially interfere with the continued use thereof in the
conduct of normal operations. All of the Assets conform to all applicable laws
governing their use. No notice of any violation of any law, statute, ordinance,
or regulation relating to any of the Assets has been received by the Seller or
any of the Members, except such as have been fully complied with. The term
Encumbrances means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
<PAGE>
II.1.5. Licenses and PermitsII.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 Seller Permits and the
Sellers 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 and further subject to applicable laws.
The Seller is in compliance in all material respects with the terms of each of
the Seller Permits. The Seller Permits have not been, or are not, to the
knowledge of the Seller or any of the Members, threatened to be, revoked,
canceled, suspended or modified. To the knowledge of Seller and each Member upon
consummation of the transactions contemplated hereby, all of the Seller Permits
shall be assignable (and are hereby assigned) to Buyer without the consent of
any regulatory agency or in accordance with applicable laws. On and after the
Effective Date, to the knowledge of Seller and each Member each of the Seller
Permits and Buyers rights with respect thereto will be valid and subsisting in
full force and effect, and enforceable by Buyer subject only to the
administrative powers of regulatory agencies having jurisdiction over the
assigned Seller Permits and applicable laws.
II.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list
of all Intellectual Property material to or necessary for the continued conduct
of the Assets.
II.1.7. Financial Statements. The Seller has delivered to Buyer copies of an
unaudited financial statement of Seller, a copy of which is attached hereto as
Schedule 2.1.7 (the Seller Financial Statement), and includes an unaudited
balance sheet (the Unaudited Balance Sheet) as of September 30, 1997 (the
Balance Sheet Date). The Seller Financial Statement is true, correct and
complete in all material respects and presents fairly and fully the financial
condition of the Seller on that date and for the periods indicated thereon, as
accounted for under a tax basis accounting. The Seller Financial Statement has
been prepared using a tax basis for management purposes only. The account
classifications have been determined to derive the best tax benefit for the
Members.
II.1.8. Absence of Certain Changes and Events. Since the Balance Sheet Date,
there has not been:
(a) Financial Change. Any material adverse change in the Assets, the
Businesses or the financial condition, operations, liabilities or
prospects of the Seller;
(b) Property Damage. Any material damage, destruction, or loss to any of
the Assets or the Businesses (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. Except as set forth on Schedule 2.1.8(d), any
material acquisition, disposition, transfer, encumbrance, mortgage,
pledge or other encumbrance of any Asset of the Seller other than in
the ordinary course of business or other than the Excluded Assets;
(e) Labor Disputes. Any material labor disputes between the Seller and its
employees; or
<PAGE>
(f) Other Changes. Any other event or condition known to the Seller or any
of the Members that particularly pertains to and has or might have a
material adverse effect on the Assets, the operations of the
Businesses or the financial condition or prospects of the Seller.
For the purposes of this Section 2.1.8 a change will be considered material if
it has a value of $10,000, or more.
II.1.9. Necessary ConsentsII.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, including, without limitation,
any consents required to assign the Contracts and the Seller Permits.
<PAGE>
II.1.10. Environmental MattersII.1.10. Environmental Matters. To the knowledge
of Seller none of the current or past operations of any of the Businesses 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). The Seller or
the Members has received no 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 any of the Members, threatened relating to the ownership, use, maintenance or
operation of the Assets or the conduct of the Businesses, nor, to the knowledge
of the Seller or any of the Members, is there any basis for any of the
foregoing. To the knowledge of Seller, Buyer is not required to obtain any
permits, licenses or similar authorizations pursuant to any Environmental Law in
effect as of the Effective Date to operate and use any of the Assets for their
current purposes and uses. To the knowledge of the Seller or any of the Members,
the Assets include all environmental and pollution control equipment necessary
for compliance with applicable Environmental Law. There are no environmental
conditions or circumstances caused by Seller in whole or in part or exacerbated
by Seller, including the presence or release of any Hazardous Materials, on any
property on which Seller performed services or used the Assets which would
result in an adverse change in the Businesses 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.
II.1.11. No ERISA Plans or Labor IssuesII.1.11. No ERISA Plans or Labor Issues.
Seller has no employee benefit plan. The Seller has not engaged in any unfair
labor practices which could reasonably be expected to result in an adverse
effect on the Assets. The Seller has no dispute with any of its existing or
former employees, and there are no labor disputes or, to the knowledge of the
Seller or any of the Members, any labor disputes threatened by current or former
employees of the Seller.
II.1.12. Investigations; LitigationII.1.12. Investigations; Litigation. No
investigation or review by any governmental entity with respect to the Seller or
any of the transactions contemplated by this Agreement is pending or, to the
knowledge of the Seller or any of the Members, threatened, nor has any
governmental entity indicated to the Seller or any of the Members 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 any of the Members is a party or, to the knowledge of the Seller
or any of the Members, might become a party which would adversely affect the
Assets or the Buyers future conduct of the Businesses.
II.1.13. Absence of Certain Business PracticesII.1.13. Absence of Certain
Business Practices. The Seller, nor any officer, employee or agent of the
Seller, or any other person acting on behalf of the Seller, has not, directly or
indirectly, within the past five years, given or agreed to give any material
gift to any customer, supplier, government employee or other person who is or
may be in a position to help or hinder the profitable conduct of the Businesses
or the profitable use of the Assets (or to assist the Seller in connection with
any actual or proposed transaction). A gift will be considered material if it
is worth more than $5,000.
II.1.14. SolvencyII.1.14. Solvency. The Seller is not presently insolvent, and
the Seller will not 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
Sellers 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.
<PAGE>
II.1.15. Untrue StatementsII.1.15. Untrue Statements. This Agreement and all
other agreements executed by the Seller or any of the Members and delivered to
Buyer in connection with the transaction contemplated does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Seller has also
made available to Buyer true, complete and correct copies of all Contracts,
documents concerning all litigation and administrative proceedings, Licenses,
Permits, insurance policies, lists of suppliers and customers, and records
relating principally to the Businesses and the Assets, and such information
covers all commitments and liabilities of Buyer relating principally to the
Businesses and the Assets, except for the Excluded Assets.
II.1.16. Finders FeeII.1.16. Finders Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by the
Seller and the Members and their counsel directly with Buyer and its counsel,
without the intervention of any other person as a result of any act of Seller or
any of the Members in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finders fee or any similar
payment.
II.1.17. TaxesII.1.17. Taxes. All taxes of the Seller with respect to the Assets
and the Businesses for that period of time before the Effective Date, including
any and all sales taxes, use taxes, and unemployment compensation taxes or
personal property taxes, have been paid or will be paid by Seller.
II.2 General Representations and Warranties of BuyerII.2 General Representations
and Warranties of Buyer. Buyer represents and warrants to the Seller and Members
as follows:
II.2.1. Organization and Good StandingII.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.
II.2.2. Agreement Authorized and its Effect on Other Obligations.II.2.2.
Agreement Authorized and its Effect on Other Obligations. The execution and
delivery of this Agreement have been authorized by all necessary corporate,
member and other action on the part of the Buyer, and this Agreement is the
valid and binding obligation of the Buyer and enforceable (subject to normal
equitable principals) against the Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the charter or bylaws (or other organizational documents) of the Buyer, (ii)
any obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Buyer is a party or by which the Buyer is bound; or (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Buyer is
subject.
<PAGE>
II.2.3. Consents and Approvals II.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.
II.2.4. Finders FeeII.2.4. Finders 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 Members 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, finders fee or any similar payments.
Article III
Closing
Article III Closing III.1 Closing Date. Consummation of the sale and the
purchase contemplated by this Agreement shall take place on the Effective Date
at the offices of Lynch, Gallagher, Lynch & Martineau, P.L.L.C., 555 N. Main
Street, Mt. Pleasant, Michigan.
III.1 Closing Date. Consummation of the sale and the purchase contemplated by
this Agreement shall take place on the Effective Date at the offices of Lynch,
Gallagher, Lynch & Martineau, P.L.L.C., 555 N. Main Street, Mt. Pleasant,
Michigan. III.2III.2 Duties of Seller and the Members at Closing.
Contemporaneously with the performance by Buyer of its obligations to be
performed at the Closing, Seller and each of the Members agree to, and shall
deliver to Buyer at the Closing the following:
(a) Bills of Sale conveying all of the Assets to Buyer sufficient to
convey, transfer to, and vest in Buyer, good and marketable title to
all rights in the Assets, free and clear of any and all Encumbrances;
(b) Duly endorsed Certificates of Title conveying from Seller to Buyer all
of those Assets for which a Certificate of Title is issued or required
by an applicable governmental entity sufficient to convey, transfer
to, and vest in Buyer, good and marketable title to all rights in
those Assets, free and clear of any and all Encumbrances;
(c) Assignments conveying all of the Seller Permits, if any, to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and
marketable title to all rights in the Seller Permits, free and clear
of any and all Encumbrances;
(d) An Assignment of Contracts conveying all of the Contracts to Buyer
sufficient to convey, transfer to, and vest in Buyer, good and
marketable title to all rights in the Contracts, free and clear of any
and all Encumbrances;
(e) A legal opinion from Sellers counsel in a form acceptable to Buyer;
and
<PAGE>
(f) Such other items that Buyer deems necessary or convenient to effect
the transactions contemplated hereby.
III.3III.3 Duties of Buyer at Closing. Contemporaneously with the performance by
Seller and each of the Members of their obligations to be performed at the
Closing, Buyer agrees to, and shall deliver to Seller at the Closing the
following:
(a) The Cash Consideration;
(b) A legal opinion from Buyers counsel in a form acceptable to Seller;
and
(c) Such other items that Seller deems necessary or convenient to effect
the transactions contemplated hereby.
Article IV
Additional Agreements
Article IV Additional Agreements IV.1 Noncompetition.
<PAGE>
IV.1 Noncompetition. IV.1.1. IV.1.1. Noncompetition for Seller, Member-1 and
Member-3. Except as otherwise consented to or approved in writing by Buyer, the
Seller, Member-1 and Member-3 agree that for a period of sixty (60) months
following the Effective Date, such party will not, directly or indirectly,
acting alone or as a member of a partnership or a holder of, or investor in 5%
or more of any security of any class of any corporation or other business entity
(i) in the States of Michigan, Indiana, Ohio, Pennsylvania, West Virginia or New
York engage in the Business of Seller as it existed on or before the Effective
Date or perform water hauling services; (ii) request any present customers or
suppliers of the Seller or Buyer (or any affiliate of Buyer) to curtail or
cancel their business with Buyer (or any of Buyers affiliates); (iii) disclose
to any person, firm or corporation any trade, technical or technological secrets
of Buyer (or any of Buyers affiliates) or of the Seller or any details of their
organization or business affairs which constitute confidential information; or
(iv) induce or actively attempt to influence any employee of Buyer (or any of
Buyers affiliates) to terminate his employment. The Seller, Member-1 and
Member-3 agree that if either the length of time or geographical area as set
forth in this Section 4.1.1 is deemed too restrictive in any court proceeding,
the court may reduce such restrictions to those which it deems reasonable under
the circumstances. The obligations expressed in this Section 4.1.1 are in
addition to any other obligations that the Seller, Member-1 or Member-3 may have
under the laws of any state requiring a corporation selling its assets (or a
member 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, Member-1 and Member-3 further agree and acknowledge that
Buyer does not have any adequate remedy at law for the breach or threatened
breach by the Seller, Member-1, or Member-3 of the covenants contained in this
Section 4.1.1, 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,
Member-1, or Member-3 from such breach or threatened breach. If any provisions
of this Section 4.1.1 are held to be invalid or against public policy, the
remaining provisions shall not be affected thereby. The Seller, Member-1, or
Member-3 acknowledge that the covenants set forth in this Section 4.1.1 are
being executed and delivered by such party in consideration of the covenants of
Buyer contained in this Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged. Notwithstanding any
other provision, Member-1 shall not be in violation of this Section 4.1.1 if he
performs those services identified as permissible activity for Member-1 in
Section 4.1 of a certain Asset Purchase Agreement dated December 2, 1997,
between the Buyer, and others, and White Rhino Drilling, Inc. and Member-1 in
his role as the sole shareholder of White Rhino Drilling, Inc. Notwithstanding
any other provision in this Agreement, Member-2 shall not be liable for any
damages resulting from a breach of this Section 4.1.1 by Member-1 or Member-3.
<PAGE>
IV.1.2. IV.1.2. Noncompetition for Member-2. Except as otherwise consented to or
approved in writing by Buyer, Member-2 agrees that for a period of sixty (60)
months following the Effective Date, Member-2 will not, acting alone or as a
member of a partnership or a holder of, or investor in 5% or more of any
security of any class of any corporation or other business entity (i) in the
States of Michigan, Indiana, Ohio, Pennsylvania, West Virginia or New York
engage in the business of operating workover rigs for itself or providing
contract workover rig services and the services related thereto; (ii) request
any present customers or suppliers of the Seller or Buyer (or any affiliate of
Buyer) to curtail or cancel their business with Buyer (or any of Buyers
affiliates); (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of Buyer (or any of Buyers affiliates) or of
the Seller or any details of their organization or business affairs which
constitute confidential information; or (iv) induce or actively attempt to
influence any employee of Buyer (or any of Buyers affiliates) to terminate his
employment. The Member-2 agrees that if either the length of time or
geographical area as set forth in this Section 4.1.2 is deemed too restrictive
in any court proceeding, the court may reduce such restrictions to those which
it deems reasonable under the circumstances. The obligations expressed in this
Section 4.1.2 are in addition to any other obligations that Member-2 may have
under the laws of any state requiring a corporation selling its assets (or a
member of such corporation) to limit its activities so that the goodwill and
business relations being transferred with such assets will not be materially
impaired. Member-2 further agrees and acknowledges that Buyer does not have any
adequate remedy at law for the breach or threatened breach by Member-2 of the
covenants contained in this Section 4.1.2, and agrees that Buyer may, in
addition to the other remedies which may be available to it hereunder, file a
suit in equity to enjoin Member-2 from such breach or threatened breach. If any
provisions of this Section 4.1.2 are held to be invalid or against public
policy, the remaining provisions shall not be affected thereby. Member-2
acknowledges that the covenants set forth in this Section 4.1.2 are being
executed and delivered by such party in consideration of the covenants of Buyer
contained in this Agreement, and for other good and valuable consideration, the
receipt of which is hereby acknowledged. Notwithstanding any other provision of
this Agreement, Member-1 and Member-3 shall not be liable for any damages
resulting from a breach of this Section 4.1.2 by Member-2.
IV.2 Hiring EmployeesIV.2 Hiring Employees. Schedule 4.2 hereto is a complete
and accurate listing of all employees of the Seller that devote their full time
and effort in the conduct of the Businesses (the Employees). Buyer shall have no
liability or obligation with respect to any employee benefits of any Employee
except those benefits that accrue pursuant to such Employees employment with
Buyer on or after the Effective Date. Notwithstanding any other provision
hereof, this Section 4.2 shall not be deemed to create any right or claim for
the benefit of, and shall not be enforceable by, any person that is not a party
to this Agreement.
IV.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
4.3 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 Effective Date.
IV.4 Name Change. The Seller shall, within ten (10) days from the Effective
Date, caused to be filed (i) with the appropriate state office of the Sellers
state of organization an amendment to the charter (or other applicable
organization document) of the Seller changing the name of the Seller from its
current name to a name that is not similar to such name, and (ii) with the
appropriate authorities of the Sellers state of organization and any other
states such documents as are required to effect such name change, including
without limitation, amendments or withdrawals of certificates of authority to do
business and assumed name filings. The Seller shall, within five (5) 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. The Members shall take all steps necessary for the Seller to
complete the obligations set forth in this Section 4.4.
IV.5 First Call.
<PAGE>
IV.5.1. First Call for Member-2. For a period of sixty (60) months from the
Effective Date, in the event that a First Call Party (defined below) intends to
retain the services of a third party to provide contract workover rigs or the
services related thereto anywhere in the States of Michigan, Indiana, Ohio,
Pennsylvania, West Virginia or New York, such First Call Party shall, prior to
retaining such third party, give Buyer (or, as applicable, Buyers affiliate), by
delivery of appropriate notice (notice will be deemed "appropriate" if given by
mail, telefacsimile, telephone or personally, as set forth on Schedule 4.5.1
hereto), the opportunity (the First Call) to offer to provide such services to
such First Call Party. Should Buyer (or, as applicable, Buyers affiliate) offer
to provide such services on terms and conditions no less favorable to such First
Call Party than those offered by such third party, Buyer (or, as applicable,
Buyers affiliate) and such First Call Party shall mutually agree on the specific
terms, conditions and services to be performed by Buyer (or, as applicable,
Buyers affiliate). If Buyer (or, as applicable, Buyers affiliate) cannot
within 24 hours of receipt of such notice referred to above, in good faith offer
the services on terms and conditions (including but not limited to price,
quality, availability and timeliness of performance) no less favorable to such
First Call Party than those offered by such third party (as well as provide
written confirmation of such offer or commence performing such services within
72 hours of such offer), such First Call Party shall be free to retain such
third party to perform such services as it shall see fit. In the event of a
breach by a First Call Party of its obligations under this Section 4.5.1, Buyer
shall be entitled to recover any profits lost as a result of such breach (in
addition to all other available remedies). For the purposes of this Section
4.5.1 the term First Call Party means (i) the Member-2, and (ii) CMS NOMECO Oil
& Gas Co. Member-2 covenants and agrees to cause all First Call Parties that are
not parties hereto to comply with their obligations under this Section 4.5.1. A
First Call Party shall not be obligated to give Buyer (or any of Buyers
affiliates) the First Call (1) if the Buyer (or any of Buyers affiliates) in
connection with performance of services provided under this Section 4.5.1 was
unable to perform the services in a timely and good and workmanlike manner or
has not reasonably performed in all material respects in the manner committed to
when an offer was accepted for such First Call Party, as reasonably determined
by such First Call Party, or (2) if the First Call Party does not have control
over the selection process of the service provider, provided the First Call
Party may not grant control to make such selection to another party for the sole
purpose of avoiding its obligations under this Section 4.5.1, or (3) the First
Call Party is not the operator of the well for which the services are required,
or (4) in the event of an emergency involving public health, safety or welfare,
or in an emergency to prevent, control or repair damages to First Call Partys
property.
<PAGE>
IV.5.2. First Call for Member-1. For a period of sixty (60) months from the
Effective Date, in the event that a First Call Party (defined below) intends to
retain the services of a third party to perform services for it anywhere in the
States of Michigan, Indiana, Ohio, Pennsylvania, West Virginia or New York, to
the extent those services were performed by Seller, S&R Cable, Inc. or White
Rhino Drilling, Inc. for others prior to the Effective Date, such First Call
Party shall, prior to retaining such third party, give Buyer (or, as applicable,
Buyers affiliate), by delivery of appropriate notice, the opportunity (the
First Call) to offer to provide such services to such First Call Party. Should
Buyer (or, as applicable, Buyers affiliate) offer to provide such services on
terms and conditions no less favorable to such First Call Party than those
offered by such third party, Buyer (or, as applicable, Buyers affiliate) and
such First Call Party shall mutually agree on the specific terms, conditions and
services to be performed by Buyer (or, as applicable, Buyers affiliate). If
Buyer (or, as applicable, Buyers affiliate) cannot within 24 hours of receipt
of such notice referred to above, in good faith offer the services on terms and
conditions (including but not limited to timeliness) no less favorable to such
First Call Party than those offered by such third party, such First Call Party
shall be free to retain such third party to perform such services as it shall
see fit. In the event of a breach by a First Call Party of its obligations under
this Section 4.5.2, Buyer shall be entitled to recover any profits lost as a
result of such breach (in addition to all other available remedies). For the
purposes of this Section 4.5.2 the term First Call Party means (i) the
Member-1, (ii) any affiliate of Member-1, (iii) any other entity directly or
indirectly controlled by any of the parties specified in clauses (i) and (ii) of
this sentence and (iv) any other entity for which any of the parties specified
in clauses (i) and (ii) make decisions regarding the choice of provider of
services subject to the First Call. Member-1 covenants and agrees to cause all
First Call Parties that are not parties hereto to comply with their obligations
under this Section 4.5.2. A First Call Party shall not be obligated to give
Buyer (or any of Buyers affiliates) the First Call (1) if the Buyer (or any of
Buyers affiliates) in the past was unable to perform the services in a timely
and good and workmanlike manner for such First Call Party, as reasonably
determined by such First Call Party, or (2) if the First Call Party does not
have control over the selection process of the service provider, provided the
First Call Party may not grant control to make such selection to another party
for the sole purpose of avoiding its obligations under this Section 4.5.2, or
(3) in the event of an emergency involving public health, safety or welfare.
IV.6 Possession of Tangible Personal Property and Inventories. Possession of the
Assets shall be deemed to have passed from Seller to Buyer as of the Effective
Date. Seller will notify Buyer of the location of the Tangible Personal Property
and Inventories and all such Assets shall be located in the State of Michigan on
the Effective Date.
IV.7 Proration of Expenses. The parties further agree that the following
obligations shall be prorated as follows:
(a) All utility charges incurred by Seller in the Businesses prior to the
date of Closing shall be paid by Seller. The Buyer shall be
responsible for the utility charges incurred by the Assets purchased
by Buyer after the Effective Date.
(b) The Seller shall pay a prorata share of the personal property taxes
for the Assets sold by the Seller to Buyer for all years prior to the
Closing and a prorata share of all such taxes for 1997, prorated to
the Effective Date, in accordance with the standards of practice in
Grand Traverse County, Michigan. If the actual taxes for the current
year are not known as of the Effective Date, the apportionment of
taxes shall be upon the basis of taxes for the immediate preceding
year, provided that, if taxes for the current year are thereafter
determined to be more or less than the taxes for the preceding year
(after any appeal of the assessed valuation thereof is concluded),
Seller and Buyer promptly shall adjust the proration of such taxes and
Seller and/or Buyer, as the case may be, shall pay to the other any
amount required as a result of such adjustment and as a covenant shall
survive the Closing.
(c) The Seller shall pay all taxes, whether federal, state or local,
assessed against the Assets or the Businesses for that period of time
prior to the Effective Date, including any and all sales taxes, use
taxes, unemployment compensation taxes or taxes arising out of the
fact that Seller hired employees.
<PAGE>
(d) The Seller shall pay all other costs or expenses arising out of the
Assets or the Businesses prior to the Effective Date.
(e) The Buyer shall pay all sales taxes and/or use taxes, if any, charged
as a result of the transfer of title of any and all Assets from the
Seller to Buyer with respect to this transaction.
(f) The Buyer shall pay all costs or expenses arising out of the Assets or
use of the Assets by Buyer after the Effective Date.
IV.8 Limitation on Liability of Member-2. In no event shall the liability of
Member-2 to Buyer under any provisions of this Agreement exceed in the aggregate
$660,000. Furthermore, in no event shall the liability of Member-2 to Seller,
Member-1 and Member-3 under any provision of this Agreement exceed in the
aggregate $660,000, inclusive of any payments to Buyer under any provisions of
this Agreement.
IV.9 No Third Party Beneficiaries. The covenants, representations and warranties
contained in this Agreement and any Schedules attached hereto are for the sole
benefit of the parties to this Agreement and not for the benefit of any third
party.
IV.10 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
Article V
Indemnification
<
Article V Indemnification V.1 Indemnification by the Seller and the MembersV.1
Indemnification by the Seller and the Members. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, the Seller and
each of the Members shall, jointly and severally, indemnify, defend and hold
harmless Buyer and its officers, directors, employees, agents and stockholders
(collectively, the Buyer Indemnified Parties), against and with respect to any
and all claims, costs, damages, losses, expenses, obligations, liabilities,
recoveries, suits, causes of action and deficiencies, including interest,
penalties and reasonable attorneys fees and expenses (collectively, the Damages)
that any of the Buyer Indemnified Parties shall incur or suffer, which arise,
result from or relate to (i) any breach of, or failure by the Seller or any of
the Members 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 any of the
Members under this Agreement; and (ii) except to the extent the Damages are
exacerbated by Buyer or Key, the Retained Liabilities. The indemnification
obligations of Seller and Member-1 and Member-3 under this Section 5.1 shall not
exceed the Purchase Price; provided, however, that the indemnification
obligations of Seller and Member-1 and Member-3 under this Section 5.1 for
Damages incurred or suffered which arise from or relate to the Retained
Liabilities shall be unlimited in amount.
V.2 Indemnification by BuyerV.2 Indemnification by Buyer. In addition to any
other remedies available to the Seller and the Members under this Agreement, or
at law or in equity, Buyer shall indemnify, defend and hold harmless the Seller
and each of the Members and their respective officers, directors, employees and
agents (collectively, the Seller Indemnified Parties) against and with respect
to any and all Damages that any of the Seller Indemnified Parties shall incur or
suffer, which arise, result from or relate to (i) any breach of, or failure by
Buyer to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to the Seller or any of the Members by or on
behalf of Buyer under this Agreement; and (ii) except to the extent the Damages
arise out of a breach by Seller or Members of any of their respective
representations, warranties or covenants contained herein, any Damages arising
out of the use of the Assets by Buyer after the Effective Date.
<PAGE>
V.3 Indemnification ProcedureV.3 Indemnification Procedure. If any party hereto
discovers or otherwise becomes aware of an indemnification claim arising under
Section 5.1 or 5.2 of this Agreement, such indemnified party shall give written
notice to the indemnifying party, specifying such claim, and may thereafter
exercise any remedies available to such party under this Agreement; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the amount of the claim is not increased by the timing of, or failure
to give such notice. Further, promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Article 5, such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the amount of the
claim is not increased by the timing of, or failure to give such notice. 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 VI
Miscellaneous
Article VI Miscellaneous
VI.1 Survival of Representations, Warranties and
CovenantsVI.1 Survival of Representations, Warranties and Covenants.
VI.1.1. Survival of Representations, Warranties and Covenants for Member-2 and
BuyerVI.1.1. Survival of Representations, Warranties and Covenants for Member-2
and Buyer. All representations and warranties made by Member-2 and Buyer to each
other shall survive for twenty-four (24) months after the Effective Date,
notwithstanding any investigation made by or on behalf of any such parties
unless otherwise provided by this Agreement or applicable law, except that
representations and warranties with respect to unpaid taxes shall survive for
the period of the applicable statute of limitations with respect to any such
taxes. All statements made by Member-2 or Buyer to each other contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive for the
period of sixty (60) months despite any investigation made by any party hereto
or on its behalf unless otherwise provided by this Agreement or applicable law.
All covenants and agreements made by Member-2 and Buyer to each other shall
survive as provided for in this Agreement.
VI.1.2. Survival of Representations, Warranties and Covenants for Seller,
Member-1, Member-3 and BuyerVI.1.2. Survival of Representations, Warranties and
Covenants for Seller, Member-1, Member-3 and Buyer. All representations and
warranties made by the Seller, Member-1 or Member-3 and Buyer to each other
shall survive for sixty (60) months after the Effective Date, notwithstanding
any investigation made by or on behalf of any such parties unless otherwise
provided by this Agreement or applicable law. All statements contained in any
certificate, schedule, exhibit or other instrument made by Buyer, Member-1 or
Member-3 and Seller to each other delivered pursuant to this Agreement shall be
deemed to have been representations and warranties by the respective party or
parties, as the case may be, and shall also survive for a period of sixty (60)
months after the Effective Date despite any investigation made by any party
hereto or on its behalf unless otherwise provided by this Agreement or
applicable law.
VI.2 EntiretyVI.2 Entirety. This Agreement with attached Schedules embodies the
entire agreement among the parties with respect to the subject matter hereof,
and all prior agreements between the parties with respect thereto are hereby
superseded in their entirety.
<PAGE>
VI.3 Counterparts.VI.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.
VI.4 Notices and Waivers.VI.4 Notices and Waivers. Any notice or waiver to be
given to any party hereto shall be in writing and shall be delivered by courier,
sent by facsimile transmission or first class registered or certified mail,
postage prepaid, return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WellTech Eastern, Inc. Steven W. Martineau
Two Tower Center, Twentieth Floor Lynch, Gallagher, Lynch & Martineau, PLLC
East Brunswick, New Jersey 08816 555 N. Main Street, P.O. Box 446
Attn: General Counsel Mt. Pleasant, Michigan 48804-0446
Facsimile: (908) 247-5148 Facsimile: (517) 773-2107
- --------------------------------------------------------------------------------
If to any of the Sellers or any of the Members
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jeff Critchfield Michael Rhodes
1623 Northern Star Drive Loomis, Ewert, Parsley, Davis & Gotting
Traverse City, Michigan 49686 232 S. Capitol Avenue, #1000
Facsimile: (616) 929-7110 Lansing, Michigan 48933-1525
Facsimile: (517) 482-0555
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
VI.5 Captions.VI.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.
VI.6 Successors and Assigns.VI.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.
<PAGE>
VI.7 Severability.VI.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.
VI.8 Applicable Law.VI.8 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the applicable laws of the State of
Michigan.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
WELLTECH EASTERN, INC.
By:
Name: Francis D. John
Title: President
SELLER:
WELLCORPS, L.L.C.
By:
Name:
Title:
MEMBERS:
_________________________________
Jeff Critchfield
TERRA ENERGY, LTD.
_________________________________
By:
_________________________________
Brian Fries
<PAGE>
SCHEDULE 1.1(a)
TANGIBLE PERSONAL PROPERTY
See Attachment.
<PAGE>
SCHEDULE 1.1(b)
INVENTORIES
None.
<PAGE>
SCHEDULE 1.1(c)
SELLER INTELLECTUAL PROPERTY
None.
<PAGE>
SCHEDULE 1.1(d)
CONTRACTS
None.
<PAGE>
SCHEDULE 1.1(e)
SELLER PERMITS
The Company has no permits other than those occasionally needed to move rigs.
Each permit is obtained on a day-to-day basis which are not included in the
Assets.
<PAGE>
SCHEDULE 1.1(h)
EXCLUDED ASSETS
Cash
Operating accounts receivable
Other accounts and notes from Jordan Exploration, White Rhino Management,
Shareholders and other related parties
Prepaid expenses
See Attachment.
<PAGE>
SCHEDULE 2.1.7
SELLER FINANCIAL STATEMENT
See Attachment.
<PAGE>
SCHEDULE 2.1.8(d)
CHANGE IN ASSETS
None.
<PAGE>
SCHEDULE 4.1
INDIVIDUALS THAT WILL NOT BE EMPLOYED FOR ONE YEAR
See Attachment.
<PAGE>
SCHEDULE 4.2
EMPLOYEES
None.
<PAGE>
SCHEDULE 4.3
ALLOCATION OF PURCHASE PRICE
Covenant Not to Compete: $1.00
Goodwill: $1.00
All other Assets: Balance of Purchase Price
<PAGE>
SCHEDULE 4.5.1
APPROPRIATE NOTICE
Notice may be given to Tony Barber: Telephone (616) 258-6030; Facsimile (616)
258-8021, or to Royce Thomas: Telephone (616) 258-6027; Facsimile (616)
258-8021.
WellTech Eastern, Inc. shall have a right to change the above information by
providing written notice of such changed information to Terra Energy, Ltd. or
CMS NOMECO Oil & Gas Co.
Stock Purchase Agreement
among
Key Energy Group, Inc.,
Key Energy Drilling, Inc.
and
Ronald M. Sitton and Frank R. Sitton
Dated as of December 12, 1997
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of December
12, 1997 by and among Key Energy Group, Inc., a Maryland corporation (the
"Parent"), Key Energy Drilling, Inc., a Delaware corporation ("Key"), and Ronald
M. Sitton and Frank R. Sitton (collectively, the "Shareholders").
- --------------------------------------------------------------------------------
WITNESSETH
- --------------------------------------------------------------------------------
Whereas, the Parent is a corporation duly organized and validly existing under
the laws of the State of Delaware and Key is a corporation duly organized and
validly existing under the laws of the State of Delaware, both with their
principal executive offices at Two Tower Center, Tenth Floor, East Brunswick,
New Jersey 08816;
and
Whereas, Sitton Drilling Co. ("Sitton") is a corporation duly organized and
validly existing under the laws of the State of Texas, with its principal
executive offices at 4904 Lakeridge Drive, P. O. Box 65148, Lubbock, Texas
79464-5148; and
Whereas, the Shareholders own 1,000 shares (the "Sitton Shares") of common
stock, par value $1.00 , of Sitton ("Sitton Common Stock"), which constitutes
all of the issued and outstanding shares of capital stock of Sitton; and
Whereas the Shareholders desire to sell to Key, and Key desires to purchase
from the Shareholders all of the issued and outstanding capital stock of Sitton.
Now, Therefore, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale
1.1. Purchase and Sale of Sitton Shares. Subject to the terms and conditions of
this Agreement, at the Closing (as defined in Section 1.2 hereof), the
Shareholders agree to sell and convey to Key, effective as of 12:01 A.M. on
January 1, 1998 (the "Effective Time"), free and clear of all Encumbrances (as
defined in Section 2.1.8.1 hereof), and Key agrees to purchase and accept from
the Shareholders, all of the Sitton Shares. Subject to the provisions of Section
1.5 hereof, in consideration of the sale of the Sitton Shares, Key shall pay to
the Shareholders, at the Closing, a total of $12,950,000 (less (a) the
Prepayment Shortfall (as defined in Section 1.5 hereof) and (b) $100,000 (the
"Retention") which shall be retained for the period specified in Section 1.6
hereof) by wire transfer of immediately available funds (which sum shall include
$100,000.00 payable to each Shareholder for his covenants set forth in Section
6.1 hereof). In addition, Key shall cause to be issued to the Shareholders, in
accordance with Section 6.2 hereof, 100,000 shares (the "Key Energy Shares") of
common stock par value, $.10 per share, of the Parent ("Key Energy Common
Stock").
1.2. Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be at the offices of Clifford, Field,
Krier, Manning, Greak & Stone, P.C., 2112 Indiana, Lubbock, Texas 79410 at 10:00
a.m. on January 5, 1998 (the "Closing Date"), unless another time or place is
agreed upon by the Shareholders, Key and the Parent .
1.3. Delivery of Sitton Certificates. The Shareholders shall deliver to Key, on
the Closing Date, duly and validly issued certificates representing all of the
Sitton Shares, each of which certificates shall be duly endorsed in blank and in
good form for transfer or accompanied by stock powers duly executed in blank,
sufficient and in good form to properly transfer such shares to Key (or its
designee).
1.4. Distribution of Current Assets and Assumption of Liabilities. On and after
the Closing Date, all Current Assets of Sitton at the Effective Time (defined
below) shall be the sole property of the Shareholders and, subject to Section
1.6 hereof, Sitton shall have no rights thereto. On and after the Closing Date,
the Shareholders shall be solely responsible for the Liabilities of Sitton at
the Effective Time (defined below). On the Closing Date, the Shareholders shall
deliver to Key an executed copy of an assignment and assumption agreement in a
form reasonably satisfactory to Key (the "Assignment/Assumption Agreement")
effecting (i) the transfer and assignment of the Current Assets of Sitton at the
Effective Time to the Shareholders and (ii) the assumption of the Liabilities of
Sitton at the Effective Time by the Shareholders . As used herein, the term
"Current Assets of Sitton at the Effective Time" means (i) all of Sitton's
accounts receivable and all other rights of Sitton to payment for services
rendered by Sitton before the Effective Time ("Prior Accounts Receivable"),
including, without limitation, those accounts receivable described in Schedule
2.1.8.4 hereto; (ii) all cash accounts of Sitton and all petty cash of Sitton
kept on hand for use in the business in existence at the Effective Time; and
(iii) all right, title and interest of Sitton in and to all prepaid rentals,
other prepaid expenses (other than the prepayments referred to in Section 1.5
hereof), bonds, deposits and financial assurance requirements and other current
assets relating to any of the assets of the business in existence at the
Effective Time. As used herein, the term "Liabilities of Sitton at the Effective
Time" means any and all liabilities and obligations of Sitton, incurred in the
ordinary course of business but not yet due and payable or the amount of which
is not yet known and all notes or other indebtedness or obligations of Sitton
which has not been satisfied in full as of the Closing Date, including without
limitation (i) the litigation referred to in Schedule 2.1.16 hereto and any
other litigation brought or threatened against Sitton arising out of events or
circumstances occurring or existing before the Effective Time; (ii) any and all
taxes payable by Sitton for any period before the Effective Time (iii) the
amounts due under all indebtedness referred to in Schedule 2.1.8.14 hereto and
any and all other indebtedness of Sitton in existence at the Effective Time; and
(v) all accounts payable and trade payables of Sitton in existence at the
Effective Time, including, without limitation, the accounts payable described in
Schedule 2.1.8.5 hereto (the "Prior Payables"). Nothing in this Section 1.4 is
intended to limit the representations and warranties of or indemnifications by
the Shareholders contained herein or to expand the indemnification provisions of
7.1 or extend the period of time for which the representations, warranties and
covenants of the parties shall survive the Closing Date. Key shall be
responsible for any and all liabilities and obligations arising with respect to
the ownership and operation of Sitton's assets from and after the Effective
Date, except to the extent that such liabilities or obligations arise out of a
breach by the Shareholders of any of their respective representations,
warranties or covenants contained herein.
1.5. Required Payments. Before the Effective Time, the Shareholders shall cause
Sitton to make prepayments totaling at least $450,000 for the purchase of drill
bits to be delivered to Sitton after the Effective Time. The term "Prepayment
Shortfall" as used herein means the amount, if any, by which such prepayments
total less than $450,000.
1.6. Retention of Receivables; Payment of Payables; Post-Closing Adjusting
Payments. It is the intention and agreement of the parties that the Shareholders
will have full power and authority to collect the Prior Accounts Receivable from
and after the Closing Date, and Sitton shall take no action designated to
interfere with the collection of the Prior Accounts Receivable by the
Shareholders. However, for a period of 90 days from the Closing Date, Sitton
shall have the right to deposit and use any payments received by Sitton or Key
(as opposed to payments received by the Shareholders) on account of Prior
Accounts Receivables and the right to pay any Prior Payables and any other
unpaid Liabilities of Sitton at the Effective Time. At the end of such period,
Sitton shall deliver an accounting (the "Final Accounting") of such payments to
the Shareholders. Key and the Shareholders shall jointly review the Final
Accounting, endeavor in good faith to resolve any disagreements regarding the
entries thereon and reach a final determination thereof within 120 days from the
Closing Date. If the parties are unable to reach a final determination relative
to all disagreements regarding entries on the Final Accounting within such 120
day period they shall submit the unresolved issue or issues to a nationwide firm
of independent certified public accountants selected by mutual agreement (or if
mutual agreement cannot be reached, by lot), whose decision on the unresolved
issue or issues shall be binding on all parties hereto. The following adjusting
payments shall be made:
(1) If the total of all proceeds retained by Sitton from the Prior Accounts
Receivable plus the Retention exceeds the total of all Prior Payables and
other Liabilities of Sitton at the Effective Time paid by Sitton , Key
shall pay to the Shareholders the amount of such excess.
(2) If the total of all proceeds retained by Sitton from the Prior Accounts
Receivable plus the Retention is less than the total of all Prior Payables
and other Liabilities of Sitton at the Effective Time paid by Sitton, the
Shareholders shall pay to Key the amount of such difference.
From and after the 90 day period referred to above, (i) all payments received by
Sitton on account of Prior Accounts Receivables shall be promptly endorsed over
and delivered to the Shareholders in accordance with Section 8.4 hereof and (ii)
all unpaid Liabilities of Sitton at the Effective Time shall be subject to the
Shareholders' indemnification obligations in accordance with Section 7.1 hereof.
<PAGE>
ARTICLE 2
Representations and Warranties
2.1. General Representations and Warranties of the Shareholders. Each of the
Shareholders jointly and severally represents and warrants to Key and the Parent
as follows:
2.1.1. Organization and Standing. Sitton is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, has
full requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary.
2.1.2. Agreement Authorized and its Effect on Other Obligations. Each of the
Shareholders is a resident of Texas, above the age of 18 years, and has the
legal capacity and requisite power and authority to enter into, and perform his
obligations under this Agreement. This Agreement is a valid and binding
obligation of each of the Shareholders enforceable against each of the
Shareholders (subject to normal equitable principles) in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement by the
Shareholders will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (i) the Articles of
Incorporation or Bylaws of Sitton or (ii) any obligation, indenture, mortgage,
deed of trust, lease, contract or other agreement to which Sitton or either of
the Shareholders is a party or by which Sitton or either of the Shareholders or
their respective properties are bound.
2.1.3. Capitalization. The authorized capitalization of Sitton consists of
1,000,000 shares of Sitton Common Stock, of which, as of the date hereof, 1,000
shares were issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, Sitton does not have any outstanding options,
warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock. All issued and outstanding
shares of Sitton Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding shares of
Sitton Common Stock are subject to any voting trusts, voting agreement or other
agreement or understanding with respect to the voting thereof, nor is any proxy
in existence with respect thereto.
2.1.4. Ownership of Sitton Shares. Each Shareholder holds good and valid title
to 500 of the Sitton Shares, free and clear of all Encumbrances. The
Shareholders possess full authority and legal right to sell, transfer and assign
to Key the Sitton Shares, free and clear of all Encumbrances. Upon transfer to
Key by the Shareholders of the Sitton Shares, Key will own the Sitton Shares
free and clear of all Encumbrances. There are no claims pending or, to the
knowledge of either of the Shareholders, threatened, against Sitton or either of
the Shareholders that concern or affect title to either the Sitton Shares, or
that seek to compel the issuance of capital stock or other securities of Sitton.
2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture,
business trust or other legal entity in which Sitton, either directly or
indirectly through one or more intermediaries, owns or holds beneficial or
record ownership of at least a majority of the outstanding voting securities.
2.1.6. Financial Statements. The Shareholders have delivered to Key and the
Parent copies of Sitton's unaudited balance sheet (the A9/30 Balance Sheet@) and
statement of income, as of and for the nine months ended September 30, 1997
(collectively, the A9/30 Financial Statements@), copies of which are attached
hereto as Schedule 2.1.6. With the exception of the exclusion of footnotes, the
9/30 Financial Statements are complete in all respects. The 9/30 Financial
Statements present fairly the financial condition of Sitton as of the date and
for the period indicated and, except for the exclusion of footnotes, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. The inventories of Sitton reflected in the 9/30 Balance
Sheet, or which have thereafter been acquired by it, consist of items of a
quality usable and salable in the normal course of Sitton's business.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, Sitton does
not have any liabilities or obligations, either accrued, absolute or contingent,
nor do either of the Shareholders have any knowledge of any potential
liabilities or obligations, other than those incurred in the ordinary course of
business since the Balance Sheet Date that will not adversely affect the value
and conduct of the business of Sitton.
2.1.8. Additional Sitton Information. Attached as Schedule 2.1.8 hereto are
true, complete and correct lists of the following items:
2.1.8.1. Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by Sitton, with
a description of the nature and amount of any Encumbrances thereon, except such
imperfections of title, easements and Encumbrances, if any, as are not
substantial in character, amount, or extent and do not and will not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair the business
operations of Sitton. The term "Encumbrances" (as used in this Agreement) means
all liens, security interests, pledges, mortgages, deed of trust, claims, rights
of first refusal, options, charges, restrictions or conditions to transfer or
assignment, liabilities, obligations, privileges, equities, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances of
any kind or nature, except liens for current taxes not yet due and payable;
2.1.8.2. Machinery and Equipment. All vehicles, rigs, carriers, rig equipment,
machinery and transportation equipment, and all significant tools, equipment,
furnishings and fixtures owned, leased or subject to a contract of purchase and
sale, or lease commitment, by Sitton with a description of the nature and amount
of any Encumbrances thereon, except (i) Encumbrances disclosed on Schedule
2.1.8.2 hereto and (ii) such imperfections of title, easements and Encumbrances,
if any, as are not substantial in character, amount or extent and do not and
will not materially detract from the value, or interfere with the present use,
of the property subject thereto or affected thereby, or otherwise materially
impair the business operations of Sitton;
2.1.8.3. Inventory. All inventory items or groups of inventory items owned by
Sitton, excluding raw materials and work in process, which raw materials and
work in process are valued on the 9/30 Balance Sheet, together with the amount
of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes receivable of Sitton as of December
9, 1997 (all of which will be assigned to the Shareholders on or before the
Effective Time).
2.1.8.5. Payables. All accounts and notes payable of Sitton as of December 9,
1997 (all of which will be paid or otherwise discharged on or before the
Effective Time).
2.1.8.6. Insurance. All insurance policies or bonds currently maintained by
Sitton, including title insurance policies, including those covering Sitton's
properties, rigs, machinery, equipment, fixtures, employees and operations, as
well as a listing of any premiums, audit adjustments or retroactive adjustments
due or pending on such policies or any predecessor policies;
2.1.8.7. Leases; Contracts. All material contracts, including leases under which
Sitton is lessor or lessee, which are to be performed in whole or in part after
the date hereof;
2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, health insurance, death benefit, or other employee benefit or fringe
benefit plans, arrangements or trust agreements of Sitton or any other employee
benefit plan maintained or adopted by Sitton (collectively, the "Employee
Plans"), together with copies of the most recent reports or returns with respect
to each such Employee Plan, filed with any governmental agency and all Internal
Revenue Service determination letters and all other correspondence from
governmental entities that would bring into question the continued qualification
or validity of any such Employee Plan;
2.1.8.9 Certain Salaries. The names and salary rates of all present employees of
Sitton, and, to the extent existing on the date of this Agreement, all
arrangements with respect to any bonuses to be paid to them from and after the
date of the Agreement;
2.1.8.10. Bank Accounts. The name of each bank in which Sitton has an account,
the account numbers of each account and the names of all persons authorized to
draw thereon;
2.1.8.11. Employee Agreements. Sitton does not have any collective bargaining
agreements with any labor union or other representative of employees, or any
written or oral understandings, employment or consulting and severance
agreements;
2.1.8.12. Intellectual Property. Sitton does not own, lease or use any patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), copyrights and other intellectual property
(collectively, "Intellectual Property") ;
2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used
or held by Sitton, whether and where such names are registered and where used;
2.1.8.14. Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of Sitton relating thereto and a description of the collateral
securing the same (all of which shall be paid or otherwise discharged by the
Shareholders or Sitton on or before the Effective Time);
2.1.8.15. Guaranties. There are no indebtednesses, liabilities and commitments
of others as to which Sitton is a guarantor, endorser, co-maker, surety or
accommodation maker, or that Sitton is contingently liable for or any letters of
credit, whether stand-by or documentary, issued by any third party for the
benefit of Sitton;
2.1.8.16. Reserves and Accruals. Sitton has no accounting reserves or accruals;
and
2.1.8.17. Environmental. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by Sitton and all environmental audits, assessments, investigations
and reviews conducted by Sitton within the last five years (or otherwise within
the possession of Sitton) on any property owned or used by it.
2.1.9. No Defaults. Sitton is not in default in any material obligation or
covenant on its part to be performed under any obligation, lease, contract,
order, plan or other arrangement.
2.1.10. Absence of Certain Changes and Events. Except as disclosed on
Schedule 2.1.10 hereto, since the Balance Sheet Date, there has not been (and as
of the Closing Date there will not be):
2.1.10.1. Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of Sitton;
2.1.10.2. Property Damage. Any damage, destruction, or loss to the business or
properties of Sitton (whether or not covered by insurance);
2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the Sitton Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by Sitton of any such
stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of Sitton's authorized or outstanding capital stock
as described in Section 2.1.3 hereof;
2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature
involving Sitton; or
2.1.10.6. Other Adverse Changes. Any other event or condition known to either of
the Shareholders particularly pertaining to and adversely affecting the
operations, assets or business of Sitton.
2.1.11. Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by
Sitton and each of the Shareholders (with respect to their distributive share of
Sitton income) for each period for which any such returns, reports, or estimates
were due (taking into account any extensions of time to file before the date
hereof); all such returns are true and correct; Sitton has only done business in
Texas and New Mexico, all taxes shown by such returns to be payable have been
paid other than those being contested in good faith by Sitton or either of the
Shareholders (to the extent of their distributive share of Sitton income). No
waiver of any statute of limitations executed by Sitton or either of the
Shareholders (to the extent of their distributive share of Sitton income) with
respect to any income or other tax is in effect for any period. Neither the
income tax returns of Sitton nor either of the Shareholders (to the extent of
their distributive share of Sitton income) has ever been examined by the
Internal Revenue Service or the taxing authorities of any other jurisdiction
except for an audit of Sitton conducted by the Internal Revenue Service in 19__
for the calendar year 1983 and there are no current or pending audits. There are
no tax liens on any assets of Sitton or either of the Shareholders (to the
extent of their distributive share of Sitton income) except for taxes not yet
currently due. Sitton is not subject to any tax-sharing or allocation agreement.
Sitton is not, and never has been, a member of a consolidated group subject to
Treasury Regulation 1.1502-6 or any similar provision. Sitton (i) made a valid,
effective and binding election pursuant to Section 1362 of the Internal Revenue
Code of 1986, as amended (the "Code"), effective ______, 19__, (ii) has since
maintained its status as an S Corporation pursuant to Section 1361 of the Code
and (iii) has made and continuously maintained elections similar to the federal
S election in each state or local jurisdiction where Sitton does business or is
required to file a tax return to the extent such states or jurisdictions permit
such elections. Sitton neither is nor will or can be subject to the built-in
gains tax under Section 1374 of the Code or any similar corporate level tax
imposed on Sitton by any taxing authority. Sitton (x) has not adopted or
utilized LIFO as a method of accounting for inventory, and (y) has no other tax
item, election, agreement or adjustment which will accelerate or trigger income
or deferred deductions of Sitton as a result of termination of Sitton's status
as an S Corporation.
2.1.12. Intellectual Property. There is no Intellectual Property that is either
material to Sitton's business or that is necessary for the rendering of any
services rendered by Sitton or and the use or sale of any equipment or products
used or sold by it. Sitton has not received any notice of infringement,
misappropriation, or conflict with, the intellectual property rights of others
in connection with the use by it of the Intellectual Property or otherwise in
connection with the operation of its business.
2.1.13. Title to and Condition of Assets. Except as reflected on Schedule
2.1.8.1 hereto, Sitton has good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal, reflected in
the 9/30 Balance Sheet or in Schedule 2.1.8.1 hereto, free and clear of any
Encumbrance of any nature whatsoever, except (i)Encumbrances reflected in the
9/30 Balance Sheet or in Schedule 2.1.8.1 hereto, and (ii)such imperfections of
title, easements and Encumbrances, if any, as are not substantial in character,
amount, or extent and do not and will not materially detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby, or otherwise materially impair the business operations of Sitton. All
leases pursuant to which Sitton leases (whether as lessee or lessor) any
substantial amount of real or personal property are in good standing, valid, and
effective; and there is not, under any such leases, any existing default or
event of default or event which with notice or lapse of time, or both, would
constitute a default by Sitton and in respect to which Sitton has not taken
adequate steps to prevent a default from occurring. The buildings and premises
of Sitton that are used in its business are in good operating condition and
repair, subject only to ordinary wear and tear. All rigs, rig equipment,
machinery, transportation equipment, tools and other major items of equipment of
Sitton (except for surplus equipment located in Sitton's yard and not currently
being used by Sitton) are in good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excepted, and are free
from any known defects except as may be repaired by routine maintenance and such
minor defects as to not substantially interfere with the continued use thereof
in the conduct of normal operations. To the best of each Shareholder's
knowledge, all such assets conform to all applicable laws governing their use.
No notice of any violation of any law, statute, ordinance, or regulation
relating to any such assets has been received by Sitton or either of the
Shareholders, except such as have been fully complied with.
2.1.14. Contracts. All contracts, leases, plans or other arrangements to which
Sitton is a party, by which it is bound or to which it or its assets are subject
are in full force and effect, and constitute valid and binding obligations of
Sitton and the other parties thereto. Sitton is not, and to the knowledge of
either of the Shareholders, no other party to any such contract, lease, plan or
other arrangement is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No contract has been entered into on
terms which could reasonably be expected to have an adverse effect on Sitton.
Neither of the Shareholders has received any information which would cause such
Shareholder to conclude that any customer of Sitton will (or is likely to) cease
doing business with Sitton (or its successors) as a result of the consummation
of the transactions contemplated hereby.
2.1.15. Licenses and Permits. Sitton possesses all permits, authorizations,
certificates, approvals, registrations, variances, waivers, exemptions,
rights-of-way, franchises, ordinances, licenses and other rights of every kind
and character (collectively, the "Permits") necessary under law or otherwise for
Sitton to conduct its business as now being conducted and to construct, own,
operate, maintain and use its assets in the manner in which they are now being
constructed, operated, maintained and used (collectively, the "Sitton Permits").
Each of the Sitton Permits and Sitton's rights with respect thereto is valid and
subsisting, in full force and effect, and enforceable by Sitton subject to
administrative powers of regulatory agencies having jurisdiction. Sitton is in
compliance in all material respects with the terms of each of the Sitton
Permits. No Sitton Permit has been, or to the knowledge of either of the
Shareholders, is threatened to be, revoked, canceled, suspended or modified.
2.1.16. Litigation. Except as disclosed on Schedule 2.1.16 hereto, there is no
suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which Sitton is a party or, to the
knowledge of either of the Shareholders, might become a party or which affects
Sitton, nor is any change in the zoning or building ordinances directly
affecting the real property or leasehold interests of Sitton, pending or, to the
knowledge of either of the Shareholders, threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. There are no environmental conditions or
circumstances, including, without limitation, the presence or release of any
Substance of Environmental Concern (defined below), on any property presently or
previously owned, leased or operated by Sitton, or on any property to which
Substances of Environmental Concern or waste generated by Sitton's operations or
use of its assets was disposed of, which would have an adverse effect on the
business or business prospects of Sitton. The term "Substance of Environmental
Concern" means any gasoline, petroleum (including crude oil or any fraction
thereof), petroleum product, polychlorinated biphenyls, urea-formaldehyde
insulation, asbestos, pollutant, contaminant, radiation, and any other substance
of any kind, whether or not any such substance is defined as toxic or hazardous
under any Environmental Law (defined below), that is regulated pursuant to or
could give rise to liability under any Environmental Law;
2.1.17.2. Permits, etc. Sitton has, and within the period of all applicable
statutes of limitations has had in full force and effect all environmental
permits, licenses, approvals and other authorizations required to conduct its
operations, and is and within the period of all applicable statute of
limitations has been operating in substantial compliance thereunder;
2.1.17.3. Compliance. The operations of Sitton and the use of its assets are,
and within the period of all applicable statutes of limitation have been, in
compliance with all applicable Environmental Laws other than such non compliance
that in the aggregate is not material to the business or operations of Sitton.
"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,
local, municipal or other governmental authority or quasi-governmental
authority, regulating, relating to, or imposing liability or standards of
conduct concerning protection of the environment or of human health, or employee
health and safety as is now in effect;
2.1.17.4. Past Compliance. None of the operations or assets of Sitton has ever
been conducted or used in such a manner as to constitute violation of any of the
Applicable Environmental Laws;
2.1.17.5. Environmental Claims. No notice has been served on Sitton or any of
the Shareholders from any entity, governmental agency or individual regarding
any existing, pending or threatened investigation, inquiry, enforcement action
or litigation or liability, including without limitation any claims for remedial
obligations, response costs or contribution, relating to any Environmental Law;
2.1.17.6. Enforcement. Neither Sitton nor to either Shareholder's knowledge, any
predecessor of Sitton, nor any other party acting on behalf of Sitton, (i) has
entered into or agreed to any consent decree, order, settlement or other
agreement, or (ii) is subject to any judgment, decree, order or other agreement,
in any judicial administrative, arbitral or other forum, relating to compliance
with or liability under any Environmental Law;
2.1.17.7. Liabilities. Sitton has not assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law;
2.1.17.8. Renewals. Neither of the Shareholders knows of any reason why Sitton
(or its successors) would not be able to renew without material expense any of
the permits, licenses, or other authorizations required pursuant to any
Environmental Law in connection with any of Sitton's current operations; and
2.1.17.9. Asbestos and PCBs. No known material amounts of friable asbestos
currently exist on any property owned or operated by Sitton, nor do
polychlorinated biphenyls exist in concentrations of 50 parts per million or
more in electrical equipment owned or being used by Sitton in its operations or
on the properties of Sitton.
2.1.18. Compliance with Other Laws. Sitton is not in violation of or in default
with respect to, or in alleged violation of or alleged default with respect to,
the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as amended, or
any other applicable law or any applicable rule, regulation, or any writ or
decree of any court or any governmental commission, board, bureau, agency, or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality.
2.1.19. No ERISA Plans or Labor Issues. Sitton does not currently sponsor,
maintain or contribute to and has not at any time sponsored, maintained or
contributed to any employee benefit plan which is or was subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Sitton has not engaged in any unfair labor practices which could
reasonably be expected to result in a material adverse effect on its operations
or assets. Sitton does not have any dispute with any of its existing or former
employees. There are no labor disputes or, to the knowledge of any of the
Shareholders, any disputes threatened by current or former employees of Sitton.
2.1.20. Investigations; Litigation. No investigation or review by any
governmental entity with respect to Sitton or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of either of the
Shareholders, threatened, nor has any governmental entity indicated to Sitton an
intention to conduct the same. Except as described on Schedule 2.1.16 hereto,
there is no action, suit or proceeding pending or, to the knowledge of either of
the Shareholders, threatened against or affecting Sitton at law or in equity, or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, that either individually
or in the aggregate, does or is likely to result in an adverse change in the
financial condition, properties or business of Sitton.
2.1.21. Absence of Certain Business Practices. Neither Sitton nor any officer of
Sitton, nor, to the knowledge of either of the Shareholders, any employee or
agent of Sitton or any other person acting on behalf of Sitton, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit of greater than nominal value to any customer, supplier,
government employee or other person who is or may be in a position to help or
hinder the business of Sitton (or to assist Sitton in connection with any actual
or proposed transaction) which (i) might subject Sitton to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (ii) if not
given in the past, might have had an adverse effect on the assets, business or
operations of Sitton, or (iii) if not continued in the future, might adversely
affect the assets, business operations or prospects of Sitton or which might
subject Sitton to suit or penalty in a private or governmental litigation or
proceeding.
2.1.22 Consents and Approvals. No consents, approvals or authorizations of, or
filing or registration with, any governmental or regulatory authority, or any
other person are required to be made or obtained by the Shareholders or Sitton
in connection with the consummation of the transactions contemplated hereby.
2.1.23 Broker or Financial Advisors Fee. Neither the Shareholders nor Sitton
have retained any broker, agent or finder or agreed to pay any financial broker,
agent or finder on account of this Agreement in such manner as to give rise to
any valid claim against Key or the Parent for a brokerage commission, finder's
fee or any similar payments.
2.2. Investment Representations of the Shareholders. Each of the Shareholders
acknowledges, represents and agrees that:
2.2.1. Shareholders Investment Suitability and Related Matters. (i) The Parent
has made available to the Shareholders the information and documents described
in Section 2.4.3 hereof and the Shareholders have had access to the other
reports filed with the Commission (as defined in Section 2.4.3 hereof), (ii)
such Shareholder understands the risks associated with ownership of Key Energy
Common Stock, and (iii) such Shareholder is capable of bearing the financial
risks associated with such ownership;
2.2.2. Key Energy Shares Not Registered. The Key Energy Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or registered or qualified under any applicable state securities laws;
2.2.3. Reliance on Representations. The Key Energy Shares are being issued to
such Shareholder in reliance upon exemptions from such registration or
qualification requirements, and the availability of such exemptions depends in
part upon such Shareholder's bona fide investment intent with respect to the Key
Energy Shares;
2.2.4. Investment Intent. Such Shareholder's acquisition of the Key Energy
Shares is solely for his own account for investment, and such Shareholder is not
acquiring the Key Energy Shares for the account of any other person or with a
view toward resale, assignment, fractionalization, or distribution thereof,
except as permitted by applicable securities laws;
2.2.5. Permitted Resale. Such Shareholder shall not offer for sale, sell,
transfer, pledge, hypothecate or otherwise dispose of any of the Key Energy
Shares except in accordance with the registration requirements of the Securities
Act and applicable state securities laws or upon delivery to the Parent of an
opinion of legal counsel reasonably satisfactory to the Parent that an exemption
from registration is available;
2.2.6. Investor Sophistication. Such Shareholder has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the Key Energy Shares, and
to make an informed investment decision with respect thereto;
2.2.7. Availability of Information. Each Shareholder has had the opportunity to
ask questions of, and receive answers from the Parent's officers and directors
concerning such Shareholder's acquisition of the Key Energy Shares and to obtain
such other information concerning the Parent and the Key Energy Shares, to the
extent the Parent's officers and directors possessed the same or could acquire
it without unreasonable effort or expense, as such Shareholder deemed necessary
in connection with making an informed investment decision; and
2.2.8. Restrictive Legends. In addition to any other legends required by law or
the other agreements entered into in connection herewith, each certificate
evidencing the Key Energy Shares will bear a conspicuous restrictive legend
substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS,
AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF
LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
2.3. General Representations of Key. Key represents and warrants to each of the
Shareholders as follows:
2.3.1. Organization and Good Standing. Key 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.
2.3.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Key, and this
Agreement is a valid and binding obligation of Key enforceable (subject to
normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement by Key will not conflict
with or result in a violation or breach of any term or provision of, or
constitute a default under (i) the Certificate of Incorporation or Bylaws of Key
or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which Key or any of its property is bound.
2.3.3. Broker or Financial Advisor's Fee. Key has not retained any broker, agent
or finder or agreed to pay any financial agent or finder on account of this
Agreement in such a manner as to give rise to any valid claim against the
Shareholders for any brokerage commission, finder's fee or any similar payments.
2.4. General Representations and Warranties of the Parent. The Parent represents
and warrants to the Shareholders as follows:
2.4.1. Organization and Good Standing. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary.
2.4.2. Agreement Authorized and its Effect on Other Obligations. The execution
and delivery of this Agreement have been authorized by all necessary corporate,
shareholder and other action on the part of the Parent, and this Agreement is
the valid and binding obligation of the Parent and enforceable (subject to
normal equitable principals) against the Parent in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, will not conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under (i) the charter or bylaws (or other organizational documents) of
the Parent or (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Parent is a party or by which the
Parent is bound.
2.4.3. Reports and Financial Statements. The Parent has previously furnished to
the Shareholders true and complete copies of the following (collectively, the
"Key SEC Documents"): (i) the Parent's annual report filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), for the Parent's fiscal
year ended June 30, 1997; (ii) the Parent's quarterly and other reports filed
with the Commission since June 30, 1997; (iii) all definitive proxy solicitation
materials filed with the Commission since June 30, 1997; and (iv) any
registration statements (other than those relating to employee benefit plans)
declared effective by the Commission since June 30, 1997. The consolidated
financial statements of the Parent and its consolidated subsidiaries included in
the Parent's most recent annual report on Form 10-K and most recent quarterly
reports on Form 10-Q were prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as noted therein)
during the periods involved and fairly present the consolidated financial
position of the Parent and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and changes in financial
position for the periods then ended; and the Key SEC Documents did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading as of
the date of such documents or other such date specified therein. The Parent
further represents that there has been no material adverse change in its
consolidated financial condition since September 30, 1997.
2.5. Consents and Approvals. No consent, approval or authorization of, or filing
of a registration with, any governmental or regulatory authority, or any other
person or entity is required to be made or obtained by Key or the Parent in
connection with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby, other than what is
required by the American Stock Exchange for the listing of the Key Shares to be
issued hereunder.
2.6. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Key, the Parent and
their counsel directly with the Shareholder and their counsel, without the
intervention by any other person as the result of any act of Key or the Parent
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.
<PAGE>
ARTICLE 3
OBLIGATIONS PENDING CLOSING DATE
3.1 Agreements of the Shareholders. Except as expressly contemplated elsewhere
in this Agreement, the Shareholders agree that from the date hereof until the
Closing Date, the Shareholders will cause Sitton to (and unless otherwise
indicated by the context, since September 30, 1997, Sitton has):
3.1.1 Maintenance of Present Business. Operate its business only in the usual,
regular and ordinary manner so as to maintain the goodwill it now enjoys and, to
the extent consistent with such operation, use all reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees and preserve its relationships with
customers, suppliers, jobbers, distributors and others having business dealings
with it;
3.1.2. Maintenance of Properties. At its expense, maintain all of its property
and assets in customary repair, order and condition, reasonable wear and tear
excepted;
3.1.3. Maintenance of Books and Records. Maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with generally
accepted accounting principles applied on a consistent basis;
3.1.4. Compliance with Law. Duly comply in all material respects with all laws
applicable to it and to the conduct of its business;
3.1.5. Inspection. Permit Key, the Parent and their authorized representatives,
during normal business hours, to inspect Sitton's records and to consult with
its officers, employees, attorneys and agents for the purpose of determining the
accuracy of the representations and warranties herein made and the compliance
with covenants contained in this Agreement; and
3.1.6. Notice of Material Developments. Promptly notify Key and the Parent in
writing of any material adverse change in, or any changes which, in the
aggregate, could result in an adverse change in, the consolidated financial
condition, business or affairs of Sitton, whether or not occurring in the
ordinary course of business.
3.2. Additional Agreements of the Shareholders. Except as expressly contemplated
elsewhere in this Agreement, each of the Shareholders agree that since September
30, 1997 (the "Balance Sheet Date") Sitton has not, and from the date hereof
until the Closing Date, they will not cause or permit Sitton to:
3.2.1. Prohibition of Certain Employment Contracts. Enter into any contracts of
employment which cannot be terminated on notice of 30 days or less or which
provide for any severance payments or benefits covering a period beyond the
earlier of the termination date or notice thereof.
3.2.2. Prohibition of Loans. Incur any borrowings which will not be repaid in
full on or before the Closing Date;
3.2.3. Prohibition of Certain Commitments. Enter into commitments of a capital
expenditure nature or incur any contingent liabilities which would exceed
$10,000 in the aggregate except (i) as may be necessary for maintenance of
existing facilities, machinery and equipment in good operating condition and
repair in the ordinary course of business, or (ii) as is otherwise approved in
writing by Key;
3.2.4. Disposal of Assets. Sell, dispose of, or encumber, any property or
assets, except (i) in the usual and ordinary course of business, (ii) property
or assets which individually have a value of less than $1,000; (iii) as
described on Schedule 2.1.10 hereto; or (iii) as may be approved in writing by
Key;
3.2.5. Maintenance of Insurance. Discontinue its current level of insurance;
provided, that if during the period from the date hereof to and including the
Closing Date any of its property or assets are damaged or destroyed by fire or
other casualty, the obligations of Key, the Parent and the Shareholders under
this Agreement shall not be affected thereby, and upon the Closing Date all
proceeds of insurance and claims of every kind arising as a result of any such
damage or destruction shall remain the property of Sitton.
3.2.6. Acquisition Proposals. Directly or indirectly (i) solicit, initiate or
encourage any inquiry or Acquisition Proposal from any person or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person other than Key, the Parent or their representatives any information with
respect to, or otherwise facilitate or encourage any Acquisition Proposal by any
other person. As used herein "Acquisition Proposal" means any proposal for a
merger, consolidation or other business combination involving Sitton or for the
acquisition or purchase of any equity interest in, or a material portion of the
assets of, Sitton, other than the transactions with Key, the Parent and the
Shareholders contemplated by this Agreement. Sitton shall promptly communicate
to Key and the Parent the terms of any such written Acquisition Proposals which
it may receive or any written inquiries made to it or any of its directors,
officers, representatives or agents;
3.2.7. No Amendment to Articles of Incorporation. Amend its Articles of
Incorporation or merge or consolidate with or into any other corporation or
change in any manner the rights of its common stock or the character of its
business;
3.2.8. No Issuance, Sale, or Purchase of Securities. Issue or sell, or issue
options or rights to subscribe to, or enter into any contract or commitment to
issue or sell (upon conversion or otherwise), any shares of Sitton Common Stock,
or subdivide or in any way reclassify any shares of Sitton Common Stock, or
acquire, or agree to acquire, any shares of Sitton Common Stock; and
3.2.9. Prohibition on Dividends. Declare or pay any dividend on shares of Sitton
Common Stock or make any other distribution of assets to the holders thereof,
except as described on Schedule 2.1.10 hereto.
<PAGE>
ARTICLE 4
Conditions Precedent to Obligations
4.1. Conditions Precedent to Obligations of Shareholders. The obligations of
Shareholders to consummate and effect the transactions contemplated hereunder
shall be subject to the satisfaction of the following conditions, or to the
waiver thereof by Shareholders before the Closing Date:
4.1.1. Representations and Warranties of Key and the Parent True at the
Effective Time and the Closing Date. The representations and warranties of Key
and the Parent herein contained shall be, in all material respects, true as of
and at the Effective Time and the Closing Date with the same effect as though
made at such dates, except as affected by transactions permitted or contemplated
by this Agreement; Key and the Parent shall have performed and complied, in all
material respects, with all covenants required by this Agreement to be performed
or complied with by them before the Effective Time and the Closing Date; and Key
and the Parent shall have delivered to the Shareholders a certificate, dated the
Closing Date and signed by their president or vice president and their secretary
or assistant secretary, to such effect.
4.1.2. No Material Litigation. No suit, action, or other proceeding shall be
pending, or to the knowledge of Key or the Parent, threatened, before any court
or governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or provide other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby or which
might result in a material adverse change in the value of the consolidated
assets and business of Key or the Parent.
4.1.3 Opinion of Key Counsel. The Shareholders shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, a
Professional Corporation, counsel for Key and the Parent, in form and substance
satisfactory to the Shareholders, to the effect that (i) Key and the Parent have
been duly incorporated and are validly existing as corporations in good standing
under the laws of the States of Delaware and Maryland, respectively; (ii) Key
and the Parent have fully requisite corporate power and authority to carry on
their business as it is currently conducted and to own and operate the
properties currently used and operated by them, and are duly qualified to do
business and are in good standing as foreign corporations in the State of Texas;
(iii) all corporate proceedings required to be taken by or on the part of Key
and the Parent to authorize the execution of this Agreement and the
implementation of the transactions contemplated hereby have been taken; and (iv)
this Agreement has been duly executed and delivered by, and is the legal, valid
and binding obligation of Key and the Parent and is enforceable against Key and
the Parent in accordance with its terms, except as enforceability may be limited
by (a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of Key and the Parent
as to matters of fact and (ii) the opinion or opinions of other counsel, which
opinions shall be reasonably satisfactory to the Shareholders, as to matters
other than federal or Texas law.
4.2. Conditions Precedent to Obligations of Key and the Parent. The obligation
of Key and the Parent to consummate and effect the transactions contemplated
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by Key and the Parent before the Closing Date.
4.2.1. Representations and Warranties of Shareholders True at the Effective Time
and the Closing Date. The representations and warranties of the Shareholders
herein contained shall be, in all material respects, true as of and at the
Effective Time and the Closing Date with the same effect as though made at such
dates, except as affected by transactions permitted or contemplated by this
Agreement; Sitton and the Shareholders shall have performed and complied in all
material respects, with all covenants required by this Agreement to be performed
or complied with by them before the Effective Time and the Closing Date; and
Sitton and the Shareholders each shall have delivered to Key and the Parent a
certificate, dated the Closing Date and signed by each of the Shareholders and
by Sitton's president, chief financial or accounting officer, and secretary, as
the case may be, to such effects.
4.2.2. No Litigation. Except as described on Schedule 2.1.16 hereto, no suit,
action or other proceeding shall be pending, or to the Shareholders= knowledge,
threatened, before any court or governmental agency in which it will be, or it
is, sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby or which might result in an adverse change in the value of
the assets and business of Sitton.
4.2.3. Opinion of Shareholders' Counsel. Key and the Parent shall have received
a favorable opinion, dated the Closing Date, from Clifford, Field, Krier,
Manning, Greak & Stone, P.C., counsel to the Shareholders, in form and substance
satisfactory to Key and the Parent, to the effect that (i) Sitton has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Texas; (ii) has full requite 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 licenses
to do business and is in good standing as a foreign corporation in New Mexico
and in each other state in which the nature of the business requires such
qualification; (iii) all outstanding shares of the Sitton Common Stock have been
validly issued and are fully paid and nonassessable; and (iv) this Agreement has
been duly executed and delivered by, and is the legal, valid and binding
obligation of the Shareholders and is enforceable against the Shareholders in
accordance with its terms, except as the enforceability may be limited by (a)
equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (i)
certificates of public officials and of officers of Sitton or the Shareholders
as to matters of fact and (ii) on the opinion or opinions of other counsel,
which opinions shall be reasonably satisfactory to Key and the Parent, as to
matters other than federal or Texas law.
4.2.4. Payment of Liabilities and Prepayments. The Shareholders shall have
caused Sitton to (the "Pay-Off Condition") (i) pay or otherwise discharge all
Liabilities of Sitton at the Effective Time other than those for which the
Shareholders had not received an invoice on or before December 29, 1997 or of
which the Shareholders had not been notified or otherwise become aware on or
before December 29, 1997 or that had not been incurred on or before December 29,
1997 and (ii) make the prepayments referred to in Section 1.5 hereof. Key shall
have received (x) an executed copy of the Assignment and Assumption Agreement in
a form reasonably satisfactory to it; and (y) evidence reasonably satisfactory
to it that the Pay-Off Condition had been met.
4.2.5. Encumbrances Removed. Key shall receive evidence reasonably satisfactory
to it that Sitton owns all of its assets free and clear of all Encumbrances.
<PAGE>
ARTICLE 5
Termination and Abandonment
5.1. Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the purchase and sale
contemplated hereby abandoned at any time before the Closing Date:
5.1.1. By Mutual Consent. By mutual consent of Key, the Parent and the
Shareholders.
5.1.2. By Key and the Parent Because of Failure to Perform Agreements or
Conditions Precedent. By Key and the Parent, if the Shareholders have failed to
perform any material agreement set forth in Sections 3.1 or 3.2, or if any
material condition set forth in Section 4.2 hereof has not been met, and such
condition has not been waived.
5.1.3. By the Shareholders Because of Key or the Parent's Failure to Perform
Agreements or Conditions Precedent. By the Shareholders, if Key or the Parent
has failed to perform any material condition set forth in Section 4.1 hereof has
not been met, and such condition has not been waived.
5.1.4. By Key, the Parent or by the Shareholders Because of Legal Proceedings.
By either Key, the Parent or the Shareholders if any suit, action, or other
proceeding shall be pending or threatened by the federal or a state government
before any court or governmental agency, in which it is sought to restrain,
prohibit, or otherwise affect the consummation of the transactions contemplated
hereby.
5.1.5. By Key or the Parent Because of a Material Adverse Change. By Key or the
Parent if there has been a material adverse change in the financial condition or
business of Sitton since the Balance Sheet Date.
5.1.6. By Key or by the Shareholders if No Closing by January 15, 1998. By
either Key or the Shareholders, if the closing of the purchase and sale
contemplated hereby shall not have been consummated on or before January 15,
1998 through no fault of any party hereto; provided, however, that this
Agreement may not be terminated by any party hereto if the transactions
contemplated hereby have not occurred due to the breach of any provision of this
Agreement by the party desiring to terminate this Agreement.
5.2. Effect of Termination. In the event of the termination and abandonment of
this Agreement pursuant to and in accordance with the provisions of Section 5.1
hereof, this Agreement shall become void and have no effect, without any
liability on the part of any party hereto (or its stockholders or controlling
persons or directors or officers), except as otherwise provided in this
Agreement; provided, however, that a termination of this Agreement shall not
relieve any party hereto from any liability for damages incurred as a result of
a breach by such party of its representations, warranties, covenants,
agreements, or other obligations hereunder, occurring before such termination.
5.3. Waiver of Conditions. Subject to the requirements of any applicable law,
any of the terms or conditions of this Agreement may be waived at any time by
the party which is entitled to the benefit thereof.
5.4. Expense on Termination. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of Section 5.1
hereof, all expenses will be paid by the party incurring them.
<PAGE>
ARTICLE 6
Additional Agreements
6.1. Noncompetition. Except as otherwise consented to or approved in writing by
Key and the Parent, each of the Shareholders agrees that for a period of 60
months from the Closing Date, such Shareholder will not, directly or indirectly,
acting alone or as a member of a partnership or as an officer, director,
employee, consultant, representative, holder of, or investor in as much as 5% of
any security of any class of any corporation or other business entity (i) engage
in competition with the business or businesses conducted by Sitton, Key, the
Parent or any affiliate of Key or the Parent on or before the date of this
Agreement in Texas or New Mexico; (ii) request any present customers or
suppliers of Sitton to curtail or cancel their business with Key, the Parent,
Sitton or any of their affiliates; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of Sitton, Key, the
Parent or any of their affiliates or any details of their organization or
business affairs or (iv) induce or actively attempt to influence any employee of
Sitton, Key, the Parent or any of their affiliates to terminate his employment.
Each of the Shareholders agrees that if either the length of time or
geographical area set forth in this Section 6.1 is deemed too restrictive in any
court proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. Each of the Shareholders further agrees and
acknowledges that Key, the Parent and their affiliates do not have any adequate
remedy at law for the breach or threatened breach by such Shareholder of this
covenant, and agree that Key, the Parent or any affiliate of Key or the Parent
may, in addition to the other remedies which may be available to it hereunder,
file a suit in equity to enjoin such Shareholder from such breach or threatened
breach. If any provisions of this Section 6.1 are held to be invalid or against
public policy, the remaining provisions shall not be affected thereby. Each of
the Shareholders acknowledges that the covenants set forth in this Section 6.1
are being executed and delivered by such Shareholder in consideration of the
covenants of Key and the Parent contained in this Agreement, an agreed upon
allocation of $100,000 of the purchase price being paid by Key to such
Shareholder pursuant to Section 1.1 hereof and for other good and valuable
consideration, receipt of which is hereby acknowledged.
6.2. Issuance of Key Shares. On the date hereof, the Parent shall file a listing
application with the American Stock Exchange requesting the listing of the Key
Energy Shares. On the date the Parent receives notice of approval of such
request, the Parent shall send written instructions to its transfer agent and
registrar to issue, countersign and register a total of twenty (20)
certificates, each representing 5,000 of the Key Energy Shares, with each
Shareholder being named as the record holder of ten (10) of such Certificates.
Such certificates shall be delivered to the Shareholders at the address
specified in Section 9.4 hereof.
6.3. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby, including, without limitation,
assistance from the Shareholders in auditing the financial statements of Sitton.
6.4. Fees and Expenses. Except as otherwise expressly provided in this
Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors and accountants incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fee or expense by or on the date hereof.
<PAGE>
ARTICLE 7
Indemnification
7.1. Indemnification by Shareholders. On the terms and conditions and subject to
the limitations provided in this Article 7, each of the Shareholders shall
indemnify, defend and hold harmless Sitton, Key, the Parent, their affiliates
and subsidiaries and their respective officers, directors, employees, agents and
stockholders (collectively, the "Key Indemnified Parties"), against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabilities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and attorneys' fees (collectively, the "Damages") that such
indemnitees shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by, the 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 by Key
or the Parent to the Shareholders under this Agreement to the extent such
Damages exceed $100,000 in the aggregate or (ii) the Liabilities of Sitton at
the Effective Time; provided, however, that the Shareholders shall not be
required to so indemnify, defend and hold harmless the Key Indemnified Parties
against and with respect to any Damages incurred as a result of a breach by
either of the Shareholders of their respective representations and warranties in
this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Key by either of the Shareholders under this Agreement
for which a Key Indemnified Party fails to provide written notice of a claim for
such Damages to the Shareholders on or before the expiration of the survival
period (as specified in Section 8.1 hereof) of the specific representation or
warranty alleged to have been breached.
7.2. Indemnification by Key. On the terms and conditions and subject to the
limitations provided in this Article 7, Key shall indemnify, defend and hold
harmless each of the Shareholders against and with respect to any and all
Damages in excess of $100,000 in the aggregate that such indemnitees shall incur
or suffer, which arise, result from or relate to any breach of, or failure by
Key to perform, any of its representations, warranties, covenants or agreements
in this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to the Shareholders by or on behalf of Key under this
Agreement; provided, however, that Key shall not be required to so indemnify,
defend and hold harmless the Shareholders against and with respect to any
Damages incurred as a result of a breach by Key of any of its representations
and warranties in this Agreement or in any schedule, certificate, exhibit or
other instrument furnished or delivered to Shareholders by Key under this
Agreement for which the Shareholders fail to provide written notice of a claim
for such Damages to Key on or before the expiration of the survival period (as
specified in Section 8.1 hereof) of the specific representation or warranty
alleged to have been breached.
7.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Section 7.1 or Section
7.2 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 7, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. Any indemnifying party who elects not
to assume the defense of a claim shall not be liable for the fees and expenses
of more than one counsel in any single jurisdiction for all parties indemnified
by such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, 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.
<PAGE>
ARTICLE 8
Miscellaneous
8.1 Survival of Representations, Warranties and Covenants. All representations,
warranties and covenants made by the parties hereto shall survive until three
(3) years after the Closing Date, notwithstanding any investigation made on the
part of the parties hereto; provided, however, that the representations and
warranties made in Section 2.1.11 hereof shall survive until the expiration of
the applicable statute of limitations associates with tax issues. All statements
contained in any certificate, schedule, exhibit or other instrument delivered
pursuant to this Agreement shall be deemed to have been representations,
warranties and covenants by the respective party or parties, as the case may be,
and shall also survive until three (3) years after the Closing Date despite any
investigation made by any party hereto or on its behalf. All covenants and
agreements contained herein shall survive as provided herein.
8.2. Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
8.3. Counterparts. 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.
8.4. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Key or the Parent
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Energy Group, Inc. Key Energy Drilling, Inc.
Two Tower Center, Tenth Floor 6 Desta Drive, Suite 5900
East Brunswick, New Jersey 08816 Midland, Texas 79705
Attn: General Counsel Attn: Kenneth V. Huseman
Facsimile: (908) 247-5148 Facsimile: (915) 620-0307
and
Lynch, Chappell & Alsup, P.C.
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attn: James M. Alsup
Facsimile: (915) 683-2587
--------------------------------------------------------
--------------------------------------------------------
- --------------------------------------------------------------------------------
If to a Shareholder
---------------------------------------------------------------------------
Addressed to: With a copy to:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Mr. Ronald M. Sitton Clifford, Field, Krier, Manning, Greak &
Mr. Frank R. Sitton Stone, P.C.
4904 Lakeridge Drive 2112 Indiana
P. O. Box 65148 Lubbock, Texas 79410
Lubbock Texas 79464-5158 Attn: Nevill Manning
Facsimile: (806) 792-0810
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
8.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
8.6. Binding Effect; Assignment; No Third Party Benefit. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than Key, the Parent and
the Shareholders, any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
8.7. 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.
8.8. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
8.9. 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 Key has
caused this Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
KEY ENERGY GROUP, INC. KEY ENERGY DRILLING, INC.
By:_____________________________ By:
Kenneth V. Huseman, Executive Kenneth V. Huseman, Vice President
Vice President
SHAREHOLDERS
____________________________________
Ronald M. Sitton
____________________________________
Frank R. Sitton
<PAGE>
TABLE OF CONTENTS
ARTICLE 1Purchase and Sale.....................................................1
1.1. Purchase and Sale of Sitton Share.....................................1
1.2. Time and Place of Closing.............................................2
1.3. Delivery of Sitton Certificates.......................................2
1.4. Distribution of Current Assets and Assumption of Liabilities..........2
1.5. Required Payments.....................................................3
1.6. Retention of Receivables; Payment of Payables;
Post-Closing Adjusting Payments.....................................3
ARTICLE 2 Representations and Warranties...............................4
2.1. General Representations and Warranties of the Shareholders............4
2.1.1. Organization and Standing.............................................4
2.1.2. Agreement Authorized and its Effect on Other Obligations..............4
2.1.3. Capitalization........................................................4
2.1.4. Ownership of Sitton Shares............................................5
2.1.5. No Subsidiaries.......................................................5
2.1.6. Financial Statements..................................................5
2.1.7. Liabilities...........................................................5
2.1.8. Additional Sitton Information.........................................5
2.1.8.1. Real Estate...........................................................5
2.1.8.2. Machinery and Equipment...............................................6
2.1.8.3. Inventory.............................................................6
2.1.8.4. Receivables...........................................................6
2.1.8.5. Payables..............................................................6
2.1.8.6. Insurance.............................................................6
2.1.8.7. Leases; Contracts.....................................................6
2.1.8.8. Employee Compensation Plans...........................................6
2.1.8.9 Certain Salaries......................................................7
2.1.8.10.Bank Accounts.........................................................7
2.1.8.11.Employee Agreements...................................................7
2.1.8.12.Intellectual Property.................................................7
2.1.8.13.Trade Names...........................................................7
2.1.8.14.Promissory Notes......................................................7
2.1.8.15.Guaranties............................................................7
2.1.8.16.Reserves and Accruals.................................................8
2.1.8.17.Environmental.........................................................8
2.1.9. No Defaults...........................................................8
2.1.10. Absence of Certain Changes and Events.................................8
2.1.10.1.Financial Change......................................................8
2.1.10.2.Property Damage.......................................................8
2.1.10.3.Dividends.............................................................8
2.1.10.4.Capitalization Change.................................................8
2.1.10.5.Labor Disputes........................................................8
2.1.10.6.Other Adverse Changes.................................................8
2.1.11. Taxes.................................................................8
2.1.12. Intellectual Property.................................................9
2.1.13. Title to and Condition of Assets......................................9
2.1.14. Contracts............................................................10
2.1.15. Licenses and Permits.................................................10
2.1.16. Litigation...........................................................10
2.1.17.1.Environmental Conditions.............................................11
2.1.17.2.Permits, etc.........................................................11
2.1.17.3.Compliance...........................................................11
2.1.17.4. Past Compliance.....................................................11
2.1.17.5. Environmental Claims................................................12
2.1.17.6. Enforcement.........................................................12
2.1.17.7. Liabilities.........................................................12
2.1.17.8. Renewals............................................................12
2.1.17.9. Asbestos and PCBs...................................................12
2.1.18. Compliance with Other Laws..........................................12
2.1.19. No ERISA Plans or Labor Issues......................................12
2.1.20. Investigations; Litigation..........................................13
2.1.21. Absence of Certain Business Practices...............................13
2.1.22 Consents and Approvals..............................................13
2.1.23 Broker or Financial Advisors Fee....................................13
2.2. Investment Representations of the Shareholders......................13
2.2.1. Shareholders Investment Suitability and Related Matters.............13
2.2.2. Key Energy Shares Not Registered....................................14
2.2.3. Reliance on Representations.........................................14
2.2.4. Investment Intent...................................................14
2.2.5. Permitted Resale....................................................14
2.2.6. Investor Sophistication.............................................14
2.2.7. Availability of Information.........................................14
2.2.8. Restrictive Legends.................................................14
2.3. General Representations of Key......................................15
2.3.1. Organization and Good Standing......................................15
2.3.2. Agreement Authorized and its Effect on Other Obligations............15
2.3.3. Broker or Financial Advisor's Fee...................................15
2.4. General Representations and Warranties of the Parent................15
2.4.1. Organization and Good Standing......................................15
2.4.2. Agreement Authorized and its Effect on Other Obligations............16
2.4.3. Reports and Financial Statements....................................16
2.5. Consents and Approvals..............................................17
2.6. Finder's Fee........................................................17
ARTICLE 3 OBLIGATIONS PENDING CLOSING DATE....................................17
3.1 Agreements of the Shareholders.......................................17
3.1.1 Maintenance of Present Business......................................17
3.1.2. Maintenance of Properties............................................17
3.1.3. Maintenance of Books and Records.....................................17
3.1.4. Compliance with Law..................................................17
3.1.5. Inspection...........................................................17
3.1.6. Notice of Material Developments......................................18
3.2. Additional Agreements of the Shareholders............................18
3.2.1. Prohibition of Certain Employment Contracts..........................18
3.2.2. Prohibition of Loans.................................................18
3.2.3. Prohibition of Certain Commitments...................................18
3.2.4. Disposal of Assets...................................................18
3.2.5. Maintenance of Insurance.............................................18
3.2.6. Acquisition Proposals................................................18
3.2.7. No Amendment to Articles of Incorporation............................19
3.2.8. No Issuance, Sale, or Purchase of Securities.........................19
3.2.9. Prohibition on Dividends.............................................19
ARTICLE 4
Conditions Precedent to Obligations...........................................19
4.1. Conditions Precedent to Obligations of Shareholders...................19
4.1.1. Representations and Warranties of Key and the Parent True at the
Effective Time and the Closing Date.............................19
4.1.2. No Material Litigation................................................19
4.1.3 Opinion of Key Counsel................................................20
4.2. Conditions Precedent to Obligations of Key and the Parent.............20
4.2.1. Representations and Warranties of Shareholders True at the Effective
Time and the Closing Date.............................................20
4.2.2. No Litigation.........................................................21
4.2.3. Opinion of Shareholders' Counsel......................................21
4.2.4. Payment of Liabilities and Prepayments................................21
4.2.5. Encumbrances Removed..................................................21
ARTICLE 5 Termination and Abandonment.........................................22
5.1. Termination.............................................................22
5.1.1. By Mutual Consent....................................................22
5.1.2. By Key and the Parent Because of Failure to Perform Agreements or
Conditions Precedent.................................................22
5.1.3. By the Shareholders Because of Key or the Parent's Failure to Perform
Agreements or Conditions Precedent...................................22
5.1.4. By Key, the Parent or by the Shareholders
Because of Legal Proceedings.........................................22
5.1.5. By Key or the Parent Because of a Material Adverse Change............22
5.1.6. By Key or by the Shareholders if No Closing by January 15, 1998......22
5.2. Effect of Termination................................................22
5.3. Waiver of Conditions.................................................23
5.4. Expense on Termination...............................................23
ARTICLE 6 Additional Agreements ..............................................23
6.1 Noncompetition.......................................................23
6.2 Issuance of Key Shares...............................................24
6.3. Further Assurances...................................................24
6.4. Fees and Expenses....................................................24
ARTICLE 7 Indemnification....................................................24
7.1 Indemnification by Shareholders......................................24
7.2 Indemnification by Key...............................................25
7.3 Indemnification Procedure............................................25
ARTICLE 8 Miscellaneous.......................................................26
8.1 Survival of Representations, Warranties and Covenants................26
8.2 Entirety.............................................................26
8.3 Counterparts.........................................................26
8.4 Notices and Waivers..................................................26
8.5 Table of Contents and Captions.......................................27
8.6. Binding Effect; Assignment; No Third Party Benefit...................27
8.7. Successors and Assigns...............................................28
8.8. Severability.........................................................28
8.9. Applicable Law.......................................................28
Asset Purchase Agreement
between
Brooks Well Servicing, Inc.
and
Sam F. McKee, Individually and d/b/a
Circle M Vacuum Services
January 30, 1998
<PAGE>
TABLE OF CONTENTS
Article I PURCHASE AND SALE OF ASSETS......................................1
1.1 Purchase and Sale of the Assets..............................1
1.2 Consideration for Assets.....................................2
1.3 Liabilities..................................................2
1.4 Time and Place of Closing....................................2
1.5 Closing Deliveries...........................................3
1.5.1 Opinion of Buyer's Counsel...................................3
1.5.2 Opinion of Seller's Counsel..................................3
Article II
REPRESENTATIONS AND WARRANTIES........................................4
2.1 Representations and Warranties of the Seller.................4
2.1.1 Organization and Good Standing...............................4
2.2.2 Agreements Authorized and their Effect on Other Obligations..4
2.1.3 Contracts....................................................4
2.1.4 Title to and Condition of Assets.............................5
2.1.5. Licenses and Permits.........................................5
2.1.7. Financial Statements.........................................5
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....................................6
(e) Labor Disputes....................................6
(f) Other Changes.......................................6
2.1.9. Necessary Consents...........................................6
2.1.10. Environmental Matters........................................6
2.1.11. No ERISA Plans or Labor Issues...............................7
2.1.12. Investigations; Litigation...................................7
2.1.13. Absence of Certain Business Practices........................8
2.1.14. Solvency.....................................................8
2.1.15. Untrue Statements............................................8
2.1.16. Finder's Fee.................................................8
2.2. Representations and Warranties of Buyer......................8
2.2.1. Organization and Good Standing...............................8
2.2.2. Agreement Authorized and its Effect on Other Obligations.....9
Article III ADDITIONAL AGREEMENTS..........................................9
3.1 Hiring Employees.............................................9
3.2 Allocation of Purchase Price.................................9
3.3 Name Change.................................................10
3.4 Further Assurances..........................................10
Article IV INDEMNIFICATION................................................10
4.1 Indemnification by the Seller...............................10
4.2 Indemnification by Buyer....................................10
4.3 Indemnification Procedure...................................10
4.4 Limitation on Damages.......................................11
Article V MISCELLANEOUS...................................................11
5.1 Survival of Representations, Warranties and Covenants.......11
5.2 Entirety....................................................12
5.3 Counterparts................................................12
5.4 Notices and Waivers.........................................12
5.5 Captions....................................................12
5.6 Successors and Assigns......................................12
5.7 Severability................................................13
5.8 Applicable Law..............................................13
<PAGE>
Asset Purchase Agreement
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of January
30, 1998 among Brooks Well Servicing, Inc., a Delaware corporation ("Buyer"),
and Sam F. McKee, individually and d/b/a Circle M Vacuum Services ("Seller").
Article I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer the assets of the Seller existing on the date hereof
other than the Excluded Assets (defined below), whether personal, tangible or
intangible, including, without limitation, the following assets of the Seller
relating to or used or useful in the operation of the business as conducted by
the Seller individually and under the assumed name of "Circle M Vacuum Services"
on and before the date hereof (the "Business") such assets being sold hereunder
are referred to collectively herein as the "Assets"):
(a) the tangible personal property of the Seller (such as machinery, equipment,
leasehold improvements, furniture and fixtures and vehicles), including,
without limitation, that which is more fully described on Schedule 1.1.(a)
hereto (collectively, the "Tangible Personal Property");
(b) the Seller's intangible assets, including without limitation, (i) all of
the Seller's rights to the name "Circle M Vacuum Services" and all
derivations thereof under which Seller currently does business, (ii) all of
the Seller's rights to any patents, patent applications, trademarks and
service marks (including registrations and applications therefor), trade
names, and copyrights and written know-how, trade secrets, licenses and
sublicenses and all other similar propriety data and the goodwill
associated therewith and with the Business and the Assets (collectively,
the "Intellectual Property") and (ii) the Seller's business telephone
numbers and all of their account ledgers, sales and promotional literature,
computer software, books, records, files and data (including customer and
supplier lists) and all other records of the Seller relating to the Assets
or the Business (collectively, the "Intangibles");
(c) those leases, subleases, contracts, contract rights and agreements relating
to the Assets or the operation of the Business listed on Schedule 1.1(c)
hereto (collectively, the "Contracts");
(d) 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 which are more fully described on Schedule 1.1(d) hereto
(collectively, the "Seller Permits");
(e) the goodwill and going concern value of the Business; and
(f) 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 shall not include the following (collectively, the "Excluded
Assets"): (i) the assets described on Schedule 1.1 hereto as being Excluded
Assets, (ii) all real property owned by Seller (iii) all of the Seller's
accounts receivable and all other rights of the Seller to payment for services
rendered by the Seller before the date hereof; (iv) all cash accounts of the
Seller and all petty cash of the Seller kept on hand for use in the Business or
personally; (v) all right, title and interest of the Seller in and to all
prepaid rentals, other prepaid expenses, bonds, deposits and financial assurance
requirements, and other current assets relating to any of the Assets or the
Business; (vi) all assets in possession of the Seller but owned by third
parties; and (vii) the cash consideration paid or payable by Buyer to Seller
pursuant to Section 1.2 hereof.
1.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller contained herein,
Buyer agrees to pay to the Seller, on the date hereof, the aggregate amount of
Seven Hundred Thousand Dollars ($700,000).
1.3 Liabilities. Effective as of the date hereof, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
to the extent that the Contracts have not been performed and are not in default
on the date hereof (the "Assumed Liabilities"). On and after the date hereof,
the Seller shall be responsible for any and all other liabilities and
obligations of the Seller other than the Assumed Liabilities, including, without
limitation, any obligations arising from the Seller's employment of those
employees of the Seller listed on Schedule 3.1 hereto (collectively, the
"Retained Liabilities"). Seller shall assign to Buyer without warranty, all
rights of Seller with respect to the Barnhart #1 (TA) well wellbore located on
the Barnhart lease in Burleson County, Texas. Buyer shall assume all duties,
obligations and liabilities of regulatory authority arising after the date
hereof with respect to this wellbore.
1.4 Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on the date hereof at the
offices of James Jones, 205 North Market Street, Brenham, Texas 77833.
1.5 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
will enter into a lease agreement in the form of Exhibit A hereto (the "Lease
Agreement"); (ii) the Seller shall enter into agreement not to compete (the
"Noncompetition Agreement") in the form of Exhibit B hereto, and (iii) Buyer and
Seller will deliver to one another the opinions of counsel described below:
1.5.1 Opinion of Buyer' 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 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 Agreement, the Noncompetition Agreement
and the implementation of the transactions contemplated hereby and thereby, have
been taken; and (iii) this Agreement, the Lease Agreement and the Noncompetition
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 respective 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.
1.5.2 Opinion of Seller' Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from James Jones, counsel to Seller, in
form and substance satisfactory to Buyer, to the effect that (i) the Seller has
business under the name "ircle M Vacuum Services" under the laws of the State
of Texas; (ii) all proceedings required to be taken by or on the part of Seller
to authorize the execution of this Agreement, the Lease Agreement and the
Noncompetition 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 listed on the
Schedules to this Agreement; and (iv) (A) this Agreement, the Lease Agreement
and the Noncompetition Agreement have been duly executed and delivered by, and
are the legal, valid and binding obligations of the Seller and are enforceable
against the Seller 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. The Seller represents and
warrants to Buyer as follows:
2.1.1 Organization and Good Standing. The Seller is an individual informally
doing business under the assumed name "Circle M Vacuum Services" under the laws
of the State of Texas, has full requisite power and authority to carry on
Seller's business as it is currently conducted, and to own and operate the
Business and the Assets.
2.2.2 Agreements Authorized and their Effect on Other Obligations. The execution
and delivery of this Agreement, the Lease Agreement and the Noncompetition
Agreement have been authorized by all necessary action on the part of the Seller
and this Agreement, the Lease Agreement and the Noncompetition Agreement are the
valid and binding obligations of the Seller, enforceable (subject to normal
equitable principals) against the Seller in accordance with their respective
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, the Lease
Agreement and the Noncompetition Agreement 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) any organizational documents of the Seller, (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
the Seller is a party or by which the Seller or his properties are bound; (iii)
any provision of any law, rule, regulation, order, permits, certificate, writ,
judgment, decree, determination, award or other decision of any court,
arbitrator, or other governmental authority to which the Seller or any of his
respective properties are subject.
2.1.3 Contracts. Schedule 1.1(c) hereby sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. All of the Contracts are in full force and effect, and constitute valid
and binding obligations of the Seller. The Seller is not, and no other party to
any of the Contracts is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Contract has been entered into on
terms which could reasonably be expected to have an adverse effect on the use of
the Assets by Buyer. The Seller has not received any information that 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. All of the Contracts
are assignable (and are hereby validly assigned) to Buyer without the consent of
any other party thereto.
2.1.4 Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). All of the Assets are in a state of good operating condition
and repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations. All of the Assets conform to all applicable laws governing
their use. No notice of any violation of any law, statute, ordinance or
regulation relating to any of the Assets has been received by the Seller, except
such as have been fully complied with. The term "Encumbrances" means all liens,
security interests, pledges, mortgages, deeds of trust, claims, rights of first
refusal, options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights of way,
limitations, reservations, restrictions and other encumbrances of any kind or
nature.
2.1.5. Licenses and Permits. Schedule 1.1(d) hereto sets forth a complete list
of all Permits necessary under law or otherwise for the operation, maintenance
and use of the Assets in the manner in which they are now being operated,
maintained and used. Each of the Seller Permits and the Seller's rights with
respect thereto is valid and subsisting, in full force and effect, and
enforceable by the Seller subject to administrative powers of regulatory
agencies having jurisdiction. The Seller is in compliance in all material
respects with the terms of each of the Seller Permits. None of the Seller
Permits have been, or to the knowledge of the Seller, are threatened to be,
revoked, canceled, suspended modified. Upon consummation of the transactions
contemplated hereby, all of the Seller Permits shall be assignable (and are
hereby assigned) to Buyer without the consent of any regulatory agency. On and
after the date hereof, each of the Seller Permits and Buyer's rights with
respect thereto will be valid and subsisting in full force and effect, and
enforceable by Buyer subject only to the administrative powers of regulatory
agencies having jurisdiction over the assigned Seller Permit.
2.1.6. Intellectual Property. The Seller 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 Intellectual Property.
Use of the Seller Intellectual Property will not and the conduct of the Business
did not, infringe, misappropriate or conflict with the Intellectual Property
rights of others. The Seller has not received any notice of infringement,
misappropriation or conflict with the Intellectual Property rights of others in
connection with the use by Seller of the Seller Intellectual Property.
2.1.7. Financial Statements. The Seller has delivered to Buyer copies of an
unaudited income statement of Seller, a copy of which is attached hereto as
Schedule 2.1.7 (the "Seller Income Statement") as of September 30, 1997 (the
"Seller Income Statement Date"). The Seller Income Statement is true, correct
and complete in all material respects and present fairly and fully the Financial
condition of the Seller as at the dates and for the periods indicated thereon,
and 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. The
Seller Income Statement includes all adjustments that are necessary for a fair
presentation of the Seller's results for that period .
2.1.8. Absence of Certain Changes and Events. Since the Seller Income Statement
Date, 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 his employees; or
(f) Other Changes. Any other event or condition known to the Seller 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, including, without limitation, any consents
required to assign the Contacts and the Seller Permits.
2.1.10. 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).
The Seller has not 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, 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,
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, 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. 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. 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 governments 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 biphanyls,
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 Art of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer. The Seller has not engaged in any unfair
labor practices which could reasonably be expected to result in an adverse
effect on the Assets or the Business. 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, 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, to the knowledge of the Seller,
threatened, nor has any governmental entity indicated to the Seller an intention
to conduct the same. There is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending to which
the Seller is a party or, to the knowledge of the Seller, 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 Business Practices. Neither the Seller nor any
employee or agent of the Seller, or any other person acting on behalf of the
Seller, 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 his 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. Untrue Statements. This Agreement and all other agreements executed by
the Seller and delivered to Buyer do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Seller has also made available to
Buyer true, complete and correct copies of all contracts, documents concerning
all litigation and administrative proceedings, licenses, permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the Business and the Assets, and such information covers all commitments and
liabilities of Seller relating principally to the Business and Assets.
2.1.16. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Seller and his
counsel directly with Buyer and its counsel, without the intervention of any
other person in such manner as to give rise to any valid claim against any of
the parties hereto for a brokerage commission, finder's fee or any similar
payment.
2.2. Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller 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. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby and by the Lease Agreement
and the Noncompetition Agreement have been duly and validly authorized by all
necessary corporate action on the part of Buyer, and the Agreement, the Lease
Agreement and the Noncompetition Agreement are each valid and binding
obligations of Buyer enforceable (subject to normal equitable principles) in
accordance with the 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, the Lease Agreement and the Noncompetition 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.
Article III
ADDITIONAL AGREEMENTS
3.1 Hiring Employees. Schedule 3.1 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").
Effective as of the date hereof, all of the Employees shall be terminated by the
Seller and, subject to such Employees meeting Buyer's standard eligibility
requirements, offered employment by Buyer. Buyer shall have no liability or
obligation with respect to any employee benefits of any Employee except those
benefits that pursuant to such Employees' employment with Buyer on or after the
date hereof. The Seller shall cooperate with Buyer in connection with any offer
of employment from Buyer to the employees and use its best efforts to cause the
acceptance of any and all such offers. All Employees hired by Buyer shall be
at-will employees of Buyer.
3.2 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
3.3 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 successor 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 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
Article IV
INDEMNIFICATION
4.1 Indemnification by the Seller. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, the Seller shall
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitee shall incur or suffer, which arise, result from or relate to (i) any
breach of, or failure by the Seller to perform, his respective representations,
warranties, covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or delivered to Buyer by the
Seller under this Agreement; and (ii) the Retained Liabilities.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Seller under this Agreement, or at law or in equity, Buyer shall indemnify,
defend and hold harmless the Seller against and with respect to any and all
Damages that such indemnitees shall incur or suffer, which arise, result from or
relate to any breach of, or failure by Buyer to perform, any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to the
Seller by or on behalf of Buyer under this Agreement.
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
it, brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same, jurisdiction arising out of the
same general allegations. Notwithstanding any of the foregoing to the contrary,
the indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld or delayed.
4.4 Limitation on Damages. Notwithstanding anything in this Agreement to the
contrary, the Seller shall not be liable to the Buyer or any of its affiliates
under this Article IV, and Buyer shall not be liable to the Seller under this
Article IV, for cumulative costs of any Damages in excess of $800,000; provided,
however, that such limitation on liability shall not include Damages for
breaches of the representations and warranties contained in Section 2.1.10.
Article V
MISCELLANEOUS
5.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements, made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
5.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
5.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmissions 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, Tenth Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup
Facsimile: (732) 247-5148 Facsimile: (915) 683-2587
If to the Seller
Addressed to: With a copy to:
Sam McKee James Jones, Esq.
906 E. Tom Green St. 205 North Market Street
Brenham, Texas 77833 Brenham, Texas 77833
Facsimile: _______________ Facsimile: (409) 836-3253
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
5.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. it is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall he 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 Seller has executed this Agreement and the Buyer has
caused this Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
BUYER:
BROOKS WELL SERVICING, INC.
By:__________________________________
Name:_______________________________
Title:________________________________
SELLER:
____________________________________
Sam F. McKee, Individually and d/b/a
Circle M Vacuum Services
STOCK PURCHASE AGREEMENT
AMONG,
KEY ENERGY DRILLING, INC.
AND
JACK B. LOVELESS,
JIM MAYFIELD
AND
J. W. MILLER
Dated as of January 30, 1998
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (this "Agreement") is entered into as of January
30, 1998 by and among Key Energy Drilling, Inc., a Delaware corporation
("Buyer"), and Jack B. Loveless ("Loveless") Jim Mayfield ("Mayfield"), and J.
W. Miller ("Miller") (collectively, Loveless, Mayfield and Miller are referred
to herein as the "Shareholders").
- --------------------------------------------------------------------------------
WITNESSETH
- --------------------------------------------------------------------------------
Whereas, Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its principal executive offices at Two Tower
Center, Twentieth Floor, East Brunswick, New Jersey 08816; and
Whereas, Kingsley Enterprises, Inc. d/b/a Legacy Drilling Co. (the "Company") is
a corporation duly organized and validly existing under the laws of the state of
Texas, with its principal executive offices at 101 Market Street, Tye, Texas
79563; and
Whereas, the Shareholders own 5,000 shares (the "Company Shares") of common
stock, par value $1.00 per share, of the Company (the "Company Common Stock"),
which constitutes all of the issued and outstanding shares of capital stock of
the Company; and
Whereas, the Shareholders desire to sell to Buyer, and Buyer desires to purchase
from the Shareholders all of the issued and outstanding capital stock of the
Company.
Now, Therefore, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Purchase and Sale
1.1. Purchase and Sale of the Company Shares. Subject to the terms and
conditions of this Agreement, on the date hereof, the Shareholders agree to sell
and convey to Buyer, free and clear of all Encumbrances (as defined in Section
2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholders,
all of the Company Shares. Subject to adjustment as hereinafter provided in this
Agreement, the total purchase price for the Company Shares is $2,620,480.00
(exclusive of the consideration paid by Buyer to the Shareholders for their
covenants of non-competition pursuant to Section 3.1), payable by Buyer to
Shareholders in immediately available funds, with such funds to be paid 80% to
Jackie Loveless, 10% to Jim Mayfield and 10% to J. W. Miller, less the Escrowed
Funds as provided for in Section 1.3 hereof.
1.2. Delivery of the Company Certificates. The Shareholders shall deliver to
Buyer at the Closing duly and validly issued certificate(s) representing all of
the Company Shares, each such certificate having been duly endorsed in blank and
in good form for transfer or accompanied by stock powers duly executed in blank,
sufficient and in good form to properly transfer such shares to Buyer.
1.3 Escrowed Funds; Adjustment of Purchase Price. At the Closing, Buyer, the
Shareholders and the Escrow Agent (as defined in the Escrow Agreement) shall
enter into an Escrow Agreement in the form of Exhibit A (the "Escrow Agreement")
pursuant to which Buyer shall deposit (out of the total consideration described
in Section 1.1) the sum of $262,480.00 (the "Escrowed Funds") into an account
established thereunder (the "Escrow Account"). Buyer shall cause to be prepared
and delivered to the Shareholders a balance sheet of the Company as of the date
hereof (the "Final Balance Sheet") within sixty (60) days after the date hereof
. Buyer and the Shareholders shall jointly review the Final Balance Sheet,
endeavor in good faith to resolve all disagreements regarding the entries
thereon and reach a final determination thereof within 90 days from the date
hereof (the "Final Determination"). Within 10 days of the Final Determination,
the following adjusting payments shall be made:
(a) If (i) the sum of (A) the Final Net Current Value of the Company (defined
below) plus (B) the Capital Expenditure Allowance (defined below) equals or
exceeds (ii) the 10/31 Net Current Value of the Company (defined below),
the Escrowed Funds shall be paid to the Shareholders (the "Cash Adjustment
Payment").
(b) If (i) the sum of (A) the Final Net Current Value of the Company plus (B)
the Capital Expenditure Allowance is less than (ii) the 10/31 Net Current
Value of the Company, a deduction shall be made to the Escrowed Funds (up
to the full amount thereof) to the extent of such amount and paid to Buyer
with the remaining amount (if any) of the Escrowed Funds paid to the
Shareholders.
(c) If (i) the sum of (A) the Final Net Current Value of the Company plus (B)
the Capital Expenditure Allowance is greater than (ii) the 10/31 Net
Current Value of the Company, Buyer shall make or cause the Company to make
a payment to the Shareholders to the extent of such amount.
The term "Final Net Current Value of the Company" means the dollar value of the
amount by which (i) the "Total Current Assets" plus the "Other Assets" as
recorded on the "Final Balance Sheet" exceeds (ii) the "Total Liabilities"
(including up to $310,000 to purchase the drilling rig which is presently leased
to the Company) as recorded on the "Final Balance Sheet". The term "10/31 Net
Current Value" of the Company means negative $829,520. The term Capital
Expenditure Allowance means the amount of Capital Expenditures made by the
Company from December 15, 1997 to the Closing Date approved by Buyer and which
expands the capability of the business of the Company.
ARTICLE 2
Representations and Warranties
2.1. Representations and Warranties of the Shareholders. Each of the
Shareholders jointly and severally represents and warrants (except as to
sections 2.1.2(a) and 2.1.4, Mayfield and Miller make each representation and
warranty to the knowledge of each, while the representations and warranties of
Mayfield and Miller in sections 2.1.2(a) and 2.1.4 and all of the
representations and warranties of Loveless made in this Article 2 are absolute,
unconditioned and unqualified) to Buyer the following as of the Closing Date:
2.1.1. Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of Texas, has
full requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary, except
where the failure to be so qualified or licensed would not have a material
adverse effect on its financial condition, properties or business.
2.1.2. Agreement Authorized and its Effect on Other Obligations. (a) Each of the
Shareholders is a resident of Texas, above the age of 18 years, and has the
legal capacity and requisite power and authority to enter into, and perform his
or her obligations under this Agreement. This Agreement is a valid and binding
obligation of each of the Shareholders enforceable against each of the
Shareholders (subject to normal equitable principles) in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. (b) The execution, delivery and performance of this Agreement by the
Shareholders will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (i) the Certificate of
Incorporation or Bylaws of the Company or (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which the Company
or any of the Shareholders is a party or by which the Company or any of the
Shareholders or their respective properties are bound.
2.1.3. Capitalization. The authorized capitalization of the Company consists of
5,000 shares of Company Common Stock, of which, as of the date hereof, 5,000
shares were issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, the Company does not have any outstanding
options, warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock. All issued and outstanding
shares of Company Common Stock are validly issued, fully paid and non-assessable
and are not subject to preemptive rights. None of the outstanding shares of the
Company Common Stock is subject to any voting trusts, voting agreement or other
agreement or understanding with respect to the voting thereof, nor is any proxy
in existence with respect thereto.
2.1.4. Ownership of the Company Shares. The Shareholders hold good and valid
title to all of the Company Shares, free and clear of all Encumbrances. The
Shareholders possess full authority and legal right to sell, transfer and assign
to Buyer the Company Shares, free and clear of all Encumbrances. Upon transfer
to Buyer by the Shareholders of the Company Shares, Buyer will own the Company
Shares free and clear of all Encumbrances. There are no claims pending or, to
the knowledge of any of the Shareholders, threatened, against the Company or any
of the Shareholders that concern or affect title to the Company Shares, or that
seek to compel the issuance of capital stock or other securities of either the
Company.
2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture,
business trust or other legal entity in which the Company, either directly or
indirectly through one or more intermediaries, owns or holds beneficial or
record ownership of at least a majority of the outstanding voting securities.
2.1.6. Financial Statements. The Company has delivered to Buyer copies of the
Company's unaudited balance sheet and related statements of income, copies of
which are attached hereto as Schedule 2.1.6 (a) as of and for the months ended
December 31, 1996 and copies of Legacy Drilling, Inc.'s unaudited balance sheet
and related statements of income, copies of which are attached hereto as
Schedule 2.1.6 as of and for the months ended December 31, 1996 (collectively,
the "12/31/96 Financial Statements") unaudited balance sheet (the "10/31 Balance
Sheet") and related statements of income, copies of which are attached hereto as
Schedule 2.1.6 (b) (collectively, the "10/31 Financial Statements"), as of and
for the ten (10) months ended October 31, 1997 (the "Balance Sheet Date"). The
12/31/96 Financial Statements and 10/31 Financial Statements are complete in all
material respects. The 12/31/96 Financial Statements and 10/31 Financial
Statements present fairly the financial condition of the Company and Legacy
Drilling, Inc. as of the dates and for the periods indicated. The 10/31
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The accounts receivable
reflected in the 12/31/96 Financial Statements and 10/31 Balance Sheet, or which
have been thereafter acquired by the Company, have been collected or are
collectible at the aggregate recorded amounts thereof less applicable reserves,
which reserves are adequate. The inventories of the Company reflected in the
10/31 Balance Sheet, or which have thereafter been acquired by it, consist of
items of a quality usable and salable in the normal course of the Company's
business, and the values at which inventories are carried are at the lower of
cost or market.
2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, the Company
does not have any liabilities or obligations, either accrued, absolute or
contingent, nor does any of the Shareholders have any knowledge of any potential
liabilities or obligations, other than those (i)reflected or reserved against
in the 10/31 Balance Sheet or (ii)incurred in the ordinary course of business
since the Balance Sheet Date that would not materially adversely affect the
value and conduct of the business of the Company
2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto are
true, complete and correct lists of the following items:
2.1.8.1. Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by the Company,
with a description of the nature and amount of any Encumbrances (defined below)
thereon. The term "Encumbrances" means all liens, security interests, pledges,
mortgages, deed of trust, claims, rights of first refusal, options, charges,
restrictions or conditions to transfer or assignment, liabilities, obligations,
privileges, equities, easements, rights-of-way, limitations, reservations,
restrictions and other encumbrances of any kind or nature;
2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery,
transportation equipment, tools, equipment, furnishings, and fixtures owned,
leased or subject to a contract of purchase and sale, or lease commitment, by
the Company with a description of the nature and amount of any Encumbrances
thereon;
2.1.8.3. Inventory. All inventory items or groups of inventory items owned by
the Company, excluding raw materials and work in process, which raw materials
and work in process are valued on the 10/31 Balance Sheet, together with the
amount of any Encumbrances thereon;
2.1.8.4. Receivables. All accounts and notes receivable of the Company, together
with (i)aging schedules by invoice date and due date, (ii)the amounts provided
for as an allowance for bad debts, (iii)the identity and location of any asset
in which the Company holds a security interest to secure payment of the
underlying indebtedness, and (iv)a description of the nature and amount of any
Encumbrances on such accounts and notes receivable;
2.1.8.5. Payables. All accounts and notes payable of the Company, together with
an appropriate aging schedule;
2.1.8.6. Insurance. All insurance policies or bonds currently maintained by the
Company, including title insurance policies, with respect to the Company,
including those covering the Company's properties, rigs, machinery, equipment,
fixtures, employees and operations, as well as a listing of any premiums, audit
adjustments or retroactive adjustments due or pending on such policies or any
predecessor policies;
2.1.8.7. Contracts. All contracts, including leases under which the Company
is essor or lessee, which are to be performed in whole or in part after the date
hereof;
2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation,
deferred compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other employee benefit or fringe benefit plans,
arrangements or trust agreements of the Company or any employee benefit plan
maintained by the Company (collectively, the "Employee Plans"), together with
copies of the most recent reports with respect to such plans, arrangements, or
trust agreements filed with any governmental agency and all Internal Revenue
Service determination letters and other correspondence from governmental
entities that have been received with respect to such plans, arrangements or
agreements;
2.1.8.9. Certain Salaries. The names and salary rates of all present employees
of the Company, and, to the extent existing on the date of this Agreement, all
arrangements with respect to any bonuses to be paid to them from and after the
date of this Agreement;
2.1.8.10. Bank Accounts. The name of each bank in which the Company has an
account and the names of all persons authorized to draw thereon;
2.1.8.11. Labor Agreements. Any collective bargaining agreements of the Company
with any labor union or other representative of employees, including amendments,
supplements, and written or oral understandings, and all employment and
consulting and severance agreements of the Company;
2.1.8.12. Intellectual Property. All patents, patent applications, trademarks
and service marks (including registrations and applications therefor), trade
names, copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the
"Intellectual Property") used by the Company;
2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used
or held by the Company, whether and where such names are registered and where
used;
2.1.8.14. Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of the Company under which it conducts its
business.
2.1.8.15 Promissory Notes. All long-term and short-term promisorry notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of the installment contracts, loan agreements, credit agreements, and
any other agreements of the Company relating thereto or with respect to
collateral securing the same;
2.1.8.16. Guaranties. All indebtedness, liabilities and commitments of others
and as to which the Company is a guarantor, endorser, co-maker, surety, or
accommodation maker, or is contingently liable therefor and all letters of
credit, whether stand-by or documentary, issued by any third party;
2.1.8.17. Reserves and Accruals. All accounting reserves and accruals maintained
in the 10/31 Balance Sheet;
2.1.8.18. Leases. All leases to which the Company is a party; and
2.1.8.19. Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by the Company and all environmental audits, assessments,
investigations and reviews conducted by the Company within the last five years
or otherwise in the Company's possession on any property owned, leased or used
by the Company.
2.1.9. No Defaults. The Company is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the date hereof (except as
provided in Schedule 2.1.8.7 hereto), nor is the Company in default in any
obligation or covenant on its part to be performed under any obligation, lease,
contract, order, plan or other arrangement.
2.1.10. Absence of Certain Changes and Events. Other than as specified in
Schedule 2.1.10 hereto, since the Balance Sheet Date, there has not been:
2.1.10.1. Financial Change. Any material adverse change in the financial
condition, backlog, operations, assets, liabilities or business of the Company;
2.1.10.2. Property Damage. Any material damage, destruction, or loss to the
business or properties of the Company (whether or not covered by insurance);
2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the Company Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by the Company of any
such stock;
2.1.10.4. Capitalization Change. Any change in the capital stock or in the
number of shares or classes of the Company's authorized or outstanding capital
stock as described in Section 2.1.3 hereof;
2.1.10.6. Other Adverse Changes. Any other event or condition known to any of
the Shareholders particularly pertaining to and adversely affecting the
operations, assets or business of the Company.
2.1.11. Taxes.
2.1.11.1. General. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by the
Company for each period for which any such returns, reports, or estimates were
due (taking into account any extensions of time to file before the date hereof);
all such returns are true and correct; the Company has only done business in the
state of Texas; all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by the Company; and the tax provision reflected in the 10/31 Balance Sheet
is adequate, except as disclosed in Schedule 2.1.11, in accordance with
generally accepted accounting principles, to cover liabilities of the Company at
the date thereof for all taxes, including any assessed interest, assessed
penalties and additions to taxes of any character whatsoever applicable to the
Company or its assets or business. No waiver of any statute of limitations
executed by the Company with respect to any income or other tax is in effect for
any period. The income tax returns of the Company have never been examined by
the Internal Revenue Service or the taxing authorities of any other
jurisdiction. There are no tax liens on any assets of The Company except for
taxes not yet currently due. The Company is not subject to any tax-sharing or
allocation agreement. The Company is not and never has been, a member of a
consolidated group subject to Treasury Regulation 1.1502-6 or any similar
provision.
2.1.11.2. Subchapter S Matters. The Company (i) made an effective, valid and
binding S election pursuant to Section 1362 of the Code effective January 11,
1989, (ii) has since maintained its status as a S Corporation pursuant to
Section 1361 of the Code without lapse or interruption, and (iii) has made and
continuously maintained elections similar to the federal S election in each
state of local jurisdiction where the Company does business or is required to
file a tax return to the extent such states or jurisdictions permit such
elections. The Company neither is nor will or can be subject to the built-in
gains tax under Section 1374 of the Code or any similar corporate level tax
imposed on the Company by any taxing authority. The Company (i) has not adopted
or utilized LIFO as a method of accounting for inventory, and (ii) has no other
tax item, election, agreement or adjustment which will accelerate or trigger
income or deferred deductions of the Company as a result of termination of the
Company's status as an S Corporation.
2.1.11.3. 338(h)(10) Election. If the Buyer elects to file an election to treat
the acquisition of the Company Shares as an asset purchase under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended, Shareholders agree
to execute and deliver to Buyer any documents required to be executed by
Shareholders in connection with such election, and Buyer will compensate and
indemnify the Shareholders for any increased tax liability resulting therefrom.
In addition, Buyer will indemnify and reimburse Shareholders for any additional
tax that may be deemed to be paid by Shareholders on income created by Buyer
compensating Shareholders for taxes paid on a Section 338(h)(10) election
increase in asset values.
2.1.12. Intellectual Property. The Company owns or possesses licenses to use all
Intellectual Property that is either material to the business of the Company or
that is necessary for the rendering of any services rendered by the Company and
the use or sale of any equipment or products used or sold by the Company,
including all such Intellectual Property listed in Schedule 2.1.8 hereto (the
"Required Intellectual Property"). The Required Intellectual Property is owned
or licensed by the Company free and clear of any Encumbrance. The Company has
not granted to any other person any license to use any Required Intellectual
Property. The Company has not received any notice of infringement,
misappropriation, or conflict with, the Intellectual Property rights of others
in connection with the use by the Company of the Required Intellectual Property
or otherwise in connection with the Company's operation of its business.
2.1.13. Title to and Condition of Assets. The Company has good, indefeasible and
marketable title to all its properties, interests in properties and assets, real
and personal, reflected in the 10/31 Balance Sheet or in Schedule 2.1.8 hereto,
free and clear of any Encumbrance of any nature whatsoever, except
(i)Encumbrances reflected in the 10/31 Balance Sheet or in Schedule 2.1.8
hereto, (ii)liens for current taxes not yet due and payable, and (iii) such
imperfections of title, easements and Encumbrances, if any, as are not
substantial in character, amount, or extent and do not and will not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair business
operations. All leases pursuant to which the Company leases (whether as lessee
or lessor) any substantial amount of real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing default or event of default or event which with notice or lapse of
time, or both, would constitute a default by the Company and in respect to which
the Company has not taken adequate steps to prevent a default from occurring.
The buildings and premises of the Company that are used in its business are in
good operating condition and repair, subject only to ordinary wear and tear. All
rigs, rig equipment, machinery, transportation equipment, tools and other major
items of equipment of the Company are in good operating condition and in a state
of reasonable maintenance and repair, ordinary wear and tear excepted, and are
free from any known defects except as may be repaired by routine maintenance and
such minor defects as to not substantially interfere with the continued use
thereof in the conduct of normal operations. To the best of each Shareholder's
knowledge, all such assets conform to all applicable laws governing their use.
No notice of any violation of any law, statute, ordinance, or regulation
relating to any such assets has been received by the Company or any of the
Shareholders, except such as have been fully complied with.
2.1.14. Contracts. All contracts, leases, plans or other arrangements to which
the Company is a party, by which it is bound or to which it or its assets are
subject are in full force and effect, and constitute valid and binding
obligations of the Company. The Company is not, and to the knowledge of any of
the Shareholders, no other party to any such contract, lease, plan or other
arrangement is, in default thereunder, and no event has occurred which (with or
without notice, lapse of time, or the happening of any other event) would
constitute a default thereunder. No contract has been entered into on terms
which could reasonably be expected to have an adverse effect on the Company.
None of the Shareholders has received any information, except that Mayfield may
become employed by a company in competition with the Company, which would cause
such Shareholder to conclude that any customer of the Company will cease doing
business with the Company (or its successors) as a result of the consummation of
the transactions contemplated hereby.
2.1.15. Licenses and Permits. The Company possesses all Permits necessary under
law or otherwise for the Company to conduct its business as now being conducted
and to construct, own, operate, maintain and use its assets in the manner in
which they are now being constructed, operated, maintained and used, including
all such Permits listed in Schedule 2.1.8 hereto (collectively, the "Required
Permits"). Each of the Required Permits and the Company's rights with respect
thereto is valid and subsisting, in full force and effect, and enforceable by
the Company subject to administrative powers of regulatory agencies having
jurisdiction. The Company is in compliance in all respects with the terms of
each of the Required Permits. None of the Required Permits have been, or to the
knowledge of any of the Shareholders, is threatened to be, revoked, canceled,
suspended or modified.
2.1.16. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no
suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Company is a party or, to the
knowledge of any of the Shareholders, might become a party or which particularly
affects the Company or its assets, nor is any change in the zoning or building
ordinances directly affecting the real property or leasehold interests of the
Company, pending or, to the knowledge of any of the Shareholders, threatened.
2.1.17. Environmental Compliance.
2.1.17.1. Environmental Conditions. Except as disclosed in Schedule 2.1.17.1,
there are no environmental conditions or circumstances, including, without
limitation, the presence or release of any Substance of Environmental Concern,
on any property presently or previously owned, leased or operated by the
Company, or on any property to which any Substance of Environmental Concern or
waste generated by the Company's operations or use of its assets were disposed
of, which would have a result a material adverse effect on the business or
business prospects of the Company. The term "Substance of Environmental Concern"
means (a) any gasoline, petroleum (including crude oil or any fraction thereof),
petroleum product, polychlorinated biphenyls, urea-formaldehyde insulation,
asbestos, pollutant, contaminant, radiation and any other substance of any kind,
whether or not any such substance is defined as toxic or hazardous under any
Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated
pursuant to or could give rise to liability under any Environmental Law;
2.1.17.2. Permits, etc. Except as disclosed in Schedule 2.1.17.2, the Company
has, and within the period of all applicable statute of limitations has had, in
full force and effect all environmental Permits required to conduct its
operations, and is, within the period of all applicable statutes of limitations
has been, operating in compliance thereunder;
2.1.17.3. Compliance. Except as disclosed in Schedule 2.1.17.3, the Company's
operations and use of its assets are, and within the period of all applicable
statutes of limitations, have been in compliance with applicable Environmental
Law. "Environmental Law" as used herein means any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, and other legally enforceable
requirements (including, without limitation, common law) of the United States,
or any State, local, municipal or other governmental authority or
quasi-governmental authority, regulating, relating to, or imposing liability or
standards of conduct concerning protection of the environmental or of human
health, or employee health and safety as from time to time has been or is now in
effect.
2.1.17.4. Environmental Claims. No notice has been received by the Company or
any of the Shareholders from any entity, governmental agency or individual
regarding any existing, pending or threatened investigation, inquiry,
enforcement action. litigation, or liability, including, without limitation any
claim for remedial obligations, response costs or contribution, relating to any
Environmental Law;
2.1.17.5. Enforcement. The Company, and to the knowledge of any of the
Shareholders, no predecessor of the Company or other party acting on behalf of
the Company, has entered into or agreed to any consent, decree, order,
settlement or other agreement, nor is subject to any judgment, decree, order or
other agreement, in any judicial, administrative, arbitral, or other forum,
relating to compliance with or liability under any Environmental Law;
2.1.17.6. Liabilities. The Company has not assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law;
2.1.17.7. Renewals. None of the Shareholders knows of any reason the Company (or
its successors) would not be able to renew without material expense any of the
permits, licenses, or other authorizations required pursuant to any of the
Environmental Law to conduct and use any of the Company's current or planned
operations; and
2.1.17.8. Asbestos and PCBs. No material amounts of friable asbestos currently
exist on any property owned or operated by the Company, nor do polychlorinated
biphenyls exist in concentrations of 50 parts per million or more in electrical
equipment owned or being used by the Company in its operations or on its
properties.
2.1.18. Compliance with Other Laws. The Company is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) As
amended, or any other applicable law or any applicable rule, regulation, or any
writ or decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any report required to
be filed with any governmental commission, board, bureau, agency or
instrumentality.
2.1.19. ERISA Plans and Labor Issues. Except as identified in Schedule 2.1.19,
the Company does not currently sponsor, maintain or contribute to, and has not
at any time sponsored, maintained or contributed to, any Employee Plan (as
defined in Section 2.1.19 hereof) or any employee benefit plan which is subject
to any of the provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), in which any of its employees are or were participants
(whether on an active or frozen basis). Each Employee Plan set forth in Schedule
2.1.19 complies currently, and has complied in the past, in form and operation,
with the applicable provisions of ERISA, the Internal Revenue Code of 1986, as
amended (the "Code") and other applicable laws including, without limitation,
all qualification and reporting and disclosure requirements. Also, with respect
to each Employee Plan, the Company and any other party in interest has not
engaged in any prohibited transaction or any violation of its fiduciary duties
to such plan. All contributions required to be made to each Employee Plan under
the terms of such Employee Plan, ERISA or other applicable law have been timely
made and there are no delinquent contributions as of the Closing Date. None of
the Employee Plans (i) is a "multiemployer plan" (as defined in Section 3(37) of
ERISA), (ii) is a defined benefit pension plan subject to Title IV of ERISA,
(iii) is a "voluntary employees' beneficiary association" within the meaning of
Code Section 501(c)(9), (iv) provides for medical or other insurance benefits to
current or future retired employees or former employees of the Company (other
than as required for group health plan continuation coverage under Code Section
4980B ("COBRA") or applicable state law), or (v) obligates the Company to pay
any benefits solely as a result of a change in control of the Company. During
the six years preceding the Closing Date, (i) no underfunded pension plan
subject to Section 412 of the Code has been transferred out of the Company, (ii)
the Company has not participated in or contributed to, or had an obligation to
contribute to, any multiemployer plan (as defined in ERISA Section 3(37)) and
has no withdrawal liability with respect to any multiemployer plan, and (iii)
the Company has not maintained any pension plan subject to Title IV or ERISA.
There are no claims, lawsuits or regulatory actions which have been asserted,
instituted or threatened against any Employee Plan by any fiduciary or
participant of such plan, except routine claims for benefits thereunder, or by
any governmental entity. The Company has no collective bargaining agreements
with any labor union or other representative of employees. The Company has not
engaged in any unfair labor practices. The Company is not aware of any pending
or threatened dispute with any of its existing or former employees.
2.1.20. Insurance. All premiums due and payable under the insurance policies or
bonds identified on Schedule 2.1.8.6 have been paid. The Company is not, and but
for a requirement that notice be given or that a period of time elapse or both
would not be, in violation of any of the insurance policies listed on such
Schedule.
2.1.21. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Company or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of any of the
Shareholders, threatened, nor has any governmental entity indicated to the
Company an intention to conduct the same, and there is no action, suit or
proceeding pending or, to the knowledge of any of the Shareholders, threatened
against or affecting the Company at law or in equity, or before any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, that either individually or in the aggregate, does or
is likely to result in any material adverse change in the financial condition,
properties or business of the Company.
2.1.22. Absence of Certain Business Practices. Except as disclosed on Schedule
2.1.22, neither the Company nor any officer, employee or agent of the Company,
nor any other person acting on its behalf, has, directly or indirectly, within
the past five years, given or agreed to give any gift or similar benefit to any
customer, supplier, government employee or other person who is or may be in a
position to help or hinder the business of the Company (or to assist the Company
in connection with any actual or proposed transaction) which (i) might subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
material adverse effect on the assets, business or operations of the Company as
reflected in the 10/31 Financial Statements, or (iii) if not continued in the
future, might materially adversely effect the assets, business operations or
prospects of the Company or which might subject the Company to suit or penalty
in a private or governmental litigation or proceeding.
2.1.23. No Untrue Statements. The Company and each of the Shareholders have made
available to Buyer true, complete and correct copies of all contracts, documents
concerning all litigation and administrative proceedings, licenses, permits,
insurance policies, lists of suppliers and customers, and records relating
principally to the Company's assets and business, and such information covers
all commitments and liabilities of the Company relating to its business or the
assets. This Agreement and the agreements and instruments to be entered into in
connection herewith do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made herein and
therein not misleading in any material respect.
2.1.24. Consents and Approvals. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity other than the Shareholders, is required to be made or
obtained by the Company or any of the Shareholders in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
2.1.25. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Shareholders and
their counsel directly with Buyer and its counsel, without the intervention of
any other person in such manner as to give rise to any valid claim against Buyer
or the Company for a brokerage commission, finder's fee or any similar payments.
2.2. Representations and Warranties of Buyer. Buyer represents and warrants to
each of the Shareholders 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, except where the failure to be so qualified or licensed would not
have a material adverse effect on its financial condition, properties or
business.
2.2.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of 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 Company 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 3
Additional Agreements
3.1. Noncompetition. Except as otherwise consented to or approved in writing by
Buyer, Loveless agrees that for a period of 36 months from the date hereof,
Loveless will not, directly or indirectly acting alone or as a member of a
partnership or as an officer, director, employee, consultant, representative,
holder of, or investor in as much as 5% of any security of any class of any
corporation or other business entity (i) engage in competition with the business
or businesses of well servicing, oil field trucking and oil and gas contract
drilling conducted by the Company, Buyer or any affiliate of Buyer on the date
hereof, or in any service business the services of which are provided and
marketed by the Company, Buyer or any affiliate of Buyer on the date hereof
within a 150-mile radius of Abilene, Texas; (ii) request any present customers
or suppliers of the Company to curtail or cancel their business with Buyer or
any affiliate of Buyer; (iii) disclose to any person, firm or corporation any
trade, technical or technological secrets of the Company, Buyer or any affiliate
of Buyer or any details of their organization or business affairs or (iv) induce
or actively attempt to influence any employee of the Company, Buyer or any
affiliate of Buyer to terminate his employment. Except as otherwise consented to
or approved in writing by Buyer, Miller agrees that for a period of 36 months
from the date hereof, Miller will not, directly or indirectly acting alone or as
a member of a partnership or as an officer, director, employee, consultant,
representative, holder of, or investor in as much as 5% of any security of any
class of any corporation or other business entity (i) engage in competition with
the business of oil and gas contract drilling conducted by the Company, Buyer or
any affiliate of Buyer on the date hereof, or any service business the services
of which are provided and marketed by the Company, Buyer or any affiliate of
Buyer on the date hereof within a 150-mile radius of Abilene, Texas; (ii)
request any present customers or suppliers of the Company to curtail or cancel
their business with Buyer or any affiliate of Buyer; (iii) disclose to any
person, firm or corporation any trade, technical or technological secrets of the
Company, Buyer or any affiliate of Buyer or any details of their organization or
business affairs or (iv) induce or actively attempt to influence any employee of
the Company, Buyer or any affiliate of Buyer to terminate his employment;
however, nothing in this Section 3.1 shall be construed to prevent Miller from
being engaged in the oil and gas contract drilling business as an employee of a
party or entity that is not owned in whole or in part by Miller. Loveless and
Miller agree that if either the length of time or geographical area set forth in
the Section 3.1 is deemed too restrictive in any court proceeding, such court
may reduce such restrictions to those which it deems reasonable under the
circumstances. The obligations expressed in this Section 3.1 are in addition to
any other obligations that the Shareholders may have under the laws of the
states in which they do business requiring an employee of a business or a
shareholder who sells his stock in a corporation (including a disposition in a
merger) to limit his activities so that the goodwill and business relations of
his employer and of the corporation whose stock he has sold (and any successor
corporation) will not be materially impaired. Loveless and Miller further agree
and acknowledge that the Company, Buyer and its affiliates do not have any
adequate remedy at law for the breach or threatened breach by either Loveless or
Miller of this covenant, and agree that the Company, Buyer or any affiliate of
Buyer may, in addition to the other remedies which may be available to it
hereunder, file a suit in equity to enjoin Loveless or Miller 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. Loveless and Miller acknowledge that the covenants set forth in this
Section 3.1 are being executed and delivered by such Shareholder in
consideration of the covenants of Buyer contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
In return for the noncompetition covenants contained in this Section 3.1, Buyer
shall pay $255,000 to Jackie Loveless and $45,000 to J. W. Miller, in 36 equal
monthly installments, commencing March 1, 1998. Notwithstanding any provision
contained in this Section 3.1, in the event that Buyer fails to employ Miller or
terminates Miller without cause, the obligations of Miller contained in Section
3.1 of this Agreement shall terminate and be of no further force and effect
however, the obligations of Buyer under this Section 3.1 will continue in full
force and effect.
3.2. Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
ARTICLE 4
Indemnification
4.1. Indemnification by the Shareholders. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, each of the
Shareholders shall jointly and severally indemnify, defend and hold harmless the
Company, Buyer and their affiliates and their respective officers, directors,
employees, agents and stockholders (collectively, the "Buyer Indemnified
Parties"), against and with respect to any and all claims, costs, damages,
losses, expenses, obligations, liabilities, recoveries, suits, causes of action
and deficiencies, including interest, penalties and reasonable fees and expenses
of attorneys, consultants and experts (collectively, the "Damages") that the
Buyer Indemnified Parties shall incur or suffer, which arise, result from or
relate to (i) any breach by any of the Shareholders of (or the failure of any of
the Shareholders to perform) their respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to Buyer by any of the
Shareholders under this Agreement (ii) any environmental matters scheduled on
Schedules 2.1.17.1, 2.1.17.2, 2.1.17.3 or (iii) the Company's ownership and/or
operation of those properties distributed to the Shareholders prior to the date
hereof referred to in Schedule 2.1.10 hereto (the "Indemnification"). The
Indemnification provided by Mayfield and Miller shall be limited to $262,048.00
each.
4.2. Indemnification by Buyer. In addition to any other remedies available to
the Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless each of the Shareholders against and with
respect to any and all Damages that such indemnitees shall incur or suffer,
which arise, result from or relate to any breach of, or failure by Buyer to
perform, any of its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to any of the Shareholders by or on behalf of Buyer under this
Agreement.
4.3. Indemnification Procedure. In the event that any party hereto discovers or
otherwise becomes aware of an indemnification claim arising under Section 4.1 or
4.2 of this Agreement, such indemnified party shall give written notice to the
indemnifying party, specifying such claim, and may thereafter exercise any
remedies available to such party under this Agreement; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations hereunder, to the extent the
indemnifying party is not materially prejudiced thereby. Further, promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to Section 4.1 or 4.2 hereof, such indemnified party shall,
if a claim in respect thereof is to be made against any indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of any obligations hereunder, to
the extent the indemnifying party is not materially prejudiced thereby. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof unless the
indemnifying party has failed to assume the defense of such claim and to employ
counsel reasonably satisfactory to such indemnified person. An indemnifying
party who elects not to assume the defense of a claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction for
all parties indemnified by such indemnifying party with respect to such claim or
with respect to claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE 5
The Closing
5.1. Time and Place. The Closing ("Closing") of the transactions contemplated by
this Agreement shall take place at 9.00 a.m., local time, on January 30, 1998,
at, 104 Pine Street, Abilene, Texas, or at such other time and place as the
parties might hereafter mutually agree in writing. The date on which Closing
occurs is referred to in this Agreement as the "Closing Date".
5.2. Deliveries. At the Closing, the following shall occur:
(a) The Shareholders shall transfer good, marketable and valid title to the
Company Shares to Buyer, free and clear of liens, claims and encumbrances,
by endorsing and delivering the stock certificates referred to in Section
1.2;
(b) Thomas W. Choate, counsel to the Shareholders, shall deliver its opinion of
counsel covering such matters as may be requested by Buyer;
(c) Buyer, Shareholders and the Escrow Agent shall execute and deliver the
Escrow Agreement;
(d) Buyer shall pay to Shareholders in immediately available funds, the
purchase price specified in Section 1.1, as adjusted pursuant to this
Agreement, less the Escrowed Funds; and
(e) Buyer shall pay the Escrowed Funds to the Escrow Agent in immediately
available funds for its handling in accordance with this Agreement and the
Escrow Agreement.
(f) Buyer shall deliver an original executed Certificate of the Secretary of
Buyer certifying that resolutions contained therein authorizing the
transactions contemplated by this Agreement were duly adopted by the Board
of Directors of Buyer and have not been amended.
ARTICLE 6
Miscellaneous
6.1. Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive
indefinitely despite any investigation made by any party hereto or on its
behalf.
6.2. Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
6.3. Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
6.4. Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Energy Drilling, Inc. Cotton, Bledsoe, Tighe & Dawson
Two Tower Center, Tenth Floor P. O. Box 2776
East Brunswick, New Jersey 08816 Midland, Texas 79702-2776
Attn: General Counsel Attn: Richard T. McMillan
Facsimile: (908) 247-5148 Facsimile: (915) 682-3672
- --------------------------------------------------------------------------------
If to any Shareholder
---------------------------------------------------------------------------
Addressed to: With a copy to:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Jack B. Loveless Thomas W. Choate
P. O. Box 303 Attorney at Law
Tye, Texas 79563 P. O. Box 206
Abilene, Texas 79604
Jim Mayfield
1501 CR 134
Ovalo, Texas 79541
J. W. Miller
301 Bowie
Clyde, Texas 79510
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
6.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
6.6. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
6.7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
6.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
KEY ENERGY DRILLING, INC.
By:
Joe Dee Brooks, President
SHAREHOLDERS
JACK B. LOVELESS
JIM MAYFIELD
J. W. MILLER
Asset Purchase Agreement
among
Key Four Corners, Inc.
Four Corners Drilling Company
and
R. L. Andes and W. E. Lang
February ___, 1998
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of February
__, 1998 among Key Four Corners, Inc., a Delaware corporation ("Buyer"), Four
Corners Drilling Company, a New Mexico corporation ("Seller"), and R. L. Andes
and W. E. Lang (collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Seller desires to sell substantially all of its assets, and Buyer
desires to acquire such assets.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 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. New Mexico time on the
date of execution hereof) all of the assets owned by Seller existing on the date
of Closing other than the Excluded Assets (defined below), whether real,
personal, tangible or intangible, including, without limitation, the following
assets owned by 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
"Inventories");
(c) all of the Seller's intangible assets (the "Intangibles"), including
without limitation, (i) all of the Seller's rights to the name under which
it is incorporated or under which it currently does business, (ii) all of
the Seller's rights to any patents, patent applications, trademarks and
service marks (including registrations and applications therefor), trade
names, and copyrights and written know-how, trade secrets, licenses and
sublicenses and all other similar proprietary data and the goodwill
associated therewith (collectively, the "Intellectual Property") used or
held in connection with the Business, including without limitation, that
which is more fully described on Schedule 1.1(c) hereto (the "Seller
Intellectual Property"), (iii) the Seller's telephone numbers, (iv) the
sales and promotional literature, computer software, customer and supplier
lists, drilling reports, historical bit records and tour sheets and all
other records of the Seller relating to the Assets or the Business
("Retained Records"), 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. Buyer
shall allow Seller reasonable access to the Retained Records for any
reasonable purpose. Buyer agrees to retain the Retained Records for a
period of five (5) years from the date of Closing;
(d) those leases, subleases, contracts, contract rights, and agreements
relating to the Assets or the operation of the Business specifically listed
on Schedule 1.1(d) hereto (collectively, the "Contracts");
(e) 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
(collectively, the "Seller Permits");
(f) the goodwill and going concern value of the Business;
(g) the buildings and other improvements located on the real estate described
in Schedule 3.5 hereto; 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.
The Assets shall not include the following (collectively, the "Excluded
Assets"): (i) the real property described in Schedule 1.1 hereto owned by the
Seller and not being conveyed to Buyer concurrently herewith, (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 date of Closing for services or
materials provided through that date and that Buyer will forward any payment on
such accounts received by it to Seller within one (1) 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 all prepaid
rentals, other prepaid expenses, bonds, deposits and financial assurance
requirements, and other current assets relating to any of the Assets or the
Business; (v) all assets in possession of the Seller but owned by third parties
or Shareholders; (vi) the corporate charter, related organizational documents
and minute books of the Seller, financial books and records and tax returns;
(vii) the cash consideration paid or payable by Buyer to Seller pursuant to
Section 1.2 hereof; and (viii) the net deferred tax assets of Seller
representing tax benefits available from operating loss carry forwards, pension
plan assets of Seller representing excess contributions to the defined benefit
pension plan, all buildings owned by Seller or Shareholders (other than those
buildings referred to in Section 1.1(g) hereof), and any other assets described
in Schedule 1.1 attached hereto as Excluded Assets.
1.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein, Buyer agrees to pay to the Seller, on the date
hereof, the amount of $9,106,380.00 by wire transfer of immediately available
funds to an account designated by the Seller or by delivery of immediately
available funds. Equipment purchases which have been made by Seller after
December 12, 1997, and approved by Buyer as of the date of this Agreement are
set forth in the attached Schedule 1.2 hereto, and shall be paid at Closing, or
within forty-eight (48) hours of Closing. In addition, within thirty (30) days
following the Closing, Buyer will pay Seller any additional amounts due for such
approved purchases of equipment.
1.3 Liabilities. Effective on the date of Closing, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
to the extent that the Contracts have not been performed and are not in default
on the date hereof (the "Assumed Liabilities"). On and after the date hereof,
the Seller shall be responsible for any and all other 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 liability 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 it 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; and (d) any liabilities
arising out of any matters listed on Schedule 2.1.12 hereto (collectively, the
"Retained Liabilities").
1.4 Closing. The Closing of the purchase and sale provided for hereunder shall
take place on February ___, 1998, at the offices of Four Corners Drilling
Company, 5661 Highway 64, Farmington, New Mexico.
<PAGE>
ARTICLE II
Representations and Warranties
2.1 Representations and Warranties.
2.1.1 Organization and Good Standing. The Seller and Shareholders represent and
warrant that Seller is a corporation duly organized, validly existing and in
good standing under the laws of the state of New Mexico, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it.
2.1.2 Agreements Authorized and their Effect on Other Obligations. The Seller
and Shareholders represent and warrant (a) that the execution and delivery of
this Agreement have been authorized by all necessary corporate, shareholder and
other action on the part of the Seller and each of the Shareholders, and (b)
this Agreement is the valid and binding obligation of the Seller and each of the
Shareholders enforceable (subject to normal equitable principals) against each
of such parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. Seller and Shareholders represent
and warrant that the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, will not conflict with
or result in a violation or breach of any term or provision of, nor constitute a
default under (i) the charter or bylaws (or other organizational documents) of
the Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Seller or any of the Shareholders is a
party or by which the Seller or any of 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 any of the
Shareholders or any of their respective properties are subject.
2.1.3 Contracts. The Seller and Shareholders represent and warrant that 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. Seller and
Shareholders represent and warrant that: (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 any of the Shareholders has 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 and Shareholders represent and warrant that
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 on
Schedule 2.1.4 hereto. Except as noted on Schedule 2.1.4 hereto (but
specifically excluding those Assets listed under the heading "Stacked" on
Schedule 2.1.4 hereto), the Seller and Shareholders represent and warrant that
all of the Assets (a) are in a state of good repair, ordinary wear and tear
excepted, (b) 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. As to those Assets listed under the heading
"Stacked on Schedule 2.1.4 hereto, the Seller and Shareholders represent and
warrant that such Schedule includes a listing of all known defects thereto. 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 any of the Shareholders, except such as have been
fully complied with. The term "Encumbrances" means all liens, security
interests, pledges, mortgages, deeds of trust, claims, rights of first refusal,
options, charges, restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements, rights of way,
limitations, reservations, restrictions, and other encumbrances of any kind or
nature.
2.1.5 Licenses and Permits. The Seller and Shareholders represent and warrant
that, to the best of their knowledge: (a) 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; (b) each of the Seller Permits and the Seller's
rights with respect thereto is valid and subsisting, in full force and effect,
and enforceable by the Seller subject to administrative powers of regulatory
agencies having jurisdiction; (c) the Seller is in compliance in all material
respects with the terms of each of the Seller Permits; (d) none of the Seller
Permits have been, or to the knowledge of the Seller or either of the
Shareholders, are threatened to be, revoked, canceled, suspended or modified.
2.1.6 Intellectual Property. The Seller and Shareholders represent and warrant
that: (a) Schedule 1.1(c) hereto sets forth a complete list of all Intellectual
Property material or necessary for the continued use of the Assets; (b) the
Seller Intellectual Property is owned or licensed by the Seller free and clear
of any Encumbrances; (c) the Seller has not granted to any other person any
license to use any Seller Intellectual Property and, (d) to the best of Seller's
knowledge, use of the Seller Intellectual Property will not, and the conduct of
the Business did not, infringe, misappropriate or conflict with the Intellectual
Property rights of others. The Seller and Shareholders represent and warrant
that neither the Seller nor the Shareholders has received any notice of
infringement, misappropriation, or conflict with the Intellectual Property
rights of others in connection with the use by Seller of the Seller Intellectual
Property.
2.1.7 Financial Statements. The Seller and the Shareholders represent and
warrant that the Seller has delivered to Buyer copies of Seller's unaudited
Statement of Income for the four (4) month period ended October 31, 1997, a copy
of which is attached hereto as Schedule 2.1.7 (the "Seller's Statement of
Income"). The Seller and the Shareholders represent and warrant that (a) 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 dates 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 noted therein; and (b) the Seller's Statement of
Income includes all adjustments which are necessary for a fair presentation of
the applicable Seller's income and expenses for the periods indicated.
2.1.8 Absence of Certain Changes and Events. The Seller and the Shareholders
represent and warrant that since October 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
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 and the Shareholders represent and warrant
that 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
other than (a) the Contracts listed on Schedule 1.1(d) and (b) the Permits
listed on Schedule 1.1(e) as being non-assignable.
2.1.10 Environmental Matters. The Seller and the Shareholders represent and
warrant that (a) 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); (b) neither the
Seller nor either 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; (c) 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 either of 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 either of the Shareholders,
is there any basis for any of the foregoing; (d) except for the Discharge Plan
which was approved by the State of New Mexico - Energy, Minerals and Natural
Resources Department, OCD on April 18, 1994, 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; (e) to the knowledge of the Seller or
either of the Shareholders, the Assets include all environmental and pollution
control equipment necessary for compliance with applicable Environmental Law;
(f) no Hazardous Materials (defined below) have been or are currently being used
by the Seller in the operation of the Assets; (g) 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; (h) to the knowledge of
the Seller or either of the Shareholders, there are no, and, except for the
three (3) underground storage tanks properly removed in 1990 and 1992 by Seller
(as shown by documentation furnished by Seller to Buyer) 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 (i) 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. Seller acknowledges
that the Environmental Report prepared for Seller has not been prepared by or
approved by Buyer Indemnified Parties (as defined in section 4.1 hereof).
2.1.11 No ERISA Plans or Labor Issues. The Seller and Shareholders represent and
warrant that: (a) 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 any of the Shareholders, any disputes threatened by current or
former employees of the Seller.
2.1.12 Investigations; Litigation. The Seller and Shareholders represent and
warrant that: (a) to the best of their knowledge, 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 (b) 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 either of 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 Business Practices. The Seller and Shareholders
represent and warrant that, to the best of their knowledge, 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 either of 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 and Shareholders represent and warrant that 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. The Seller and Shareholder represent and warrant that 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.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller and each of the Shareholders 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 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.
<PAGE>
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 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 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 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 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 shareholders of such
corporation) to limit its activities so that the goodwill and business relations
being transferred with such assets will not be materially impaired. The Seller
and each of the Shareholders further agree and acknowledge that Buyer does not
have any adequate remedy at law for the breach or threatened breach by the
Seller or either of 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 either
of 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 each of 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 $300,000 payable by Buyer on the date hereof by wire transfer of
immediately available funds to those parties, 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 paragraph 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 Businesses") shall not
be a violation 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 Businesses, but only their
Permitted Businesses and not the businesses sold hereunder, shall not be a
violation of clause (b) of this paragraph 3.1. Seller and Shareholders shall be
permitted to engage in those businesses or activities set forth on Schedule 3.1
hereto and to solicit any customer of Seller or Buyer (or Buyer's affiliates) in
connection with such business or activities.
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 each of the Shareholders shall cooperate with Buyer in connection with any
offer of employment from Buyer to the employees and use its best efforts to
cause the acceptance of any and all such offers.
3.3 Allocation of Purchase Price. The parties hereto agree to allocate the
purchase price paid by Buyer for the Assets hereunder as set forth on Schedule
3.3 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
3.4 Name Change. The Seller and each of the Shareholders shall, within ten (10)
days from the date of Closing, cause to be filed (i) with the New Mexico
Corporation Commission an amendment to the Articles of Incorporation of the
Seller changing the name of the Seller from its current name to a name that is
not similar to such name, and (ii) with the appropriate authorities of New
Mexico and any other states such documents as are required to effect such name
change, including without limitation, amendments or withdrawals of certificates
of authority to do business and assumed name filings. The Seller and each of the
Shareholders shall, within five (5) days from the date of its receipt of
confirmation of such filings from the applicable state authorities, cause to be
delivered to Buyer copies of all such confirmations.
3.5 Real Estate Purchase. Concurrent with the execution and delivery hereof,
Blue Horizons Partnership and W.E.L., a New Mexico general partnership and Buyer
shall have entered into (and consummated the transactions contemplated by) a
binding agreement pursuant to which such partnerships will have conveyed to
Buyer the real property described in Schedule 3.5 hereto. The consummation of
the transactions contemplated by this Agreement are expressly conditioned upon
the consummation of the purchase and sale of the real estate pursuant to the
agreement contemplated by this Section 3.5.
3.6 Lease Agreement and Option Agreement. Concurrent with the execution and
delivery hereof, Andes, Lang & Andes, a New Mexico partnership, shall have
entered into a binding lease agreement pursuant to which such partnerships will
have leased to Buyer the real property and improvements described in Schedule
3.6 hereto and Blue Horizons Partnership and W.E.L., a New Mexico general
partnership, shall have agreed by supplemental letter to enter in the future,
after the property to be subject to the proposed option agreement is subdivided,
into a binding option agreement pursuant to which such partnerships shall grant
Buyer the option to purchase up to an additional twenty-nine (29) acres, more or
less, of land from such partnerships pursuant to terms and conditions therein
set forth. The consummation of the transactions contemplated by this Agreement
are expressly conditioned upon the execution of the lease agreement and
execution of the supplemental letter relating to above.
3.7 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
<PAGE>
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 (the "Buyer Indemnified Parties"), against and with respect to
any and all claims, costs, damages, losses, expenses, obligations, liabilities,
recoveries, suits, causes of action and deficiencies, including interest,
penalties and reasonable 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 any of the
Shareholders under this Agreement; and (b) the Retained Liabilities. Except for
Section 2.1.7, for purposes of this Agreement, a breach or failure of
performance shall not be material under this Agreement unless it has a financial
consequence of $10,000.00 or more to the non-breaching party; provided, however,
such threshold shall not apply to damages resulting to Buyer from the Retained
Liabilities.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless 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 any of the Shareholders by or
on behalf of Buyer under this Agreement and (b) the Assumed Liabilities. Except
for Section 2.1.7, for purposes of this Agreement, a breach or failure of
performance shall not be material under this Agreement unless it has a financial
consequence of greater than $10,000.00 or more to the non-breaching party.
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.
4.4 Limitation of Indemnity. To the extent, if at all, ' 56-7-1 NMSA 1978 would
apply to render any of the indemnification provisions herein void and
unenforceable, each such provision shall not extend to liability, claims,
damages, losses or expenses, including attorney fees, relating to the
construction, installation, alteration, modification, repair, maintenance,
servicing, demolition, excavation, drilling, reworking, grading, paving,
clearing, site preparation or development of any real property or of any
improvement on, above or under real property arising out of (i) the preparation
or approval of maps, drawings, opinions, reports, surveys, change orders,
designs, or specification by the indemnitee, or the agents or employees of the
indemnitee, or (ii) the giving of or the failure to give directions or
instructions by the indemnitee, or the agents or employees of the indemnitee,
where such giving or failure to give directions or instructions is the primary
cause of bodily injury to persons or damage to property.
4.5 Limitation of Liability. The maximum liability of the Buyer under this
Article IV and under the real estate purchase and sale agreement described in
Section 3.5 hereto shall be limited to $10,000,000. The combined maximum
liability of the Seller and the Shareholders under this Article IV and under the
real estate purchase and sale agreement described in Section 3.5 here to shall
be limited to $10,000,000.
<PAGE>
ARTICLE V
Miscellaneous
5.1 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive for two years from the
Closing Date, 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 for two years after the Closing Date despite 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:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Four Corners, Inc. Lynch, Chappell & Alsup, P.C.
Two Tower Center, Tenth Floor 300 N. Marienfeld, Suite 700
East Brunswick, New Jersey 08816 Midland, Texas 79701
Attn: General Counsel Attn: James M. Alsup
Facsimile: (908) 247-5148 Facsimile: (915) 683-2587
- --------------------------------------------------------------------------------
If to the Seller or any of the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mr. R. L. Andes Sutin, Thayer & Browne, P.C.
Four Corners Drilling Company Post Office Box 1945
P. O. Box 1067 Albuquerque, New Mexico 87103-1945
Farmington, New Mexico 87499 Attn: Bradley D. Tepper
Facsimile: (505) 888-6565
Mr. W. E. Lang
Four Corners Drilling Company
P. O. Box 1067
Farmington, New Mexico 87499
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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) third business day after so mailed, and if delivered
by courier or facsimile to such address, upon delivery during normal business
hours on any business day.
5.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of New Mexico.
IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other
parties hereto have caused this Agreement to be signed in their respective
corporate names by their respective duly authorized representatives, all as of
the day and year first above written.
BUYER:
KEY FOUR CORNERS, INC.
a Delaware corporation
By:
Kenneth V. Huseman, Vice President
SELLER:
FOUR CORNERS DRILLING COMPANY
a New Mexico corporation
By:
R. L. Andes, President
SHAREHOLDERS:
__________________________________________
R. L. Andes
__________________________________________
W. E. Lang
Stock Purchase Agreement
among
Key Rocky Mountain, Inc.,
Updike Brothers, Inc. Employees= Stock Ownership
Retirement Plan and Trust
David W. Updike Trust
Dorothy A. Updike Trust
Dorothy R. Updike Trust
Mary E. Updike
Ralph O. Updike
and
Daniel Updike
Dated as of February 6, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE AND SALE
1.1 Purchase and Sale of the Company Shares...............................1
1.1.1 Purchase and Sale............................................1
1.1.2 Payment of Purchase Price....................................1
1.1.3 Purchase Price Holdback......................................2
1.1.4 Interest.....................................................2
1.1.5 Distribution of Purchase Price Holdback......................2
1.2 Cash Adjustment Payment...............................................2
1.3 Closing...............................................................3
1.4 Resignations..........................................................3
1.5 Closing Deliveries....................................................3
1.6 Termination of ESOP...................................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Shareholders....................5
2.1.1 Organization and Standing....................................5
2.1.2 Agreements Authorized and its Effect on Other Obligations....5
2.1.3 Capitalization...............................................6
2.1.4 Ownership of the Company Shares..............................6
2.1.5 No Subsidiaries..............................................6
2.1.6 Financial Statements.........................................6
2.1.7 Liabilities..................................................6
2.1.8 Additional Company Information...............................7
2.1.9 No Defaults..................................................9
2.1.10 Absence of Certain Changes and Events........................9
2.1.11 Taxes........................................................9
2.1.12 Intellectual Property........................................10
2.1.13 Title to and Condition of Assets.............................10
2.1.14 Contracts....................................................10
2.1.15 Licenses and Permits.........................................11
2.1.16 Litigation...................................................11
2.1.17 Environmental Compliance.....................................11
2.1.18 Compliance with Other Laws...................................12
2.1.19 ERISA Plans or Labor Issues.................................13
2.1.20 Investigations; Litigation...................................14
2.1.21 Absence of Certain Business Practices........................14
2.1.22 No Untrue Statements.........................................14
2.1.23 Consents and Approvals.......................................14
2.1.24 Finder's Fee.................................................14
2.2 Representations and Warranties of Buyer..............................15
2.2.1 Organization and Good Standing................................15
2.2.2 Agreement Authorized and its Effect on Other Obligations......15
2.2.3 Consents and Approvals........................................15
2.2.4 Investigations; Litigation....................................15
ARTICLE 3 ADDITIONAL AGREEMENTS
3.1 Further Assurances...................................................16
3.2 Public Announcements.................................................16
3.3 338(h)(10) Election..................................................16
3.4 Environmental Assessments and Cleanup................................16
3.5 Tax Indemnification..................................................16
ARTICLE 4 INDEMNIFICATION
4.1 Indemnification by the Sellers.......................................17
4.2 Indemnification by Buyer.............................................17
4.3. Indemnification Procedure............................................17
4.3 Limitation on Damages................................................18
4.4 Exclusive Remedy.....................................................18
ARTICLE 5 MISCELLANEOUS
5.1 Survival of Representations, Warranties and Covenants................18
5.2 Entirety.............................................................18
5.3 Counterparts.........................................................18
5.4 Notices and Waivers..................................................19
5.5 Table of Contents and Captions.......................................19
5.6 Successors and Assigns...............................................19
5.7 Severability.........................................................19
5.8 Applicable Law.......................................................19
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
February 6, 1998, among (i) Key Rocky Mountain, Inc., a Delaware corporation
("Buyer") and (ii) Updike Brothers, Inc. Employees= Stock Ownership Retirement
Plan and Trust (the "ESOP"), David W. Updike Trust, Dorothy A. Updike Trust,
Dorothy R. Updike Trust, Mary E. Updike, Ralph O. Updike and Daniel Updike
(collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its principal executive offices at Two Tower
Center, 20th Floor, East Brunswick, New Jersey 08816;
WHEREAS, Updike Brothers, Inc. (the "Company") is a corporation duly organized
and validly existing under the laws of the State of Wyoming, with its principal
executive offices at 2895 West Main Street, Newcastle, Wyoming 82701;
WHEREAS, the Shareholders own 6,166 shares (the "Company Shares") of common
stock, par value $10.00 per share, of the Company (the "Common Stock"), which
constitutes all of the issued and outstanding shares of capital stock of the
Company; and
WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires to purchase
from the Shareholders, all of the Company Shares.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of the Company Shares.
1.1.1 Purchase and Sale. Subject to the terms and conditions of this Agreement,
on the date hereof, the Shareholders agree to sell and convey to Buyer, free and
clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer
agrees to purchase and accept from the Shareholders, all of the Company Shares.
In consideration of the sale of the Company Shares, Buyer shall pay to the
Shareholders a purchase price of $10,600,000 (the "Purchase Price") in cash, and
the Cash Adjustment Payment (as defined in Section 1.2 hereof), if any, in
accordance with Section 1.2 hereof.
1.1.2 Payment of Purchase Price. The Purchase Price payable to the Shareholders
on the date hereof shall be in the amounts set forth on Schedule 1.1.2. Such
amounts are net of (i) $530,000 payable to the Dillard Group as described in
Schedule 2.1.24, and (ii) the Cash Adjustment Payment payable to the
Shareholders pursuant to Section 1.2.
1.1.3 Purchase Price Holdback. A purchase price holdback of $1,000,000 (the
"Purchase Price Holdback") will be deducted from the Cash Adjustment Payment
payable to the Shareholders pursuant to Section 1.2. The Purchase Price Holdback
shall be held in escrow pursuant to the escrow agreement dated the date hereof
(the "Escrow Agreement") in the form of Exhibit A hereto and will be applied to
pay Environmental Assessments and Cleanup Costs (as defined in Section 3.4), Tax
Adjustments (as defined in Section 3.5), and to cover indemnification
obligations under Article IV of this Agreement.
1.1.4 Interest. Immediately before any portion of the Purchase Price Holdback is
distributed from the escrow account, maintained pursuant to the Escrow Agreement
the Buyer will pay into such escrow account an amount of cash, if any, necessary
to give the Shareholders receiving such distribution an annualized return on the
amount distributed equal to the greater of (i) 8% or (ii) the Federal Funds
interest rate on the day before of the distribution plus 2-9/16%, computed from
the date hereof through the date of the distribution.
1.1.5 Distribution of Purchase Price Holdback. The Purchase Price Holdback will
be distributed to the Shareholders as follows:
1.1.5.1 Initial Distribution. At the time of the distribution of the assets of
the ESOP contemplated by Section 1.6.2 of this Agreement, the participants in
the ESOP who beneficially owned an interest in the ESOP entitling them to
receive ten or fewer shares of Common Stock as of the Closing Date shall receive
a distribution from the Escrow Funds (as defined in the Escrow Agreement) an
amount equal to the unpaid portion of the Purchase Price forming a part of the
Purchase Price Holdback allocable to such participants, including accrued
interest through the date of the distribution as contemplated by Section 1.1.4.
The Purchase Price Holdback will thereupon be reduced by the amount of such
distribution.
1.1.5.2 Final Distribution. On the third anniversary of the date hereof, the
Shareholders will receive from the Escrow Account any portion of the Purchase
Price Holdback remaining after deduction of Environmental Assessment and Cleanup
Costs, Tax Adjustments and all amounts necessary to cover indemnification
obligations under Article IV of this Agreement, plus accrued interest through
such date based on their percentage interests in the Company as reflected on
Schedule 1.1.2.
<PAGE>
1.2 Cash Adjustment Payment. Within 60 days after the date hereof, Buyer shall
cause to be prepared and delivered to the Shareholders a consolidated balance
sheet of the Company as of the date hereof (the "Final Balance Sheet") which
balance sheet will be prepared in accordance with generally accepted accounting
principles, consistently applied in all respects. Buyer and the Shareholders
shall jointly review the Final Balance Sheet, and endeavor in good faith to
resolve all disagreements regarding the entries thereon and reach a final
determination thereof within 90 days from the date hereof. If the parties cannot
agree on the entries to be placed on the Final Balance Sheet, the dispute will
be resolved by an independent accounting firm mutually agreed to by the
Shareholders and Buyer (such agreement not to be unreasonably withheld or
delayed) whose resolution shall be binding on and enforceable against the
parties hereto. Within 10 days of reaching such final determination, the
following adjusting payments (which shall include interest at the rate of 8% per
annum accruing from the date hereof through the payment date) shall be made:
1.2.1 If the Final Net Current Value of the Company (defined below) exceeds
$0.00, Buyer shall pay to the Shareholders the amount of such difference (the
"Cash Adjustment Payment"), or
1.2.2 If the Final Net Current Value of the Company (defined below) is less than
$0.00, Shareholders shall pay to Buyer the amount of such difference.
1.2.3 In addition, any capital expenditures made by Company since October 31,
1997, made with Buyer's prior approval, will be added to the Final Net Current
Value of the Company as set out in paragraph 1.2.1 or 1.2.2 above. Buyer hereby
acknowledges approval of the capital expenditures listed on Schedule 1.2.3.
The term "Final Net Current Value of the Company" means the dollar value of the
amount by which the "Total Current Assets" as recorded on the Final Balance
Sheet exceeds the "Total Liabilities" as recorded on the Final Balance Sheet.
1.3 Closing. Consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of the Company, 2895 West Main,
Newcastle, Wyoming 82701, contemporaneously with the execution of this Agreement
by all of the parties hereto (the "Closing Date") unless another time, place or
date is agreed to by the Shareholders and the Buyer.
1.4 Resignations. At the Closing, each of the officers and directors of the
Company will resign.
1.5 Closing Deliveries. At the Closing, (a) the Shareholders shall deliver to
Buyer duly and validly issued certificates representing all of the Company
Shares owned beneficially or of record by them, each such certificate to be duly
endorsed in blank and in good form for transfer, or accompanied by stock powers
duly executed in blank sufficient and in good form to properly transfer such
Company Shares to Buyer; (b) David W. Updike will deliver Buyer (i)
an employment agreement dated the date hereof in the form of Exhibit B (the
"Employment Agreement") and (ii) an agreement not to compete dated the date
hereof in the form of Exhibit C (the "Non-Compete Agreement"); (c) the
Shareholders and Buyer shall have delivered to one another all other documents,
instruments and agreements as required under this Agreement; (d) Buyer shall
deliver to the Shareholders the cash purchase price payable at Closing as
provided in Section 1.1 by checks payable to the order of each of the
Shareholders; and (e) the Buyer and Shareholders will deliver to one another the
opinions of counsel as described below:
1.5.1 Opinion of Buyer's Counsel. The Buyer shall deliver a favorable opinion,
addressed to the Shareholders and dated as of the Closing Date, from Porter &
Hedges, L.L.P., counsel for the Buyer, in form and substance satisfactory to the
Shareholders, to the effect that (i) the Buyer has been duly incorporated and is
validly existing as a corporation in good standing under the laws of Delaware;
(ii) all corporate proceedings required to be taken by or on the part of the
Buyer to authorize the execution of this Agreement and the Escrow Agreement and
the implementation of the transactions contemplated hereby and thereby have been
taken; and (iii) this Agreement and Escrow Agreement have been duly executed and
delivered by, and are the legal, valid and binding obligations of the Buyer and
are enforceable against Buyer in accordance with their terms, except as
enforceability may be limited by (a) equitable principles of general
applicability or (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may rely upon (i) certificates of public
officials and of officers of the Buyer as to matters of fact and (ii) the
opinion or opinions of other counsel, which opinions shall be reasonably
satisfactory to the Shareholders, as to matters other than federal or Texas law.
1.5.2 Opinion of Shareholders' Counsel. The Shareholders shall deliver a
favorable opinion, addressed to the Buyer and dated the Closing Date, from
Hansen & Peck, Newcastle, Wyoming, counsel to the Shareholders, in form and
substance satisfactory to Buyer, to the effect that (i) the Company has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Wyoming and is qualified to transact business in
every jurisdiction in which the nature of the Company's contacts require such
qualification, (ii) all outstanding shares of the Company Common Stock have been
validly issued and are fully paid and nonassessable and are free of preemptive
rights, other than the preemptive rights set forth in Article VIII, Section 3,
of the Company's Bylaws, which preemptive rights have been waived by the Company
in accordance with the procedures set forth in the Company's Bylaws; (iii) all
of the Company Shares are owned beneficially and of record by the Shareholders
free of any Encumbrances; (iv) the Company owns all of its assets free and clear
of any Encumbrances other than those Encumbrances listed on the Balance Sheet or
the Schedules hereto, and (v) this Agreement and the Escrow Agreement, the
Employment Agreements and the Non-Competition Agreements have been duly executed
and delivered by, and this Agreement, the Employment Agreements, the Escrow
Agreement and the Noncompetition Agreements are the legal, valid and binding
obligations of the Shareholders that are parties thereto and are enforceable
against the Shareholders that are parties thereto in accordance with their
terms, except as the enforceability of this Agreement, the Escrow Agreement, the
Employment Agreements and the Noncompetition Agreements may be limited by (a)
equitable principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights of
creditors generally. In rendering such opinion, such counsel may rely upon (i)
certificates of public officials and of officers of the Company or the
Shareholders as to matters of fact and (ii) on the opinion or opinions of other
counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters
other than federal or Wyoming law.
1.6 Termination of ESOP.
1.6.1 Termination. The Company, by action of its Board of Directors, agrees to
take such action as is necessary or appropriate to terminate the ESOP as of a
date before the Closing date. After the effective date of termination of the
ESOP, the ESOP shall be "frozen" pending distribution of its assets to
participants and their beneficiaries. No persons who are not participants or
beneficiaries as of the termination date shall be eligible to participate in the
ESOP or receive benefits thereunder, and no distributions shall be made by the
ESOP except normal distributions in the ordinary course of business pursuant to
the terms and provisions of the ESOP document.
1.6.2 IRS Determination Letters. Within 120 days after the Closing Date, Buyer
agrees to file a submission to formally request a determination letter from the
Internal Revenue Service (the "IRS") to the effect that the ESOP is a qualified
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") upon its termination and that the trust used to fund the ESOP (the
"Trust") is tax exempt under Section 501(a) of the Code. As soon as
administratively practicable following receipt of a favorable IRS determination
letter, the administrator of the Trust shall effect distributions of all
remaining assets from the Trust and, thereafter, it shall be liquidated. The
individual trustees of the Trust as of the Closing Date agree to serve in such
capacity until such time as the Trust has been liquidated and its assets
completely distributed unless the Buyer, in its discretion, elects to appoint
any successor trustee. The Shareholders hereby agree that the Buyer does not
assume any liability or obligation with respect to the ESOP or Trust that
results from, relates to, or arises out of any act or omission by the Company,
the trustees or any other person or entity occurring on or before the Closing
Date.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Shareholders. Each of the
Shareholders, jointly and severally, represents and warrants to Buyer as
follows:
2.1.1 Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Wyoming,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary.
2.1.2 Agreements Authorized and its Effect on Other Obligations. Each of the
Shareholders has the legal capacity and requisite power and authority to enter
into, and perform its obligations under this Agreement and the Employment
Agreements and the Non-Competition Agreements to which they are a party. This
Agreement, the Employment Agreements and the Non-Competition Agreements are
valid and binding obligations of each of the Shareholders that are a party
thereto, enforceable against each of the Shareholders that are a party thereto
in accordance with their terms. The execution, delivery and performance of this
Agreement, the Employment Agreements and the Non-Competition Agreements by each
of the Shareholders that are a party thereto will not conflict with or result in
a violation or breach of any term or provision of, nor constitute a default
under (i) the Articles of Incorporation or Bylaws of the Company or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Company or any of the Shareholders is a party or by which
the Company or any of the Shareholders or their respective properties are bound.
2.1.3 Capitalization. The authorized capitalization of the Company consists of
100,000 shares of Common Stock, of which, as of the date hereof, 6,166 shares
are issued and outstanding and held beneficially and of record by the
Shareholders. On the date hereof, the Company does not have any outstanding
options, warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock. All issued and outstanding
shares of Common Stock are validly issued, fully paid and non-assessable and are
not subject to preemptive rights (other than those preemptive rights set forth
in Article VIII, Section 3, of the Company's Bylaws, which preemptive rights
have been waived by the Company). None of the outstanding shares of Common Stock
is subject to any voting trusts, voting agreement or other agreement or
understanding with respect to the voting thereof, nor is any proxy in existence
with respect thereto.
2.1.4 Ownership of the Company Shares. The Shareholders hold good and valid
title to the Company Shares set forth opposite their names on Schedule 1.1.2,
free and clear of all Encumbrances. The Shareholders possess full authority and
legal right to sell, transfer and assign the Company Shares to Buyer, free and
clear of all Encumbrances. Upon transfer to Buyer by the Shareholders of the
Company Shares, Buyer will own the Company Shares free and clear of all
Encumbrances. There are no claims pending or, to the knowledge of any of the
Shareholders, threatened, against the Company or any of the Shareholders that
concern or affect title to the Company Shares, or that seek to compel the
issuance of capital stock or other securities of the Company.
2.1.5 No Subsidiaries. Except as set forth on Schedule 2.1.5, there is no
corporation, partnership, joint venture, business trust or other legal entity in
which the Company, either directly or indirectly through one or more
intermediaries, owns or holds beneficial or record ownership of the outstanding
voting securities.
2.1.6 Financial Statements. The Company has delivered to Buyer copies of the
Company's audited balance sheet as of October 31, 1997, a copy of which is
attached hereto as Schedule 2.1.6 (the "10/31 Balance Sheet"), and related
statements of income, with appended notes which are an integral part of such
statements, (collectively, the "Financial Statements"), as at and for the 12
months ended as of October 31, 1997 (the "Balance Sheet Date"). The Financial
Statements are complete in all material respects, present fairly the financial
condition of the Company as of the dates and for the periods indicated and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. The accounts receivable reflected in the 10/31
Balance Sheet, or which have been thereafter acquired by the Company, have been
collected or are collectible at the aggregate recorded amounts thereof less
applicable reserves, which reserves are adequate.
2.1.7 Liabilities. Except as disclosed on Schedule 2.1.7. hereto, the Company
does not have any liabilities or obligations, either accrued, absolute or
contingent, nor do any of the Shareholders have any knowledge of any potential
liabilities or obligations of the Company, other than those (i) reflected or
reserved against in the 10/31 Balance Sheet or (ii) incurred in the ordinary
course of business since the Balance Sheet Date that would not materially
adversely affect the value and conduct of the business of the Company.
2.1.8 Additional Company Information. Attached as Schedule 2.1.8 hereto are
true, complete and correct lists of the following items:
2.1.8.1 Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by the Company,
with a description of the nature and amount of any Encumbrances thereon. The
term "Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights-of-way, limitations, reservations, restrictions and
other encumbrances of any kind or nature;
2.1.8.2 Machinery and Equipment. All rigs, carriers, rig equipment, machinery,
transportation equipment, tools, equipment, furnishings, and fixtures owned,
leased or subject to a contract of purchase and sale, or lease commitment, by
the Company with a description of the nature and amount of any Encumbrances
thereon;
2.1.8.3 Inventory. All Inventory items or groups of inventory items owned by the
Company, excluding raw materials and work in process, which raw materials and
work in process are valued on the 10/31 Balance Sheet, together with the amount
of any Encumbrances thereon;
2.1.8.4 Receivables. All accounts and notes receivable of the Company, together
with (i) aging schedules by invoice date and due date, (ii) the amounts provided
for as an allowance for bad debts, (iii) the identity and location of any asset
in which the Company holds a security interest to secure payment of the
underlying indebtedness, and (iv) a description of the nature and amount of any
Encumbrances on such accounts and notes receivable.
2.1.8.5 Payables. All notes payable of the Company, together with an appropriate
aging schedule;
2.1.8.6 Insurance. All insurance policies or bonds currently maintained by the
Company, including title insurance policies, with respect to the Company,
including those covering the Company's properties, rigs, machinery, equipment,
fixtures, employees and operations, as well as listing of any premiums,
deductibles or retroactive adjustments due or pending on such policies or any
predecessor policies;
2.1.8.7 Contracts. All contracts, including leases under which the Company is
lessor or lessee, which are to be performed in whole or in part after the date
hereof;
2.1.8.8 Employee Compensation Plans. All bonus, incentive compensation, deferred
compensation, profit-sharing, retirement, pension, employee stock ownership,
welfare, group insurance, death benefit, or other employee benefit or fringe
benefit plans, arrangements or trust agreements of the Company or any employee
benefit plan maintained by the Company, together with copies of the most recent
reports with respect to such plans, arrangements, or trust agreements filed with
any governmental agency and all IRS determination letters and other
correspondence from governmental entities that have been received with respect
to such plans, arrangements or agreements (collectively, "Employee Plans");
2.1.8.9 Salaries. The names and salary rates of all present employees of the
Company, and, to the extent existing on the date of this Agreement, all
arrangements with respect to any bonuses to be paid to them from and after the
date of this Agreement;
2.1.8.10 Bank Accounts. The name of each bank in which the Company has an
account, the account balances as of the Closing Date and the names of all
persons authorized to draw thereon;
2.1.8.11 Employee Agreements. Any collective bargaining agreements of the
Company with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all employment
and consulting and severance agreements of the Company;
2.1.8.12 Intellectual Property. All patents, patent applications, trademarks and
service marks (including registrations and applications therefore), trade names,
copyrights and written know-how, trade secrets and all other similar proprietary
data and the goodwill associated therewith (collectively, the "Intellectual
Property") used by the Company;
2.1.8.13 Trade Names. All trade names, assumed and fictitious names used or held
by the Company, whether and where such names are registered and where used;
2.1.8.14 Licenses and Permits. All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the "Permits") of the Company under which it conducts its
business;
2.1.8.15 Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit-agreements, and any other
agreements of the Company relating thereto or with respect to collateral
securing the same;
2.1.8.16 Guaranties. All indebtedness, liabilities and commitments of others and
as to which the Company is a guarantor, endorser, co-maker, surety, or
accommodation maker, or is contingently liable therefor and all letters of
credit, whether stand-by or documentary, issued by any third party;
2.1.8.17 Reserves and Accruals. All accounting reserves and accruals maintained
in the 10/31 Balance Sheet; and
2.1.8.18 Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by the Company and all environmental audits, assessments,
investigations and reviews conducted by the Company within the last five years
or otherwise in the Company's possession on any property owned, leased or used
by the Company.
2.1.9 No Defaults. The Company is not in default in any obligation or covenant
on its part to be performed under any obligation, lease, contract, order, plan
or other arrangement.
2.1.10 Absence of Certain Changes and Events. Except as disclosed on
Schedule 2.1.10 hereto and other than as a result of the transactions
contemplated by this Agreement, since the Balance Sheet Date, there has not
been:
2.1.10.1 Financial Change. Any adverse change in the financial condition,
backlog, operations, assets, liabilities or business of the Company;
2.1.10.2 Property Damage. Any material damage, destruction, or loss to the
business or properties of the Company (whether or not covered by insurance);
2.1.10.3 Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the Common Stock, or any direct or indirect
redemption, purchase or any other acquisition by the Company of any such stock;
2.1.10.4 Capitalization Change. Any change in the capital stock or in the number
of shares or classes of the Company's authorized or outstanding capital stock as
described in Section 2.1.3 hereof;
2.1.10.5 Labor Disputes. Any labor or employment dispute of whatever nature; or
2.1.10.6 Other Material Changes. Any other event or condition known to any of
the Shareholders particularly pertaining to and adversely affecting the
operations, assets or business of the Company.
2.1.11 Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by the
Company for each period for which any such returns, reports, or estimates were
due (taking into account any extensions of time to file before the date hereof);
all such returns are true and correct; the Company has only done business in
Wyoming, Montana, Utah, Colorado, South Dakota and North Dakota; all taxes shown
by such returns to be payable and any other taxes due and payable have been paid
other than those being contested in good faith by the Company; and the tax
provision reflected in the 10/31 Balance Sheet is adequate, in accordance with
generally acceptable accounting principles, to cover liabilities of the Company
at the date thereof for all taxes, including, but not limited to, interest and
penalties, and additions to taxes of any character whatsoever applicable to the
Company or its assets or business. No waiver of any statute of limitations
executed by the Company with respect to any income or other tax is in effect for
any period. The income tax returns of the Company have not been examined by the
Internal Revenue Service or the taxing authorities of any other jurisdiction.
There are no tax liens on any assets of the Company except for taxes not yet
currently due. The Company is not a member of a consolidated group subject to
Treasury Regulation 1.1502-6 or any similar provision.
2.1.12 Intellectual Property. The Company owns or possesses licenses to use all
Intellectual Property that is either material to the business of the Company or
that is necessary for the rendering of any services rendered by the Company and
the use or sale of any equipment or products used or sold by the Company,
including all such Intellectual Property listed in Schedule 2.1.8 hereto (the
"Required Intellectual Property"). The Required Intellectual Property is owned
or licensed by the Company free and clear of any Encumbrance. The Company has
not granted to any other person any license to use any Required Intellectual
Property. The Company has not infringed, misappropriated, or conflicted with,
the Intellectual Property rights of others in connection with the use by the
Company of the Required Intellectual Property or otherwise in connection with
the Company's operation of its business, nor has the Company received any notice
of such infringement, misappropriation, or conflict with such Intellectual
Property rights of others.
2.1.13 Title to and Condition of Assets. Except as disclosed on Schedule 2.1.13
hereto, the Company has good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal, reflected in
the 10/31 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any
Encumbrance of any nature whatsoever, except Encumbrances reflected in the 10/31
Balance Sheet or in Schedule 2.1.8 hereto. All leases pursuant to which the
Company leases (whether as lessee or lessor) any substantial amount of real or
personal property are in good standing, valid, and effective; and there is not,
under any such leases, any existing default or event of default, or event that
with notice or lapse of time, or both, would constitute a default by the Company
and in respect to which the Company has not taken adequate steps to prevent a
default from occurring. The buildings and premises of the Company that are used
in its business are in good operating condition and repair, subject only to
ordinary wear and tear. All rigs, rig equipment, machinery, transportation
equipment, tools and other major items of equipment of the Company are in good
operating condition and in a state of good maintenance and repair, ordinary wear
and tear excepted, and are free from any known defects except as may be repaired
by routine maintenance. All such assets conform to all applicable laws governing
their use. The Company has not violated any law, statute, ordinance, or
regulation relating to any such assets, nor has any notice of such violation
been received by the Company or any of the Shareholders, except such as have
been fully complied with.
2.1.14 Contracts. All contracts, leases, plans or other arrangements to which
the Company is a party, by which it is bound or to which it or its assets are
subject are in full force and effect, and constitute valid and binding
obligations of the Company. The Company is not and, to the knowledge of any of
the Shareholders, no other party to any such contract, lease, plan or other
arrangement is in default thereunder, and no event has occurred which (with or
without notice, lapse of time, or the happening of any other event) would
constitute a default thereunder. No contract has been entered into on terms that
could reasonably be expected to have an adverse effect on the Company. None of
the Shareholders have received any information that would cause the Company or
such Shareholders to conclude that any customer of the Company will (or is
likely to) cease doing business with the Company (or its successors) as a result
of the consummation of the transactions contemplated hereby.
2.1.15 Licenses and Permits. The Company possesses all Permits necessary under
law or otherwise for the Company to conduct its business as now being conducted
and to construct, own, operate, maintain and use its assets in the manner in
which they are now being constructed, operated, maintained and used, including
all such Permits listed in Schedule 2.1.8 hereto (collectively, the "Required
Permits"). Each of the Required Permits and the Company's rights with respect
thereto is valid and subsisting, in full force and effect, and enforceable by
the Company subject to administrative powers of regulatory agencies having
jurisdiction, and will continue in full force and effect after the Closing Date.
The Company is in compliance in all respects with the terms of each of the
Required Permits. None of the Required Permits have been, or to the knowledge
any of the Shareholders, is threatened to be, revoked, canceled, suspended or
modified.
2.1.16 Litigation. Except as set forth on Schedule 2.1.16, there is no suit,
action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending to which the Company is a party or, to the
knowledge of any of the Shareholders, might become a party which particularly
affects the Company or its assets, nor is any change in the zoning or building
ordinances directly affecting the real property or leasehold interests of the
Company pending or, to the knowledge of any of the Shareholders , threatened.
2.1.17 Environmental Compliance.
2.1.17.1 Environmental Conditions. There are no environmental conditions or
circumstances, including, without limitation, the presence or release of any
Substance of Environmental Concern, on any property presently or previously
owned, leased or operated by the Company, or on any property to which any
Substance of Environmental Concern or waste generated by the Company's
operations or use of its assets was disposed of, which would have a material
adverse effect on the business or business prospects of the Company. The term
"Substance of Environmental Concern" means (a) any gasoline, petroleum
(including crude oil or any fraction thereof), petroleum product,
polychlorinated biphenyls, ureaformaldehyde insulation, asbestos, pollutant,
contaminant, radiation and any other substance of any kind, whether or not any
such substance is defined as toxic or hazardous under any Environmental Law ( as
defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give
rise to liability under any Environmental Law;
2.1.17.2 Permits, etc. The Company has and, within the period of all applicable
statutes of limitations, has had in full force and effect all environmental
Permits required to conduct its operations, and is, and within the period of all
applicable statutes of limitations has been, operating in compliance thereunder.
2.1.17.3 Compliance. The Company's operations and use of its assets are, and
within the period of all applicable statutes of limitations, have been in
compliance with applicable Environmental Law. "Environmental Law" as used herein
means any and all laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, and other legally enforceable requirements (including, without
limitation, common law) of the United States, or any state, local, municipal or
other governmental authority, or quasi-governmental authority, regulating,
relating to, or imposing liability or standards of conduct concerning protection
of the environmental or of human health, or employee health and safety as from
time to time has been or is now in effect;
2.1.17.4 Environmental Claims. No notice has been received by the Company or any
of the Shareholders from any entity, governmental agency or individual regarding
any existing, pending or threatened investigation, inquiry, enforcement action,
litigation, or liability, including, without limitation any claim for remedial
obligations, response costs or contribution, relating to any Environmental Law;
2.1.17.5 Enforcement. The Company and, to the knowledge of any of the
Shareholders, no predecessor of the Company or other party acting on behalf of
the Company, has entered into or agreed to any consent, decree, order,
settlement or other agreement, nor is subject to any judgment, decree, order or
other agreement, in any judicial, administrative, arbitral, or other forum,
relating to compliance with or liability under any Environmental Law;
2.1.17.6 Liabilities. The Company has not assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law.
2.1.17.7 Renewals. None of the Shareholders know of any reason the Company (or
its successors) would not be able to renew without material expense any of the
permits, licenses, or other authorizations required pursuant to Environmental
Law to conduct and use any of the Company's current or planned operations; and
2.1.17.8 Asbestos and PCBs. No material amounts of friable asbestos currently
exist on any property owned or operated by the Company, nor do polychlorinated
biphenyls exist in concentrations of 50 parts per million or more in electrical
equipment owned or being used by the Company in its operations or on its
properties.
2.1.18 Compliance with Other Laws. The Company is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as
amended, or any other applicable law or any applicable rule, regulation, or any
writ or decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any report required to
be filed with any governmental commission, board, bureau, agency or
instrumentality.
2.1.19 ERISA Plans or Labor Issues.
2.1.19.1 Compliance With Applicable Laws. Except as identified in
Schedule 2.1.8.8, the Company does not currently sponsor, maintain or contribute
to, and has not at any time sponsored, maintained or contributed to, any
Employee Plan (as defined in Section 2.1.8.8 hereof) or any employee benefit
plan that is subject to any of the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in which any of its employees are or
were participants (whether on an active or frozen basis). Each Employee Plan set
forth in Schedule 2.1.8.8 fully complies currently, and has fully complied in
the past, in form and operation, with the applicable provisions of ERISA, the
IRS and other applicable laws, including, without limitation, all qualification
and reporting and disclosure requirements of the Code and ERISA. Each Employee
Plan that is an employee pension benefit plan (as described in Section 3(2) of
ERISA) (i) meets, and has met, in all respects, the requirements of a "qualified
plan" under Section 401(a) of the Code whose income is exempt from taxation
under Section 501(a) of the Code, (ii) has received a currently effective
favorable determination letter from the IRS and (iii) nothing has occurred since
the date of such determination letter that could adversely affect such
qualification. Also, with respect to each Employee Plan, the Company and any
other party in interest have not engaged in any prohibited transaction or any
violation of its fiduciary duties to such plan. All contributions required to be
made to each Employee Plan under the terms of such Employee Plan, ERISA or other
applicable law have been timely made and there are no delinquent contributions
as of the Closing Date. None of the Employee Plans (i) is a "multiemployer plan"
(as defined in Section 3(37) of ERISA), (ii) is a defined benefit pension plan
subject to Title IV of ERISA, (iii) is a "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9), (iv) provides for
medical or other insurance benefits to current or future retired employees or
former employees of the Company (other than as required for group health plan
continuation coverage under Code Section 4980B ("COBRA") or applicable state
law), or (v) obligates the Company to pay any benefits solely as a result of a
change in control of the Company. During the six years preceding the Closing
Date, (i) no under-funded pension plan subject to Section 412 of the Code has
been transferred out of the Company, (ii) the Company has not participated in or
contributed to, or had an obligation to contribute to, any multiemployer plan
and has no withdrawal liability with respect to any multiemployer plan, and
(iii) the Company has not maintained any pension plan subject to Title IV of
ERISA. There are no claims, lawsuits or regulatory actions that have been
asserted, instituted or threatened against any Employee Plan by any fiduciary or
participant of such plan, except routine claims for benefits thereunder, or by
any governmental entity. The Company has not engaged in any unfair labor
practices. None of the Shareholders is aware of any pending or threatened
dispute with any of its existing or former employees.
2.1.19.2 Valuation. The Company has received the valuation of an independent and
certified appraiser (which appraiser satisfies the Code requirements to appraise
non-publicly traded employer securities held in an employee stock ownership
plan), in a form reasonably satisfactory to it, indicating that as of the
Closing Date the Purchase Price for the Company Shares held by the ESOP is equal
to or greater than the fair market value of such shares, and the trustee of the
ESOP has determined that the transactions contemplated by this Agreement are
fair to the participants in the ESOP.
2.1.20 Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Company or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of any of the
Shareholders , threatened, nor has any governmental entity indicated to the
Company or any of the Shareholders an intention to conduct the same, and there
is no action, suit or proceeding pending or, to the knowledge of any of the
Shareholders , threatened against or affecting the Company at law or in equity,
or before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, that either individually
or in the aggregate, does or is likely to result in any material adverse change
in the financial condition, properties or business of the Company.
2.1.21 Absence of Certain Business Practices. Neither the Company nor any
officer, employee or agent of the Company, nor any other person acting on its
behalf, has directly or indirectly, within the past five years, given or agreed
to give any gift or similar benefit to any customer, supplier, government
employee or other person who is or may be in a position to help or hinder the
business of the Company (or to assist the Company in connection with any actual
or proposed transaction) that might subject the Company to any damage or penalty
in any civil, criminal or governmental litigation or proceeding.
2.1.22 No Untrue Statements. The Company has made available to Buyer true,
complete and correct copies of all contracts, documents concerning all
litigation and administrative proceedings, licenses, permits, insurance
policies, lists of suppliers and customers, and records relating principally to
the Company's assets and business, and such information covers all commitments
and liabilities of the Company relating to its business or its assets. This
Agreement and the agreements and instruments to be entered into in connection
herewith do not include any untrue statement of a material fact or omit to state
any material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading in any material respect.
2.1.23 Consents and Approvals. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity other than the Shareholders, is required to be made or
obtained by the Company or any of Shareholders in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
2.1.24 Finder's Fee. Other than as described in the contract between the
Shareholders and the Dillard Group, Houston, Texas, dated October 6, 1997, a
copy of which is attached hereto as Schedule 2.1.24, all negotiations relative
to this Agreement, the Employment Agreements and the Non-Competition Agreements,
and the transactions contemplated hereby and thereby, have been carried on by
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 payments.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants to
each of the Shareholders 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 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and this Agreement is a
valid and binding obligation of Buyer enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement by Buyer will not
conflict with or result in a violation of 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 Investigations; Litigation. No investigation or review by any governmental
entity with respect to Buyer in connection with any of the transactions
contemplated by this Agreement is pending or, to the best of Buyer's knowledge,
threatened, nor has any governmental entity indicated to Buyer an intention to
conduct the same. There is no action, suit or proceeding pending or, to the
Buyer's knowledge, threatened against or affecting Buyer by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, which either individually or in the aggregate, does or is
likely to result in any material adverse change in the financial condition,
properties or businesses of Buyer.
<PAGE>
ARTICLE 3
ADDITIONAL AGREEMENTS
3.1 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
3.2 Public Announcements. Except as mutually agreed, neither Buyer, the
Shareholders, the Individuals nor any of their respective Affiliates or agents
shall issue any press release or public announcement regarding the execution of
this Agreement or the transactions contemplated thereby. The Shareholders hereby
consent to Buyer's issuance of a press release announcing the completion of the
transactions contemplated by this Agreement.
3.3 338(h)(10) Election. If the Buyer elects to file an election to treat the
acquisition of the Company Shares as an asset purchase under Section 338(h)(10)
of the Code, the Shareholders agree to execute and deliver to Buyer any
documents required to be executed by the Shareholders in connection with such
election, and Buyer will compensate and indemnify the Shareholders for any
increased tax liability resulting therefrom. In addition, Buyer will indemnify
and reimburse the Shareholders for any additional tax that may be deemed to be
paid by the Shareholders on income created by Buyer compensating the
Shareholders for taxes paid on a Section 338(h)(10) election increase in asset
values.
3.4 Environmental Assessments and Cleanup. As soon as practicable after the date
hereof, Buyer shall conduct such Phase I Environmental Assessments with respect
to the real property listed on Schedule 2.1.8.1 as it deems prudent. In
addition, the Buyer will conduct Phase II Environmental Assessments with respect
to any such real property where Phase II assessments are reasonably determined
by the Buyer to be appropriate. To the extent that such environmental
assessments indicate that liabilities exist for environmental cleanup on a
particular property, the Buyer will conduct appropriate restoration activities
required on any such property. All of the costs for conducting such
environmental assessments and environmental cleanup ("Environmental Assessment
and Cleanup Costs") shall be paid by the Buyer and the amount of the Purchase
Price Holdback payable to the Shareholders pursuant to Section 1.1.2 shall be
reduced by such amount.
3.5 Tax Indemnification. If at any time from the date hereof through the first
anniversary of the date hereof the Buyer determines that the Company owes any
franchise or other corporate tax in any state in which the Company has conducted
business but has not been qualified as a foreign corporation, then, the amount
of such tax (the "Tax Adjustment") shall be paid by the Buyer and the amount of
the Purchase Price Holdback payable to the Shareholders pursuant to
Section 1.1.2 shall be reduced by such amount.
<PAGE>
ARTICLE 4
INDEMNIFICATION
4.1 Indemnification by the Sellers. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, the Buyer, the Company,
their affiliates and their respective officers, directors, employees, agents and
stockholders (collectively, the "Buyer Indemnified Parties"), shall be
indemnified against and with respect to any and all claims, costs, damages,
losses, expenses, obligations, liabilities, recoveries, suits, causes of action
and deficiencies, including interest, penalties and reasonable fees and expenses
of attorneys, consultants and experts (collectively, the "Damages") that the
Buyer Indemnified Parties shall incur or suffer, which arise, result from or
relate to any breach by any of the Shareholders (or the failure of any of the
Shareholders to perform) their respective representations, warranties, covenants
or agreements in this Agreement or in any schedule, certificate, exhibit or
other instrument delivered to Buyer by any of the Shareholders under this
Agreement.
4.2 Indemnification by Buyer. In addition to any other remedies available to the
Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless each of the Shareholders against and with
respect to any and all Damages that such indemnitees shall incur or suffer,
which arise, result from or relate to any breach of, or failure by Buyer to
perform any of its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to either of the Individuals by or on behalf of Buyer under this
Agreement.
4.3. Indemnification Procedure. If any party hereto discovers or otherwise
becomes aware of an indemnification claim arising under Sections 4.1 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 Sections 4.1 or 4.2 hereof, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party, give written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations
hereunder, to the extent the indemnifying party is not materially prejudiced
thereby. In case any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof unless the indemnifying party has failed to assume the defense
of such claim and to employ counsel reasonably satisfactory to such indemnified
person. An indemnifying party who elects not to assume the defense of a claim
shall not be liable for the fees and expenses of more than one counsel in any
single jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim or with respect to claims separate but similar or related
in the same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified party will
be entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel reasonably
satisfactory to the indemnified party, the expenses of such defense to be paid
by the indemnifying party. No indemnifying party shall consent to entry of any
judgment or enter into any settlement with respect to a claim without the
consent of the indemnified party, which consent shall not be unreasonably
withheld, or unless such judgment or settlement includes as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability with respect to such claim. No indemnified party
shall consent to entry of any judgment or enter into any settlement of any such
action, the defense of which has been assumed by an indemnifying party, without
the consent of such indemnifying party, which consent shall not be unreasonably
withheld or delayed.
4.3 Limitation on Damages. Notwithstanding anything in this Agreement to the
contrary, the Buyer Indemnified Parties shall be indemnified for Damages only to
the extent of the Purchase Price Holdback after deducting all Environmental
Assessment and Cleanup Costs pursuant to Section 3.4. The aggregate amount of
any Damages owed by the Buyer to the Shareholders shall not exceed $1,000,000 in
the aggregate.
4.4 Exclusive Remedy. From and after the date hereof, the payment of (i)
Environmental Assessments and Cleanup Costs pursuant to Section 3.4 and (ii) the
costs of indemnification under Sections 4.1 and 4.2, as limited by the
provisions of Section 4.4, shall be the exclusive remedies for monetary damages
that may be asserted under this Agreement or in connection with the transactions
contemplated herein. Notwithstanding any provision of the contrary contained
herein, each of the parties to this Agreement hereby waives any right to recover
special, punitive or exemplary damages for any claim asserted against the other.
Noting in this Section 4.5 shall limit the availability of equitable remedies,
such as specific performance, to enforce the provisions of this Agreement.
<PAGE>
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 first 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 indefinitely 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 Rocky Mountain, Inc.... Porter & Hedges, L.L.P.
Two Tower Center, 20th Floor 700 Louisiana, 35th Floor
East Brunswick, New Jersey 08816 Houston, Texas 77210-4744
Attn: General Counsel..... Attn: Samuel N. Allen
Facsimile: (732) 247-5148.. Facsimile: (713) 226-0229
If to any Shareholder:
Addressed to:.............. With a copy to:
c/o David W. Updike........ Donald Hansen
Updike Brothers, Inc. ..... Hansen & Peck
2895 West Main............. 18 West Main
P.O. Box 610 .............. Newcastle, Wyoming 82701
Newcastle, Wyoming 82701... Facsimile: (307) 746-2926
Facsimile: (307) 746-4756..
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
5.5 Table of Contents and Captions. The table of contents and captions contained
in this Agreement are solely for convenient reference and shall not be deemed to
affect the meaning or interpretation of any article, section, or paragraph
hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
5.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Wyoming.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Shareholders (and for purposes of Section 1.6.2, the
Trustee of the ESOP) have executed this Agreement, and the Buyer has caused this
Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
BUYER:
KEY ROCKY MOUNTAIN, INC.
By:
William Hubbell, President
SHAREHOLDERS:
UPDIKE BROTHERS, INC. EMPLOYEES= STOCK OWNERSHIP RETIREMENT
PLAN AND TRUST
By:
Richard Parrish, Trustee
DAVID W. UPDIKE TRUST
By:
David W. Updike, Trustee
DOROTHY A. UPDIKE TRUST
By:
Dorothy A. Updike, Trustee
DOROTHY R. UPDIKE TRUST**
By:
Dorothy R. Updike, Trustee
Mary E. Updike
*
Ralph O. Updike
*
Daniel Updike
*
By:*
David W. Updike, Attorney-in-Fact
By:**
Dorothy A. Updike, Attorney-in-Fact
ESOP TRUSTEE:
(Solely for purposes of Section 1.6.2)
Richard Parrish
Asset Purchase Agreement
among
Brooks Well Servicing, Inc.
Hot Oil Plus, Inc.,
Thomas N. Novosad, Jr.
and
Patricia Novosad
January 29, 1998
<PAGE>
Asset Purchase Agreement
This Asset Purchase Agreement (this "Agreement") is entered into as of January
29, 1998 among Brooks Well Servicing, Inc., a Delaware corporation ("Buyer"),
Hot Oil Plus, Inc., a Texas corporation ("Seller"), Thomas N. Novosad, Jr.
("Novosad") and Patricia Novosad (the "Shareholder").
Article I
Purchase and Sale of Assets
I.1 Purchase and Sale of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer the assets of the Seller existing on the date hereof
other than the Excluded Assets (defined below), whether real, personal, tangible
or intangible, including, without limitation, the following assets of the 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 of the Seller (such as machinery, equipment,
leasehold improvements, furniture and fixtures, and vehicles), including,
without limitation, that which is more fully described on Schedule 1.1(a)
hereto (collectively, the "Tangible Personal Property");
(b) all of the inventory of Seller, including without limitation, that which is
more fully described on Schedule 1.1(b) hereto (collectively, the
"Inventories");
(c) all of the Seller's intangible assets, including without limitation, (i)
all of the Seller's rights to the names under which it is incorporated or
under which it currently does business, (ii) all of the Seller's rights to
any patents, patent applications, trademarks and service marks (including
registrations and applications therefor), trade names, and copyrights and
written know-how, trade secrets, licenses and sublicenses and all other
similar proprietary data and the goodwill associated therewith
(collectively, the "Intellectual Property") used or held in connection with
the Business, including without limitation, that which is more fully
described on Schedule 1.1(c) hereto (the "Seller Intellectual Property")
and (iii) the Seller's telephone numbers and all of its account ledgers,
sales and promotional literature, computer software, books, records, files
and data (including customer and supplier lists), and all other records of
the Seller relating to the Assets or the Business (collectively, the
"Intangibles");
(d) those leases, subleases, contracts, contract rights, and agreements
relating to the Assets or the operation of the Business listed on Schedule
1.1(d) hereto (collectively, the "Contracts");
9
(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 which are more fully described on Schedule 1.1(e) hereto
(collectively, the "Seller Permits");
(f) the goodwill and going concern value of the Business; and
(g) 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 shall not include the following (collectively, the "Excluded
Assets"): (i) the assets described on Schedule 1.1 hereto, (ii) the real
property owned by Seller listed on Schedule 1.1, which constitutes all of the
real property owned by the Seller, (iii) all of the Seller's accounts receivable
and all other rights of the Seller to payment for services rendered by the
Seller before the date hereof; (iv) all cash accounts of the Seller and all
petty cash of the Seller kept on hand for use in the Business; (v) all right,
title and interest of the Seller in and to all prepaid rentals, other prepaid
expenses, bonds, deposits and financial assurance requirements, and other
current assets relating to any of the Assets or the Business; (vi) all assets in
possession of the Seller but owned by third parties; (vii) the corporate
charter, related organizational documents and minute books of the Seller; and
(viii) the cash consideration paid or payable by Buyer to Seller pursuant to
Section 1.2 hereof.
I.2 Consideration for Assets. As consideration for the sale of the Assets to
Buyer and for the other covenants and agreements of the Seller and the
Shareholders contained herein, Buyer agrees to pay to the Seller, on the date
hereof, the amount of $1,900,000 by wire transfer of immediately available funds
to an account designated by the Seller.
I.3 Liabilities. Effective as of the date hereof, Buyer shall assume those, and
only those, liabilities and obligations of the Seller to perform the Contracts
to the extent that the Contracts have not been performed and are not in default
on the date hereof (the "Assumed Liabilities"). On and after the date hereof,
the Seller shall be responsible for any and all other liabilities and
obligations of the Seller other than the Assumed Liabilities, including, without
limitation, any obligations arising from the Seller's employment of those
employees of the Seller listed on Schedule 3.1 hereto (collectively, the
"Retained Liabilities").
I.4 Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on the date hereof at the
offices of James Jones, 205 North Market Street, Brenham, Texas 77833.
I.5 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
will enter into a lease agreement in the form of Exhibit A (the "Lease
Agreement"), (ii) the Buyer and Thomas N. Novosad, Jr. ("Novosad") will enter
into an employment agreement in the form of Exhibit B hereto, (iii) the Buyer
and Hy-Point Energy, Inc. ("Hy-Point") will enter into a propane purchase
agreement (the "Propane Purchase Agreement") in the form of Exhibit C hereto;
(iv) the Seller, Novosad and the Shareholder shall enter into an agreement not
to compete (the "Noncompetition Agreement") in the form of Exhibit D hereto, (v)
the Buyer and Seller shall implement the employee retention bonus program (the
"Bonus Program") pursuant to the retention bonus agreements (the "Retention
Bonus Agreements") in the form of Exhibit E hereto and the Escrow Agreement (the
"Escrow Agreement") in the form of Exhibit F hereto; and (vi) Buyer and Seller
will deliver to one another the opinions of counsel described below:
I.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 Agreement, the Employment Agreement, the Propane
Purchase Agreement, the Noncompetition Agreement, the Retention Bonus Agreements
and the Escrow Agreement, and the implementation of the transactions
contemplated hereby and thereby, have been taken; and (iii) this Agreement, the
Lease Agreement, the Employment Agreement, the Propane Purchase Agreement, the
Noncompetition Agreement, the Retention Bonus Agreements and the Escrow
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 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.
I.5.2. Opinion of Seller's Counsel. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from James R. Jones, counsel to Seller,
Hy-Point, Novosad and the Shareholder, in form and substance satisfactory to
Buyer, to the effect that (i) each of the Seller and Fuel Gas has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its state of organization; (ii) all corporate proceedings required to be
taken by or on the part of Seller to authorize the execution of this Agreement,
the Lease Agreement, the Noncompetition Agreement and the Escrow Agreement, and
the implementation of the transactions contemplated hereby and thereby have been
taken; (iii) all corporate proceedings required to be taken by or on the part of
Hy-Point to authorize the execution of the Propane Purchase Agreement and the
implementation of the transactions contemplated thereby have been taken, (iv)
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 (v) (A) this
Agreement, the Lease Agreement and the Escrow Agreement have been duly executed
and delivered by, and are the legal, valid and binding obligations of the Seller
and are enforceable against the Seller in accordance with their respective
terms, (b) the Propane Purchase Agreement has been duly executed and delivered
by, and is a legal, valid and binding obligation of Hy-Point, enforceable
against Hy-Point in accordance with its terms; (c) the Noncompetition Agreement
has been duly executed and delivered by, and is the legal, valid and binding
obligation of the Seller, Novosad and the Shareholder, and is enforceable
against the Seller, Novosad 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 (i)
certificates of public officials and of officers of the Sellers 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 II
Representations and Warranties
II.1 Representations and Warranties of the Seller, Novosad and the Shareholder.
The Seller, Novosad and the Shareholder jointly and severally represents and
warrants to Buyer as follows:
II.1.1. Organization and Good Standing. Each of the Seller and Hy-Point is a
corporation duly organized, validly existing and in good standing under the laws
of its state of organization, has full requisite corporate power and authority
to carry on its business as it is currently conducted, and to own and operate
the properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary.
II.1.2. Agreements Authorized and their Effect on Other Obligations. The
execution and delivery of this Agreement, the Lease Agreement, the Employment
Agreement, the Propane Purchase Agreement, the Noncompetition Agreement and the
Escrow Agreement have been authorized by all necessary corporate, shareholder
and other action on the part of the Seller, Hy-Point, Novosad and the
Shareholder, and this Agreement, the Lease Agreement, the Employment Agreement,
the Propane Purchase Agreement, the Noncompetition Agreement and the Escrow
Agreement are the valid and binding obligations of the Seller and each of the
other parties thereto other than the Buyer, enforceable (subject to normal
equitable principals) against each of such parties in accordance with their
respective 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, the Lease Agreement, the Employment Agreement, the Propane Purchase
Agreement, the Noncompetition Agreement and the Escrow Agreement, 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 Hy-Point, (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
the Seller, Hy-Point, Novosad or the Shareholder is a party or by which the
Seller, Hy-Point, Novosad or the Shareholder or their respective properties are
bound; or (iii) any provision of any law, rule, regulation, order, permits,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, arbitrator, or other governmental authority to which the
Seller, Hy-Point, Novosad or the Shareholder or any of their respective
properties are subject.
II.1.3. Contracts. Schedule 1.1(d) hereto sets forth a complete list of all
contracts, including leases under which the Seller is lessor or lessee, which
relate to the Assets and are to be performed in whole or in part after the date
hereof. All of the Contracts are in full force and effect, and constitute valid
and binding obligations of the Seller. The Seller is not, and no other party to
any of the Contracts is, in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. No Contract has been entered into on
terms which could reasonably be expected to have an adverse effect on the use of
the Assets by Buyer. Neither the Seller nor any of the Shareholders has received
any information that 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. All of the Contracts are assignable (and are hereby validly
assigned) to Buyer without the consent of any other party thereto.
II.1.4. Title to and Condition of Assets. The Seller has good, indefeasible and
marketable title to all of the Assets, free and clear of any Encumbrances
(defined below). All of the Assets are in a state of good operating condition
and repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations. All of the Assets conform to all applicable laws governing
their use. No notice of any violation of any law, statute, ordinance, or
regulation relating to any of the Assets has been received by the Seller or any
of the Shareholders, except such as have been fully complied with. The term
"Encumbrances" means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
II.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 Seller Permits and the Seller's rights with
respect thereto is valid and subsisting, in full force and effect, and
enforceable by the Seller subject to administrative powers of regulatory
agencies having jurisdiction. The Seller is in compliance in all material
respects with the terms of each of the Seller Permits. None of the Seller
Permits have been, or to the knowledge of the Seller or any of the Shareholders,
are threatened to be, revoked, canceled, suspended or modified. Upon
consummation of the transactions contemplated hereby, all of the Seller Permits
shall be assignable (and are hereby assigned) to Buyer without the consent of
any regulatory agency. On and after the date hereof, each of the Seller Permits
and Buyer's rights with respect thereto will be valid and subsisting in full
force and effect, and enforceable by Buyer subject only to the administrative
powers of regulatory agencies having jurisdiction over the assigned Seller
Permit.
II.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list
of all Intellectual Property material to or necessary for the continued conduct
of the Business. The Seller Intellectual Property is owned or licensed by the
Seller free and clear of any Encumbrances. The Seller has not granted to any
other person any license to use any Seller Intellectual Property. Use of the
Seller Intellectual Property will not, and the conduct of the 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 Seller Intellectual
Property.
II.1.7. Financial Statements. The Seller has delivered to Buyer copies of
certain unaudited financial statements of Seller, copies of which are attached
hereto as Schedule 2.1.7 (collectively, the "Seller Financial Statements"), and
include an unaudited balance sheet (the "Unaudited Balance Sheet") as of
September 30, 1997 (the "Balance Sheet Date"). The Seller Financial Statements
are true, correct and complete in all material respects and present fairly and
fully the financial condition of the Seller as at the dates and for the periods
indicated thereon, and have been prepared in accordance with generally accepted
accounting principles as promulgated by the American Institute of Certified
Public Accountants ("GAAP") applied on a consistent basis, except as noted
therein. Each of the Seller Financial Statements include all adjustments that
are necessary for a fair presentation of the Seller's results for that period.
The inventories of the Seller reflected in the Unaudited Balance Sheet, or which
have thereafter been acquired by the Seller, consist of items of a quality and
quantity salable in the normal course of the Business. The values at which such
inventories are carried are in accordance with GAAP applied on a consistent
basis, and are consistent with the normal inventory level and practices of the
Seller with respect to the Business.
II.1.8. Absence of Certain Changes and Events. Since the Balance Sheet Date,
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 any of
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.
II.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, including, without limitation, any consents
required to assign the Contracts and the Seller Permits.
II.1.10. 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 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 any of 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 any of the Shareholders, is
there any basis for any of the foregoing. Buyer is not required to obtain any
permits, licenses or similar authorizations pursuant to any 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 any of
the Shareholders, 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. 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. 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.
II.1.11. No ERISA Plans or Labor Issues. No employee benefit plan of the Seller,
whether or not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended, will by its terms or applicable law, become
binding upon or an obligation of Buyer. The Seller has not engaged in any unfair
labor practices which could reasonably be expected to result in an adverse
effect on the Assets or the Business. 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 any of the Shareholders, any disputes threatened
by current or former employees of any of the Seller.
II.1.12. Investigations; Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Seller or
any of the Shareholders, threatened, nor has any governmental entity indicated
to the Seller or any of the Shareholders an intention to conduct the same. There
is no suit, action, or legal, administrative, arbitration, or other proceeding
or governmental investigation pending to which the Seller or any of the
Shareholders is a party or, to the knowledge of the Seller or any of the
Shareholders, might become a party or which would adversely affect the Assets or
the Buyer's future conduct of the Business.
II.1.13. Absence of Certain Business 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 any of 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.
II.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 a particular Seller, means that
the sum of the present fair and saleable value of such Seller's assets does not
and will not exceed its debts and other probable liabilities, and the term
"debts" includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute fixed or contingent, disputed or undisputed or secured or
unsecured.
II.1.15. Untrue Statements. This Agreement and all other agreements executed by
the Seller or any of the Shareholders and delivered to Buyer does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Seller has also made available to Buyer true, complete and correct copies of all
contracts, documents concerning all litigation and administrative proceedings,
licenses, permits, insurance policies, lists of suppliers and customers, and
records relating principally to the Business and the Assets, and such
information covers all commitments and liabilities of Buyer relating principally
to the Business and the Assets.
II.1.16. Finder's Fee. Except as described on Schedule 2.1.16, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by the Seller and 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.
II.2 Representations and Warranties of Buyer. Buyer represents and warrants to
the Seller and each of the Shareholders as follows
II.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.
II.2.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby, the Lease Agreement, the
Employment Agreement, the Propane Purchase Agreement, each of the Noncompetition
Agreements, each of the Retention Bonus Agreements and the Escrow Agreement have
been duly and validly authorized by all necessary corporate action on the part
of Buyer, and each of this Agreement , the Lease Agreement, the Employment
Agreement, the Propane Purchase Agreement, each of the Noncompetition
Agreements, each of the Retention Bonus Agreements and the Escrow 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, the Lease Agreement, the Employment Agreement,
the Propane Purchase Agreement, each of the Noncompetition Agreements, each of
the Retention Bonus Agreements and the Escrow 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.
Article III
Additional Agreements
III.1 Hiring Employees. Schedule 3.1 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").
Effective as of the date hereof, all of the Employees shall be terminated by the
Seller and, subject to such Employees meeting Buyer's standard employment
eligibility requirements, hired by Buyer. Buyer shall have no liability or
obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employees' employment with Buyer on or
after the date hereof. The Seller and each of the Shareholders shall cooperate
with Buyer in connection with any offer of employment from Buyer to the
employees and use its best efforts to cause the acceptance of any and all such
offers. All Employees hired by Buyer shall be at-will employees of Buyer.
III.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
3.3 hereto, and shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
III.3 Name Change. The Seller and each of the Shareholders shall, within ten
days from the date hereof, caused to be filed (i) with the secretary of state of
the Seller's state of organization an amendment to the charter (or other
applicable organization document) of the Seller changing the name of the Seller
from its current name to a name that is not similar to such name, and (ii) with
the appropriate authorities of the Seller's state of organization and any other
states such documents as are required to effect such name change, including
without limitation, amendments or withdrawals of certificates of authority to do
business and assumed name filings. The Seller and each of the Shareholders
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.
III.4 Environmental Matters. The Seller and Thomas Novosad, Jr. agree that
within 90 days after the date hereof they will, to the extent not completed
before the date hereof, at their sole expense, conduct restoration activities
with respect to the environmental matters described on Schedule 3.4 hereof. If
the Seller and Mr. Novosad fail to conduct the required restoration activities
within the 90 days following the date hereof, then the Buyer may conduct such
restoration activities at the expense of the Seller and Mr. Novosad and the
Seller and Mr. Novosad agree to reimburse the Buyer for all such restoration
costs and expenses within 10 business days of being billed for such expenses by
the Buyer. If the Seller and Mr. Novosad fail to make the payment to Buyer for
such costs and expenses when due, then, in addition to being liable to the Buyer
for such costs and expenses, the Seller and Mr. Novosad shall be liable to pay
to Buyer all attorneys' fees and expenses and other costs incurred by the Buyer
in connection with the collection activities with respect to the amounts due.
Article IV
Indemnification
IV.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 (i) any 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 any of the Shareholders under this Agreement; and (ii)
the Retained Liabilities.
IV.2 Indemnification by Buyer. In addition to any other remedies available to
the Shareholders under this Agreement, or at law or in equity, Buyer shall
indemnify, defend and hold harmless the Seller 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 any breach of, or failure
by Buyer to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or delivered to the Seller or any of the Shareholders by or
on behalf of Buyer under this Agreement.
IV.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.
IV.4 Limitation on Damages. Notwithstanding anything in this Agreement to the
contrary, neither the Seller nor any of the Shareholders shall be liable to the
Buyer or any of its affiliates, and Buyer shall not be liable to the Seller and
the Shareholders, for cumulative costs of any Damages in excess of $1,900,000;
provided, however, that such limitation on liability shall not include Damages
for breaches of the representations and warranties contained in Section 2.1.10.
Article V
Miscellaneous
V.1 Survival of Representations, Warranties and Covenants. All representations,
warranties, covenants and agreements made by the parties hereto shall survive
indefinitely without limitation, notwithstanding any investigation made by or on
behalf of any of the parties hereto. All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive without
limitation despite any investigation made by any party hereto or on its behalf.
V.2 Entirety. This Agreement embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
V.3 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
V.4 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
If to Buyer
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Brooks Well Servicing, 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) 226-0229
- --------------------------------------------------------------------------------
If to the Seller or any of the Shareholders
- --------------------------------------------------------------------------------
Addressed to: With a copy to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hot Oil Plus, Inc. James R. Jones
c/o Thomas N. Novosad, Jr. 205 North Market
Route 3, Box 4A Brenham, Texas 77833
Highway 21 East
Caldwell, Texas 77836
- --------------------------------------------------------------------------------
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
V.5 Captions. The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof.
V.6 Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
V.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
V.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of 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 signed 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.
By:
Jimmy Chasteen, President
SELLER:
HOT OIL PLUS, INC.
By:
Thomas N. Novosad, Jr., President
SHAREHOLDER:
Patricia Novosad
NOVOSAD:
Thomas N. Novosad, Jr.
Registration Rights Agreement
among
Key Energy Group, Inc.
Lehman Brothers Inc.
and
McMahan Securities Co. L.P.
Dated as of September 25, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
September 25, 1997, among Key Energy Group, Inc. (the "Company"), Lehman
Brothers Inc. ("Lehman"), and McMahan Securities Co. L.P. ("McMahan"; Lehman and
McMahan being hereinafter referred to as the "Initial Purchasers"), who have
agreed to purchase the Company's 5% Convertible Subordinated Notes due 2004 (the
"Notes") pursuant to the Purchase Agreement dated as of September 18, 1997 among
the Company and the Initial Purchasers (the "Purchase Agreement"). This
Agreement is being executed pursuant to Section 7(e) of the Purchase Agreement.
The Notes are convertible into shares of the Company's common stock, par value
$.10 per share (the "Common Stock"), under the terms and conditions set forth in
an indenture dated as of September 25, 1997, between the Company and American
Stock Transfer & Trust Company, as Trustee (the "Indenture").
The parties hereby agree as follows:
I. Definitions. As used in this Agreement, the following capitalized terms shall
have the following meanings:
Broker-Dealer. Any broker or dealer registered under the Exchange Act.
Business Day. A day other than a Saturday or Sunday or any federal holiday.
Closing Date. The date of this Agreement.
Commission. The Securities and Exchange Commission.
Damages Payment Date. Each Interest Payment Date. For purposes of this
Agreement, if no Notes are outstanding, "Damages Payment Date" shall mean each
March 15 and September 15.
Effectiveness Target Date. As defined in Section 3 hereof.
Exchange Act. The Securities Exchange Act of 1934, as amended.
Holder. A Person who owns, beneficially or otherwise, Transfer Restricted
Securities.
Indemnified Holder. As defined in Section 6(a) hereof.
Indenture. As defined in the preamble hereto.
Initial Purchasers. As defined in the preamble hereto.
Interest Payment Date. As defined in the Indenture.
Liquidated Damages. As defined in Section 3 hereof.
NASD. National Association of Securities Dealers, Inc.
Notes. As defined in the preamble hereto.
Person. An individual, partnership, corporation, unincorporated organization,
trust, joint venture or a government or agency or political subdivision thereof.
Prospectus. The prospectus included in a Registration Statement, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder. With respect to any Damages Payment Date, each Person who is a
Holder on the record date with respect to the Interest Payment Date on which
such Damages Payment Date shall occur. In the case of a Holder of shares of
Common Stock issued upon conversion of the Notes, "Record Holder" shall mean
each Person who is a Holder of shares of Common Stock which constitute Transfer
Restricted Securities on the March 1 or September 1 immediately preceding the
Damages Payment Date.
Registration Default. As defined in Section 3(a) hereof.
Registration Statement. The registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, which is filed pursuant
to the provisions of this Agreement, in each case, including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Securities Act. The Securities Act of 1933, as amended.
Shelf Filing Deadline. As defined in Section 2 hereof.
Shelf Registration Statement. As defined in Section 2 hereof.
TIA. The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in
effect on the date of the Indenture.
Transfer Restricted Securities. Each Note and each share of Common Stock issued
upon conversion of Notes until the earlier of (a) the date on which such Note or
such share of Common Stock issued upon conversion has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (b) the date on which such Note or such share of Common
Stock issued upon conversion is distributed to the public pursuant to Rule 144
under the Securities Act or (c) the date on which such Note or such share of
Common Stock issued upon conversion may be sold or transferred pursuant to Rule
144(k) (or any other similar provision then in force).
Underwritten Registration or Underwritten Offering. A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. Shelf Registration.
(a) The Company shall: (i) as soon as practicable, but not later than 180 days
after the date hereof (the "Shelf Filing Deadline"), cause to be filed a shelf
registration statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities held by Holders that have provided
the information required pursuant to Section 2(b) hereof; (ii) use its best
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission on or before 270 days after the date hereof; and (iii) use its
best efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 4(b) hereof to
the extent necessary to ensure that it is available for resales by the Holders
of Transfer Restricted Securities entitled to the benefit of this Agreement, and
to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years following the
Closing Date or such shorter period that will terminate when all Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement.
(b) No Holder of Transfer Restricted Securities may include any of its Transfer
Restricted Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 10 Business Days after receipt of a request therefor, such information as
the Company may reasonably request for use in connection with such Shelf
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to be filed with or under state securities laws. No
Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages
pursuant to Section 3 hereof unless and until such Holder shall have provided
all such reasonably requested information. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
3. Liquidated Damages.
(a) If the Shelf Registration Statement required by this Agreement (i) is not
filed with the Commission on or before the date specified for such filing in
Section 2(a)(i) hereof, (ii) has not been declared effective by the Commission
on or before the date specified for such effectiveness in Section 2(a)(ii)
hereof (the "Effectiveness Target Date"), or (iii) subject to the provisions of
Section 4(b)(i) below, is filed and declared effective but, during the period
specified in Section 2(a)(ii) hereof, shall thereafter cease to be effective or
fail to be usable for its intended purpose without being succeeded within 15
Business Days by a post-effective amendment to such Registration Statement that
cures such failure and that is itself immediately declared effective (each such
event referred to in foregoing clauses (i) through (iii), a "Registration
Default"), the Company hereby agrees to pay liquidated damages ("Liquidated
Damages") to (A) each holder of Notes with respect to any period during which a
Registration Default shall have occurred and be continuing, in an amount equal
to three quarters of one percent (75 basis points) per annum per $1,000
principal amount of Notes held by such Holder; and (B) each Holder of shares of
Common Stock issued upon conversion of Notes with respect to any period in which
a Registration Default shall have occurred and be continuing, in an amount equal
to $.29 per annum per share of Common Stock, subject to adjustment in the event
of stock splits, stock recombinations, stock dividends and the like.
(b) All accrued Liquidated Damages shall be paid to holders of Notes or Record
Holders by the Company on each Damages Payment Date by wire transfer of
immediately available funds or by federal funds check. Following the cure of all
Registration Defaults relating to any particular Note or share of Common Stock,
the accrual of Liquidated Damages with respect to such Note or share of Common
Stock will cease.
4. Registration Procedures.
(a) In connection with the Shelf Registration Statement, the Company shall
comply with all the provisions of Section 4(b) below and shall use its best
efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof, and pursuant thereto, the Company will as
expeditiously as possible prepare and file with the Commission a Shelf
Registration Statement relating to the registration on any appropriate form
under the Securities Act.
(b) In connection with the Shelf Registration Statement and any Prospectus
required by this Agreement to permit the sale or resale of Transfer Restricted
Securities, the Company shall:
(i) Use its best efforts to keep such Registration Statement continuously
effective; upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) to not be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B), use its
reasonable best efforts to cause such amendment to be declared effective and
such Registration Statement and the related Prospectus to become usable for
their intended purposes as soon as practicable thereafter. Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that it is in the best interests of the Company not to disclose the existence of
or facts surrounding any proposed or pending material corporate transaction
involving the Company, the Company may allow the Shelf Registration Statement to
fail to be effective and usable as a result of such nondisclosure for (1) a
period not to exceed 30 days in any three month period or (2) two periods not to
exceed an aggregate of 60 days in any twelve month period.
(ii) Prepare and file with the Commission such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the period set forth in Section 2(a)(ii)
hereof or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been sold; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act, and to
comply fully with the applicable provisions of Rules 424 and 430A under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus.
(iii) Advise the underwriter(s), if any, and selling holders promptly (but in
any event within two Business Days) and, if requested by such Persons, to
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the same
has become effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement
under the Securities Act or of the suspension by any state securities commission
of the qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of any
event that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in the Registration Statement or the Prospectus in order
to make the statements therein not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company shall use its reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(iv) Furnish to each of the selling holders and each of the underwriter(s), if
any, before filing with the Commission, copies of any Registration Statement or
any Prospectus included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including, upon request in writing, all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of such
holders and underwriter(s), if any, for a period of at least three Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to which a
selling holder of Transfer Restricted Securities covered by such Registration
Statement or the underwriter(s), if any, shall reasonably object within three
Business Days after the receipt thereof. A selling holder or underwriter, if
any, shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission.
(v) Promptly before the filing of any document that is to be incorporated by
reference into a Registration Statement or Prospectus after the initial filing
of such Registration Statement, (A) provide copies of such document to the
selling Holders and to the underwriter(s), if any, (B) make the Company's
representatives available for discussion of such document and other customary
due diligence matters, and (C) include such information in such document before
the filing thereof as such selling Holders or underwriter(s), if any, reasonably
may request.
(vi) Make available at reasonable times for inspection by the selling Holders,
any underwriter participating in any distribution pursuant to such Registration
Statement, and any attorney or accountant retained by such selling Holders or
any of the underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's officers,
directors, managers and employees to supply all information reasonably requested
by any such Holder, underwriter, attorney or accountant in connection with such
Registration Statement after the filing thereof and before its effectiveness.
(vii) If requested by any selling Holders or the underwriter(s), if any,
promptly incorporate in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being sold to
such underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(viii) Furnish to each selling Holder and each of the underwriter(s), if any,
without charge, at least one copy of the Registration Statement, as first filed
with the Commission, and of each amendment thereto, including, if requested in
writing, all documents incorporated by reference therein and, if requested in
writing, all exhibits (including exhibits incorporated therein by reference).
(ix) Deliver to each selling Holder and each of the underwriter(s), if any,
without charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons reasonably
may request; the Company hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment or
supplement thereto.
(x) Whether or not an underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, the Company shall: (A) upon
request, furnish to each selling Holder and each underwriter, if any, in such
substance and scope as they may reasonably request and as are customarily made
by issuers to underwriters in primary underwritten offerings, upon the date of
effectiveness of the Shelf Registration Statement: (1) a certificate, dated the
date of effectiveness of the Shelf Registration Statement, signed by (y) the
President and (z) the Chief Financial Officer of the Company confirming, as of
the date thereof, the matters set forth in Section 1 of the Purchase Agreement
and such other matters as such parties may reasonably request; (2) an opinion,
dated the date of effectiveness of the Shelf Registration Statement, of counsel
for the Company covering the matters set forth in Section 7(c) of the Purchase
Agreement; and (3) customary comfort letters, dated as of the date of
effectiveness of the Shelf Registration Statement from the Company's independent
accountants, in the customary form and covering matters of the type customarily
covered in comfort letters by underwriters in connection with primary
underwritten offerings; (B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and procedures of
Section 6 hereof with respect to all parties to be indemnified pursuant to said
Section; and (C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with clause (A)
above and with any customary conditions contained in the underwriting agreement
or other agreement entered into by the selling Holders pursuant to this clause
(x).
(xi) Before any public offering of Transfer Restricted Securities, cooperate
with the selling Holders, the underwriter(s), if any, and their respective
counsel in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s), if any, may reasonably
request and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation where it
is not now so qualified or to take any action that would subject it to the
service of process, in any jurisdiction where it is not now so subject.
(xii) Cooperate with the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold; and enable such Transfer Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two Business Days
before any sale of Transfer Restricted Securities made by such underwriter(s).
(xiii) Use its reasonable best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other U.S. governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if any,
to consummate the disposition of such Transfer Restricted Securities.
(xiv) Subject to Section 4(b)(i) above, if any fact or event contemplated by
Section 4(b)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading.
(xv) Cooperate and assist in any filings required to be made with the NASD and
in the performance of any due diligence investigation by any underwriter that is
required to be retained in accordance with the rules and regulations of the
NASD.
(xvi) Otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement.
(xvii) Cause the Indenture to be qualified under the TIA not later than the
effective date of the first Registration Statement required by this Agreement,
and, in connection therewith, cooperate with the trustee and the holders of
Notes to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its reasonable best efforts to cause the trustee thereunder to
execute all documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner.
(xviii) Cause all Transfer Restricted Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(xix) Provide promptly to each Holder upon written request each document filed
with the Commission pursuant to the requirements of Section 13 and Section 15 of
the Exchange Act after the Effective Date of the Registration Statement.
(c) Each Holder agrees by acquisition of a Transfer Restricted Security that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 4(b)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 4(b)(xiv) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance with
this Agreement will be borne by the Company regardless of whether a Registration
Statement becomes effective, including without limitation: (i) all registration
and filing fees and expenses (including filings made by any Initial Purchasers
or Holders with the NASD (and, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and, subject to Section 5(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing of the Common Stock issued upon conversion of the Notes on a national
securities exchange or automated quotation system pursuant to the requirements
hereof; and (vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
comfort letters required by or incident to such performance), but specifically
excluding (a) fees and expenses of counsel to the underwriter(s), if any (other
than fees and expenses set forth in clauses (i) and (ii) above), (b)
underwriting discounts and commissions and (c) transfer fees and taxes if any,
relating to the sale and disposition of Transfer Restricted Securities by a
selling Holder. The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this Agreement,
the Company will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities being registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel chosen by the Holders of a majority in principal amount of
Debentures and in number of shares of Common Stock issued upon conversion
thereof for whose benefit such Registration Statement is being prepared.
6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless: (i) each Holder; (ii)
each person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being referred to as a "controlling person");
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii), or (iii) hereinafter being referred to as an
"Indemnified Holder"), against any losses, claims, damages or liabilities, joint
or several, to which such Indemnified Holder may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as any such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in (A) any Registration Statement or Prospectus or any
amendment or supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Notes and the Common Stock issued upon conversion of the
Notes under the state securities or "Blue Sky" laws or filed with the Commission
or any securities association or securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state, in such Registration Statement
or Prospectus or any amendment or supplement thereto, or in any Application, a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and will reimburse, as incurred, each Indemnified Holder for any
legal or other expenses reasonably incurred by such Indemnified Holder or
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, the Company will not be liable
in any such case to the extent that any such loss, claim, damage, or liability
is finally judicially determined to arise out of or be based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement or Prospectus or amendment or supplement thereto or
Application in reliance upon and in conformity with written information
furnished to the Company through the Holders by or on behalf of any Holder (or
its related Indemnified Holder) specifically for use therein. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have to the Indemnified Holders. The Company shall not be liable under this
Section 6 for any settlement of any claim or action effected without its
consent, which shall not be unreasonably withheld.
(b) Each Holder, severally and not jointly, will indemnify and hold harmless
each of the Company and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which the Company or any
such controlling person may become subject under the Securities Act, the
Exchange Act, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or the Prospectus or any amendment or supplement
thereto or any Application or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through the Holders by or on behalf of any
Holder or its related Indemnified Holder specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses incurred by the Company or
any controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will be
in addition to any liability that any Holder may otherwise have to the
indemnified parties. No Holder shall be liable under this Section 6 for any
settlement of any claim or action effected without its consent, which shall not
be unreasonably withheld. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale of Transfer Restricted Securities giving rise to
such indemnification obligation.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action for which such indemnified party is
entitled to indemnification under this Section 6, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
this Section 6, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party (i) will not relieve it from
any liability under paragraph (a) or (b) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraphs (a) and (b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if (i) the use of counsel chosen
by the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be one or
more legal defenses available to it and other indemnified parties that are
different from or additional to those available to the indemnifying party or
(iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action, then, in each
such case, the indemnifying party shall not have the right to direct the defense
of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 6 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by the Holders in the case of paragraph (a) of this Section 6 or the
Company in the case of paragraph (b) of this Section 6, representing the
indemnified parties under such paragraph (a) or paragraph (b), as the case may
be, who are parties to such action or actions) or (ii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable for
the costs and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party, unless such
indemnified party waived in writing its rights under this Section 6, in which
case the indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 6 is unavailable or insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and any Holder on the other from such Holder's sale of Transfer
Restricted Securities or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Company on the one hand and such Holder on the other
in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or such Holder on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances. The
Company and each Holder of Transfer Restricted Securities agree that it would
not be equitable if the amount of such contribution were determined by pro rata
or per capita allocation or by any other method of allocation that does not take
into account the equitable considerations referred to in the first sentence of
this paragraph (d). Notwithstanding the provisions of this Section 6(d), none of
the Holders (or any of their related Indemnified Holders) shall be required to
contribute any amount in excess of the amount by which proceeds received by such
Holder from an offering of Transfer Restricted Securities exceeds the amount of
any damages which such Holder has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each person, if any, who controls any Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such Holder, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
7. Rule 144A. The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
8. Participation in Underwritten Registrations. No Holder may participate in any
Underwritten Registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lockup letters and
other documents required under the terms of such underwriting arrangements.
9. Selection of Underwriters. The Holders of Transfer Restricted Securities
covered by the Shelf Registration Statement who desire to do so may sell such
Transfer Restricted Securities in an Underwritten Offering. In any such
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in number of shares of Common Stock included in such offering;
provided, that such investment bankers and managers must be reasonably
satisfactory to the Company.
10. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages (including the Liquidated
Damages contemplated hereby) would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement other
than with respect to Registration Defaults and hereby agree to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the date of
this Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to
their securities to any Person which rights conflict with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. This Agreement may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Company has obtained the written consent of
Holders of a majority in number of shares of Common Stock issued upon conversion
of the Debentures, as the case may be.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the Registrar
under the Indenture or the transfer agent of the Common Stock, as the case may
be; and
(ii) if to the Company:
Key Energy Group, Inc.
255 Livingston Avenue
New Brunswick, New Jersey 08901
Attention: Jack D. Loftis, Jr.
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana
Houston, Texas 77002
Attention: Samuel N. Allen
All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered, five Business Days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next Business Day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(f) Counterparts. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(i) Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
KEY ENERGY GROUP, INC.
By:
LEHMAN BROTHERS INC.
By:
MCMAHAN SECURITIES CO. L.P.
By:
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 6. 1997, as amended and
restated through November 6, 1997, among KEY ENERGY GROUP, INC., a Maryland
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties to this Agreement (the "Lenders"), PNC
BANK, NATIONAL ASSOCIATION, as Administrative Agent for the Lenders hereunder
(in such capacity, the "Administrative Agent"), NORWEST BANK TEXAS, N.A., as
Collateral Agent for the Lenders hereunder (in such capacity, the "Collateral
Agent") and PNC CAPITAL MARKETS, INC., as arranger with respect to the credit
facilities contained herein (in such capacity, the "Arranger").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the Collateral
Agent are parties to the Credit Agreement, dated as of June 6, 1997 (as amended
prior to the date hereof, the "Existing Credit Agreement");
WHEREAS, pursuant to the Existing Credit Agreement, the Lenders have over time
made term loans ("Term Loans") and revolving credit loans ("Existing Revolving
Credit Loans") to, and have issued letters of credit ("Existing Letters of
Credit") for the account of, the Borrower which are secured pursuant to the
Security Documents (as hereinafter defined);
WHEREAS, the Term Loans have been paid and the Borrower desires to increase the
amount of the commitment for revolving credit loans and to modify certain other
provisions of the Existing Credit Agreement; and
WHEREAS, this Amended and Restated Credit Agreement is intended to confirm and
evidence (i) the amendment and restatement and continuation (but not payment) of
the existing obligations of the Loan Parties under the Loan Documents and (ii)
the continuation as security for the indebtedness and obligations under this
Amended and Restated Agreement and the other Loan Documents, without any release
or termination whatsoever, of all liens and security interests granted under and
in connection with the Existing Credit Agreement and the other Loan Documents;
ACCORDINGLY, the parties hereto hereby agree that on the Closing Date, the
Existing Credit Agreement is hereby amended and restated in its entirety to read
as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall have the
following meanings:
"Adjustment Date": each date on or after December 31, 1997 that is the second
Business Day following receipt by the Lenders of both (i) the financial
statements required to be delivered pursuant to Section 6.1(a) or 6.1(b), as
applicable, for the most recently completed fiscal period (which shall be
December 31, 1997, in the case of the Adjustment Date occurring on or
immediately after December 31, 1997) and (ii) the related compliance certificate
required to be delivered pursuant to Section 6.2(b) with respect to such fiscal
period.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person which, directly or indirectly,
is in control of, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person or (b) direct
or cause the direction of the management and policies of such Person, whether by
contract or otherwise. Notwithstanding the foregoing (i) no Subsidiary of the
Borrower shall be deemed to be an Affiliate of the Borrower and (ii) no
Affiliate of any investment company that controls the Borrower shall be deemed
to be an Affiliate of the Borrower solely because such investment company
Affiliate is in control of, is controlled by, or is under common control with,
such investment company.
"Agents": the collective reference to the Arranger, the Collateral Agent and the
Administrative Agent.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any time, an
amount equal to the sum of (a) the aggregate principal amount of all Loans made
by such Lender then outstanding and (b) such Lender's Percentage of the L/C
Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin": During the period from the Closing Date until the first
Adjustment Date, 0.00% for Loans which are Base Rate Loans and 1.25% for Loans
which are Eurodollar Loans. The Applicable Margin for Loans will be adjusted on
each Adjustment Date to the applicable rate per annum set forth under the
heading "Applicable Margin for Loans which are Eurodollar Loans" or "Applicable
Margin for Loans which are Base Rate Loans", as the case may be, on Annex I
which corresponds to the Consolidated Leverage Ratio as determined from the
financial statements and compliance certificate relating to the end of the
fiscal period immediately preceding such Adjustment Date; provided that in the
event that the financial statements required to be delivered pursuant to Section
6.1(a) or 6.1(b), as applicable, and the related compliance certificate required
to be delivered pursuant to Section 6.2(b), are not delivered when due, then
(i) if such financial statements and compliance certificate are delivered after
the date such financial statements and compliance certificate were required
to be delivered (without giving effect to any applicable cure period) and
the Applicable Margin increases from that previously in effect as a result
of the delivery of such financial statements, then the Applicable Margin in
respect of the Loans during the period from the date upon which such
financial statements were required to be delivered (without giving effect
to any applicable cure period) until the date upon which they actually are
delivered shall, except as otherwise provided in clause (iii) below, be the
Applicable Margin as so increased;
(ii) if such financial statements and compliance certificate are delivered after
the date such financial statements and compliance certificate were required
to be delivered and the Applicable Margin decreases from that previously in
effect as a result of the delivery of such financial statements, then such
decrease in the Applicable Margin shall not become applicable until the
date upon which the financial statements and certificate actually are
delivered; and
(iii)if such financial statements and compliance certificate are not delivered
prior to the expiration of the applicable cure period, then, effective upon
such expiration, for the period from the date upon which such financial
statements and compliance certificate were required to be delivered (after
the expiration of the applicable cure period) until two Business Days
following the date upon which they actually are delivered, the Applicable
Margin in respect of Loans shall be 0.00% per annum, in the case of Base
Rate Loans, and 1.50% per annum, in the case of Eurodollar Loans (it being
understood that the foregoing shall not limit the rights of the
Administrative Agent and the Lenders set forth in Section 8).
"Application": an application, in such form as the Issuing Lender may specify
from time to time, requesting the Issuing Lender to issue a Letter of Credit.
"Argentine Subsidiaries": Kenting and Servicios.
"Arranger": as defined in the preamble hereto.
"Assignee": as defined in Section 10.6(c).
"Available Commitment": as to any Lender at any time, an amount equal to the
excess, if any, of (a) such Lender's Commitment over (b) such Lender's Aggregate
Outstanding Extensions of Credit.
"Base Rate": for any day, a rate per annum equal to the greater of (a) the Prime
Rate in effect on such day, and (b) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the
rate of interest per annum established from time to time by PNC Bank, National
Association as its prime rate in effect at its principal office in Pittsburgh
(the Prime Rate not being intended to be the lowest rate of interest charged by
PNC Bank, National Association in connection with extensions of credit to
debtors); and "Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions received by
the Administrative Agent from three federal funds brokers of recognized standing
selected by it. Any change in the Base Rate due to a change in the Prime Rate or
the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is based upon
the Base Rate.
"Board": the Board of Governors of the Federal Reserve System of the United
States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified in a notice pursuant to Section 2.2
as a date on which the Borrower requests the Lenders to make Loans hereunder.
"Business Day": (a) for all purposes other than as covered by clause (b) below,
a day other than a Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required by law to close and (b) with respect to
all notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, any day which is a Business Day described in
clause (a) and which is also a day for trading by and between banks in Dollar
deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a Financing Lease) of fixed or capital
assets or additions to equipment (including replacements and improvements during
such period) which should be capitalized under GAAP on a consolidated balance
sheet of such Person and its Subsidiaries; provided that "Capital Expenditures"
shall not include (i) expenditures for Permitted Acquisitions or
(ii) expenditures by any Person prior to the time such Person was acquired by
the Borrower or any Subsidiary in a Permitted Acquisition.
"Capital Lease Obligations": as to any Person, the obligations of such Person to
pay rent or other amounts under any Financing Lease and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares of capital stock of a corporation, and any
and all equivalent ownership interests in a Person (other than a corporation).
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b) demand
deposits, certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of twelve months or less from the date
of acquisition issued by any Lender or by any commercial bank organized under
the laws of the United States or any state thereof having combined capital and
surplus of not less than $250,000,000; (c) commercial paper of (i) an issuer
rated at least A-1 by Standard & Poor's Ratings Services or P-1 by Moody's
Investors Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally or (ii) the holding
company of any Lender, and, in either case, maturing within twelve months from
the date of acquisition; and (d) money market funds the assets of which consist
primarily of obligations of the types referred to in clauses (a) through (c)
above.
"Change of Control": a "Change of Control" shall be deemed to occur if a "Change
in Control" (as defined in the 1997 Indenture or, if the 1997 Indenture shall
have been terminated, as defined in the 1997 Indenture immediately prior to such
termination) shall occur.
"Closing Date": the date on which the conditions precedent set forth in Section
5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended.
"Collateral": all assets of the Loan Parties, now owned or hereafter acquired,
upon which a Lien is purported to be created by any Security Document.
"Collateral Agent": as defined in the preamble hereto.
"Collateral Release Date": the date upon which the Liens on the Collateral
granted pursuant to the Security Documents are released pursuant to subsection
10.17.
"Collateral Release Event": shall occur at any time, so long as no Default or
Event of Default shall have occurred and be continuing at such time: (a) if the
senior unsecured credit rating for the Borrower's senior unsecured debt is at
least Ba1 by Moody's and BB+ by S&P; or (b) if the 1997 Convertible Subordinated
Notes of the Borrower is rated at least Ba2 by Moody's and BB by S&P.
"Commercial Letter of Credit": as defined in Section 3.1(a).
"Commitment": as to any Lender, the obligation of such Lender, if any, to make
Loans to and/or issue or participate in Letters of Credit issued on behalf of
the Borrower hereunder in an aggregate principal and/or face amount not to
exceed the amount set forth under the heading "Commitment" opposite such
Lender's name on Schedule 1.1A, as the same may be changed from time to time
pursuant to the terms hereof and as the same shall be reduced pursuant to
Section 2.1(c).
"Commitment Period": the period from and including the Closing Date to but not
including the Termination Date, or such earlier date on which the Commitments
shall have been terminated.
"Commonly Controlled Entity": an entity, whether or not incorporated, which is
under common control with the Borrower within the meaning of Section 4001 of
ERISA or is part of a group which includes the Borrower and which is treated as
a single employer under Section 414 of the Code.
"Confidential Information Memorandum": the Confidential Information Memorandum
dated as of November, 1997 with respect to the Borrower and the credit
facilities provided for herein.
"Consolidated" or "consolidated": when used in respect of any Subsidiary or any
financial statements or financial term relating to the Borrower and its
Subsidiaries, refers to the Borrower and the Subsidiaries of the Borrower
(including Excluded Subsidiaries) whose accounts are consolidated with the
Borrower's accounts in accordance with GAAP.
"Consolidated EBITDA": with respect to any Person for any period, Consolidated
Net Income of such Person for such period plus, without duplication and to the
extent reflected as a charge in the statement of such Consolidated Net Income
for such period, the sum of (a) total income tax expense, (b) interest expense,
(c) depreciation and amortization expense, (d) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (e) any
extraordinary expenses or losses (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of business),
(f) any other noncash charges and (g) if applicable, restructuring charges,
write-off of goodwill and licensing agreements, and minus, to the extent
included in the statement of such Consolidated Net Income for such period, the
sum of (a) interest income, (b) any extraordinary income or gains (including,
whether or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business) and (c) any other noncash income (other than
any income represented by a receivable that in the ordinary course would be
expected to be paid in cash), all as determined on a consolidated basis.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for such period to
(b) Consolidated Interest Expense for such period.
"Consolidated Interest Expense": for any period, total interest expense
(including that attributable to Capital Lease Obligations), both expensed and
capitalized, of the Borrower and its Subsidiaries for such period with respect
to all outstanding Indebtedness of the Borrower and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under Interest Rate Protection Agreements to the extent such net costs are
allocable to such period in accordance with GAAP), determined on a consolidated
basis in accordance with GAAP, net of interest income of the Borrowers and its
Subsidiaries for such period (determined on a consolidated basis in accordance
with GAAP).
"Consolidated Lease Expense": for any period, the aggregate amount of fixed and
contingent rentals payable by the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property; provided that amounts payable under
Financing Leases and oil and gas leases shall be excluded from Consolidated
Lease Expense.
"Consolidated Leverage Ratio": on the date of any determination thereof, the
ratio of (a) Consolidated Total Debt on such date, less the amount of cash and
Cash Equivalents in excess of $5,000,000 held by the Borrower and its
Subsidiaries on such date to (b) Consolidated EBITDA of the Borrower and its
Subsidiaries for the four full fiscal quarters ending on such date; provided
that for purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period of four full fiscal quarters, the Consolidated
EBITDA of any Person acquired by the Borrower or its Subsidiaries during such
period shall be included on a pro forma basis for such period of four full
fiscal quarters (assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith occurred on
the first day of such period of four full fiscal quarters and assuming only such
cost reductions as are related to such acquisition and are realizable on or
before the date of calculation) if the consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end of the period
preceding the acquisition of such Person and the related consolidated statements
of income and stockholders' equity and of cash flows for such period (i) have
been previously provided to the Administrative Agent and the Lenders and
(ii) either (A) have been reported on without a qualification arising out of the
scope of the audit (other than a "going concern" or like qualification or
exception) by independent certified public accountants of nationally recognized
standing or (B) have been found acceptable by the Administrative Agent.
"Consolidated Net Income": with respect to any Person for any period, the
consolidated net income (or loss) of such Person for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Worth": at a particular date, as to any Person, the amount
which would be included under stockholders' equity on a consolidated balance
sheet of such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Consolidated Senior Debt": with respect to the Borrower and its Subsidiaries,
consolidated Indebtedness of the Borrower and its Subsidiaries determined on a
consolidated basis in accordance with GAAP other than Subordinated Indebtedness.
"Consolidated Senior Leverage Ratio": on the date of any determination thereof,
the ratio of (a) Consolidated Senior Debt on such date, less the amount of cash
and Cash Equivalents in excess of $5,000,000 held by the Borrower and its
Subsidiaries on such date to (b) Consolidated EBITDA of the Borrower and its
Subsidiaries for the four full fiscal quarters ending on such date; provided
that for purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period of four full fiscal quarters, the Consolidated
EBITDA of any Person acquired by the Borrower or its Subsidiaries during such
period shall be included on a pro forma basis for such period of four full
fiscal quarters (assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith occurred on
the first day of such period of four full fiscal quarters and assuming only such
cost reductions as are related to such acquisition and are realizable on or
before the date of calculation) if the consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end of the period
preceding the acquisition of such Person and the related consolidated statements
of income and stockholders' equity and of cash flows for such period (i) have
been previously provided to the Administrative Agent and the Lenders and
(ii) either (A) have been reported on without a qualification arising out of the
scope of the audit (other than a "going concern" or like qualification or
exception) by independent certified public accountants of nationally recognized
standing or (B) have been found acceptable by the Administrative Agent.
"Consolidated Total Debt": at any date, the aggregate principal amount of all
Indebtedness of the Borrower and its Subsidiaries at such date, which on a
consolidated basis in accordance with GAAP would be required to be reflected on
a consolidated balance sheet of the Borrower and its Subsidiaries as a
liability.
"Contractual Obligation": as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its property is bound.
"Convertible Subordinated Debentures": the 7% Convertible Subordinated
Debentures due 2003 issued by the Borrower pursuant to the Indenture.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Dollars" and "$": dollars in lawful currency of the United States.
"Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws
of any jurisdiction within the United States.
"Environmental Consultant": as defined in Section 6.8(c).
"Environmental Laws": any and all laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, or other legally enforceable requirements
(including, without limitation, common law) of any foreign government, the
United States, or any state, local, municipal or other governmental authority,
regulating, relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health, or employee health and safety,
as has been, is now, or at any time hereafter is, in effect.
"Environmental Permits": any and all permits, licenses, registrations,
approvals, notifications, exemptions and any other authorization required under
any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended from
time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar
Loan, the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Telerate Service (or otherwise on such
service), the "Eurodollar Base Rate" for purposes of this definition shall be
determined by reference to such other comparable publicly available service for
displaying eurodollar rates as may be selected by the Administrative Agent or,
in the absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is based upon
the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans, the then
current Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally have been
made on the same day).
"Event of Default": any of the events specified in Section 8, provided that any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Excluded Subsidiary" or "Excluded Subsidiaries": (a) Production Systems, Inc.,
WellTech, Inc. (California), WellTech, Inc., WellTech Oilfield Services
(Canada), Ltd., WellTech Oilfield Services Limited, WellTech (Overseas) Limited,
and Bronson Transport, Inc., (b) Thunderbird Tool Company, (c) KEG Canal
Properties, Inc., KEG Villa Ashley, Inc., KEG Pearl Acres, Inc., KEG Anna
Heights, Inc., KEG Orleans Place, Inc., and Pyramid Land Corporation, and
(d) any other entity which becomes a Subsidiary of Borrower after the date of
this Agreement if such entity has assets with a book value of $1,000,000 or less
and annual revenues of $1,000,000 or less; provided that all entities deemed to
be Excluded Subsidiaries under this subsection (d) may not have, in the
aggregate, assets with a book value exceeding $5,000,000 or annual revenues
exceeding $5,000,000.
"Existing Credit Agreement": as defined in the recitals hereto.
"Existing Letters of Credit": as defined in Section 3.1.
"Existing Revolving Credit Loans": as defined in the recitals hereto.
"Financing Lease": any lease (or other similar arrangement conveying the right
to use) of property, real or personal, the obligations of the lessee in respect
of which are required in accordance with GAAP to be capitalized on a balance
sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Borrower organized under the laws of
any jurisdiction outside the United States.
"GAAP": generally accepted accounting principles in the United States in effect
from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Hedge Obligations": as defined in the Master Guarantee and Collateral
Agreement.
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables and accrued expenses incurred in the ordinary course of such Person's
business not more than 150 days past due or being contested in good faith), (c)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, (e) all Capital Lease Obligations of such Person, (f)
all obligations, contingent or otherwise, of such Person as an account party
under acceptance, letter of credit or similar facilities (other than obligations
in respect of undrawn letters of credit securing trade payables or performance
obligations incurred in the ordinary course of business not more than 150 days
past due or being contested in good faith), (g) all obligations of such Person
to purchase, redeem, retire or otherwise acquire for value any Capital Stock of
such Person, (h) all Guarantee Obligations of such Person in respect of
Indebtedness of others and (i) all obligations of the kind referred to in
clauses (a) through (h) above secured by any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such
obligation (but if not so assumed, the amount of such obligation shall be deemed
not to exceed the fair market value of the property subject to the Lien).
"Indenture": the Indenture, dated as of July 3, 1996, between the Borrower and
American Stock Transfer & Trust Company, as trustee.
"Insolvency": with respect to any Multiemployer Plan, the condition that such
Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Insurance Policies": (i) the insurance policies the Borrower is required to
maintain pursuant to Section 6.5 and (ii) the insurance policies the Borrower is
required to maintain pursuant to Section 5.3 of the Master Guarantee and
Collateral Agreement.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding, (b)
as to any Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period and the last
day of such Interest Period.
"Interest Period": as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that all of the foregoing provisions
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a Business
Day, such Interest Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the Termination Date
shall end on the Termination Date;
(iii)any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to require a payment
or prepayment of any Eurodollar Loan during an Interest Period for such
Loan.
"Interest Rate Protection Agreement": any interest rate protection agreement,
interest rate futures contract, interest rate option, interest rate cap or other
interest rate hedge arrangement, to or under which the Borrower or any
Subsidiary is a party or a beneficiary on the date hereof or becomes a party or
a beneficiary after the date hereof.
"Interest Rate Protection Agreement Obligation": in respect of any Loan Party,
the obligation of such Loan Party under an Interest Rate Protection Agreement to
make a payment to the counterparty thereto in the event of a termination event
or similar occurrence thereunder.
"Issuing Lender": (a) with respect to the Existing Letters of Credit, Norwest
Bank, and (b) with respect to any Letters of Credit issued after the Closing
Date, any Lender designated as "Issuing Lender" hereunder by the Borrower with
the consent of the Administrative Agent and such Lender, in its capacity as
issuer of any Letter of Credit.
"Kenting": Kenting Holdings (Argentina) S.A., an Argentine corporation, and
Kenting Drilling (Argentina) S.A., an Argentine corporation.
"L/C Commitment": $10,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and December
and the last day of the Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate
then undrawn and unexpired amount of the then outstanding Letters of Credit and
(b) the aggregate amount of drawings under Letters of Credit which have not then
been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Lenders other than the
Issuing Lender.
"Lenders": as defined in the preamble hereto (which shall include the Issuing
Lender).
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge or other security interest or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing) and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction.
"Loan": as defined in Section 2.1(a).
"Loan Documents": this Agreement, the Notes, the Applications and the Security
Documents.
"Loan Parties": the Borrower and each Domestic Subsidiary of the Borrower which
is, or is required by the terms hereof to be, a party to a Loan Document.
"Master Guarantee and Collateral Agreement": the Master Guarantee and Collateral
Agreement executed and delivered by the Borrower and each of its Domestic
Subsidiaries, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Material Adverse Effect": a material adverse effect on (a) the business,
assets, property, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent, the Collateral Agent or the
Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrower and/or its
Subsidiaries under any Environmental Law in excess of $2,500,000 for remedial
costs, compliance costs, compensatory damages, punitive damages, fines,
penalties or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactive
materials, and any other substances of any kind, whether or not any such
substance is defined as hazardous or toxic under any Environmental Law, that is
regulated pursuant to or could give rise to liability under any Environmental
Law.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": the mortgage or deed of trust made by the appropriate Loan Party in
favor of, or for the benefit of, the Collateral Agent for the benefit of the
Lenders, as the same may be amended, supplemented or otherwise modified from
time to time.
"Mortgaged Property": the real property listed on Schedule 1.1B, as to which the
Collateral Agent for the benefit of the Lenders has been granted a Lien pursuant
to the Mortgages and the real property as to which the Collateral Agent for the
benefit of the Lenders shall be granted a Lien in accordance with Section 6.10.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with the Significant Disposition, the
proceeds thereof in the form of cash and Cash Equivalents (including any such
proceeds received by way of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or otherwise, but
only as and when received) of the Significant Disposition, net of attorneys'
fees, accountants' fees, investment banking fees, brokers' and underwriters'
commissions paid to third parties, amounts required to be applied to the
repayment of Indebtedness secured by a Lien expressly permitted hereunder on any
asset which is the subject of the Significant Disposition (other than any Lien
in favor of the Collateral Agent for the benefit of the Lenders), the aggregate
amount of reserves required in the reasonable judgment of the Borrower to pay
contingent liabilities with respect to the Significant Disposition (provided
that amounts deducted from aggregate proceeds pursuant to this clause and not
actually paid by the Borrower or any of its Subsidiaries in liquidation of such
contingent liabilities shall be deemed to be Net Cash Proceeds and shall be
applied in accordance with Section 2.7(c) at such time as the Borrower shall
reasonably determine that such amounts are not required to pay contingent
liabilities with respect to the Significant Disposition) and other customary
fees and expenses actually incurred in connection therewith and net of taxes
paid or reasonably estimated to be payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements with any Person other than the Borrower and its Subsidiaries) and
(b) in connection with any issuance or sale of Capital Stock or debt securities
or instruments or the incurrence of Indebtedness, the cash proceeds received
from such issuance or incurrence, net of attorneys' fees, investment banking
fees, accountants' fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection therewith.
"New Loan Parties": Domestic Subsidiaries of the Borrower acquired after the
closing date of the Existing Credit Agreement and before the Closing Date.
"1997 Convertible Subordinated Notes": the 5% Convertible Subordinated Notes due
2004 issued by the Borrower pursuant to the 1997 Indenture.
"1997 Indenture": the Indenture, dated as of September 25, 1997, between the
Borrower and American Stock Transfer & Trust Company, as trustee.
"Non-Excluded Taxes": as defined in Section 2.16(a).
"Non-U.S. Lender": as defined in Section 2.16(b).
"Norwest Bank": Norwest Bank Texas, N.A.
"Note": as defined in Section 2.4(e).
"Obligations": the unpaid principal of and interest on (including, without
limitation, interest accruing after the maturity of the Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all other
obligations and liabilities of the Borrower to the Arranger, the Administrative
Agent or to any Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under
this Agreement, any other Loan Document, the Letters of Credit, any Interest
Rate Protection Agreement entered into with any Lender or any other document
made, delivered or given in connection herewith or therewith, whether on account
of principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees, charges and disbursements of
counsel to the Administrative Agent and the Collateral Agent) or otherwise.
"Odessa": Odessa Exploration Incorporated.
"Oil and Gas Mortgages": mortgages in favor of the Collateral Agent for the
ratable benefit of the Lenders, in form and substance reasonably satisfactory to
the Collateral Agent, covering the Oil and Gas Properties.
"Oil and Gas Properties": the oil and gas properties described in Schedule 1.1C
which are to be mortgaged pursuant hereto and the oil and gas property as to
which the Collateral Agent for the benefit of the Lenders shall be granted a
Lien in accordance with Section 6.10.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (or any successor).
"Percentage": as to any Lender at any time, the percentage which such Lender's
Commitment then constitutes of the aggregate Commitments (or, at any time after
the Commitments shall have expired or terminated, the percentage which the
aggregate principal amount of such Lender's Aggregate Outstanding Extensions of
Credit then outstanding constitutes of the aggregate principal amount of the
Aggregate Outstanding Extensions of Credit of all Lenders then outstanding).
"Permitted Acquisitions": the acquisition by the Borrower and its Subsidiaries
of (a) rigs and other well service equipment, (b) well service companies and (c)
oil and gas properties and related equipment or interests therein, provided that
(i), after giving effect to such acquisitions and any borrowings hereunder in
connection therewith, (x) the Consolidated Leverage Ratio shall not be more than
3.75 to 1.00 and (y) the sum of (1) the Borrower's cash and Cash Equivalents on
hand and (2) the aggregate Available Commitments shall be at least $10,000,000
or (ii) after giving effect to such acquisition the Consolidated Leverage Ratio
is not increased and such acquisition is funded solely with the Borrower's
Capital Stock.
"Person": an individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledged Notes", "Pledged Securities" and "Pledged Stock": each as defined in
the Master Guarantee and Collateral Agreement.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": the collective reference to the real property owned, leased or
operated by the Borrower or any of its Subsidiaries (or with respect to Sections
6.8 and 10.5, any of the Excluded Subsidiaries).
"Proved Reserves": the estimated quantities of crude oil, condensate, natural
gas and natural gas liquids that adequate geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions (i.e., prices
and costs as of the date the estimate is made).
"Register": as defined in Section 10.6(e).
"Reimbursement Obligation": the obligation of the Borrower to reimburse the
Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of
Credit.
"Reorganization": with respect to any Multiemployer Plan, the condition that
such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of ERISA,
other than those events as to which the thirty day notice period is waived under
subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. ' 2615.
"Required Lenders": at any date shall mean the holders of more than 50% of the
Commitments, or, if the Commitments have been terminated, the Aggregate
Outstanding Extensions of Credit of the Lenders.
"Requirement of Law": as to any Person, the Certificate of Incorporation and
By-Laws or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, president or chief financial
officer of the Borrower, but in any event, with respect to financial matters,
the chief financial officer of the Borrower.
"Security Documents": the collective reference to each Mortgage, each Oil and
Gas Mortgage, the Master Guarantee and Collateral Agreement and all other
security documents hereafter delivered to the Collateral Agent granting a Lien
on any asset or assets of any Person to secure the obligations and liabilities
of the Borrower hereunder and/or under any of the other Loan Documents or to
secure any guarantee of any such obligations and liabilities.
"Seller Indebtedness": Indebtedness of the Borrower which is issued to the
seller in a Permitted Acquisition as all or a portion of the consideration for
such Permitted Acquisition.
"Servicios": Servicios WellTech, S.A., an Argentine corporation.
"Significant Disposition": as defined in Section 7.6(d).
"Single Employer Plan": any Plan which is covered by Title IV of ERISA, but
which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any date of
determination, (a) the amount of the "present fair saleable value" of the assets
of such Person will, as of such date, exceed the amount of all "liabilities of
such Person, contingent or otherwise", as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (b) the present fair saleable value
of the assets of such Person will, as of such date, be greater than the amount
that will be required to pay the liability of such Person on its debts as such
debts become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"S&P": Standard & Poor's Ratings Group.
"Standby Letter of Credit": as defined in Section 3.1(a).
"Subordinated Indebtedness": the Convertible Subordinated Debentures, the 1997
Convertible Subordinated Notes and any other Indebtedness of the Borrower
subordinated to the prior payment in full of the Obligations to at least the
extent the 1997 Convertible Subordinated Notes are subordinated to the
Obligations or otherwise in a manner acceptable to the Required Lenders as
evidenced by their written approval.
"Subsidiary": as to any Person, a corporation, partnership or other entity of
which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower, but such references shall not include any Excluded Subsidiary.
"Subsidiary Guarantor": each Subsidiary of the Borrower which is a party to the
Master Guarantee and Collateral Agreement.
"Termination Date": November 6, 2002.
"Transferee": as defined in Section 10.6(g).
"Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be amended from time to time.
"United States": the United States of America.
"Vehicles": as defined in the Master Guarantee and Collateral Agreement.
"Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital
Stock of which is owned by such Person directly and/or through other Wholly
Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all
terms defined in this Agreement shall have the defined meanings when used in the
other Loan Documents or any certificate or other document made or delivered
pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms relating
to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting
terms partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
<PAGE>
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each Lender
severally agrees to make revolving credit loans ("Loans") to the Borrower from
time to time during the Commitment Period in an aggregate principal amount at
any one time outstanding which, when added to such Lender's Percentage of the
L/C Obligations then outstanding, does not exceed the amount of such Lender's
Commitment. During the Commitment Period, the Borrower may use the Commitments
by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. On the Closing Date, all
Existing Revolving Credit Loans outstanding on the Closing Date shall be
continued (without payment thereof) as Loans hereunder.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate
Loans or (iii) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.3 and 2.8, provided
that no Loan shall be made as a Eurodollar Loan after the day that is one month
prior to the Termination Date.
(c) The Commitments shall be reduced (and each Lender's Commitment shall be
ratably reduced) on each anniversary of the Closing Date, commencing with the
third such anniversary, to the amount set forth opposite such anniversary below:
Anniversary Amount
Third $175,000,000
Fourth $125,000,000
Fifth $ 0
2.2 Procedure for Borrowing. The Borrower may borrow under the Commitments
during the Commitment Period on any Business Day, provided that the Borrower
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 12:00 Noon, New York City time,
(a) three Business Days prior to the requested Borrowing Date, if all or any
part of the requested Loans are to be Eurodollar Loans or (b) one Business Day
prior to the requested Borrowing Date, otherwise), specifying (i) the amount to
be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is
to be of Eurodollar Loans, Base Rate Loans, or a combination thereof and (iv) if
the borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing under the Commitments shall be in an
amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole
multiple thereof (or, if the then Available Commitments are less than
$1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account of
the Borrower at the office of the Administrative Agent specified in Section 10.2
prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. The
aggregate of the amounts made available to the Administrative Agent by the
Lenders will then be made available to the Borrower by the Administrative Agent
in accordance with the instructions of the Borrower in like funds as received by
the Administrative Agent.
2.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee for the period from and
including the Closing Date to the last day of the Commitment Period, computed at
the rate per annum set forth under the heading "Commitment Fee Rate" on Annex I
on the average daily amount of the Available Commitment of such Lender during
the period for which payment is made, payable quarterly in arrears on the last
day of each March, June, September and December and on the last day of the
Commitment Period, commencing on the first of such dates to occur after the date
hereof.
(b) The Borrower agrees to pay to the Administrative Agent and the Arranger the
fees in the amounts and on the dates agreed to in writing from time to time by
the Borrower, the Administrative Agent and the Arranger.
(c) The Borrower agrees to pay to the Collateral Agent the fees in the amount
and on the dates agreed to in writing from time to time by the Borrower and the
Collateral Agent.
2.4 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Lender the then unpaid principal amount of each Loan of such
Lender on the last day of the Commitment Period (or such earlier date on which
the Loans become due and payable pursuant to Section 8). The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Loans from
time to time outstanding from the date hereof until payment in full thereof at
the rates per annum, and on the dates, set forth in Section 2.10.
(b) Each Lender shall maintain in accordance with its usual practice an account
or accounts evidencing indebtedness of the Borrower to such Lender resulting
from each Loan of such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall maintain the
Register pursuant to Section 10.6(e) and a subaccount therein for each Lender,
in which shall be recorded (i) the amount of each Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each Lender maintained
pursuant to Section 2.4(b) shall, to the extent permitted by applicable law, be
prima facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of any Lender or
the Administrative Agent to maintain the Register or any such account, or any
error therein, shall not in any manner affect the obligation of the Borrower to
repay (with applicable interest) the Loans made to such Borrower by such Lender
in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative Agent by
any Lender, the Borrower will execute and deliver to such Lender a promissory
note of the Borrower evidencing any Loans of such Lender, substantially in the
form of Exhibit C with appropriate insertions as to date and principal amount (a
"Note"). A Note and the obligation evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Note and the obligation evidenced thereby in the
Register (and each Note shall expressly so provide). Any assignment or transfer
of all or part of an obligation evidenced by a Note shall be registered in the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such obligation, accompanied by an Assignment and Acceptance
substantially in the form of Exhibit G duly executed by the Assignor thereof,
and thereupon one or more new Notes shall be issued to the designated Assignee
and the old Note shall be returned by the Administrative Agent to the Borrower
marked "cancelled". No assignment of a Note and the obligation evidenced thereby
shall be effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this Section 2.4(e).
2.5 Optional Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments; provided that no such termination or reduction of
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Loans made on the effective date thereof, the sum of the
Aggregate Outstanding Extensions of Credit of all Lenders would exceed the
Commitments then in effect. Any such reduction shall be in an amount equal to
$1,000,000, or a whole multiple thereof, and shall reduce permanently the
Commitments then in effect.
2.6 Optional Prepayments. The Borrower may at any time and from time to time
prepay the Loans, in whole or in part, without premium or penalty, upon at least
three Business Days' irrevocable notice to the Administrative Agent by the
Borrower, specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, Base Rate Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to each, provided that if
a Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto the Borrower shall also pay any amounts owing pursuant
to Section 2.17. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to such date on the amount prepaid. Partial
prepayments of Loans shall be in an aggregate principal amount of $1,000,000 or
a whole multiple thereof.
2.7 Mandatory Prepayments and Commitment Reductions. (a) If any senior or
subordinated debt securities or instruments of the Borrower or any of its
Subsidiaries shall be issued or sold, or the Borrower or any of its Subsidiaries
shall incur any Indebtedness, after the Closing Date (except any debt securities
or instruments issued or sold or Indebtedness incurred pursuant to Section 7.2),
an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance, sale or incurrence toward the prepayment of the Loans and
the reduction of the Commitments as set forth in paragraph (d) of this Section
2.7. Nothing in this paragraph (a) shall be deemed to permit the incurrence of
Indebtedness not permitted by Section 7.2.
(b) If any Capital Stock of the Borrower or any of its Subsidiaries shall be
issued or sold after the Closing Date (except any Capital Stock issued as a part
of the consideration of and in connection with a Permitted Acquisition), an
amount equal to 75% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or sale toward the prepayment of the Loans as set forth in
paragraph (d) of this Section 2.7.
(c) If the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds
from the Significant Disposition permitted under Section 7.6(e), 75% of the Net
Cash Proceeds thereof shall be applied on the date such Net Cash Proceeds are
received toward the prepayment of the Loans and the reduction of the Commitments
as set forth in paragraph (d) of this Section 2.7.
(d) Amounts to be applied in connection with prepayments of Loans and Commitment
reductions made pursuant to this Section 2.7 shall be applied to prepay the
Loans and reduce permanently the Commitments, pro rata according to the
outstanding amounts of Commitments. Any such reduction of the Commitments shall
be accompanied by prepayment of the Loans to the extent, if any, that the sum of
the Aggregate Outstanding Extensions of Credit of all Lenders exceeds the amount
of the aggregate Commitments as so reduced, provided that if the aggregate
principal amount of Loans then outstanding is less than the amount of such
excess (because L/C Obligations constitute a portion thereof), the Borrower
shall, to the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount in cash in a cash collateral account
established with the Administrative Agent for the benefit of the Lenders on
terms and conditions satisfactory to the Administrative Agent. Amounts on
deposit in the cash collateral account shall be invested as directed by the
Borrower subject to the approval of the Administrative Agent, which approval
shall not be unreasonably withheld. The application of any prepayment pursuant
to this Section 2.7 shall be made first to Base Rate Loans and second to
Eurodollar Loans, provided that at the request of the Borrower the application
of any prepayment to any Eurodollar Loan may be delayed until the end of an
Interest Period (or Interest Periods) so that such application does not result
in the incurrence by any Lender of any loss or expense under Section 2.17, and
during such delay, the Administrative Agent shall hold the amount of such
prepayment in a cash collateral account. Each prepayment of the Loans under this
Section 2.7 shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
2.8 Conversion and Continuation Options. (a) The Borrower may elect from time to
time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative
Agent at least two Business Days' prior irrevocable notice of such election,
provided that any such conversion of Eurodollar Loans may only be made on the
last day of an Interest Period with respect thereto. The Borrower may elect from
time to time to convert Base Rate Loans to Eurodollar Loans by giving the
Administrative Agent at least three Business Days' prior irrevocable notice of
such election. Any such notice of conversion to Eurodollar Loans shall specify
the length of the initial Interest Period therefor. Upon receipt of any such
notice, the Administrative Agent shall promptly notify each Lender thereof. All
or any part of outstanding Eurodollar Loans and Base Rate Loans may be converted
as provided herein, provided that (i) no Loan may be converted into a Eurodollar
Loan (A) when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined in its or their
sole discretion not to permit such a conversion or (B) having an Interest Period
in excess of one month prior to the date which is the earlier of (y) 120 days
after the Closing Date or (z) the date the initial syndication of Loans is
completed by the Arranger and (ii) no Loan may be converted into a Eurodollar
Loan after the date that is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any Event of Default
has occurred and is continuing and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such a
continuation or (ii) after the date that is one month prior to the Termination
Date, and provided, further, that if the Borrower shall fail to give any
required notice as described above in this paragraph or if such continuation is
not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period.
2.9 Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding
anything to the contrary in this Agreement, all borrowings, conversions,
continuations and optional prepayments of Loans hereunder and all selections of
Interest Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, (a) after giving effect thereto, the aggregate principal
amount of the Loans comprising each Eurodollar Tranche shall be equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more
than eight Eurodollar Tranches in respect of all Loans shall be outstanding at
any one.
2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal to the
Base Rate plus the Applicable Margin.
(c) If all or a portion of any principal of any Loan or Reimbursement
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such amounts shall bear interest at 2% above the
rate otherwise applicable thereto from the date of such non-payment until such
overdue principal is paid in full (as well after as before judgment). If all or
a portion of any interest shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such amounts shall bear interest at 2%
above the rate otherwise applicable to the Loans or Reimbursement Obligations on
which such interest accrued from the date of such non-payment until such overdue
principal is paid in full (as well after as before judgment). If all or a
portion of any commitment fee or any other amount payable hereunder shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
such amounts shall bear interest at a rate which is 2% above the rate applicable
to Base Rate Loans, in each case from the date of such non-payment until such
overdue commitment fee or other amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date, provided
that interest accruing pursuant to paragraph (c) of this Section 2.10 shall be
payable from time to time on demand.
2.11 Computation of Interest and Fees. (a) Interest on Loans and Reimbursement
Obligations, commitment fees, letter of credit commissions and interest on
overdue interest, commitment fees and other amounts payable hereunder shall be
calculated on the basis of a 360-day year for the actual days elapsed, except
that, with respect to Base Rate Loans the rate of interest on which is
calculated on the basis of the Prime Rate, the interest thereon shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the Base
Rate or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Administrative Agent pursuant
to any provision of this Agreement shall be conclusive and binding on the
Borrower and the Lenders in the absence of manifest error.
2.12 Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:
(a) the Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the Required
Lenders that the Eurodollar Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans
that were to be continued on the first day of such Interest Period as Eurodollar
Loans shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Loans to Eurodollar Loans.
2.13 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from
the Lenders hereunder, each payment by the Borrower on account of any commitment
fee and any reduction of the Commitments of the Lenders shall be made pro rata
according to the respective Percentages, as the case may be, of the relevant
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans then held by the Lenders.
Each payment made at any time when any amount hereunder is due and payable shall
be made pro rata according to the respective amounts then due and payable to the
Lenders. All payments (including prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without setoff or counterclaim and shall be made
prior to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Administrative
Agent's office specified in Section 10.2, in Dollars and in immediately
available funds. Payments received by the Administrative Agent after such time
shall be deemed to have been received on the next Business Day. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder (other than payments
on the Eurodollar Loans) becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day. If any
payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make the amount that would
constitute its share of such borrowing available to the Administrative Agent,
the Administrative Agent may assume that such Lender is making such amount
available to the Administrative Agent, and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Administrative Agent.
A certificate of the Administrative Agent submitted to any Lender with respect
to any amounts owing under this Section 2.13(b) shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower (together with any
amounts due under Section 2.17, calculated as if such Lender's failure to fund
such amount were a failure of the Borrower to borrow such amount after having
given notice of such borrowing). Nothing herein shall be deemed to limit the
rights of the Borrower against any defaulting Lender.
(c) Unless the Administrative Agent shall have been notified in writing by the
Borrower prior to the date of any payment being made hereunder that the Borrower
will not make such payment to the Administrative Agent, the Administrative Agent
may assume that the Borrower is making such payment, and the Administrative
Agent may, but shall not be required to, in reliance upon such assumption, make
available to the Lenders their respective pro rata shares of a corresponding
amount. If such payment is not made to the Administrative Agent by the Borrower
within three Business Days of such required date, the Administrative Agent shall
be entitled to recover, on demand, from each Lender to which any amount which
was made available pursuant to the preceding sentence, such amount with interest
thereon at the rate per annum equal to the daily average Federal Funds Effective
Rate. Nothing herein shall be deemed to limit the rights of the Administrative
Agent or any Lender against the Borrower.
2.14 Illegality. Notwithstanding any other provision herein, if the adoption of
or any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Lender to make or maintain Eurodollar
Loans as contemplated by this Agreement, (a) the commitment of such Lender
hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be suspended and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.17.
2.15 Requirements of Law. (a) If after the date hereof the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with respect to
this Agreement, any Note, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to such
Lender in respect thereof (except for taxes covered by Section 2.16 and changes
in the rate of tax (whether characterized as income, franchise or other tax) on
the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds by, any office of such Lender which
is not otherwise included in the determination of the Eurodollar Rate hereunder;
or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender on
an after-tax basis for such increased cost or reduced amount receivable. If any
Lender becomes entitled to claim any additional amounts pursuant to this Section
2.15, it shall promptly notify the Borrower (with a copy to the Administrative
Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any change in
any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any corporation controlling
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under or in respect of any Letter of Credit to a level below that
which such Lender or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after submission by such
Lender to the Borrower (with a copy to the Administrative Agent) of a written
request therefor, the Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender on an after-tax basis for such
reduction.
(c) If any Lender becomes entitled to claim any additional amounts pursuant to
this subsection, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
A certificate as to any additional amounts payable pursuant to this Section
2.15, together with a calculation thereof in reasonable detail, shall be
submitted by the affected Lender to the Borrower (with a copy to the
Administrative Agent) and such certificate shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section 2.15
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
2.16 Taxes. (a) All payments made by the Borrower under this Agreement and the
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority,
excluding net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Administrative Agent or any Lender as a result of a
present or former connection between the Administrative Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Administrative Agent or any Lender hereunder or under the Notes,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes, provided, however, that the Borrower shall make
payments net of and after deduction for Non-Excluded Taxes and shall not be
required to increase any such amounts payable to any Non-U.S. Lender (as defined
below) that fails to comply with Section 2.16(b). Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any Non-Excluded Taxes, incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this Section
2.16 shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a corporation or partnership created
or organized in or under the laws of the United States, any estate that is
subject to federal income taxation regardless of the source of its income or any
trust which is subject to the supervision of a court within the United States
and the control of a United States fiduciary as described in section 7701(a)(30)
of the Code (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) on or before the date on
which it becomes a party to this Agreement (or, in the case of a Participant, on
or before the date on which such Participant purchases the related
participation) either:
(A) (x) two duly completed and signed copies of either Internal Revenue Service
Form 1001 (relating to such Non-U.S. Lender and entitling it to a complete
exemption from withholding of U.S. Taxes on all amounts to be received by such
Non-U.S. Lender pursuant to this Agreement and the other Loan Documents) or Form
4224 (relating to all amounts to be received by such Non-U.S. Lender pursuant to
this Agreement and the other Loan Documents), or successor and related
applicable forms, as the case may be, and (y) two duly completed and signed
copies of Internal Revenue Service Form W-8 or W-9, or successor and related
applicable forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and that does not comply with the requirements
of clause (A) hereof, (x) a statement in the form of Exhibit F (or such other
form of statement as shall be reasonably requested by the Borrower or the
Administrative Agent from time to time) to the effect that such Non-U.S. Lender
is eligible for a complete exemption from withholding of U.S. Taxes under Code
Section 871(h) or 881(c), and (y) two duly completed and signed copies of
Internal Revenue Service Form W-8 or successor and related applicable form.
Further, each Non-U.S. Lender agrees to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Forms 1001,
4224, W-8 or W-9, as the case may be, or successor and related applicable forms,
on or before the date that any such form expires or becomes obsolete and
promptly after the occurrence of any event requiring a change from the most
recent form(s) previously delivered by it to the Borrower or the Administrative
Agent (or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) in accordance with applicable United
States laws and regulations; unless, in any such case, any change in law or
regulation has occurred subsequent to the date such Lender became a party to
this Agreement (or in the case of a Participant, the date on which such
Participant purchased the related participation) which renders all such forms
inapplicable or which would prevent such Lender (or Participant) from properly
completing and executing any such form with respect to it and such Lender
promptly notifies the Borrower and the Administrative Agent (or, in the case of
a Participant, the Lender from which the related participation shall have been
purchased) if it is no longer able to deliver, or if it is required to withdraw
or cancel, any form or statement previously delivered by it pursuant to this
Section 2.16(b). A Non-U.S. Lender shall not be required to deliver any form or
statement pursuant to the immediately preceding sentences in this Section
2.16(b) that such Non-U.S. Lender is not legally able to deliver (it being
understood and agreed that the Borrower shall withhold or deduct such amounts
from any payments made to such Non-U.S. Lender that the Borrower reasonably
determines are required by law and that payments resulting from a failure to
comply with this paragraph (b) shall not be subject to payment or indemnity by
the Borrower pursuant to Section 2.16(a)).
2.17 Indemnity. The Borrower agrees to indemnify each Lender and to hold each
Lender harmless from any loss or expense which such Lender may sustain or incur
as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification shall not exceed the sum of (i) an amount equal to the excess,
if any, of (A) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such Loans
provided for herein (excluding, however, the Applicable Margin included therein,
if any) over (B) the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market plus (ii) any transaction costs of such Lender in connection
with the related funding or redeployment of funds. A certificate as to any
amounts payable pursuant to this Section 2.17, together with a calculation
thereof in reasonable detail, shall be submitted to the Borrower by any affected
Lender and such certificate shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder.
2.18 Change of Lending Office. Each Lender agrees that, upon the occurrence of
any event giving rise to the operation of Section 2.14, 2.15(a) or 2.16 with
respect to such Lender, it will, if requested by the Borrower, use reasonable
efforts (subject to overall policy considerations of such Lender) to designate
another lending office for any Loans affected by such event with the object of
avoiding the consequences of such event; provided that such designation is made
on terms that, in the sole judgment of such Lender, cause such Lender and its
lending office(s) to suffer no material economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.18 shall
affect or postpone any of the obligations of the Borrower or the rights of any
Lender pursuant to Section 2.14, 2.15(a) or 2.16.
2.19 Use of Proceeds. The Borrower shall use the proceeds of the Loans only in
the manner expressly contemplated by Section 4.16.
2.20 Replacement of Lenders. If no Event of Default then exists, the Borrower
may replace any Lender (the "Replaced Lender") if an event occurs giving rise to
the operation of Section 2.14 or Section 2.15, which results in the Replaced
Lender charging to Borrower increased costs in excess of those being generally
charged by the other Lenders and such Lender is not able to eliminate the
increased costs pursuant to Section 2.18. The Replaced Lender shall be replaced
with one or more banks, financial institutions, or other entities which are
reasonably acceptable to the Administrative Agent (each a "Replacement Lender")
under the terms set out in Section 10.6(c). Upon execution of the Assignment and
Acceptance referred to in Section 10.6(c), payment of amounts referred to in
Section 10.6(c), and delivery to the Replacement Lender of the appropriate Note
or Notes executed by Borrower, the Replacement Lender shall become a Lender
under this Agreement and the Replaced Lender shall no longer be a Lender under
this Agreement, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Lender.
<PAGE>
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Prior to the date hereof, Norwest Bank has issued the
Letters of Credit listed on Schedule 3.1 (the "Existing Letters of Credit"), and
subject to the terms and conditions hereof, the Lender designated as Issuing
Lender hereunder, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue letters of credit (together with the Existing
Letters of Credit, "Letters of Credit") for the account of the Borrower, or for
the joint and several account of the Borrower and any Subsidiary, on any
Business Day during the Commitment Period in such form as may be requested by
the Borrower and approved from time to time by the Issuing Lender; provided,
that such approval may not be unreasonably withheld, delayed or conditioned; and
provided, further, that the Issuing Lender shall have no obligation to issue any
Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the Aggregate Outstanding
Extensions of Credit would exceed the aggregate Commitments. Each Letter of
Credit shall (i) be denominated in Dollars, (ii) be either (x) a standby letter
of credit issued to support (I) obligations of the Borrower or any of its
Subsidiaries, contingent or otherwise, which finance the working capital or
business needs of the Borrower or its Subsidiaries or (II) performance
obligations of the Borrower and its Subsidiaries, in each case, incurred in the
ordinary course of business (a "Standby Letter of Credit"), or (y) a commercial
letter of credit in respect of the purchase of goods or services by the Borrower
or any of its Subsidiaries in the ordinary course of business (a "Commercial
Letter of Credit"), (iii) expire no later than five Business Days prior to the
Termination Date and (iv) expire no later than 365 days after its date of
issuance, provided that any Letter of Credit with a 365-day duration may provide
for the renewal thereof at the election of the Borrower (in accordance with
procedures to be established by the Issuing Lender) for additional 365-day
periods (which shall not expire later than five Business Days prior to the
Termination Date).
(b) Each Letter of Credit issued after the Closing Date shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith, the laws of the
State of New York.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from time to
time request that the Issuing Lender issue a Letter of Credit by delivering to
the Issuing Lender at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may request. Upon receipt of any Application, the Issuing Lender will process
such Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Standby
Letter of Credit (including the amount thereof). On each L/C Fee Payment Date,
the Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the aggregate face
amount of the Commercial Letters of Credit outstanding on such date.
3.3 Fees, Commissions and Other Charges. (a) The Borrower agrees that it will
pay a commission on all outstanding Letters of Credit at a rate per annum equal
to 1/8 of 1% above the Applicable Margin then in effect with respect to Loans
that are Eurodollar Loans of the face amount of each such Letter of Credit, of
which 1/8 of 1% per annum will be a fronting fee for the account of the Issuing
Lender, and the remainder will be shared ratably among the Lenders in accordance
with their Percentages, payable quarterly in arrears on each L/C Fee Payment
Date after the issuance date.
(b) In addition to the foregoing fees and commissions, the Borrower agrees that
it shall pay or reimburse the Issuing Lender promptly upon demand for such
normal and customary costs and expenses as are incurred or charged by the
Issuing Lender in issuing, negotiating, effecting payment under, or amending any
Letter of Credit.
(c) The Administrative Agent shall, promptly following its receipt thereof,
distribute to the Issuing Lender and the L/C Participants all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this Section.
3.4 L/C Participation. (a) Effective on the Closing Date in respect of the
Existing Letters of Credit, and effective on the date of issuance thereof in
respect of each Letter of Credit issued hereunder after the Closing Date, the
Issuing Lender in respect of each Letter of Credit irrevocably agrees to grant
and hereby grants to each L/C Participant, and, to induce such Issuing Lender to
issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from such Issuing Lender,
on the terms and conditions hereinafter stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's
Percentage in such Issuing Lender's obligations and rights under such Letter of
Credit and the amount of each draft paid by such Issuing Lender thereunder. Each
L/C Participant unconditionally and irrevocably agrees with such Issuing Lender
in respect of each Letter of Credit that, if a draft is paid under any Letter of
Credit issued by such Issuing Lender for which such Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to such Issuing Lender upon demand at
such Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Lender on demand an amount equal
to the product of (i) such amount, times (ii) the daily average Federal Funds
Effective Rate during the period from and including the date such payment is
required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Loans that are Base Rate Loans hereunder. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment under any
Letter of Credit and has received from any L/C Participant its pro rata share of
such payment in accordance with Section 3.4(a), the Issuing Lender receives any
payment related to such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the Issuing
Lender), or any payment of interest on account thereof, the Issuing Lender will
distribute to such L/C Participant its pro rata share thereof; provided that in
the event that any such payment received by the Issuing Lender shall be required
to be returned by the Issuing Lender, such L/C Participant shall return to the
Issuing Lender the portion thereof previously distributed by the Issuing Lender
to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse
the Issuing Lender on each date on which the Issuing Lender notifies the
Borrower of the date and amount of a draft presented under any Letter of Credit
and paid by the Issuing Lender for the amount of (a) such draft so paid and (b)
any taxes, fees, charges or other costs or expenses incurred by the Issuing
Lender in connection with such payment. Each such payment shall be made to the
Issuing Lender at its address for notices specified herein in lawful money of
the United States and in immediately available funds. Interest shall be payable
to the Issuing Lender on any and all amounts drawn under Letters of Credit from
the date of such drawing until the date three Business Days after receipt by the
Borrower from the Issuing Lender of notice of such drawing at the rate set forth
in Section 2.10(b) for Loans, and thereafter until payment in full at the rate
set forth in Section 2.10(c).
3.6 Obligations Absolute. The Borrower's obligations under this Section 3 shall
be absolute and unconditional under any and all circumstances and irrespective
of any setoff, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender, any beneficiary of a Letter of Credit or
any other Person. The Borrower also agrees with the Issuing Lender that, subject
to Section 3.7, the Issuing Lender shall not be responsible for, and the
Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of any Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for payment under
any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of
the date and amount thereof. The responsibility of the Issuing Lender to the
Borrower in connection with any draft presented for payment under any Letter of
Credit shall, in addition to any payment obligation expressly provided for in
such Letter of Credit, be to determine whether the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are substantially in conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any Application related to
any Letter of Credit is inconsistent with the provisions of this Section 3, the
provisions of this Section 3 shall apply.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Arranger, the Administrative Agent, the Collateral Agent and the
Lenders to enter into this Agreement and to make the Loans and issue or
participate in the Letters of Credit, the Borrower hereby represents and
warrants to the Arranger, the Administrative Agent, the Collateral Agent and
each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated balance sheet
of the Borrower as at September 30, 1997 (including the notes thereto) (the "Pro
Forma Balance Sheet"), copies of which have heretofore been furnished to each
Lender, has been prepared giving effect (as if such events had occurred on such
date) to the borrowings under this Agreement contemplated to be made on the
Closing Date and the use of proceeds thereof and the payment of estimated fees
and expenses in connection therewith. The Pro Forma Balance Sheet has been
prepared based on the best information available to the Borrower as of the date
of delivery thereof and presents fairly in all material respects on a pro forma
basis the estimated consolidated financial position of the Borrower as of
September 30, 1997, assuming that the events specified in the preceding sentence
had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower as at June 30, 1997
and June 30, 1996 and the related audited consolidated statements of income and
of cash flows for the fiscal years ended on such dates, reported on by KPMG Peat
Marwick LLP, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly in all material respects the
consolidated financial condition of the Borrower as at such dates, and the
consolidated results of operations and consolidated cash flows for the fiscal
years then ended.
All such financial statements described in this Section 4.1(b), including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). Except for contingent obligations
incurred in the ordinary course of business, the Borrower had at the date of the
most recent audited balance sheet referred to above no material undisclosed
liabilities, Guarantee Obligations, contingent liability or liability for taxes,
nor any material long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in such balance sheet or in the
notes thereto. During the period from June 30, 1997 to and including the date
hereof there has been no sale, transfer or other disposition by the Borrower or
any of its Consolidated Subsidiaries of any material part of their business or
property.
4.2 No Change. (a) Since June 30, 1997, there has been no development or event
which has had or could reasonably be expected to have a Material Adverse Effect,
and (b) during the period from June 30, 1997 to and including the date hereof no
dividends or other distributions have been declared, paid or made upon the
Capital Stock of the Borrower nor has any of the Capital Stock of the Borrower
been redeemed, retired, purchased or otherwise acquired for value by the
Borrower, except for the notice that the Borrower has received that it will be
required to repurchase approximately 16,000 shares of Capital Stock of the
Borrower from a former employee of the Borrower and which Capital Stock will be
purchased by the Borrower in due course.
4.3 Corporate Existence; Compliance with Law. Each Loan Party (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, except (in the case of any Subsidiary) where
the failure to do so could not reasonably be expected to have a Material Adverse
Effect, (b) has the power and authority, and the legal right, to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect, (c) is duly
qualified and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except where the failure to be so qualified could
not reasonably be expected to have a Material Adverse Effect and (d) is in
compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has
the power and authority, and the legal right, to make, deliver and perform each
Loan Document to which it is a party and, in the case of the Borrower, to borrow
hereunder. Each Loan Party has taken all necessary action to authorize the
execution, delivery and performance of the Loan Documents to which it is a party
and, in the case of the Borrower, to authorize the borrowings on the terms and
conditions of this Agreement and the Notes. No material consent or authorization
of, filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the transactions
contemplated hereby, the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except for those obtained on or before the date of this Agreement and
listed in Schedule 4.4, and except the filings referred to in Section 4.19. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
thereto. This Agreement constitutes, and each other Loan Document upon execution
will constitute, a legal, valid and binding obligation of each Loan Party
thereto, enforceable against each such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this Agreement and
the other Loan Documents, the issuance of Letters of Credit, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of any Loan Party and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation (other than the Liens created by the Security Documents).
4.6 No Material Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to the knowledge
of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby or (b) which could reasonably be expected to have
a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is in default
under or with respect to any of its Contractual Obligations in any respect which
could reasonably be expected to have a Material Adverse Effect. No Default or
Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its Domestic
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3. The Borrower and its Subsidiaries (other than
Argentine Subsidiaries) have no fee interests in any material real property
other than the Mortgaged Property, the Oil and Gas Properties and, as of the
date hereof, the real property described on Schedule 4.8.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, technology, know-how
and processes necessary for the conduct of its business as currently conducted,
except for those the failure to own or license which could not reasonably be
expected to have a Material Adverse Effect (collectively, the "Intellectual
Property"). No material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, nor does the Borrower know of any
valid basis for any such claim. To the Borrower's knowledge, the use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person where such infringement could reasonably be expected to
have a Material Adverse Effect.
4.10 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation
of the Borrower or any of its Subsidiaries could reasonably be expected to have
a Material Adverse Effect.
4.11 Taxes. Each of the Borrower and its Domestic Subsidiaries, and to the
knowledge of the Borrower, its Argentine Subsidiaries have filed or caused to be
filed all material Federal, state and other tax returns which are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the
Borrower); no material tax Lien has been filed; and, to the knowledge of the
Borrower, no claim is being asserted, with respect to any material tax, fee or
other charge.
4.12 Federal Regulations. Except as otherwise provided by Sections 4.16 and 7.7,
no part of the proceeds of any Loans will be used for "purchasing" or "carrying"
any "margin stock" within the respective meanings of each of the quoted terms
under Regulation G or Regulation U of the Board as now and from time to time
hereafter in effect. No part of the proceeds of any Loans will be used for any
purpose which violates the provisions of the Regulations of the Board. If
requested by any Lender or the Administrative Agent, the Borrower will furnish
to the Administrative Agent and each Lender a statement to the foregoing effect
in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. To the knowledge of the
Borrower and the Commonly Controlled Entities, no such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrower and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits by an amount in excess of $1,000,000.
4.14 Investment Company Act; Other Regulations. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
No Loan Party is subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board) which limits its ability to
incur Indebtedness.
4.15 Subsidiaries. As of the date hereof, the Subsidiaries listed on Schedule
4.15 constitute all the direct or indirect Subsidiaries of the Borrower, and
Schedule 4.15 shows, as to each such Subsidiary, its jurisdiction of its
incorporation, its authorized capitalization and the ownership of Capital Stock
of such Subsidiary.
4.16 Purpose of Loans; Limitations on Use. The proceeds of the Loans shall be
used to finance Permitted Acquisitions and capital expenditures, to finance the
repurchase from time to time the outstanding Capital Stock of the Borrower to
the extent permitted by subsection 7.7 and for general corporate purposes of the
Borrower and its Subsidiaries (including Excluded Subsidiaries) in the ordinary
course of business; provided, that the amount of proceeds of the Loans which may
be used for Permitted Acquisitions of oil and gas properties shall be limited to
an amount equal to the lesser of (a) $25,000,000 and (b) 65% of the value of the
oil and gas properties of Odessa Exploration Incorporated (after giving effect
to any such Permitted Acquisition), which value shall be calculated as the
present value discounted at 10% of future net revenue relating to all proved
developed producing reserves and proved undeveloped reserves from such
properties. In addition, if at least 90% of the original outstanding principal
amount of the Convertible Subordinated Debentures or the 1997 Convertible
Subordinated Notes shall have been converted into common stock of the Borrower,
the Borrower may use proceeds of the Loans to repurchase or redeem the remaining
outstanding Convertible Subordinated Debentures or 1997 Convertible Subordinated
Notes, as applicable, as permitted by Section 7.10.
4.17 Environmental Matters. Other than exceptions to any of the following that
could not, individually or in the aggregate, reasonably be expected to give rise
to a Material Adverse Effect:
(a) the Borrower and each of its Subsidiaries: (i) are, and to the knowledge of
the executive management of the Borrower within the period of all applicable
statutes of limitation have been, in compliance with all applicable
Environmental Laws; (ii) hold all Environmental Permits (each of which is in
full force and effect) required for any of their current operations or for any
property owned, leased, or otherwise operated by any of them; (iii) are, and to
the knowledge of the executive management of the Borrower within the period of
all applicable statutes of limitation have been, in compliance with all of their
Environmental Permits; and (iv) reasonably believe that: each of their
Environmental Permits required for their continued operations will be timely
renewed and complied with, without material expense; any additional
Environmental Permits that may be required of any of them will be timely
obtained and complied with, without material expense; and compliance with any
Environmental Law that is or is reasonably expected by the Borrower's executive
management to become applicable to any of them will be timely attained and
maintained, without material expense.
(b) To the knowledge of the executive management of the Borrower, Materials of
Environmental Concern are not present at, on, under, in, or about any real
property now or formerly owned, leased or operated by the Borrower or any of its
Subsidiaries or at any other location (including, without limitation, any
location to which Materials of Environmental Concern have been sent for re-use
or recycling or for treatment, storage, or disposal) which could reasonably be
expected to (i) give rise to liability of the Borrower or any of its
Subsidiaries under any applicable Environmental Law or otherwise result in costs
to the Borrower or any of its Subsidiaries, or (ii) interfere with the continued
operations of the Borrower or any of its Subsidiaries, or (iii) impair the fair
saleable value of any real property owned or leased by the Borrower or any of
its Subsidiaries.
(c) There is no judicial, administrative, or arbitral proceeding (including any
notice of violation or alleged violation) under or relating to any Environmental
Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of
the executive management of the Borrower will be, named as a party that is
pending or, to the knowledge of the executive management of the Borrower,
threatened.
(d) Neither the Borrower nor any of its Subsidiaries has received any written
request for information, or been notified that it is a potentially responsible
party under or relating to the federal Comprehensive Environmental Response,
Compensation, and Liability Act or any similar Environmental Law.
(e) Neither the Borrower nor any of its Subsidiaries has entered into or agreed
to any consent decree, order, or settlement or other agreement, nor is subject
to any judgment, decree, or order or other agreement, in any judicial,
administrative, arbitral, or other forum, relating to compliance with or
liability under any Environmental Law.
(f) To the knowledge of the executive management of the Borrower, neither the
Borrower nor any of its Subsidiaries has assumed or retained, by contract or
operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under or relating to any Environmental Law.
For purposes of Section 8, each of the foregoing representations and warranties
contained in this Section 4.17 that is qualified by the knowledge of the
executive management of the Borrower shall be deemed not to be so qualified.
4.18 Accuracy of Information. No statement or information contained in this
Agreement, any other Loan Document, the Confidential Information Memorandum or
any other document, certificate or statement furnished to the Arranger, the
Administrative Agent or the Lenders, by or on behalf of any Loan Party for use
in connection with the transactions contemplated by this Agreement or the other
Loan Documents, contained as of the date such statement, information, document
or certificate was so furnished any untrue statement of a material fact or, with
all such statements and information being taken as a whole, omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. It is understood that no representation or warranty is
made concerning the forecasts, estimates, pro forma information, projections and
statements as to anticipated future performance or conditions, and the
assumptions on which they were based contained in any such information, reports,
financial statements, exhibits or schedules, except that as of the date such
forecasts, estimates, pro forma information, projections and statements were
generated, such forecasts, estimates, pro forma information, projections and
statements were based upon good faith estimates and assumptions believed by
management of the Borrower and its Subsidiaries to be reasonable at such time.
There is no fact known to the executive management of the Borrower that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, or in such other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
4.19 Security Documents. (a) The Master Guarantee and Collateral Agreement is
effective to create in favor of the Collateral Agent, for the benefit of the
Lenders, a security interest which has attached (as that term is used in Section
9-203 of the New York UCC) in the Pledged Securities and other instruments,
negotiable documents, chattel paper and money described therein, to the extent
that the Loan Parties to the Master Guaranty and Collateral Agreement have
rights in such Collateral, and proceeds thereof and, when the Pledged Notes and
the stock certificates representing the Pledged Stock described therein and
other instruments, negotiable documents, chattel paper and money described
therein are delivered to the Collateral Agent, the Master Guarantee and
Collateral Agreement shall constitute a perfected first priority Lien on, and
security interest in, all right, title and interest of the relevant pledgor in
such Pledged Securities and other instruments, negotiable documents, chattel
paper and money and the proceeds thereof, as security for the Obligations (as
defined in the Master Guarantee and Collateral Agreement), in each case prior
and superior in right to any other Person, except for inchoate tax liens for
obligations to be paid in the ordinary course of business.
(b) The Master Guarantee and Collateral Agreement is effective to create in
favor of the Collateral Agent, for the benefit of the Lenders, a security
interest which has attached (as that term is used in Section 9-203 of the New
York UCC) in the Collateral described therein (other than the Collateral
described in Section 4.19(a)), to the extent that the Loan Parties to the Master
Guarantee and Collateral Agreement have rights in such Collateral, and proceeds
thereof, and when financing statements in appropriate form are properly filed
(with all required filing fees being paid) in the offices specified on
Schedule 4.19(b) and, with respect to vehicles included in the Collateral and
covered by certificates of title issued by any State, when the security interest
of the Collateral Agent has been noted on such certificate of title in
accordance with the certificate of title laws of such State, the Master
Guarantee and Collateral Agreement shall constitute a perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in
substantially all of such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Master Guarantee and Collateral Agreement),
in each case prior and superior in right to any other Person, other than with
respect to Liens expressly permitted by Section 7.3.
(c) Each Mortgage, which has been executed and delivered by the relevant Loan
Party, and properly filed and recorded (with all required filing and recording
fees being paid) in the office(s) specified on Schedule 4.19(c), constitutes a
Lien on, and security interest in, all right, title and interest of the Loan
Parties in the Mortgaged Property properly described therein, as security for
the Obligations (as defined in the relevant Mortgage), in each case prior and
superior in right to any other Person, other than with respect to Liens
expressly permitted by Section 7.3.
(d) Each Oil and Gas Mortgage, which has been executed and delivered by the
relevant Loan Party, and properly filed and recorded (with all required filing
and recording fees being paid) in the office(s) specified on Schedule 4.19(d),
constitutes a perfected Lien on, and security interest in, all right, title and
interest of the Loan Parties in the Oil and Gas Property properly described
therein, as security for the Obligations (as defined in the relevant Oil and Gas
Mortgage), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 7.3.
4.20 Solvency. The Borrower and its Subsidiaries, taken as a whole, are, and
after giving effect to the incurrence of all Indebtedness and obligations being
incurred in connection herewith will be, Solvent.
4.21 Labor Matters. There are no strikes pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of its Subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The hours worked and payments made to employees of the
Borrower and each of its Subsidiaries have not been in violation of the Fair
Labor Standards Act or any other applicable Requirement of Law, except to the
extent such violations could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. All material payments due
from the Borrower or any of its Subsidiaries on account of wages and employee
health and welfare insurance and other benefits have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary.
4.22 Indentures. All Indebtedness of the Borrower hereunder constitutes "Senior
Indebtedness" within the meaning of the Indenture and the 1997 Indenture.
4.23 Excluded Subsidiaries. As of the Closing Date the Borrower is in the
process of dissolving all Excluded Subsidiaries listed in clause (a) of the
definition of Excluded Subsidiaries in Section 1.1, and the Borrower expects to
dissolve the Excluded Subsidiaries listed in clause (c) of the definition of
Excluded Subsidiaries in Section 1.1 in the ordinary of business when the assets
of such corporations are disposed of.
4.24 Oil and Gas Properties. The Oil and Gas Properties described in Schedule
1.1C constitute 80% of the value of the proved developed producing and proved
undeveloped reserves of Odessa Exploration Incorporated on the Closing Date. For
purposes of this Section, the value of such reserves shall be calculated as the
present value discounted at 10% of future revenue relating to such reserves.
<PAGE>
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. The effectiveness of the changes to the
Existing Credit Agreement made pursuant to this Agreement is subject to the
satisfaction, prior to or concurrently with the Closing Date (which Closing Date
shall occur on or before November 20, 1997), of the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have received this Agreement,
executed and delivered by a duly authorized officer of the Borrower, with a
counterpart or a conformed copy for each Lender.
(b) Related Agreements. The Administrative Agent shall have received, with a
copy for each Lender, true and correct copies, certified as to authenticity by
the Borrower, of the Insurance Policies (or certificates evidencing the
effectiveness of such Insurance Policies and the material terms thereof) and the
1997 Indenture.
(c) Fees. The Lenders, Arranger and the Administrative Agent shall have received
all fees required to be paid, and all expenses for which invoices have been
presented, on or before the Closing Date.
(d) Approvals. All governmental and third party approvals necessary or, in the
reasonable discretion of the Administrative Agent, advisable in connection with
this Agreement and the financings contemplated hereby and the continuing
operations of the Borrower and its Domestic Subsidiaries shall have been
obtained and be in full force and effect, and all applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the continuing operations of the Borrower.
(e) [Intentionally omitted].
(f) Solvency Analysis. The Lenders shall have received a reasonably satisfactory
solvency analysis certified by the chief financial officer of the Borrower which
shall document the solvency of the Borrower and its Subsidiaries considered as a
whole after giving effect to the transactions contemplated hereby.
(g) Legal Opinions. The Administrative Agent shall have received, with a
counterpart for each Lender, (i) the executed legal opinion of Jack D. Loftis,
Jr., Esq., general counsel to the Loan Parties, substantially in the form of
Exhibit E-1 and (ii) the executed legal opinion of Porter & Hedges, L.L.P.,
counsel to the Loan Parties, substantially in the form of Exhibit E-2. Each such
legal opinion shall be in form and substance reasonably satisfactory to the
Lenders and shall cover such matters incident to the transactions contemplated
by this Agreement as the Administrative Agent may reasonably require.
(h) Closing Certificate. The Administrative Agent shall have received, with a
counterpart for each Lender, a certificate of each Loan Party, dated the Closing
Date, substantially in the form of Exhibit D, with appropriate insertions and
attachments, executed by the President or any Vice President and the Secretary
or any Assistant Secretary of such Loan Party.
(i) Corporate Proceedings of Loan Parties. The Administrative Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions of the
Board of Directors of each Loan Party authorizing (i) the execution, delivery
and performance of the Loan Documents to which it is a party (including, but not
limited to, the granting of any Liens provided for therein), and (ii) in the
case of the Borrower, the borrowings contemplated hereunder.
(j) Pledged Securities; Stock Powers. The Collateral Agent shall have received
the Pledged Stock pledged pursuant to the Master Guarantee and Collateral
Agreement, together with an undated stock power for each such certificate
executed in blank by a duly authorized officer of the pledgor thereof.
(k) Filings, Registrations and Recordings. Each document (including, without
limitation, any Uniform Commercial Code financing statement) required by the
Security Documents or the Existing Credit Agreement or under law or reasonably
requested by the Administrative Agent to be delivered to the Collateral Agent or
to be filed, registered or recorded in order to (i) continue the liens on the
Collateral under the Security Documents with the same priority as under the
Existing Credit Agreement immediately prior to the Closing Date and (ii) create
in favor of the Collateral Agent, for the benefit of the Lenders, a perfected
Lien on all Collateral that was to have been perfected pursuant to Section 6.10
and 6.11 of the Existing Credit Agreement immediately prior to the Closing Date
(including, without limitation, all Collateral of New Loan Parties), prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested, other than
those documents required to be filed, registered or recorded after the Closing
Date pursuant to Section 6.11.
(l) Existing Credit Agreement. To the extent requested by any Lender, the
Borrower shall execute and deliver a new Note in the amount of such Lender's
Commitment in replacement and substitution of (but not in payment of) such
Lender's note under the Existing Credit Agreement and the Administrative Agent
shall request all the Lenders who hold notes under the Existing Credit Agreement
to return such notes to the Administrative Agent for cancellation and
replacement (but not payment), if applicable. The Borrower shall have paid all
interest, fees and other amounts (other than principal) accrued under the
Existing Credit Agreement through the Closing Date.
5.2 Conditions to Each Extension of Credit. The agreement of each Lender to make
any extension of credit requested to be made by it on any date (including,
without limitation, its initial extension of credit) and the occurrence of the
Closing Date is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Except to the extent that they are made as
of a specific date, each of the representations and warranties made by any Loan
Party in or pursuant to the Loan Documents (excluding on and after the
Collateral Release Date, the representations and warranties contained in
subsections 4.19 and 4.24) shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extensions or credit
requested to be made on such date.
(c) Additional Matters. All proceedings, and all documents, instruments and
other legal matters in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be reasonably satisfactory in form
and substance to the Administrative Agent, and the Administrative Agent shall
have received such other documents and legal opinions in respect of any aspect
or consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
(d) Borrowing Notice. The Borrower shall have delivered to the Administrative
Agent the applicable borrowing notice in accordance with the relevant subsection
of Section 2.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
<PAGE>
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in effect,
any Note or Letter of Credit remains outstanding and unpaid or any other amount
is owing to any Lender, the Arranger or the Administrative Agent hereunder, the
Borrower shall and, if applicable, shall cause each of its Subsidiaries (and
with respect to Section 6.8, each of the Excluded Subsidiaries) to:
6.1 Financial Statements. Furnish to the Administrative Agent for distribution
to each Lender:
(a) as soon as available, but in any event within 95 days after the end of each
fiscal year of the Borrower, a copy of the audited consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as at the end of such year and
the related audited consolidated statements of income and retained earnings and
of cash flows for such year, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of the
audit, by KPMG Peat Marwick LLP or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 50 days after the end
of each of the first three quarterly periods of each fiscal year of the
Borrower, the unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of cash
flows of the Borrower and its Consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year, certified by a
Responsible Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements referred to in this Section 6.1(b) shall be
complete and correct in all material respects and shall be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein and with prior periods, subject to normal year-end
adjustments.
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements referred to in
Section 6.1(a), (i) a certificate of the independent certified public
accountants reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or Event
of Default, except as specified in such certificate and (ii) copies of all
reports or written communications providing advice, recommendations or analysis
to the management of the Borrower from such independent certified public
accountants with regard to their audit of the financial statements referred to
in Section 6.1(a) or the internal financial controls and systems of the
Borrower;
(b) concurrently with the delivery of any financial statement pursuant to
Section 6.1, (x) a certificate of a Responsible Officer of the Borrower stating
that, to the best of each such Responsible Officer's knowledge, during such
period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary
has been formed or acquired, the Loan Parties have complied with the
requirements of Section 6.10 with respect thereto), (ii) neither the Borrower
nor any of its Subsidiaries has changed its name, its principal place of
business, its chief executive office, its principal place of business, the
location where records concerning the Collateral are kept or the location of any
material item of tangible Collateral without complying with the requirements of
this Agreement and the Security Documents with respect thereto and (iii) each
Loan Party has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and the other Loan
Documents to which it is a party to be observed, performed or satisfied by it,
and that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (y) in the case of
quarterly or annual financial statements, a certificate containing all
information reasonably necessary for determining compliance by the Borrower and
its Subsidiaries with the provisions of this Agreement (including but not
limited to Sections 2.7 and 7.1) as of the last day of such fiscal quarter or
fiscal year of the Borrower;
(c) as soon as available, and in any event no later than the end of each fiscal
year of the Borrower, a projected consolidated balance sheet of the Borrower as
of the end of the following fiscal year, and the related consolidated statements
of projected cash flow, projected retained earnings and projected income for the
following fiscal year, together with an operating budget with respect to the
following fiscal year, and, as soon as available, significant revisions, if any,
of such projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
certificate of a Responsible Officer of the Borrower stating that such
Projections are based on estimates, information and assumptions believed by such
Responsible Officer to be reasonable and that such Responsible Officer has no
reason to believe that such Projections are incorrect or misleading in any
material respect;
(d) within 50 days after the end of each fiscal quarter of each fiscal year of
the Borrower, a narrative discussion and analysis of the consolidated financial
condition and results of operations of the Borrower and its Subsidiaries for
such fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion of the
Projections, as applicable, covering such periods and to the comparable periods
of the previous year;
(e) within five days after the same are filed, copies of all financial
statements and reports which the Borrower or any of its Subsidiaries may make
to, or file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority of the United States; and
(f) promptly, such additional financial and other information as any Lender may
from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent or (in the case of trade payables and
obligations other than for borrowed money) within 150 days after the due date,
as the case may be, all its material obligations of whatever nature, except
where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or its Subsidiaries, as
the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (_) (a) Continue to
engage in business of the same general type as now conducted by it, (b)
preserve, renew and keep in full force and effect its existence and (c) take all
commercially reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case in clauses (a), (b) and (c) above, as otherwise permitted pursuant to
Section 7.5 and except, in the case of clause (c) above, to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect; and (d) comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all material property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted; (b) maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks (but including in any event general liability) as are usually
insured against in the same general area by companies engaged in the same or a
similar business; and (c) furnish to each Lender, upon written request, full
information as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. Keep proper books of
records and account in which full, true and correct entries in conformity with
GAAP or, in the case of Foreign Subsidiaries, in conformity with generally
accepted accounting principles in effect in the jurisdiction where such Foreign
Subsidiary is located at such time and, in the case of the Borrower and its
Domestic Subsidiaries, all Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and upon reasonable
notice permit representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with senior officers of the Borrower and its
Subsidiaries and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation of the
Borrower or any of its Subsidiaries or (ii) litigation, investigation or
proceeding which may exist at any time between the Borrower or any of its
Subsidiaries and any Governmental Authority, which in either case, if not cured
or if adversely determined, as the case may be, could reasonably be expected to
have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event within 30 days
after the Borrower or any of its Subsidiaries knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution in a material
amount to a Plan, the creation of any Lien in a material amount in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the terminating, Reorganization or Insolvency of, any Plan;
(d) (i) any release or discharge by the Borrower or any Subsidiary of any
Materials of Environmental Concern required to be reported under Environmental
Laws to any Governmental Authority which could reasonably be expected to result
in the assessment or payment of a Material Environmental Amount; (ii) any
condition, circumstance, occurrence or event that could reasonably be expected
to result in the assessment or payment of a Material Environmental Amount, or
could result in the imposition of any Lien or other restriction on the title,
ownership or transferability of any Mortgaged Property; and (iii) any action to
be taken by the Borrower or any Subsidiary that could reasonably be expected to
subject the Borrower or any Subsidiary to the assessment or payment of a
Material Environmental Amount; and
(e) any development or event which could reasonably be expected to have a
Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower or the applicable
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws.
(a)(i) Comply with all Environmental Laws applicable to it, and obtain, comply
with and maintain any and all Environmental Permits necessary for its operations
as conducted and as planned; and (ii) take all reasonable efforts to ensure that
all of its tenants, subtenants, contractors, subcontractors, and invitees comply
with all applicable Environmental Laws, and obtain, comply with and maintain any
and all Environmental Permits, applicable to any of them insofar as any failure
to so comply, obtain or maintain reasonably could be expected to adversely
affect the Borrower or any of its Subsidiaries. For purposes of this 6.8(a),
noncompliance by the Borrower with any applicable Environmental Law or
Environmental Permit shall be deemed not to constitute a breach of this covenant
provided that, upon learning of any actual or suspected noncompliance, the
Borrower shall undertake reasonable efforts to achieve compliance, and provided
further that, in any case, such non-compliance, and any other noncompliance with
applicable Environmental Law, individually or in the aggregate, could not
reasonably be expected to give rise to a Material Adverse Effect.
(b) Promptly comply in all material respects with all orders and directives of
all Governmental Authorities directed to the Borrower or any of its Domestic
Subsidiaries regarding Environmental Laws, other than such orders and directives
or parts thereof as are being contested in good faith and by appropriate
proceedings.
(c) Within six months after the Closing Date, complete the development of a
program to promote compliance with and to minimize prudently any liabilities or
potential liabilities under any Environmental Law that may affect Borrower or
any of its Domestic Subsidiaries (the "Environmental Program") and implement the
Environmental Program upon a reasonable schedule thereafter. The Environmental
Program shall be developed with the assistance of a reputable independent
environmental consulting firm reasonably acceptable to the Administrative Agent
(an "Environmental Consultant") or a qualified employee of the Borrower. Upon
the Administrative Agent's request, a reasonably detailed written description of
the Environmental Program shall be provided to the Administrative Agent, after
which, upon the Administrative Agent's request, Borrower shall confer with the
Administrative Agent concerning any questions the Administrative Agent may have
about the Environmental Program.
(d) Prior to acquiring any ownership or leasehold interest in real property, or
other interest in any real property which in the Borrower's reasonable judgment
could give rise to significant liability under any Environmental Law, obtain a
written environmental assessment report regarding the environmental condition of
such real property by a reputable independent environmental consulting firm.
Upon the request of the Administrative Agent, a copy of each such environmental
assessment report shall be delivered to the Administrative Agent by the end of
the calendar quarter in which the acquisition closed, together with a list of
all acquisitions of interests in real property by the Borrower and the
Subsidiaries in such quarter. Pursuant to this Section 6.8(d), the
Administrative Agent shall have the right, but shall not have any duty, to
obtain, review or discuss any such report.
(e) Promptly upon the Administrative Agent's request if there has been an Event
of Default which has not been fully and timely cured, permit an Environmental
Consultant whom the Administrative Agent in its discretion designates to perform
an environmental assessment (including, without limitation: reviewing documents;
interviewing knowledgeable persons; and sampling and analyzing soil, air,
surface water, groundwater, and/or other media in or about property owned or
leased by the Borrower, or on which operations of the Borrower otherwise take
place). Such environmental assessment shall be in form, scope, and substance
reasonably satisfactory to the Administrative Agent. The Borrower shall
cooperate fully in the conduct of such environmental assessment, and shall pay
the costs of such environmental assessment immediately upon written demand by
the Administrative Agent. Pursuant to this section 6.8(e), the Administrative
Agent shall have the right, but shall not have any duty, to request and/or
obtain such environmental assessment.
6.9 Further Assurances. Upon the request of the Administrative Agent at any time
prior to the Collateral Release Date, promptly perform or cause to be performed
any and all acts and execute or cause to be executed any and all documents
(including, without limitation, financing statements and continuation
statements) for filing under the provisions of the Uniform Commercial Code or
any other Requirement of Law which are necessary or advisable in the reasonable
judgment of the Collateral Agent to maintain in favor of the Collateral Agent,
for the benefit of the Lenders, Liens on the Collateral that are duly perfected
in accordance with all applicable Requirements of Law.
6.10 Additional Collateral. Unless the Collateral Release Date shall have
occurred:
(a) With respect to any assets acquired after the Closing Date by the Borrower
or any of its Domestic Subsidiaries that are intended to be subject to the Lien
created by any of the Security Documents but which are not so subject (other
than any assets described in paragraph (b), (c), (d) or (e) of this Section
6.10), promptly (and in any event within 30 days after the acquisition or
creation thereof): (i) execute and deliver to the Collateral Agent such
amendments to the Master Guarantee and Collateral Agreement or such other
documents as the Collateral Agent shall reasonably deem necessary or advisable
to grant to the Collateral Agent, for the benefit of the Lenders, a Lien on such
assets, (ii) take all actions reasonably necessary or advisable to cause such
Lien to be duly perfected in accordance with all applicable Requirements of Law,
including, without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be reasonably requested by the
Collateral Agent (provided that for any Vehicles that are covered by a
certificate of title, the Borrower shall cause such Lien to be duly perfected in
accordance with all applicable Requirements of Law within 90 days after the
acquisition thereof), and (iii) if requested by the Collateral Agent, deliver to
the Collateral Agent within 30 days of such request legal opinions relating to
the matters described in clauses (i) and (ii) immediately preceding, which
opinions shall be in form and substance and from counsel reasonably satisfactory
to the Collateral Agent.
(b) With respect to any Person that, subsequent to the Closing Date, becomes a
Domestic Subsidiary of the Borrower (including, without limitation, any Person
which had previously been an Excluded Subsidiary), promptly (and in any event
within 30 days after the acquisition or creation thereof): (i) execute and
deliver to the Collateral Agent, for the benefit of the Lenders, such amendments
to the Master Guarantee and Collateral Agreement as the Collateral Agent shall
deem reasonably necessary or advisable to grant to the Collateral Agent, for the
benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is
owned by the Borrower or any of its Subsidiaries, (ii) deliver to the Collateral
Agent the certificates representing such Capital Stock, together with undated
stock powers duly executed and delivered in blank, (iii) cause such new Domestic
Subsidiary (A) to become a party to the Master Guarantee and Collateral
Agreement, pursuant to documentation which is in form and substance reasonably
satisfactory to the Collateral Agent, and (B) to take all actions necessary or
advisable to cause the Lien created by such security agreement to be duly
perfected in accordance with all applicable Requirements of Law, including,
without limitation, the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be reasonably requested by the Collateral Agent
(provided that for any Vehicles that are covered by a certificate of title, the
Borrower shall cause such Lien to be duly perfected in accordance with all
applicable Requirements of Law within 90 days after the acquisition thereof),
and (iv) if requested by the Collateral Agent, deliver to the Collateral Agent
within 30 days of such request legal opinions relating to the matters described
in clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in
form and substance and from counsel reasonably satisfactory to the Collateral
Agent.
(c) With respect to any fee interest in any real property acquired after the
Closing Date by the Borrower or any of its Domestic Subsidiaries having a
purchase price (or, if acquired through a merger or stock acquisition, a fair
market value) in excess of $1,000,000, promptly (and in any event within 90 days
after the acquisition thereof) (i) execute and deliver a first priority mortgage
or deed of trust, as the case may be (subordinate only to such mortgages or
deeds of trust as are necessary to permit the Borrower or such Domestic
Subsidiary to purchase such real property but subject to such easements, rights
of way, restrictions and other similar encumbrances as such property may be
subject at the time of acquisition), in favor of the Collateral Agent, for the
benefit of the Lenders, covering such real property, in form and substance
reasonably satisfactory to the Collateral Agent, (ii) provide to the Collateral
Agent all necessary documents reasonably requested by the Collateral Agent to
confirm the Borrower's or its Subsidiaries' ownership of such real property,
(iii) if requested by the Collateral Agent, provide the Lenders with any
consents or estoppels deemed necessary or advisable by the Collateral Agent in
connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Collateral Agent and (iv) if
requested by the Collateral Agent, deliver to the Collateral Agent legal
opinions relating to the matters described in the preceding clauses (i) and
(iii), which opinions shall be in form and substance and from counsel reasonably
satisfactory to the Collateral Agent. Notwithstanding the foregoing, compliance
shall not be required with the foregoing provision of this paragraph (c) in
respect of any interest in real property which, at the time of acquisition
thereof by the Borrower or its Subsidiary, is subject to a legal or contractual
restriction that would prohibit the granting of a mortgage thereon to the
Collateral Agent; provided, that the aggregate book value of real property owned
by the Borrower and its Subsidiaries so subject may not exceed $5,000,000 at any
time.
(d) With respect to any Foreign Subsidiary created or acquired after the Closing
Date by the Borrower or any of its Domestic Subsidiaries, promptly (and in any
event within 150 days after the acquisition or creation thereof) (i) execute and
deliver to the Collateral Agent such amendments to the Master Guarantee and
Collateral Agreement (or comparable documentation) as the Collateral Agent deems
reasonably necessary or advisable in order to grant to the Collateral Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock (except for Liens permitted under Section 7.3) of such new Foreign
Subsidiary which is owned by the Borrower or any of its Domestic Subsidiaries
(provided that in no event shall more than 65% of the Capital Stock of any such
new Subsidiary be required to be so pledged), (ii) deliver to the Collateral
Agent the certificates representing such Capital Stock, together with undated
stock powers, in blank, executed and delivered by a duly authorized officer of
the Borrower or such Subsidiary, as the case may be, and (iii) if requested by
the Collateral Agent, deliver to the Collateral Agent legal opinions relating to
the matters described in the preceding clauses (i) and (ii), which opinions
shall be in form and substance and from counsel reasonably satisfactory to the
Collateral Agent.
(e) With respect to any oil and gas property acquired after the Closing Date by
the Borrower or any of its Domestic Subsidiaries having a purchase price (or, if
acquired through a merger or stock acquisition, a fair market value) in excess
of $1,000,000 and which, after giving effect to such acquisition and assuming
that a perfected first priority Lien thereon were not granted to the Collateral
Agent would result in the Collateral Agent having a perfected first priority
Lien on less than 80% in value (calculated as provided in Section 4.24) of the
reserves contained in all of the oil and gas properties of the Borrower and its
Domestic Subsidiaries, promptly (and in any event within 30 days after the
acquisition thereof) (i) execute and deliver a first priority oil and gas
mortgage (subordinate only to such oil and gas mortgages as are necessary to
permit the Borrower or such Domestic Subsidiary to purchase such property but
subject to such restrictions and other similar encumbrances as such property may
be subject at the time of acquisition), in favor of the Collateral Agent, for
the benefit of the Lenders, covering such property, in form and substance
reasonably satisfactory to the Collateral Agent, and (ii) if requested by the
Collateral Agent, deliver to the Collateral Agent within 180 days of such
request title opinions relating to the matters described in the preceding clause
reasonably satisfactory to the Collateral Agent.
6.11 Post-Closing Matters.
(a) Legal Opinions. Deliver to the Collateral Agent as promptly as practicable,
but in any event within 90 days after the Closing Date, such title opinions in
respect of the Oil and Gas Properties as may be reasonably requested by the
Collateral Agent. Such legal opinions shall be in form and substance reasonably
satisfactory to the Collateral Agent and shall cover such matters incident to
the transactions contemplated by this Agreement as the Collateral Agent may
reasonably require.
(b) Vehicles. Within 90 days after the Closing Date, deliver to the Collateral
Agent each document (including, without limitation, any certificates of
title) required by the Security Documents or under law or reasonably requested
by the Collateral Agent to be delivered to the Collateral Agent or to be filed,
registered or recorded in order to create in favor of the Collateral Agent, for
the benefit of the Lenders, a perfected Lien on all of the Vehicles covered by a
certificate of title, prior and superior in right to any other Person (other
than with respect to Liens expressly permitted by Section 7.3), which documents
shall be in proper form for filing, registration or recordation in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested.
(c) Lien Searches. The Collateral Agent shall have received the results of a
recent lien search by a Person satisfactory to the Administrative Agent, of the
Uniform Commercial Code, judgment and tax lien filings in each of the relevant
jurisdictions where assets of the all Loan Parties are located, and such search
shall reveal no material Liens on any of such assets except for Liens permitted
by Section 7.3. If any Liens not permitted by Section 7.3 appear as a result of
such lien search, promptly (and in any event within 60 days of completion of the
lien search), the Borrower shall cause to be filed any termination statements
that are reasonably requested by the Collateral Agent to be filed with respect
to such unpermitted Liens.
(d) Pledged Securities; Stock Powers. The Collateral Agent shall have received
within 60 days of the Closing Date 65% of the Capital Stock of Kenting Holdings
(Argentina) S.A., an Argentine corporation, pledged pursuant to the Master
Guarantee and Collateral Agreement, together with an undated stock power for
such certificate executed in blank by a duly authorized officer of the pledgor
thereof.
(e) Legal Opinions. In connection with the Pledged Stock of the New Loan
Parties, the Administrative Agent shall have received within 60 days of the
Closing Date, with a counterpart for each Lender, the executed legal opinion of
Jack D. Loftis, Jr., Esq., general counsel to the New Loan Parties or the
executed legal opinion of a local counsel satisfactory to the Administrative
Agent. Each such legal opinion shall be substantially in the form of Exhibit E-1
hereto and shall cover such matters incident to the transactions contemplated by
this Agreement as the Administrative Agent may reasonably require.
(f) Mortgages. The Collateral Agent shall have received within 60 days of the
Closing Date legal opinions from local counsel in respect of the Mortgages and
recording thereof relating to the necessity of amending the terms thereof as may
be reasonably requested by the Collateral Agent, with a counterpart for each
Lender, and the Collateral Agent shall have received amendments to each Mortgage
the Collateral Agent reasonably deems necessary to amend, executed and delivered
by a duly authorized officer of each party thereto, with a copy for each Lender.
6.12 Authorization of Additional Shares of Stock. As soon as practicable, use
its best efforts to increase the number of shares of common stock which the
Borrower is authorized to issue under its certificate of incorporation to an
amount which would be sufficient to allow the Borrower to issue shares of its
common stock to all of the holders of the 1997 Convertible Subordinated Notes
upon conversion of all of the 1997 Convertible Subordinated Notes.
<PAGE>
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in effect,
any Note or Letter of Credit remains outstanding and unpaid or any other amount
is owing to any Lender, the Arranger, the Collateral Agent or the Administrative
Agent hereunder, the Borrower shall not, and, if applicable, shall not permit
any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as of
any date set forth below to exceed the ratio set forth below opposite such date:
Consolidated
Date Leverage Ratio
December 31, 1997 4.50 to 1.00
March 31, 1998 4.50 to 1.00
June 30, 1998 4.00 to 1.00
September 30, 1998 4.00 to 1.00
December 31, 1998 3.50 to 1.00
March 31, 1999 3.50 to 1.00
June 30, 1999 3.50 to 1.00
September 30, 1999 3.50 to 1.00
December 31, 1999 3.00 to 1.00
March 31, 2000 3.00 to 1.00
June 30, 2000 3.00 to 1.00
September 30, 2000 3.00 to 1.00
December 31, 2000 2.50 to 1.00
March 31, 2001 2.50 to 1.00
June 30, 2001 2.50 to 1.00
September 30, 2001 2.50 to 1.00
December 31, 2001 2.50 to 1.00
March 31, 2002 2.50 to 1.00
June 30, 2002 2.50 to 1.00
September 30, 2002 2.50 to 1.00
====================
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters of the
Borrower ending as of any date set forth below to be less than the ratio set
forth below opposite such date:
Consolidated
Interest
Date Coverage Ratio
December 31, 1997 2.50 to 1.00
March 31, 1998 2.50 to 1.00
June 30, 1998 3.00 to 1.00
September 30, 1998 3.00 to 1.00
December 31, 1998 3.50 to 1.00
March 31, 1999 3.50 to 1.00
June 30, 1999 4.00 to 1.00
September 30, 1999 4.00 to 1.00
December 31, 1999 4.00 to 1.00
March 31, 2000 4.00 to 1.00
June 30, 2000 4.00 to 1.00
September 30, 2000 4.00 to 1.00
December 31, 2000 4.00 to 1.00
March 31, 2001 4.00 to 1.00
June 30, 2001 4.00 to 1.00
September 30, 2001 4.00 to 1.00
December 31, 2001 4.00 to 1.00
March 31, 2002 4.00 to 1.00
June 30, 2002 4.00 to 1.00
September 30, 2002 4.00 to 1.00
(c) Consolidated Senior Leverage Ratio. Permit the Consolidated Senior Leverage
Ratio as of any date set forth below to exceed the ratio set forth below
opposite such date:
Consolidated
Date Senior
Leverage Ratio
December 31, 1997 2.50 to 1.00
March 31, 1998 2.50 to 1.00
June 30, 1998 2.50 to 1.00
September 30, 1998 2.50 to 1.00
December 31, 1998 2.50 to 1.00
March 31, 1999 2.50 to 1.00
June 30, 1999 2.50 to 1.00
September 30, 1999 2.50 to 1.00
December 31, 1999 2.50 to 1.00
March 31, 2000 2.50 to 1.00
June 30, 2000 2.50 to 1.00
September 30, 2000 2.50 to 1.00
December 31, 2000 2.00 to 1.00
March 31, 2001 2.00 to 1.00
June 30, 2001 2.00 to 1.00
September 30, 2001 2.00 to 1.00
December 31, 2001 2.00 to 1.00
March 31, 2002 2.00 to 1.00
June 30, 2002 2.00 to 1.00
September 30, 2002 2.00 to 1.00
(d) Consolidated Net Worth. Permit the Consolidated Net Worth of the Borrower
and its Subsidiaries to be less than the sum of (i) 85% of the Consolidated Net
Worth of the Borrower and its Subsidiaries on September 30, 1997, plus (ii) 75%
of Consolidated Net Income of the Borrower and its Subsidiaries (to the extent a
positive number) for each fiscal quarter completed after the Closing Date
commencing with the fiscal quarter ending December 31, 1997, plus (iii) 75% of
the Net Cash Proceeds of any offerings or issuances of Capital Stock of the
Borrower or any of its Subsidiaries after the Closing Date, plus (iv) 75% of the
increase in the Consolidated Net Worth of the Borrower and its Subsidiaries
resulting from any conversion of the 1997 Convertible Subordinated Notes.
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness (i) of the Borrower to a Wholly Owned Subsidiary, (ii) of a
Domestic Wholly Owned Subsidiary to the Borrower or any other Subsidiary, (iii)
of Servicios to the Borrower or any Subsidiary in an aggregate principal amount
at any time outstanding not to exceed $5,000,000 in excess of the amount of such
Indebtedness outstanding on the date of this Agreement and (iv) of any Foreign
Subsidiary (other than Servicios) to the Borrower or any Subsidiary in an
aggregate principal amount at any time outstanding (with respect to all such
Foreign Subsidiaries of the Borrower) not to exceed $1,000,000, provided that
such Indebtedness referred to in clauses (iii) and (iv) hereof, if to the
Borrower or any Domestic Subsidiary, is evidenced by a promissory note or
promissory notes which has or have been pledged to the Collateral Agent on terms
and conditions reasonably satisfactory to the Administrative Agent;
(c) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition or construction of fixed or capital assets (whether pursuant to a
loan, a Financing Lease or otherwise) in an aggregate principal amount not
exceeding as to the Borrower and its Subsidiaries (i) $15,000,000 at any time
outstanding minus (ii) the amount of Indebtedness outstanding under clauses (f)
and (i) of this Section 7.2 and the amount of indebtedness attributable to sale
and leaseback transactions permitted pursuant to Section 7.12;
(d) Indebtedness of the Borrower and its Subsidiaries under the Convertible
Subordinated Debentures and the 1997 Convertible Subordinated Notes;
(e) Indebtedness outstanding on the date hereof, or incurred hereafter pursuant
to existing commitments or agreements, and, in each case, listed on Schedule 7.2
and any refinancings, refundings, renewals or extensions thereof not increasing
the principal amount thereof;
(f) Indebtedness of a Person which becomes a Subsidiary after the date hereof in
an aggregate principal amount at any time outstanding not exceeding
(i) $15,000,000, minus (ii) the sum of (A) the amount of Indebtedness
outstanding under clauses (c) and (i) of this Section 7.2 and (B) the amount of
indebtedness attributable to sale and leaseback transactions permitted pursuant
to Section 7.12, provided that (x) such Indebtedness existed at the time such
corporation became a Subsidiary and was not created in anticipation thereof and
(y) immediately after giving effect to the acquisition of such corporation by
the Borrower no Default or Event of Default shall have occurred and be
continuing, and any refinancings, refundings, renewals or extensions thereof not
increasing the principal amount thereof.
(g) Indebtedness constituting deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds and performance bonds and other obligations of a like nature
that are incurred in the ordinary course of business, not to exceed $5,000,000
in the aggregate at any time outstanding;
(h) Indebtedness under Interest Rate Protection Agreements and Hedge Agreements
entered into the ordinary course of business for hedging purposes and not for
speculative purposes;
(i) Seller Indebtedness in an aggregate principal amount at any time outstanding
not exceeding (i) $15,000,000 minus (ii) the sum of (A) the amount of
Indebtedness outstanding under clauses (c) and (f) of this Section 7.2, and any
refinancings, refundings, renewals or extensions thereof not increasing the
principal amount thereof and (B) the amount of indebtedness attributable to sale
and leaseback transactions permitted pursuant to Section 7.12;
(j) Indebtedness in the form of Guarantee Obligations permitted by Section 7.4;
and
(k) Indebtedness not otherwise permitted by the foregoing clauses (a) through
(j) in an aggregate principal amount at any time outstanding of not to exceed
$5,000,000;
7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the Borrower or its Subsidiaries in conformity
with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 180 days or which are being contested
in good faith by appropriate proceedings and which, in any case, do not encumber
a material amount of the assets of the Borrower and its Subsidiaries;
(c) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or any Subsidiary;
(f) Liens securing Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition or construction of fixed or capital assets, provided
that (i) such Liens shall be created within 180 days after the acquisition or
construction of such fixed or capital assets, (ii) such Liens do not at any time
encumber any property other than the property financed by such Indebtedness and
the proceeds and products thereof, (iii) the principal amount of Indebtedness
secured thereby is not increased and (iv) the proceeds of the Indebtedness
secured by any such Lien shall at no time exceed 100% of the original purchase
price of such property;
(g) Liens created pursuant to the Security Documents;
(h) Liens in existence on the date hereof listed on Schedule 7.3 (i) securing
Indebtedness permitted by Section 7.2(e) provided that no such Lien is spread to
cover any additional property after the Closing Date and that the principal
amount of Indebtedness secured thereby is not increased or (ii) securing
Indebtedness which is being repaid on the Closing Date, provided that such Liens
shall be released promptly following the Closing Date;
(i) Liens on the property or assets of a corporation which becomes a Subsidiary
after the date hereof securing Indebtedness permitted by Section 7.2(f),
provided that (i) such Liens existed at the time such corporation became a
Subsidiary and were not created in anticipation thereof, (ii) any such Lien is
not spread to cover any property or assets of such corporation after the time
such corporation becomes a Subsidiary, and (iii) the principal amount of
Indebtedness secured thereby is not increased;
(j) Liens on assets acquired in a Permitted Acquisition securing Seller
Indebtedness incurred in connection with such Permitted Acquisition; and
(k) the Permitted Exceptions (as defined in the Mortgages).
7.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to
exist any Guarantee Obligation except:
(a) Guarantee Obligations made in the ordinary course of its business by the
Borrower or any Subsidiary in respect of Indebtedness and other obligations of
any of the Borrower or any of its Subsidiaries which Indebtedness or other
obligations are otherwise not prohibited under this Agreement;
(b) the Guarantee Obligations of the Loan Parties pursuant to the Master
Guarantee and Collateral Agreement;
(c) the Guarantee Obligations of the Subsidiaries of the Borrower under the
Indenture and the 1997 Indenture; and
(d) Guarantee Obligations (in respect of obligations not constituting
Indebtedness) arising under agreements entered into by the Borrower or any
Subsidiary in the ordinary course of business.
7.5 Limitation on Fundamental Changes. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of the Borrower may be merged or combined with or into the
Borrower (provided that the Borrower shall be the continuing or surviving
corporation) or with or into any one or more Subsidiaries of the Borrower
provided that in the case of any such transaction involving a Wholly Owned
Subsidiary, such Wholly Owned Subsidiary shall be the continuing or surviving
corporation;
(b) any Subsidiary may be dissolved, liquidated or wound up or may sell, lease,
assign, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to Borrower or any Domestic Wholly Owned
Subsidiary of the Borrower, and the Borrower may sell, lease, assign, transfer
or otherwise dispose of any or all of its assets to any wholly owned Subsidiary
of the Borrower which is a party to the Master Guarantee and Collateral
Agreement; and
(c) any Subsidiary may sell, lease, transfer or otherwise dispose of any or all
of its assets so long as (i) such transaction does not violate Section 7.6 and
(ii) the Borrower complies with the provisions of Section 2.9(c) with respect to
such transaction.
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, or, in the case of any Subsidiary of the Borrower, issue or sell any
shares of such Subsidiary's Capital Stock to any Person other than the Borrower
or any Domestic Wholly Owned Subsidiary of the Borrower, except:
(a) the sale or other disposition of any property in the ordinary course of
business, including obsolete or worn out property, provided that (other than
inventory and light vehicles) the aggregate proceeds received from all assets so
sold or disposed of in any fiscal year shall not exceed 10% of the Borrower's
Consolidated Net Worth as of the end of the immediately preceding fiscal year;
(b) the sale of inventory and light vehicles in the ordinary course of business;
(c) as permitted by Section 7.5(b); and
(d) the sale of Odessa, provided that (i) the Consolidated Leverage Ratio, after
giving pro forma effect to such disposition and repayment of Indebtedness paid
or to be paid in connection with such disposition (including Loans paid or to be
paid pursuant to Section 2.7), does not exceed 3.75 to 1.00 and (ii) Odessa's
Proved Reserves are no greater than 65 billion cubic feet of natural gas
equivalent (the "Significant Disposition").
To the extent the Required Lenders waive the provisions of this Section 7.6 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by
this Section 7.6, such Collateral in each case shall be sold free and clear of
the Liens in favor of the Collateral Agent created by the Security Documents,
and the Collateral Agent shall take such actions as it deems appropriate in
connection therewith or may be reasonably requested by the Borrower to evidence
such Lien release, in each case at the Borrower's expense.
7.7 Limitation on Restricted Payments. Declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock (including but not
limited to in respect of any preferred Capital Stock outstanding or dividends
accumulated thereon on the Closing Date) of the Borrower or any of its
Subsidiaries or any warrants or options to purchase any such Capital Stock or
any of the Convertible Subordinated Debentures or 1997 Convertible Subordinated
Notes, whether now or hereafter outstanding, or make any other distribution in
respect thereof or purchase any thereof, either directly or indirectly, whether
in cash or property or in obligations of the Borrower or any Subsidiary, except
that the Borrower (a) may make open market purchases of its outstanding common
stock in an aggregate amount during the term of this Agreement not to exceed (i)
$10,000,000, while the Consolidated Leverage Ratio is less than 3.75 to 1.0 but
greater than or equal to 2.50 to 1.0 and (ii) $25,000,000 (including any amounts
expended pursuant to clause (i)), while the Consolidated Leverage Ratio is less
than 2.50 to 1.0, (b) may (i) make scheduled payments of interest in respect of
the Convertible Subordinated Debentures and the 1997 Convertible Subordinated
Notes, and (ii) if permitted by Section 7.10, redeem the Convertible
Subordinated Debentures after at least 90% of the Convertible Subordinated
Debentures have been converted or redeem the 1997 Convertible Subordinated Notes
after at least 90% of the 1997 Convertible Subordinated Notes have been
converted, (c) may make cash payments required pursuant to Sections 11.1 and
11.3 of the Indenture in connection with conversions of the Convertible
Subordinated Debentures or Section 10.3 of the 1997 Indenture in connection with
conversions of the 1997 Convertible Subordinated Notes and, (d) if the Borrower
is not yet authorized to issue a sufficient number of shares of its common stock
to allow conversion into common stock of all 1997 Convertible Subordinated
Notes, the Borrower may make cash payments to holders of the 1997 Convertible
Subordinated Notes in connection with the conversion thereof, provided that (i)
no more than 40% of the aggregate consideration to any holder of the 1997
Convertible Subordinated Notes upon conversion thereof may be in cash, (ii)
after giving effect to such payment and conversion, no Default or Event of
Default shall be continuing and (iii) after giving pro forma effect to such
payment and conversion as if it had occurred on the last day of the most
recently ended fiscal quarter, the Consolidated Leverage Ratio would not exceed
2.50 to 1.00. Notwithstanding the foregoing, any Subsidiary of the Borrower may
pay dividends and other distributions to the Borrower and Servicios may pay
dividends to its shareholders.
7.8 Limitation on Capital Expenditures. Make or commit to make any Capital
Expenditure except for expenditures in the ordinary course of business not
exceeding, in the aggregate for the Borrower and its Subsidiaries during any of
the fiscal years of the Borrower set forth below, an amount equal to the sum of
(i) the amount set forth below opposite such fiscal year plus (ii) an additional
amount for any Person or business unit acquired by the Borrower in a Permitted
Acquisition since the Closing Date, such amount being calculated as 10% of the
net revenues, calculated in accordance with GAAP, of such Person or business
unit during such fiscal year (or, if such Person or business unit was acquired
after the beginning of such fiscal year, such revenues for the portion of such
fiscal year during which such Person or business unit was owned by the
Borrower):
Fiscal Year Ending Amount
1998 $50,000,000
1999 $55,000,000
2000 $55,000,000
2001 $60,000,000
2002 $65,000,000
Any amount permitted by the foregoing provision to be expended as Capital
Expenditures in any fiscal year and not so expended may be carried over for
expenditure in the immediately succeeding fiscal year.
7.9 Limitation on Investments, Loans and Advances. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Permitted Acquisitions;
(d) loans by the Borrower or any Subsidiary to Servicios in an aggregate
principal amount at any time outstanding not to exceed the amount thereof
outstanding on the date of this Agreement plus $5,000,000;
(e) as permitted by subsection 7.2(b)(iv);
(f) investments by the Borrower in a Domestic Wholly Owned Subsidiary and
investments by any Subsidiary in the Borrower and in one or more Domestic Wholly
Owned Subsidiaries;
(g) expense accounts for, and other expense advances to, its directors, officers
and employees in the ordinary course of business;
(h) loans and advances to its officers and employees in an aggregate amount not
to exceed $5,000,000 at any time outstanding;
(i) the Borrower's purchase or redemption of its own Capital Stock to the extent
permitted by Section 7.7;
(j) current trade and customer accounts receivable that are for goods furnished
or services rendered in the ordinary course of business and that are payable in
accordance with Borrower's or any Subsidiary's customary trade terms;
(k) Interest Rate Protection Agreements to the extent permitted under this
Agreement, and Hedge Agreements entered into in the ordinary course of business
for hedging purposes and not for speculative purposes;
(l) the Borrower may repurchase its capital stock and/or options to purchase
such stock held by directors, officers and employees of the Borrower or any
Subsidiary upon the death, disability, retirement or termination of such
directors, officers or employees or the exercise of such options, or from the
shareholders of Borrower so long as the purpose is to acquire stock for
reissuance to new employees of Borrower and its Subsidiaries; provided, that the
amount expended for such purposes shall not exceed $1,000,000 in any fiscal year
or $2,500,000 while this Agreement is in effect;
(m) the Borrower and its Subsidiaries may acquire and own investments (including
Indebtedness and other obligations) received in connection with the bankruptcy
or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(n) investments acquired by the Borrower and its Subsidiaries in connection with
Permitted Acquisitions; and
(o) the Borrower's current investment in the Argent Classic Convertible
Arbitrage Fund L.P.
7.10 Limitation on Optional Payments and Modifications of Debt Instruments and
Organizational Documentation, etc. (a) Make any optional payment or prepayment
on or redemption or purchase of any material Indebtedness (other than the Loans)
or preferred Capital Stock including, without limitation, the Convertible
Subordinated Debentures and the 1997 Convertible Subordinated Notes, (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the terms of any such Indebtedness or preferred Capital Stock which
would be materially adverse to Lenders or (c) amend, modify or change in any
material respect, or consent or agree to any amendment, modification, or change
in any material respect to the terms of any of its capitalization or
organizational documents (including but not limited to in respect of any
preferred Capital Stock of any Loan Party) or a material contract, to the extent
such amendment, modification or change could reasonably be expected to have a
Material Adverse Effect, except that, after 90% of the original outstanding
principal amount of Convertible Subordinated Debentures have been converted into
common stock of the Borrower, the Borrower may, at any time when no Default or
Event of Default has occurred and is continuing, repurchase or redeem the
remaining outstanding Convertible Subordinated Debentures or repurchase or
redeem the remaining outstanding 1997 Convertible Subordinated Notes; provided
that the Borrower may not repurchase or redeem such Convertible Subordinated
Debentures at any time when the Consolidated Leverage Ratio is or, after giving
effect to such repurchase or redemption, would be, greater than 3.75.
7.11 Limitation on Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate (other than the Borrower)
unless such transaction (a) is otherwise permitted under this Agreement, and
(b) is upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate; provided, that any
such transaction involving more than $5,000,000 must be approved by a majority
of the disinterested members of the Borrower's Board of Directors.
7.12 Limitation on Sales and Leasebacks. Enter into any arrangement with any
Person providing for the leasing by the Borrower or any of its Subsidiaries of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary, if, after giving
effect thereto, the amount of all indebtedness attributable to transactions
consummated pursuant to this Section 7.12, plus the amount of Indebtedness
outstanding pursuant to clause (c), (f) and (i) of Section 7.2, would exceed
$15,000,000.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal year of the
Borrower to end on a day other than June 30.
7.14 Limitation on Negative Pledge Clauses. Enter into with any Person any
agreement, other than (a) this Agreement and the other Loan Documents and (b)
any industrial revenue bonds, purchase money Liens or Financing Leases permitted
by this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby) which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
7.15 Limitation on Lines of Business. Enter into any business, either directly
or through any Subsidiary, except for those businesses in which the Borrower and
its Subsidiaries are engaged on the date of this Agreement or which are directly
related thereto including any business in the oil and gas well service industry.
7.16 Limitation on Consolidated Lease Expense. Permit Consolidated Lease Expense
for any fiscal year of the Borrower and its Subsidiaries to exceed $20,000,000.
<PAGE>
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or Reimbursement
Obligation when due in accordance with the terms hereof; or the Borrower shall
fail to pay any interest on any Loan or Reimbursement Obligation, or any other
amount payable hereunder or under any other Loan Document, within three days
after any such interest or other amount becomes due in accordance with the terms
hereof; or
(b) Any representation or warranty made or deemed made by the Borrower or any
other Loan Party herein or in any other Loan Document or which is contained in
any certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan Document
shall prove to have been incorrect in any material respect on or as of the date
made or deemed made; or
(c) The Borrower or any other Loan Party shall default in the observance or
performance of any agreement contained in Section 7; or
(d) The Borrower or any other Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any other Loan
Document (other than as provided in paragraphs (a) through (c) of this Section
8), and such default shall continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in making any
payment of any principal of any Indebtedness (including, without limitation, any
Guarantee Obligation) or Interest Rate Protection Agreement Obligation on the
scheduled or original due date with respect thereto; or (ii) default in making
any payment of any interest on any such Indebtedness beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness or
Interest Rate Protection Agreement Obligation was created; or (iii) default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or Interest Rate Protection Agreement Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder
or beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of any
such Indebtedness constituting a Guarantee Obligation or Interest Rate
Protection Agreement Obligation) to become payable; provided that a default,
event or condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default under this Agreement
unless, at such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (e) shall have
occurred and be continuing with respect to Indebtedness and/or Guarantee
Obligations and/or Interest Rate Protection Agreement Obligations of the
Borrower and its Subsidiaries the outstanding principal amount of which exceeds
in the aggregate $1,000,000; or
(f) (i) The Borrower or any of its Subsidiaries (other than Servicios) shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Subsidiaries (other than Servicios) shall
make a general assignment for the benefit of its creditors; or (ii) there shall
be commenced against the Borrower or any of its Subsidiaries (other than
Servicios) any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against the
Borrower or any of its Subsidiaries (other than Servicios) any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Borrower or any of its Subsidiaries (other than
Servicios) shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries (other than
Servicios) shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, shall exist with respect to any Plan or any Lien in favor of the
PBGC or a Plan shall arise on the assets of any Loan Party or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Loan
Party or any Commonly Controlled Entity shall, or in the reasonable opinion of
the Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could, in the sole
judgment of the Required Lenders, reasonably be expected to have a Material
Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the Borrower or
any of its Subsidiaries (other than Servicios) involving in the aggregate a
liability (not paid or fully covered by insurance) of $2,000,000 or more, and
all such judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof; or
(i) Prior to the Collateral Release Date, any of the Security Documents shall
cease, for any reason, to be in full force and effect, or any Loan Party or any
Affiliate of any Loan Party shall so assert, or any material Lien created by any
of the Security Documents shall cease to be enforceable and of the same effect
and priority purported to be created thereby; or
(j) Any Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Required Lenders, the Administrative Agent
may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrower hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
other Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto). Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
<PAGE>
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Agents as the agents of such Lender under this Agreement and the other Loan
Documents, and each Lender irrevocably authorizes each Agent, in such capacity,
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to such Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, no Agent shall have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties under this
Agreement and the other Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. No Agent shall be responsible for the negligence or misconduct of
any agents or attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Agents nor any of their officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except to
the extent that any of the foregoing are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Loan Party or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by any Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the Notes or any other Loan Document or for any failure of any Loan
Party a party thereto to perform its obligations hereunder or thereunder. No
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Borrower), independent accountants and other experts selected by such
Agent. The Agents may deem and treat the payee of any Note as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent. Each Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders (or, if so specified by this Agreement, all
Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action,
provided that in no event shall the Lenders be obligated to indemnify the Agents
for any amounts described in the proviso to Section 9.7. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Notes.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless such Agent
has received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Lenders. The Administrative Agent and the Collateral Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent or the
Collateral Agent shall have received such directions, the Administrative Agent
or the Collateral Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges
that neither any Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Agents hereafter taken, including any review of the
affairs of a Loan Party or any Affiliate of a Loan Party, shall be deemed to
constitute any representation or warranty by any Agent to any Lender. Each
Lender represents to each Agent that it has, independently and without reliance
upon any Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their Affiliates and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon any Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their Affiliates. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, no Agent shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any Affiliate of
a Loan Party which may come into the possession of such Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in its capacity
as such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitments, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against any Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
which are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from such Agent's gross negligence or willful
misconduct. The agreements in this Section 9.7 shall survive the payment of the
Notes and all other amounts payable hereunder.
9.8 Agents in Their Individual Capacities. Each Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with any Loan Party as though such Agent were not an Agent hereunder and under
the other Loan Documents. With respect to its Loans made or renewed by it and
any Note issued to it and with respect to any Letter of Credit issued or
participated in by it, each Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Lender and may exercise the
same as though it were not an Agent, respectively, and the terms "Lender" and
"Lenders" shall include each Agent in their individual capacities.
9.9 Successor Agents. The Administrative Agent or the Collateral Agent may
resign as Administrative Agent or Collateral Agent, as the case may be, upon 10
days' notice to the Lenders. If the Administrative Agent or the Collateral Agent
shall resign as Administrative Agent or Collateral Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent in such capacity, which successor agent, so long
as no Default or Event of Default shall have occurred and be continuing, shall
have been approved by the Borrower (which approval shall not be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent or the Collateral Agent,
as the case may be, hereunder. Effective upon such appointment and approval, the
terms "Administrative Agent" and "Collateral Agent" shall mean such successor
agent, and the former Administrative Agent's or Collateral Agent's rights,
powers and duties as such shall be terminated, without any other or further act
or deed on the part of such former Administrative Agent or Collateral Agent or
any of the parties to this Agreement or any holders of the Notes. After any
retiring Agent's resignation as Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Loan Documents.
<PAGE>
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan Document,
nor any terms hereof or thereof may be amended, supplemented or modified except
in accordance with the provisions of this Section 10.1. The Required Lenders and
each Loan Party which is party to the relevant Loan Documents may, or, with the
written consent of the Required Lenders, the Administrative Agent and each Loan
Party which is a party to the relevant Loan Document may, from time to time, (a)
enter into written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders or the Administrative Agent, as the case may
be, may specify in such instrument, any of the requirements of this Agreement or
the other Loan Documents or any Default or Event of Default and its
consequences; provided that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount of any Loan or any L/C
Obligation, or extend the final scheduled date of maturity of any Loan, or
reduce the stated rate of any interest, fee or letter of credit commission
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Commitment, or
waive any mandatory prepayment or make any change in the application of any
prepayment of the Loans specified in the first sentence of Section 2.7(f) or in
Section 2.13(a), or the right to refuse prepayments set forth in the penultimate
sentence of Section 2.6, in each case without the consent of each Lender
directly affected thereby, (ii) extend the scheduled date or reduce the amount
of any reduction of the Commitments referred to in Section 2.1(c) without the
consent of each Lender directly affected thereby, (iii) amend, modify or waive
any provision of this Section 10.1 or reduce any percentage specified in the
definition of Required Lenders, or consent to the assignment or transfer by any
Loan Party of any of its rights and obligations under this Agreement and the
other Loan Documents or release all or a substantial portion of the Collateral
(other than in connection with any sale or other disposition of assets permitted
by Section 7.6 or pursuant to Section 10.17) or any guarantee of the
Obligations, in each case, without the written consent of all the Lenders, (iv)
amend, modify or waive any provision of Section 9 without the written consent of
the Agents, or (v) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Agents and all future holders
of the Notes. In the case of any waiver, the Loan Parties, the Lenders and the
Agents shall be restored to their former position and rights hereunder and under
the other Loan Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
10.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or three Business Days after being deposited in
the mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed as follows in the case of the Borrower, the Administrative Agent, the
Collateral Agent and the Arranger, and as set forth in Schedule 1.1A in the case
of the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
The Borrower: Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attention: Mr. Stephen E. McGregor
Telecopy: (908) 659-1526
Telephone: (908) 247-5148
The Administrative
Agent: PNC Bank, National Association
One PNC Plaza, Third Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Thomas Majeski
Telecopy: (412) 762-2571
Telephone: (412) 762-2431
with a copy to: PNC Bank, National Association
One PNC Plaza, Fourth Floor Annex
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Ms. Arlene Ohler
Telecopy: (412) 762-8672
Telephone: (412) 762-3627
The Collateral
Agent: Norwest Bank Texas, N.A.
500 West Texas Avenue
Midland, Texas 79701
Attention: Mr. Mark McKinney
Telecopy: (915) 685-5441
Telephone: (915) 685-5149
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to Section 2.2, 2.5, 2.6 or 2.8 shall not be effective
until received. Any notice or delivery to or from or consent required of the
Borrower hereunder or pursuant to any other Loan Document may be made to or by
the Borrower.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of any Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival. All representations and warranties made hereunder, in the other
Loan Documents and in any document, certificate or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the Notes and the making of the Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse
the Agents for all their reasonable out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel (including any local counsel) to the Agents, (b) to pay
or reimburse each Lender and each of the Agents for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and counsel
to the Agents, (c) to pay, indemnify, and hold each Lender and each Agent
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and each Agent and their respective officers, directors, trustees,
employees, affiliates, agents and controlling persons (each, an "indemnitee")
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the other Loan
Documents and any such other documents, including, without limitation, any of
the foregoing relating to the use of proceeds of the Loans or the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
Borrower, any of its Subsidiaries, any of its Excluded Subsidiaries or any of
the Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to any indemnitee with respect to indemnified liabilities to the
extent such indemnified liabilities are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such indemnitee. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert, and hereby waives, and to cause each of its Subsidiaries not to
assert and to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. The agreements in this Section 10.5 shall
survive repayment of the Notes and all other amounts payable hereunder and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments, Loans or Letter of Credit interest hereunder,
shall survive the making of such assignment, notwithstanding that such assigning
Lender may cease to be a "Lender" hereunder.
10.6 Successors and Assigns; Participation and Assignments. (a) This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Lenders, the
Agents, all future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, without the consent of the Borrower, in the ordinary course
of its business and in accordance with applicable law, at any time sell to one
or more banks or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Note held by such Lender, any Commitment
of such Lender or any other interest of such Lender hereunder and under the
other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Note for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees payable hereunder, postpone the date of
the final maturity of the Notes, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, release all or a substantial portion of the Collateral (other
than in connection with any sale or other disposition of assets permitted by
Section 7.6) or any guarantee of the Obligations, in each case to the extent
subject to such participation. The Borrower agrees that if amounts outstanding
under this Agreement and the Notes are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement or any Note, provided that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender hereunder. The Borrower also agrees that each Participant
shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 with respect
to its participation in the Commitments and the Loans outstanding from time to
time as if it was a Lender; provided that, in the case of Section 2.16, such
Participant shall have complied with the requirements of said Section and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such Section than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business and in accordance
with applicable law, at any time and from time to time assign to any Lender or
any affiliate thereof or any Person under common management with any such Lender
or, with the consent of the Borrower, the Administrative Agent and, in the case
of an assignment of Commitments, the Issuing Lender (which, in each case, shall
not be unreasonably withheld, delayed or conditioned), to an additional bank,
financial institution or other entity (an "Assignee") all or any part of its
rights and obligations under this Agreement, the Letters of Credit and the Notes
pursuant to an Assignment and Acceptance, substantially in the form of Exhibit
G, executed by such Assignee, such assigning Lender (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof or a Person under
common management with such Lender, by the Borrower, the Administrative Agent
and, in the case of an assignment of Commitments, the Issuing Lender) and
delivered to the Administrative Agent for its acceptance and recording in the
Register; provided that (except with the consent of the Borrower and the
Administrative Agent) (i) no such assignment to an Assignee (other than any
Lender or any affiliate thereof or any Person under common management with such
Lender) shall be in an aggregate principal amount of less than $5,000,000 (other
than in the case of an assignment of all of a Lender's interests under this
Agreement and the Notes) and (ii) subsequent to any such assignment the
assigning Lender shall not retain an aggregate principal amount of less than
$5,000,000 in Commitments and Loans. Such assignment need not be ratable as
among any Commitments and/or Loans of the assigning Lender. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment as set
forth therein, and (y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
Section 10.6, the consent of the Borrower shall not be required for any
assignment which occurs at any time when any Event of Default shall have
occurred and be continuing.
(d) A Note and the Obligation(s) evidenced thereby may be assigned or otherwise
transferred in whole or in part only by registration of such assignment or
transfer of such Note and the Obligation(s) evidenced thereby on the Register
(and each Note shall expressly so provide). Any assignment or transfer of all or
part of such Obligation(s) and the Note(s) evidencing the same shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Note(s) evidencing such Obligation(s), accompanied by an
Assignment and Acceptance duly executed by the holder of such Note(s), and
thereupon one or more new Note(s) in the same aggregate principal amount shall
be issued to the designated Assignee(s) and the old Notes(s) shall be returned
by the Administrative Agent to the Borrower marked "cancelled." No assignment of
a Note and the Obligation(s) evidenced thereby shall be effective unless it has
been recorded in the Register as provided in this Section 10.6(d).
(e) The Administrative Agent shall maintain at its address referred to in
Section 10.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to, each
Lender from time to time and the registered owners of the Obligation(s)
evidenced by the Note(s). The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Administrative Agent and
the Lenders shall treat each Person whose name is recorded in the Register as
the owner of the Loan or the Obligation evidenced by a Note recorded therein for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an assigning
Lender and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate thereof or a Person under common management with such
Lender, by the Borrower, the Administrative Agent and the Issuing Lender)
together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
On or prior to such effective date, the Borrower, at its own expense, upon
request, shall execute and deliver to the Administrative Agent (in exchange for
the Note of the assigning Lender) a new Note to the order of such Assignee in an
amount equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment Note to the
order of the assigning Lender in an amount equal to the Commitment retained by
it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise
be in the form of the Note replaced thereby.
(g) The Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and any prospective Transferee any and all
financial information in such Lender's possession concerning the Borrower and
its Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this
Agreement.
(h) Nothing herein shall prohibit or restrict any Lender from (i) pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable law
or (ii) with the prior consent of the Administrative Agent and the Borrower
(which, in each case, shall not be unreasonably withheld or delayed or
conditioned), pledging its rights in connection with any Loan or Note to any
other Person.
10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender") shall at
any time receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any collateral in
respect thereof then due and owing to such Lender (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans or the Reimbursement Obligations then due and owing
to such other Lender, or interest thereon, such Benefitted Lender shall purchase
for cash from the other Lenders a participating (or, at the option of such
Lender, a direct) interest in such portion of each such other Lender's Loan
and/or of the Reimbursement Obligations owing to each such other Lender, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; provided that if all or any portion of such excess payment
or benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by law, each
Lender shall have the right, without prior notice to the Borrower, any such
notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after any such
setoff and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of the parties
to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents represent the
agreement of the Borrower, the Administrative Agent, the Arranger and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent, the
Arranger or any Lender relative to subject matter hereof not expressly set forth
or referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in Section 10.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may have
to claim or recover in any legal action or proceeding referred to in this
Section 10.12 any special, exemplary, punitive or consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents;
(b) neither any Agent nor any Lender has any fiduciary relationship with or duty
to the Borrower arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between the Agents and Lenders,
on one hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agents and each Lender agrees to keep
confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Agents or any
Lender from disclosing any such information (a) to the Agents any other Lender
or any affiliate or investment advisor of any Lender, (b) to any Transferee or
prospective Transferee which agrees to comply with the provisions of this
Section 10.15, (c) to the employees, directors, agents, attorneys, accountants
and other professional advisors of such Lender or its affiliates, (d) upon the
request or demand of any Governmental Authority having jurisdiction over such
Agent or such Lender, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) which has been publicly disclosed other
than in breach of this Section 10.15 or (h) in connection with the exercise of
any remedy hereunder or under any other Loan Document.
10.16 Enforceability; Usury. In no event shall any provision of this Agreement,
the Notes, or any other instrument evidencing or securing the indebtedness of
the Borrower hereunder ever obligate the Borrower to pay or allow any Lender to
collect interest on the Notes or any other indebtedness of the Borrower
hereunder at a rate greater than the maximum non-usurious rate permitted by
applicable law (herein referred to as the "Highest Lawful Rate"), or obligate
the Borrower to pay any taxes, assessments, charges, insurance premiums or other
amounts to the extent that such payments, when added to the interest payable on
the Notes, would be held to constitute the payment by the Borrower of interest
at a rate greater than the Highest Lawful Rate; and this provision shall control
over any provision to the contrary.
Without limiting the generality of the foregoing, in the event the maturity of
all or any part of the principal amount of the indebtedness of the Borrower
hereunder shall be accelerated for any reason, then such principal amount so
accelerated shall be credited with any interest theretofore paid thereon in
advance and remaining unearned at the time of such acceleration. If, pursuant to
the terms of this Agreement or the Notes, any funds are applied to the payment
of any part of the principal amount of the indebtedness of the Borrower
hereunder prior to the maturity thereof, then (a) any interest which would
otherwise thereafter accrue on the principal amount so paid by such application
shall be canceled, and (b) the indebtedness of the Borrower hereunder remaining
unpaid after such application shall be credited with the amount of all interest,
if any, theretofore collected on the principal amount so paid by such
application and remaining unearned at the date of said application; and if the
funds so applied shall be sufficient to pay in full all the indebtedness of the
Borrower hereunder, then the Lenders shall refund to the Borrower all interest
theretofore paid thereon in advance and remaining unearned at the time of such
acceleration. Regardless of any other provision in this Agreement, or in any of
the written evidences of the indebtedness of the Borrower hereunder, the
Borrower shall never be required to pay any unearned interest on such
indebtedness or any portion thereof, and shall never be required to pay interest
thereon at a rate in excess of the Highest Lawful Rate construed by courts
having competent jurisdiction thereof.
10.17 Collateral Release. Upon the occurrence of a Collateral Release Event, the
Liens on the Collateral granted pursuant to the Security Documents or otherwise
securing Obligations shall be released automatically. Within one Business Day
following the satisfaction of the foregoing conditions and the receipt by the
Administrative Agent of a certificate of a Responsible Officer certifying that
such conditions have been satisfied, the Administrative Agent shall deliver to
the Collateral Agent the notice required pursuant to Section 8.16 the Master
Guarantee and Collateral Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
KEY ENERGY GROUP, INC..
By: /s/ Stephen E. McGregor
Title: Executive Vice President
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent and as a Lender
By: /s/ Thomas A. Majeski
Title: Vice President
NORWEST BANK TEXAS, N.A.
as Collateral Agent and Issuing Lender
By: /s/ Mark D. McKinney
Title: Senior Vice President
<PAGE>
Pricing Grid
Applicable Margin for Applicable Margin for
Consolidated Loans which are Loans which are Commitment
Leverage Ratio Eurodollar Loans Base Rate Loans Fee Rate
greater than
3.5 to 1.0 1.50% 0.00% .35%
greater than
3.0 to 1.0 but 1.25% 0.00% .30%
less than or equal
to 3.5 to 1.0
greater than
2.50 to 1.0 but
less than or equal
to 3.0 to 1.0 1.00% 0.00% .25%
#2.50 to 1.0 0.75% 0.00% .20%
<PAGE>
Commitments; Lending Offices and Addresses
<PAGE>
Mortgaged Property
<PAGE>
Oil and Gas Properties to be Mortgaged
<PAGE>
Existing Letters of Credit
Account Party Issuer Amount Number Beneficiary
<PAGE>
Consents
<PAGE>
Schedule 4.8
Other Real Property Interests
<PAGE>
Subsidiaries
<PAGE>
Schedule 4.19(b)
UCC Filing Jurisdictions
<PAGE>
Mortgage Filing Jurisdictions
<PAGE>
Oil and Gas Mortgage Filing Jurisdictions
<PAGE>
Mortgaged Properties to be Covered by Environmental Reports
<PAGE>
Existing Indebtedness
<PAGE>
Schedule 7.3
Existing Liens
<PAGE>
$200,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
among
KEY ENERGY GROUP, INC.
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
NORWEST BANK TEXAS, N.A.,
as Collateral Agent
and
PNC CAPITAL MARKETS, INC.
as Arranger
Dated as of June 6, 1997,
as amended and restated through
November 6, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS...................................................... 1
1.1 Defined Terms................................................... 1
1.2 Other Definitional Provisions................................... 19
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................... 20
2.1 Commitments..................................................... 20
2.2 Procedure for Borrowing......................................... 20
2.3 Commitment Fees, etc. .......................................... 21
2.4 Repayment of Loans; Evidence of Debt............................ 21
2.5 Optional Termination or Reduction of Commitments................ 22
2.6 Optional Prepayments............................................ 22
2.7 Mandatory Prepayments and Commitment Reductions................. 23
2.8 Conversion and Continuation Options............................. 24
2.9 Minimum Amounts and Maximum Number of Eurodollar Tranches....... 24
2.10 Interest Rates and Payment Dates............................... 24
2.11 Computation of Interest and Fees............................... 25
2.12 Inability to Determine Interest Rate........................... 25
2.13 Pro Rata Treatment and Payments................................ 26
2.14 Illegality..................................................... 27
2.15 Requirements of Law............................................ 27
2.16 Taxes 29
2.17 Indemnity...................................................... 30
2.18 Change of Lending Office....................................... 31
2.19 Use of Proceeds................................................ 31
2.20 Replacement of Lenders......................................... 31
SECTION 3. LETTERS OF CREDIT................................................. 32
3.1 L/C Commitment.................................................. 32
3.2 Procedure for Issuance of Letter of Credit...................... 32
3.3 Fees, Commissions and Other Charges............................. 33
3.4 L/C Participation............................................... 33
3.5 Reimbursement Obligation of the Borrower........................ 34
3.6 Obligations Absolute............................................ 34
3.7 Letter of Credit Payments....................................... 35
3.8 Applications.................................................... 35
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................... 35
4.1 Financial Condition............................................. 35
4.2 No Change....................................................... 36
4.3 Corporate Existence; Compliance with Law........................ 36
4.4 Corporate Power; Authorization; Enforceable Obligations......... 36
4.5 No Legal Bar.................................................... 37
4.6 No Material Litigation.......................................... 37
4.7 No Default...................................................... 37
4.8 Ownership of Property; Liens.................................... 37
4.9 Intellectual Property........................................... 37
4.10 No Burdensome Restrictions..................................... 38
4.11 Taxes 38
4.12 Federal Regulations............................................ 38
4.13 ERISA 38
4.14 Investment Company Act; Other Regulations...................... 39
4.15 Subsidiaries................................................... 39
4.16 Purpose of Loans; Limitations on Use........................... 39
4.17 Environmental Matters.......................................... 39
4.18 Accuracy of Information........................................ 40
4.19 Security Documents............................................. 41
4.20 Solvency....................................................... 42
4.21 Labor Matters.................................................. 42
4.22 Indentures..................................................... 42
4.23 Excluded Subsidiaries.......................................... 42
4.24 Oil and Gas Properties......................................... 42
SECTION 5. CONDITIONS PRECEDENT.............................................. 43
5.1 Conditions to Effectiveness..................................... 43
5.2 Conditions to Each Extension of Credit.......................... 45
SECTION 6. AFFIRMATIVE COVENANTS............................................. 45
6.1 Financial Statements............................................ 45
6.2 Certificates; Other Information................................. 46
6.3 Payment of Obligations.......................................... 47
6.4 Conduct of Business and Maintenance of Existence, etc. ......... 47
6.5 Maintenance of Property; Insurance.............................. 48
6.6 Inspection of Property; Books and Records; Discussions.......... 48
6.7 Notices 48
6.8 Environmental Laws.............................................. 49
6.9 Further Assurances.............................................. 50
6.10 Additional Collateral.......................................... 51
6.11 Post-Closing Matters........................................... 53
6.12 Authorization of Additional Shares of Stock.................... 54
SECTION 7. NEGATIVE COVENANTS................................................ 54
7.1 Financial Condition Covenants................................... 54
7.2 Limitation on Indebtedness...................................... 56
7.3 Limitation on Liens............................................. 58
7.4 Limitation on Guarantee Obligations............................. 59
7.5 Limitation on Fundamental Changes............................... 59
7.6 Limitation on Sale of Assets.................................... 60
7.7 Limitation on Restricted Payments............................... 61
7.8 Limitation on Capital Expenditures.............................. 61
7.9 Limitation on Investments, Loans and Advances................... 62
7.10 Limitation on Optional Payments and Modifications
of Debt Instruments and Organizational Documentation, etc. .................. 63
7.11 Limitation on Transactions with Affiliates..................... 64
7.12 Limitation on Sales and Leasebacks............................. 64
7.13 Limitation on Changes in Fiscal Year........................... 64
7.14 Limitation on Negative Pledge Clauses.......................... 64
7.15 Limitation on Lines of Business................................ 64
7.16 Limitation on Consolidated Lease Expense....................... 64
SECTION 8. EVENTS OF DEFAULT................................................. 64
SECTION 9. THE AGENTS........................................................ 67
9.1 Appointment..................................................... 67
9.2 Delegation of Duties............................................ 68
9.3 Exculpatory Provisions.......................................... 68
9.4 Reliance by Agents.............................................. 68
9.5 Notice of Default............................................... 69
9.6 Non-Reliance on Agents and Other Lenders........................ 69
9.7 Indemnification................................................. 69
9.8 Agents in Their Individual Capacities........................... 70
9.9 Successor Agents................................................ 70
SECTION 10. MISCELLANEOUS.................................................... 70
10.1 Amendments and Waivers......................................... 70
10.2 Notices........................................................ 71
10.3 No Waiver; Cumulative Remedies................................. 72
10.4 Survival....................................................... 72
10.5 Payment of Expenses and Taxes.................................. 73
10.6 Successors and Assigns; Participation and Assignments.......... 74
10.7 Adjustments; Set-off........................................... 76
10.8 Counterparts................................................... 77
10.9 Severability................................................... 77
10.10 Integration................................................... 77
10.11 GOVERNING LAW................................................. 77
10.12 Submission To Jurisdiction; Waivers........................... 78
10.14 WAIVERS OF JURY TRIAL......................................... 78
10.15 Confidentiality............................................... 79
10.16 Enforceability; Usury......................................... 79
10.17 Collateral Release........................................... 80
<PAGE>
ANNEXES:
I Pricing Grid
SCHEDULES:
1.1A Commitments; Lending Offices and Addresses
1.1B Mortgaged Property
1.1C Oil and Gas Properties to be Mortgaged
3.1 Existing Letters of Credit
4.4 Consents
4.8 Other Real Property Interests
4.15 Subsidiaries
4.19(b) UCC Filing Jurisdictions
4.19(c) Mortgage Filing Jurisdictions
4.19(d) Oil and Gas Mortgage Filing Jurisdictions
6.11(e) Mortgaged Properties to be Covered by Environmental Reports
7.2 Existing Indebtedness
7.3 Existing Liens
EXHIBITS:
A Form of Master Guarantee and Collateral Agreement
B Form of Mortgage
C Form of Note
D Form of Closing Certificate
E-1 Legal Opinion of Jack D. Loftis, Jr., Esq.
E-2 Form of Opinion of Porter & Hedges
F Form of Exemption Certificate
G Form of Assignment and Acceptance
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT, dated as of December 3, 1997 (this "Amendment"), to the Amended
and Restated Credit Agreement, dated as of June 6, 1997, as amended and restated
through November 6, 1997 (the "Credit Agreement"), among Key Energy Group, Inc.,
a Maryland corporation (the "Borrower"), the several Lenders from time to time
parties thereto, PNC Bank, National Association, as Administrative Agent and
Norwest Bank Texas, N.A., as Collateral Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the Collateral
Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders increase the aggregate
amount of the Commitments under the Credit Agreement to $250,000,000 and to
amend certain terms in the Credit Agreement in the manner provided for herein;
and
WHEREAS, the Administrative Agent and the Lenders are willing to agree to
increase the aggregate amount of the Commitments under the Credit Agreement to
$250,000,000 and are willing to agree to the requested amendments;
NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter
set forth, the parties hereto hereby agree as follows:
<PAGE>
1. Defined Terms. Unless otherwise defined herein, terms which are defined in
the Credit Agreement and used herein (and in the recitals hereto) as defined
terms are so used as so defined.
2. Assignment and Transfer; Increase in Commitments; Amendment to Schedule 1.1;
Joinder of Lenders. (a) PNC Bank, National Association, the "Transferor Lender")
hereby irrevocably sells, assigns and transfers to each Purchasing Lender
identified on Schedule I hereto (each a "Purchasing Lender" and collectively,
the "Purchasing Lenders") without recourse to the Transferor Lender, and each
Purchasing Lender hereby irrevocably purchases and assumes from the Transferor
Lender without recourse to the Transferor Lender, as of the First Amendment
Effective Date (as defined below), the interests described in Schedule I hereto
in and to the Transferor Lender's rights and obligations under the Credit
Agreement with respect to those credit facilities contained in the Credit
Agreement as are set forth on Schedule I hereto, such that after giving effect
to such sale, assignment and transfer, the Commitments and the Commitment
Percentages of the Transferor Lender and the Purchasing Lenders shall be as set
forth on Exhibit A hereto.
(b) The Transferor Lender (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that such Transferor Lender has
not created any adverse claim upon the interest being assigned by it hereunder
and that such interest is free and clear of any such adverse claim; (ii) makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower, any of its Subsidiaries or any other
obligor or the performance or observance by the Borrower, any of its
Subsidiaries or any other obligor of any of their respective obligations under
the Credit Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (iii) attaches the Note held
by it and (A) requests that the Administrative Agent, upon request by any
Purchasing Lender, exchange the attached Note for a new Note payable to such
Purchasing Lender in the aggregate face amount of its Commitment as set forth on
Exhibit A hereto and (B) requests that the Administrative Agent exchange the
attached Note for a new Note payable to the Transferor Lender, in an amount
which reflects the assignments being made hereby.
(c) Each Purchasing Lender (i) represents and warrants that it is legally
authorized to enter into this Amendment; (ii) confirms that it has received a
copy of the Credit Agreement, together with copies of the financial statements
referred to in subsection 4.1 or delivered pursuant to subsection 6.1 thereof
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Amendment; (iii) agrees
that it will, independently and without reliance upon the Transferor Lender, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (iv) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
incidental thereto; and (v) agrees that it will be bound by the provisions of
the Credit Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender including, if it is organized under the laws of a
jurisdiction outside the United States, its obligation pursuant to subsection
2.16(b) of the Credit Agreement.
(d) In connection with the foregoing assignments and transfers and subject to
the terms and conditions hereof, the Borrower, the Transferor Lender, the
Purchasing Lenders and the Administrative Agent hereby agree that the
Commitments of the Lenders shall be increased, on and as of the First Amendment
Effective Date and subject to the terms and conditions hereof and of the Credit
Agreement, to $250,000,000 and, in order to effect such increase in the
Commitments, the Borrower, the Transferor Lender, the Purchasing Lenders and the
Administrative Agent hereby agree that Schedule 1.1A to the Credit Agreement
shall be amended by deleting such Schedule in its entirety and substituting in
lieu thereof a new Schedule to read in its entirety as set forth in Exhibit A
hereto.
(e) All principal payments that would otherwise be payable from and after the
First Amendment Effective Date to or for the account of the Transferor Lender
and the Purchasing Lenders pursuant to the Credit Agreement and the Notes shall,
instead, be payable to or for the account of the Transferor Lender and the
Purchasing Lenders in accordance with their respective interests as reflected in
Exhibit A hereto.
(f) All interest, fees and other amounts that would otherwise accrue for the
account of the Transferor Lender and the Purchasing Lenders from and after the
First Amendment Effective Date shall, instead, accrue for the account of, and be
payable to, the Transferor Lender and the Purchasing Lenders in accordance with
their respective interests as reflected in Exhibit A hereto.
(g) The Transferor Lender and Purchasing Lenders hereby confirm and agree that,
from and after the First Amendment Effective Date, all participation of the
Lenders in respect of Letters of Credit pursuant to subsection 3.4(a) shall be
based upon the Commitment Percentages of the Lenders as reflected in Exhibit A
hereto.
(h) Each of the Transferor Lender and Purchasing Lenders agrees that, at any
time and from time to time upon the written request of the other Transferor
Lender or any other Purchasing Lender, it will execute and deliver such further
documents and do such further acts and things as such other party may reasonably
request in order to effect the sale, assignment and transfer set forth in this
Section 2.
(i) From and after the First Amendment Effective Date, (a) each Purchasing
Lender shall be a party to the Credit Agreement and, to the extent provided in
this Amendment, have the rights and obligations of a Lender thereunder and under
the other Loan Documents and shall be bound by the provisions thereof and (b)
the Transferor Lender shall, to the extent provided in this Amendment,
relinquish its rights and be released from its obligations under the Credit
Agreement.
3. Amendment of Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby
amended as follows:
(a) by adding the following new definition in the proper alphabetical order:
"First Amendment Effective Date": December 3, 1997.
(b) by deleting clause (i) (x) in the proviso to the definition of "Permitted
Acquisitions" and substituting in lieu thereof the following clause:
(x) the Consolidated Leverage Ratio shall not be more than the lesser of 3.75 to
1.00 or the ratio set forth in subsection 7.1(a) applicable to the Borrower at
the time of such acquisition.
4. Amendment of Subsection 2.7. Subsection 2.7 of the Credit Agreement is hereby
amended by deleting the words "Section 7.6(e)" in paragraph (c) thereof, and
substituting in lieu thereof the words: "Section 7.6(d)".
5. Amendment of Subsection 2.9. Subsection 2.9 of the Credit Agreement is hereby
amended by inserting the word "time" at the end of such subsection.
6. Amendment of Subsection 2.17. Subsection 2.17 of the Credit Agreement is
hereby amended by inserting at the end of clause (c) of such subsection the
following phrase:
, or the assignment of any Eurodollar Loan on a day which is not the last day of
an Interest Period with respect thereto as a result of the replacement of a
Lender pursuant to Subsection 2.20.
7. Amendment of Subsection 7.5. Subsection 7.5 of the Credit Agreement is hereby
amended by deleting the words "Section 2.9(c)" in paragraph (c) thereof, and
substituting in lieu thereof the phrase: "Section 2.7(c), to the extent
applicable".
8. Amendment of Subsection 7.10. Subsection 7.10 of the Credit Agreement is
hereby amended by deleting in its entirety the exception appearing immediately
before the proviso therein, and substituting in lieu thereof the following
exception:
except that, after 90% of the original outstanding principal amount of
Convertible Subordinated Debentures have been converted into common stock of the
Borrower, the Borrower may, at any time when no Default or Event of Default has
occurred and is continuing, repurchase or redeem the remaining outstanding
Convertible Subordinated Debentures and, after 90% of the original outstanding
principal amount of 1997 Convertible Subordinated Notes have been converted into
common stock of the Borrower, the Borrower may, at any time when no Default or
Event of Default has occurred and is continuing, repurchase or redeem the
remaining outstanding 1997 Convertible Subordinated Notes;
9. Waiver of Subsection 10.6(f). In connection with the assignments and
transfers effected by Section 2 hereof, the Administrative Agent and the Lenders
hereby waive compliance by the Transferor Lender and the Purchasing Lenders with
the requirements of subsection 10.6(f) of the Credit Agreement to the extent and
only to the extent that such subsection would require the payment of a
registration and processing fee in connection such assignments and transfers.
10. Conditions to Effectiveness of this Amendment. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent:
(a) Amendment. The Administrative Agent shall have received this Amendment,
executed and delivered by a duly authorized officer of the Borrower, the
Transferor Lender and each of the Purchasing Lenders set forth on Schedule I
hereto and (ii) the attached Acknowledgement and Consent, executed and delivered
by a duly authorized officer of each of the signatories thereto.
(b) No Default. No Default or Event of Default shall have occurred and be
continuing on the date hereof or after giving effect to the amendment
contemplated hereby.
(c) Representations and Warranties. Except to the extent that they are made as
of a specific date, each of the representations and warranties made by any Loan
Party in or pursuant to the Loan Documents shall be true and correct in all
material respects on and as of the date hereof as if made on and as of the date
hereof.
(d) Corporate Proceedings of Loan Parties. The Administrative Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions of the
Board of Directors of each Loan Party authorizing (i) the execution, delivery
and performance of this Amendment, and (ii) in the case of the Borrower, the
borrowings contemplated hereunder, certified by its Secretary or Assistant
Secretary as of the First Amendment Effective Date, which certificate shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate.
. The Administrative Agent shall have received, with a copy for each
Lender, a certificate of the Secretary or an Assistant Secretary of each
Loan Party dated the First Amendment Effective Date, as to the incumbency
and signature of the officers of each Loan Party executing this Amendment,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
11. Miscellaneous.
(a) Effect. Except as expressly amended hereby, all of the representations,
warranties, terms, covenants and conditions of the Loan Documents shall remain
unamended and not waived and shall continue to be in full force in effect.
(b) Counterparts. This Amendment may be executed by one or more of the parties
to this Amendment on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Amendment
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
(c) Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) Integration. This Amendment and the other Loan Documents represent the
agreement of the Loan Parties, the Administrative Agent, the Collateral Agent
and the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent, the Collateral Agent or any Lender relative to the subject matter hereof
not expressly set forth or referred to herein or in the other Loan Documents.
(e) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
KEY ENERGY GROUP, INC.
By: /s/ Stephen E. McGregor
Title: Executive Vice President
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent and as the
Transferor Lender
By: /s/ Thomas A. Majeski
Title: Vice President
NORWEST BANK TEXAS, N.A.
as Collateral Agent and as a
Purchasing Lender
By: /s/ Mark D. McKinney
Title: Senior Vice President
<PAGE>
THE BANK OF NEW YORK, as a
Purchasing Lender
By: /s/ Catherine G. Goff
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT, as a
Purchasing Lender
By: /s/ Paul Travers
Title: Vice President
By: /s/ John Sykes
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as a
Purchasing Lender
By: /s/ Philipe Soustra
Title: Senior Vice President
HIBERNIA NATIONAL BANK, as a Purchasing
Lender
By: /s/ Byron P. Kives
Title: Assistant Vice President
LEHMAN COMMERCIAL PAPER INC.,
as a Purchasing Lender
By: /s/ Michele Swanson
Title: Authorized Signatory
<PAGE>
COMMERCIAL LOAN FUNDING TRUST I,
as a Purchasing Lender
By: LEHMAN COMMERCIAL PAPER INC., not in its individual
capacity but solely as Administrative Agent
By: /s/ Michele Swanson
Title: Authorized Signatory
BANK ONE, TEXAS, N.A., as a Purchasing Lender
By: /s/ W.M. Mark Crammer
Title: Vice President
CORESTATES BANK, N.A., as a Purchasing Lender
By: /s/ Laura J. Rowley
Title: Assistant Vice President
DEN NORSKE BANK ASA, as a Purchasing Lender
By: /s/ Charles E. Hall
Title: Senior Vice President
By: /s/ Byron L. Cooley
Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as a Purchasing Lender
By: /s/ George R. Schanz
Title: Vice President
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Purchasing Lender
By: /s/ John Urban
Title: Authorized Signatory
<PAGE>
FUJI BANK, as a Purchasing Lender
By: /s/ Kenichi Tatara
Title: Vice President & Manager
THE BANK OF NOVA SCOTIA, as a Purchasing Lender
By: /s/ F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under that certain Master
Guarantee and Collateral Agreement, dated as of June 6, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"), made by
each of such corporations in favor of the Collateral Agent, confirms and agrees
that the Guarantee is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects and the Guarantee and all of the
Collateral (as defined in the Guarantee Agreement) do, and shall continue to,
secure the payment of all of the Obligations (as defined in the Guarantee)
pursuant to the terms of the Guarantee. Capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement referred
to in the Amendment to which this Acknowledgement and Consent is attached.
YALE E. KEY, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
WELLTECH EASTERN, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
TST PARAFFIN SERVICE COMPANY, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY ENERGY DRILLING, INC.
d/b/a CLINT HURT DRILLING
By: /s/ Stephen E. McGregor
Title: Vice President
KALKASKA OILFIELD SERVICES, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
ODESSA EXPLORATION INCORPORATED
By: /s/ Stephen E. McGregor
Title: Vice President
PHOENIX WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
WELL-CO OIL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
PATRICK WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
MOSLEY WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
RAM OILWELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
ROWLAND TRUCKING CO., INC.
By: /s/ Stephen E. McGregor
Title: Vice President
LANDMARK FISHING & RENTAL, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
BRW DRILLING, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
DUNBAR WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
FRONTIER WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY ROCKY MOUNTAIN, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY FOUR CORNERS, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
<PAGE>
SCHEDULE I TO
FIRST AMENDMENT
TRANSFERS
Purchasing Lenders Commitment Assigned Loan Assigned L/C Participations
Assigned
Credit Lyonnais
New York Branch $22,500,000 $6,480,000 $100,054.17
Hibernia National
Bank $22,500,000 $6,480,000 $100,054.17
The Bank of New York $19,500,000 $5,616,000 $86,713.61
BHF-BANK
Aktiengellschaft $19,500,000 $5,616,000 $86,713.61
The First National
Bank of Chicago $19,500,000 $5,616,000 $86,713.61
Goldman Sachs
Credit Partners L.P. $19,500,000 $5,616,000 $86,713.61
The Fuji Bank, Ltd. $19,500,000 $5,616,000 $86,713.61
The Bank of
Nova Scotia $13,750,000 $3,960,000 $61,144.22
Bank One,
Texas, N.A. $13,750,000 $3,960,000 $61,144.22
Corestates Bank, N.A. $13,750,000 $3,960,000 $61,144.22
Den norske Bank ASA $13,750,000 $3,960,000 $61,144.22
Commercial Loan
Funding Trust I $10,000,000 $2,880,000 $44,468.52
Lehman Commercial
Paper Inc. $ 3,750,000 $1,080,000 $16,175.70
Norwest Bank
Texas, N.A. $13,750,000 $3,960,000 $61,144.22
Total $225,000,000 $64,800,000 $1,000,541.71
<PAGE>
EXHIBIT A TO
FIRST AMENDMENT
Schedule 1.1
Commitments; Lending Offices and Addresses
Bank Commitment Commitment Percentage
PNC Bank $25,000,000 10.00%
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Thomas Majeski
Telecopy: (412) 762-2571
Telephone: (412) 762-2431
Credit Lyonnais New York Branch $22,500,000 9.00%
c/o its representative office at:
1000 Louisiana, Suite 5360
Houston, TX 77002
Attention: Tom Byargeon
Telecopy: (713) 751-0307
Telephone: (713) 753-8706
Hibernia National Bank $22,500,000 9.00%
313 Carondelet Street
Suite 1300
New Orleans, LA 70130
Attention: Byron Kives
Telecopy: (504) 533-5464
Telephone: (504) 533-6425
The Bank of New York $19,500,000 7.80%
Energy Industries Division
One Wall Street, 19th Floor
New York, NY 10286
Attention: Catherine Goff
Telecopy: (212) 635-7923/7924
Telephone: (212) 635-7889
BHF-BANK Aktiengellschaft $19,500,000 7.80%
590 Madison Avenue
New York, NY 10022-2540
Attention: Paul Travers
Telecopy: (212) 756-5536
Telephone: (212) 756-5570
The First National Bank of Chicago $19,500,000 7.80%
One First National Plaza
Mail Suite 0362
Chicago, IL 60670-0362
Attention: George Schanz
Telecopy: (312) 732-3055
Telephone: (312) 732-1214
Goldman Sachs Credit Partners L.P. $19,500,000 7.80%
85 Broad Street
New York, N.Y. 10004
Attention: Edmund Kearns
Telecopy: (212) 357-0271
Telephone: (212) 902-4109
The Fuji Bank, Ltd. $19,500,000 7.80%
1 Houston Center
Suite 4100
Houston, TX 77010
Attention: Mark Polasek
Telecopy: (713) 759-0048
Telephone: (713) 650-7863
The Bank of Nova Scotia $13,750,000 5.50%
1100 Louisiana Street
Suite 3000
Houston, TX 77002
Attention: Jamie Conn
Telecopy: (713) 752-2425
Telephone: (713) 759-3426
Bank One, Texas, N.A. $13,750,000 5.50%
1717 Main Street
Dallas, TX 75201
Attention: Wm. Mark Cranmer
Telecopy: (214) 290-2627
Telephone: (214) 290-2212
Corestates Bank, N.A. $13,750,000 5.50%
1345 Chestnut Street
FC 1-8-3-14
Philadelphia, PA 19106
Attention: Melissa Landay
Telecopy: (215) 973-7820
Telephone: (215) 973-8276
Den norske Bank ASA $13,750,000 5.50%
Three Allen Center
333 Clay Street
Suite 4890
Houston, TX 77002
Attention: Byron Cooley
Telecopy: (713) 757-1167
Telephone: (713) 844-9258
Commercial Loan Funding Trust I $10,000,000 4.00%
c/o Texas Commerce National Associates
600 Travis Street - 8th Floor
Houston, TX 77002-8039
Attention: Susan Williams
Telecopy: (713) 216-2101
Telephone: (713) 216-5192
Lehman Commercial Paper Inc. $ 3,750,000 1.50%
3 World Financial Center, 10th Floor
New York, NY 10285
Attention: Michelle Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
Norwest Bank Texas, N.A. $13,750,000 5.50%
500 West Texas Avenue
Midland, TX 79701
Attention: Mark D. McKinney
Telecopy: 915-685-5441
Telephone: 915-685-5149
Total $250,000,000 100.00%
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 53,770
<SECURITIES> 0
<RECEIVABLES> 76,875
<ALLOWANCES> 0
<INVENTORY> 10,182
<CURRENT-ASSETS> 142,781
<PP&E> 412,601
<DEPRECIATION> (31,065)
<TOTAL-ASSETS> 587,583
<CURRENT-LIABILITIES> 43,680
<BONDS> 0
<COMMON> 1,836
0
0
<OTHER-SE> 110,998
<TOTAL-LIABILITY-AND-EQUITY> 132,353
<SALES> 4,067
<TOTAL-REVENUES> 185,193
<CGS> 1,831
<TOTAL-COSTS> 165,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,317
<INCOME-PRETAX> 19,678
<INCOME-TAX> 7,395
<INCOME-CONTINUING> 12,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,283
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.62
</TABLE>
