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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
AND
SCHEDULE 13D
(AMENDMENT NO. 6)
UNDER THE SECURITIES ACT OF 1934
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DAWSON PRODUCTION SERVICES, INC.
(NAME OF SUBJECT COMPANY)
MIDLAND ACQUISITION CORP.
KEY ENERGY GROUP, INC.
(BIDDERS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
239423106
(CUSIP NUMBER OF CLASS OF SECURITIES)
JACK D. LOFTIS, JR.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
(732) 247-4822
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
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WITH A COPY TO:
MICHAEL P. ROGAN
C. KEVIN BARNETTE
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202) 371-7000
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This Amendment No. 1 (this "Amendment") amends and supplements the
Tender Offer Statement on Schedule 14D-1 filed on August 17, 1998 (the "Schedule
14D-1") by Key Energy Group, Inc., a Maryland corporation ("Parent"), and its
wholly owned subsidiary, Midland Acquisition Corp., a New Jersey corporation
(the "Purchaser"), relating to the Purchaser's tender offer for all outstanding
shares of common stock, par value $0.01 per share, including the associated
common stock purchase rights, of Dawson Production Services, Inc., a Texas
corporation (the "Company") upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 17, 1998 (the "Offer to Purchase").
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Schedule 14D-1 and the Offer to Purchase. This
Amendment also constitutes Amendment No. 6 to the statement on Schedule 13D (as
amended, the "Schedule 13D") of Parent and the Purchaser filed on June 15, 1998,
as amended by Amendment No. 1 on June 29, 1998, Amendment No. 2 on July 21,
1998, Amendment No. 3 on August 5, 1998, Amendment No.4 on August 11, 1998 and
Amendment No. 5 on August 17, 1998. Except as amended and supplemented hereby,
the Schedule 14D-1 and the Schedule 13D remain in effect. The item numbers and
responses thereto set forth below are in accordance with the requirements of
Schedule 14D-1.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Item 4 is hereby amended and supplemented by adding the following
thereto:
(b) Commitment Letter from Lehman Brothers. Parent has been provided
with a commitment (the "Interim Loan Commitment") by Lehman Commercial Paper
Inc. ("Lehman Commercial Paper"), as Administrative Agent and Lehman Brothers
Inc. ("Lehman Brothers" and, together with Lehman Commercial Paper, "Lehman"),
as exclusive advisor and arranger under the Interim Loan Agreement (as defined
below), dated as of August 24, 1998, pursuant to which Lehman Commercial Paper
has agreed, upon the terms and conditions set forth in the Interim Loan
Commitment, to provide, or cause their affiliates or assignees to provide,
Parent with up to $150 million in interim loans (the "Interim Loans"). Under the
terms of the Interim Loan Commitment, the Interim Loans may be drawn upon at the
time of payment for Shares tendered in the Offer and the funds will be used to
purchase Shares validly tendered and pay related fees and expenses. The Interim
Loan Commitment provides that Lehman Commercial Paper will have the right to
arrange for other banks, financial institutions and other financial investors
(together with Lehman Commercial Paper, the "Interim Lenders") to directly
provide a portion of the funds constituting the Interim Loans.
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The obligation of Lehman Commercial Paper and each of the Interim
Lenders to provide the Interim Loans under the Interim Loan Commitment is
subject to, among others, the following conditions: (i) the execution and
delivery of a definitive loan agreement (the "Interim Loan Agreement") and the
execution and delivery of definitive documentation with respect to the New
Credit Facility (as defined below) with PNC; (ii) the satisfaction or waiver
with the approval of Lehman Commercial Paper of all conditions to the New Credit
Facility; (iii) the borrowing of funds under the New Credit Facility, which
together with the Interim Loans will be sufficient to consummate the Offer and
pay all related fees and expenses; (iv) there shall be available under the New
Credit Facility sufficient amounts to fund the Senior Note Repurchase (as
defined below) and to pay the other unfunded amounts required in connection with
the acquisition of the Company by Parent and the Purchaser; (v) no default or
event of default shall have occurred under the New Credit Facility, the Interim
Loans or the Interim Loan Agreement or under any material indebtedness of Parent
or the Company; (vi) the capitalization, corporate and ownership structure of
Parent before and after the acquisition of the Company will be satisfactory to
the Interim Lenders in all respects; (vii) Parent and the Company will not have
any outstanding debt other than that contemplated by the Interim Loan
Commitment; (viii) concurrence by the Interim Lenders with the operating and
financial assumptions used in preparing the combined pro forma financial
information of the Company after its acquisition by Parent; (ix) absence of
material adverse changes with respect to the consolidated financial condition,
operations, business, assets, liabilities, management, prospects or value of
Parent or the Company; (x) absence of certain adverse events with respect to the
New York Stock Exchange and the general economic, political or financial
conditions of the financial markets in the United States; (xi) no change in law
resulting in the Interim Loans being a charge to net capital to the Interim
Lenders; (xii) receipt of an environmental audit of Parent and the Company by
the Interim Lenders; (xiii) receipt of required governmental and shareholder
approvals; and (xiv) after giving effect to the consummation of the Offer, an
amount undrawn and available under the New Credit Facility shall be sufficient
to fund the Merger and the Senior Note Repurchase, to refinance indebtedness
required to be refinanced, and to pay related transaction fees and costs.
Under the terms of the Interim Loan Commitment, the Interim Loans will
bear interest at a variable per annum rate (the "Interest Rate") equal to the
sum of (a) a base rate to be selected by Lehman Commercial Paper on the date of
funding (the "Funding Date") equal to the one- or three- month LIBOR reset
monthly or quarterly, as the case may be, calculated on the actual number of
days elapsed in a year of 360 days plus (b) a margin equal to 550 basis points.
The margin will increase by 50 basis points upon the 180-day anniversary of the
Funding Date and by an additional 50 basis points on each 90-day anniversary
thereafter. The Interim Loan Commitment further provides that the Interest Rate
will not exceed 17% per annum and to the extent that any interest payable on the
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Interim Loans on any interest payment date exceeds 14% per annum, Parent shall
have the option to pay such excess by capitalizing such interest as additional
Interim Loans. Interest will be payable quarterly, in arrears, on the Maturity
Date (as defined below) and on the date of any prepayment of the Interim Loans.
The Interim Loan Commitment provides that the Interim Loans will be
senior secured Interim Loans from the Funding Date until the date of the Merger,
ranking pari passu with the New Credit Facility and from and after the date of
the Merger, the Interim Loans will be subordinated in right of payment to the
payment in full of all obligations under the New Credit Facility and certain
refinancings thereof, on terms satisfactory to the Interim Lenders in their sole
discretion. The Interim Loan Commitment further provides that the Interim Loans
will be prepaid in an amount equal to the difference between the principal
amount of Interim Loans actually funded and the total amount of funds required
to effect the Senior Note Repurchase.
The Interim Loans will mature 365 days from the Funding Date (the
"Maturity Date"). If the Interim Loans are not repaid in full prior to the
Maturity Date and upon the satisfaction of certain conditions set forth in the
Interim Loan Commitment, the Interim Loans will automatically be converted on
the Maturity Date into term loans due 2008 (the "Term Loans") of Parent in an
aggregate principal amount equal to the aggregate senior principal amount of
Interim Loans so converted. The Interim Loan Commitment provides that at any
time on or after the Maturity Date, the Term Loans may, at the option of a
holder thereof and with the consent of Lehman Commercial Paper and subject to
certain conditions set forth in the Interim Loan Commitment, be exchanged for a
senior subordinated exchange note (the "Exchange Notes") having a principal
amount equal to the principal amount of the Term Loan for which it is exchanged.
The Term Loans and Exchange Notes will bear interest at a rate to be determined
on the Maturity Date and shall equal (a) the interest rate borne by the Interim
Loans on the day immediately preceding the Maturity Date plus 100 basis points
plus (b) in the case of the Term Loans, a margin of 100 basis points beginning
on the first 90-day anniversary of the Maturity Date and increasing by 100 basis
points on each 90-day anniversary thereafter. The Interim Loan Commitment
further provides that Parent will file a shelf registration statement (the
"Shelf Registration Statement") with the Commission with respect to the Exchange
Notes and has agreed to pay a margin ranging from an additional 50 to 200 basis
points on the principal amount of Exchange Notes depending on when the Shelf
Registration Statement is filed.
The Interim Loan Commitment further provides that the Interim Loans
will be guaranteed by each of Parent's subsidiaries that guarantees all or any
portion of the indebtedness under the New Credit Facility. Under the terms of
the Interim Loan Commitment, Parent will be required to repay the Interim Loans
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from the net proceeds from any direct or indirect incurrence of subordinated
indebtedness by Parent or any other issuance of debt or equity securities of
Parent or any of its subsidiaries. The Interim Loan Commitment also provides
that upon a change of control of Parent (as defined in the Interim Loan
Commitment), Parent must offer to repay the Interim Loans at a price of 101% of
the principal amount outstanding, plus accrued fees and all accrued but unpaid
interest.
Under the terms of the Interim Loan Commitment, Parent has agreed to
pay Lehman Commercial Paper certain fees, to reimburse Lehman Commercial Paper
for reasonable out-of-pocket expenses and to provide certain indemnities, as is
customary for commitments such as the Interim Loan Commitment.
Commitment Letter with PNC. Parent has been provided with a commitment
(the "New Financing Commitment"), dated as of August 24, 1998, to provide Parent
with $550,000,000 in senior secured credit facilities (the "New Credit
Facility") that replaces the Financing Commitment with PNC, dated as of August
17, 1998, previously disclosed in the Offer to Purchase. The New Financing
Commitment is substantially similar to, and does not materially differ from, the
Financing Commitment except as set forth in this Amendment.
Under the terms of the New Financing Commitment, the proceeds of the
New Credit Facility would be used to (i) to fund the purchase of Shares pursuant
to the Offer and the Merger and to pay transaction costs associated therewith,
(ii) to refinance certain indebtedness of Parent and the Company, (iii) to pay
fees and expenses associated with the New Credit Facility, and (iv) to pay the
holders of Senior Notes who have put their Senior Notes as a result of a change
of control of the Company in connection with the Offer and the Merger (the
"Senior Note Repurchase").
The New Financing Commitment provides that the Interim Loans will rank
pari passu with the New Credit Facility until the date of the Merger and that
following the date of the Merger, the Interim Loans will become junior and
subordinated to the New Credit Facility. The New Financing Commitment further
provides that the Interim Loans may be prepaid to the extent the principal
amount thereof exceeds 101% of the principal amount of the Senior Notes put as a
result of a change of control of the Company plus interest, fees and expenses
paid in connection with the Interim Loans and the Senior Notes.
The foregoing summary of the Interim Loan Commitment and the New
Financing Commitment does not purport to be complete and is qualified by
reference to such documents, copies of which have been filed as exhibits to this
Amendment.
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ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 is hereby amended and supplemented by adding the following
exhibits thereto:
(b)(4) Commitment Letter between Parent and Lehman Commercial Paper,
Inc. and Lehman Brothers, Inc., dated as of August 24, 1998.
(b)(5) Commitment Letter between Parent and PNC Bank, N.A., dated as
of August 24, 1998.
(g)(1) Text of press release, dated August 26, issued by Parent.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, the undersigned
certifies that the information set forth in this statement is true, complete and
correct.
Dated: August 26, 1998
MIDLAND ACQUISITION CORP.
By: /s/ Stephen E. McGregor
---------------------------------------------
Name: Stephen E. McGregor
Title: President and Chief Executive Officer
KEY ENERGY GROUP, INC.
By: /s/ Francis D. John
---------------------------------------------
Name: Francis D. John
Title: Chairman, President and
Chief Executive Officer
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EXHIBIT INDEX
(a) (1) Offer to Purchase, dated August 17, 1998.
(2) Letter of Transmittal.
(3) Notice of Guaranteed Delivery.
(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks,
Trust companies and other Nominees.
(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust
companies and other Nominees.
(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(7) Summary Advertisement as published on August 17, 1998.
(8) Text of Press Release, dated August 11, 1998, issued by Parent
(incorporated by reference to Amendment No. 4 of the Schedule 13D,
filed by Parent and the Purchaser on August 12, 1998).
(9) Text of Press Release, dated August 17, 1998, issued by Parent.
(b) (1) Commitment Letter between Parent and PNC Bank, N.A., dated as of
August 17, 1998.
(2) Engagement Letter between Parent and Bear, Stearns & Co. Inc., dated
as of May 8, 1998.
(3) Engagement Letter between Parent and Dain Rauscher Wessels, dated as
of July 2, 1998.
(4) Commitment Letter between Parent and Lehman Commercial Paper, Inc. and
Lehman Brothers, Inc., dated as of August 24, 1998.*
(5) Commitment Letter between Parent and PNC Bank, N.A., dated as of
August 24, 1998.*
(c) (1) Agreement and Plan of Merger, dated as of August 11, 1998 by and among
Parent, the Purchaser and the Company (incorporated by reference to
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Amendment No. 4 of the Schedule 13D, filed by Parent and the Purchaser
on or about August 12, 1998).
(2) Confidentiality Agreement, dated as of August 8, 1998 by and among
Parent, the Purchaser and the Company.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) (1) Text of press release, dated August 26, issued by Parent.*
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* Filed herewith.
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LEHMAN COMMERCIAL PAPER INC. Lehman Brothers Inc.
3 WORLD FINANCIAL CENTER 3 World Financial Center
NEW YORK, NEW YORK 10285 New York, New York 10285
August 25 1998
COMMITMENT LETTER
Board of Directors
Key Energy Group, Inc.
Ladies and Gentlemen:
This commitment letter agreement (together with all exhibits and
schedules hereto, this "Commitment Letter") will confirm the understanding and
agreement among Lehman Commercial Paper Inc., as Administrative Agent ("LCPI" or
the "Administrative Agent"), Lehman Brothers Inc., as exclusive advisor and
arranger under the Interim Loan Agreement referred to below ("Lehman Brothers"),
Key Energy Group, Inc. (together with each of its subsidiaries, the "Company"),
in connection with the proposed acquisition of Dawson Production Services, Inc.
(together with each of its subsidiaries, the "Acquired Business"). We understand
that the Company proposes to sign an agreement (the "Acquisition Agreement")
pursuant to which the Company will commence a tender offer (the "Tender Offer")
to acquire all of the issued and outstanding common stock of the Acquired
Business (the "Acquisition") and in connection with the Acquisition, the
Acquired Business will merge with and into the Company and will no longer be a
subsidiary of the Company (the "Merger").
You have advised us that the total purchase price for the Acquisition
(including fees and expenses (which will not exceed $25 million) and the
refinancing of approximately $350 million of existing debt of the Company and
the Acquired Business, including the repurchase (the "Dawson Note Repurchase")
of up to $140 million aggregate principal amount of 9 3/8% Senior Notes due 2007
(the "Dawson Notes") of the Acquired Business at a purchase price of 101% of the
principal amount thereof plus accrued interest upon a Change of Control (as
defined in the Indenture governing the Dawson Notes) (a "Dawson Change of
Control")), will be approximately $625 million and that the Acquisition (and the
refinancing of such debt) and the payment of such fees and expenses will be
financed with (i) $475 million of borrowings by the Company under a facility
(the "Senior Credit Facility") among the Company, PNC Bank, N.A. ("PNC") and the
financial institutions party thereto and (ii) the issuance by the Company of
$150 million in aggregate principal amount of Senior or Senior Subordinated
Notes due 2008 (the "Permanent Securities"). Following the Acquisition and the
Merger, the Company and the Acquired Business will have no debt (except as
described above and except for $216 million in aggregate principal amount of
convertible subordinated notes due 2004 issued by the Company (the "Convertible
Notes")) and the Acquired Business will merge with and into the Company and will
no longer be a subsidiary of the Company.
1. The Commitments. You have requested that LCPI and/or one or more
affiliates of LCPI to be designated by LCPI in its sole discretion and/or any
lenders who become party to this Commitment Letter by assignment in accordance
with Section 6 (collectively, the "Interim Lenders") commit to provide the
Company up to $150 million in interim loans (the "Interim Loans"), having the
<PAGE>
terms set forth on Exhibit A hereto, which Interim Loans may be drawn at the
time of payment for the Tender Offer in lieu of initially issuing Permanent
Securities. The Interim Loans will be senior secured Interim Loans from the date
of funding thereof until the date of the Merger, ranking pari passu with the
Senior Credit Facility, and the Interim Loans will be senior subordinated
Interim Loans, from and after the date of the Merger (if the Merger occurs) or
if such funding occurs on or after the date of the Merger.
Based on the foregoing and in reliance on an Engagement Letter, each
of the Interim Lenders is pleased to confirm by this Commitment Letter its
respective commitment to you (each, a "Commitment" and, collectively, the
"Commitments"), severally and not jointly, to provide or cause one of its
affiliates to provide an Interim Loan in the amount set forth opposite its name
on Schedule 1 hereto pursuant to a loan agreement (the "Interim Loan Agreement")
containing the terms, conditions and other provisions set forth on Exhibit A
hereto. Notwithstanding the above, you understand that each Interim Lender's
obligation to provide Interim Loans is expressly subject to the terms and
conditions set forth herein and will exist only upon the execution and delivery
of definitive documentation, including, without limitation, the Interim Loan
Agreement, satisfactory to the Administrative Agent and its counsel, and the
satisfaction of the terms, covenants and conditions contained therein. You
further agree that if LCPI determines in its sole discretion that it would be
advisable to structure the Interim Loans as securities to facilitate syndication
of the Commitments or for any other reason, that the documentation contemplated
by this Commitment Letter will be appropriately modified to provide for an
issuance of senior interim notes having terms as nearly identical as practicable
to those of the Interim Loans.
2. Fees and Expenses. In consideration of the execution and delivery
of this Commitment Letter by each of the Interim Lenders, you agree to pay the
fees contemplated by the Fee Letter dated the date hereof.
3. Indemnification The Company hereby agrees to indemnify and hold
harmless each of the Interim Lenders and each of their respective officers,
directors, employees, advisors and agents (each, an "Indemnified Person") from
and against any and all losses, claims, damages and liabilities to which any
such indemnified person may become subject arising out of or in connection with
this Commitment Letter, the Interim Loans, the use of the proceeds therefrom,
the Acquisition or any of the other transactions contemplated by this Commitment
Letter or the term sheet attached as Exhibit A hereto or any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless of
whether any indemnified person is a party thereto, and to reimburse each
indemnified person upon demand for all legal and other expenses reasonably
incurred by it in connection with investigating, preparing to defend or
defending, or providing evidence in or preparing to serve or serving as a
witness with respect to, any lawsuits, investigations, claims or other
proceedings relating to any of the foregoing (including, without limitation, in
connection with the enforcement of the indemnification obligations set forth
herein); provided, however, that no indemnified person shall be entitled to
indemnity hereunder in respect of any loss, claim, damage, liability or expense
to the extent that it is finally judicially determined that such loss, claim,
damage, liability or expense resulted directly from the gross negligence or
willful misconduct of such indemnified person.
The Company further agrees that, without the prior written consent of
each of the Interim Lenders, which consent will not be unreasonably withheld, it
will not enter into any settlement of a lawsuit, claim or other proceeding
arising out of this Commitment Letter or the transactions contemplated by this
Commitment Letter unless such settlement includes an explicit and unconditional
release from the party bringing such lawsuit, claim or other proceeding of all
indemnified persons.
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In case any action or proceeding shall be instituted involving any
indemnified person for which indemnification is to be sought hereunder by such
indemnified person, then such indemnified person shall promptly notify the
Company of the commencement of such action or proceeding; provided, however,
that the failure so to notify the Company shall not relieve the Company from any
liability that they may have to such indemnified person pursuant to this Section
3 or from any liability that they may have to such indemnified person other than
pursuant to this Section 3. Notwithstanding the above, following such
notification, the Company may elect in writing to assume the defense of such
action or proceeding, and, upon such election, it shall not be liable for any
legal costs subsequently incurred by such indemnified person (other than
reasonable costs of investigation and providing evidence) in connection
therewith, unless (i) it has failed to provide counsel reasonably satisfactory
to such indemnified person in a timely manner, (ii) counsel provided by the
Company reasonably determines that its representation of such indemnified person
would present it with a conflict of interest or (iii) the indemnified person
reasonably determines that there may be legal defenses available to it which are
different the Company shall not be responsible for the fees and expenses of more
than one separate law firm (in addition to local counsel) for all indemnified
persons.
The Company and the Interim Lenders agree that if any indemnification
or reimbursement sought pursuant to this Section 3 is judicially determined to
be unavailable for a reason other than the gross negligence or willful
misconduct of an indemnified person, then, whether or not an Interim Lender is
the indemnified person, the Company, on the one hand, and the Interim Lenders,
on the other hand (pro rata in accordance with their respective Commitments),
shall contribute to the losses, claims, damages, liabilities and expenses for
which such indemnification or reimbursement is held unavailable (i) in such
proportion as is appropriate to reflect the relative benefits to the Company, on
the one hand, and the Interim Lenders, on the other hand, in connection with the
transactions to which such indemnification or reimbursement relates, or (ii) if
the allocation provided by clause (i) above is judicially determined not to be
permitted, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative faults of the Company,
on the one hand, and the Interim Lenders, on the other hand, as well as any
other equitable considerations; provided, however, that in no event shall the
amount to be contributed by an Interim Lender pursuant to this paragraph exceed
the amount of the fees actually received by such Interim Lender under this
Commitment Letter .
4. Expiration of Commitment. The Commitments shall expire at 5:00
p.m., New York City time, on August 26, 1998 unless you shall have executed and
returned a copy of this Commitment Letter and the Fee Letter to the Interim
Lenders prior to the expiration of the Commitments and paid the commitment fee
contemplated by the Fee Letter, which will follow in which event each Interim
Lender agrees to hold its respective Commitment available for you until the
earlier of (i) the termination of the Acquisition Agreement, (ii) the payment
for the Tender Offer without the funding of any Interim Loans and (iii) 5:00
p.m., New York City time, on December 31, 1998. The date and time of expiration
of the Commitments is sometimes referred to herein as the "Commitment Expiration
Date."
5. Confidentiality. This Commitment Letter and the terms and
conditions contained herein shall not be disclosed by the Company to any person
or entity (other than the Acquired Business and such of your and their agents
and advisers as need to know and agree to be bound by the provisions of this
paragraph) without the prior written consent of the Interim Lenders.
6. Assignment and Syndication. The parties hereto agree that LCPI
shall have the right to arrange for other banks, financial institutions or other
financial investors (including, without limitation, each affiliate and
beneficial owner of LCPI or Strategic Resource Partners Fund ("SRP"), any entity
that acquires substantially all of the business or assets of LCPI or SRP and
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each entity with whom SRP or any of its affiliates has entered into an
arrangement with respect to the syndication of interim loans (collectively,
"Permitted Assignees")) to directly provide a portion of the Commitments and
become an Interim Lender under this Commitment Letter, subject to the Company's
prior approval (which may not be unreasonably withheld) only in the case of
entities that are not Permitted Assignees. In any such case, LCPI, Lehman
Brothers or a designee of LCPI would act as arranger, underwriter and sole
syndication agent (in such capacity, the "Syndication Agent"). The Syndication
Agent would manage all aspects of any such syndication, including the timing of
all offers to potential Interim Lenders, the acceptance of commitments, the
amounts offered, the amounts allocated and the compensation provided, and the
Company agree to use their best efforts to assist the Syndication Agent in such
syndication process, including, without limitation, preparing disclosure
materials, meeting with prospective lenders, arranging for the management of the
Acquired Business to meet with prospective lenders and providing such
information as the Syndication Agent shall reasonably request during the course
of such process. The Company may not assign any of its respective rights, or be
relieved of any of its obligations, without the prior written consent of each of
the Interim Lenders. In connection with any syndication of all or a portion of
the Commitments, the rights and obligations of each of the Interim Lenders
hereunder may be assigned by such Interim Lender, in whole or in part, as
provided above, and upon such assignment, such Interim Lender shall be relieved
and novated hereunder from the obligations of such Interim Lender with respect
to any portion of its Commitment that has been assigned as provided above. LCPI
intends to consult with PNC, as agent for the Senior Credit Facility, with
respect to such syndication.
SRP is a Delaware business trust managed by an affiliate of Lehman
Brothers. SRP's Certificate of Trust is on file with the Secretary of State of
the State of Delaware. All persons dealing with SRP, because it is a Delaware
statutory business trust, must look solely to the series (within the meaning
given to such term by Section 3806(b)(2) of the Delaware Business Trust Act) of
ownership interests in SRP evidencing ownership by SRP of Interim Loans for the
enforcement of any claims against SRP arising by reason of or in connection with
such interest. None of the manager, the adviser, the trustee, the beneficial
owners or other agents of SRP assumes any personal liability in connection with
the business of SRP or for obligations entered into on behalf of SRP.
7. Survival. The provisions of this Commitment Letter relating to the
payment of fees and expenses, indemnification and contribution and
confidentiality and the provisions of Section 8 below will survive the
expiration or termination of this Commitment Letter (including any extensions
thereof).
8. Choice of Law; Jurisdiction; Waivers. This Commitment Letter shall
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to the principles of conflicts of laws thereof. To
the fullest extent permitted by applicable law, the Company hereby irrevocably
submits to the jurisdiction of any New York State court or Federal court sitting
in the County of New York in respect of any suit, action or proceeding arising
out of or relating to the provisions of this Commitment Letter and irrevocably
agrees that all claims in respect of any such suit, action or proceeding may be
heard and determined in any such court. The Company hereby waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court, and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Company hereby waives, to the fullest extent permitted by applicable law,
any right to trial by jury with respect to any action or proceeding arising out
of or relating to this Commitment Letter.
9. Miscellaneous. This Commitment Letter may be executed in one or
more counterparts, each of which will be deemed an original, but all of which
taken together will constitute one and the same instrument.
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This Commitment Letter and the attached Exhibits A and B set forth the
entire understanding of the parties hereto as to the scope of the Commitment and
the obligations of the Interim Lenders hereunder. This Commitment Letter shall
supersede all prior understandings and proposals, whether written or oral,
between the Interim Lenders and you relating to any financing or the
transactions contemplated hereby.
This Commitment Letter has been and is made solely for the benefit of
the Company, the Interim Lenders, the indemnified persons, and their respective
successors and assigns, and nothing in this Commitment Letter, expressed or
implied, is intended to confer or does confer on any other person or entity any
rights or remedies under or by reason of this Commitment Letter or the
agreements of the parties contained herein.
As you know, beneficial owners and affiliates of SRP, including Lehman
Brothers, are full service financial firms and as such from time to time may
effect transactions for their own account or the account of customers, and hold
long or short positions in debt or equity securities or loans of companies that
may be the subject of the transactions contemplated by this Commitment Letter.
[Signature Page Follows]
5
<PAGE>
[Commitment Letter-Signature Page]
If you are in agreement with the foregoing, kindly sign and return to
us the enclosed copy of this Commitment Letter.
Very truly yours,
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Christopher Ryan
---------------------------
Name: Christopher Ryan
Title: Authorized Signatory
LEHMAN BROTHERS INC.
By: /s/ Michael J. Konigsberg
---------------------------
Name: Michael J. Konigsberg
Title: Managing Director
Accepted and agreed to as of the
date first above written:
KEY ENERGY GROUP, INC.
By: /s/ Stephen E. McGregor
-----------------------
Name: Stephen E. McGregor
Title: EVP & CFO
6
<PAGE>
EXHIBIT A TO COMMITMENT LETTER
------------------------------
SUMMARY OF TERMS OF INTERIM LOANS AND INTERIM LOAN AGREEMENT
------------------------------------------------------------
Set forth below is a summary of certain of the terms of the Interim
Loans and the Interim Loan Agreement. The Commitment of the Interim Lenders to
provide the Interim Loans is subject expressly to the negotiation, execution and
delivery of definitive documentation, including, without limitation, an Interim
Loan Agreement and other appropriate Loan Documents, satisfactory to Lehman
Brothers and its counsel, which will contain the terms, conditions and other
provisions set forth herein and such other representations, warranties,
covenants, events of default and other provisions as are customary for
financings of this kind or deemed appropriate by the Interim Lenders for this
transaction in particular (in their sole discretion). Capitalized terms used and
not otherwise defined herein have the meanings set forth in the Commitment
Letter to which this Summary of Terms is attached and of which it forms a part.
Borrower The Company.
Arranger Lehman Brothers.
Administrative Agent Lehman Commercial Paper Inc. ("LCPI").
Loans $150 million of Senior Secured Increasing
Rate Loans due 1999, if the date of funding
occurs prior to the Merger, or $150 million
of Senior Subordinated Increasing Rate Loans
due 1999, if the date of funding occurs on or
after the date of the Merger (the "Interim
Loans").
Use of Proceeds Proceeds from the Interim Loans will be used
solely to consummate the Acquisition (and to
pay related amounts).
Maturity 365 days from the date of initial funding
(the "Maturity Date"). The initial date of
funding of the Interim Loans is hereinafter
referred to as the "Closing Date," which
shall be no later than December 31 1998.
Subordination Following the Merger, if it occurs, the
Interim Loans will be subordinated in right
of payment to the payment in full of all
obligations of the Company under the Senior
Credit Facility and certain refinancings
thereof, on terms satisfactory to the Interim
Lenders in their sole discretion. The Company
will not be permitted to incur any
indebtedness that is subordinated to the
borrowings under the Senior Credit Facility
and senior to other indebtedness of the
Company. The Interim Notes in all cases will
rank senior in right of payment to the
Convertible Notes. Prior to the Merger, if
any Interim Loans are outstanding, the
Interim Loans will not be subordinated to any
other indebtedness.
Mandatory Rollover If (i) the Interim Loans are not repaid in
full on or prior to the Maturity Date and
(ii) the conditions precedent set forth in
A-1
<PAGE>
Exhibit B to the Commitment Letter are
satisfied, then the Interim Loans will be
automatically converted on the Maturity Date
into term loans due 2008 of the Company (the
"Term Loans") in an aggregate principal
amount equal to the aggregate senior
principal amount of Interim Loans so
converted. The Term Loans will have the terms
set forth in Exhibit B attached hereto. Term
Loans may be exchanged by the holders thereof
for Exchange Notes. The Exchange Notes will
be issued, undated, on the Closing Date and
placed in an escrow account and held by a
mutually agreeable fiduciary pending such
mandatory exchange.
Interest The Interim Loans will bear interest at a
variable per annum rate equal to the sum of
(a) a base rate to be selected by the
Administrative Agent on the date of funding
equal to the one- or three-month London
Interbank Offered Rate, reset monthly or
quarterly, as the case may be (the "LIBOR
Option"), calculated on the basis of the
actual number of days elapsed in a year of
360 days, plus (b) a spread (the "Spread")
equal to 550 basis points. The Spread will
increase by 50 basis points upon the 180-day
anniversary of the date of issuance of the
Interim Loans and by an additional 50 basis
points on each 90-day anniversary thereafter.
The interest rate on the Interim Loans will
not exceed 17% per annum. To the extent that
the total interest payable on the Interim
Loans on any interest payment date exceeds
14% per annum, the Company shall have the
option to pay such excess interest by
capitalizing such interest as additional
Interim Loans. Interest will be payable
quarterly, in arrears, on the Maturity Date
and on the date of any prepayment of the
Interim Loans. Notwithstanding the foregoing,
interest will accrue on any overdue amount
(whether interest or principal), to the
extent lawful, at a rate per annum equal to
200 basis points over the then current
interest rate on the Interim Loans, until
such amount (plus all accrued and unpaid
interest) is paid in full. For Interim Loans
outstanding after the Maturity Date, interest
will be payable on demand at the default
rate.
Guarantees The Interim Loans will be guaranteed by each
affiliate of the Company that guarantees all
or a portion of the indebtedness under the
Senior Credit Facility (the "Guarantors"),
which guarantees will rank in priority on the
same basis as the Interim Loans rank in
priority to the indebtedness under the Senior
Credit Facility. A subsidiary's guarantee
will be released upon the sale of such
subsidiary, subject to use of the proceeds
therefrom to repay Interim Loans and/or
borrowings under the Senior Credit Facility.
Collateral If the Closing Date occurs prior to the date
of the Merger, the Interim Loans will,
subject to the provisions set forth under the
heading "The Merger" herein, be secured on an
equal and ratable basis (pursuant to
intercreditor arrangements satisfactory to
the Interim Lenders) with the indebtedness
A-2
<PAGE>
under the Senior Credit Facility by the same
collateral that secures such indebtedness
(the "Collateral").
Mandatory Repayment Notwithstanding the "Subordination"
provisions set forth above, the Company will
repay Interim Loans with the net proceeds
from (i) any direct or indirect incurrence
(whether by public offering, private
placement or otherwise) of subordinated
indebtedness of the Company or any of the
Guarantors or any equity securities of the
Company, (ii) the incurrence of any other
indebtedness by the Company, or any
subsidiary of the Company (subject to the
requirements of the Senior Credit Facility)
and (iii) any future issuances or sales of
stock of subsidiaries or sales of assets
(subject to customary ordinary course
exceptions and the requirements of the Senior
Credit Facility) by the Company or any
subsidiary of the Company, in each case at
100% of the principal amount of the Interim
Loans repaid, plus accrued fees and all
accrued and unpaid interest and fees to the
date of the repayment. The Senior Credit
Facility will permit 100% of the net proceeds
from the issuance of the subordinated
indebtedness or equity of the Company to be
applied to repay the Interim Loans (as
converted, extended or exchanged), and prior
to the Merger, while the Interim Loans rank
pari passu with the Senior Credit Facility,
the Interim Loans and the indebtedness under
Senior Credit Facility will be prepayable
only on a pro rata pari passu basis. In
addition, concurrent with the payment of
amounts required under the Dawson Change of
Control, the Company shall prepay the Interim
Loans in an amount equal to the difference
between the principal amount of the Interim
Loans funded and the principal, premium and
interest in respect of the Dawson Notes so
purchased.
Change of Control Each holder of Interim Loans will be entitled
to require the Company, and the Company must
offer, to repay the Interim Loans held by
such holder at a price of 101% of principal
amount, plus accrued fees and all accrued and
unpaid interest to the date of repayment,
upon the occurrence of a Change of Control
(as defined in the Interim Loan Agreement).
The Interim Loan Agreement will require that
the Company, prior to complying with the
above covenant, but in any event within 90
day following a Change of Control, will
either repay all indebtedness under the
Senior Credit Facility or obtain the
requisite consents to permit the repayment of
the Interim Loans.
Optional Repayment The Interim Loans may be repaid, in whole or
in part on a pro rata basis, at the option of
the Company at any time upon five business
days' prior written notice at a price equal
to 100% of the principal amount thereof, plus
accrued fees and all accrued and unpaid
interest to the date of repayment.
A-3
<PAGE>
Payments Payments by the Company will be made by wire
transfer of immediately available funds.
Transferability With the consent of the Administrative Agent
(which consent shall not be unreasonably
withheld), each of the Interim Lenders will
be free to sell or transfer all or any part
of its Interim Loans to any third party and
to pledge any or all of the Interim Loans to
any commercial bank or other institutional
lender. Participations will not require the
consent of the Administrative Agent. Each
Interim Lender will have the absolute and
unconditional right to assign Interim Loans
or any participation therein without the
consent of the Company.
Amendments Modifications to the terms of the Interim
Loan Agreement may be made with consent of
the holders of a majority in aggregate
principal amount of the Interim Loans then
outstanding, except that without the consent
of each holder of Interim Loans affected
thereby, no modification or change may (i)
extend the maturity or time of payment of
interest of any Interim Loans, (ii) reduce
the rate of interest or the principal amount
of any Interim Loans, (iii) alter the
repayment provisions of the Interim Loans, or
reduce the percentage of holders necessary to
modify or change the Interim Loans.
Cost and Yield Protection The Interim Lenders shall receive cost and
yield protection customary for facilities and
transactions of this type, including but not
limited to breakage costs incurred in
connection with any repayment of the Interim
Loans on a day other than the last day of an
interest period, compensation in respect of
prepayments, taxes (including but not limited
to gross-up provisions for withholding taxes
imposed by any domestic or foreign
governmental authority, including taxes
relating to gross-up payments), changes in
capital requirements, guidelines or policies
or their interpretation or application,
illegality, change in circumstances, reserves
and other provisions deemed necessary by the
Interim Lenders to provide customary
protection for U.S. and non-U.S. financial
institutions.
Representations and Warranties The Interim Loan Agreement will contain such
representations and warranties of the Company
and the Guarantors as are customary for
financings of this kind or deemed appropriate
by the Interim Lenders for this transaction
in particular (in their sole discretion).
Covenants The Interim Loan Agreement will contain such
covenants of the Company and the Guarantors
as are usual and customary for financings of
this kind or as are otherwise deemed
appropriate by the Interim Lenders for this
transaction in particular (in their sole
discretion.
A-4
<PAGE>
Conditions Precedent The obligation of each of the Interim Lenders
to provide, or cause one of its affiliates to
maintain, a commitment to fund the Interim
Loans will be subject to the condition that
the following conditions (the "Tender Offer
Conditions") must be satisfied at the time of
funding which shall be the closing of the
Tender Offer. The Tender Offer Conditions
will be conditions that are customary for
closing financings of this kind or deemed
appropriate by the Interim Lenders for this
transaction in particular (in their sole
discretion), including, without limitation,
the following closing conditions:
1. Concurrent Transactions. The Company
shall purchase at the closing of the
Tender Offer a sufficient number of
shares to cause the merger to occur. All
conditions precedent to borrowings under
the Senior Credit Facility shall have
been satisfied or, with the prior
approval of the Administrative Agent,
waived, and the Company shall borrow
funds under the Senior Credit Facility,
which, together with the proceeds of the
Interim Loans, will be sufficient to
consummate the Tender Offer and pay all
related fees and expenses. The terms and
conditions of the Tender Offer and the
Acquisition Agreement shall not be
modified in a way which is not
satisfactory to the Interim Lenders. A
Dawson Change of Control shall have
occurred and be continuing, there shall
be available under the Senior Credit
Facility sufficient amounts to fund the
Dawson Change of Control in its entirety
and to pay the other unfunded amounts
required in connection with the
Acquisition, and the Company shall have
given notice of its offer to repurchase
the Dawson Notes promptly (within the
requirements of the indenture for the
Dawson Notes) upon the occurrence of
such Dawson Change of Control, There
shall not exist (pro forma for the
Acquisition and the financing thereof)
any default or event of default under
the Senior Credit Facility, the Interim
Loan Agreement, or under any other
material indebtedness or agreement of
the Company or the Acquired Business.
The capitalization and corporate and
ownership structure of the Company
before and after the Acquisition and the
financing thereof shall be satisfactory
to the Interim Lenders in all respects.
The Company and the Acquired Business
shall not have any outstanding debt
other than as described in the first
paragraph of the Commitment Letter.
2. Concurrence with Assumptions. The
concurrence by the Interim Lenders (in
their sole discretion) with the
operating and financial assumptions used
in preparing the combined pro forma
historical and projected performance of
the Company after giving effect to the
Acquisition.
A-5
<PAGE>
3. Absence of Certain Changes. No material
adverse change in the consolidated
financial condition, results of
operations, business, assets,
liabilities, management, prospects or
value of the Company or the Acquired
Business (including any event which, in
the opinion of the Interim Lenders, is
likely to result in such a material
adverse change) shall have occurred
since the date of the most recent
audited financial statements that have
been delivered to the Interim Lenders as
of the date hereof as to make it, in the
reasonable judgment of Lehman Brothers,
impractical or inadvisable to proceed
with the funding of the Interim Loans on
the Closing Date pursuant to the terms
contemplated herein. No material
inaccuracy in such financial statements
shall exist. The Company and the
Acquired Business shall have no material
liabilities except (i) those set forth
on the most recent audited balance
sheets of such entities provided to the
Interim Lenders as of the date hereof
and (ii) those incurred in the ordinary
course of business (and consistent with
past practice) since such date.
4. Documentation, Legal Matters, etc. All
matters relating to the transactions
contemplated hereby, the Senior Credit
Facility and the transactions
contemplated thereby shall be
satisfactory to each of the Interim
Lenders in all respects, and each of the
Interim Lenders shall have received such
additional certificates, legal and other
opinions (including with respect to
solvency) and documentation as it shall
request.
5. Market Disruption. There shall not have
occurred any of the following: (i)
trading in securities generally on the
New York Stock Exchange or The Nasdaq
Stock Market's National Market or in the
over-the-counter market shall have been
suspended or materially limited, or
minimum prices shall have been
established on such exchange by the
Securities and Exchange Commission, or
by such exchange or by any other
regulatory body or governmental
authority having jurisdiction, (ii) a
banking moratorium shall have been
declared by Federal or state
authorities, (iii) the United States
shall have become engaged in
hostilities, there shall have been any
escalation in hostilities involving the
United States or there shall have been
declared a national emergency or war by
the United States, (iv) a disruption or
adverse change in the financial or
capital markets generally, in the market
for new issues of high yield debt or
equity securities in particular or (v) a
material adverse change in the general
economic, political or financial
conditions (or the effect of
international conditions on the
financial markets in the United States
shall be such) as to make it, in the
A-6
<PAGE>
reasonable judgment of Lehman Brothers,
impracticable or inadvisable to proceed
with the funding of the Interim Loans on
the Closing Date pursuant to the terms
contemplated herein.
6. Net Capital. There shall not have
occurred any change in law or regulation
(or interpretation thereof) that could
result in any Interim Lender's
commitment to provide, or any Interim
Lender's providing, the financing
contemplated by the Interim Loan
Agreement being a charge to the net
capital of such Interim Lender's parent
or affiliate.
7. Environmental Audit. The Interim Lenders
shall have received environmental
reports with respect to the real
property owned or leased by the Company,
any of its subsidiaries or the Acquired
Business and their respective operations
from a firm satisfactory to the
Administrative Agent, in its sole
discretion, and the Interim Lenders
shall be satisfied with the results of
such reports, in their sole discretion.
8. Financial Statements. The Interim
Lenders shall have received all audited
and unaudited historical financial
statements of the Company, the
Guarantors and the Acquired Business and
all other completed or probable
acquisitions (including pro forma
financial statements) meeting the
requirements of Regulation S- X for a
Form S-1 registration statement under
the Securities Act of 1933, as amended,
and all such financial statements shall
be satisfactory in form and substance to
the Interim Lenders, in their sole
discretion.
9. Compliance With Other Agreements. The
Company shall have complied with all of
their obligations under the Fee Letter
and the Engagement Letter.
10. Solvency. The Interim Lenders shall have
received a satisfactory solvency
analysis from the chief financial
officer of the Company which shall
document the solvency of the Company and
its subsidiaries after giving effect to
the Acquisition and the other
transactions contemplated hereby.
11. Approvals and Consents. All
governmental, quasi-governmental,
shareholder and third-party approvals
and consents necessary or desirable in
connection with the transactions
contemplated hereby and the financing
thereof shall have been received and
shall be in full force and effect.
A-7
<PAGE>
12. Availability under Senior Credit
Facility. After giving effect to the
consummation of the Tender Offer, the
amount undrawn and available to the
Company under the Senior Credit Facility
shall be sufficient to fund the Merger,
the Dawson Change of Control in its
entirety, to refinance indebtedness
required to be refinanced, to pay
related transaction fees and costs and
otherwise satisfactory to the
Administrative Agent, in its sole
discretion.
13. Legal Opinions. The Interim Lenders
shall have received such legal opinions
as the Administrative Agent may request
relating to the Company and its
subsidiaries and the Acquired Business
in form and substance satisfactory the
Interim Lenders, in their sole
discretion.
14. Payment of Fees and Expenses. All fees
and expenses due to any Interim Lender
or Lehman Brothers on or before the
Closing Date in connection with the
Interim Loans shall have been paid in
full.
Events of Default; Remedies The Interim Loan Agreement will contain such
events of default that are similar to the
events of default under the Senior Credit
Facility and such others as are customary for
financings of this kind or deemed appropriate
by the Interim Lenders for this transaction
in particular (in their sole discretion),
including, without limitation, compliance
with the Fee Letter. If the Company fails to
comply with the provisions of Sections 2 and
3 of the Fee Letter in any material respect
at any time, then the Interim Lenders shall
be entitled to unilaterally amend the
provisions of the Interim Loan Agreement (and
related documents) relating to interest rate,
optional redemption, maturity, warrants and
registration rights so as to reflect the
terms of the Permanent Securities that would
have been issued in accordance with Sections
2 and 3 of the Fee Letter had the Company
complied therewith.
The Merger If the Closing Date occurs prior to the date
of the Merger, upon the effectiveness of the
Merger in accordance with applicable law, the
Collateral will be released and the Interim
Loans will become senior subordinated Interim
Loans in accordance with the provisions set
forth under the heading "Subordination"
herein.
Governing Law New York.
A-8
<PAGE>
EXHIBIT B
---------
SUMMARY OF TERMS OF TERM LOANS AND EXCHANGE NOTES
-------------------------------------------------
Capitalized terms used but not defined herein have the meanings assigned to them
in the Commitment Letter to which this Exhibit B is attached.
Borrower The Company.
Term Loans On the Maturity Date, subject to satisfaction
of the conditions set forth below, the
outstanding Interim Loans will be
automatically converted into Term Loans. The
Term Loans will be governed by the provisions
of the Interim Loan Agreement and, except as
expressly set forth below, shall have the
same terms as the Interim Loans as of the
Maturity Date.
Exchange Notes At any time on or after the Maturity Date,
the Term Loans may, at the option of a holder
thereof and with the consent of the
Administrative Agent, be exchanged for an
Exchange Note having a ranking and principal
amount equal to the ranking and principal
amount of the Term Loan for which it is
exchanged.
The Company will issue Exchange Notes under
an indenture that complies with the Trust
Indenture Act of 1939, as amended (the
"Indenture"). The Company will appoint a
trustee reasonably acceptable to the
Administrative Agent. The Exchange Notes and
the Indenture will be fully executed and
deposited into escrow at the closing of the
Interim Loans
Maturity The Term Loans and the Exchange Notes will
mature on the ninth anniversary of the
Maturity Date (the "Final Maturity Date").
Conditions Precedent The obligation of each of the Interim Lenders
to convert the Interim Loans to Term Loans
will be subject to the following conditions:
1. No Defaults. No event of default, or
event which with the giving of notice or
the lapse of time, or both, shall have
occurred and be continuing under the
Interim Loan Agreement or any other Loan
Document and no payment default shall
have occurred and be continuing under
the Senior Credit Facility.
2. Payment of Fees and Accrued Interest.
The Company shall have paid in
immediately available funds all accrued
and unpaid interest with respect to the
Interim Loans and all fees then due and
owing, in accordance with the terms of
the Loan Documents.
B-1
<PAGE>
3. Shelf Registration. The Shelf
Registration Statement (as defined under
the heading "Registration Rights" below)
with respect to the Exchange Notes shall
have been filed with the Securities and
Exchange Commission.
Interest Rate The Term Loans and the Exchange Notes will
bear interest at a fixed increasing rate
equal to the Initial Rollover Rate (as
defined below) plus the Rollover Spread (as
defined below). The interest rate in effect
at any time shall not exceed 17% per annum.
To the extent interest payable on the Term
Loans or the Exchange Notes on any quarterly
interest payment date is at a rate that
exceeds 14% per annum, the Company shall have
the option to pay such excess interest (i) by
capitalizing such interest as additional Term
Loans, in the case of the Term Loans, and
(ii) by issuing additional Exchange Notes
having a principal amount equal to the amount
of such interest, in the case of Exchange
Notes. Notwithstanding the foregoing,
interest will accrue on any overdue amount
(whether interest or principal), to the
extent lawful, at a rate per annum equal to
200 basis points over the then current
interest rate, until such amount (plus all
accrued and unpaid interest) is paid in full.
"Initial Rollover Rate" shall be determined
as of the Maturity Date of the Interim Loans
and shall equal the interest rate borne by
the Interim Loans on the day immediately
preceding the Maturity Date plus 100 basis
points.
"Rollover Spread" shall mean, with respect to
any Term Loans or Exchange Notes, zero basis
points during the 90-day period commencing on
the Maturity Date. The Rollover Spread shall
increase by 100 basis points upon each 90-day
anniversary of the Maturity Date, except with
respect to Exchange Notes as to which the
interest rate has been fixed as provided
below. If any Exchange Note is transferred to
any person other than a person who was an
Interim Lender on the Maturity Date, then the
transferring Interim Lender shall have the
right, upon five days prior notice to the
Company, to unilaterally fix the interest
rate on such Exchange Note at a coupon not
exceeding the then prevailing interest rate
thereon.
Interest on the Term Loans and Exchange Notes
will be payable quarterly in arrears on the
first business day of each fiscal quarter of
the Company, on the Maturity Date of the Term
Loans and Exchange Notes and on the date of
any prepayment thereof.
Subordination Same as Interim Loans.
Guarantees Same as Interim Loans.
B-2
<PAGE>
Collateral Same as Interim Loans.
Mandatory Repayment Same as Interim Loans, but not applicable to
any Exchange Notes with respect to which the
interest rate was fixed upon the transfer
thereof (as provided above).
Change of Control Same as Interim Loans.
Optional Repayment Except as set forth below, the Term Loans and
Exchange Notes may be repaid or redeemed, in
whole or in part, at the option of the
Company at any time upon five business days'
prior written notice at a price equal to 100%
of the principal amount thereof, plus accrued
fees and all accrued and unpaid interest to
the date of repayment.
Any Exchange Note with respect to which the
interest rate was fixed upon the transfer
thereof (as provided above) will be entitled
to call protection for a period determined by
the transferring Interim Lender in its sole
discretion at the time such interest rate was
fixed (such non-call period will continue for
at least five years after the Maturity Date).
Thereafter such Exchange Note will be
redeemable at the Company's option, in whole
or in part, at par plus accrued fees and all
accrued and unpaid interest to the date of
redemption plus a premium equal, initially,
to one half of the interest rate applicable
to the Exchange Notes on the Maturity Date
and thereafter declining ratably on each
yearly anniversary by an amount such that one
year prior to the maturity of the Exchange
Notes the premium will equal zero.
Yield Protection Same as Interim Loans.
Payments Same as Interim Loans.
Covenants Similar to the Interim Loans, except certain
covenants may be less restrictive if agreed
upon by the Administrative Agent and the
Company; and provided further that the
covenants for the Exchange Notes (after the
interest rate thereon is fixed and
appropriate call protection is in place)
shall be less restrictive and similar to
covenants that are customary for a high yield
indenture of similar credit.
Events of Default Same as Interim Loans, in the case of the
Term Loans. The Exchange Notes will have
events of default that are customary for an
indenture governing a high yield note issue
(but more restrictive in certain respects, as
determined by the Administrative Agent in its
sole discretion).
Transferability Unlimited except as otherwise provided by
law.
Defeasance Provisions None.
B-3
<PAGE>
Amendments Same as Interim Loans.
Registration Rights Prior to the Maturity Date, the Company will
be required to file a shelf registration
statement with respect to the Exchange Notes
(a "Shelf Registration Statement"). The
filing of the Shelf Registration Statement
will be a condition precedent to the
conversion of Interim Loans to Term Loans.
The Company will pay liquidated damages in
the form of increased interest of 50 basis
points on the principal amount of Exchange
Notes outstanding to holders of Exchange
Notes (i) if the Shelf Registration Statement
is not declared effective by the SEC within
60 days of the Maturity Date, until such
Shelf Registration Statement is declared
effective, and (ii) during any period of time
(subject to customary exceptions) following
the effectiveness of the Shelf Registration
Statement that such Shelf Registration
Statement is not available for sales
thereunder. After 12 weeks, the liquidated
damages shall increase by 50 basis points,
and shall increase by 50 basis points for
each 12-week period thereafter to a maximum
increase in interest of 200 basis points
(such damages to be payable in the form of
additional Exchange Notes, if the interest
rate thereon exceeds 14% per annum). In
addition, unless and until the Company has
caused the Shelf Registration Statement to
become effective, the holders of the Exchange
Notes will have the right to "piggy-back" in
the registration of any debt or preferred
equity securities (subject to customary
scale- back provisions) that are registered
by the Company (other than on a Form S-4)
unless all the Exchange Notes will be
redeemed or repaid from the proceeds of such
securities. The Company will be required to
effect an "A/B" exchange offer to all holders
of Exchange Notes within 60 days of the
issuance of the Exchange Notes if the holders
of a majority in principal amount of the
Exchange Notes then outstanding so request.
The Merger Same as Interim Loans.
Governing Law New York.
B-4
<PAGE>
SCHEDULE 1
Interim Lender Interim Loan Amount
-------------- -------------------
LCPI $150,000,000
CONFIDENTIAL
PNC CAPITAL MARKETS, INC.
One PNC Plaza, Third Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2727
PNC BANK, NATIONAL ASSOCIATION
One PNC Plaza, Third Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2727
$550 Million Senior Secured Credit Facilities
Commitment and Engagement Letter
--------------------------------
August 24, 1998
Francis D. John
Chairman of the Board, President and
Chief Executive Officer
Key Energy Group, Inc.
Two Tower Center, Twentieth Floor
East Brunswick, New Jersey 08816
Stephen E. McGregor
Executive Vice President and Chief Financial Officer
Key Energy Group, Inc.
Two Tower Center, Twentieth Floor
East Brunswick, New Jersey 08816
Gentlemen:
It is our understanding that Key Energy Group, Inc. (the "Company")
proposes to acquire (the "Acquisition") Dawson Production Services, Inc.
("Dawson"). We understand that the Acquisition would be accomplished by means of
a tender offer followed by a merger between Dawson and the Company (the
"Merger"). As consideration for the Acquisition, the shareholders of Dawson will
receive consideration in the form of cash in an amount equal to $17.50 per share
and after giving effect to the Acquisition, the Company will succeed to all the
assets and liabilities of Dawson.
<PAGE>
Page 2.
We understand that the Company will require up to $550,000,000 of
senior secured financing to (i) consummate the Acquisition, (ii) refinance
certain existing indebtedness of the Company and Dawson, (iii) provide working
capital for the Company and its subsidiaries, and (iv) pay fees and expenses in
connection with the transaction contemplated hereby. We further understand that
financing may be required in connection with puts which may be made of Dawson's
9-3/8% Notes as a result of a change of control occurring in connection with the
Acquisition (the "Put Financing"). We understand that a portion of such
financing will be accomplished by (i) the issuance and sale by the Company of up
to $150,000,000 of long-term unsecured senior subordinated notes (the "Senior
Subordinated Notes") or (ii) the issuance and sale of senior bridge subordinated
notes (the "Subordinated Put Notes") which will subsequently be refinanced with
an issuance of Senior Subordinated Notes as described in the Summary (as defined
below). It is our understanding that with respect to the $550,000,000 of senior
secured financing, the Company has requested that PNC Bank, National Association
("PNC Bank" or the "Bank") underwrite and PNC Capital Markets, Inc. ("PNC
Capital Markets") syndicate all of such senior secured credit facilities (the
"Financing"). Notwithstanding the foregoing, as described in the Summary, the
Put Financing will be funded on the date of initial funding of the Financing as
senior secured notes pari passu with the Financing and such Put Financing will
become junior and subordinate on the date of the Merger and may be prepaid to
the extent the principal amount thereof exceeds 101% of the principal amount of
the Dawson 9-3/8% Notes put as a result of such change of control plus interest,
fees and expenses paid in connection with the Put Financing and the Dawson
9-3/8% Notes.
We are pleased to inform you that PNC Bank commits to provide the
entire amount of the Financing described in the Summary of Terms and Conditions
attached hereto as Exhibit A (the "Summary"), subject to the terms and
conditions referred to in this letter and the Summary. The Summary includes a
description of the principal terms of the proposed credit facilities connected
with the Financing, and is intended as a framework for the documentation and as
a basis for further discussion of the Financing's terms, as appropriate. The
Financing will be documented in a definitive credit agreement (the "Credit
Agreement") and other agreements, instruments, certificates, and documents
called for by the Credit Agreement or which the Bank may otherwise require
(collectively, the "Credit Documents"), to be delivered at the closing of the
Financing (the "Closing"). The terms of the Credit Documents shall prevail over
the terms of this letter.
PNC Bank's obligations are conditioned on the execution and delivery
of the Credit Documents to the Bank in form and content satisfactory to the
Bank. Because not all of the terms can be set forth in the Summary, a failure by
the Bank or the Company to agree on the definitive terms of the Credit Documents
will not constitute a breach of this commitment. This letter is also subject to
acceptance by the Company as provided below and the statutory and other
requirements under which the Bank is governed.
PNC Bank and PNC Capital Markets shall be entitled, after consultation
with you, to change the pricing, structure and terms of the proposed Financing
if the syndication has not been completed and if PNC Bank and PNC Capital
Markets determine that such changes are advisable in order to insure a
<PAGE>
Page 3.
successful syndication of the proposed Financing (provided that the total amount
of the Financing remains unchanged). PNC Bank's commitment hereunder is subject
to the agreement in this paragraph.
In addition to the terms and conditions set forth in the Summary, PNC
Bank's commitment to provide the proposed Financing and PNC Capital Markets
agreement to perform the services described herein are further subject to (i)
there being no material adverse change since March 31, 1998 in the financial
condition, business, operations, properties, or prospects of the Company and its
subsidiaries and Dawson; and (ii) the non-occurrence of any material adverse
change in the loan syndication or capital market conditions generally, which
would materially affect the syndication efforts in respect of any portion of the
Financing. The Company acknowledges that PNC Bank may, in its discretion (with
reasonable prior consent of the Company), retain experts or consultants in
connection with the transaction contemplated hereby and the Financing.
This letter is issued in reliance on the information provided to the
Bank by the Company in connection with the Company's request for the Financing
and the information in any supporting document and material. PNC Bank may
terminate this commitment if there is any material misrepresentation or material
inaccuracy in the information or any failure to include material information
with the request.
This commitment letter may not be assigned by the Company and no
rights of the Company hereunder may be transferred without the prior written
consent of PNC Bank. The Bank may elect to (a) assign a portion of its rights
and obligations hereunder so that the assignee may become a party to the Credit
Agreement and (b) arrange for the sale of participation interests in its
commitment hereunder and/or loans made by it as contemplated hereby. In the
event of any assignment referred to in (a) above, the assignor shall be released
of all obligations assumed by the assignee.
PNC Bank and any assignees or participants will in no event be
responsible or liable for any consequential damages that may be incurred or
alleged by any person as a result of this commitment. No modification or waiver
of any of the terms and conditions of this commitment will be valid and binding
unless agreed to in writing by PNC Bank. When accepted, this letter (including
the Fee Letter referenced below) constitutes the entire agreement between PNC
Bank and the Company concerning the Financing and replaces all prior
understandings, statements and negotiations, including without limitation (i)
the commitment and engagement letters, dated June 2, 1998, July 8, 1998, August
3, 1998 and August 17, 1998 among the Company, PNC Bank and PNC Capital Markets
and (ii) the fee letters, dated June 2, 1998, July 8, 1998, August 3, 1998 and
August 17, 1998, among the Company, PNC Bank and PNC Capital Markets
(collectively, the "Original Letters").
PNC Bank's commitment hereunder will expire on August 25, 1998, unless
on or before that date the Company signs and returns the enclosed copy of this
letter along with the fee letter dated as of the date hereof (the "Fee Letter")
and the fee specified in the Fee Letter to be paid on the date you accept this
<PAGE>
Page 4.
letter. Once accepted, PNC Bank's commitment under this letter will expire on
December 31, 1998 if the Financing has not closed on or before that date. Both
of these expiration dates may only be extended in writing by PNC Bank.
The remainder of this letter sets forth our mutual understanding as to
the services to be performed by PNC Capital Markets in syndicating the
Financing, the obligations of the Company, compensation to PNC Bank and PNC
Capital Markets as well as the general terms and conditions of PNC Capital
Markets' engagement (the "Engagement").
1. Services to be Performed by PNC Capital Markets:
a. PNC Capital Markets will assist the Company in finalizing the
terms and conditions of the Financing based upon information
supplied by, among others, the Company, Dawson (as available to
the Company), consultants, appraisers and prospective lenders.
Proposed terms and conditions of the Financing as of the date
hereof are summarized in the Summary.
b. After the Company executes this letter, PNC Capital Markets will
prepare and distribute a Confidential Information Memorandum (the
"Memorandum") for the purpose of approaching lenders to provide a
portion of the Financing. PNC Capital Markets will not distribute
the Memorandum to any party without the consent of the Company,
which consent shall not be unreasonably withheld.
c. PNC Capital Markets shall introduce PNC Bank and other interested
lenders to the Company and assist the Company with any and all
negotiations with such interested lenders concerning the
Financing. The Company hereby consents to the transfer of
information regarding the Company and its subsidiaries and Dawson
between PNC Capital Markets, PNC Bank and their affiliates and
other prospective lenders.
2. Obligations of the Company:
a. The Company agrees to provide PNC Capital Markets and its legal
counsel and consultants with such information and access to the
officers, directors, employees, accountants and legal counsel of
the Company as may be requested by it for the purpose of
preparing the Memorandum together with any supplemental
information which the lenders may reasonably require. The
information may include, but may not be limited to, general
industry information, information about the Company and Dawson
(as available to the Company) and subsidiaries, historical
financial statements and financial projections over the term of
the Financing.
<PAGE>
Page 5.
b. The Company agrees that prior to delivery of the Memorandum to
any other lender, a senior officer of the Company will review the
Memorandum and will provide a letter stating that to the best of
his or her knowledge, the Memorandum is complete and correct in
all material respects and does not contain any untrue statements
of a material fact, or omit to state any matter necessary to make
the Memorandum not materially misleading.
c. Until the Closing, the Company agrees that neither the Company
nor any of its subsidiaries shall enter into any other credit
facilities or issue any debt (other than the Subordinated Put
Notes and the Senior Subordinated Notes, subject to the proviso
below), whether syndicated or publicly or privately placed, if
such facility or issue might, in PNC Capital Markets' opinion,
have a detrimental effect on the successful completion of the
transaction described herein, and will advise PNC Capital Markets
immediately if any issue or facility is contemplated; provided
however, in connection with the syndication, placement and/or
issuance of the Subordinated Put Notes and the Senior
Subordinated Notes, the arranger, placement agent and or manager
with respect thereto must coordinate its syndication and/or
placement with PNC Capital Markets and agree to consult with PNC
Capital Markets with respect to such issuance.
3. Expenses and Compensation:
a. PNC Bank and PNC Capital Markets shall be reimbursed from time to
time by the Company upon request for all reasonable out-of-pocket
expenses which they may incur while performing services
hereunder, including in connection with the negotiation,
preparation, due diligence, execution and delivery of this
letter, the Original Letters, the Credit Documents and other
documentation and any initial assignment or participation of PNC
Bank's interests herein. These include, without limitation,
reasonable fees and expenses of legal counsel, appraisers and
consultants. Such reimbursement shall not be contingent upon the
Closing or execution of the Credit Documents.
b. The Company agrees to pay to lenders, including PNC Bank, the
fees set forth in the Summary and to PNC Bank and PNC Capital
Markets the fees set forth in the Fee Letter.
4. General:
a. PNC Bank, PNC Capital Markets and the Company each confirms
that it has the requisite power and authority to enter into
this letter and to perform its undertakings hereunder and
that any action taken by it in connection with the Financing
<PAGE>
Page 6.
will be taken in compliance with applicable federal, state
and foreign securities laws as such laws apply to it or its
action.
b. PNC Capital Markets will use reasonable efforts to provide
the advice, assistance and services described above. PNC
Capital Markets does not, however, warrant, represent,
promise, guarantee or otherwise provide assurances that the
Financing will be closed.
c. By executing this letter, the Company agrees to indemnify
and hold harmless PNC Bank, PNC Capital Markets or any
affiliate thereof and any assignees or participants of PNC
Bank and their respective officers, directors, employees,
affiliates and agents from and against any and all losses,
claims, damages, liabilities, costs and expenses (including
without limitation reasonable fees and expenses of counsel)
which may be incurred by any of them in connection with any
investigation, litigation or other proceeding (regardless of
whether any indemnified person is a party thereto) arising
in connection with this letter, the Acquisition, the
Original Letters, the Engagement or the Financing, other
than for their own gross negligence or wilful misconduct.
The Company's obligations hereunder shall be in addition to
any other liability it may otherwise have.
d. PNC Capital Markets' services hereunder may be terminated by
PNC Capital Markets or the Company upon thirty business
days' written notice to the other party, without liability
or continuing obligations to the other party except as
provided below. Notwithstanding any termination of such
services or this letter, PNC Capital Markets and PNC Bank
shall be entitled to the expenses and fees described in
paragraphs 3(a) and 3(b) above, and the Company's
indemnification obligation under paragraph 4(c) hereof will
continue. In the event PNC Capital Markets' services are
terminated, the provisions herein and in the Fee Letter
relating to PNC Bank and its commitment provided hereunder
shall remain in effect.
e. Upon closing, PNC Capital Markets shall be entitled to place
a "tombstone" advertisement in various publications subject
to the Company's approval of the contents of such
advertisement, which approval shall not be unreasonably
withheld or delayed.
The terms contained in this letter and the Summary are confidential
and, except for disclosure to the Company's and Dawson's board of directors, the
Company's officers and employees, professional advisors retained by the Company
and Dawson in connection with this transaction or as may be required by law, may
not be disclosed in whole or in part to any other person or entity without our
<PAGE>
Page 7.
prior written consent. This letter is solely for the benefit of the Company and
no other person or entity shall obtain any rights hereunder or be entitled to
rely or claim reliance upon the terms and conditions hereof.
This letter may be executed in any number of counterparts, each of
which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this letter
by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
This letter shall be governed by and construed in accordance with the
laws of the State of New York.
<PAGE>
Page 8.
If the foregoing accurately sets forth your understanding, please
indicate your acceptance hereof by signing the enclosed copy of this letter and
returning it to us by the date referenced above. We are pleased to have this
opportunity and very much look forward to working with you.
Sincerely,
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Thomas K. Grundman
------------------------------------
Name: Thomas K. Grundman
Title: Senior Vice President
PNC CAPITAL MARKETS, INC.
By: /s/ Douglas E. Shaffer
----------------------------------
Name: Douglas E. Shaffer
Title: Senior Vice President and
Managing Director
Agreed to and accepted:
KEY ENERGY GROUP, INC.
By:/s/ Stephen E. McGregor
--------------------------
Title: EVP & CFO
Date: August 25, 1998
------------------------
<PAGE>
EXHIBIT A
---------
KEY ENERGY GROUP, INC.
$550,000,000 SENIOR CREDIT FACILITIES
SUMMARY OF TERMS AND CONDITIONS
August 24, 1998
Key Energy Group, Inc. ("Key" or the "Company") proposes to acquire (the
"Acquisition") all of the common stock of Dawson. The Acquisition will be
accomplished by means of a tender offer (the "Tender Offer") followed by a
merger (the "Back-End Merger") between Dawson and the Company. As used herein,
"Acquisition Date" means the date on which Key acquires the Dawson common stock
tendered pursuant to such tender offer, and "Merger Date" means the date of
consummation of the Back-End Merger. In order to finance the Acquisition, to
refinance certain existing indebtedness of the Company and Dawson, to prepay an
amount of the Put Facility (as described below) and to finance the continuing
operations of Key, Key will require up to $550 million in senior secured credit
facilities (the "Senior Credit Facilities"). Set forth below is a statement of
the terms and conditions for the Senior Credit Facilities:
I. PARTIES
-------
Borrower The Company.
Guarantors Each of the Company's direct and
indirect existing domestic subsidiaries
as provided in the Existing Credit
Agreement (as defined below), and on and
after the Merger Date, the domestic
subsidiaries of Dawson (together with
the Company, the "Loan Parties").
Advisor and Arranger PNC Capital Markets, Inc. (in such
capacity, the "Arranger").
Administrative Agent PNC Bank, National Association ("PNC" or
the "Agent").
Banks Certain existing lenders party to the
Credit Agreement, dated as June 6, 1997,
as amended and restated through November
6, 1997, among Key, the several banks
and other financial institutions or
other entities from time to time party
thereto, PNC and the Arranger (the
"Existing Credit Agreement") and new
lending institutions acceptable to the
Company (the "Banks").
<PAGE>
2
II. SENIOR SECURED
CREDIT FACILITIES Up to $550,000,000 in aggregate,
comprised of a Revolving Credit Facility
and Term Loan Facilities.
A. REVOLVING CREDIT FACILITY
Amount Initially, up to $550,000,000 and on the
Merger Date, the aggregate amount of the
Revolving Credit Facility will
automatically be reduced by an amount
(the "Term Loan Aggregate Amount") equal
to up to $300,000,000. Any of such loans
herein referred to as "Revolving Credit
Loans."
Letters of Credit A sublimit of $20,000,000 of the
Revolving Credit Facility shall be
available for the issuance of letters of
credit (the "Letters of Credit") by a
Bank acceptable to the Company and the
Agent (the "Issuing Bank"). No Letter of
Credit shall have an expiration date
after the earlier of (a) one year after
the date of issuance and (b) five
business days prior to the Maturity Date
(defined below), provided that any
Letter of Credit with a one-year tenor
may provide for the renewal thereof for
additional one-year periods (which shall
in no event extend beyond the date
referred to in clause (b) above).
Drawings under any Letter of Credit
shall be reimbursed by the Company
(whether with its own funds or with the
proceeds of Revolving Credit Loans) on
the same business day. To the extent
that the Company does not so reimburse
the Issuing Bank, the Banks under the
Revolving Credit Facility shall be
irrevocably and unconditionally
obligated to reimburse the Issuing Bank
on a pro rata basis.
Maturity The earliest to occur of (i) 365 days
after the initial funding hereunder or
(ii) termination or abandonment by the
Company of the Acquisition (the
"Maturity Date"); provided, however,
that in the event that the Merger Date
occurs on or before the Maturity Date
and the Term Loans are made to the full
extent of the Term Loan Aggregate Amount
(as defined above), the Maturity Date
will automatically be extended to five
years from the initial closing date of
the Senior Credit Facilities.
<PAGE>
3
Availability; Repayment The Revolving Credit Facility shall be
available on a revolving basis from the
period commencing on the Acquisition
Date and ending on the Maturity Date;
provided, that the amount of the
Revolving Credit Facility will be
reduced on each anniversary of the
Acquisition Date, commencing with the
third such anniversary, by the amount
set forth opposite such anniversary
below:
Anniversary Amount
----------- ------
3 $25,000,000
4 $25,000,000
5 $ 0
Use of Proceeds (a) Up to $490,000,000 in the aggregate
of the Revolving Credit Facility may be
used on and after the Acquisition Date
(i) to fund the Acquisition and to pay
transaction costs associated therewith,
(ii) to refinance indebtedness of Key,
Dawson and their respective subsidiaries
(including, without limitation the
Existing Credit Agreement and the Put
Facility, as described below), (iii) to
pay fees and expenses associated with
the Senior Credit Facilities, and (iv)
to pay holders of Dawson 9-3/8% Notes
who have put their Notes as a result of
the change of control in connection with
the Acquisition (as described below).
(b) The balance of the Revolving Credit
Facility may be used for working
capital, capital expenditures, Permitted
Acquisitions (as defined in the Existing
Credit Agreement) and general corporate
purposes of the Company and its
subsidiaries from time to time on and
after the Acquisition Date.
B. TERM LOAN FACILITIES
Types and Amount
of Facilities Term Loan Facilities in the aggregate
amount of up to $300,000,000 (the loans
thereunder, the "Term Loans"), available
in single draw on the Merger Date, as
follows:
Tranche A Term Loan Facility:
----------------------------
A five year term loan facility (the
"Tranche A Term Loan Facility") in an
aggregate amount of up to $150,000,000.
<PAGE>
4
The Tranche A Term Loan Facility shall
be repayable in quarterly amounts as a
percentage of the total Tranche A Term
Loan as follows:
Percent Percent
Payable Payable
Date Quarterly Annually
---- --------- --------
Year 1 0% 0%
Year 2 4% 16%
Year 3 6% 24%
Year 4 7% 28%
Year 5 8% 32%
Tranche B Term Loan Facility
----------------------------
A six year term loan facility (the
"Tranche B Term Loan Facility") in an
aggregate amount of up to $150,000,000.
The Tranche B Term Loan shall be
repayable in quarterly installments as a
percentage of the total Tranche B Term
Loan as follows:
Percent Percent
Payable Payable
Date Quarterly Annually
---- --------- --------
Year 1-5 0.25% 1%
Year 6 23.75% 95%
Additionally, at no time shall the
maturity of the Tranche B Term Loan
Facility be less than 90 days prior to
the maturity of the Company's
$216,000,000 Convertible Subordinated
Notes due 2004.
The aggregate amount of Term Loans
constituting Tranche A Term Loans and
the Tranche B Term Loans, respectively,
shall be determined by the Agent in its
sole discretion after consultation with
the Borrower.
Use of Proceeds The Term Loans shall be used to repay
advances under the Revolving Credit
Facility and to pay for the balance of
shares acquired in the Acquisition.
<PAGE>
5
III. CERTAIN PAYMENT PROVISIONS
--------------------------
Interest Rates and
Letter of Credit Fees Interest rates shall be based on the
Company's Consolidated Leverage Ratio,
as defined in the Existing Credit
Agreement, per the attached Pricing Grid
A. Upon the issuance of new equity in a
minimum amount of $75,0000,000, Pricing
Grid B becomes effective; provided that
if such new equity is issued in
connection with acquisitions, Pricing
Grid B will not become effective until
the ratio of Consolidated Total
Indebtedness to the sum of Consolidated
Total Indebtedness plus Consolidated Net
Worth (as such terms are defined in the
Existing Credit Agreement) is equal to
or less than 75% (the "Minimum Equity
Event").
From the Acquisition Date until the
calculation for the first full fiscal
quarter completed after the Acquisition
Date, Level VI of Pricing Grid A will be
in effect.
Base Rate Option The Base Rate is the higher of (1) PNC
Bank's Prime rate or (2) the Federal
Funds rate plus 1/2%. Interest on Base
Rate borrowings is calculated on an
actual/365 or 366 day basis and is
payable quarterly.
LIBOR Option Interest on LIBOR borrowings is
calculated on an actual/360 day basis
and is payable the earlier of quarterly
or on the last day of each interest
period. LIBOR advances will be available
for periods of 1,2,3 or 6 months. LIBOR
pricing will be adjusted for any
statutory reserves.
The Company may have no more than 12
borrowing tranches, including the Base
Rate tranche, at any one time.
Default Rate Overdue principal or interest shall bear
interest at 2% over the otherwise
applicable rate; overdue commitment fees
shall bear interest at 2% over the rate
applicable to the Base Rate pricing
option.
Letters of Credit The Company shall pay letter of credit
fees equal to the then applicable spread
above LIBOR on the aggregate face amount
of Letters of Credit issued under the
Revolving Credit Facility to each Bank
quarterly in proportion to such
<PAGE>
6
Bank's commitment. In addition, the
Company shall pay the Issuing Bank, a
fee of 12.5 basis points, payable
quarterly, on the aggregate face amount
of such Letters of Credit.
Yield Protection The Company shall pay the Banks such
additional amounts as will compensate
the Banks in the event applicable law,
or change in law, subjects the Banks to
reserve requirements, capital
requirements, taxes (except for taxes on
the overall net income of the Banks) or
other charges which increase the cost or
reduce the yield to the Banks, under
customary yield protection provisions.
Interest Rate Protection A minimum of 50% of Consolidated Total
Debt (as defined in the Existing Credit
Agreement) will be hedged on terms
satisfactory to the Agent within 90 days
of the closing of the Senior Credit
Facilities.
Commitment Fee A per annum fee on the unused amount of
the Revolving Credit Facility payable to
each Bank quarterly in arrears in
proportion to such Bank's commitment,
per the attached Pricing Grid.
Collateral First priority perfected lien on
substantially all of the tangible and
intangible assets (as provided in the
Existing Credit Agreement) of the
Company and its existing direct and
indirect domestic operating subsidiaries
including, without limitation,
intellectual property and real property
as well as all of the capital stock of
each of the Company's existing direct
and indirect subsidiaries which are
Guarantors. On the Merger Date the
Collateral shall also include a first
priority perfected lien on all tangible
and intangible assets of Dawson and its
subsidiaries and all of the capital
stock of Dawson and its subsidiaries.
Subject to compliance with Regulation U
of the Board of Governors of the Federal
Reserve System, the Agent may require
the Company to pledge all capital stock
of Dawson owned (or being acquired) by
the Company and its Subsidiaries.
After the Merger, the Collateral will
also secure on a pari passu basis all
the Company's obligations (as successor
by merger to Dawson) under Dawson's
9-3/8% Notes.
<PAGE>
7
Expenses Reasonable out-of-pocket expenses
incurred by the Agent shall be for the
account of the Company. These include
fees and expenses for the Agent's legal
counsel.
Optional Prepayments;
Voluntary Reductions Outstandings or commitments under the
Senior Credit Facilities may be prepaid
or terminated, in whole or in part, at
the Company's option, subject to
reimbursement of any costs associated
with prepayments of LIBOR advances or
any other provisions contained in the
credit agreement. Voluntary reductions
of the commitment under the Revolving
Credit Facility will be in minimum
amounts of $5,000,000. Optional
prepayments of the Term Loans shall be
applied to the Tranche A Term Loans and
the Tranche B Term Loans ratably and
shall be applied ratably to the
remaining unpaid scheduled amortization
payments thereof. Notwithstanding the
foregoing, so long as any Tranche A Term
Loans are outstanding, each holder of
Tranche B Term Loans shall have the
right to refuse all or any portion of
such prepayment allocable to its Tranche
B Term Loans, and the amount so refused
will be applied to prepay the Tranche A
Term Loans.
Mandatory
Prepayments 100% of the Net Cash Proceeds from up to
$75,000,000 of equity offerings (whether
such equity is sold in a private
placement or a public offering) and 75%
of the Net Cash Proceeds from equity
offerings (whether such equity is sold
in a private placement or a public
offering) in excess of $75,000,000 shall
be applied to reduce outstandings under
the Senior Credit Facilities.
Beginning with the fiscal year ending
June 30, 1999, mandatory prepayments
equal to 50% of Excess Cash Flow (to be
defined) shall be required; provided
that upon occurrence of the Minimum
Equity Event mandatory prepayments from
Excess Cash Flow will not be required
until the fiscal year ending June 30,
2001. Notwithstanding the foregoing, if
the Consolidated Leverage Ratio is less
than 3.5 to 1 mandatory prepayment from
Excess Cash Flow will not be required.
<PAGE>
8
Mandatory prepayments in connection with
the sale of Odessa shall be payable as
provided in the Existing Credit
Agreement.
All mandatory prepayments shall be
applied first to the outstanding Term
Loans, then to the reduction of the
Revolving Credit Facility commitments to
no less than $200,000,000. Each such
prepayment of Term Loans shall be
applied to the Tranche A Term Loans and
the Tranche B Term Loans ratably and
shall be applied ratably to the
remaining unpaid scheduled amortization
payments thereof. Notwithstanding the
foregoing, so long as any Tranche A Term
Loans are outstanding, each holder of
Tranche B Term Loans shall have the
right to refuse all or any portion of
such prepayment allocable to its Tranche
B Term Loans, and the amount so refused
will be applied to prepay the Tranche A
Term Loans.
To the extent the Put Facility after the
Merger Date provides for mandatory
prepayments based on issuance of equity,
incurrence of indebtedness, asset sales,
change of control or otherwise, the
Senior Credit Facilities shall require
such proceeds (other than proceeds of
the Senior Subordinated Notes (as
defined below) or equity used to prepay
the Subordinated Put Facility) to be
first used to prepay the Senior Credit
Facilities. Prior to the Merger
prepayments shall be shared with the Put
Facility on a pro rata basis.
IV. REPRESENTATIONS AND WARRANTIES
Representations and Warranties as
provided in the Existing Credit
Agreement unless specifically modified
herein:
1. Financial Condition.
2. No Material Adverse Effect.
3. Corporate Existence; Compliance
with Law (including, without
limitation, applicable Federal
Reserve regulations and margin
rules).
4. Corporate Power; Authorizations;
Enforceable Obligations
<PAGE>
9
5. No Legal Bar.
6. No Material Litigations.
7. No Default.
8. Ownership of Property; Liens.
9. Intellectual Property.
10. No Burdensome Restrictions.
11. Taxes.
12. Federal Regulations.
13. ERISA.
14. Investment Company Act; Other
Regulations.
15. Subsidiaries.
16. Purpose of Loans; Limitations on
Use.
17. Environmental Matters.
18. Accuracy of Information.
19. Security Documents.
20. Solvency.
21. Labor Matters.
22. Indenture.
23. Excluded Subsidiaries.
24. Oil and Gas Properties.
25. Year 2000 compliance.
26. Merger with Dawson.
<PAGE>
10
Other customary Representations and
Warranties as appropriate and in the
Existing Credit Agreement.
V. CONDITIONS PRECEDENT TO LENDING
-------------------------------
A. CONDITIONS PRECEDENT TO
CLOSING AND LENDING ON
ACQUISITION DATE The availability of the Senior Credit
Facilities and the making of Revolving
Credit Loans on the Acquisition Date
shall be conditioned upon satisfaction,
in form and substance satisfactory to
the Agent and the Banks, of the
following conditions:
1. The per share acquisition price
for the common stock of Dawson
shall not be more than $17.50 per
share and the total purchase price
for all outstanding capital stock
of Dawson shall not exceed
approximately $202,000,000.
2. (a) The Company shall have received
up to $150,000,000 (but not less
than the aggregate principal amount
of Dawson's 9-3/8% Notes) of net
cash proceeds (the "Required
Amount") from the issuance of
senior unsecured subordinated notes
with an initial redemption of not
less than one year following the
final maturity of the Tranche B
Term Loans and with an average
maturity of not less than nine
years and on terms and conditions
customary for the high-yield market
and satisfactory to the Agent (the
"Senior Subordinated Notes") or (b)
the Company shall have Received the
Required Amount from loans under an
unsecured subordinated bridge
credit facility (the "Subordinated
Put Facility", together with the
Senior Subordinated Notes, the "Put
Facility"), and the terms and
provisions of the Subordinated Put
Facility shall be acceptable to the
Agent (including, without
limitation, the conditions for
funding under the Subordinated Put
Facility and terms of conversion of
the notes under the Subordinated
Put Facility into long term
subordinated exchange notes (such
exchange notes having terms and
conditions satisfactory to the
Agent) if the Subordinated Put
Facility is not paid by an agreed
upon date). In addition, in
connection with the Subordinated
<PAGE>
11
Put Facility the Company shall
have received an engagement letter
providing or the refinancing of the
Subordinated Put Facility (and if
appropriate, other indebtedness of
the Company) from the proceeds of
the issuance of Senior Subordinated
Notes. The proceeds of the Senior
Subordinated Notes and/or the
Subordinated Put Facility shall be
used in connection with the
Acquisition. Until the Merger Date,
the Put Facility will be secured on
a pari passu basis with the same
collateral for the Senior Credit
Facilities (subject to an inter
creditor agreement acceptable to
the Administrative Agent), and will
be senior indebtedness, thereafter
it will automatically be unsecured
subordinated indebtedness. On the
date payment is to be made to
holders of Dawson 9-3/8% Notes who
have put their Notes as a result of
the change of control, the Company
may use the Senior Credit
Facilities to make such payment to
holders of Dawson 9-3//8% Notes and
on the same day to prepay the Put
Financing to the extent the
principal amount thereof exceeds
101% of the principal amount of
such Notes put plus interest, fees
and expenses paid in connection
with the Put Facility and the
9-3/8% Dawson Notes.
3. (i) Dawson and Key shall not have
modified the documentation
providing for the Merger (the
"Merger Documentation") unless such
modification is satisfactory to the
Agent; no provision thereof shall
have been waived, amended,
supplemented or otherwise modified
in a manner which could, in the
opinion of the Agent, reasonably be
expected to be materially adverse
to the rights or interest of the
Agent or the Banks; and (ii) the
Board of Directors of Dawson shall
have approved the Merger and such
approval shall not have been
withdrawn.
4. All required actions shall have
been taken so that (a) the
applicable state anti-takeover
law(s) shall be inapplicable to
the Acquisition and (b) any
preferred stock purchase rights
or other "poison pill"
arrangements shall not have
become, and shall not become,
exercisable.
<PAGE>
12
5. Key shall have acquired at least
51% of the shares of the common
stock of Dawson (or such higher
percentage of the common and other
capital stock of Dawson as shall be
required under the organizational
documents of Dawson and applicable
law in order to, without the
affirmative vote of any other
holder of capital stock of Dawson,
(a) permit the Merger to be
consummated on or prior to the date
which is 150 days after the
Acquisition Date and (b)
immediately appoint a majority of
the Board of Directors of Dawson or
such higher number of directors as
is required to approve the Merger).
6. The Agent shall be satisfied (a)
that the Acquisition and the
financing thereof do not violate
Regulations T, U or X of the Board
of Governors of the Federal Reserve
System and (b) with all other
matters relating to Regulation U.
7. All documents and materials
filed publicly by the Company or
Dawson in connection with the
Acquisition shall have been
furnished to the Agent and shall be
reasonably satisfactory to the
Agent.
8. All necessary or required
government and third party
approvals (including
Hart-Scott-Rodino clearance) in
connection with the Acquisition and
the financing contemplated hereby
shall have been obtained and shall
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 that would
restrain, prevent or otherwise
impose adverse conditions on the
Acquisition or the financing
thereof. There shall be in effect
no injunction or other prohibition
on the Acquisition or the financing
contemplated hereby, and no
litigation or proceeding pending or
threatened which seeks to enjoin
the Acquisition or other
transaction contemplated hereby or
which could reasonably be expected
to have a material adverse affect
on the Borrower and its
subsidiaries as a whole.
9. All amounts outstanding in
respect of the Existing Credit
Agreement shall have been, or
<PAGE>
13
contemporaneously shall be,
refinanced under the Senior Credit
Facilities.
10. The Agent and Banks shall have
received closing certificates,
certified resolutions, incumbency
certificates and corporate
documents for each Loan Party.
11. Execution and delivery of all
definitive financing documents with
respect to the Senior Credit
Facilities (the "Credit
Documentation") and all action
taken so that the Collateral Agent
has a perfected first priority lien
on the Collateral as contemplated
under the heading "Collateral"
above.
12. The Agent and Banks shall have
received such opinion(s) of counsel
(including (i) from counsel to the
Company and its subsidiaries and
(ii) from such special and local
counsel as may be required by the
Agent) as are customary for
transactions of this type or as
they may reasonably request.
13. There shall have been no material
adverse change in the business,
assets, financial condition,
operations or prospects of the
Company and its subsidiaries taken
as a whole or Dawson and its
subsidiaries taken as a whole.
14. The Agent and Banks shall have
received evidence of required
insurance.
15. Payment of all fees and expenses
subject to reimbursement.
16. The pro forma consolidated EBITDA
for Dawson and the Company for the
fiscal year ending June 30, 1998 is
not less than $170,000,000 in the
aggregate.
17. The Agent and Banks shall have
received a satisfactory
consolidated balance sheet of the
Company as of June 30, 1998.
<PAGE>
14
18. The Agent and Banks shall have
received a five-year pro forma
consolidated balance sheet,
consolidated statements of income,
retained earnings and cash flow
with assumptions used in preparing
the statements for Key and for the
combined Key-Dawson entity.
19. The Agent and Banks shall have
received a satisfactory business
plan for the six fiscal years
following the closing of the Senior
Credit Facilities and a
satisfactory written analysis of
the business and prospects of the
Company and its subsidiaries for
the period from the closing of the
Senior Credit Facilities through
the final maturity of the Term
Loans.
20. The Agent and Banks shall have
received the results of a recent
lien search in each relevant
jurisdiction with respect to the
Company and its subsidiaries, and
such search shall reveal no liens
on any of the assets of the
Borrower or its subsidiaries except
for liens permitted by the Credit
Documentation or liens to be
discharged on or prior to the
closing of the Senior Credit
Facilities pursuant to
documentation satisfactory to the
Agent.
21. The Agent and Banks shall have
received a satisfactory solvency
certificate from the chief
financial officer of the Company
that shall document the solvency of
the Company and its subsidiaries
after giving effect to the
Acquisition and the other
transactions contemplated hereby.
22. The Agent and Banks shall have
received a satisfactory
environmental audit with respect to
the real property owned or leased
by the Company and its subsidiaries
from a firm satisfactory to the
Agent.
23. All conditions to the Company's
acquiring shares of Dawson in the
Tender Offer, as reflected in the
documentation initially filed with
the Securities and Exchange
Commission, shall have been
satisfied without material
amendment, waiver or change
thereof.
Other Conditions Precedent to Lending as
appropriate and in the Existing Credit
Agreement.
<PAGE>
15
B. ON-GOING CONDITIONS PRECEDENT
The making of each extension of
credit under the Senior Credit
Facilities, including those on the
Acquisition Date, shall be
conditioned upon:
1. The continued accuracy of all
Representations and Warranties in
the Credit Documentation
(including, without limitation, the
material adverse change and
material litigation
representations).
2. There being no Default or Event of
Default in existence at the time
of, or after giving effect to the
making of, such extension of
credit.
As used herein and in the Credit
Documentation a "material adverse
change" shall mean any event,
development or circumstance that has had
or could reasonably be expected to have
a material adverse effect on (a) the
Acquisition (b) the business, property,
operations, condition (financial or
otherwise) or prospects of the Company
and its subsidiaries and Dawson taken as
a whole or (c) the validity or
enforceability of any of the Credit
Documentation or the rights and remedies
of the Agent and Banks thereunder.
C. CONDITIONS PRECEDENT TO
THE MERGER AND
TERM LOANS The making of the Term Loans on the
Merger Date shall be conditioned upon
(i) receipt by the Agent of satisfactory
evidence that the Merger has been
completed in accordance with the Merger
Documentation (if any) and no provision
thereof shall have been waived, amended
as supplemental or otherwise modified in
a manner which could, in the opinion of
the Agent, reasonably be expected to be
adverse to the interest of the Agent or
the Banks, (ii) the Agent having
received lien searches with respect to
Dawson and its subsidiaries and all
actions being taken so that Dawson's
subsidiaries shall have guaranteed the
Senior Credit Facilities and the
Collateral Agent has a perfected first
priority lien on all the stock and
tangible and intangible assets of Dawson
and its subsidiaries, (iii) the Merger
and the financing contemplated hereby
(including granting of liens on assets
of Dawson and guarantees by Dawson'
subsidiaries) shall not cause a
violation of Dawson's
<PAGE>
16
9-3/8% Notes and (iv) the Agent and the
Banks having received a satisfactory
environmental audit with respect to the
real property owned or leased by Dawson
and its Subsidiaries from a firm
satisfactory to the Agent.
VI. COVENANTS AND EVENTS OF DEFAULT
-------------------------------
A. AFFIRMATIVE COVENANTS
1. Provide within 50 days after each
of the first three fiscal quarter
ends, consolidated balance sheets,
consolidated statements of
operations and cash flows together
with a Certificate of Compliance
from the Chief Executive Officer,
President or Chief Financial
Officer of the Company.
2. Provide within 95 days after each
fiscal year-end, consolidated
balance sheets and consolidated
statements of operations,
stockholders' equity and cash flows
together with (i) a report of an
independent certified public
accountant satisfactory to the
Agent (ii) any management letters
of such accountants addressed to
the Company and (iii) a Certificate
of Compliance from the Chief
Executive Officer, President or
Chief Financial Officer of the
Company.
3. Provide budgets and forecasts.
Other Affirmative Covenants as
appropriate and in the Existing Credit
Agreement including, without limitation,
continuation of business and maintenance
of existence and material rights and
privileges; compliance with laws and
material contractual obligations;
maintenance of property and insurance;
maintenance of books and records; right
of the Banks to inspect property and
books and records; notices of defaults,
litigation and other material events;
compliance with environmental laws;
further assurances (including, without
limitation, with respect to security
interests in after-acquired property);
use of best efforts to pay the
Subordinated Put Facility with the
proceeds of Senior Subordinated Notes no
later than six months after the initial
funding under the Subordinated Put
Facility.
B. FINANCIAL COVENANTS 1. Minimum Net Worth - The Company's
Net Worth shall not be less than a
ratio to be determined of the Net
<PAGE>
17
Worth at Closing plus 75% of
positive quarterly net income
thereafter and 100% of the Net Cash
Proceeds of any subsequent equity
offerings and 75% of the net
proceeds of the conversion of the
Company's existing and future
convertible indebtedness.
2. Consolidated Leverage Ratio - As of
the end of each fiscal quarter, the
Company's Consolidated Leverage
Ratio, defined as Consolidated
Total Indebtedness less cash and
equivalents in excess of $5,000,000
to Consolidated EBITDA (on a pro
forma basis), for the previous four
quarters shall not exceed a ratio
to be determined. Step downs in
this ratio to be determined.
Upon occurrence of the Minimum
Equity Event, the Consolidated
Leverage Ratio Covenant will reduce
to a ratio to be determined for the
immediately following quarter and
all subsequent quarter.
3. Consolidated Senior Leverage Ratio
- As of the end of each fiscal
quarter, the Company's Consolidated
Senior Leverage Ratio, defined as
Consolidated Senior Indebtedness
less cash and cash equivalents in
excess of $5,000,000 to
Consolidated EBITDA (on a pro forma
basis), for the previous four
quarters shall not exceed a ratio
to be determined. Step downs in the
ratio to be determined.
Upon occurrence of the Minimum
Equity Event, the Consolidated
Senior Leverage Ratio Covenant will
reduce to a ratio to be determined
for the immediately following
quarter and all subsequent quarter.
4. Consolidated Interest Coverage
Ratio - As of the end of each
fiscal quarter, for the previous
four quarters, the ratio of the
Company's Consolidated EBITDA,
defined for the purposes of the
Consolidated Interest Coverage
Ratio as actual reported EBITDA for
the immediately preceding four
fiscal quarters, to Consolidated
Interest Expense shall not be less
than a ratio to be determined. Step
ups in this ratio to be determined.
C. NEGATIVE COVENANTS Negative Covenants are as provided in
the Existing Credit Agreement unless
specifically modified herein.
<PAGE>
18
1. Limitation on Indebtedness other
than (i) in connection with the
Senior Credit Facility, the Senior
Subordinated Notes or the
Subordinated Put Facility and (ii)
customary exceptions to be agreed
upon.
2. Limitation on Liens.
3. Limitation on Guarantee Obligations
other than customary exceptions to
be agreed upon.
4. Limitation on Fundamental Changes.
5. The Company shall not convey, sell,
lease, assign, transfer or
otherwise dispose of any of its
property, business or assets except
for the sale of inventory and light
vehicles in the ordinary course of
business and as otherwise provided
in the Existing Credit Agreement.
6. Limitation on dividends and
prohibition on the repurchase of
common stock; provided that upon
the occurrence of the Minimum
Equity Event, the Company may
purchase its common stock in an
aggregate amount not to exceed
$10,000,000 as provided in the
Existing Credit Agreement.
7. Capital Expenditures - Capital
expenditures shall not exceed
amounts to be determined for each
fiscal year ending 1999 through
2003 and shall include carry-overs
and adjustments for acquisitions to
be agreed upon.
8. Restriction on Investments, Loans
and Advances. Loans and advances to
officers and employees shall be
allowed in an aggregate amount not
to exceed $5,000,000 at any time
outstanding.
9. Limitation on Optional Payments and
Modifications of Debt Instruments
(including, except as provided for
herein, the Put Facility) and
Organizational Documents.
10. Limitation on Transactions with
Affiliates.
11. Limitation on Sales and Leasebacks.
12. Limitation on Changes in Fiscal
Year.
<PAGE>
19
13. Limitation on Negative Pledge
Clauses
14. Limitation on Lines of Business.
11. Limitation on Consolidated Lease
Expense.
Other Negative Covenants as appropriate
and in the Existing Credit Agreement. If
required to comply with Regulation U,
certain of the foregoing restrictions
with respect to stock of Dawson and
other margin stock shall only apply to
such stock ("Restricted Stock") to the
extent such Restricted Stock represents
no more than 25% of the value of the
assets of the Company and its
Subsidiaries.
D. EVENTS OF DEFAULT 1. Payment default.
2. Breach of Representations or
Warranties.
3. Violation of covenant(s).
4. Cross default to other debt.
5. Bankruptcy, insolvency.
6. Change of control.
7. Failure to consummate the Merger
within 150 days of the Acquisition
Date.
Other Events of Default as appropriate
and in the Existing Credit Agreement.
VII. CERTAIN OTHER TERMS
-------------------
A. REQUIRED BANKS For the purpose of making amendments or
waivers to the Senior Credit Facilities,
approval by Banks whose commitments
under the Senior Credit Facilities
aggregate at least a 51% majority will
be required. However, unless agreed to
by all Banks, no amendment or waiver
shall change the principal amount,
reduce the rate of interest or fees,
postpone the scheduled payment of any
principal, interest or fees, or change
the definition of Required Banks.
<PAGE>
20
B. ASSIGNMENTS AND
PARTICIPATIONS Banks will be permitted to assign and
participate any of its Senior Credit
Facilities. Assignments will be in
minimum amounts of $5,000,000 and
assignees will be subject to the consent
of the Company and the Agent, such
consent not to be unreasonably withheld.
Voting rights to participants will be
limited to change in principal amount,
reduction of the rate of interest or
fees, or postponement of the scheduled
payment of any principal, interest or
fees. Assignments will be subject to the
payment by the assigning Bank of a
$3,500 service fee to the Agent.
C. GOVERNING LAW Laws of the State of New York
D. AGENT'S COUNSEL Simpson Thacher & Bartlett
<PAGE>
21
<TABLE>
<CAPTION>
PRICING GRID A
KEY ENERGY GROUP, INC.
REVOLVING CREDIT FACILITY
(BASIS POINTS)
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- -----------------------------------------------------------------------------------------------------------------------------
BASIS FOR PRICING If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio
is less than or is greater than is greater than is greater than is greater than is greater than
equal to 3.0 to 3.0 to 1.0 but 3.5 to 1.0 but 4.0 to 1.0 but 4.5 to 1.0 but 5.0 to 1.0.
1.0. less than or less than or less than or less than or
equal to 3.5 equal to 4.0 to equal to 4.5 to equal to 5.0 to
to 1.0. 1.0. 1.0. 1.0.
- -----------------------------------------------------------------------------------------------------------------------------
REVOLVER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Base Rate + 0 0 25.0 50.0 75.0 100.0
LIBOR + 125.0 150.0 175.0 200.0 225.0 250.0
Commitment Fee 25.0 37.5 37.5 50.0 50.0 50.0
- -----------------------------------------------------------------------------------------------------------------------------
TRANCHE A
T/L FACILITY
- -----------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 25.0 50.0 75.0 100.0
LIBOR + 125.0 150.0 175.0 200.0 225.0 250.0
- -----------------------------------------------------------------------------------------------------------------------------
TRANCHE B
T/L FACILITY
- -----------------------------------------------------------------------------------------------------------------------------
Base Rate + 100.0 100.0 125.0 125.0 125.0 150.0
LIBOR + 250.0 250.0 275.0 275.0 275.0 300.0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
22
<TABLE>
<CAPTION>
PRICING GRID B
KEY ENERGY GROUP, INC.
REVOLVING CREDIT FACILITY
(BASIS POINTS)
- -----------------------------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- -----------------------------------------------------------------------------------------------------------------------------
BASIS FOR PRICING If the If the If the If the If the If the
Consolidated Consolidated Consolidated Consolidated Consolidated Consolidated
Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio Leverage Ratio
is less than or is greater than is greater than is greater than is greater than is greater than
equal to 2.5 to 2.5 to 1.0 but 3.0 to 1.0 but 3.5 to 1.0 but 4.0 to 1.0 but 4.5 to 1.0.
1.0. less than or less than or less than or less than or
equal to 3.0 equal to 3.5 to equal to 4.0 to equal to 4.5 to
to 1.0. 1.0. 1.0. 1.0.
- -----------------------------------------------------------------------------------------------------------------------------
REVOLVER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Base Rate + 0 0 0 0 25.0 50.0
LIBOR + 75.0 100.0 125.0 150.0 175.0 200.0
Commitment Fee 20.0 25.0 30.0 35.0 40.0 50.0
- -----------------------------------------------------------------------------------------------------------------------------
TRANCHE A
T/L FACILITY
- -----------------------------------------------------------------------------------------------------------------------------
Base Rate + 0 0 0 0 25.0 50.0
LIBOR + 75.0 100.0 125.0 150.0 175.0 200.0
- -----------------------------------------------------------------------------------------------------------------------------
TRANCHE B
T/L FACILITY
- -----------------------------------------------------------------------------------------------------------------------------
Base Rate + 75.0 75.0 75.0 100.0 100.0 100.0
LIBOR + 225.0 225.0 225.0 250.0 250.0 250.0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Key Energy Group, Inc. Letterhead]
Key Energy Group, Inc.
News Release
For Immediate Release: Contact: Jim Dean
Wednesday, August 26, 1998 (732) 247-4822
KEY ENERGY RECEIVES ADDITIONAL $150 MILLION FINANCING COMMITMENT
EAST BRUNSWICK, N.J., Aug. 26, 1998 - Key Energy Group, Inc. (NYSE:KEG) today
announced that it has received a commitment letter from Lehman Commercial Paper,
Inc. and Lehman Brothers, Inc. for $150 million in interim loans in connection
with Key's cash tender offer for all outstanding shares of common stock of
Dawson Production Services, Inc. (NYSE:DPS) at $17.50 per share.
As previously disclosed in Key's offer to purchase, Key has also received a
commitment for $550 million in senior secured credit facilities from PNC Bank,
N.A. Together the commitments with Lehman Brothers and PNC are sufficient to
fully finance Key's tender offer, refinance certain existing indebtedness of
Key, purchase Dawson's senior notes (if necessary) and pay related fees and
expenses.
The obligation of both PNC and Lehman Brothers to provide the funds under the
commitment letters are subject to certain conditions, including, among others,
the execution and delivery of definitive documentation.
As previously announced, Key commenced its cash tender offer for all outstanding
shares of Dawson common stock on August 17, 1998. The tender offer is currently
scheduled to expire at 12:00 midnight, New York City time, on Monday, September
14, 1998 unless the offer is extended. The tender offer is conditioned upon,
among other things, (1) there being validly tendered and not withdrawn before
the expiration date, a number of shares, which when added to the number of
shares beneficially by Key and its wholly-owned subsidiary, Midland Acquisition
Corp., will represent a majority of the total number of shares outstanding on a
fully diluted basis at the time the shares are accepted for payment pursuant to
the offer; (2) Key and Midland having received funds pursuant to an existing
financing commitment, in an amount sufficient to enable Key and Midland to
purchase all shares outstanding pursuant to the offer and the merger and having
obtained a definitive financing commitment for certain bridge financing to
refinance certain indebtedness of Dawson; and (3) expiration or termination of
any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976. The complete terms and conditions of the tender offer, including
the financing arrangements, are set forth in the offering documents filed on
August 17, 1998 with the Securities and Exchange Commission and amendments
thereto filed with the Commission today.
Key Energy Group, Inc. is a holding company with diversified energy operations,
including well servicing, oilfield services, contract drilling and oil and
natural gas production. The company has operations in most major domestic
onshore producing regions and in Argentina.
- # # # -
Contacts:
Key Energy Group, Inc.: Abernathy MacGregor Frank:
Jim Dean Dan Katcher / Matt Sherman
(732) 247-4822 (212) 371-5999
