UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ________
Commission file number 1-8038
KEY ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, 20th Floor, East Brunswick, NJ 08816
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number including area code: (732) 247-4822
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common Shares outstanding at February 9, 1999 - 18,293,083
<PAGE>
Key Energy Services, Inc. and Subsidiaries
INDEX
PART I. Financial Information
Item 1. Unaudited Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
PART II. Other Information
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 27
<PAGE>
Key Energy Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, June 30,
1998 1998
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $8,181 $25,265
Accounts receivable, net of allowance for doubtful accounts
($3,145 and $2,843 at December 31 and June 30, 1998, respectively) 115,881 82,406
Inventories 13,576 13,315
Deferred tax asset 1,203 1,203
Prepaid income taxes 540 537
Prepaid expenses and other current assets 6,001 4,831
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 145,382 127,557
- ---------------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Oilfield service equipment 634,114 400,731
Oil and gas well drilling equipment 84,873 61,629
Motor vehicles 53,819 19,748
Oil and gas properties and other related equipment, successful efforts 42,638
method 43,160
Furniture and equipment 5,950 5,333
Buildings and land 34,717 17,458
- ---------------------------------------------------------------------------------------------------------------------------
856,633 547,537
Accumulated depreciation and depletion (71,506) (48,385)
- ---------------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 785,127 499,152
- ---------------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization ($8,288 and $2,264 at
December 31 and June 30, 1998, respectively) 208,811 44,936
Other assets 36,210 26,995
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $1,175,530 $698,640
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $20,831 $20,124
Other accrued liabilities 25,175 22,239
Accrued interest 4,150 3,818
Current portion of long-term debt 9,511 1,848
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 59,667 48,029
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 839,870 397,931
Non-current accrued expenses 4,527 4,812
Deferred tax liability 126,844 92,940
Stockholders' equity:
Common stock, $.10 par value; 100,000,000 shares authorized, 18,709,735
and 18,684,479 shares issued at December 31 and June 30, 1998, respectively 1,871 1,868
Additional paid-in capital 119,300 119,303
Treasury stock, at cost; 416,666 shares at December 31 and
June 30, 1998 (9,682) (9,682)
Unrealized gain on available-for-sale securities - 2,346
Retained earnings 33,133 41,093
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 144,622 154,928
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,175,530 $698,640
===========================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
</TABLE>
<PAGE>
Key Energy Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998
1997
- -----------------------------------------------------------------------------------------------------------------------
REVENUES:
Oilfield services $ 126,446 $94,739 $222,939 $161,805
Oil and gas well drilling 15,234 11,492 32,150 16,747
Oil and gas 1,837 1,949 3,607 3,801
Other, net 129 1,493 537 2,719
- -----------------------------------------------------------------------------------------------------------------------
143,646 109,673 259,233 185,072
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Oilfield services 90,862 65,982 158,267 112,170
Oil and gas well drilling 12,399 8,962 26,019 13,276
Oil and gas 879 893 1,638 1,696
Depreciation, depletion and
amortization 14,427 7,371 25,130 12,509
General and administrative 14,338 10,370 25,776 18,048
Interest 18,822 4,248 27,327 9,008
Corporate restructuring 6,699 - 6,699 -
- -----------------------------------------------------------------------------------------------------------------------
158,426 97,826 270,856 166,707
- -----------------------------------------------------------------------------------------------------------------------
Income/ (loss) before income taxes (14,780) 11,847 (11,623) 18,365
Income tax provision (4,983) 4,502 (3,663) 6,909
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $ (9,797) $7,345 $(7,960) $11,456
=======================================================================================================================
EARNINGS/(LOSS) PER SHARE :
Basic $ (0.54) $0.40 $ (0.44) $0.71
Diluted $ (0.54) $0.35 $ (0.44) $0.58
=======================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 18,291 18,151 18,283 16,133
Diluted 18,291 25,854 18,283 22,847
=======================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
</TABLE>
<PAGE>
Key Energy Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $(9,797) $7,345 $(7,960) $11,456
Adjustments to reconcile income from operations to
net cash provided (used) by operations:
Depreciation, depletion and amortization 14,427 7,371 25,130 12,509
Amortization of deferred debt costs 1,597 369 2,364 378
Deferred income taxes (4,970) 1,177 (3,650) 3,584
Gain on sale of assets - - 47 -
Other non-cash items 6,490 - 6,692 1,313
Change in assets and liabilities net of effects
from the acquisitions:
(Increase) decrease in accounts receivable (8,530) 1,890 (4,053) (4,334)
(Increase) decrease in other current assets 657 (1,742) 1,194 (342)
Increase (decrease) in accounts payable and accrued expenses (39,885) (8,666) (44,176) (9,638)
Increase (decrease) in accrued interest 1,254 3,041 332 1,212
Other assets and liabilities 2,130 (3,424) (139) (4,717)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (36,627) 7,361 (24,219) 11,421
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Oilfield service operations (7,940) (12,268) (14,527) (18,962)
Capital expenditures - Oil and gas well drilling operations (427) (1,315) (1,446) (1,654)
Capital expenditures - Oil and gas operations (1,772) (1,926) (3,380) (3,984)
Proceeds from sale of fixed assets 69 - 160 -
Cash received in acquisitions 244 - 27,252 2,903
Acquisitions - Oilfield service operations (2,814) (29,933) (275,106) (137,563)
Acquisitions - Oil and gas well drilling - (7,256) - (21,866)
Acquisitions - Oil and gas operations - (600) - (600)
Acquisitions - Minority interest - - - (3,426)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,640) (53,298) (267,047) (185,152)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (2,492) (2,229) (4,205) (2,547)
Repayment of long-term debt (140,000) (19,337) (140,000) (216,337)
Borrowings under line-of-credit 160,000 65,000 438,000 199,000
Purchase of treasury stock - (9,682) - (5,559)
Proceeds from long-term commercial paper - 14,000 - 208,500
Proceeds paid for debt issuance costs - - (19,636) -
Proceeds from exercise of warrants - 99 - 99
Proceeds from exercise of stock options - 942 - 942
Proceeds from other long-term debt 23 1,638 23 1,699
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 17,531 50,431 274,182 185,797
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (31,736) 4,494 (17,084) 12,066
Cash at beginning of period 39,917 49,276 25,265 41,704
- ----------------------------------------------------------------------------------------------------------------------------
Cash at end of period $8,181 $53,770 $8,181 $53,770
============================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
</TABLE>
<PAGE>
Key Energy Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
--------------- --------------- ---------------- -----------
Net income/(loss) $(9,797) $7,345 $ (7,960) $11,456
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale securities - - 1,200 -
--------------- --------------- ---------------- -----------
Comprehensive income/(loss), net of tax $ (9,797) $ 7,345 $ (6,760) $11,456
=============== =============== ================ ===========
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
</TABLE>
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
December 31, 1998 and 1997
1. BASIS OF PRESENTATION
The consolidated financial statements of Key Energy Services, Inc. (the
"Company" or "Key") and its wholly-owned subsidiaries for the six month and
three month periods ended December 31, 1998 and 1997 are unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted in this Form 10-Q pursuant to the rules and regulations of
the Securities and Exchange Commission. However, in the opinion of management,
these interim financial statements include all the necessary adjustments to
fairly present the results of the interim periods presented. These unaudited
interim consolidated financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1998. The results of operations for the
six month and three month periods ended December 31, 1998 are not necessarily
indicative of the results of operations for the full fiscal year ending June 30,
1999.
Accounting Changes
Effective July 1, 1998 the Company made certain changes in the estimated useful
lives of its workover rigs, increasing the lives from 17 years to 25 years. This
change increased net income by $775,000 and $1,525,000 in the three and six
months ended December 31, 1998, respectively ($.04 and $.08 per share-basic).
Had this change been made effective July 1, 1997, the effect would have
increased net income by $306,000 and $705,000 in the three and six months ended
December 31, 1997, respectively ($.02 and $.04 per share-basic). This change was
made to better reflect the expected utilization of these assets over time, to
better provide matching of revenues and expenses and to better reflect the
industry standard in regards to estimated useful lives of workover rigs.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130") Reporting Comprehensive Income, at the beginning of fiscal year 1999. SFAS
130 establishes standards for reporting and presentation of comprehensive income
and its components. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. In accordance with the provisions of SFAS 130, the
Company has presented the components of comprehensive income in its Unaudited
Consolidated Statements of Comprehensive Income.
Reclassifications and Adjustments
Certain reclassifications have been made to the fiscal year 1998 results to
conform to the fiscal year 1999 presentations.
Amounts reported for the six months ended December 31, 1998 differ from the
amounts previously reported on the Company's Quarterly Report on Form 10-Q, for
the six months ended December 31, 1997, due to non-cash adjustments, recorded in
the forth quarter of fiscal 1998, associated with the conversion of the
Company's 7% debentures converted in the first quarter of fiscal year 1998. See
footnote 4 for further discussion on conversion of the 7% debentures.
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
Restructuring Charge
During the three months ended December 31, 1998, the Company recorded a
non-recurring charge in conjunction with the company-wide restructuring plan,
designed to streamline our operations that involves closing facilities and
terminating employees. This charge includes severance payments and other
termination benefits to terminated employees, lease commitments related to
closed facilities and environmental studies performed on closed leased yard
locations. The Company expects to complete the plan by June 30, 1999 and has
recorded an aggregate restructuring charge of $6,699,000, which is included in
our Consolidated Statement of Operations for the quarter ended December 31,
1998. The major components of the restructuring charge and costs incurred to
date are as follows:
Restructuring Costs Incurred Balance as of
Description (in thousands) Charge to Date December 31, 1998
-----------------------------------------------------
Severance/employee costs $6,231 $(834) $5,397
Lease commitments 433 - 433
Environmental clean-up 35 - 35
------- ------- ----------
Total $6,699 $(834) $5,865
======= ======= ==========
2. EARNINGS PER SHARE
The following table sets forth the computation of diluted net income per common
share:
Three Months Ended Six Months Ended
December 31, December 31,
(in thousands) (in thousands)
1998 1997 1998 1997
------------------- ------------------
Diluted EPS Computation:
Numerator-
Net Income $(9,797) $ 7,345 $(7,960 $11,456
Effect of Dilutive Securities,
Tax Effected:
Interest on Convertible Debt* - 1,738 - 1,882
------------------ ------------------
$ (9,797) $ 9,083 $(7,960) $13,338
------------------ ------------------
Denominator-
Weighted Average Common
Shares Outstanding 18,291 18,151 18,283 16,133
Warrants* - 91 - 165
Stock Options* - 1,530 - 1,495
7% Convertible Subordinated
Debentures * - 472 - 2,096
5% Convertible Subordinated Notes * - 5,610 - 2,958
----------------- ------------------
18,291 25,854 18,283 22,847
----------------- ------------------
Diluted EPS $(0.54) $0.35 $(0.44) $0.58
* Net income effect and share effect related to Warrants, Stock Options, 7%
Convertible Subordinated Debentures and 5% Convertible Subordinated Notes are
omitted as they produce anti-dilution during the three and six months ended
December 31, 1998.
<PAGE>
3. BUSINESS AND PROPERTY ACQUISITIONS
The Company
The Company conducts its oil and gas well service operations through
wholly-owned subsidiaries in all major onshore oil and gas producing regions of
the continental United States and in Argentina. The Company conducts contract
drilling operations through wholly-owned subsidiaries in several oil and gas
producing regions of the continental United States and in Argentina and Canada.
The Company also owns and produces oil and natural gas in the Permian Basin and
the Panhandle of Texas.
As of December 31, 1998, the Company owned a fleet of approximately 1,421 well
service rigs, 1,131 oilfield trucks, and 74 drilling rigs, including 21 service
rigs, 38 trucks and six drilling rigs in Argentina and three drilling rigs in
Canada.
Acquisitions Completed During the Six Months Ended December 31, 1998
The following acquisitions were completed during the six months ended December
31, 1998. Except as otherwise noted, the results of operations from these
acquisitions are included in the Company's results of operations for the
applicable six months ended December 31, 1998 (effective as of the date of
completion of the acquisition unless otherwise noted). Each of the acquisitions
was accounted for using the purchase method of accounting. The purchase prices
specified below are based on cash paid at closing and do not include any
post-closing adjustments, if any, paid or to be paid based upon a re-calculation
of the working capital of acquired companies as of the closing dates.
Colorado Well Service Inc.
On July 15, 1998, the Company completed the acquisition of the assets of
Colorado Well Service, Inc. ("Colorado") for approximately $6.5 million in cash.
These assets included seventeen well service rigs and one drilling rig in Utah
and Colorado.
TransTexas Oilfield Service Assets
On August 19, 1998, the Company completed the acquisition of certain oilfield
service assets of TransTexas Gas Corporation ("TransTexas") for approximately
$20.5 million in cash. The TransTexas assets were based in Laredo, Texas and
included nine well service rigs, approximately 80 oilfield trucks, 173 frac and
other tanks, and various pieces of equipment, parts and supplies.
Dawson Production Services, Inc.
On September 15, 1998, Midland Acquisition Corp. ("Midland"), a New Jersey
corporation and a wholly-owned subsidiary of the Company, completed its cash
tender offer (the "Tender Offer") for all outstanding shares of common stock,
par value $0.01 per share (the "Dawson Shares"), including the associated common
stock purchase rights, of Dawson Production Services, Inc. ("Dawson") at a price
of $17.50 per share. Midland accepted for payment 10,021,601 Dawson Shares for a
total purchase price of approximately $175.4 million. The acceptance of tendered
Dawson Shares, together with Dawson Shares previously owned by Midland and the
<PAGE>
Company prior to the commencement of the Tender Offer resulted in Midland and
the Company acquiring approximately 97.0% of the outstanding Dawson Shares. The
purchase price for Dawson Shares pursuant to the Tender Offer was determined
through to arms-length negotiations between the parties and was based on a
variety of factors, including, without limitation, the anticipated earnings and
cash flows of Dawson.
The Tender Offer was made pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of August 11, 1998, by and among Midland, the
Company and Dawson. On September 18, 1998, pursuant to the terms of the Merger
Agreement, Midland was merged with and into Dawson (the "First Merger") under
the laws of the States of New Jersey and Texas and all Dawson Shares not owned
by Midland were canceled and retired and converted into the right to receive
$17.50 in cash. On September 21, 1998, Dawson was merged with and into the
Company (the "Second Merger") pursuant to the laws of the States of Maryland and
Texas.
The total consideration paid for the Dawson Shares pursuant to the Tender Offer
and the First Merger was approximately $181.7 million. Including the cost of
Dawson Shares purchased during the fourth quarter of fiscal year 1998 and debt
net of cash assumed, the aggregate purchase price for Dawson was approximately
$321.3 million.
At the time of the closing, Dawson owned approximately 527 well service rigs,
200 oilfield trucks, and 21 production testing units in South Texas and the Gulf
Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico,
the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters
of the Gulf of Mexico.
Flint Well Servicing Assets
On September 16, 1998, the Company completed the acquisition of substantially
all of the well servicing assets of Flint Engineering & Construction Co., a
subsidiary of Flint Industries, Inc. ("Flint") for approximately $11.9 million
in cash. These assets included 55 well service rigs and 25 oilfield trucks in
Texas, Oklahoma, Kansas, Montana and Utah.
Iceberg S.A.
On September 24, 1998, the Company completed the acquisition of the assets of
Iceberg, S.A. ("Iceberg") for approximately $4.3 million in cash. The Iceberg
assets included four well service rigs in Comodoro Rivadavia, Argentina.
HSI Group
On September 24, 1998, the Company completed the acquisition of substantially
all of the operating assets of Hellums Services II, Inc., Superior Completion
Services, Inc., South Texas Disposal, Inc. and Elsik II, Inc. ("HSI Group") for
$47.9 million in cash. These assets included approximately 80 oilfield trucks
and eight well service rigs in South Texas.
<PAGE>
Corunna Drilling
Effective October 21, 1998, the Company completed the acquisition of Corunna
Drilling for approximately $2.8 million in cash. Corunna operates three drilling
rigs and related equipment in Ontario, Canada. The operating results of Corunna
are included in the Company's results of operations effective October 21, 1998.
Pro Forma Results of Operations - (unaudited)
The following unaudited pro forma results of operations have been prepared as
though Dawson had been acquired on July 1, 1997 with adjustments to record
specifically identifiable decreases in direct costs and general and
administrative expenses related to the termination of individual employees.
Dawson is included in financial results for all of the three months ended
December 31, 1998.
Three months ended Six months ended
December 31, December 31,
(Thousands, except per share data) 1998 1997 1998 1997
------------------ -------------------
Revenues $143,646 $165,083 $295,588 $300,339
Net income/(loss) (9,797) 4,922 (14,245) 6,718
Basic earnings/(loss) per share $ (.54) $ .27 $ (.78) $ .42
4. LONG-TERM DEBT
At December 31, 1998, major components of the Company's long-term debt were as
follows:
(i) PNC Credit Facility
On June 6, 1997, the Company entered into an agreement (the "Initial Credit
Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a
syndication of other lenders pursuant to which the lenders provided a $255
million credit facility, consisting of a $120 million seven-year term loan and a
$135 million five-year revolver. The interest rate on the term loan was LIBOR
plus 2.75 percent. The interest rate on the revolver varied based on LIBOR and
the level of the Company's indebtedness. The Initial Credit Agreement contained
certain restrictive covenants and required the Company to maintain certain
financial ratios. On September 25, 1997, the Company repaid the term loan and a
portion of the then outstanding amounts under the revolver by applying the
proceeds from the initial and second closings of the Company's private placement
of $216 million of 5% Convertible Subordinated Notes (discussed below).
Effective November 6, 1997, the Company entered into an Amended and Restated
Credit Agreement with PNC (the "Amended PNC Credit Agreement"), as
administrative agent and lender, pursuant to which PNC agreed to make revolving
credit loans of up to a maximum loan commitment of $200 million. The maximum
commitment under the Amended PNC Credit Agreement decreased to $175 million on
November 6, 2000 and to $125 million on November 6, 2001. The loan commitment
terminated on November 6, 2002. Borrowings under the credit facility consisted
of (i) Eurodollar Loans with interest currently payable quarterly at LIBOR plus
1.25% subject to adjustment based on certain financial ratios, (ii) Base Rate
Loans with interest payable quarterly at the greater of PNC Prime Rate or the
Federal Funds Effective Rate plus 1/2 %, or (iii) a combination thereof, at the
Company's option. The Amended PNC Credit Agreement contained certain restrictive
covenants and required the Company to maintain certain financial ratios. A
change of control of the Company, as defined in the Amended PNC Credit
Agreement, was an event of default. Borrowings under the Amended PNC Credit
Agreement were secured by substantially all of the assets of the Company and its
domestic subsidiaries.
<PAGE>
Effective December 3, 1997, PNC completed the syndication of the Amended PNC
Credit Agreement. In connection therewith, PNC, as administrative agent, a
syndication of lenders and the Company entered into a First Amendment to the
Amended PNC Credit Agreement providing for, among other things, an increase in
the maximum commitment to $250 million from $200 million.
In connection with the acquisition of Dawson, the total consideration paid for
the Dawson Shares pursuant to the Tender Offer and the First Merger was
approximately $181.7 million. The Company's source of funds to pay such amount,
certain outstanding debt of Dawson and the Company and related fees and expenses
was (i) a bridge loan agreement in the amount of $150,000,000, dated as of
September 14, 1998, among the Company, Lehman Brothers Inc., as Arranger, and
Lehman Commercial Paper Inc., as Administrative Agent, and the other lenders
party thereto (the "Bridge Loan Agreement"). and (ii) a $550,000,000 Second
Amended and Restated Credit Agreement, dated as of June 6, 1997, as amended and
restated through September 14, 1998, among the Company, PNC Bank, National
Association, as Administrative Agent, Norwest Bank Texas, N.A., as Collateral
Agent, PNC Capital Markets, Inc., as Arranger, and the other lenders named from
time to time parties thereto (the "Second Amended and Restated Credit
Agreement").
On November 19, 1998 and December 29, 1998, the Company and its lenders entered
into the First and Second Amendments to the Second Amended and Restated Credit
Agreement. These amendments modified certain financial covenants and certain
other terms of the Second Amended and Restated Credit Agreement.
At December 31, 1998, $150,000,000 in principal amount under the Bridge Loan
Agreement was outstanding. On January 22, 1999 this amount was replaced with the
private placement of $150,000,000 14% Senior Subordinated Notes. See discussion
below.
At December 31, 1998, $460,000,000 in principal amount ($150,000,000 classified
as tranche term loan A, "Tranche A Term Loan" and $200,000,000 classified as
tranche term loan B, "Tranche B Term Loan" and $110,000,000 revolving
commitments) was outstanding under the Second Amended and Restated Credit
Agreement. In addition, at December 31, 1998, there was $40,000,000 available in
revolving commitments under the Second Amended and Restated Credit Agreement,
including amounts reserved in connection with outstanding letters of credit.
The Tranche A Term Loan requires interest payable monthly at LIBOR plus 3.00%
and matures in sixteen consecutive quarterly installments commencing December
14, 1999. Quarterly installment amounts are equal to the applicable percentage
for a particular quarter multiplied by the unamortized principal amount: 4% for
installments 1 - 4, 6% for installments 5 - 8, 7% for installments 9 - 12 and 8%
for installments 13 - 16. Tranche B Term Loan requires interest payable monthly
at LIBOR plus 3.75% and matures in nineteen consecutive quarterly installments
commencing December 14, 1999. Quarterly installment amounts are equal to the
applicable percentage for a particular quarter multiplied by the unamortized
principal amount: 0.25% for installments 1 - 16, 24% for installments 17 - 18
and 48% for the final 19th installment.
<PAGE>
The revolving commitment requires interest payable monthly at LIBOR plus 3% and
matures September 14, 2003.
In connection with the Bridge Loan Agreement and the Second Amended and Restated
Credit Agreement referred to above, the Company incurred various fees and
associated expenses of approximately $6,500,000 and $13,136,000, respectively.
In addition, the Company, its subsidiaries and U.S. Trust Company of Texas,
N.A., trustee ("U.S. Trust"), entered into a Supplemental Indenture dated
September 21, 1998 (the "Supplemental Indenture"), pursuant to which the Company
assumed the obligations of Dawson under the Indenture dated February 20, 1997
(the "Dawson Indenture") between Dawson and U.S. Trust. Most of the Company's
subsidiaries guaranteed those obligations and the senior notes ("Dawson Senior
Notes") issued pursuant to the Dawson Indenture were equally and ratably secured
with the obligations under the Second Amended and Restated Credit Agreement. On
November 17, 1998 the Company completed a cash tender offer to purchase
outstanding notes at 101% of the aggregate principal amount of the notes, the
source of funds which were borrowed under the Second Amended and Restated Credit
Agreement. Under the tender offer, $138,594,000 in principal amount of the
Dawson Senior Notes was redeemed and a premium of $1,386,000 was paid. In
addition, accrued interest of $4,078,000 was paid at redemption.
At December 31, 1998, $1,406,000 principal amount of the Dawson Senior Notes
remained outstanding. Interest on the Dawson Senior Notes is payable on February
1 and August 1 of each year.
Additionally, the Company had outstanding letters of credit of $2,612,000 as of
December 31 and June 30, 1998 related to its workers compensation insurance. The
Company is contractually restricted from paying dividends under the terms of the
Bridge Loan Agreement and the Second Amended and Restated Credit Agreement.
(ii) 14% Senior Subordinated Notes
On January 22, 1999 the Company completed the private placement of units (the
"Units") consisting of $150,000,000 of 14% Senior Subordinated Notes due 2009
("Senior Subordinated Notes") and 150,000 warrants to purchase 2,032,565 shares
of common stock (the "Warrants"). The placement was made as private offering
pursuant to Rule 144A and Regulation S under the Securities Act of 1933. Each
warrant entitles the holder thereof to purchase 13.5504 shares of common stock
at an exercise price of $4.88125. On January 22, 1999 the value of the warrants
was $7.4 million, using the Black-Sholes pricing model.
Before January 15, 2002, the Company may redeem 35% of the aggregate principal
amount of Senior Subordinated Notes, during the first 36 months at a redemption
price of 114% of the principal amount, plus accrued unpaid interest, with net
cash proceeds of one or more equity offerings. On or after January 15, 2004, the
Company may redeem all or a part of the Senior Subordinated Notes at a
redemption price of 107% of the principal amount, plus accrued unpaid interest,
declining ratably thereafter on an annual basis.
<PAGE>
In the event of a change in control of the Company, as defined in the indenture
under which the Senior Subordinated Notes were issued, the Company must commence
within 10 business days an offer to each holder of Senior Subordinated Notes and
such holders will have the right, at the holder's option, to require the Company
to repurchase all or any part of the holder's Senior Subordinated Notes, at a
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest thereon.
Net proceeds from the private placement of the Senior Subordinated Notes in
addition to cash on hand were used to repay all outstanding balances under the
Company's Bridge Loan Agreement (see above). Interest on the Senior Subordinated
Notes is payable on January 15 and July 15 of each year, beginning July 15,
1999.
(iii) 5% Convertible Subordinated Notes
On September 25, 1997, the Company completed an initial closing of its private
placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the
"Notes"). On October 7, 1997, the Company completed a second closing of its
private placement of an additional $16 million of Notes pursuant to the exercise
of the remaining portion of the over-allotment option granted to the initial
purchasers of Notes. The placements were made as private offerings pursuant to
Rule 144A and Regulation S under the Securities Act of 1933. The Notes are
subordinate to the Company's senior indebtedness, which, as defined in the
indenture under which the Notes were issued, includes the borrowings under the
Second Amended and Restated Credit Agreement. The Notes are convertible, at the
holder's option, into shares of Common Stock at a conversion price of $38.50 per
share, subject to certain adjustments.
The Notes are redeemable, at the Company's option, on or after September 15,
2000, in whole or part, together with accrued and unpaid interest. The initial
redemption price is 102.86% for the year beginning September 15, 2000 and
declines ratably thereafter on an annual basis.
In the event of a change in control of the Company, as defined in the indenture
under which the Notes were issued, each holder of Notes will have the right, at
the holder's option, to require the Company to repurchase all or any part of the
holder's Notes, within 60 days of such event, at a price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest thereon.
Proceeds from the placement of the Notes were used to repay then outstanding
balances under the Company's credit facilities. At December 31, 1998,
$216,000,000 principal amount of the Notes remain outstanding. Interest on the
Notes is payable on March 15 and September 15. Interest of approximately $5.4
million was paid on September 15, 1998.
(iv) 7% Convertible Subordinated Debentures
In July 1996, the Company completed a $52,000,000 private offering of 7%
Convertible Subordinated Debentures due 2003 (the "Debentures") pursuant to Rule
144A under the Securities Act of 1933, as amended (the "Securities Act"). The
Debentures are subordinate to the Company's senior indebtedness, which as
defined in the indenture pursuant to which the Debentures were issued includes
the borrowings under the Second Amended and Restated Credit Agreement.
<PAGE>
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of Common Stock at a conversion price of $9.75 per share,
subject to certain adjustments. In addition, Debenture holders who convert prior
to July 1, 1999 will be entitled to receive a payment, in cash or Common Stock
(at the Company's option), generally equal to 50% of the interest otherwise
payable from the date of conversion through July 1, 1999.
The Debentures are redeemable, at the option of the Company, on or after July
15, 1999, at a redemption price of 104%, decreasing 1% per year on each
anniversary date thereafter. In the event of a change in control of the Company,
as defined in the indenture under which the Debentures were issued, each holder
of Debentures will have the right, at the holder's option, to require the
Company to repurchase all or any part of the holder's Debentures within 60 days
of such event at a price equal to 100% of the principal amount thereof, together
with accrued and unpaid interest thereon.
As of December 31, 1998, $47,400,000 in principal amount of the Debentures had
been converted into 4,861,538 shares of common stock at the option of the
holders. An additional 165,423 shares of common stock were issued representing
50% of the interest otherwise payable from the date of conversion through July
1, 1999 and an additional 35,408 shares of common stock were issued as an
inducement to convert. The additional 165,423 shares of common stock,
representing 50% of the interest otherwise payable from the date of conversion
through July 1, 1999, are included in equity. The fair value of the additional
35,408 shares of common stock issued as inducement to convert was $710,186 and
is recorded as interest expense in the unaudited consolidated statement of
operations for the six months ended December 31, 1997. In addition, the
proportional amount of unamortized debt issuance costs associated with the
converted Debentures was charged to additional paid-in capital at the time of
conversion.
At December 31, 1998, $4,600,000 principal amount of the Debentures remained
outstanding. Interest on the Debentures is payable on January 1 and July 1 of
each year. Interest of approximately $172,500 was paid on July 1, 1998.
(v) Other Notes Payable
At December 31, 1998, other notes payable consisted primarily of capital leases
for automotive equipment and equipment leases with varying interest rates and
principal and interest payments.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131 - Disclosures about Segments
of an Enterprise and Related Information
<PAGE>
Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures
about Segments of an Enterprise and Related Information, which establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 also establishes standards
for related disclosure about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 need not be applied to interim financial
statements in the initial year of its application. However, comparative
information for interim periods in the initial year of application is to be
reported in the financial statements for interim periods in the second year of
application. The Company will adopt SFAS 131 for the fiscal year ended June 30,
1999. The Company does not expect SFAS 131 to materially affect the Company's
reporting practices.
6. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position of the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
Current and Subsequent Events
During the six months ended December 31, 1998, the Company completed the
acquisition of the following well servicing, trucking, drilling and ancillary
equipment companies and businesses:
Colorado Well Service, Inc.
Oilfield service assets of TransTexas Gas Corporation
Dawson Production Services, Inc.
Well servicing assets of Flint Engineering & Construction Co.
Iceberg, S.A.
HSI Group
Corrunna Drilling
These acquisitions (which are more fully described in Note 3 to the unaudited
consolidated financial statements) involve approximately 620 well service rigs
(including four well service rigs in Argentina), 385 trucks and four drilling
rigs. The total purchase price of these acquisitions was approximately $415.4
million including debt, net of cash assumed.
As of February 12, 1999, the Company owned a fleet of approximately 1,421 well
service rigs, 1,131 oilfield trucks, and 74 drilling rigs, including 21 service
rigs, 38 trucks and six drilling rigs in Argentina and three drilling rigs in
Canada. Management believes that the Company's well servicing rig and oilfield
truck fleets are the largest onshore fleets in the world. The Company operates
in all major onshore oil and gas producing regions of the continental United
States and provides a full range of drilling, completion, maintenance, workover
and plugging and abandonment services for the oil and gas industry.
Impact of Lower Crude Oil Prices
As the result of the prolonged period of historically low oil prices, the
Company's drilling, completion and workover activity has been adversely
affected. Equipment utilization for drilling, completion and workover activity
has continued to decline markedly throughout the last three months of fiscal
1998 and the first six months of fiscal 1999. The demand for these services,
which generate higher margins than maintenance services, will continue to be
adversely affected until oil prices stabilized and/or substantially increase
from their currently depressed levels.
Growth Strategy
Historically, the domestic well servicing industry has been highly fragmented,
characterized by a large number of smaller companies which have competed
effectively on a local basis in terms of pricing and the quality of services
offered. In recent years, however, many major and independent oil and gas
companies have placed increasing emphasis not only on pricing, but also on the
safety records and quality management systems of, and the breadth of services
offered by, their vendors, including well servicing contractors. This market
environment, which requires significant expenditures by smaller companies to
meet these increasingly rigorous standards, has forced many smaller well
servicing companies to sell their operations to larger competitors. As a result,
the industry has seen high levels of consolidation among the competing
contractors.
<PAGE>
Over the past three years, the Company has been the leading consolidator of the
well servicing industry, completing in excess of 50 acquisitions of well
servicing and drilling operations through December 31, 1998. This consolidation
has led to reduced fragmentation in the market and a more predictable demand for
well services for the Company and its competitors. The Company's management
structure is decentralized, which allows for rapid integration of acquisitions
and the retention of strong local identities of many of the acquired businesses.
As a result of the Company's recent growth through acquisitions, the Company has
developed a strategy to:
1. Maximize operating efficiencies by focusing on reducing costs;
2. Fully integrate acquisitions into the Company's decentralized
organizational structure and thereby attempt to maximize operating margins;
3. Expand business lines and services offered by the Company in existing areas
of operations; and
4. Extend the geographic scope and operating environments for the Company's
operations.
If the current decline in the oil prices persists for a protracted period or a
recovery in such prices remains uncertain, the Company may curtail or halt its
growth strategy until such time as prices reach more favorable ranges.
RESULTS OF OPERATIONS
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the unaudited consolidated financial statements and related
notes thereto appearing elsewhere in this report.
QUARTER ENDED DECEMBER 31, 1998 VERSUS THE QUARTER ENDED DECEMBER 31, 1997
Net Income
For the quarter ended December 31, 1998, the Company reported a net loss of
$9,797,000 ($(.54) per share - basic) as compared to net income of $7,345,000
($.40 per share - basic) for the quarter ended December 31, 1997, representing a
decrease of $17,142,000, or 233% (235% decrease in basic earnings per share).
One factor causing this decline is the Company's restructuring charge recorded
in the quarter ended December 31, 1998 of $4,354,000 (tax effected) or $(.24)
per share - basic. Not including this non-recurring charge, the Company reported
a net loss of $5,443,000 ($(.30) per share - basic). This one time non-recurring
charge coupled with the Company's decrease in service and drilling rig
utilization rates has caused the decline in net income.
<PAGE>
Revenues
The Company's total revenues for the quarter ended December 31, 1998 increased
by $33,973,000, or 31%, to $143,646,000 compared to $109,673,000 reported for
the quarter ended December 31, 1997. The increase is primarily attributable to
the Company's acquisitions of oilfield service and drilling rig companies over
the past twelve months, offset by the Company's decrease in service and drilling
rig utilization rates.
Oilfield service revenues for the quarter ended December 31, 1998 increased by
$31,707,000, or 34%, to $126,446,000 compared to $94,739,000 reported for the
quarter ended December 31, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service companies over the past twelve
months, offset by the Company's decrease in oilfield service rig utilization
rates.
Drilling revenues for the quarter ended December 31, 1998 increased by
$3,742,000, or 33%, to $15,234,000 compared to $11,492,000 reported for the
quarter ended December 31, 1997. The increase is primarily attributable to the
Company's drilling rig acquisitions over the past twelve months, offset by the
Company's decrease in drilling rig utilization rates.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the quarter ended December 31, 1998
increased by $60,600,000, or 62%, to $158,426,000 compared to $97,826,000
reported for the quarter ended December 31, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's acquisitions over the past twelve months.
Oilfield service expenses for the quarter ended December 31, 1998 increased by
$24,880,000, or 38%, to $90,862,000 compared to $65,982,000 reported for the
quarter ended December 31, 1997. Oilfield service margins (revenues less direct
costs and expenses) increased for the quarter ended December 31, 1998 by
$6,827,000, or 24%, to $35,584,000 compared to $28,757,000 for the quarter ended
December 31, 1997. Oilfield service margins as a percentage of oilfield service
revenue for the quarters ended December 31, 1998 and 1997 was 28% and 30%,
respectively. In addition, the Company has continued to expand its services,
offering higher margin ancillary services and equipment such as well fishing
tools, blow-out preventers and frac tanks.
The Company's contract drilling costs and expenses for the quarter ended
December 31, 1998 increased by $6,790,000, or 103%, to $13,380,000 compared to
$6,590,000 for the quarter ended December 31, 1997. Oilfield drilling margins
for the Company's drilling operations during the quarter ended December 31, 1998
increased by $305,000, or 12%, to $2,835,000 compared to $2,530,000 for the
quarter ended December 31, 1997. Oilfield drilling margin as a percentage of
oilfield drilling revenue for the quarters ended December 31, 1998 and 1997 was
19% and 22%, respectively. Decreases in oilfield margins are attributable to the
decreases in onshore drilling due to the lower crude oil and natural gas prices.
General and administrative expenses for the quarter ended December 31, 1998
increased by $3,968,000, or 38%, to $14,338,000 compared to $10,370,000 for the
quarter ended December 31, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenue for the quarters ended December 31,
1997 and 1998 was 10% for each period.
Depreciation, depletion and amortization expense for the quarter ended December
31, 1998 increased by $7,056,000, or 96%, to $14,427,000 compared to $7,371,000
for the quarter ended December 31, 1997. The increase is directly related to the
increase in property and equipment and intangible assets of the Company over the
past twelve months as a result of its acquisitions.
<PAGE>
Interest expense for the quarter ended December 31, 1998 increased by
$14,574,000, or 343%, to $18,822,000 compared to $4,248,000 for the quarter
ended December 31, 1997. The increase was primarily the result of increased
indebtedness used to finance the Company's acquisition program.
Income tax expense for the quarter ended December 31, 1998 decreased by
$9,485,000, or 211%, to ($4,983,000) compared to $4,502,000 for the quarter
ended December 31, 1997. The effective tax rate for the quarter ended December
31, 1998 as compared to the quarter ended December 31, 1997 has decreased due to
the loss generated in the quarter ended December 31, 1998. The Company does not
expect to have to pay any income tax provision because of the availability of
accelerated tax depreciation, drilling tax credits, and tax loss carry-forwards.
Cash Flows
Net cash provided by operating activities for the quarter ended December 31,
1998 decreased by $(43,988,000) or 598%, to $(36,627,000) compared to $7,361,000
provided for the quarter ended December 31, 1997. The decrease is primarily
attributable to an decreased service and drilling operating margin, and service
and drilling utilization rates.
Net cash used in investing activities for the quarter ended December 31, 1998
decreased by $40,658,000, or 76%, to $12,640,000 compared to $53,298,000 used
for the quarter ended December 31, 1997. This decrease is primarily related to
the decline in acquisitions the Company has made in this quarter as compared to
the past twelve months.
Net cash provided by financing activities for the quarter ended December 31,
1998 decreased by $32,900,000 or 65%, to $17,531,000 compared to $50,431,000
provided during the quarter ended December 31, 1997. The decrease is primarily
the result of decreased borrowings of long-term debt, due to the decline in
acquisitions the Company has made in this quarter as compared to the past twelve
months.
SIX MONTHS ENDED DECEMBER 31, 1998 VERSUS THE SIX MONTHS ENDED DECEMBER 31, 1997
Net Income
For the six months ended December 31, 1998, the Company reported a net loss of
$7,960,000 ($(.44) per share - basic) as compared to net income of $11,456,000
($.71 per share - basic) for the six months ended December 31, 1997,
representing a decrease of $19,416,000, or 170% (162% decrease in basic earnings
per share). One factor causing this decline is the Company's restructuring
charge recorded in the quarter ended December 31, 1998 of $4,354,000 (tax
effected) or $(.24) per share - basic. Not including this non-recurring charge,
the Company reported a net loss of $3,606,000 ($(.20) per share - basic). This
one time non-recurring charge coupled with the Company's decrease in service and
drilling rig utilization rates has caused the decline in net income.
Revenues
The Company's total revenues for the six months ended December 31, 1998
increased by $74,161,000, or 40%, to $259,233,000 compared to $185,072,000
reported for the six months ended December 31, 1997. The increase is primarily
attributable to the Company's acquisitions of oilfield service and drilling rig
companies over the past twelve months, offset by the Company's decrease in
service and drilling rig utilization rates.
<PAGE>
Oilfield service revenues for the six months ended December 31, 1998 increased
by $61,134,000, or 38%, to $222,939,000 compared to $161,805,000 reported for
the six months ended December 31, 1997. The increase is primarily attributable
to the Company's acquisitions of oilfield service companies over the past twelve
months, offset by the Company's decrease in oilfield service rig utilization
rates.
Drilling revenues for the six months ended December 31, 1998 increased by
$15,403,000, or 92%, to $32,150,000 compared to $16,747,000 reported for the
six months ended December 31, 1997. The increase is primarily attributable to
the Company's drilling rig acquisitions over the past twelve months, offset by
the Company's decrease in drilling rig utilization rates.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the six months ended December 31,
1998 increased by $104,149,000, or 62%, to $270,856,000 compared to $166,707,000
reported for the six months ended December 31, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's acquisitions over the past twelve months.
Oilfield service expenses for the six months ended December 31, 1998 increased
by $46,097,000, or 41%, to $158,267,000 compared to $112,170,000 reported for
the six months ended December 31, 1997. Oilfield service margins (revenues less
direct costs and expenses) increased for the six months ended December 31, 1998
by $15,037,000, or 30%, to $64,672,000 compared to $49,635,000 for the six
months ended December 31, 1997. Oilfield service margins as a percentage of
oilfield service revenue for the six months ended December 31, 1998 and 1997 was
29% and 31%, respectively. In addition, the Company has continued to expand its
services, offering higher margin ancillary services and equipment such as well
fishing tools, blow-out preventers and frac tanks.
Drilling costs and expenses for the six months ended March 31, 1998 increased by
$12,743,000, or 96%, to $26,019,000 compared to $13,276,000 for the six months
ended December 31, 1997. Drilling margins during the six months ended December
31, 1998 increased by $2,660,000, or 77%, to $6,131,000 compared to $3,471,000
for the six months ended December 31, 1997. Oilfield drilling margin as a
percentage of oilfield drilling revenue for the six months ended December 31,
1998 and 1997 was 19% and 21%, respectively. Decreases in oilfield margins are
attributable to the decreases in onshore drilling due to the lower crude oil and
natural gas prices.
There was no significant change in oil and gas production costs and expenses for
nine months ended March 31, 1998 as compared to the nine months ended March 31,
1997.
General and administrative expenses for the six months ended December 31, 1998
increased by $7,728,000, or 43%, to $25,776,000 compared to $18,048,000 for six
months ended December 31, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenues for the six months ended December 31,
1998 and 1997 were both 10%.
Depreciation, depletion and amortization expense for the six months ended
December 31, 1998 increased by $12,621,000, or 101%, to $25,130,000 compared to
$12,509,000 for six months ended December 31, 1997. The increase is directly
related to the increase in property and equipment and long-term debt issuance
costs incurred by the Company over the past eighteen months in conjunction with
its acquisitions.
<PAGE>
Interest expense for the six months ended December 31, 1998 increased by
$18,319,000, or 203%, to $27,327,000 compared to $9,008,000 for the six months
ended December 31, 1997. The increase was primarily the result of increased
indebtedness as a result of the Company's acquisitions.
Income tax expense for the six months ended December 31, 1998 decreased by
$10,572,000, or 153%, to ($3,663,000) compared to $6,909,000 for the six months
ended December 31, 1997. The effective tax rate for the quarter ended December
31, 1998 as compared to the quarter ended December 31, 1997 has decreased due to
the loss generated in the six months ended December 31, 1998. The Company does
not expect to have to pay any income tax provision because of the availability
of accelerated tax depreciation, drilling tax credits, and tax loss
carry-forwards.
Cash Flows
Net cash provided by operating activities for the six months ended December 31,
1998 decreased by $35,640,000 or 312%, to $(24,219,000) compared to $11,421,000
for six months ended December 31, 1997. The decrease is primarily attributable
to a decreased service and drilling operating margin, and service and drilling
utilization rates.
Net cash used in investing activities for the six months ended December 31, 1998
increased by $81,895,000, or 44%, to $267,047,000 compared to $185,152,000 used
for the six months ended December 31, 1997. This increase is primarily related
to the Company's recent acquisitions.
Net cash provided by financing activities for the six months ended December 31,
1998 increased by $88,385,000, or 48%, to $274,182,000 compared to $185,797,000
provided during the six months ended December 31, 1997. The increase is
primarily the result of the proceeds from long-term debt (see Note 3 to
consolidated financial statements), partially offset by the repayment of debt.
LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash of $8.2 million compared to $25.3
million at June 30, 1998 and $53.8 million at December 31, 1997. At December 31,
1998, the Company had working capital of $92.2 million compared to $79.5 million
at June 30, 1998 and $99.1 million at December 31, 1997.
For fiscal 1999, the Company has projected approximately $26 million of capital
expenditures for improvements of existing service and drilling rig machinery and
equipment, a decrease of approximately $26.1 million from the $52.1 million
expended during fiscal 1998. The Company expects to finance these capital
expenditures through internally generated operating cash flows. Capital
expenditures for service and drilling rig improvements for the six months ended
December 31, 1998 and 1997 were $16.0 million and $20.6 million, respectively.
The Company has projected approximately $2.0 million of capital expenditures for
oil and gas exploration for fiscal 1999 as compared to $7.8 million expended for
fiscal 1998. Financing of these costs is expected to come from operations and
available credit facilities. For the six months ended December 31, 1998 and
1997, the Company expended $3.4 million and $4.0 million, respectively.
<PAGE>
The Company's primary capital resources are net cash provided by operations and
proceeds from certain long-term debt facilities.
Year 2000 Issue
The Company is currently implementing a new integrated management information
system along with updated hardware that will replace most of our current
systems. The implementation of the new management information system, which will
be year 2000 compliant for our systems as well as for those of our past and
future acquisitions, began July 1998 and is scheduled to be substantially
completed by June 1999. The new management information systems do not currently
cover the Company's Argentine operations, but Argentine operations have
established a separate system, which is year 2000 compliant, that will be
implemented in late 1999.
The Company has not yet developed a plan to formally communicate with
significant suppliers and customers to determine if those parties have
appropriate plans to remedy year 2000 issues when their systems interface with
the Company's systems or may otherwise have an impact operations. The Company
does not anticipate that this will have a material impact on operations.
However, there can be no assurance that the systems of other companies on which
the Company rely will be timely converted, or that failure to successfully
convert by another company, or conversion that is incompatible with the
Company's systems, would not have an impact on operations. The Company currently
does not have a contingency plan to cover any unforeseen problems encountered
that relate to the year 2000, but intends to produce one before the end of the
current fiscal year.
The cost of the new management information system, (a large part of which
management expects will be capitalized) is not expected to have a material
impact on the Company's business, operations or results thereof, financial
condition, liquidity or capital resources. Although the Company is not aware of
any material operational issues or costs associated with preparing its internal
systems for the year 2000, there can be no assurance that there will not be a
delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the year 2000.
If the Company is unable to adequately address the year 2000 issue in a timely
manner, the worst case scenario would be that the Company could suffer
significant computer downtime, and billings, payments and collections would
revert to manual accounting records. In addition, the inability of principal
suppliers and major customers to be year 2000 compliant could result in delays
in product deliveries from those suppliers and collections of accounts
receivable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 8, 1998, a meeting of the holders of Common Stock was held to elect
the Company's Board of Directors and to vote on certain other matters. Only the
holders of record as of the close of business on November 3, 1998 (the "Record
Date") were entitled to notice of and to vote at the meeting and at any
adjournment thereof. On the Record Date, the outstanding number of shares
entitled to vote consisted of 18,293,055 share of Common Stock. The stockholders
took the following actions at the meeting:
1. Elected the following six Directors, with the votes indicated opposite each
director's name:
For Against
Francis D. John 15,211,712 116,461
Kevin P. Collins 15,202,240 125,933
William Manly 15,211,587 116,586
W. Phillip Marcum 15,202,242 125,931
David J. Breazzano 15,211,309 116,864
Morton Wolkowitz 15,202,215 125,958
2. Ratified a proposal to amend the Company's Amended and Restated Articles of
Incorporation to change the name of the Company to "Key Energy Services,
Inc.". The vote was 15,215,840 for and 71,365 against, with 40,968
abstentions and broker non-votes.
3. Approved the adoption of the Key Energy Services, Inc. Performance
Compensation Plan. The vote was 14,407,890 for and 822,212 against, with
98,071 abstentions and broker non-votes.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of the Form 10-Q
Number Description
3(a) Articles of Amendment to the Amended and Restated Articles of Incorporation
of the Company (filed as Exhibit A to the Definitive Proxy Statement on
Schedule 14A filed by the Company on November 17, 1998, File No. 001-8038)
10(a)Consulting Agreement, dated as of October 7, 1998, by and among Key Energy
Group, Inc. and Michael E. Little.
10(b)Employment Agreement, dated November 13, 1998, by and between Key Energy
Group, Inc. and James J. Byerlotzer.
10(c)Non-Compete Agreement, dated November 13, 1998, by and between Key Energy
Group, Inc. and James J. Byerlotzer.
10(d)Employment Agreement, dated October 20, 1998, by and between Key Energy
Group, Inc. and Joseph B. Eustace.
10(e)Non-Compete Agreement, dated October 20, 1998, by and between Key Energy
Group, Inc. and Joseph B. Eustace.
10(f)Consulting Agreement, dated as of November 12, 1998, by and among key
Energy Group, Inc. and C. Ron Laidley.
10(g) Key Energy Group, Inc. Performance Compensation Plan.
10(h)Second Amendment, dated as of December 29, 1998 to the Second Amended and
Restated Credit Agreement, dated as of June 6, 1997, as amended and
restated through September 14, 1998 and as amended by the First Amendment
dated as of November 19, 1998.
10(i)Second Amendment, dated as of December 29, 1998 to the Second Amended and
Restated Credit Agreement, dated as of June 6, 1997, as amended and
restated through September 14, 1998 and as amended by the First Amendment
dated as of November 19, 1998.
10(j)Stock Purchase Agreement among 3022481 Nova Scotia Company and Donald
Bowling, Howard Bowling, Ronald Bowling, Corunna Petroleum Limited
effective October 22, 1998.
- --------------------------------------------------------------------------------
* Filed as Exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998. File No. 001-08038
<PAGE>
27(a) Statement - Financial Data Schedule
(b) The following current reports on Form 8-K were filed during the quarter
ended December 31, 1998:
(i) An Amendment to the Form 8-K filed on September 28, 1998 to report the
Company's acquisition of Dawson Production Services, Inc. was filed on
October 28, 1998 to include certain financial information relating to
Dawson and the Company
(ii) a Form 8-K was filed on December 21, 1998 to report the Company's
restructuring plan and to report that the Stockholders' ratified a proposal
to change the name of the Company to "Key Energy Services, Inc."; and
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY ENERGY SERVICES,INC.
(Registrant)
By /s/ Francis D. John
Dated: February 16, 1998 President and Chief Executive Officer
By /s/ Stephen E. McGregor
Dated: February 16, 1998 Executive Vice President, Chief Financial Officer
and Treasurer
By /s/ Danny R. Evatt________
Dated: February 16, 1998 Vice President Financial Operations and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 8,181
<SECURITIES> 0
<RECEIVABLES> 115,881
<ALLOWANCES> 0
<INVENTORY> 13,576
<CURRENT-ASSETS> 145,382
<PP&E> 856,633
<DEPRECIATION> (71,506)
<TOTAL-ASSETS> 1,175,530
<CURRENT-LIABILITIES> 59,667
<BONDS> 0
<COMMON> 1,871
0
0
<OTHER-SE> 142,751
<TOTAL-LIABILITY-AND-EQUITY> 1,175,530
<SALES> 258,696
<TOTAL-REVENUES> 259,233
<CGS> 185,924
<TOTAL-COSTS> 236,830
<OTHER-EXPENSES> 6,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,327
<INCOME-PRETAX> (11,623)
<INCOME-TAX> (3,663)
<INCOME-CONTINUING> (7,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,797)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
Exhibit 99(ii)
CONSULTING AGREEMENT
This AGREEMENT (the "Agreement"), dated as of October 7, 1998, by and among Key
Energy Group, Inc., a Maryland corporation ("Parent"), and Michael E. Little
("Consultant").
WHEREAS, Consultant previously held the positions of Chairman, President and
Chief Executive Officer of Dawson Production Services, Inc., a Texas corporation
(the "Company");
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of August 11,
1998, by and among Parent, Midland Acquisition Corp., a New Jersey corporation
(the "Purchaser"), and the Company (the "Merger Agreement"), at the Effective
Time (as defined in the Merger Agreement) the Purchaser will be merged with and
into the Company (the "Merger"), and the Company will become a subsidiary of
Parent;
WHEREAS, upon the Effective Time of the Merger, Consultant will cease to be a
director and officer of the Company;
WHEREAS, Consultant entering into this Agreement (including the covenant not to
compete set forth in Section 5.3 hereof) is a material inducement to Parent and
the Purchaser to enter into the Merger Agreement; and
WHEREAS, Parent desires to secure the benefit of Consultant's knowledge,
experience and services by retaining Consultant, and Consultant desires to
provide services to Parent and its subsidiaries and affiliates, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, agreements, and promises set forth herein, and intending to be
legally bound, the parties agree as follows:
1. Consulting Services. During the Term (as defined below), Consultant shall
make himself available to perform consulting services with respect to the
businesses conducted by Parent and its subsidiaries and affiliates, as such
consulting services may be requested from time to time by an officer of
Parent. Such request for Consultant's services shall provide reasonable
notice to Consultant. Consultant shall accommodate reasonable requests for
Consultant's consulting services, giving due consideration to Consultant's
other time committments, and shall devote reasonable time and his
reasonable best efforts, skill and attention to the performance of such
consulting services, including travel reasonably required in the
performance of such consulting services. Such consulting services are
estimated to require approximately forty (40) hours of Consultant's time
per month.
2. Term. The term of Consultant's engagement under this Agreement shall be
that period of time (the "Term") beginning on the date hereof and ending on
the earlier to occur of (i) October 6, 2001, or (ii) the date on which this
Agreement is earlier terminated pursuant to Section 4. There shall be no
extension of this Agreement other than by written instrument duly executed
and delivered by the parties hereto.
3. Consulting Fees and Expenses. During the Term, Parent shall pay, or cause
to be paid to, Consultant an annual fee of $200,000, payable in equal
bi-weekly installments (subject to proration for any partial period) on the
last day of each bi-weekly period during the Term to an account designated
in writing by Consultant (such payments, together with the payments
required under Section 5.4 hereof being referred to collectively herein as
the "Fees"). The payor may make any tax withholding it deems to be
necessary under applicable tax laws. In addition, Consultant shall be
reimbursed for reasonable, documented, out-of-pocket expenses incurred in
connection with consulting services rendered pursuant to this Agreement;
provided that such expenses are submitted for reimbursement within thirty
(30) days of the date such expenses are incurred.
4. Termination. Notwithstanding any provision of this Agreement to the
contrary, prior to the expiration of the Term:
(a) This Agreement may be terminated by Parent for the following reasons: (i) in
the reasonable judgment of the Chief Executive Officer of Parent, the willful
engaging by Consultant in conduct which is materially injurious to Parent or its
subsidiaries or affiliates; (ii) Consultant's conviction of, guilty plea
concerning, no contest plea concerning or confession of fraud, theft,
embezzlement or similar malfeasance or any crime of moral turpitude; (iii) in
the reasonable judgment of the Chief Executive Officer of Parent, the material
breach by Consultant of this Agreement; or (iv) in the reasonable judgment of
the Chief Executive Officer of Parent, an act of gross neglect or gross
misconduct by Consultant; provided, however, that in the case of any act or
failure to act described in clauses (i), (iii) and (iv), such act or failure to
act shall not constitute grounds for termination if, within ten (10) days after
Notice of Termination (as defined below) is given to Consultant, Consultant has,
to the reasonable satisfaction of the Chief Executive Officer of Parent,
corrected such act or failure to act or the Chief Executive Officer of Parent is
otherwise satisfied that termination is not in the best interests of Parent. In
the event that Consultant disputes Parent's action in terminating this Agreement
pursuant to this Section 4(a) and commences arbitration pursuant to Section 7 of
this Agreement, Parent shall continue to make, on a timely basis, all payments
due to Consultant hereunder, until a final arbitration decision and/or award is
made; provided, however, that if Parent is the prevailing party in such an
arbitration, Consultant shall immediately repay to Parent any and all payments
made to Consultant pursuant to this sentence, together with interest computed at
an annual rate equal to the prime rate plus one percent (1%).
(b) This Agreement may be terminated by Consultant in the event of a material
breach of this Agreement by Parent, which breach shall not be cured by Parent
within ten (10) days after Notice of Termination is given by Consultant.
(c) This Agreement (i) may be terminated by the mutual written agreement of the
parties hereto; (ii) shall be terminated without any additional action in the
event of Consultant's death or adjudicated incompetency; and (iii) may be
terminated by Parent in the event Consultant shall become disabled by illness,
injury or other incapacity as a result of which Consultant is unable to perform
services under this Agreement for a period or periods aggregating ninety (90)
days in any twelve (12) consecutive months.
(d) Any termination of this Agreement by Parent or by Consultant shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 10.4 of this Agreement. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of this Agreement.
e) Upon termination of this Agreement, other than by Consultant pursuant to
paragraph (b) of this Section 4, Consultant or Consultant's heirs, as the case
may be, shall be entitled to receive (i) any unpaid Fees accrued through the
date of termination and (ii) any unpaid expenses incurred prior to the date of
termination submitted for reimbursement in accordance with Section 3 hereof, and
Parent shall have no further obligation to Consultant or Consultant's heirs.
Upon termination of this Agreement by Consultant pursuant to paragraph (b) of
this Section 4, Consultant shall be entitled to receive (x) any unpaid Fees
accrued through the date of termination, (y) any unpaid expenses incurred prior
to the date of termination and submitted for reimbursement in accordance with
Section 3 hereof and (z) a lump sum payment equal to the unaccrued and unpaid
Fees Consultant would have otherwise received under the remainder of the full
three (3) year period described in clause (i) of Section 2, and Parent shall
have no further obligation to Consultant.
5. Restrictive Covenants.
5.1 No Solicitation. Consultant agrees that during the Term, he will not hire or
solicit to hire, directly or indirectly, any employee of Parent or its
subsidiaries or affiliates, or otherwise solicit, directly or indirectly, any
employee of Parent or its subsidiaries or affiliates to leave the employ of
Parent or its subsidiaries or affiliates.
5.2 Covenant Not to Compete. During the Term, Consultant shall not, in the
Continental United States, directly or indirectly engage in the following
businesses: (i) workover rig services, including completion of new wells,
maintenance and recompletion of existing wells (including horizontal
recompletions) and plugging and abandonment of wells at the end of their useful
lives; (ii) liquid services, including vacuum truck services, frac tank rental
and salt water injection; and/or (iii) production services, including well test
analysis, pipe testing, slickline wireline services and fishing and rental tool
services. Additionally, Consultant shall not own an interest in any company that
is not publicly traded and engages in the foregoing businesses except that,
notwithstanding any provision of this Section 5.3, he may own or invest in a
company that engages in, and he may himself engage in, the fishing and rental
tools services business provided that such business does not operate or conduct
business within the Restricted Territory (defined below). The term "Restricted
Territory" means that portion of the State of Texas that is south of Interstate
Highway 10 and west of Interstate Highway 37. Without limiting the generality of
the foregoing, Consultant shall not interfere with the business or accounts of
Parent and its subsidiaries and affiliates, including the making of any
statements or comments of a defamatory or disparaging nature to third parties
regarding Parent or its subsidiaries or affiliates or their respective officers,
directors, personnel, products or services.
5.4 Consideration. In exchange for Consultant's covenant not to compete
contained in Section 5.3 hereof, and in addition to the consulting fees to be
paid to Consultant pursuant to Section 3 hereof, Parent shall pay, or cause to
be paid to, Consultant an additional aggregate amount of $150,000, payable in
seventy-eight (78) equal bi-weekly installments (subject to proration for any
partial period) on the last day of each bi-weekly period of the Term to an
account designated in writing by Consultant. The payor may make any tax
withholding it deems to be necessary under applicable tax laws. Consultant
acknowledges that the consideration described in this Section 5.4 is adequate,
fair and reasonable.
5.5 Reasonableness of Restrictive Covenants; Irreparable Injury. Consultant
acknowledges that this Agreement is being entered into in connection with the
consummation of the transactions contemplated by the Merger Agreement, that the
services to be rendered by him to Parent and its subsidiaries and affiliates are
of a special and unique character, which gives this Agreement a peculiar value
to Parent, the loss of which may not be reasonably or adequately compensated for
by damages in an action at law, and that a material breach or threatened breach
by him of any of the provisions contained in this Section 5 will cause Parent
irreparable injury. Consultant therefore agrees that Parent shall be entitled,
in addition to any other right or remedy, to a temporary, preliminary and
permanent injunction, without the necessity of proving the inadequacy of
monetary damages or the posting of any bond or security, enjoining or
restraining Consultant from any such violation or threatened violations.
6. Return of Property. Consultant agrees that following the termination of his
engagement for any reason, he shall return all property of Parent and its
subsidiaries and affiliates that is then in or thereafter comes into his
possession, including, but not limited to, documents, contracts, agreements,
plans, photographs, books, notes, electronically stored data and all copies of
the foregoing as well as any other materials or equipment supplied by Parent and
its subsidiaries and affiliates to Consultant.
7. Arbitration. Any dispute between the parties arising out of this Agreement,
including but not limited to any dispute regarding any aspect of this Agreement,
its formation, validity, interpretation, effect, performance or breach
("arbitrable dispute") shall be submitted to arbitration in the city of San
Antonio, Texas, before an experienced arbitrator who is either licensed to
practice law in Texas, or is a retired judge. The parties agree to make a good
faith effort to select a mutually agreeable arbitrator. However, if the parties
are unable to reach agreement on an arbitrator, one will be selected pursuant to
the commercial rules of the American Arbitration Association or any successor
rules thereto. The arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association or any successor rules.
The arbitrator in any arbitrable dispute shall not have authority to modify or
change this Agreement in any respect except to the extent set forth in Section
9.6 hereof. The prevailing party in any such arbitration shall be awarded its
costs, expenses, and reasonable attorneys' fees incurred in connection with the
arbitration, in an aggregate amount not to exceed $25,000. Consultant and Parent
shall each be responsible for payment of one-half of the amount of any
arbitrator's fee(s) payable prior to the existence of a prevailing party, such
amounts to be repaid to the prevailing party pursuant to the previous sentence.
The arbitrator's decision and/or award will be final and binding and fully
enforceable and subject to an entry of judgment by any court of competent
jurisdiction.
8. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed to constitute the parties hereto
as partners or as joint venturers, or either as agent of the other, or as
employer and employee. By virtue of the relationship described herein
Consultant's relationship to Parent during the term of this Agreement shall only
be that of an independent contractor and Consultant shall perform all services
pursuant to this Agreement as an independent contractor. Consultant shall not
provide any services under the business name of Parent or its subsidiaries or
affiliates and shall not present himself as an employee of Parent or its
subsidiaries or affiliates.
(b) Subject only to such specific limitations as are contained in this
Agreement, the manner, means, details or methods by which Consultant performs
his obligations under this Agreement shall be solely within the discretion of
Consultant. Parent shall not have the authority to, nor shall it, supervise,
direct or control the manner, means, details or methods utilized by Consultant
to perform his obligations under this Agreement and nothing in this Agreement
shall be construed to grant Parent any such authority.
9. Miscellaneous.
9.1 Successors and Assigns; Binding Agreement. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, provided, however, that
the services to be provided by Consultant hereunder are personal to Consultant
and may not be delegated or assigned by him.
9.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflict of law
rules thereof.
9.3 Waivers. The waiver by either party hereto of any right hereunder of any
failure to perform or breach by the other party hereto shall not be deemed a
waiver or any other right hereunder or of any other failure or breach by the
other party hereto, whether of the same or a similar nature or otherwise. No
waiver shall be deemed to have occurred unless set forth in a writing executed
by or on behalf of the waiving party. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9.4 Notices. All notices and communications that are required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when delivered personally or sent by overnight carrier service (such as Federal
Express) to the parties at the following addresses:
If to Parent, to:
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
If to Consultant, to:
Michael E. Little
640 Elizabeth Street
San Antonio, TX 78209
or to such other address as may be specified in a written notice delivered
personally or sent by overnight courier given by one party to the other party
hereunder.
9.5 Severability. If for any reason any term or provision of this Agreement is
held to be invalid or unenforceable, all other valid terms and provisions hereof
shall remain in full force and effect, and all of the terms and provisions of
this Agreement shall be deemed to be severable in nature. If for any reason any
term or provision containing a restriction set forth herein is held to cover an
area or to be for a length of time which is unreasonable, or in any other way is
construed to be too broad or to any extent invalid, such term or provision shall
not be determined to be null, void and of no effect, but to the extent the same
is or would be valid or enforceable under applicable law, any court of competent
jurisdiction shall construe and interpret or reform this Agreement to provide
for a restriction having the maximum enforceable area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under applicable law.
9.6 Amendment. This Agreement may not be amended or modified except by an
agreement in writing, signed by the parties hereto.
9.7 Entire Agreement. This Agreement, together with the Confidential Separation
9.7 Entire Agreement. This Agreement, together with the Confidential Separation
and Release Agreement dated as of the date hereof (including the Preexisting
Indemnification Provisions as defined therein) and the Certificate executed and
delivered by Consultant in connection with the payment of his stock options,
constitute the entire agreement between the parties hereto, and supersedes all
prior oral and/or written understandings and/or agreements between the parties
hereto.
9.8 Descriptive Headings. The parties hereto agree that the headings contained
herein are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
9.9 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes but which, together, shall
constitute one and the same instrument.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first above written.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
MICHAEL E. LITTLE
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey
November 13, 1998
James J. Byerlotzer
125 Grant
San Antonio, Texas 78209
EMPLOYMENT AGREEMENT
(this "Agreement")
Dear Jim:
Key Energy Group, Inc., a Maryland corporation (the "Company"), with its
principal offices at the address set forth above, and you, an individual with
your home address set forth above, agree as follows:
1. Employment; Term. The Company agrees to employ you, and you agree to devote
your full time and best efforts to serve as the Company as Executive Vice
President of Permian Basin Operations. Your employment will commence effective
as of the date hereof and continue until this Agreement is terminated in
accordance with Section 3 hereof.
2. Salary; Expenses; Benefits. From the date hereof until this Agreement is
terminated in accordance with Section 3 hereof, the Company will pay a salary to
you at the annual rate of $170,000 per year (the "Base Salary"), payable in
substantially equal installments in accordance with the Company's existing
payroll practices, but no less frequently than monthly. You will be reimbursed
by the Company for reasonable travel, lodging, meal and other expenses incurred
by you in connection with performing your services hereunder in accordance with
the Company's policies from time to time in effect. From the date hereof until
this Agreement is terminated in accordance with Section 3 hereof, you will be
entitled to such benefits, including, without limitation, group medical and
dental , accident and disability insurance, retirement plans and supplemental
and excess retirement benefits as the Company may provide from time to time for
its similarly situated management personnel.
<PAGE>
3. Termination.
(a) Termination by Company for Cause. The Company shall have the right to
terminate your employment under this Agreement for Cause (as defined below)
at any time without obligation to make any further payments to you
hereunder other than any salary or expense reimbursement payments owed to
you under Section 2 hereof through the date of termination. As used in this
Agreement, the term "Cause" shall mean the willful and continued failure by
you to substantially perform your duties hereunder (other than any such
wilful or continued failure resulting from your incapacity due to physical
or mental illness or physical injury), or the willful engaging by you in
misconduct which is materially injurious to the Company, monetarily or
otherwise, or your conviction of a felony by a court of competent
jurisdiction.
(b) Termination by Company upon Disability or Death. If you die or become
totally and permanently disabled so that you are unable to perform your
obligations hereunder by reasons involving physical or mental illness or
physical injury, then the Company shall have the right to terminate your
employment under this Agreement, effective on the date of such disability
or death, without obligation to make any further payments to you hereunder
other than any salary or expense reimbursement payments owed to you under
Section 2 hereof through the date of termination.
(c) Termination by Employee. You shall have the right to terminate your
employment under this Agreement for any reason by giving at least thirty
(30) days' written notice to the Company, with the Company having no
obligation to make any further payments to you hereunder other than any
salary or expense reimbursement payments owed to you under Section 2 hereof
through the date of termination.
(d) Termination by Company other than for Cause, Disability or Death. The
Company shall have the right, upon at least ten (10) days' written notice,
to terminate your employment under this Agreement for any reason other than
for Cause, disability or death at any time without obligation to make any
further payments to you hereunder other than (i) any salary or expense
reimbursement payments owed to you under Section 2 hereof through the date
of termination and (ii) the payments provided for in Section 3(e) hereof.
<PAGE>
(e) Severance Compensation. In the event your employment hereunder is
terminated by the Company other than for Cause, death or disability within
six (6) months following a Change of Control (as defined below), you will
be entitled to severance compensation in the amount of $170,000 payable in
twelve (12) equal monthly installments on the last day of each calendar
month commencing on the last day of the calendar month on which the
termination date occurs. In the event your employment hereunder is
otherwise terminated by the Company other than for Cause, death or
disability, you will be entitled to severance compensation in the amount of
$85,000 payable in six (6) equal monthly installments on the last day of
each calendar month commencing on the last day of the calendar month on
which the termination date occurs. As used in this Agreement, the term
"Change of Control" shall mean any one or more of the following
occurrences: (i) an event or series of events by which any person or group
of persons shall, as a result of a tender or exchange offer, open market
purchase, privately negotiated purchase, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule
13d-3 under the Securities Exchange Act, as amended) of 50% or more of the
combined voting power of the then outstanding capital stock of the Company
entitled to vote for the election of directors ("Voting Stock"), (ii) the
Company is merged with or into another corporation with the effect that
immediately after such transaction the stockholders of the Company hold
less than a majority of the combined voting power of the then outstanding
Voting Stock of the person surviving such transaction, or (iii) the direct
or indirect, sale, lease, exchange or other transfer to any person or group
of persons of all or substantially all of the assets of the Company.
4. Limitation on Competition. From the date hereof until the later to occur of
(i) the date this Agreement is terminated in accordance with Section 3 hereof
and (ii) the date of the last severance payment made to you under Section 3(e)
hereof, you shall not, directly or indirectly, without the prior written consent
of the Company, participate or engage in, whether as a director, officer,
employee, advisor, consultant, stockholder, partner, joint venturer, owner or in
any other capacity, any business engaged in the business of furnishing oilfield
services (a "Competing Enterprise") anywhere in the continental United States,
Argentina or any other geographic region in which the Company (including its
subsidiaries and affiliates) conducts its business from time to time; provided,
however, that you shall not be deemed to be participating or engaging in any
such business solely by virtue of your ownership of not more than five percent
of any class of stock or other securities which is publicly traded on a national
securities exchange or in a recognized over-the-counter market; and, for that
same period of time, you shall not, directly or indirectly, solicit, raid,
entice or otherwise induce any employee of the Company or any of its
subsidiaries to be employed by a Competing Enterprise.
If this Agreement correctly sets forth your understanding of the agreement
between the Company and you, please indicate your agreement hereto by signing
this Agreement in the space for that purpose below.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
ACCEPTED AND AGREED
as of the date first written above:
James J. Byerlotzer
Executive Copy
NON-COMPETE AGREEMENT
This AGREEMENT (the "Agreement"), dated as of November 13, 1998, by and among
Key Energy Group, Inc., a Maryland corporation ("Parent"), and James J.
Byerlotzer ("Mr. Byerlotzer").
WHEREAS, Mr. Byerlotzer previously held the position of Senior Vice President
and Chief Operating Officer of Dawson Production Services, Inc., a Texas
corporation (the "Company");
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of August 11,
1998, by and among Parent, Midland Acquisition Corp., a New Jersey corporation
(the "Purchaser"), and the Company (the "Merger Agreement"), at the Effective
Time (as defined in the Merger Agreement) the Purchaser has been merged with and
into the Company (the "Merger"), and the Company has become a subsidiary of
Parent; and
WHEREAS, Mr. Byerlotzer entering into this Agreement is a material inducement to
Parent and the Purchaser to enter into the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, agreements, and promises set forth herein, and intending to be
legally bound, the parties agree as follows:
<PAGE>
1. Covenant Not to Compete; No Solicitation. In addition to any limitation on
competition contained in any employment agreement that Mr. Byerlotzer may enter
into with Parent, during that period of time (the "Term") beginning on the date
hereof and ending on November 12, 2001, other than pursuant to an employment
agreement with Parent, Mr. Byerlotzer shall not, in the Continental United
States, directly or indirectly engage in the following businesses: (i) workover
rig services, including completion of new wells, maintenance and recompletion of
existing wells (including horizontal recompletions) and plugging and abandonment
of wells at the end of their useful lives; (ii) liquid services, including
vacuum truck services, frac tank rental and salt water injection; and/or (iii)
production services, including well test analysis, pipe testing, slickline
wireline services and fishing and rental tool services. Without limiting the
generality of the foregoing, during the Term, Mr. Byerlotzer shall not interfere
with the business or accounts of Parent and its subsidiaries and affiliates,
including the making of any statements or comments of a defamatory or
disparaging nature to third parties regarding Parent or its subsidiaries or
affiliates or their respective officers, directors, personnel, products or
services. Mr. Byerlotzer agrees that during the Term, he will not hire or
solicit to hire, directly or indirectly, any employee of Parent or its
subsidiaries or affiliates, or otherwise solicit, directly or indirectly, any
employee of Parent or its subsidiaries or affiliates to leave the employ of
Parent or its subsidiaries or affiliates.
2. Consideration. In exchange for Mr. Byerlotzer's covenants contained in
Section 1 hereof, Parent shall pay, or cause to be paid to, Mr. Byerlotzer an
annual amount of $100,000, payable in equal monthly installments (subject to
proration for any partial period) on the last day of each month of the Term to
an account designated in writing by Mr. Byerlotzer. The payor may make any tax
withholding it deems to be necessary under applicable tax laws. Mr. Byerlotzer
acknowledges that the consideration described in this Section 2 is adequate,
fair and reasonable.
3. Reasonableness of Covenant Not to Compete; Irreparable Injury. Mr. Byerlotzer
acknowledges that this Agreement is being entered into in connection with the
consummation of the transactions contemplated by the Merger Agreement, that the
agreements contained herein are of a special and unique character, which gives
this Agreement a peculiar value to Parent, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Agreement will cause Parent irreparable injury. Mr. Byerlotzer
therefore agrees that Parent shall be entitled, in addition to any other right
or remedy, to a temporary, preliminary and permanent injunction, without the
necessity of proving the inadequacy of monetary damages or the posting of any
bond or security, enjoining or restraining Mr. Byerlotzer from any such
violation or threatened violations.
4. Arbitration. Any dispute between the parties arising out of this Agreement,
including but not limited to any dispute regarding any aspect of this Agreement,
its formation, validity, interpretation, effect, performance or breach
("arbitrable dispute") shall be submitted to arbitration in the cities of
Houston or San Antonio, Texas, before an experienced arbitrator who is either
licensed to practice law in Texas, or is a retired judge. The parties agree to
make a good faith effort to select a mutually agreeable arbitrator. However, if
the parties are unable to reach agreement on an arbitrator, one will be selected
pursuant to the commercial rules of the American Arbitration Association or any
successor rules thereto. The arbitration shall be conducted in accordance with
the commercial rules of the American Arbitration Association or any successor
rules. The arbitrator in any arbitrable dispute shall not have authority to
modify or change this Agreement in any respect except to the extent set forth in
Section 5.6 hereof. The prevailing party in any such arbitration shall be
awarded its costs, expenses, and reasonable attorneys' fees incurred in
connection with the arbitration in an aggregate amount not to exceed $25,000.
Mr. Byerlotzer and Parent shall each be responsible for payment of one-half of
the amount of any arbitrator's fee(s) payable prior to the existence of a
prevailing party, such amounts to be repaid to the prevailing party pursuant to
the previous sentence. The arbitrator's decision and/or award will be fully
enforceable and subject to an entry of judgment by any court of competent
jurisdiction.
5. Miscellaneous.
5.1 Successors and Assigns; Binding Agreement. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
5.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflict of law
rules thereof.
5.3 Waivers. The waiver by either party hereto of any right hereunder of any
failure to perform or breach by the other party hereto shall not be deemed a
waiver or any other right hereunder or of any other failure or breach by the
other party hereto, whether of the same or a similar nature or otherwise. No
waiver shall be deemed to have occurred unless set forth in a writing executed
by or on behalf of the waiving party. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
5.4 Notices. All notices and communications that are required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when delivered personally or sent by overnight carrier service (such as Federal
Express) to the parties at the following addresses:
If to Parent, to:
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
If to Mr. Byerlotzer, to:
James J. Byerlotzer
125 Grant
San Antonio, Texas 78209
or to such other address as may be specified in a written notice delivered
personally or sent by overnight courier given by one party to the other party
hereunder.
<PAGE>
5.5 Severability. If for any reason any term or provision of this Agreement is
held to be invalid or unenforceable, all other valid terms and provisions hereof
shall remain in full force and effect, and all of the terms and provisions of
this Agreement shall be deemed to be severable in nature. If for any reason any
term or provision containing a restriction set forth herein is held to cover an
area or to be for a length of time which is unreasonable, or in any other way is
construed to be too broad or to any extent invalid, such term or provision shall
not be determined to be null, void and of no effect, but to the extent the same
is or would be valid or enforceable under applicable law, any court of competent
jurisdiction shall construe and interpret or reform this Agreement to provide
for a restriction having the maximum enforceable area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under applicable law.
5.6 Amendment. This Agreement may not be amended or modified except by an
agreement in writing, signed by the parties hereto.
5.7 Entire Agreement. This Agreement, together with the Confidential Separation
and Release Agreement (including the Pre-existing Indemnification Provisions as
defined therein), the Employment Agreement of even date herewith between Mr.
Byerlotzer and the Parent, and the Certificate executed and delivered by Mr.
Byerlotzer in connection with the payment of his stock options constitute the
entire agreement between the parties hereto, and supersedes all prior oral
and/or written understandings and/or agreements between the parties hereto.
5.8 Descriptive Headings. The parties hereto agree that the headings contained
herein are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
5.9 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes but which, together, shall
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first above written.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
JAMES J. BYERLOTZER
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey
October 20, 1998
Joseph B. Eustace
1305 281 South
Pleasanton, Texas 78064
EMPLOYMENT AGREEMENT
(this"Agreement")
Dear Joe:
Key Energy Group, Inc., a Maryland corporation (the "Company"), with its
principal offices at the address set forth above, and you, an individual with
your home address set forth above, agree as follows:
1. Employment; Term. The Company agrees to employ you, and you agree to devote
your full time and best efforts to serve as the President of the Gulf Coast
Division of the Company. Your employment will commence effective as of the date
hereof and continue until this Agreement is terminated in accordance with
Section 3 hereof.
2. Salary; Expenses; Benefits. From the date hereof until this Agreement is
terminated in accordance with Section 3 hereof, the Company will pay a salary to
you at the annual rate of $140,000 per year (the "Base Salary"), payable in
substantially equal installments in accordance with the Company's existing
payroll practices, but no less frequently than monthly. You will be reimbursed
by the Company for reasonable travel, lodging, meal and other expenses incurred
by you in connection with performing your services hereunder in accordance with
the Company's policies from time to time in effect. From the date hereof until
this Agreement is terminated in accordance with Section 3 hereof, you will be
entitled to such benefits, including, without limitation, group medical and
dental , accident and disability insurance, retirement plans and supplemental
and excess retirement benefits as the Company may provide from time to time for
its similarly situated management personnel.
3. Termination. Either you or the Company may terminate this Agreement at any
time for any reason by providing the other party at least 30 days' written
notice of such party's intent to so terminate. After the date of termination,
the Company shall have no further obligation to you other than for any salary or
expense reimbursement payments owed to you under Section 2 hereof through the
date of termination.
<PAGE>
4. Limitation on Competition. From the date hereof until this Agreement is
terminated in accordance with Section 3 hereof, you shall not, directly or
indirectly, without the prior written consent of the Company, participate or
engage in, whether as a director, officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner or in any other capacity, any
business engaged in the business of furnishing oilfield services (a "Competing
Enterprise") anywhere in the continental United States, Argentina or any other
geographic region in which the Company (including its subsidiaries and
affiliates) conducts its business from time to time; provided, however, that you
shall not be deemed to be participating or engaging in any such business solely
by virtue of your ownership of not more than five percent of any class of stock
or other securities which is publicly traded on a national securities exchange
or in a recognized over-the-counter market; and, for that same period of time,
you shall not, directly or indirectly, solicit, raid, entice or otherwise induce
any employee of the Company or any of its subsidiaries to be employed by a
Competing Enterprise.
If this Agreement correctly sets forth your understanding of the agreement
between the Company and you, please indicate your agreement hereto by signing
this Agreement in the space for that purpose below.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
ACCEPTED AND AGREED
as of the date first written above:
Joseph B. Eustace
Execution Copy
NON-COMPETE AGREEMENT
This AGREEMENT (the "Agreement"), dated as of October 20, 1998, by and among Key
Energy Group, Inc., a Maryland corporation ("Parent"), and Joseph B. Eustace
("Mr. Eustace").
WHEREAS, Mr. Eustace previously held the position of Vice President of East
Texas/Gulf Coast Region of Dawson Production Services, Inc., a Texas corporation
(the "Company");
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of August 11,
1998, by and among Parent, Midland Acquisition Corp., a New Jersey corporation
(the "Purchaser"), and the Company (the "Merger Agreement"), at the Effective
Time (as defined in the Merger Agreement) the Purchaser will be merged with and
into the Company (the "Merger"), and the Company will become a subsidiary of
Parent; and
WHEREAS, Mr. Eustace entering into this Agreement is a material inducement to
Parent and the Purchaser to enter into the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, agreements, and promises set forth herein, and intending to be
legally bound, the parties agree as follows:
<PAGE>
1. Covenant Not to Compete; No Solicitation. In addition to any limitation on
competition contained in any employment agreement that Mr. Eustace may enter
into with Parent, during that period of time (the "Term") beginning on the date
hereof and ending on October 19, 2001, other than pursuant to an employment
agreement with Parent, Mr. Eustace shall not, in the Continental United States,
directly or indirectly engage in the following businesses: (i) workover rig
services, including completion of new wells, maintenance and recompletion of
existing wells (including horizontal recompletions) and plugging and abandonment
of wells at the end of their useful lives; (ii) liquid services, including
vacuum truck services, frac tank rental and salt water injection; and/or (iii)
production services, including well test analysis, pipe testing, slickline
wireline services and fishing and rental tool services. Without limiting the
generality of the foregoing, Mr. Eustace shall not interfere with the business
or accounts of Parent and its subsidiaries and affiliates, including the making
of any statements or comments of a defamatory or disparaging nature to third
parties regarding Parent or its subsidiaries or affiliates or their respective
officers, directors, personnel, products or services. Mr. Eustace agrees that
during the Term, he will not hire or solicit to hire, directly or indirectly,
any employee of Parent or its subsidiaries or affiliates, or otherwise solicit,
directly or indirectly, any employee of Parent or its subsidiaries or affiliates
to leave the employ of Parent or its subsidiaries or affiliates.
2. Consideration. In exchange for Mr. Eustace's covenants contained in Section 1
hereof, Parent shall pay, or cause to be paid to, Mr. Eustace an annual amount
of $75,000, payable in equal monthly installments (subject to proration for any
partial period) on the last day of each month of the Term to an account
designated in writing by Mr. Eustace. The payor may make any tax withholding it
deems to be necessary under applicable tax laws. Mr. Eustace acknowledges that
the consideration described in this Section 2 is adequate, fair and reasonable.
3. Reasonableness of Covenant Not to Compete; Irreparable Injury. Mr. Eustace
acknowledges that this Agreement is being entered into in connection with the
consummation of the transactions contemplated by the Merger Agreement, that the
agreements contained herein are of a special and unique character, which gives
this Agreement a peculiar value to Parent, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Agreement will cause Parent irreparable injury. Mr. Eustace
therefore agrees that Parent shall be entitled, in addition to any other right
or remedy, to a temporary, preliminary and permanent injunction, without the
necessity of proving the inadequacy of monetary damages or the posting of any
bond or security, enjoining or restraining Mr. Eustace from any such violation
or threatened violations.
<PAGE>
4. Arbitration. Any dispute between the parties arising out of this Agreement,
including but not limited to any dispute regarding any aspect of this Agreement,
its formation, validity, interpretation, effect, performance or breach
("arbitrable dispute") shall be submitted to arbitration in the cities of
Houston or San Antonio, Texas, before an experienced arbitrator who is either
licensed to practice law in Texas, or is a retired judge. The parties agree to
make a good faith effort to select a mutually agreeable arbitrator. However, if
the parties are unable to reach agreement on an arbitrator, one will be selected
pursuant to the commercial rules of the American Arbitration Association or any
successor rules thereto. The arbitration shall be conducted in accordance with
the commercial rules of the American Arbitration Association or any successor
rules. The arbitrator in any arbitrable dispute shall not have authority to
modify or change this Agreement in any respect except to the extent set forth in
Section 5.6 hereof. The prevailing party in any such arbitration shall be
awarded its costs, expenses, and reasonable attorneys' fees incurred in
connection with the arbitration in an aggregate amount not to exceed $25,000.
Mr. Eustace and Parent shall each be responsible for payment of one-half of the
amount of any arbitrator's fee(s) payable prior to the existence of a prevailing
party, such amounts to be repaid to the prevailing party pursuant to the
previous sentence. The arbitrator's decision and/or award will be fully
enforceable and subject to an entry of judgment by any court of competent
jurisdiction.
5. Miscellaneous.
5.1 Successors and Assigns; Binding Agreement. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
5.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflict of law
rules thereof.
5.3 Waivers. The waiver by either party hereto of any right hereunder of any
failure to perform or breach by the other party hereto shall not be deemed a
waiver or any other right hereunder or of any other failure or breach by the
other party hereto, whether of the same or a similar nature or otherwise. No
waiver shall be deemed to have occurred unless set forth in a writing executed
by or on behalf of the waiving party. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
5.4 Notices. All notices and communications that are required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when delivered personally or sent by overnight carrier service (such as Federal
Express) to the parties at the following addresses:
If to Parent, to:
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
If to Mr. Eustace, to:
Joseph B. Eustace
1305 281 South
Pleasanton, Texas 78064
<PAGE>
or to such other address as may be specified in a written notice delivered
personally or sent by overnight courier given by one party to the other party
hereunder.
5.5 Severability. If for any reason any term or provision of this Agreement is
held to be invalid or unenforceable, all other valid terms and provisions hereof
shall remain in full force and effect, and all of the terms and provisions of
this Agreement shall be deemed to be severable in nature. If for any reason any
term or provision containing a restriction set forth herein is held to cover an
area or to be for a length of time which is unreasonable, or in any other way is
construed to be too broad or to any extent invalid, such term or provision shall
not be determined to be null, void and of no effect, but to the extent the same
is or would be valid or enforceable under applicable law, any court of competent
jurisdiction shall construe and interpret or reform this Agreement to provide
for a restriction having the maximum enforceable area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under applicable law.
5.6 Amendment. This Agreement may not be amended or modified except by an
agreement in writing, signed by the parties hereto.
5.7 Entire Agreement. This Agreement, together with the Confidential Separation
and Release Agreement (including the Pre-existing Indemnification Provisions as
defined therein), the Employment Agreement of even dates herewith between Mr.
Eustace and the Parent, and the Certificate executed and delivered by Mr.
Eustace in connection with the payment of his stock options constitute the
entire agreement between the parties hereto, and supersedes all prior oral
and/or written understandings and/or agreements between the parties hereto.
5.8 Descriptive Headings. The parties hereto agree that the headings contained
herein are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
5.9 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes but which, together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first above written.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
JOSEPH B. EUSTACE
Execution Copy
CONSULTING AGREEMENT
This AGREEMENT (the "Agreement"), dated as of November 12, 1998, by and among
Key Energy Group, Inc., a Maryland corporation ("Parent"), and C. Ron Laidley
("Consultant").
WHEREAS, Consultant previously held the position of President of Yale E. Key,
Inc., a Texas corporation (the "Company");
WHEREAS, effective as of the date hereof, the Parent and Consultant have
terminated their employment relationship and, in connection therewith, the
Parent and Consultant have entered into a Confidential Separation and Release
Agreement (the "Release Agreement"); and
WHEREAS, Parent entering into this Agreement is a material inducement to
Consultant entering into the Release Agreement; and
WHEREAS, Parent desires to secure the benefit of Consultant's knowledge,
experience and services by retaining Consultant, and Consultant desires to
provide services to Parent and its subsidiaries and affiliates, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, agreements, and promises set forth herein, and intending to be
legally bound, the parties agree as follows:
1. Consulting Services. During the Term (as defined below), Consultant shall
make himself available to perform consulting services with respect to the
businesses conducted by Parent and its subsidiaries and affiliates, as such
consulting services may be requested from time to time by the Parent's Chief
Executive Officer or Board of Directors. Such request for Consultant's services
shall provide reasonable notice to Consultant. Consultant shall accommodate
reasonable requests for Consultant's consulting services, and shall devote
reasonable time and his reasonable best efforts, skill and attention to the
performance of such consulting services, including travel reasonably required in
the performance of such consulting services. Such consulting services are
estimated to require approximately forty (40) hours of Consultant's time per
month.
<PAGE>
2. Term. The term of Consultant's engagement under this Agreement shall commence
on the date hereof and, unless earlier terminated pursuant to Section 4 hereof,
shall continue in effect for a period of three (3) years thereafter (the
"Term"). There shall be no extension of this Agreement other than by written
instrument duly executed and delivered by the parties hereto.
3. Consulting Fees and Expenses. During the Term, Parent shall pay, or cause to
be paid to, Consultant an annual fee of $175,000, payable in equal bi-weekly
installments (subject to proration for any partial period) on the last day of
each bi-weekly period during the Term to an account designated in writing by
Consultant (such payments, together with the payments required under Section 5.4
hereof being referred to collectively herein as the "Fees"). The payor may make
any tax withholding it deems to be necessary under applicable tax laws. In
addition, Consultant shall be reimbursed for reasonable, documented,
out-of-pocket expenses incurred in connection with consulting services rendered
pursuant to this Agreement; provided that such expenses are submitted for
reimbursement within thirty (30) days of the date such expenses are incurred.
4. Termination. Notwithstanding any provision of this Agreement to the contrary,
prior to the expiration of the Term:
(a) This Agreement may be terminated by Parent for the following reasons: (i)
in the reasonable judgment of the Chief Executive Officer of Parent, the
willful engaging by Consultant in conduct on or after the date hereof which
is materially injurious to Parent or its subsidiaries or affiliates; (ii)
Consultant's conviction of, guilty plea concerning, no contest plea
concerning or confession of fraud, theft, embezzlement or similar
malfeasance or any crime of moral turpitude on or after the date hereof;
(iii) in the reasonable judgment of the Chief Executive Officer of Parent,
the material breach by Consultant of this Agreement; or (iv) in the
reasonable judgment of the Chief Executive Officer of Parent, an act of
gross neglect or gross misconduct by Consultant on or after the date
hereof; provided, however, that in the case of any act or failure to act
described in clauses (i), (iii) and (iv), such act or failure to act shall
not constitute grounds for termination if, within ten (10) days after
Notice of Termination (as defined below) is given to Consultant, Consultant
has, to the reasonable satisfaction of the Chief Executive Officer of
Parent, corrected such act or failure to act or the Chief Executive Officer
of Parent is otherwise satisfied that termination is not in the best
interests of Parent. In the event that Consultant disputes Parent's action
in terminating this Agreement pursuant to this Section 4(a) and commences
arbitration pursuant to Section 7 of this Agreement, Parent shall continue
to make, on a timely basis, all payments due to Consultant hereunder, until
a final arbitration decision and/or award is made; provided, however, that
if Parent is the prevailing party in such an arbitration, Consultant shall
immediately repay to Parent any and all payments made to Consultant
pursuant to this sentence, together with interest computed at an annual
rate equal to the prime rate plus one percent (1%).
(b) This Agreement may be terminated by Consultant in the event of a material
breach of this Agreement by Parent, which breach shall not be cured by
Parent within ten (10) days after Notice of Termination is given by
Consultant.
(c) This Agreement (i) may be terminated by the mutual written agreement of the
parties hereto; (ii) shall be terminated without any additional action in
the event of Consultant's death or adjudicated incompetency; and (iii) may
be terminated by Parent in the event Consultant shall become disabled by
illness, injury or other incapacity as a result of which Consultant is
unable to perform services under this Agreement for a period or periods
aggregating ninety (90) days in any twelve (12) consecutive months.
(d) Any termination of this Agreement by Parent or by Consultant shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 10.4 of this Agreement. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of this Agreement.
(e) Upon termination of this Agreement, other than by Consultant pursuant to
paragraph (b) of this Section 4, Consultant or Consultant's heirs, as the
case may be, shall be entitled to receive (i) any unpaid Fees accrued
through the date of termination and (ii) any unpaid expenses incurred prior
to the date of termination submitted for reimbursement in accordance with
Section 3 hereof, and Parent shall have no further obligation to Consultant
or Consultant's heirs. Upon termination of this Agreement by Consultant
pursuant to paragraph (b) of this Section 4, Consultant shall be entitled
to receive (x) any unpaid Fees accrued through the date of termination, (y)
any unpaid expenses incurred prior to the date of termination and submitted
for reimbursement in accordance with Section 3 hereof and (z) a lump sum
payment equal to the unaccrued and unpaid Fees Consultant would have
otherwise received under this Agreement, and Parent shall have no further
obligation to Consultant other than the payments owed Consultant under
Section 5.4 hereof (and Consultant's obligations under Section 5 and the
other applicable provisions shall continue beyond such termination).
5. Restrictive Covenants.
5.1 Confidential Information. During the Term and at all times after the
termination of Consultant's engagement upon expiration of the Term or otherwise,
Consultant shall not, directly or indirectly, whether individually, as a
director, stockholder, owner, partner, employee, principal or agent of any
business, or in any other capacity, make known, disclose, furnish, make
available or utilize any confidential information relating to the business and
affairs of Parent and its subsidiaries and affiliates, other than in the proper
performance of the duties contemplated herein, or as required by a court of
competent jurisdiction or other administrative or legislative body; provided
that, prior to disclosing any of the confidential information to a court or
other administrative or legislative body, Consultant shall promptly notify
Parent so that Parent may seek a protective order or other appropriate remedy.
Consultant agrees to return all confidential information, including all
photocopies, extracts and summaries thereof, and any such information stored
electronically on tapes, computer disks or in any other manner to Parent at any
time upon request by Parent and upon the termination of his engagement for any
reason.
5.2 No Solicitation. Consultant agrees that during the Non-Compete Term (as
defined below), he will not hire or solicit to hire, directly or indirectly, any
employee of Parent or its subsidiaries or affiliates, or otherwise solicit,
directly or indirectly, any employee of Parent or its subsidiaries or affiliates
to leave the employ of Parent or its subsidiaries or affiliates.
5.3 Covenant Not to Compete. During the three-year period beginning on the date
hereof, notwithstanding the earlier termination of this Agreement (the
"Non-Compete Term"), Consultant shall not, in the Continental United States or
in Argentina, directly or indirectly engage in the following businesses: (i)
workover rig services, including completion of new wells, maintenance and
recompletion of existing wells (including horizontal recompletions) and plugging
and abandonment of wells at the end of their useful lives; (ii) liquid services,
including vacuum truck services, frac tank rental and salt water injection;
and/or (iii) production services, including well test analysis, pipe testing,
slickline wireline services and fishing and rental tool services. Additionally,
Consultant shall not own an interest in any company that is not publicly traded
and engages in the foregoing businesses. Without limiting the generality of the
foregoing, Consultant shall not interfere with the business or accounts of
Parent and its subsidiaries and affiliates, including the making of any
statements or comments of a defamatory or disparaging nature to third parties
regarding Parent or its subsidiaries or affiliates or their respective officers,
directors, personnel, products or services.
<PAGE>
5.4 Consideration. In exchange for Consultant's covenant not to compete
contained in Section 5.3 hereof, and in addition to the consulting fees to be
paid to Consultant pursuant to Section 3 hereof, Parent shall pay, or cause to
be paid to, Consultant an additional aggregate amount of $150,000, payable in
seventy-eight (78) equal bi-weekly installments (subject to proration for any
partial period) on the last day of each bi-weekly period of the Term to an
account designated in writing by Consultant. The payor may make any tax
withholding it deems to be necessary under applicable tax laws. Consultant
acknowledges that the consideration described in this Section 5.4 is adequate,
fair and reasonable.
5.5 Reasonableness of Restrictive Covenants; Irreparable Injury. Consultant
acknowledges that this Agreement is being entered into in connection with the
consummation of the transactions contemplated by the Merger Agreement, that the
services to be rendered by him to Parent and its subsidiaries and affiliates are
of a special and unique character, which gives this Agreement a peculiar value
to Parent, the loss of which may not be reasonably or adequately compensated for
by damages in an action at law, and that a material breach or threatened breach
by him of any of the provisions contained in this Section 5 will cause Parent
irreparable injury. Consultant therefore agrees that Parent shall be entitled,
in addition to any other right or remedy, to a temporary, preliminary and
permanent injunction, without the necessity of proving the inadequacy of
monetary damages or the posting of any bond or security, enjoining or
restraining Consultant from any such violation or threatened violations.
6. Return of Property. Consultant agrees that following the termination of his
engagement for any reason, he shall return all property of Parent and its
subsidiaries and affiliates that is then in or thereafter comes into his
possession, including, but not limited to, computers, documents, contracts,
agreements, plans, photographs, books, notes, electronically stored data and all
copies of the foregoing as well as any other materials or equipment supplied by
Parent and its subsidiaries and affiliates to Consultant.
7. Arbitration. Any dispute between the parties arising out of this Agreement,
including but not limited to any dispute regarding any aspect of this Agreement,
its formation, validity, interpretation, effect, performance or breach
("arbitrable dispute") shall be submitted to arbitration in the city of Houston,
Texas, before an experienced arbitrator who is either licensed to practice law
in Texas, or is a retired judge. The parties agree to make a good faith effort
to select a mutually agreeable arbitrator. However, if the parties are unable to
reach agreement on an arbitrator, one will be selected pursuant to the
commercial rules of the American Arbitration Association or any successor rules
thereto. The arbitration shall be conducted in accordance with the commercial
rules of the American Arbitration Association or any successor rules. The
arbitrator in any arbitrable dispute shall not have authority to modify or
change this Agreement in any respect except to the extent set forth in Section
10.5 hereof. The prevailing party in any such arbitration shall be awarded its
costs, expenses, and reasonable attorneys' fees incurred in connection with the
arbitration, in an aggregate amount not to exceed $10,000. Consultant and Parent
shall each be responsible for payment of one-half of the amount of any
arbitrator's fee(s) payable prior to the existence of a prevailing party, such
amounts to be repaid to the prevailing party pursuant to the previous sentence.
The arbitrator's decision and/or award will be final and binding and fully
enforceable and subject to an entry of judgment by any court of competent
jurisdiction.
8. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or either as agent of the other,
or as employer and employee. By virtue of the relationship described herein
Consultant's relationship to Parent during the term of this Agreement shall
only be that of an independent contractor and Consultant shall perform all
services pursuant to this Agreement as an independent contractor.
Consultant shall not provide any services under the business name of Parent
or its subsidiaries or affiliates and shall not present himself as an
employee of Parent or its subsidiaries or affiliates.
(b) Subject only to such specific limitations as are contained in this
Agreement, the manner, means, details or methods by which Consultant
performs his obligations under this Agreement shall be solely within the
discretion of Consultant. Parent shall not have the authority to, nor shall
it, supervise, direct or control the manner, means, details or methods
utilized by Consultant to perform his obligations under this Agreement and
nothing in this Agreement shall be construed to grant Parent any such
authority.
9. Miscellaneous.
9.1 Successors and Assigns; Binding Agreement. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, provided, however, that
the services to be provided by Consultant hereunder are personal to Consultant
and may not be delegated or assigned by him.
9.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflict of law
rules thereof.
9.3 Waivers. The waiver by either party hereto of any right hereunder of any
failure to perform or breach by the other party hereto shall not be deemed a
waiver or any other right hereunder or of any other failure or breach by the
other party hereto, whether of the same or a similar nature or otherwise. No
waiver shall be deemed to have occurred unless set forth in a writing executed
by or on behalf of the waiving party. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9.4 Notices. All notices and communications that are required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when delivered personally or sent by overnight carrier service (such as Federal
Express) to the parties at the following addresses:
If to Parent, to:
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attention: General Counsel
If to Consultant, to:
C. Ron Laidley
3921 Tanforan Court
Midland, Texas 79707
or to such other address as may be specified in a written notice delivered
personally or sent by overnight courier given by one party to the other party
hereunder.
<PAGE>
9.5 Severability. If for any reason any term or provision of this Agreement is
held to be invalid or unenforceable, all other valid terms and provisions hereof
shall remain in full force and effect, and all of the terms and provisions of
this Agreement shall be deemed to be severable in nature. If for any reason any
term or provision containing a restriction set forth herein is held to cover an
area or to be for a length of time which is unreasonable, or in any other way is
construed to be too broad or to any extent invalid, such term or provision shall
not be determined to be null, void and of no effect, but to the extent the same
is or would be valid or enforceable under applicable law, any court of competent
jurisdiction shall construe and interpret or reform this Agreement to provide
for a restriction having the maximum enforceable area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under applicable law.
9.6 Amendment. This Agreement may not be amended or modified except by an
agreement in writing, signed by the parties hereto.
9.7 Entire Agreement. This Agreement, together with the Confidential Separation
and Release Agreement dated as of the date hereof, constitute the entire
agreement between the parties hereto, and supersedes all prior oral and/or
written understandings and/or agreements between the parties hereto.
9.8 Descriptive Headings. The parties hereto agree that the headings contained
herein are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
9.9 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes but which, together, shall
constitute one and the same instrument.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first above written.
KEY ENERGY GROUP, INC.
By:
Name:
Title:
C. RON LAIDLEY
Exhibit B
KEY ENERGY GROUP, INC.
PERFORMANCE COMPENSATION PLAN
(EFFECTIVE AS OF JANUARY 1, 1999)
Section 1. Purpose. The purposes of the Key Energy Group, Inc. Performance
Compensation Plan (the "Plan") are (i) to compensate executive officers of Key
Energy Group, Inc. (the "Company") on an individual basis for significant
contributions to the Company and its subsidiaries, (ii) to encourage such
executive officers to remain in the employ of the Company and (iii) to qualify
any compensation paid under the Plan for tax deductibility under Section 162(m)
of the Internal Revenue Code of 1986, as amended, to the extent deemed
appropriate by the Compensation Committee of the Board of Directors of the
Company.
Section 2. Term. The Plan shall be effective as of January 1, 1999 (the
"Effective Date"), and shall be applicable for the Company's fiscal year ending
on June 30, 1999 and for the five (5) full fiscal years of the Company ending
June 30, 2004, unless earlier terminated by the Company pursuant to Section 8.
Section 3. Coverage. For purposes of the Plan, the term "Participant" shall
include for each fiscal year each executive officer so designated by the
Compensation Committee within 90 days following either (i) the Effective Date of
the Plan or (ii) the first day of such fiscal year, as the case may be. As used
herein, the term "Company" includes both the Company and its subsidiaries,
unless the context otherwise requires, and the term "executive officer" shall
mean those individuals so designated by the Board from time to time.
Section 4. Annual Bonus.
Section 4.1. For each fiscal year of the Company, each Participant shall be
entitled to receive an award of a bonus (the "Bonus") in an amount not to exceed
the amount provided for in Sections 4.2 and 5.1. The amount of the Bonus which a
Participant shall be eligible to earn under the Plan will be dependent upon,
among other things, the attainment by the Participant of specified performance
and other targets related to designated performance and other goals selected by
the Compensation Committee.
Section 4.2. For each fiscal year, the formula for calculating the Bonus shall
be determined by the Compensation Committee in writing, by resolution of the
Compensation Committee or other appropriate action, not later than 90 days after
(i) the Effective Date of the Plan or (ii) the commencement of such fiscal year,
as the case may be. Such formula shall be based upon one or more of the
following criteria, individually or in combination, adjusted in such manner as
the Compensation Committee shall determine: (a) pre-tax or after-tax return on
equity; (b) earnings per share; (c) pre-tax or after-tax net income; (d) book
value per share; (e) market price per share; (f) relative performance to peer
group companies; (g) expense management; (h) total return to stockholders; and
(i) attainment of balance sheet criteria, including but not limited to
reduction(s) in long-term and short-term indebtedness.
<PAGE>
Section 4.3. As a condition to the right of a Participant to receive any Bonus
under this Plan, the Compensation Committee shall first be required to certify
in writing, by resolution of the Compensation Committee or other appropriate
action, that the Bonus has been accurately determined in accordance with the
provisions of this Plan.
Section 4.4. The Compensation Committee shall have the right to reduce the Bonus
of any Participant in its sole discretion at any time and for any reason prior
to the certification of the Bonus otherwise payable to such Participant pursuant
to section 4.3 hereof.
Section 5. Allocations.
5.1. Prior to the commencement of each fiscal year, or not later than 90 days
after the commencement of each fiscal year, the Compensation Committee shall
determine in writing, by resolution of the Compensation Committee or other
appropriate action, each Participant's Bonus; provided, however, that the
aggregate amount(s) of any Bonus or bonuses which may be paid in any year
pursuant to the Plan shall not exceed an amount which would cause the cost of
the Plan for any fiscal year to amount to more than 10% of the Company's average
annual income before taxes for the Company's five (5) full fiscal years
preceding the Effective Date.
5.2. Notwithstanding anything in Section 5.1 to the contrary, any Participant
who ceases to be an executive officer for any reason prior to the end of such
fiscal year shall be entitled to a Bonus computed as follows: A Bonus first
shall be computed as if such Participant had been an executive officer for the
full fiscal year, and such bonus then shall be multiplied by a fraction the
numerator of which shall be the number of days in the fiscal year through the
date the Participant ceased to be an executive officer and the denominator of
which shall be the number of days in the fiscal year. If a Participant ceases to
be an executive officer after the end of the fiscal year in respect of which
such Bonus is payable, the amounts thereof nonetheless shall be payable to him
or his estate, as the case may be.
5.3. Except as hereinafter provided, Bonuses for a fiscal year shall be payable
as soon as practicable following the certification thereof by the Compensation
Committee for such fiscal year.
5.4. The Compensation Committee may determine that payment of a portion of the
Bonuses shall be deferred, the periods of such deferrals and any interest, not
to exceed a reasonable rate, to be paid in respect of deferred payments. The
Compensation Committee may also define such other conditions of payments of
Bonuses as it may deem desirable in carrying out the purposes of the Plan.
<PAGE>
Section 6. Administration and Interpretation. The Plan shall be administered by
the Compensation Committee, which shall have the sole authority to interpret and
to make rules and regulations for the administration of the Plan. The
Compensation Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Compensation Committee deems necessary or desirable to carry it into effect. Any
decision of the compensation Committee in the interpretation and administration
of the Plan, as described herein, shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties concerned.
No member of the Compensation Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him or her, by any other
member of the Compensation Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his or her
own willful misconduct or as expressly provided by statute. The Compensation
Committee may request advice or assistance or employ such persons (including,
without limitation, legal counsel and accountants) as it deems necessary for the
proper administration of the Plan.
Section 7. Administrative Expenses. Any expense incurred in the administration
of the Plan shall be borne by the Company out of its general funds.
Section 8. Amendment or Termination. The Compensation Committee of the Company
may from time to time amend the Plan in any respect or terminate the Plan in
whole or in part, provided that no such action shall retroactively impair or
otherwise adversely affect the rights of any Participant to benefits under the
Plan which have accrued prior to the date of such action.
Section 9. No Assignment. The rights hereunder, including without limitation
rights to receive a Bonus, shall not be sold, assigned, transferred, encumbered
or hypothecated by an employee of the Company (except by testamentary
disposition or intestate succession), and, during the lifetime of any recipient,
any payment of a Bonus shall be payable only to such recipient.
Section 10. The Company. For purposes of this Plan, the "Company" shall include
the successors and assigns of the Company, and this Plan shall be binding on any
corporation or other person with which the Company is merged or consolidated, or
which acquires substantially all of the assets of the Company, or which
otherwise succeeds to its business.
Section 11. Stockholder Approval. This Plan shall be subject to approval by the
affirmative vote of a majority of the shares cast in a separate vote of the
stockholders of the Company at the 1998 Annual Meeting of Stockholders, and such
stockholder approval shall be a condition to the right of a Participant to
receive any Bonus hereunder.
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT, dated as of December 3, 1997 (this "Amendment"), to the Amended
and Restated Credit Agreement, dated as of June 6, 1997, as amended and restated
through November 6, 1997 (the "Credit Agreement"), among Key Energy Group, Inc.,
a Maryland corporation (the "Borrower"), the several Lenders from time to time
parties thereto, PNC Bank, National Association, as Administrative Agent and
Norwest Bank Texas, N.A., as Collateral Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Administrative Agent and the Collateral
Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders increase the aggregate
amount of the Commitments under the Credit Agreement to $250,000,000 and to
amend certain terms in the Credit Agreement in the manner provided for herein;
and
WHEREAS, the Administrative Agent and the Lenders are willing to agree to
increase the aggregate amount of the Commitments under the Credit Agreement to
$250,000,000 and are willing to agree to the requested amendments;
NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter
set forth, the parties hereto hereby agree as follows:
<PAGE>
1. Defined Terms. Unless otherwise defined herein, terms which are defined in
the Credit Agreement and used herein (and in the recitals hereto) as
defined terms are so used as so defined.
2. (a) Assignment and Transfer; Increase in Commitments; Amendment to Schedule
1.1; Joinder of Lenders. PNC Bank, National Association, the "Transferor
Lender") hereby irrevocably sells, assigns and transfers to each Purchasing
Lender identified on Schedule I hereto (each a "Purchasing Lender" and
collectively, the "Purchasing Lenders") without recourse to the Transferor
Lender, and each Purchasing Lender hereby irrevocably purchases and assumes
from the Transferor Lender without recourse to the Transferor Lender, as of
the First Amendment Effective Date (as defined below), the interests
described in Schedule I hereto in and to the Transferor Lender's rights and
obligations under the Credit Agreement with respect to those credit
facilities contained in the Credit Agreement as are set forth on Schedule I
hereto, such that after giving effect to such sale, assignment and
transfer, the Commitments and the Commitment Percentages of the Transferor
Lender and the Purchasing Lenders shall be as set forth on Exhibit A
hereto.
(b)
(c) The Transferor Lender (i) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or with
respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Loan Document or
any other instrument or document furnished pursuant thereto, other than
that such Transferor Lender has not created any adverse claim upon the
interest being assigned by it hereunder and that such interest is free and
clear of any such adverse claim; (ii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
the Borrower, any of its Subsidiaries or any other obligor or the
performance or observance by the Borrower, any of its Subsidiaries or any
other obligor of any of their respective obligations under the Credit
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto or thereto; and (iii) attaches the Note held by
it and (A) requests that the Administrative Agent, upon request by any
Purchasing Lender, exchange the attached Note for a new Note payable to
such Purchasing Lender in the aggregate face amount of its Commitment as
set forth on Exhibit A hereto and (B) requests that the Administrative
Agent exchange the attached Note for a new Note payable to the Transferor
Lender, in an amount which reflects the assignments being made hereby.
(d)
(e) Each Purchasing Lender (i) represents and warrants that it is legally
authorized to enter into this Amendment; (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of the financial
statements referred to in subsection 4.1 or delivered pursuant to
subsection 6.1 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into this Amendment; (iii) agrees that it will, independently and without
reliance upon the Transferor Lender, the Administrative Agent or any other
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto; (iv) appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto as are
delegated to the Administrative Agent by the terms thereof, together with
such powers as are incidental thereto; and (v) agrees that it will be bound
by the provisions of the Credit Agreement and will perform in accordance
with its terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender including, if it
is organized under the laws of a jurisdiction outside the United States,
its obligation pursuant to subsection 2.16(b) of the Credit Agreement.
(f)
(g) In connection with the foregoing assignments and transfers and subject to
the terms and conditions hereof, the Borrower, the Transferor Lender, the
Purchasing Lenders and the Administrative Agent hereby agree that the
Commitments of the Lenders shall be increased, on and as of the First
Amendment Effective Date and subject to the terms and conditions hereof and
of the Credit Agreement, to $250,000,000 and, in order to effect such
increase in the Commitments, the Borrower, the Transferor Lender, the
Purchasing Lenders and the Administrative Agent hereby agree that Schedule
1.1A to the Credit Agreement shall be amended by deleting such Schedule in
its entirety and substituting in lieu thereof a new Schedule to read in its
entirety as set forth in Exhibit A hereto.
(h)
(i) All principal payments that would otherwise be payable from and after the
First Amendment Effective Date to or for the account of the Transferor
Lender and the Purchasing Lenders pursuant to the Credit Agreement and the
Notes shall, instead, be payable to or for the account of the Transferor
Lender and the Purchasing Lenders in accordance with their respective
interests as reflected in Exhibit A hereto.
(j)
(k) All interest, fees and other amounts that would otherwise accrue for the
account of the Transferor Lender and the Purchasing Lenders from and after
the First Amendment Effective Date shall, instead, accrue for the account
of, and be payable to, the Transferor Lender and the Purchasing Lenders in
accordance with their respective interests as reflected in Exhibit A
hereto.
(l)
(m) The Transferor Lender and Purchasing Lenders hereby confirm and agree that,
from and after the First Amendment Effective Date, all participation of the
Lenders in respect of Letters of Credit pursuant to subsection 3.4(a) shall
be based upon the Commitment Percentages of the Lenders as reflected in
Exhibit A hereto.
(n)
(o) Each of the Transferor Lender and Purchasing Lenders agrees that, at any
time and from time to time upon the written request of the other Transferor
Lender or any other Purchasing Lender, it will execute and deliver such
further documents and do such further acts and things as such other party
may reasonably request in order to effect the sale, assignment and transfer
set forth in this Section 2.
(p)
(q) From and after the First Amendment Effective Date, (a) each Purchasing
Lender shall be a party to the Credit Agreement and, to the extent provided
in this Amendment, have the rights and obligations of a Lender thereunder
and under the other Loan Documents and shall be bound by the provisions
thereof and (b) the Transferor Lender shall, to the extent provided in this
Amendment, relinquish its rights and be released from its obligations under
the Credit Agreement.
(r)
3. Amendment of Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby
amended as follows:
4.
(a) by adding the following new definition in the proper alphabetical order:
(b) "First Amendment Effective Date": December 3, 1997.
(a) by deleting clause (i) (x) in the proviso to the definition of "Permitted
Acquisitions" and substituting in lieu thereof the following clause:
(b) (x) the Consolidated Leverage Ratio shall not be more than the lesser of
3.75 to 1.00 or the ratio set forth in subsection 7.1(a) applicable to the
Borrower at the time of such acquisition.
1. Amendment of Subsection 2.7. Subsection 2.7 of the Credit Agreement is hereby
amended by deleting the words "Section 7.6(e)" in paragraph (c) thereof, and
substituting in lieu thereof the words: "Section 7.6(d)".
2.
3. Amendment of Subsection 2.9. Subsection 2.9 of the Credit Agreement is hereby
amended by inserting the word "time" at the end of such subsection.
4.
5. Amendment of Subsection 2.17. Subsection 2.17 of the Credit Agreement is
hereby amended by inserting at the end of clause (c) of such subsection the
following phrase:
6. , or the assignment of any Eurodollar Loan on a day which is not the last day
of an Interest Period with respect thereto as a result of the replacement of a
Lender pursuant to Subsection 2.20.
1. Amendment of Subsection 7.5. Subsection 7.5 of the Credit Agreement is hereby
amended by deleting the words "Section 2.9(c)" in paragraph (c) thereof, and
substituting in lieu thereof the phrase: "Section 2.7(c), to the extent
applicable".
2.
3. Amendment of Subsection 7.10. Subsection 7.10 of the Credit Agreement is
hereby amended by deleting in its entirety the exception appearing immediately
before the proviso therein, and substituting in lieu thereof the following
exception:
4. except that, after 90% of the original outstanding principal amount of
Convertible Subordinated Debentures have been converted into common stock
of the Borrower, the Borrower may, at any time when no Default or Event of
Default has occurred and is continuing, repurchase or redeem the remaining
outstanding Convertible Subordinated Debentures and, after 90% of the
original outstanding principal amount of 1997 Convertible Subordinated
Notes have been converted into common stock of the Borrower, the Borrower
may, at any time when no Default or Event of Default has occurred and is
continuing, repurchase or redeem the remaining outstanding 1997 Convertible
Subordinated Notes;
1. Waiver of Subsection 10.6(f). In connection with the assignments and
transfers effected by Section 2 hereof, the Administrative Agent and the Lenders
hereby waive compliance by the Transferor Lender and the Purchasing Lenders with
the requirements of subsection 10.6(f) of the Credit Agreement to the extent and
only to the extent that such subsection would require the payment of a
registration and processing fee in connection such assignments and transfers.
2.
3. Conditions to Effectiveness of this Amendment. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent:
(a) Amendment. The Administrative Agent shall have received this Amendment,
executed and delivered by a duly authorized officer of the Borrower, the
Transferor Lender and each of the Purchasing Lenders set forth on Schedule
I hereto and (ii) the attached Acknowledgement and Consent, executed and
delivered by a duly authorized officer of each of the signatories thereto.
(a) No Default. No Default or Event of Default shall have occurred and be
continuing on the date hereof or after giving effect to the amendment
contemplated hereby.
(a) Representations and Warranties. Except to the extent that they are made as
of a specific date, each of the representations and warranties made by any
Loan Party in or pursuant to the Loan Documents shall be true and correct
in all material respects on and as of the date hereof as if made on and as
of the date hereof.
(a) Corporate Proceedings of Loan Parties. The Administrative Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions of
the Board of Directors of each Loan Party authorizing (i) the execution,
delivery and performance of this Amendment, and (ii) in the case of the
Borrower, the borrowings contemplated hereunder, certified by its Secretary
or Assistant Secretary as of the First Amendment Effective Date, which
certificate shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded as of the date of such
certificate.
(a) Incumbency Certificates . The Administrative Agent shall have received,
with a copy for each Lender, a certificate of the Secretary or an Assistant
Secretary of each Loan Party dated the First Amendment Effective Date, as
to the incumbency and signature of the officers of each Loan Party
executing this Amendment, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
1. Miscellaneous.
(a) Effect. Except as expressly amended hereby, all of the representations,
warranties, terms, covenants and conditions of the Loan Documents shall
remain unamended and not waived and shall continue to be in full force in
effect.
(b)
(c) Counterparts. This Amendment may be executed by one or more of the parties
to this Amendment on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with the Borrower and
the Administrative Agent.
(d)
(e) Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(f)
(g) Integration. This Amendment and the other Loan Documents represent the
agreement of the Loan Parties, the Administrative Agent, the Collateral
Agent and the Lenders with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent, the Collateral Agent or any Lender relative to the
subject matter hereof not expressly set forth or referred to herein or in
the other Loan Documents.
(h)
(i) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(j)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
(a)
<PAGE>
KEY ENERGY GROUP, INC.
By: /s/ Stephen E. McGregor
Title: Executive Vice President
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent and as the
Transferor Lender
By: /s/ Thomas A. Majeski
Title: Vice President
NORWEST BANK TEXAS, N.A.
as Collateral Agent and as a
Purchasing Lender
By: /s/ Mark D. McKinney
Title: Senior Vice President
<PAGE>
THE BANK OF NEW YORK, as a
Purchasing Lender
By: /s/ Catherine G. Goff
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT, as a
Purchasing Lender
By: /s/ Paul Travers
Title: Vice President
By: /s/ John Sykes
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as a
Purchasing Lender
By: /s/ Philipe Soustra
Title: Senior Vice President
HIBERNIA NATIONAL BANK, as a Purchasing
Lender
By: /s/ Byron P. Kives
Title: Assistant Vice President
LEHMAN COMMERCIAL PAPER INC.,
as a Purchasing Lender
By: /s/ Michele Swanson
Title: Authorized Signatory
<PAGE>
COMMERCIAL LOAN FUNDING TRUST INC.,
as a Purchasing Lender
By:LEHMAN COMMERCIAL PAPER INC.,
not in its individual capacity but solely as administrative Agent
By: /s/ Michele Swanson
Title: Authorized Signatory
BANK ONE, TEXAS, N.A., as a Purchasing Lender
By: /s/ W.M. Mark Crammer
Title: Vice President
CORESTATES BANK, N.A., as a Purchasing Lender
By: /s/ Laura J. Rowley
Title: Assistant Vice President
DEN NORSKE BANK ASA, as a Purchasing Lender
By: /s/ Charles E. Hall
Title: Senior Vice President
By: /s/ Byron L. Cooley
Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as a Purchasing Lender
By: /s/ George R. Schanz
Title: Vice President
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Purchasing Lender
By: /s/ John Urban
Title: Authorized Signatory
<PAGE>
FUJI BANK, as a Purchasing Lender
By: /s/ Kenichi Tatara
Title: Vice President & Manager
THE BANK OF NOVA SCOTIA, as a Purchasing Lender
By: /s/ F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under that certain Master
Guarantee and Collateral Agreement, dated as of June 6, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"), made by
each of such corporations in favor of the Collateral Agent, confirms and agrees
that the Guarantee is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects and the Guarantee and all of the
Collateral (as defined in the Guarantee Agreement) do, and shall continue to,
secure the payment of all of the Obligations (as defined in the Guarantee)
pursuant to the terms of the Guarantee. Capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement referred
to in the Amendment to which this Acknowledgement and Consent is attached.
YALE E. KEY, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
WELLTECH EASTERN, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
TST PARAFFIN SERVICE COMPANY, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY ENERGY DRILLING, INC.
d/b/a CLINT HURT DRILLING
By: /s/ Stephen E. McGregor
Title: Vice President
KALKASKA OILFIELD SERVICES, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
ODESSA EXPLORATION INCORPORATED
By: /s/ Stephen E. McGregor
Title: Vice President
PHOENIX WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
WELL-CO OIL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
PATRICK WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
MOSLEY WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
RAM OILWELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
ROWLAND TRUCKING CO., INC.
By: /s/ Stephen E. McGregor
Title: Vice President
LANDMARK FISHING & RENTAL, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
BRW DRILLING, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
DUNBAR WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
FRONTIER WELL SERVICE, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY ROCKY MOUNTAIN, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
KEY FOUR CORNERS, INC.
By: /s/ Stephen E. McGregor
Title: Vice President
<PAGE>
FIRST AMENDMENT
TRANSFERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Purchasing Lenders Commitment Assigned Loan Assigned L/C Participations
Assigned
Credit Lyonnais New York Branch $22,500,000 $6,480,000 $100,054.17
Hibernia National Bank $22,500,000 $6,480,000 $100,054.17
The Bank of New York $19,500,000 $5,616,000 $86,713.61
BHF-BANK Aktiengellschaft $19,500,000 $5,616,000 $86,713.61
The First National Bank of Chicago $19,500,000 $5,616,000 $86,713.61
Goldman Sachs Credit Partners L.P. $19,500,000 $5,616,000 $86,713.61
The Fuji Bank, Ltd. $19,500,000 $5,616,000 $86,713.61
The Bank of Nova Scotia $13,750,000 $3,960,000 $61,144.22
Bank One, Texas, N.A. $13,750,000 $3,960,000 $61,144.22
Corestates Bank, N.A. $13,750,000 $3,960,000 $61,144.22
Den norske Bank ASA $13,750,000 $3,960,000 $61,144.22
Commercial Loan Funding Trust I $10,000,000 $2,880,000 $44,468.52
Lehman Commercial Paper Inc. $ 3,750,000 $1,080,000 $16,175.70
Norwest Bank Texas, N.A. $13,750,000 $3,960,000 $61,144.22
Total $225,000,000 $64,800,000 $1,000,541.71
</TABLE>
Commitments; Lending Offices and Addresses
<TABLE>
<S> <C> <C>
Bank Commitment Commitment Percentage
PNC Bank $25,000,000 10.00%
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Thomas Majeski
Telecopy: (412) 762-2571
Telephone: (412) 762-2431
Credit Lyonnais New York Branch $22,500,000 9.00%
c/o its representative office at:
1000 Louisiana, Suite 5360
Houston, TX 77002
Attention: Tom Byargeon
Telecopy: (713) 751-0307
Telephone: (713) 753-8706
Hibernia National Bank $22,500,000 9.00%
313 Carondelet Street
Suite 1300
New Orleans, LA 70130
Attention: Byron Kives
Telecopy: (504) 533-5464
Telephone: (504) 533-6425
The Bank of New York $19,500,000 7.80%
Energy Industries Division
One Wall Street, 19th Floor
New York, NY 10286
Attention: Catherine Goff
Telecopy: (212) 635-7923/7924
Telephone: (212) 635-7889
BHF-BANK Aktiengellschaft $19,500,000 7.80%
590 Madison Avenue
New York, NY 10022-2540
Attention: Paul Travers
Telecopy: (212) 756-5536
Telephone: (212) 756-5570
The First National Bank of Chicago $19,500,000 7.80%
One First National Plaza
Mail Suite 0362
Chicago, IL 60670-0362
Attention: George Schanz
Telecopy: (312) 732-3055
Telephone: (312) 732-1214
Goldman Sachs Credit Partners L.P. $19,500,000 7.80%
85 Broad Street
New York, N.Y. 10004
Attention: Edmund Kearns
Telecopy: (212) 357-0271
Telephone: (212) 902-4109
The Fuji Bank, Ltd. $19,500,000 7.80%
1 Houston Center
Suite 4100
Houston, TX 77010
Attention: Mark Polasek
Telecopy: (713) 759-0048
Telephone: (713) 650-7863
The Bank of Nova Scotia $13,750,000 5.50%
1100 Louisiana Street
Suite 3000
Houston, TX 77002
Attention: Jamie Conn
Telecopy: (713) 752-2425
Telephone: (713) 759-3426
Bank One, Texas, N.A. $13,750,000 5.50%
1717 Main Street
Dallas, TX 75201
Attention: Wm. Mark Cranmer
Telecopy: (214) 290-2627
Telephone: (214) 290-2212
Corestates Bank, N.A. $13,750,000 5.50%
1345 Chestnut Street
FC 1-8-3-14
Philadelphia, PA 19106
Attention: Melissa Landay
Telecopy: (215) 973-7820
Telephone: (215) 973-8276
Den norske Bank ASA $13,750,000 5.50%
Three Allen Center
333 Clay Street
Suite 4890
Houston, TX 77002
Attention: Byron Cooley
Telecopy: (713) 757-1167
Telephone: (713) 844-9258
Commercial Loan Funding Trust I $10,000,000 4.00%
c/o Texas Commerce National Associates
600 Travis Street - 8th Floor
Houston, TX 77002-8039
Attention: Susan Williams
Telecopy: (713) 216-2101
Telephone: (713) 216-5192
Lehman Commercial Paper Inc. $ 3,750,000 1.50%
3 World Financial Center, 10th Floor
New York, NY 10285
Attention: Michelle Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
Norwest Bank Texas, N.A. $13,750,000 5.50%
500 West Texas Avenue
Midland, TX 79701
Attention: Mark D. McKinney
Telecopy: 915-685-5441
Telephone: 915-685-5149
Total $250,000,000 100.00%
</TABLE>
SECOND AMENDMENT
SECOND AMENDMENT, dated as of December 29, 1998 (this "Amendment"), to the
Second Amended and Restated Credit Agreement, dated as of June 6, 1997, as
amended and restated through September 14, 1998 and as amended by the First
Amendment dated as of November 19, 1998 (the "Credit Agreement"), among Key
Energy Group, Inc. (now known as Key Energy Services, Inc.), a Maryland
corporation (the "Borrower"), the several Lenders from time to time parties
thereto, PNC Bank, National Association ("PNC"), as Administrative Agent,
Norwest Bank Texas, N.A., as Collateral Agent and PNC Capital Markets, Inc., as
Arranger.
The parties hereto hereby agree as follows:
Defined Terms. Unless otherwise defined herein, terms which are defined in the
Credit Agreement and used herein as defined terms are so used as so defined.
Amendments to Subsection 1.1 (Definitions). Subsection 1.1 of the Credit
Agreement is hereby amended as follows:
A. by deleting the definition of "Consolidated Interest Expense" and
substituting in lieu thereof the following:
"'Consolidated Interest Expense': for any period, total interest expense
(including that attributable to Capital Lease Obligations), both expensed and
capitalized, of the borrower and its Subsidiaries for such period with respect
to all outstanding Indebtedness of the Borrower and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under Interest Rate Protection Agreements to the extent such net costs are
allocable to such period in accordance with GAAP, and excluding fees owed with
respect to the Existing Credit Agreement, this Agreement, the Put Facility, the
Senior Subordinated Notes, the Convertible Subordinated Debentures, the 1997
Convertible Subordinated Notes or the refinancing of the 1997 Convertible
Subordinated Notes and the imputed interest attributable to Senior Subordinated
Notes that are original issue discount notes) determined on a consolidated basis
in accordance with GAAP, net of interest income of the Borrowers and its
Subsidiaries for such period (determined on a consolidated basis in accordance
with GAAP).";
B. by deleting clause (a) of the definition of "Consolidated Leverage Ratio" and
substituting in lieu thereof the following new clause (a):
"(a) Consolidated Total Debt on such date, less the sum of (i) the amount of
cash and Cash Equivalents in excess of $5,000,000 held by the Borrower and its
Subsidiaries on such date and (ii) the aggregate principal amount of Convertible
Subordinated Debentures and 1997 Convertible Subordinated Notes outstanding on
such date to";
C. by deleting the definition of "Minimum Equity Event" and substituting in lieu
thereof the following:
"'Minimum Equity Event': an aggregate increase of at least $75,000,000 in the
Consolidated Net Worth of the Borrower and its Subsidiaries occasioned by (i)
the receipt by the Borrower of Net Cash Proceeds from the issuance of Capital
Stock of the Borrower after the Closing Date, (ii) one or more issuances by the
Borrower of its Capital Stock in connection with the acquisition of one or more
Persons or the assets of one or more Persons, (iii) the sale of Odessa or its
assets, (iv) the exchange or other refinancing of the 1997 Convertible
Subordinated Notes or (v) any combination thereof; provided, in the case of each
of the foregoing clauses (i) through (v), that no Default or Event of Default
shall have occurred and be continuing; and provided, further, that in the event
a Minimum Equity Event would otherwise occur as the result of any of the events
referred to in the foregoing clauses (ii) through (v), a Minimum Equity Event
shall not be deemed to occur unless and until the ratio of (x) Consolidated
Total Debt to (y) the sum of Consolidated Total Debt plus Consolidated Net Worth
of the Borrower and its Subsidiaries is equal to or less than 75%.";
D. by deleting the definition of "Permitted Acquisitions" and substituting in
lieu thereof the following:
"'Permitted Acquisitions': the acquisition by the Borrower and its Subsidiaries
of (a) rigs and other well service equipment, (b) well service companies and (c)
oil and gas properties and related equipment, provided that (i) after giving
effect to such acquisitions and any borrowings hereunder in connection
therewith, (x) the Consolidated Leverage Ratio shall not be more than 2.75 to
1.00 and (y) the sum of (1) the Borrower's cash and Cash Equivalents on hand and
(2) the aggregate Available Revolving Commitments shall be at least $20,000,000,
or (ii) after giving effect to such acquisition the Consolidated Leverage Ratio
is not increased and such acquisition is funded solely with the Borrower's
Capital Stock.";
E. by deleting from the definitions of "Applicable Margin" and "Commitment Fee
Rate" each reference to the "Consolidated Leverage Ratio" and substituting in
lieu thereof a reference to the "Pricing Ratio"; and
F. by adding in the appropriate alphabetical order the following new definition:
"'Pricing Ratio': on the date of any determination thereof, the ratio of (a)
Consolidated Total Debt on such date, less the amount of cash and Cash
Equivalents in excess of $5,000,000 held by the Borrower and its Subsidiaries on
such date to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for
the four full fiscal quarters ending on such date; provided that for purposes of
calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any
period of four full fiscal quarters, the Consolidated EBITDA of any Person
acquired by the Borrower or its Subsidiaries which upon such acquisition becomes
a Consolidated Subsidiary or is merged into the Borrower or a Subsidiary
(including, without limitation, Dawson and its Subsidiaries) during such period
shall be included on a pro forma basis for such period of four full fiscal
quarters (assuming the consummation of each such acquisition and the incurrence
or assumption of any Indebtedness in connection therewith occurred on the first
day of such period of four full fiscal quarters and assuming only such cost
reductions as are related to such acquisition and are realizable on or before
the date of calculation) if the consolidated balance sheet of such acquired
Person and its consolidated Subsidiaries as at the end of the period preceding
the acquisition of such Person and the related consolidated statements of income
and stockholders' equity and of cash flows for such period (i) have been
previously provided to the Administrative Agent and the Lenders and (ii) either
(A) have been reported on without a qualification arising out of the scope of
the audit (other than a "going concern" or like qualification or exception) by
independent certified public accountants of nationally recognized standing or
(B) have been found acceptable by the Administrative Agent."
Amendment to Subsection 7.1 (Financial Condition Covenants). Subsection 7.1 is
hereby amended as follows:
G. by deleting Subsection 7.1(a) and substituting in lieu thereof the following:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as of
any date set forth below to exceed the ratio set forth below opposite such date:
- ------------------------------------- ------------------------------
Consolidated
Date Leverage Ratio
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 1998 5.90 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 1999 5.90 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30, 1999 5.90 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 1999 5.90 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 1999 5.75 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 2000 5.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30,2000 4.50 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 2000 4.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 2000 3.75 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 2001 3.50 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30, 2001 3.25 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 2001 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 2001 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 2002 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30, 2002 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 2002 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 2002 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 2003 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30, 2003 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 2003 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
December 31, 2003 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
March 31, 2004 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
June 30, 2004 3.00 to 1.00
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
September 30, 2004 3.00 to 1.00;
- ------------------------------------- ------------------------------
H. by deleting Subsection 7.1(b) and substituting in lieu thereof the following:
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters of the
Borrower ending as of any date set forth below to be less than the ratio set
forth below opposite such date:
- -------------------------------- ------------------------------------
Consolidated
Date Interest
Coverage Ratio
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 1998 1.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 1999 1.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 1999 1.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 1999 1.40 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 1999 1.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 2000 1.75 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 2000 1.75 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 2000 2.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 2000 2.25 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 2001 2.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 2001 2.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 2001 2.75 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 2001 3.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 2002 3.25 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 2002 3.50 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 2002 3.75 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 2002 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 2003 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 2003 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 2003 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
December 31, 2003 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
March 31, 2004 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
June 30, 2004 4.00 to 1.00
- -------------------------------- ------------------------------------
- -------------------------------- ------------------------------------
September 30, 2004 4.00 to 1.00
- -------------------------------- ------------------------------------
; provided, that for the purposes of determing the ratio described above for the
fiscal quarters of the Borrower ending December 31, 1998, March 31, 1999 and
June 30, 1999, Consolidated Interest Expense for the relevant period shall be
deemed to equal Consolidated Interest Expense for such fiscal quarter (and, in
the case of the latter two such determinations each previous fiscal quarter
commencing after September 30, 1998) multiplied by 4, 2 and 4/3, respectively.;
I. by deleting Subsection 7.1(c) and substituting in lieu thereof the following:
(c) Consolidated Senior Leverage Ratio. (i) Permit the Consolidated Senior
Leverage Ratio as of any date set forth below to exceed the ratio set forth
below opposite such date:
- ---------------------------------------- ----------------------------------
Consolidated
Senior
Date Leverage Ratio
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 1998 4.50 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 1999 4.50 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 1999 4.50 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 1999 4.50 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 1999 4.25 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2000 3.75 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2000 3.25 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2000 2.75 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2000 2.50 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2001 2.25 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2001 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2001 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2001 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2002 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2002 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2002 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2002 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2003 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2003 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2003 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2003 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2004 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2004 2.00 to 1.00
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2004 2.00 to 1.00";
- ---------------------------------------- ----------------------------------
J. by deleting Subsection 7.1(d) and substituting in lieu thereof the following:
(d) Consolidated Net Worth. Permit the Consolidated Net Worth of the Borrower
and its Subsidiaries to be less than the sum of (i) the difference between (x)
$135,000,000 minus (y) the amount (in the aggregate for the following clauses
(A), (B) and (C), taken together, not to exceed $15,000,000) of (A)
non-recurring transaction expenses incurred in connection with the consummation
of the Acquisition, (B) related financing and restructuring charges and (C)
writeoff of goodwill and licensing agreements, plus (ii) 75% of Consolidated Net
Income of the Borrower and its Subsidiaries (to the extent a positive number)
for each fiscal quarter completed after the Closing Date commencing with the
fiscal quarter ending December 31, 1998, plus (iii) 75% of the Net Cash Proceeds
of any offerings or issuances of Capital Stock of the Borrower or any of its
Subsidiaries after the Closing Date, plus (iv) 75% of the increase in the
Consolidated Net Worth of the Borrower and its Subsidiaries resulting from any
conversion of the 1997 Convertible Subordinated Notes or any future convertible
indebtedness of the Borrower and its Subsidiaries.; and
K. by adding a new Subsection 7.1(e) as follows:
(e) Consolidated EBITDA. Permit the Consolidated EBITDA of the Borrower and its
Subsidiaries for any period of four consecutive fiscal quarters of the Borrower
ending on any date set forth below to be less than the amount set forth below
opposite such date:
- ---------------------------------------- ----------------------------------
Consolidated
Date EBITDA
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 1998 $140,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 1999 115,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 1999 100,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 1999 95,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 1999 100,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2000 115,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2000 125,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2000 135,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2000 140,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2001 145,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2001 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2001 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2001 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2002 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2002 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2002 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2002 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2003 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2003 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2003 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
December 31, 2003 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
March 31, 2004 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
June 30, 2004 150,000,000
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
September 30, 2004 150,000,000
- ---------------------------------------- ----------------------------------
; provided that for purposes of calculating Consolidated EBITDA of the Borrower
and its Subsidiaries for any such period of four consecutive fiscal quarters,
the Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries which upon such acquisition becomes a Consolidated Subsidiary or is
merged into the Borrower or a Subsidiary (including, without limitation, Dawson
and its Subsidiaries) during such period shall be included on a pro forma basis
for such period of four full fiscal quarters (assuming the consummation of each
such acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period of four full
fiscal quarters and assuming only such cost reductions as are related to such
acquisition and are realizable on or before the date of calculation) if the
consolidated balance sheet of such acquired Person and its consolidated
Subsidiaries as at the end of the period preceding the acquisition of such
Person and the related consolidated statements of income and stockholders'
equity and of cash flows for such period (i) have been previously provided to
the Administrative Agent and the Lenders and (ii) either (A) have been reported
on without a qualification arising out of the scope of the audit (other than a
"going concern" or like qualification or exception) by independent certified
public accountants of nationally recognized standing or (B) have been found
acceptable by the Administrative Agent.
Amendment to Subsection 7.2 (Limitation on Indebtedness). Subsection 7.2 is
hereby amended by deleting clause (b)(ii) and substituting in lieu thereof the
following:
(ii) Senior Subordinated Notes (x) in an aggregate principal amount not to
exceed $300,000,000 (plus, in the case of Senior Subordinated Notes that are
original issue discount notes, an amount equal to the amount of such discount,
provided that the imputed interest represented thereby shall be in compliance
with clause (iii) of the definition of the term "Senior Subordinated Notes" and
with the following clause (y)) and (y) in the event that the aggregate principal
amount of Senior Subordinated Notes exceeds $150,000,000, bearing interest at a
rate per annum not in excess of 13%; provided that (A) the proceeds thereof are
used to prepay the Put Facility or prepay Term Loans as provided in Section 2.10
(and Guarantee Obligations of the Borrower's Subsidiaries in connection with the
foregoing as contemplated hereby) and (B) in the event that the aggregate
principal amount of Senior Subordinated Notes equals or exceeds $125,000,000,
the Interim Loan Agreement is amended (in form and substance satisfactory to the
Administrative Agent) so that the covenants, events of default and remedies
therein conform, in all material respects, to those in the Senior Subordinated
Notes, and.
Amendment to Subsection 7.3 (Limitation on Liens). Subsection 7.3 is hereby
amended by deleting subsection (g) and substituting in lieu thereof the
following:
(g) Liens created pursuant to the Security Documents (including Liens securing
the Put Facility until the Merger Date and Liens securing the Dawson 9-3/8%
Notes on and after the Merger Date) and Liens on Cash Equivalents which are
acquired in connection with the defeasance permitted by Section 7.10 of
$1,406,000 of the Dawson 9-3/8% Notes;.
Amendment to Subsection 7.8 (Limitation on Capital Expenditures). Subsection 7.8
is hereby amended by deleting in its entirety the table set forth therein and
substituting in lieu thereof the following table:
Fiscal Year Amount
1999 $30,000,000
2000 $30,000,000
2001 $35,000,000
2002 $45,000,000
2003 $55,000,000
2004 $65,000,000".
Amendment to Annexes I and II to Credit Agreement (Pricing Grids A and B). Each
of Annex I and Annex II to the Credit Agreement is hereby amended by deleting
therefrom each reference to the "Consolidated Leverage Ratio" and substituting
in lieu of each such reference a reference to the "Pricing Ratio".
Conditions to Effectiveness of this Amendment. This Amendment shall become
effective as of the date (the "Effective Date") that (a) the Administrative
Agent shall have received (i) this Amendment, executed and delivered by a duly
authorized officer of the Borrower and the Lenders, (ii) the attached
Acknowledgment and Consent, executed and delivered by a duly authorized officer
of each of the signatories thereto, (iii) such other corporate documents and
resolutions as the Administrative Agent may request and (iv) payment of all fees
required to be paid by the Borrower, as agreed upon by the Borrower and the
Administrative Agent, and (b) an amendment to the Interim Loan Agreement
(providing for modifications that conform, as applicable, to the modifications
of the Credit Agreement set forth in this Amendment), in form and substance
satisfactory to the Administrative Agent, shall have become effective in
accordance with the terms thereof.
Miscellaneous.
L. Representations and Warranties. The Borrower represents and warrants to the
Administrative Agent and the Lenders that as of the Effective Date, after giving
effect to this Amendment, no Default or Event of Default has occurred and is
continuing, and the representations and warranties made by the Borrower in or
pursuant to the Credit Agreement or any Loan Documents are true and correct in
all material respects on and as of the Effective Date as if made on such date
(except to the extent that any such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
were true and correct in all material respects on and as of such earlier date).
M. Continuing Effect of the Credit Agreement. This Amendment shall not
constitute an amendment or waiver of or consent to any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as an
amendment, waiver or consent to any action on the part of the borrower that
would require an amendment, waiver or consent to any action on the part of the
Borrower that would require an amendment, waiver or consent of the Agents or the
Lenders except as expressly stated herein. Except as expressly consented to
hereby, the provisions of the Credit Agreement are and shall remain in full
force and effect.
N. Fees and Expenses. The Borrower agrees to pay or reimburse the Administrative
Agent on demand for all its reasonable out-of-pocket costs and expenses incurred
in connection with the preparation and execution of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
O. Counterparts. This Amendment may be executed in any number of counterparts
(including by telecopy) by the parties hereto, each of which counterparts when
so executed shall be an original, but all counterparts taken together shall
constitute one and the same instrument.
P. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
KEY ENERGY SERVICES, INC. (formerly known as Key
Energy Group, Inc.)
By: /s/ Stephen E. McGregor
Title: Executive Vice President and Chief
Financial Officer
PNC BANK, NATIONAL ASSOCIATION, as Administrative
Agent and as a Lender
By: /s/ Thomas A. Majeski
Title: Vice President
<PAGE>
NORWEST BANK TEXAS, N.A.
By: /s/ Dale S. Gravelle
Title: Vice President
<PAGE>
BANK POLSKA KASA OPIEKI S.A., PEKAO S.A. GROUP, NEW
YORK BRANCH
By: /s/ Hussein E. El-Tawil
Title: Vice President
<PAGE>
BANK LEUMI, USA
By: /s/ Gloria Bucher
Title: First Vice President
<PAGE>
BOEING CAPITAL CORPORATION
By: /s/ James C. Hammersmith
Title: Senior Documentation Officer
<PAGE>
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ Eric M. Moore
Title: Assistant Vice President
<PAGE>
KZH HIGHLAND-2 LLC
By: /s/ Virginia Conway
Title: Authorized Agent
KZH PAMCO LLC
By: /s/ Virginia Conway
Title: Authorized Agent
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management, L.P., as
Collateral Manager
By: /s/ James Dandero
Title: President
<PAGE>
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc. as its
Investment Manager
By: /s/ Jason T. Groom
Title: Assistant Vice President
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc., as its
Investment Manager
By: /s/ Jason T. Groom
Title: Assistant Vice President
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By: /s/ Gilles Marchand
Title: Authorized Signatory
<PAGE>
MERRILL SENIOR FLOATING RATE FUND, INC.
By: /s/ Gilles Marchand
Title: Authorized Signatory
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under that certain Amended
and Restated Master Guarantee and Collateral Agreement, dated as of June 6,
1997, as amended and restated through September 14, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"), made by
each of such corporations in favor of the Collateral Agent, ackowledges the
foregoing amendment and confirms and agrees that the Guarantee is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects and the guarantee and all of the Collateral (as defined in the
Guarantee) do, and shall continue to, secure the payment of all of the
Obligations (as defined in the Guarantee) pursuant to the terms of the
Guarantee. Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement referred to in the Amendment
to which this Acknowledgment and Consent is attached.
YALE E. KEY, INC.
KEY ENERGY DRILLING, INC.
WELLTECH EASTERN, INC.
ODESSA EXPLORATION INCORPORATED
KALKASKA OILFIELD SERVICES, INC.
WELL-CO OIL SERVICE, INC.
PATRICK WELL SERVICE, INC.
MOSLEY WELL SERVICE, INC.
RAM OIL WELL SERVICE, INC.
ROWLAND TRUCKING CO., INC.
LANDMARK FISHING & RENTAL, INC.
DUNBAR WELL SERVICE, INC.
FRONTIER WELL SERVICE, INC.
KEY ROCKY MOUNTAIN, INC.
KEY FOUR CORNERS, INC.
JETER SERVICE CO.
JETER WELL SERVICE, INC.
JETER TRANSPORTATION, INC.
INDUSTRIAL OILFIELD SUPPLY, INC.
BROOKS WELL SERVICING, INC.
UPDIKE BROTHERS, INC.
J.W. GIBSON WELL SERVICE COMPANY
KEY ENERGY SERVICES-SOUTH TEXAS, INC.
WATSON OILFIELD SERVICE & SUPPLY, INC.
WELLTECH MID-CONTINENT, INC.
<PAGE>
DAWSON PRODUCTION MANAGEMENT, INC.
DAWSON PRODUCTION ACQUISITION CORP.
DAWSON PRODUCTION TAYLOR, INC.
KEY ENERGY SERVICES-CALIFORNIA, INC.
By: /s/ Stephen E. McGregor
Name: Stephen E. McGregor
Title: Vice President of each of the foregoing
companies
DAWSON PRODUCTION PARTNERS, L.P.
By: DAWSON PRODUCTION MANAGEMENT, INC., Its
sole general partner,
By: /s/ Stephen E. McGregor
Name: Stephen E. McGregor
Title: Vice President
Stock Purchase Agreement
Between
3022481 NOVA SCOTIA COMPANY
Donald Bowling,
Howard Bowling,
Ronald Bowling
and
corunna petroleum limited
October 22, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 22nd day of October, 1998, by and between 3022481
Nova Scotia Company, a Nova Scotia corporation (the "Buyer") and Donald Bowling,
Howard Bowling, Ronald Bowling and Corunna Petroleum Limited (the "Sellers"),
being all of the shareholders of Corunna Drilling Company, a Nova Scotia
corporation, (the "Company").
WHEREAS the Sellers are the registered and beneficial owners and holders of all
of the issued and outstanding shares of the capital stock of Company (the
"Stock"), desire to sell all such shares of Stock to Buyer, and Buyer wishes to
purchase such Stock on the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of and in reliance upon the foregoing and each
of the covenants, agreements, representations, and warranties herein set forth,
Sellers and Buyer agree as follows:
1 . PURCHASE OF COMPANY STOCK:
1.1 Agreement to Purchase and to Sell. Upon and subject to the terms and
conditions of this Agreement, and relying upon the covenants, agreements,
representations, and warranties of Buyer and Sellers herein contained and each
act done pursuant to and in reliance upon this Agreement, Buyer agrees to
purchase from Sellers, and Sellers agree to sell to Buyer the Stock.
1.2
2 . SALE OF STOCK AND PERSONAL PROPERTY:
1.1 Purchase Price. Upon the terms and subject to the conditions of this
Agreement, Buyer shall pay to Sellers an aggregate purchase price for the Stock
of three million five hundred thousand Canadian dollars and no cents (Canadian
$3,500,000.00) which amount shall be adjusted as follows, namely,
1.2
a () such amount shall be (i) increased by the excess of the Net Current
Value of the Company (as defined in Section 2.3, below) as of the Closing
Date (as defined in Section 2.5, below) over Canadian $27,032.00 or (ii)
reduced by the excess of Canadian $27,032.00 over such Net Current Value as
of the Company as of the Closing Date and
a () such amount shall be increased by an amount equal to the capital
expenditures made by the Company between March 20, 1998, and the Closing
Date, but only to the extent these capital expenditures are for equipment
which expand the capability of the Company to carry out its business,
provided that five hundred thousand Canadian dollars (Canadian $500,000.00) (the
"Performance Amount") of the purchase price shall be payable only if on or
before December 31, 1999 Corunna enters into an agreement (the "Talisman
Agreement") in writing with Talisman Energy Inc. ("Talisman") pursuant to which,
effective for a period commencing in or before 1999 and continuing for at least
three years, Corunna is to operate and maintain at least 75% of the gas wells
and well drilling operations which are operated or carried on by or on behalf of
Talisman on Lake Erie or within one kilometer of any part of any shoreline on
Lake Erie and such five hundred thousand dollars ($500,000.00) shall be due and
payable on the thirtieth (30th) day (the "Due Date") after the Talisman
Agreement is delivered to the Buyer. If the Sellers so choose and give written
notice of such choice to Buyer at least 30 days before the Due Date, then the
obligation to pay the Performance Amount may be satisfied by the delivery to the
Sellers of one or more certificates representing common shares ("Key Energy
Shares") in the capital of Key Energy Group, Inc. ("Key Energy") and issued in
the names of one or more Sellers. In the aggregate such certificates shall
represent the lowest whole number of Key Energy Shares which when multiplied by
the closing price per share for Key Energy Shares traded through the facilities
of the New York Stock Exchange on a particular day (which day shall be chosen by
Key Energy and be within the thirty days prior to the delivery of such
certificates to any of the Sellers) is not less than the Performance Amount. All
such Key Energy Shares shall be fully paid and nonassessable. The receipt of
such certificates by the Sellers or any of them shall constitute payment in full
of the Performance Amount. Notwithstanding the foregoing, the Performance Amount
shall be payable in cash and not in Key Energy Shares if (x) at any time in the
period of thirty days ending on and including the Due Date, the Key Energy
Shares are not listed for trading on the New York Stock Exchange or (y) the
issue of Key Energy Shares in payment of the Performance Amount would be in
breach of applicable securities laws or would oblige Key Energy or the Company
to perform obligations under or comply with applicable securities laws and Key
Energy, in its absolute discretion, determines that it or Corunna is unwilling
to undertake such performance or compliance. Each of the Sellers acknowledges
that any Key Energy Shares acquired pursuant to this section shall be subject to
restrictions under applicable securities laws including restrictions on the
right to sell or trade or transfer such Key Energy Shares, and agrees that if
such Seller chooses to have any obligation under this section satisfied by the
delivery of Key Energy Shares, such Seller shall execute and deliver to Key
Energy such agreements and other documents as are reasonably requested by Key
Energy or the Buyer in order that the issue and delivery of such Key Energy
Shares shall be in compliance with applicable securities laws and the rules,
policies, requirements or practices of any securities regulatory authority or
any stock exchange on which any shares of capital stock of Key Energy are then
listed.
The sum payable pursuant to this Section 2.1 is referred to as the "Purchase
Price".
The Purchase Price shall be allocated among the Stock as follows, namely: (i) as
to the Class "A" Preference Shares, the sum of ten Canadian dollars (Canadian
$10) per share and (ii) as to the remainder of the Stock, the balance of the
Purchase Price in an equal amount per share.
1.1 Payment. On the Closing Date the Buyer shall pay to the Sellers on account
of the Purchase Price the aggregate of (a) the amount of three million Canadian
dollars (Canadian $3,000,000) and (b) an amount (the "Estimated Net Current
Value Adjustment Amount") reasonably determined by Buyer in consultation with
one or more Sellers to be the excess of the Net Current Value of the Company as
of August 31, 1998 over Canadian $27,032.00, and such amounts shall be paid in
cash, money order or certified cheque payable to Sellers or by wire transfer of
immediately available funds to an account designated by Sellers.
1.2
1.3 Net Current Value. The "Net Current Value of the Company" as of any date is
agreed to mean that amount by which (a) the "Total Current Assets" of the
Company (including accounts receivable for work in progress at the Closing Date)
as of such date exceeds (b) the "Total Liabilities" (including accounts payable
relating to work in progress at the Closing Date) as each such line item is
accurately recorded on the balance sheet of the Company as of such date in
accordance with Canadian generally accepted accounting principles. The Balance
Sheet of the Company as of December 31, 1997, is set forth on Schedule 2.3(a).
The calculation of the Net Current Value of the Company as of December 31, 1997,
based on the December 31, 1997 Balance Sheet is shown on Schedule 2.3(b). The
calculation of the Net Current Value of the Company as of the Closing Date shall
be made by the Company and shall be completed by the Company within 60 days of
the Closing Date. The calculation of the Net Current Value of the Company as of
the Closing Date shall be set out in a statement prepared by the Company and
approved by the Buyer which statement shall include a balance sheet (the
"Closing Balance Sheet") of the Company as of the Closing Date prepared in
accordance with Canadian generally accepted accounting principles. A copy of
such statement shall be delivered to the Buyer and each of the Sellers promptly
following its completion and approval as aforesaid. Within fifteen days after
receipt of such statement:
1.4
a () the Buyer shall pay to the Sellers the amount, if any, by which
1 () the Purchase Price exceeds
1 () the aggregate of Canadian $3,500,000 and the Estimated Net Current Value
Adjustment Amount and
a () the Sellers shall jointly and severally pay to the Buyer the amount, if
any, by which
1 () the aggregate of Canadian $3,500,000 and the Estimated Net Current Value
Adjustment Amount exceeds
1 () the Purchase Price.
Any amount payable pursuant to this Section 2.3 shall bear interest at the Prime
Rate plus 2% per annum (as hereinafter defined), calculated monthly, from and
after the date on which such amount is deemed payable until such amount is paid
and such interest shall be payable on demand. For purposes of this Agreement
"Prime Rate" means, in relation to any day, the variable rate of interest
determined by Royal Bank of Canada as or commonly known as, its prime rate of
interest effective for such day for Canadian dollar loans made by such bank in
Canada, being a variable per annum reference rate of interest adjusted
automatically upon change by such bank.
1.1 Delivery of Stock Certificate. Sellers shall deliver (or cause to be
delivered) to Buyer on the Closing Date, as hereinafter defined, all
certificates representing the Stock, duly endorsed in blank by the Sellers, or
accompanied by duly executed stock powers in blank with their signatures
guaranteed by a bank, trust company or member firm of The Toronto Stock
Exchange, all in such form as Buyer or Buyer's counsel may require. Any and all
requisite transfer stamps shall be attached thereto.
1.2
1.3 Time and Place of Closing. The parties hereto shall attend at the Closing
Place at the Closing Time, and subject to the terms and conditions of this
Agreement, they shall complete the purchase and sale of the Stock at the Closing
Place on the Closing Date. In this Agreement,
1.4
a () "Closing Date" means the day of the completion (the "Closing") of the
sale of shares contemplated by this Agreement provided that until the
Closing occurs the Closing Date shall be the 22nd day of October, 1998 or
such other date as Buyer and Sellers may agree in writing is to be the
Closing Date for purposes of this Agreement;
a () "Closing Time" means the time of the Closing provided that until the
Closing occurs the Closing Time shall be 2:00 p.m. (local time at the
Closing Place) on the Closing Date or such other time on the Closing Date
as Buyer and Sellers may agree upon in writing is to be the Closing Time
for purposes of this Agreement; and
a () "Closing Place" means the offices of Aird & Berlis located at Suite
1800, 181 Bay Street, Toronto, Ontario or such other location as Buyer and
Sellers may agree in writing is to be the Closing Place for purposes of
this Agreement.
1 . SELLER'S REPRESENTATIONS AND WARRANTIES:
To induce Buyer to enter into this Agreement, Sellers jointly and severally
represent and warrant to Buyer that the representations set forth below are
true, except as otherwise provided by the specific terms of the representation.
1.1 Authorized and Outstanding Stock. The total authorized capital stock of the
Company consists of 1,000,000 common shares without nominal or par value and
1,000,000 Class "A" Preference shares without nominal or par value, and the
Company has no authority to issue any other shares. There are only 20 shares of
the common stock of the Company issued and outstanding, all of which are owned
(of record and beneficially) by and are in possession of Ronald Bowling and
Howard Bowling, and only 90,000 Class "A" Preference shares issued and
outstanding all of which are owned (of record and beneficially) by Donald
Bowling and Corunna Petroleum Limited all of which capital stock has been
validly issued and is fully paid and nonassessable. There are no proxies,
irrevocable or otherwise, or voting trusts or agreements outstanding or held by
any person as to any share of the Stock.
1.2
1.3 There are no outstanding subscriptions, options, warrants, calls contracts,
demands, commitments, convertible securities, or other agreements or
arrangements of any kind, pursuant to which the Company is or may be obligated
to issue any shares of common or preferred stock or other securities of any kind
representing an actual or contingent ownership interest in the Company,
including any right of conversion or exchange under any outstanding security or
other instrument, and no other shares of the Company capital stock are reserved
for any purpose.
1.4
1.5 Sellers have, and upon Sellers' delivery of the Stock as provided in Section
2.4 hereof, Buyer will acquire good and marketable title to the Stock, free and
clear of any and all Encumbrances. Sellers are authorized and empowered to enter
into this Agreement and to sell the Stock, and on demand Sellers will supply
Buyer with proof of Sellers' authority to transfer the Stock and with any other
thing necessary to obtain from the Company unrestricted transfer of each share
of Stock into the name of Buyer. In this Agreement, "Encumbrances" means
encumbrances of any nature or kind including any one or more liens, pledges,
options, warrants, charges, mortgages, trusts, proxies, equities, security
interests, adverse claims, restrictions on transfer or registration, or claims
(including liability for or claims of any taxing authority, creditor, devisee,
legatee, or beneficiary).
1.6
1.7 Sellers' Authority. (a) Sellers are the lawful owners and the holders of
record of the Stock of the Company, free and clear of all Encumbrances; (b) this
Agreement constitutes a valid and binding obligation of each of the Sellers,
enforceable in accordance with its terms; (c) delivery to the Buyer of
certificates duly endorsed by Sellers representing the Stock of the Company
pursuant to the provisions of this Agreement will transfer to Buyer valid title
thereto upon registration of the transfer of the Stock to Buyer; and (d) each
Seller that is an individual is of such age, and has all such capacity, as is
required to enter into and be bound by this Agreement.
1.8
1.9 Execution. This Agreement has been duly executed and delivered by Sellers
and constitutes a valid and binding obligation of Sellers enforceable against
each of the Sellers in accordance with its terms.
1.10
1.11 Corporate Qualification, Organization, Authorization, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Province of Nova Scotia, and has full corporate power and authority to
conduct its business as it is now being conducted and to own, lease and operate
the property and assets it now owns, leases or operates and is duly licensed,
registered and qualified to carry on such business in each jurisdiction in which
1.12
a () any property owned or leased by the Company is situate or
a () the nature or conduct of its business or any part thereof makes such
qualification necessary or desirable to duly authorize or enable such business
to be carried on as now conducted.
The Company operates its business only in Ontario. The Company is not a
"reporting issuer" as defined in, and for the purposes of, the Securities Act
(Ontario).
1.1 Subsidiaries and Certain Affiliates. The Company does not own, directly or
indirectly, any capital stock or investment in any limited partnership, joint
venture, or corporation.
1.2
1.3 Real Property. Except for Leasehold Interests (as defined in section 3.9) as
at the Closing Date the Company holds no interest in any real property and
except as aforesaid the Company has never held any interest in any real property
(collectively the "Real Property").
1.4
1.5 Title to and Condition of Personal Property. The Company's tangible personal
property ("Personal Property") includes but is not limited to all property
("Scheduled Property") (including machinery, equipment, automobiles, trucks, and
other vehicles owned or leased by the Company), collectively described in
Schedule 3.7(a). All Personal Property will be owned or leased by the Company on
the Closing Date. The Personal Property is free and clear of any and all
Encumbrances except as set forth in Schedule 3.7(b). All items of Personal
Property are in a state of good operating condition and repair, ordinary wear
and tear excepted, and are free from any known defects except (i) as may be
repaired by routine maintenance of such minor defects as do not substantially
interfere with the continued use thereof in the conduct of normal operations, or
(ii) as set forth in Schedule 3.7(c).
1.6
3.7A Intellectual Property. The Company has all such rights in, and to the use
of, Intellectual Property (as hereinafter defined) as are necessary or
reasonably required in order to carry on its business in the manner in which
such business has been carried on since December 31, 1996 without infringing on
the rights of, or breaching any obligation to, any third party. The Company has
not infringed on the rights of, or breached any obligation to, any third party
in relation to any Intellectual Property, and has not received any notification
from any third party claiming that the Company has infringed on any such rights
or breached any such obligation. The Company is not obligated to pay any fee,
royalty or other compensation or charge to any third party in respect of any
Intellectual Property (including computer software) used in the conduct of its
business or in respect of the use of such Intellectual Property in the future.
Except for any Intellectual Property which is owned by the Company and described
in Schedule 3.7A, there is no Intellectual Property, the use of which is
material to the conduct of the business of the Company. In this section,
"Intellectual Property" means property that is, or is evidenced by or reflected
in, a patent, a patent application or registration, a trade mark, a trade mark
application or registration, copyright, a copyright application or registration,
a trade name or an industrial design (whether domestic or foreign in the case of
any such property) and trade secrets and inventions.
1.1 Inventories. Schedule 3.8(a) sets forth a description of the approximate
current level of the inventory (the "Inventory") of the Company. The Inventory
is shown on the Financial Statements (as defined hereinafter) and consists of
items of a quality and quantity usable in the ordinary course of the Company's
businesses and is presented therein at a value which reflects the Company's
customary inventory valuation policy of stating inventory at the lower of cost
or market, in accordance with generally accepted accounting principles. The
Inventory is free and clear of all Encumbrances, except as set forth in Schedule
3.8(b).
1.2
1.3 Leasehold Interests. Schedule 3.9(a) attached hereto contains an accurate
and complete list of all leases pursuant to which the Company leases real
property or personal property (collectively, the "Leasehold Interests"). All
such leases are valid, binding and enforceable against the Company in accordance
with their terms, and are in full force and effect. The Company is not in
default under any lease and will not be in default under any lease as a result
of the execution of this Agreement or closing of the transactions contemplated
herein.
1.4
1.5 Tax Matters. (a) All tax returns, reports, declarations and other documents
required to be filed with taxation authorities (collectively referred to as "Tax
Returns") required to be filed on or prior to the Closing Date by the Company
with all taxing authorities have been or will have been filed prior to the
Closing Date; and all taxes due and payable on such Tax Returns, all taxes,
duties and other governmental charges payable by the Company, and all
deficiencies, assessments, penalties and interest with respect thereto, in each
case due and payable on or before the Closing Date, have been or will have been
paid prior to the Closing Date. Copies of all Tax Returns in respect of the past
four years have been delivered by the Sellers to the Buyer and the Sellers
represent that each such Tax Return has been duly and timely filed with the
appropriate governmental authority and is a true and complete copy of the
original of the Tax Return which was duly filed. None of such Tax Returns has
been amended except as disclosed in the Tax Returns.
1.6
1.7 All Tax Returns filed by the Company for any year are true, complete and
correct in all respects and are in accordance with the books and records of the
Company. To the best of the Sellers' knowledge, each such Tax Return has been
prepared in accordance with applicable law and properly reflects the liability
for taxes of the Company to the jurisdiction or authority to which such return
was made for the period covered thereby.
1.8
1.9 (b) The Company has not agreed to any extensions of time of any applicable
statutes of limitation in connection with the filing of Tax Returns or payment
of taxes. No audit or examination, or claim or proposed assessment, by any
taxing authority is pending or, to the best of the Sellers' knowledge,
threatened against the Company. Other than as listed in Schedule 3.10(b), none
of the Company's Tax Returns for any year have been audited by the relevant
taxing authorities. All issues arising out of such audits have been resolved.
The Company has made all payments required as a result of such resolutions and
there are no matters currently outstanding as a result of such audits.
1.10
1.11 (c) There has been withheld or collected from each payment made to each
employee of the Company the amount of all taxes and other statutory deductions
(including without limitation federal, provincial, state and local income taxes,
payroll taxes and wage taxes) required to be withheld or collected therefrom and
the same have been paid to the proper tax depositories or collecting
authorities. The Company has duly and fully paid all employee and employer
amounts for government programs, including Ontario employer health taxes,
Worker's Compensation Board, Canada Pension Plan, and employment insurance. All
shareholders and employee benefits have been properly and timely reported, and
appropriate tax slips have been issued to the shareholders and employees as
required under applicable law.
1.12
1.13 (d) All property taxes required to be paid by the Company prior to the
Closing Date with respect to, or which may become a lien on, its assets have
been paid in full.
1.14
1.15 (e) The Company has duly and timely collected all federal and provincial
sales taxes required to be collected by it, filed such Tax Returns as are
necessary, and has remitted all taxes which are due and payable to the
appropriate governmental authority.
1.16
1.17 (f) The Company is not making any installment payments on account of any
arrears in respect of any tax liability or obligation.
1.18
1.19 (g) Immediately prior to the execution of this Agreement and at all
relevant times prior thereto, the Company was a "Canadian controlled private
corporation" for purposes of the Income Tax Act (Canada).
1.20
1.21 Conduct of Business. Since December 31, 1997, Company's business has been
conducted only in the ordinary course, and except as set forth in Schedule 3.11
there has been (i) no damages, theft, destruction, or loss (whether or not
covered by insurance) affecting Company's properties, assets, or business; (ii)
no agreement, contract, or other arrangement entered into, obligating Company
for any debt, obligation, or liability (whether direct or indirect, contingent
or otherwise), incurred other than in the ordinary course of its business; and
(iii) no sale or other disposition of, or liquidating or other distribution or
redemption with respect to, the Stock, either authorized, declared, paid, or
effected.
1.22
1.23 The Company has conducted and continues to conduct its business so as to
comply with, and is in compliance with all laws, statutes, regulations, rules,
orders, directives and other requirements of any governmental authority
applicable to it (including, without limitation, all applicable antitrust,
competition, employment, labour, securities, environmental, and occupational
health and safety laws), the noncompliance with which or curing thereof could
have a material adverse effect on the Company or its business.
1.24
1.25 There are no capital expenditures in excess of $5,000 in total which the
Company now anticipates will be required to be made in connection with the
Company's business as now conducted in order to comply with any existing laws,
regulations or other governmental requirements applicable to the Company's
business, including without limitation requirements relating to occupational
health and safety and protection of the environment.
1.26
1.27 Labour Organizations. The Company is not a party to any collective
bargaining agreement; there have been no petitions for union elections filed
covering any of the Company's employees; there are no pending or contemplated
labour negotiations with a union and no union presently is known to be
attempting to represent any Company employee as collective bargaining agent.
1.28
1.29 Licenses and Permits. Schedule 3.13 hereto sets forth all of the licenses,
permits, approvals and other governmental franchises held by the Company and
required for the conduct of the Company's business as now conducted (the
"Permits"), which constitute all material licenses required of the Company for
the conduct of its business at the place and in the manner currently carried on.
The Company is not presently in violation or default under any Permit, there
does not exist any circumstance which with notice or the passage of time, or
both, would result in such a violation or default, and there is no proceeding
pending or, to the best of the Sellers' knowledge, threatened with respect to
the revocation or limitation of any Permit. Neither this Agreement nor the
consummation of the transactions contemplated herein shall cause any of the
Permits to terminate or become invalid or to otherwise cease to be effective in
accordance with its terms and for the purpose for which it was obtained.
1.30
1.31 Banking Information and Personnel Data. The Sellers have delivered to the
Buyer lists attached hereto as Schedule 3.14 setting forth the following:
1.32
a () the names of all persons holding powers of attorney from the Company to
act on its behalf;
a () for each employee of the Company, the name and current annual rate or
hourly rate of compensation for such employee, together with a summary of
existing bonuses, deferred compensation rights, additional compensation and
other fringe or additional benefits of or for such employee, if any, and
for each employee and former employee, amounts earned or accrued to such
employee in the fiscal year ended December 31, 1997 (other than in the case
of any employee compensation at the normal annual rate or hourly rate
applicable to such employee and payable in respect of a period of less than
fourteen days) and payable subsequent to such date; and
a () all bank accounts held by the Company along with the name of the banking
institution, account number and the names of all persons authorized to draw
thereon or have access thereto.
Except as disclosed in Schedule 3.14, there are no other employee benefits or
perquisites provided or paid for by the Company for the benefit of any one or
more employees of the Company.
There are no banks in which the Company has any lock box or safe deposit box.
There are no retired employees of the Company, who are receiving or are entitled
to receive any payments or deferred compensation rights.
1.1 Claims or Litigation. Except as set forth in Schedule 3.15, there is no
legal, administrative, arbitrative, or other suit, action, proceeding, claim or
dispute, currently pending or to Seller's knowledge threatened against or by the
Company relating to any one or more of the Company, the Real Property, the
Personal Property, the Inventory, the Leasehold Interests and the Permits,
(including any relating to violation of any safety laws) or which questions the
validity of this Agreement or any action taken or to be taken pursuant thereto
or in connection with the transactions contemplated hereby; there has been no
violation of any law by Company nor any basis or grounds for any such suit,
action, proceeding, charge, claim or dispute, and there are no judicial or
administrative injunctions, judgments, order, or decrees outstanding against
Company or any of its operations, products, or services. There are no other
material "contingent losses" (as defined in section 3290 of the CICA Handbook
issued by the Canadian Institute of Chartered Accountants), which would be
required by such section to be disclosed or accrued in financial statements of
the Company were such statements prepared at the Closing Date.
1.2
1.3 Authorization for Agreement. Sellers and the Company have obtained all
necessary authorizations or approvals required to enter into this Agreement and
consummate the transactions contemplated hereby. No other consent or approval
of, prior filing with or notice to, or other action by, any governmental body or
agency or any other third party is required in connection with the execution and
delivery of this Agreement by the Sellers, the Company or any other document
delivered in connection with the consummation of the transactions provided for
herein.
1.4
1.5 Agreements, Contracts, Leases, etc. Schedule 3.17(a) contains a list of all
written or oral agreements, contracts and leases to provide services for
customers of the Company and commitments to which Company is a party or by which
its properties are bound (for both real and personal property), which would
require a payment by either party during the life of the agreement, lease,
contract and/or commitment in excess of one thousand dollars ($1,000.00). Each
of the documents listed on Schedule 3.17(a) remains in full force and effect,
unamended as of the Closing Date and the Company is not in default or breach of
any such document, nor does there exist any state of facts which, after notice
or lapse of time or both, would constitute such a default or breach.
1.6
1.7 Except for the documents so listed and described, or except as set forth on
other Schedules attached to this Agreement, Company is not bound to any: (i)
agreement that contains any severance pay liabilities or obligations; (ii)
agreement of guarantee or indemnification; (iii) loan or credit agreement
providing for any extension of credit to or by the Company except in the
ordinary course of business; (iv) employment contract; (vi) advertising
contract; (vii) any agreement or commitment containing a covenant limiting
Company's right to compete with any person or engage in any line of business.
Schedule 3.17(b) contains a list of all of the entities to whom the Company is
indebted to the extent that the indebtedness is One Thousand Dollars ($1,000.00)
or greater.
1.8
1.9 The execution, delivery and performance of this Agreement or any other
document delivered in connection with the consummation of the transactions
provided for herein will not, with any consents and approvals required to be
obtained and the giving of any notice required to be given to any persons or
entity, (i) violate any provision of the Articles or Bylaws of any corporate
Seller or the Company; (ii) violate any law or rule or regulation of any
administrative agency or governmental body, or any order, writ, injunction or
decree of any court, arbitrator, administrative agency or governmental body;
(iii) violate, suspend, terminate, cancel, breach, or result in the creation or
imposition of any lien or encumbrance on any of the Sellers' or the Company's
properties or assets under any indenture, mortgage, contract, agreement or other
undertaking or instrument to which the Seller or the Company, is a party or by
which their property may be bound or affected; or (iv) accelerate the time for
payment or performance of any debt or obligation of the Company.
1.10
1.11 Insurance. Schedule 3.18 lists all policies of insurance (the "Insurance
Policies") including, but not limited to, third party insurance, retention
insurance and self-insurance, in force with respect to the Company, including,
without restricting the generality of the foregoing, those covering properties,
buildings, machinery, equipment, vehicles, furniture, fixtures, operations,
products sold by the Company, and lives and health of corporate personnel,
including the policy numbers, names and addresses of insurers, expiration dates,
descriptions and amounts of coverage and annual premiums. Schedule 3.18 includes
all policies of insurance owned by the Company. Each of the Insurance Policies
listed in Schedule 3.18 is in good standing and all premiums payable in respect
thereof have been duly and timely paid. Except as disclosed in Schedule 3.18,
there are no claims that have been made by the Company under any of the
Insurance Policies which remain outstanding, and any claims which are
outstanding or may be made by the Company under any of the Insurance Policies
have been duly made in accordance with the terms of any applicable Insurance
Policy. The Company has not agreed to indemnify any insurer in respect of all or
any portion of a claim by any third party under any one or more of the Insurance
Policies.
1.12
1.13 Environmental Matters. Except as disclosed on Schedule 3.19 attached
hereto: (i) the conduct of all of the business of the Company complies with and
has at all times complied with, and the Company is not in violation of, and has
not violated, any Applicable Environmental Laws (as such term is hereinafter
defined); (ii) there are no notices of violation of any Environmental Laws
requiring any work, repairs, construction, capital expenditures or otherwise
with respect to the business of the Company which has been received by Company,
and there are no writs, injunctions, decrees, orders or judgments outstanding,
no lawsuits, claims, proceedings or investigations pending or to the best of the
Sellers' knowledge, threatened relating to the ownership, use, maintenance, or
operations of the Company; (iii) to the best of the Sellers' knowledge, there is
not any basis for any such lawsuits, claims, proceedings or investigations being
instituted or filed, (iv) no hazardous or toxic materials, substances,
pollutants, contaminants or wastes as regulated by the Applicable Environmental
Laws have been released into the environment, or deposited, discharged, placed
or disposed of at, on or near 264 Paget Street, Corunna, Ontario by the Company
or, to the best of the Sellers' knowledge, any other person, and (v) to the best
of the Sellers' knowledge, 264 Paget Street, Corunna, Ontario has not been used
at any time by any person as a landfill or a waste disposal site.
1.14
1.15 The term "Applicable Environmental Laws" means all applicable statutes,
regulations, ordinances, by-laws, and codes and all international treaties and
agreements, now or hereafter in existence in Canada (whether federal,
provincial, state or local) or in the United States (whether federal, state or
local) which:
1.16
a () relate to or provide for or concern any one or more of (i) reclamation
or restoration of the lands, (ii) abatement of pollution, (iii) protection
of the environment, (iv) protection of wildlife including endangered
species, (v) ensuring public safety from environmental hazards, (vi)
protection of cultural or historic resources, (vii) management or storage
or control of hazardous materials and substances, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances (within the meaning of any applicable law) as wastes
into the environment, including without limitation, ambient air, surface
water and ground water; and (viii) all other laws relating to the
manufacturing, processing, distribution, use, treatment, storage, disposal,
handling or transport of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes or
a () relate to any one or more of occupational health and safety, product
safety, product liability or Hazardous Substances (as such term is defined
in the EPA), including without limitation, the Environmental Protection Act
(the "EPA"), the Canadian Environmental Protection Act, (the "CEPA"), the
Water Resources Act (Ontario), the Municipal Act (Ontario), the
Occupational Health and Safety Act (Ontario) and the Public Health Act
(Ontario).
1.1 Compliance with Laws. The Sellers represent that, after due and diligent
inquiry, to the best of their knowledge, information and belief the current or
past operations of the Company are being or have been conducted or used in such
a manner so as not to constitute a violation of any laws.
1.2
1.3 Statements True and Not Misleading. No schedule (or any document identified
thereby or attached thereto), no representation or warranty made by Sellers in
this Agreement, and no record, document, statement, schedule, instrument, or
certificate furnished or to be furnished to Buyer (its representatives, agents,
attorneys, or accountants) pursuant hereto, or in connection with the
transactions contemplated hereby, contain any knowingly untrue statement or omit
to state any material fact reasonably necessary to make any of representations
or warranties herein not misleading. The Sellers have made due and diligent
inquiry to confirm the matters represented or warranted to by them in this
Agreement and none of the Sellers has any reason to believe that any of the
representations or warranties made by any of the Sellers in this Agreement is
untrue or inaccurate. As of the Closing Date, none of the Sellers know of any
facts that have not been disclosed in this Agreement or the Schedules hereto
that materially and adversely affects the business, properties, assets,
prospects or conditions, financial or otherwise, of the Company.
1.4
1.5 Conflicts of Interest. Save and except for the lease arrangements in force
from time to time between the Company and Corunna Petroleum Limited in relation
to 264 Paget Street, Corunna, Ontario, no officer, director, or shareholder of
the Company (nor any corporation, firm, association, or entity in which any such
officer, director, or shareholder is interested) is a party to or has a material
interest in any contract or transaction to which the Company will be bound
subsequent to the Closing Date.
1.6
1.7 Minute and Stock Books. The Company's minute books, stock certificate books
and stock record and transfer books have been made available to the Buyer for
inspection; the signatures therein are the true signatures of the persons
purporting to have signed them.
1.8
1.9 Loans to and from Officers, Directors, etc. There are no loans payable to
the Company by any officer, director, shareholder or employee, or any loans or
bonuses payable by the Company to any officer, director, shareholder or
employee. The Company has no obligation or debt to any Seller or any related
individual or entity, except as set forth in Schedule 3.24.
1.10
1.11 Financial Statements. Sellers have identified and furnished Buyer with the
following financial statements of the Company (collectively, the "Financial
Statements"):
1.12
a () unaudited financial statements of the Company for the year ended March
31, 1997 (the "1997 Statements").
a () unaudited financial statements for the year ended March 31, 1998 (the
Sellers further warrant and represent that the 1997 Statements and the 1998
Statements have been prepared and maintained in accordance with Canadian
generally accepted accounting principles consistently applied, subject to any
qualifications contained therein.
The Financial Statements present fairly the financial condition of the Company
as of March 31, 1997 and March 31, 1998 respectively and the results of the
operations of the Company for the year ended March 31, 1997 and the year ended
March 31, 1998. All amounts receivable by the Company which are owing as of the
Closing Time are valid and enforceable and are and shall be fully collectable
within ninety days following the Closing Date without any setoff or
counterclaim.
1.1 Residency. Each of the Sellers is not
1.2
a () a non-resident of Canada for the purposes of the Income Tax Act (Canada)
or
a () a "non-Canadian" for the purposes of the Investment Canada Act.
1.1 Prospective Changes. There are no impending changes which, if such change
occurs, would have a material adverse effect on the Company's businesses,
assets, liabilities, relations with employees, competitive situation or
relations with suppliers or customers, or governmental actions or regulations
affecting the Company's business.
1.2
1.3 Bankruptcy. Neither any of the Sellers nor the Company has committed any act
of bankruptcy, is insolvent (or will be insolvent as a result of the
consummation of the transactions contemplated by this Agreement), has proposed a
compromise or arrangement to his or its creditors generally, has had any
petition for a receiving order in bankruptcy filed against him or it, has made a
voluntary assignment in bankruptcy, has taken any proceeding to have himself or
itself declared bankrupt or wound-up, has taken any proceeding to have a
receiver appointed for any part of its assets, has had any encumbrancer take
possession of any of his or its property, or has had any execution or distress
become enforceable or become levied upon any of his or its property.
1.4
1.5 Use of Premises. With respect to the Company's lease of the premises
municipally known as 264 Paget Street, County of Lambton, Township of Moore,
from Corunna Petroleum Limited, the Company benefits from a legal non-conforming
use and thus is permitted under the applicable zoning by-laws to use such
premises for the purposes of storing, repairing, servicing and fueling,
equipment, spare parts and vehicles related to the drilling of oil and gas wells
and associated and ancillary offices and facilities.
1.6
1.7 Customer Payments. In the ten years prior to the date hereof, the Company
has not made any material payments to, or conferred any material benefit on, any
person or third party which could reasonably be regarded as having been paid or
conferred primarily so as to induce such person or third party to, or to cause
some other person or third party to, enter into or maintain any transaction or
business relationship with the Company.
1.8
1.9
2 . CONDITIONS TO BUYER'S OBLIGATIONS:
Each and every obligation of Buyer under this Agreement shall be subject to and
conditioned upon Buyer being satisfied, on or before and as of the time of
Closing, of the following:
1.1 Compliance with Agreement. Each and all terms, covenants, agreements, and
conditions of this Agreement to be complied with or performed by Sellers or
Company until, at, or prior to the Closing Date shall have been complied with or
performed; and Buyer shall not have rescinded or terminated this Agreement as
permitted by the terms of this Agreement.
1.2
1.3 Representations and Warranties True as of Closing Date. Sellers'
representations and warranties set forth in Section 3 (including all of Sections
3.1 to 3.30, both inclusive) shall be true and correct as of the Closing Date.
Sellers shall deliver to Buyer a certificate to such effect, executed by
Sellers. In addition, Sellers' other representations and warranties contained
within this Agreement, to the best of Sellers' knowledge after due and diligent
inquiry, shall be true and correct as of Closing Date.
1.4
1.5 No Governmental or Other Proceeding. Nothing shall restrain or prohibit the
transactions contemplated hereby, and no suit, action, investigation, inquiry,
or governmental or other proceeding, legal or administrative, shall have been
instituted or threatened questioning the validity, legality, or enforceability
of this Agreement, or the transactions contemplated hereby.
1.6
1.7 Approvals and Consents. All requisite approval of public authorities
(federal, state, or local, domestic or foreign), necessary for consummation of
the transactions contemplated hereby without any loss to Company or to prevent
termination or restriction of any right, privilege, license or agreement of, or
any loss or disadvantage to, Company shall have been obtained and copies thereof
delivered to Buyer.
1.8
1.9 Opinion of Sellers' Counsel. Sellers shall deliver to Buyer one or more
legal opinions of Sellers' counsel, each of which shall be in a form acceptable
to Buyer.
1.10
1.11 Resignations of Officers and Directors. Buyer shall have received the
written resignation of each officer and member of Company's Board of Directors
in a form satisfactory to Buyer.
1.12
1.13 Charter Certificate. Buyer shall have acquired a current certificate of the
Ministry of Consumer and Corporate Relations of the Province of Ontario
evidencing the good standing and continuing existence of the Company.
1.14
1.15 Tender of Shares and Closing Documents. Buyer shall have received from
Sellers a fully executed copy of this Agreement, and Sellers shall have
delivered (or caused to be delivered) the certificates of stock to Buyer as
provided for in Section 2.4; Sellers shall have delivered (or caused to be
delivered) to Buyer each and every financial statement, document, opinion,
certificate, agreement and instrument required to be so delivered by this
Agreement, and Buyer shall have received from Company and Sellers, copies of
such other documents, instruments, and certificates as Buyer's counsel shall
have reasonably requested.
1.16
1.17 Real and Personal Property Taxes. Sellers shall provide Buyer on the
Closing Date proof that all real and personal property taxes and any special
assessments due and payable in 1997 and prior years are paid.
1.18
1.19 Condition of Personal Property. All of the Personal Property is in a state
of good operating condition and repair (ordinary wear and tear excepted) and are
free from defects, except (i) as may be repaired by routine maintenance and such
minor defects do not substantially interfere with the continued use thereof in
the conduct of normal operations, or (ii) as set forth in Schedule 4.10.
1.20
1.21 Environmental Site Assessment. Before the Closing Date, the Company will
cause, at its expense, a Phase I and Phase II environmental site assessment of
the premises located at 264 Paget Street, Corunna, Ontario to be conducted and
reported upon in conformance with the scope and limitations of the ASTM Standard
Practice E1527 (or the equivalent Canadian standard) by an environmental
surveyor approved by Buyer.
1.22
1.23 No Adverse Proceedings. No action, suit or proceeding before any court or
any governmental or regulatory authority shall have been commenced, no
investigation by any governmental or regulatory authority shall have been
commenced, and no action, suit or proceeding by any governmental or regulatory
authority shall have been threatened, against any of the parties to this
Agreement, or any of the principals, officers or directors of any of them, or
any of the assets of the Company seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions or seeking damages in connection with any of such
transactions.
1.1 Legal Matters. All legal matters incident to the consummation of the
transactions contemplated hereby are satisfactory to counsel to the Buyer.
1.2
1.3 Releases. The Sellers shall deliver releases to the Company in form
satisfactory to the Buyer to the effect that the Sellers release and discharge
all claims which they may have against the Company or any of its directors,
officers, agents or representatives.
1.4
2 . BUYER'S REPRESENTATIONS AND WARRANTIES:
To induce Sellers to enter into and perform this Agreement, Buyer represents and
warrants to Sellers that the following are true:
1.1 Corporate Qualification, Organization, Authorization, etc. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the Province of Nova Scotia, has full corporate power and authority to
conduct its business as it is now being conducted and to own the properties and
assets it now owns.
1.2
1.3 Authorization for Agreement. Neither the execution or delivery of this
Agreement, nor the performance or consummation of the transactions contemplated
by this Agreement, will constitute or result in the breach of or default under
any term, condition or provision of any the Buyer's memorandum or articles of
association, or violate any statute, law, regulation, judgment, or order binding
upon or applicable to Buyer.
1.4
2 . CONDITIONS TO SELLERS' OBLIGATIONS:
Each and every obligation of Sellers under this Agreement shall be subject to
and conditioned upon satisfaction, on or before the Closing Date of the
following conditions:
1.1 Representations, Warranties, and Covenants. Buyer's representations and
warranties contained in Section 5 hereof shall be in all respects true and
correct when made and shall be deemed to be made again and shall be true and
correct as of the Closing Date, and Buyer shall have performed, or caused to be
performed, all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Buyer prior to Closing.
1.2
1.3 Payment. Buyer shall deliver such payment on account of the Purchase Price
as is to be paid on the Closing Date pursuant to Section 2 and the amount
referred to Section 7.4 to Sellers at Closing in accordance with Section 2.2.
1 . ADDITIONAL AGREEMENTS:
1.1 Liabilities as of Closing Date. Except to the extent that they are reflected
as liabilities included in the Closing Balance Sheet (as defined in Section 2.3)
of the Company and only to the extent of the amount specified thereon, the
Sellers agree that they shall be obligated for, and pay or reimburse the Company
upon request for,
a () all expenses, liabilities and accounts payable of the Company incurred
prior to the Closing Date, including tax liabilities, whether actual or
contingent relating to the Company or its operations up to the Closing Date
(which tax liabilities shall be determined as if a taxation period for the
determination of the amount of such tax ended immediately before the
Closing Date); and
a () all wages and the cost of fringe benefits of employees of the Company
earned or accrued up to the Closing Date.
1.1 Employees. Sellers will use their best efforts to assist the Company in
retaining all of its employees through the Closing Date. The Buyer anticipates
that the employee compensation will be continued at or above current levels and
that employee benefit programs in place prior to the Closing Date will either be
continued or replaced with programs substantially equal to or better than such
benefit programs.
1.2
1.3 Employment Agreements. At the time of Closing each of Howard Bowling and
Ronald Bowling shall execute and deliver to the Buyer and the Company an
employment agreement (the "Employment Agreements") with Company which is in the
form attached hereto as Schedule 7.3 and applicable to such individual. On the
Closing Date the Company shall enter into an employment agreement with Sandy
Fleming in respect of her service as Office Manager.
1.4
1.5 Non-Competition Agreements. The Buyer shall pay the Sellers one million
Canadian dollars (Canadian $1,000,000) in total at Closing as consideration for
each of the Sellers entering into a non-competition agreement in the form
attached hereto as Schedule 7.4 and applicable to such Seller. Each of the
Sellers shall execute and deliver such Agreement to the Buyer and the Company at
the time of Closing.
1.6
1.7 Lease. At the Closing the Sellers will cause Corunna Petroleum Limited to
enter into a lease (the "Lease") with the Company for the building and premises
located at 264 Paget Street, Corunna, Ontario which lease shall be in a form
acceptable to the Buyer.
1.8
2 . INDEMNIFICATION:
1.1 Indemnification by the Sellers. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, the Sellers jointly and
severally shall indemnify, defend and hold harmless Buyer and the Company and
their respective officers, directors, employees, agents and stockholders,
against and with respect to any and all claims, costs, damages, losses,
expenses, obligations, liabilities, recoveries, suits, causes of action and
deficiencies, including interest, penalties and reasonable attorneys' fees and
expenses (collectively, the "Damages") that such indemnitee shall incur or
suffer (whether the Damages are suffered or incurred directly by any particular
party entitled to be indemnified pursuant to this section or as a result of a
claim made by a third party against any such particular party), which arise,
result from or relate to:
1.2
a () any breach of, inaccuracy in, or failure by the Sellers to perform their
respective representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument
furnished or delivered to Buyer by the Sellers under this Agreement or in
connection with the Closing or
a () any liability (contingent or otherwise) or obligation (contingent or
otherwise) of the Company which exists on the Closing Date or arises or
results from any act, omission, transaction, event or occurrence that
occurs on or before the Closing Date, save and except for the following,
namely, any liability or obligation reflected in the Closing Balance Sheet
(as defined in Section 2.3) to the extent the same is reflected therein.
Notwithstanding the foregoing, the liability of the Sellers under this Section
in respect of the indemnity provided in this Article 8 shall be several, rather
than joint and several, in respect of Damages arising in respect of any one or
more of the employment agreements, the lease and the non-competition agreements
referred to in Article 7.
1.1 Indemnification by Buyer. In addition to any other remedies available to
Sellers under this Agreement, or at law or in equity, Buyer shall indemnify,
defend and hold harmless the Sellers against and with respect to any and all
Damages that Sellers shall incur or suffer, which arise, result from or relate
to any breach of, inaccuracy in or failure by Buyer to perform any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to
Sellers by or on behalf of Buyer under this Agreement.
1.2
1.3 Indemnification Procedure . If any party hereto discovers or otherwise
becomes aware of any circumstances which may entitle such person to claim
indemnification under Section 8.1 or 8.2 of this Agreement, such indemnified
party shall give written notice to the indemnifying party, specifying such
claim, and may thereafter exercise any remedies available to such indemnified
party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. Further, promptly after receipt by
an indemnified party hereunder of written notice of the commencement of any
third party action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 8, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party, give written notice to the latter of the commencement of such third party
action or proceeding; provided, however, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party
of any obligations hereunder, to the extent the indemnifying party is not
materially prejudiced thereby. In case any such third party action or proceeding
is brought against an indemnified party, the indemnifying party shall be
entitled, at its expense, to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party. An
indemnifying party who elects not to assume the defense of a third party claim
shall not be liable for the fees and expenses of more than one counsel in any
single jurisdiction for all parties indemnified by such indemnifying party with
respect to such third party claim or with respect to third party claims separate
but similar or related in the same jurisdiction arising out of the same general
allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any third party action or proceeding brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a third party claim without the prior
written consent of the indemnified party, which consent shall not be
unreasonably withheld where such judgment or settlement includes as an
unconditional term thereof the prompt receipt by the indemnified party of a
release which is effective to release all liability with respect to such third
party claim. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such third party action or proceeding, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld.
1.4
2 . MISCELLANEOUS:
1.1 Notices: All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given as follows:
1.2
a () If to Donald Bowling, when delivered by hand or mailed, certified or
registered mail with postage prepaid or given by fax to:
2445 Lakewood Avenue
Bright's Grove, Ontario
N0N 1C0
Facsimile: (519) 862-3587
with a copy to:
Allan D. Brock
P.O. Box 715
447 Lyndock Street
Corunna, Ontario
N0N 1G0
Facsimile: (519) 862-3506
a () If to Howard Bowling, when delivered by hand or mailed, certified or
registered mail with postage prepaid or given by fax to:
P.O. Box 1571
368 Meghan Court
Corunna, Ontario
N0N 1G0
Facsimile: (519) 862-3587
with a copy to:
Allan D. Brock
P.O. Box 715
447 Lyndock Street
Corunna, Ontario
N0N 1G0
Facsimile: (519) 862-3506
a () If to Ronald Bowling, when delivered by hand or mailed, certified or
registered mail with postage prepaid or given by fax to:
344 Bentinck Street
Corunna, Ontario
N0N 1G0
Facsimile: (519) 862-3587
with a copy to:
Allan D. Brock
P.O. Box 715
447 Lyndock Street
Corunna, Ontario
N0N 1G0
Facsimile: (519) 862-3506
<PAGE>
a () If to Buyer, when delivered by hand or mailed, certified or registered mail
with postage prepaid or given by fax to:
c/o WellTech Eastern, Inc.
5976 Venture Way
Mt. Pleasant, Michigan 48858
Facsimile: (517) 773-0229
with a copy to:
Mr. Steve Vaughan
Aird & Berlis
BCE Place, Suite 1800, Box 754
181 Bay Street
Toronto, Ontario M5J 2T9
Facsimile: (416) 863-1515
and to:
Mr. Steven W. Martineau
Lynch, Gallagher, Lynch & Martineau, P.L.L.C.
555 North Main Street
Mt. Pleasant, MI 48858
Facsimile: (416) 773-2107
and to:
Key Energy Group, Inc.
Two Tower Center, Tenth Floor
East Brunswick, New Jersey 08816
Attn: General Counsel
Facsimile: (908) 247-5148
or to such other place or person as the party to be notified may have specified
in a prior written notice to the other parties.
1.1 Survival of Representations and Warranties. All representations and
warranties made by Sellers or Buyer, respectively, in this Agreement or made in
certificates or other instruments delivered on the Closing Date, as required
hereunder, shall remain operative and in full force and effect, and shall
survive the Closing Date, but shall not survive the expiration of any applicable
statute of limitation in respect thereof, except for liability arising out of
fraud or fraudulent misrepresentation. However, if any claim based upon any
representation or warranties have been made the subject of a lawsuit brought
within applicable statute of limitations, then such warranties and
representations shall continue to be in force and effect until entry of a final
nonappealable judgment in respect of such claim.
1.2
1.3 Assignment. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, but no party hereto shall assign his or its rights under
this Agreement without the prior, written consent of the other party.
1.4
1.5 Indemnity Concerning Brokers. Sellers represent and warrant that there is no
broker, finder or consultant connected with this transaction retained by any of
Sellers and Sellers hereby jointly and severally agree to indemnify and hold
Buyer harmless from and against any and all such broker's, finder's or
consultant's fees in connection with this transaction. Buyer represents and
warrants that there is no broker, finder or consultant connected with this
transaction retained by Buyer, and Buyer hereby agrees to indemnify and hold
Sellers harmless from and against any and all such broker's, finder's, or
consultant's fees in connection with this transaction.
1.6
1.7 Expenses. Sellers shall pay all expenses of Sellers in connection with this
Agreement and the transactions contemplated hereby, including any and all of
Sellers' counsel, and Buyer shall pay its expenses in connection with this
Agreement and the transactions contemplated hereby, including any and all of
Buyer's counsel. The Company shall not assume, pay, or agree to pay any
obligations of the Sellers in connection with the expenses or fees hereby agreed
to be paid by Sellers.
1.8
1.9 Governing Law. This Agreement and the legal relationships between Buyer and
Sellers shall be governed by and construed in accordance with the laws of the
Province of Ontario.
1.10
1.11 Headings. The headings of the Sections of this Agreement are inserted for
convenience only and shall not constitute a substantive part hereof.
1.12
1.1
<PAGE>
1.13 Waiver and Modifications. By express notice to the other party, expressly
referring to this paragraph and captioned "Waiver," Sellers or Buyer may, as to
such other party receiving such notice, (i) waive or extend the time for
performance of any act other than performance required of the party or parties
giving notice, (ii) waive any inaccuracy in any representation or warranty made
by the notified party and contained in this Agreement or in any document
delivered by such party pursuant to this Agreement or any covenant, condition,
representation or warranty which is in this Agreement and is binding upon or
made by the notified party; provided, however, that no other act of Buyer or
Sellers shall constitute such a waiver.
1.14
1.15 Entire Agreement. This Agreement, including the Schedules and other
documents referred to herein, which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
1.16
1.17 Severability. If any provisions in this Agreement shall for any reason be
determined to be invalid or unenforceable, the remaining provisions of this
Agreement shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable provision had not been a part hereof.
1.18
1.19 Further Assurances. Sellers agree to execute such further instruments or to
take such other actions as may be requested by counsel for Buyer and as
reasonably may be necessary or appropriate to the transactions contemplated by
this Agreement and to assure to Buyer the benefits intended by this Agreement.
1.20
1.21 Counterparts. This Agreement may be executed in any number of counterparts,
which shall constitute but one agreement.
1.22
1.23 Confidentiality. All of the parties hereto agree to maintain
confidentiality with respect to all information which may be exchanged among
them in connection with the proposed purchase and sale of shares provided for in
this Agreement. This covenant shall survive the termination of this Agreement
indefinitely in the event that such purchase and sale is not completed;
provided, this provision shall not apply to information which is or has become
available in the public domain. Neither the Sellers, the Company, nor the Buyer
will make any public announcements with respect to this transaction without the
approval of the other parties, except as otherwise required by law or reasonably
made to comply with applicable securities laws or the rules, requirements,
policies or practices of any applicable securities regulatory authority or stock
exchange. Notwithstanding the foregoing, the Buyer or any of its affiliates may
prepare and issue any press release or other public announcement concerning the
completion of the transaction provided for herein or the operations of the
Company.
1.24
1.25 Captions. The captions and headings set forth in this Agreement are for
convenience of reference only and will not be construed as a part of this
Agreement.
1.26
1.27 Amendments. No change, amendment, qualification or cancellation hereof will
be effective unless in writing and executed by each of the parties hereto by
their duly authorized officers.
1.28
1.29 Time of the Essence. Time is of the essence of this Agreement.
1.30
1.31 Expenses. Each of the Sellers and the Buyer will bear his or its own
expenses in connection with this Agreement, including without limitation, fees
of their attorneys, financial advisors, and finders. The Company will not bear
the expenses of any of the Sellers.
1.32
1.33 Independent Advice. Each of the Sellers hereby confirms that he or it has
received independent legal advice in connection with this Agreement and the
transactions contemplated hereby.
1.34
1.35 IN WITNESS WHEREOF, Buyer and Sellers have duly executed this Agreement by
affixing thereto their signatures and seals as of the day, month and year first
above written.
1.36
1.37 BUYER:
1.38
1.393022481 NOVA SCOTIA COMPANY
1.40
1.41
By:
Name: Kenneth C. Hill
Title: President
SELLERS:
WITNESS:
)
) ______________________________________l.s.
) Donald Bowling
)
)
) _______________________________________l.s.
) Howard Bowling
)
)
) _______________________________________l.s.
) Ronald Bowling
<PAGE>
CORUNNA PETROLEUM LIMITED
By:
Name: Donald Bowling
Title: President and Director
WellTech Eastern, Inc. ("WellTech") hereby guarantees the due and timely payment
to the Sellers of any amount which may become payable pursuant to section 2.1
after the Closing Date (as defined in the above Agreement) provided that the
Buyer completes the purchase of the Stock (as defined in the above Agreement)
pursuant to the above Agreement. The obligations of WellTech under this
paragraph shall be subject to a condition that WellTech shall be entitled to the
benefit of any claim or defence which the Buyer may have against any one or more
Sellers with respect to the above Agreement.
WELLTECH EASTERN, INC.
By: ______________________________________
Name: Kenneth C. Hill
Title: Vice President
