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PROSPECTUS SUPPLEMENT
TO
PROSPECTUS DATED JUNE 21, 1999
[LOGO]
$150,000,000
KEY ENERGY SERVICES, INC.
Exchange Offer
of
14% Senior Subordinated Notes Due 2009, Series B
for
All Outstanding 14% Senior Subordinated Notes Due 2009
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THE SERIES B NOTES
- The terms of the Series B notes to be issued are virtually identical to
the outstanding notes, except for certain transfer restrictions,
registration rights and liquidated damages provisions relating to the
outstanding notes.
MATERIAL TERMS OF THE EXCHANGE OFFER
- Expires at 5:00 p.m., New York city time, on July 19, 1999, unless
extended.
- Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the staff of
the SEC.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of outstanding notes may be withdrawn any time before the
expiration of the exchange offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THE PROSPECTUS
DATED JUNE 21, 1999 AND PAGE 6 OF THIS PROSPECTUS SUPPLEMENT.
Neither the SEC nor any state securities commission has approved the
Series B notes to be issued in the exchange offer or determined that
this prospectus supplement is accurate or complete. Any representation
to the contrary is illegal.
The date of this prospectus supplement is June 21, 1999.
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TABLE OF CONTENTS
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Summary............................................................................... 2
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 8
The Exchange Offer.................................................................... 9
Description of Notes.................................................................. 15
Material U.S. Federal Income Tax Considerations....................................... 32
Plan of Distribution.................................................................. 33
Legal Matters......................................................................... 34
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT, BUT DOES NOT CONTAIN ALL INFORMATION THAT IS IMPORTANT TO YOU. THIS
PROSPECTUS SUPPLEMENT INCLUDES SPECIFIC TERMS OF THE EXCHANGE OFFER AND A
DESCRIPTION OF OUR BUSINESS. WE ENCOURAGE YOU TO READ THE PROSPECTUS, THIS
PROSPECTUS SUPPLEMENT AND THE MATERIALS REFERRED TO UNDER THE CAPTION "WHERE YOU
CAN FIND MORE INFORMATION" IN THE PROSPECTUS.
THE EXCHANGE OFFER
On January 22, 1999, we completed the private offering of $150.0 million
aggregate principal amount of 14% senior subordinated notes due 2009.
We entered into a registration rights agreement with the initial purchasers
in which we agreed to deliver to you this prospectus and to complete the
exchange offer on or before July 21, 1999. You are entitled to exchange
outstanding notes you hold for Series B notes with substantially identical
terms. You should read the discussion under the headings "Summary of Terms of
Series B Notes" and "Description of Notes" for further information regarding the
Series B notes.
We believe you may resell the Series B notes without restriction under the
Securities Act of 1933, subject to certain conditions. You should read the
discussion under the headings "Summary of the Exchange Offer" and "The Exchange
Offer" for further information regarding the exchange offer and resale of Series
B notes.
SUMMARY OF THE EXCHANGE OFFER
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Registration Rights You are entitled to exchange outstanding notes you hold for
Agreement................... Series B notes with substantially identical terms. After the
exchange offer is complete, holders of outstanding notes who
are not prohibited by law or SEC policy from participating
in the exchange offer but voluntarily elect not to
participate will no longer be entitled to any exchange or
registration rights with respect to outstanding notes.
The Exchange Offer............ We are offering to exchange $1,000 principal amount of
Series B notes that will be issued in a transaction
registered under the Securities Act of 1933 for each $1,000
principal amount of outstanding notes you hold. To be
exchanged, an outstanding note must be properly tendered and
accepted. All outstanding notes that are validly tendered
and not validly withdrawn will be exchanged.
As of this date there is $150.0 million principal amount of
notes outstanding.
We will issue Series B notes promptly after the expiration
of the exchange offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m., New York city
time, July 19, 1999, unless we decide to extend the
expiration date.
Conditions to the Exchange
Offer....................... The exchange offer is not subject to any condition other
than that it not violate applicable law or any applicable
interpretation of the staff of the SEC.
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Procedures for Tendering
Outstanding Notes held in
Book-Entry Form............. The outstanding notes were issued in global certificate form
to the Depositary Trust Corporation. Interests in the
outstanding notes, which are held by direct or indirect
participants in DTC through book-entry interests, are shown
on, and transfers of the outstanding notes can be made only
through, records maintained in book-entry form by DTC.
If you are a participant in DTC and you wish to tender your
outstanding notes pursuant to the exchange offer, you must
either:
- cause DTC to transfer ownership of the outstanding notes
that you are tendering into the exchange agent's account
before the expiration date of the exchange offer. You also
must cause DTC to notify the exchange agent before the
expiration date that DTC has obtained from you an electronic
acknowledgment that you received and agreed to be bound by
the letter of transmittal that accompanies this prospectus,
and that we can enforce the letter of transmittal against
you; or
- deliver to the exchange agent before the expiration date
of the exchange offer the documents necessary for compliance
with the procedures referred to below under the caption
"Guaranteed Delivery Procedures."
If you are not a participant in DTC and you wish to tender
your outstanding notes pursuant to the exchange offer, you
should promptly contact the broker, dealer, commercial bank,
trust company or other nominee through whom you hold a
beneficial interest in the outstanding notes and instruct
such person to tender on your behalf.
Guaranteed Delivery
Procedures.................. If you wish to tender your outstanding notes and time will
not otherwise permit a valid tender to be made by the
expiration date, you may nevertheless tender your
outstanding notes pursuant to the procedures described in
this prospectus supplement under the heading "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights............. You may withdraw the tender of your outstanding notes at any
time prior to 5:00 p.m., New York city time, on July 19,
1999.
Certain U.S. Federal Income
Tax Considerations.......... The exchange of outstanding notes for Series B notes will
not be a taxable event for United States federal income tax
purposes. You will not recognize any taxable gain or loss or
any interest income as a result of the exchange.
Exchange Agent................ The Bank of New York is serving as exchange agent for the
exchange offer.
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Resales....................... We believe that you may resell the Series B notes issued in
the exchange offer without restrictions under the Securities
Act of 1933 provided that:
- you are acquiring the Series B notes in the ordinary
course of business;
- you are not participating, do not intend to participate,
and have no arrangement or understanding with any person to
participate, in the distribution of Series B notes issued to
you; and
- you are not one of our affiliates.
If our belief is inaccurate and you transfer any Series B
note without delivering a prospectus meeting the
requirements of the Securities Act of 1933 or without an
exemption from such requirements, you may incur liability
under the Securities Act of 1933. We do not assume or
indemnify you against any such liability.
Each broker-dealer that is issued Series B notes in the
exchange offer for its own account in exchange for
outstanding notes that were acquired by that broker-dealer
as a result of market-making or other trading activities
must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act of 1933 in connection
with any resale of the Series B notes issued in the exchange
offer. A broker-dealer may use this prospectus as
supplemented for an offer to resell, resale or other
retransfer of the Series B notes so issued. We have agreed
to make this prospectus available to any broker dealer for a
period of one year.
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SUMMARY OF TERMS OF SERIES B NOTES
The form and terms of the Series B notes to be issued in the exchange offer
are the same as the form and terms of the outstanding notes except that the
Series B notes will be issued in a transaction registered under the Securities
Act of 1933 and, therefore, will not bear legends restricting their transfer.
The Series B notes will evidence the same debt as the outstanding notes. The
outstanding notes are and the Series B notes will be governed by the same
indenture.
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Aggregate Principal Amount.... $150.0 million.
Maturity...................... January 15, 2009.
Yield and Interest............ Interest on the Series B notes will accrue from January 22,
1999 or the latest date through which interest has been
paid. Interest will be payable semi-annually in arrears at a
rate of 14% per year, on each January 15 and July 15.
Guarantees.................... The Series B notes are guaranteed by certain of our
wholly-owned subsidiaries. If we cannot make payments on the
Series B notes when they are due, the guarantors are
obligated to make them instead.
Ranking....................... The Series B notes and the guarantees:
- are our and our subsidiaries unsecured senior subordinated
indebtedness;
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- are junior in right of payment to all of our subsidiaries'
existing and future indebtedness, except for trade payables
and other indebtedness that is expressly subordinated; and
- will be effectively subordinated to certain of our secured
indebtedness and secured indebtedness of our subsidiaries to
the extent of such security interests.
Certain Covenants............. The indenture under which the outstanding notes have been
and the Series B notes are being issued contains certain
covenants for your benefit which, among other things and
subject to certain exceptions, restrict our ability to:
- incur indebtedness;
- make certain payments;
- issue capital stock of certain of our subsidiaries;
- issue guarantees;
- enter into transactions with stockholders and affiliates;
- create liens;
- engage in sale-leaseback transactions;
- sell assets; and
- consolidate, merge or sell all or substantially all of our
assets.
Change of Control............. Upon a change of control, we are required to make an offer
to purchase the Series B notes from you at a purchase price
equal to 101% of their aggregate principal amount on the
date of purchase, plus accrued interest.
Form of Series B Notes........ The Series B notes will be issued in global certificate form
to DTC. You will not receive Series B notes in certificated
form unless one of the events set forth under the heading
"Description of Notes -- Book-Entry; Delivery and Form" has
occurred. Instead, beneficial interests in the Series B
notes will be shown on, and transfers of these will be
effected only through, records maintained in book-entry form
by DTC.
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Our principal offices are located at Two Tower Center, 20th Floor, East
Brunswick, New Jersey 08816 and our telephone number is (732) 247-4822.
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RISK FACTORS
AN INVESTMENT IN OUR DEBT SECURITIES IS SUBJECT TO A NUMBER OF RISKS. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING THAT INVESTMENT
AND YOUR DECISION WHETHER TO EXCHANGE OUTSTANDING NOTES FOR SERIES B NOTES.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO CERTAIN OF OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES
OF THE SERIES B NOTES ARE JUNIOR TO ALL OUR SUBSIDIARY GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL OF THEIR FUTURE BORROWINGS.
The Series B notes and the subsidiary guarantees rank behind all of our and
the subsidiary guarantors' existing indebtedness (other than our existing $216
million of 5% convertible subordinated notes, $4.6 million of our 7% convertible
subordinated debentures and our trade payables) and all of our and their future
borrowings (other than trade payables), except any future indebtedness that
expressly provides that it ranks equal with, or is subordinated in right of
payment to, the Series B notes and the subsidiary guarantees. As a result, upon
any distribution to our creditors or the creditors of the subsidiary guarantors
in a bankruptcy, liquidation or reorganization or similar proceeding relating to
us or the subsidiary guarantors or our or their property, the holders of our
senior debt and that of the subsidiary guarantors will be entitled to be paid in
full in cash before any payment may be made with respect to the Series B notes
or the subsidiary guarantees.
In addition, all payments on the Series B notes and the subsidiary
guarantees will be blocked in the event of a payment default on senior debt and
may be blocked for up to 179 consecutive days in the event of certain
non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the subsidiary guarantors, holders of the Series B
notes will participate with trade creditors and all other holders of
subordinated indebtedness (other than our 5% convertible subordinated notes, our
7% convertible subordinated debentures and any other subordinated indebtedness
that is subordinate to payment of the notes) of us and the subsidiary guarantors
in the assets remaining after we and the subsidiary guarantors have repaid all
of the senior debt. However, because the indenture relating to the Series B
notes requires that amounts otherwise payable to holders of the Series B notes
in a bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the Series B notes may receive less, ratably, than holders of trade
payables in any such proceeding. In any of these cases, we and the subsidiary
guarantors may not have sufficient funds to pay all of our creditors and holders
of Series B notes may receive less, ratably, than the holders of senior debt.
NOT ALL SUBSIDIARIES ARE GUARANTORS AND YOUR RIGHT TO RECEIVE PAYMENTS ON THE
NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR SUBSIDIARIES
DECLARES BANKRUPTCY, LIQUIDATES OR REORGANIZES.
Some but not all of our subsidiaries guarantee the Series B notes. In the
event of a bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors generally
will be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect to a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
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- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor. The measures of insolvency for
purposes of these fraudulent transfer laws will vary depending upon the law
applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become due or mature; or
- it could not pay its debts as they become due.
WE COULD POSSIBLY BE UNABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to offer to repurchase the
outstanding notes at 101% of the principal amount, plus accrued and unpaid
interest to the date of repurchase. There can be no assurance that we will have
sufficient funds available or will be permitted by our other debt agreements to
repurchase the Series B notes upon the occurrence of a change of control.
MARKET FOR OUTSTANDING NOTES LIMITED AND NO ASSURANCE A PUBLIC MARKET FOR SERIES
B NOTES WILL DEVELOP.
The outstanding notes are eligible for trading in the PORTAL market of the
NASD. This market is open only to institutional investors eligible to purchase
securities in offerings made under the exemption from registration provided by
Rule 144A under the Securities Act of 1933. To the extent that outstanding notes
are exchanged in the exchange offer, the existing limited market for outstanding
notes will become further constricted, with a probable decrease in the liquidity
of the outstanding notes.
The Series B notes constitute a new issue of securities with no established
public trading market. We do not intend to list the Series B notes on any
national securities exchange. The initial purchasers of the outstanding notes
advised us that they intend to make a public market in the Series B notes.
However, they are not obligated to do so and any market-making activities with
respect to the Series B notes can be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public market will develop
for the Series B notes or as to the liquidity of, or the trading market for, the
Series B notes.
UNEXCHANGED OUTSTANDING NOTES TO REMAIN RESTRICTED SECURITIES.
Outstanding notes that are not tendered in the exchange offer will continue
to be subject to the existing restrictions upon their transfer. We will have no
obligation to provide for the registration under the Securities Act of 1933 of
unexchanged outstanding notes.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of Series B notes
offered hereby. In consideration for issuing the Series B notes, we will receive
in exchange a like principal amount of outstanding notes, the terms of which are
virtually identical to the Series B notes. The outstanding notes surrendered in
exchange for the Series B notes will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the Series B notes will not result in any
change in our capitalization.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The outstanding notes were sold on January 22, 1999, to the initial
purchasers and were subsequently resold to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933. We are offering to
exchange the Series B notes for the outstanding notes to satisfy our contractual
obligations under the registration rights agreement we executed in connection
with the offering of the original notes.
After consummation of the exchange offer, holders of outstanding notes who
do not tender will not have any further registration rights under the
registration rights agreement. Any unexchanged outstanding notes will continue
to be subject to certain restrictions on transfer. The outstanding notes are
currently eligible for sale pursuant to Rule 144A through the PORTAL System of
the NASD. We anticipate that most holders of outstanding notes will elect to
exchange them for Series B notes since resales of Series B notes will not be
restricted under the Securities Act of 1933. We anticipate that the liquidity of
the market for any outstanding notes remaining after the consummation of the
exchange offer will be substantially reduced.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn before the expiration date. We will issue
$1,000 principal amount of Series B notes in exchange for each $1,000 principal
amount of outstanding notes accepted in the exchange offer. Holders may tender
some or all of their outstanding notes pursuant to the exchange offer. However,
you may tender outstanding notes only in integral multiples of $1,000.
The form and terms of the Series B notes are the same as the form and terms
of the outstanding notes except that:
- the Series B notes have been registered under the Securities Act of 1933
and hence will not bear legends restricting their transfer; and
- the holders of the Series B notes will not be entitled to certain rights
under the registration rights agreement, and the rights presently
applicable to outstanding notes will terminate upon consummation of the
exchange offer.
The Series B notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture.
Holders of outstanding notes do not have any appraisal or dissenter's rights
in connection with the exchange offer. We are conducting the exchange offer in
accordance with the applicable requirements of the Securities Exchange Act of
1934 and the rules and regulations of the SEC thereunder, including Rule 14e-1.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we give oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the Series B notes from us.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees, or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than transfer
taxes in certain circumstances, in connection with the exchange offer.
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York city time, on July 19, 1999,
unless we, in our sole discretion, extend the exchange offer, in which case the
expiration date will be the latest date and time to which the exchange offer is
extended.
We will notify the exchange agent of any extension of the exchange offer by
oral or written notice, followed by a public announcement no later than 9:00
a.m., New York city time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our reasonable judgment, to:
- delay accepting any outstanding notes;
- extend the exchange offer;
- terminate the exchange offer if any of the conditions set forth under "--
Conditions" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the exchange agent; or
- amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement thereof. If the
exchange offer is amended in a manner we determine constitutes a material
change, we will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and, depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer for a period of five to
ten business days if the exchange offer would otherwise expire during such
period.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, we shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to us of outstanding notes by a holder thereof pursuant to one of
the procedures set forth below will constitute an agreement between such holder
and us in accordance with the terms and subject to the conditions set forth
herein and in the letter of transmittal.
All outstanding notes are held of record by DTC, as depository, and all
beneficial owners hold their interests through DTC or its participants. Any
participant in DTC's book-entry transfer facility system may tender its
ownership of outstanding notes by causing DTC to transfer such outstanding notes
into the exchange agent's account in accordance with DTC's automated tender
offer program. Although delivery of outstanding notes may be made through
book-entry transfer into the exchange agent's account at DTC, an agent's message
must, in any case, be transmitted to and received by the exchange agent at its
address set forth herein under "-- Exchange Agent" before the expiration date.
An agent's message is a message transmitted by DTC and received by the exchange
agent stating that DTC has received an express acknowledgment from a participant
tendering outstanding notes that the participant has received and agrees to be
bound by the terms of the letter of transmittal and that we may enforce such
agreement against the participant.
THE METHOD OF DELIVERY OF COMMUNICATIONS AND ANY REQUIRED DOCUMENTS IS AT
THE ELECTION AND RISK OF THE TENDERING HOLDER, AND WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. IT IS SUGGESTED THAT COMMUNICATIONS AND ANY REQUIRED DOCUMENTS
BE
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DELIVERED SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT RECEIPT BY
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. PERSONS WHO HOLD SERIES B NOTES
THROUGH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE AND WHO
WISH TO TENDER THEIR SERIES B NOTES SHOULD INSTRUCT THAT INSTITUTION TO TENDER.
A tender will be deemed to have been received as of the date the exchange
agent either receives a book-entry confirmation from DTC and any other documents
required by the letter of transmittal from the holder or receives a notice of
guaranteed delivery or letter, telegram, or facsimile transmission from an
eligible institution. A book-entry confirmation is a notice sent by DTC to the
exchange agent transferring the outstanding notes tendered into the exchange
agent's account accompanied by an agent's message. An eligible institution is a
member of or a participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934.
All questions as to the validity, form, eligibility, acceptance, and
withdrawal of tendered outstanding notes will be determined by us, in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any or all tenders not in proper form or the acceptance
for exchange of which may, in the opinion of our counsel, be unlawful. We also
reserve the absolute right to waive any of the conditions of the exchange offer
or any defect or irregularity in the tender of any outstanding notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities must be cured within such
time as we shall determine. Although we intend to notify holders of defects or
irregularities, neither we, the exchange agent, nor any other person shall be
under any duty to give notification of any defects or irregularities or incur
any liability for failure to give notification. Tenders will be deemed not to
have been made until any defects or irregularities have been cured or waived.
In all cases, issuance of Series B notes for outstanding notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of book-entry confirmation and all other
required documents. If any tendered outstanding notes are not accepted for any
reason set forth in the terms and conditions of the exchange offer, such non-
exchanged outstanding notes will be credited to an account maintained with DTC
as promptly as practicable after the expiration or termination of the exchange
offer.
Each broker-dealer that receives Series B notes for its own account in
exchange for outstanding notes, if the outstanding notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and who cannot complete
the procedures for book-entry transfer before the expiration date may effect a
tender if:
- the tender is made through an eligible institution;
- before the expiration date, the exchange agent receives from such eligible
institution a properly completed and duly executed notice of guaranteed
delivery setting forth the name and address of the holder, stating that
the tender is being made thereby and guaranteeing that, within five
business days after the expiration date, a book-entry confirmation and any
other documents required by the letter of transmittal, will be received by
the exchange agent; and
- the book-entry confirmation and all other documents required by the letter
of transmittal are received by the exchange agent within five business
days after the expiration date.
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Upon request to the exchange agent, a notice of guaranteed delivery will be sent
to holders who wish to tender their outstanding notes according to the above
guaranteed delivery procedures.
WITHDRAWAL RIGHTS
Tenders of outstanding notes may be withdrawn at any time before 5:00 p.m.,
New York city time, on the expiration date. To withdraw a tender of outstanding
notes, a written notice of withdrawal must be received by the exchange agent at
its address set forth herein prior to 5:00 p.m., New York city, on the
expiration date. Any such notice of withdrawal must specify the name of the
person having tendered the outstanding notes to be withdrawn, identify the
principal amount of outstanding notes to be withdrawn and the name and number of
the account at DTC to be credited. All questions as to the validity, form and
eligibility of such notices will be determined by us, whose determination shall
be final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no Series B notes will be issued with respect thereto. Any outstanding notes
which have been tendered but that are not accepted for exchange will be credited
to the holder's account at DTC through which such outstanding notes were
tendered without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept for exchange or to exchange Series B notes for
any outstanding notes, and may terminate or amend the exchange offer as provided
herein before the acceptance of outstanding notes, if:
- any law, statute, rule, regulation or interpretation by the staff of the
SEC is proposed, adopted or enacted, which, in our reasonable judgment,
might materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer us; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable judgment, deem necessary for the consummation of the
exchange offer. If we determine in our reasonable judgment that either of
the conditions is not satisfied, we may:
- refuse to accept any outstanding notes and credit all tendered notes to
the tendering holders;
- extend the exchange offer and retain all outstanding notes tendered before
the expiration date, subject to the continuing rights of holders to
withdraw; or
- waive either unsatisfied condition and accept all properly tendered
outstanding notes which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly distribute a prospectus supplement to all holders, and, depending upon
the significance of the waiver, we will extend the exchange offer for a period
of five to ten business days if it would otherwise expire during that period.
EXCHANGE AGENT
The Bank of New York will act as exchange agent for the exchange offer.
12
<PAGE>
Questions and requests for assistance and requests for additional copies of
this prospectus, the letter of transmittal or a notice of guaranteed delivery
should be directed to the exchange agent, as follows:
<TABLE>
<S> <C> <C>
BY HAND/OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED BY FACSIMILE:
MAIL:
The Bank of New York The Bank of New York (212) 815-6339
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services New York, New York 10286 CONFIRM BY
Window Reorganization Section TELEPHONE:
Ground Level Attn: Gertrude Jeanpierre
Reorganization Section (212) 815-5920
Attn: Gertrude Jeanpierre
</TABLE>
FEES AND EXPENSES
We will bear the expenses of the exchange offer. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone, facsimile or in person by our officers and regular
employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers or other persons for soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses and pay other expenses of the exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of the
outstanding notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the outstanding notes, then
the amount of any such transfer taxes will be payable by the tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized in connection
with the exchange offer. The expenses of the exchange offer will be amortized
over the term of the Series B notes.
RESALE OF SERIES B NOTES
Based on an interpretation by the staff of the SEC set forth in the Shearman
& Sterling, SEC No-Action Letter (available July 2, 1993), the Morgan, Stanley &
Co. Incorporated, SEC No-Action Letter (available June 5, 1991), the Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989)
and similar letters, we believe that the Series B notes may be offered for
resale, resold and otherwise transferred by any person other than a restricted
holder, without compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933 if:
- the Series B notes are acquired by the holder in the ordinary course of
business;
- the holder is not engaged in and does not intend to engage in a
distribution of the Series B notes; and
- the holder does not have any arrangement or understanding with any other
person to participate in a distribution of Series B notes.
A restricted holder is an affiliate of Key or a broker-dealer that receives
Series B notes for its own account in the exchange offer, where the outstanding
notes tendered were not acquired as a result of market-making or other trading
activities. Any person who is either a restricted holder or who acquires Series
B notes in the exchange offer to participate in a distribution not permitted by
the SEC's staff interpretation;
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<PAGE>
- cannot rely upon any of the No-Action Letters described above; and
- absent an exemption from registration, must comply with the registration
requirements of the Securities Act of 1933 in connection with any
secondary resale transaction.
Failure to comply with any of the conditions described above may result in a
holder incurring liabilities under the Securities Act of 1933 for which such
holder is not indemnified by us. Each broker or dealer that receives Series B
notes for its own account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making or other activities, must acknowledge that it will deliver a
prospectus in connection with any sale of such Series B notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Series B notes received in exchange
for outstanding notes if acquired as a result of market-making activities or
other trading activities. We will make this prospectus, as supplemented,
available to any broker-dealer for use in connection with any such resale. The
exchange offer is not being made to, nor will we accept surrenders for exchange
from, holders of outstanding notes in any jurisdiction in which this exchange
offer would not be in compliance with the securities or blue sky laws of such
jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this exchange offer, we will have fulfilled our
obligations under the registration rights agreement, and holders of outstanding
notes who do not tender them will not have any further registration rights under
the registration rights agreement or otherwise. The outstanding notes that are
not exchanged in the exchange offer will remain restricted securities.
Therefore, outstanding notes may be resold only:
- to Key;
- to a qualified institutional buyer as defined by Rule 144A of the
Securities Act of 1933 in a transaction meeting the requirements of Rule
144A, if the notes are eligible for resale under Rule 144A;
- to a foreign person outside the United States pursuant to the exemption
from the registration requirements of the Securities Act of 1933 provided
by Regulation S;
- to an institutional accredited investor in a transaction exempt from the
registration requirements of the Securities Act of 1933;
- pursuant to an effective registration statement under the Securities Act
of 1933; or
- if available, pursuant to an exemption from registration under the
Securities Act of 1933 provided by Rule 144.
OTHER
Participation in the exchange offer is voluntary and holders should
carefully consider whether to accept. Holders of the outstanding notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
In the future we may seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
14
<PAGE>
DESCRIPTION OF NOTES
The outstanding notes were issued under the indenture and the Series B notes
will be issued under the same indenture. The outstanding notes and the Series B
notes have virtually identical terms and will constitute a single series of debt
securities under the indenture. If the exchange offer is consummated, holders of
any remaining outstanding notes will vote together with holders of Series B
notes for all relevant purposes under the indenture.
The following discussion of certain provisions of the indenture and the
terms of the notes is a summary only and does not purport to be a complete
discussion of the terms of the notes. The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939. Accordingly, the following discussion is qualified
in its entirety by reference to the provisions of the indenture and the notes
including the definition therein of certain terms used below with their initial
letters capitalized. Other capitalized terms have the meanings set forth in the
Indenture which has been filed as an exhibit to the registration statement of
which this prospectus is a part.
GENERAL
THE NOTES. The notes are our unsecured subordinated obligations issued only
in registered form, without coupons, in denominations of $1,000 and integral
multiples thereof, and guaranteed by certain of our subsidiaries. Principal of,
premium, if any, and interest on the notes will be payable at the office of the
trustee, who will initially act as paying agent and registrar, in New York City.
No service charge will be made for any transfer, exchange or redemption of the
notes, but we or the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be payable in connection
therewith.
THE GUARANTEES. The notes are jointly and severally guaranteed by some of
our subsidiaries. The guarantees are, and will be, subordinated to the prior
payment of all Senior Debt of a guarantor. Future subsidiaries will not be
required to guarantee the notes except as required by the covenants in the
indenture. The following subsidiaries of Key are guarantors of the notes:
<TABLE>
<S> <C>
Yale E. Key, Inc. Jeter Service Co.
Key Energy Drilling, Inc. Jeter Well Service, Inc.
WellTech Eastern, Inc. Jeter Transportation, Inc.
Odessa Exploration Incorporated Industrial Oilfield Supply, Inc.
Kalkaska Oilfield Services, Inc. Brooks Well Servicing, Inc.
Well-Co Oil Service, Inc. Updike Brothers, Inc.
Patrick Well Service, Inc. J.W. Gibson Well Service Company
Mosley Well Service, Inc. Key Energy Services -- South Texas,
Ram Oil Well Service, Inc. Inc.
Rowland Trucking Co., Inc. Key Energy Services -- California,
Landmark Fishing & Rental, Inc. Inc.
Dunbar Well Service, Inc. Watson Oilfield Service & Supply,
Frontier Well Service, Inc. Inc.
Key Rocky Mountain, Inc. WellTech Mid-Continent, Inc.
Key Four Corners, Inc. Dawson Production Management, Inc.
Dawson Production Taylor, Inc.
Dawson Production Acquisition Corp.
Dawson Production Partners, L.P.
</TABLE>
The guarantees on these notes are:
- general obligations of each guarantor;
15
<PAGE>
- subordinated in right of payment to all existing and future senior debt of
each guarantor; and
- are PARI PASSU with, or senior to, any future subordinated Indebtedness of
each guarantor.
A guarantor may not consolidate with or merge with or into another Person,
unless either:
- the surviving entity assumes all of such guarantor's obligations by
executing a supplemental indenture satisfactory to the trustee and
immediately after such transaction no default or event of default exists;
or
- the subsidiary guarantee is released.
A guarantee will be released:
- in connection with any merger consolidation or sale of all of the capital
stock of a guarantor, if immediately after giving effect to the
transaction no default or event of default has occurred and is continuing;
or
- if we designate a Restricted Subsidiary that is a guarantor as an
Unrestricted Subsidiary pursuant to applicable provisions of the
indenture.
Presently, all of our subsidiaries are Restricted Subsidiaries and are
subject to the restrictive covenants in the indenture. However, under certain
circumstances we will be permitted to designate
certain of our subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to most of the restrictive covenants in the
indenture. Unrestricted Subsidiaries and certain Restricted Subsidiaries are not
guarantors of the notes. The following subsidiaries of Key are not guarantors of
the notes:
<TABLE>
<S> <C>
Production Systems, Inc. KEG Canal Properties, Inc.
WellTech, Inc. (California) KEG Villa Ashley, Inc.
WellTech, Inc. KEG Pearl Acres, Inc.
WellTech Oilfield Services (Canada), Ltd. KEG Anna Heights, Inc.
WellTech Oilfield Services Limited KEG Orleans Place, Inc.
WellTech (Overseas) Limited Pyramid Land Corporation
Bronson Transport, Inc. All of our foreign subsidiaries
Thunderbird Tool Company
</TABLE>
PRINCIPAL, MATURITY AND INTEREST
The notes will mature on January 15, 2009. Interest on the notes will accrue
from January 22, 1999, or the latest date to which interest has been paid.
Interest will be payable at the rate of 14% per annum in arrears on January 15
and July 15 of each year, to the persons in whose name the notes are registered
at the close of business on the January 1 or July 1 next preceding such interest
payment date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
SUBORDINATION
The payment of principal, premium, interest and Liquidated Damages, if any,
on the notes is subordinated to all Senior Debt of Key and each guarantor.
The holders of Senior Debt will be entitled to receive payment before the
holders of the notes receive any payment on the notes in the event of any
distribution to our creditors including, but not limited to:
- our liquidation or dissolution of Key;
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<PAGE>
- a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property;
- an assignment for the benefit of our creditors; or
- any marshaling of our assets and liabilities.
We may not make any payment on the notes if:
- a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
- any other default occurs and is continuing on Designated Senior Debt that
permits holders to accelerate the maturity of the Designated Senior Debt
and the trustee receives notice of the default us or the holder, or
representatives of Designated Senior Debt.
The subordination provisions of the notes shall not apply to distributions
of Permitted Junior Securities and certain payments made from the trust in
connection with the defeasance of the notes.
OPTIONAL REDEMPTION
The notes will be redeemable at our option, in whole or in part, at any time
on or after January 15, 2004, upon not less than 30 nor more than 60 days
notice, at the redemption prices set forth below, plus accrued and unpaid
interest to the date of redemption if redeemed during the 12-month period
beginning on January 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENT OF
YEAR PRINCIPAL AMOUNT
- ------------------------------------------------------------------ ----------------
<S> <C>
2004.............................................................. 107.000%
2005.............................................................. 104.667%
2006.............................................................. 102.333%
2007 and thereafter............................................... 100.000%
</TABLE>
At any time on or before January 31, 2002, we may redeem up to 35% of the
aggregate principal amount of the notes from the net cash proceeds of an Equity
Offering, at a redemption price equal to 114% of the principal amount thereof,
together with accrued and unpaid interest to the date of redemption; provided
that at least $97.5 million of the principal amount of the notes remains
outstanding immediately after such redemption and that such redemption occurs
within 45 days following the closing of such Equity Offering.
If less than all of the notes are to be redeemed, the particular notes will
be selected:
- if the notes are not listed, on a pro rata basis or by lot or any other
method the trustee deems fair and appropriate; or
- if the notes are listed, in compliance with the requirements of the
principal exchange on which the notes are listed.
REPURCHASE OF THE OPTION OF HOLDERS
As described below, if a Change of Control occurs, each holder will have the
right to require us to repurchase all outstanding notes at a purchase price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest to the date of purchase. If we sell or dispose of certain assets, we
may be obligated to offer to purchase notes with a portion of the Net Proceeds
at a purchase price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase.
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<PAGE>
RANKING
The notes are our unsecured obligations and are subordinated in right of
payment to all of our existing and future senior debt, rank equally in right of
payment to any of our future subordinated indebtedness and with all of our
indebtedness and other liabilities that are not by their terms subordinated to
the notes. The notes, however, will be effectively subordinated to our secured
indebtedness.
CERTAIN COVENANTS
The indenture contains, among others, the covenants described below.
RESTRICTED PAYMENTS. (a) we will not, and will not permit any Restricted
Subsidiary to, directly or indirectly make any Restricted Payment, unless at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the fair market
value of the asset transferred on the date of the Restricted Payment as
determined by our board of directors):
(1) no default or event of default shall have occurred and be continuing
or would occur as a result of the Restricted Payment;
(2) We could incur $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test after giving pro forma effect to the
Restricted Payment had the payment been made at the beginning of the
applicable four-quarter period, other than regular dividends on Qualified
Preferred Stock; and
(3) the aggregate amount of all Restricted Payments declared or made
after January 22, 1999 is less than the sum of the following:
(A) 50% of the Consolidated Net Income accrued on a cumulative basis
during the period beginning on April 1, 1999 and ending on the last day
of our last fiscal quarter ending for which internal financial statements
are available at the time of such Restricted Payment, or, if such
Consolidated Net Income is a loss, minus 100% of such loss;
(B) the aggregate net cash proceeds received after the January 22,
1999 by us from the issuance or sale, other than to any of our
Subsidiaries, of our Equity Interests, or other than Disqualified Stock;
(C) the aggregate net cash proceeds received after the January 22,
1999 by us from the issuance or sale, other than from any of our
Subsidiaries, of convertible or exchangeable Disqualified Stock;
(D) the aggregate net cash proceeds received after January 22, 1999
by us from the issuance or sale, other than to any of our Subsidiaries,
of convertible or exchangeable debt securities that have been converted
into or exchanged for our Equity Interests;
(E) to the extent not otherwise included in Consolidated Net Income
or increasing amounts available for Restricted Payments or Permitted
Investments, 50% of all dividends, distributions or interest payments
from Restricted Investments; and
(F) to the extent that any Restricted Investment made after January
22, 1999 is sold or repaid for cash, the lesser of
(1) the cash received from the disposition of a Restricted Investment
minus the costs of any disposition; and
(2) the initial amount of such Restricted Investment.
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<PAGE>
The payments or other actions described in clauses (1) through (4) below are
restricted payments:
(1) declaration or payment of any dividend on, or any other distribution
to holders of, other than dividends or distributions payable solely in
shares of our Qualified Capital Stock;
(2) purchase, redemption or other acquisition or retirement for value
any Equity Interests or any direct or indirect parent of us or any
Restricted Subsidiary, other than any Equity Interests owned by us or any
Restricted Subsidiary;
(3) any principal payment on or repurchase, redemption, defeasance or
other acquisition or retirement for value, before any scheduled principal
payment, scheduled sinking fund payment or maturity, any indebtedness that
is subordinated to the notes or the Subsidiary Guarantees; or
(4) the making of any Restricted Investment.
(b) Notwithstanding paragraph (a) above, we and our Restricted Subsidiaries
may take the following actions so long as no default or event of default shall
have occurred and be continuing:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of the Indenture;
(2) the repurchase, defeasance redemption or other acquisition or
retirement of any subordinated Indebtedness or any guarantor or of any
Equity Interests or any Restricted Subsidiary, in exchange for, or out of
the net cash proceeds from, a substantially concurrent issuance and sale,
other than to a Restricted Subsidiary, of Equity Interests other than
Disqualified Stock;
(3) the repurchase, redemption, repayment, defeasance or other
acquisition or of any of our subordinated Indebtedness or any Guarantor with
the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the declaration or payment of any dividend or other distribution by
a Restricted Subsidiary to the holders of our common Equity Interests on a
PRO RATA basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests or any Restricted Subsidiary held by any
member of our or any of our subsidiaries management pursuant to any
management equity subscription agreement or stock option agreement; PROVIDED
that the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests shall not exceed $1.0 million in any
twelve-month period;
(6) the redemption, repurchase, retirement, defeasance or other
acquisition of the Convertible Subordinated Debentures; PROVIDED that at
least 90% of such Convertible Subordinated Debentures have been converted;
(7) the redemption, repurchase, retirement, defeasance or other
acquisition of the 1997 Convertible Subordinated Notes; PROVIDED that at
least 90% of such 1997 Convertible Subordinated Notes have bene converted;
and
(8) Restricted Payments not to exceed $10.0 million under this clause
(8).
The actions described in clauses (2), (3), (5) and (8) of this paragraph (b)
shall be restricted payments that shall be permitted to be made in accordance
with this paragraph provided that no Default or Event of Default should have
occurred and be continuing immediately after such transaction.
The actions described in clause (2) of this paragraph (b) shall be
restricted payments that shall be permitted to be made in accordance with this
paragraph (b) and shall be excluded from the amount that would otherwise be
available for restricted payments under clause (3)(B) of paragraph (a).
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<PAGE>
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
(a) We will not, and will not permit any of our Restricted Subsidiaries
to:
- incur or otherwise become directly or indirectly liable,
contingently or otherwise, for the payment of any Indebtedness,
including Acquired Debt, other than Permitted Debt; and
- issue any Disqualified Stock.
(b) We will not permit any of our Restricted Subsidiaries to issue any
Preferred Stock.
However, we and any guarantor may incur Indebtedness (including Acquired
Debt) or issue Disqualified Stock, if:
(1) the Fixed Charge Coverage Ratio for our most recently ended four
full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.0 to 1 (if such incurrence or issuance is on or before
December 31, 1999, and 2.25 to 1 thereafter), determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred, or the Disqualified
Stock had been issued at the beginning of such four-quarter period; and
(2) no Default or Event of Default has occurred and is continuing.
The following items of Indebtedness are Permitted Debt:
(1) The incurrence of Indebtedness under our Credit Facilities; PROVIDED
that the aggregate principal amount of all Indebtedness of Key and its
Restricted Subsidiaries outstanding under all Credit Facilities incurred
under this clause (1) after giving effect to such incurrence does not exceed
an amount equal to $550.0 million less the aggregate amount of all Net
Proceeds of Asset Sales applied by us or any of our Restricted Subsidiaries
to permanently reduce the Indebtedness or commitments under the Credit
Facilities;
(2) the incurrence by us and our Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by us of Indebtedness represented by the notes
originally issued on the date of the Indenture, the Guarantees and the
Indenture;
(4) the incurrence by is or any of our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in our business or the
business of such subsidiary, in an aggregate principal amount not to exceed
$25.0 million at any time outstanding;
(5) the incurrence of Indebtedness solely in respect of bankers'
acceptances, letters of credit, surety or performance bonds (to the extent
that such incurrence does not result in the incurrence of any obligation for
the payment of borrowed money of others), all in the ordinary course of
business;
(6) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph of this covenant or clauses (2) or (3) of
this paragraph;
(7) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our Restricted
Subsidiaries; PROVIDED, HOWEVER, that:
20
<PAGE>
(a) if we or any guarantor is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the notes, in the case of Key, or
the subsidiary guarantee of such guarantor, in the case of a guarantor; or
(b) (i) any subsequent issuance or transfer of Equity Interests or other
event that results in any such Indebtedness being held by a Person other
than us or a Restricted Subsidiary and (ii) any sale or other transfer of
any such Indebtedness to a Person that is neither us or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by us or such Restricted Subsidiary that was not permitted
by this clause (7);
(8) the incurrence by us or any of our Restricted Subsidiaries of
Hedging Obligations;
(9) the guarantee by us or any of the guarantors of Indebtedness of us
or a Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant;
(10) the incurrence by us or any of our Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (10), not to exceed $60.0 million
outstanding at any time;
(11) the incurrence by our Unrestricted Subsidiaries of Non-Recourse
Debt; PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of Key that was not permitted by
this clause (11); and
(12) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same Class A
Preferred Shares, Series I of Disqualified Stock; PROVIDED, in each such
case, that the amount thereof is included in Fixed Charges as accrued.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, if an item of proposed Indebtedness
meets the criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (12) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will be permitted to
classify or reclassify such item of Indebtedness on the date of its incurrence
or from time to time thereafter in any manner that then complies with this
covenant, except that the Indebtedness outstanding on the date of the Indenture
under the Credit Agreement shall be deemed to have been incurred only under
clause (1) above.
NO SENIOR SUBORDINATED DEBT. We will not, and will not permit any
Restricted Subsidiary to incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt or any guarantor and senior in right of payment to
the notes or any guarantee of the notes.
The following items are not transactions with affiliates and will not be
subject to the provisions of the prior paragraph:
(1) any employment agreement or arrangements (including loan
arrangements and advances) with officers and employees entered into by us or
any of our Restricted Subsidiaries in the ordinary course of business;
(2) transactions between or among us and/or our Restricted Subsidiaries;
(3) payment of reasonable directors fees and the provision of customary
indemnification arrangements to officers, directors and employees of Key or
our Restricted Subsidiaries; and
21
<PAGE>
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments."
LIENS. We will not, and will not permit any Restricted Subsidiary to
create, incur, assume or suffer to exist any Lien of any kind, except for
Permitted Liens, securing Indebtedness, Attributable Debt or trade payables on
any asset now owned or hereafter acquired, unless before, or contemporaneously
therewith, the notes or a Guarantee of the notes, are equally and ratably
secured or secured on a senior basis if such indebtedness is expressly
subordinated to the notes or a Guarantee of the notes.
CHANGE OF CONTROL. If a Change of Control occurs, we will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent such laws and regulations are applicable to and
repurchase of the notes.
In order to effect such change of control offer, Key will, within ten
business days after the change of control, mail to each holder a notice
describing the transaction, or transactions, that constitutes the Change of
Control and offer to repurchase notes on the change of control payment date
specified in such notice.
Before complying with the provisions of the covenant in the indenture which
govern a Change of Control, but in any event 90 days following a Change of
Control, we will either repay all outstanding Senior Debt or obtain the consent
of holders of Senior Debt, if required, to permit us to repurchase the notes. We
will not be required to make a Change of Control Offer if a third party makes
the Change of Control Offer in the manner, at the time and otherwise in
compliance with the requirements of the indenture, and purchases all notes
validly tendered and not withdrawn under the Change of Control Offer.
ASSET SALES.
(a) We will not, and will not permit any Restricted Subsidiary to
consummate any Asset Sale unless:
(1) We or such Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interests issued or sold or otherwise disposed of;
(2) if the Net Proceeds received with respect to any Asset Sale
exceed $10.0 million, the fair market value of such assets is determined
by Board of Directors and evidenced by a board resolution set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration received from such disposition,
other than a disposition of the Exploration and Production Assets of
Odessa, by us or the Restricted Subsidiary consists of cash.
(b) If we or any Restricted Subsidiary engages in an Asset Sale, then
we, within 365 days after we receive Net proceeds from an Asset Sale, may
use such Net Proceeds to:
(1) permanently repay Senior Debt;
(2) acquire all or substantially all of the assets of, or a majority
of the voting stock of, another person engaged in a Permitted Business;
(3) make a capital expenditure; or
(4) acquire other long-term assets that are used or useful in a
Permitted Business.
Any Net Proceeds from Asset Sales that are not invested as provided in the
preceding paragraph will constitute excess proceeds. When the aggregate amount
of excess proceeds exceeds $10 million, we
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<PAGE>
will make an offer to all holders of the notes and all holders of other
Indebtedness that ranks equal with the notes and that contain similar asset sale
offer provisions, to purchase the maximum principal amount of notes and such
other Indebtedness that may be purchased out of the amount of such excess
proceeds. The offer price in any asset sale offer will be 100% of the principal
amount of the notes tendered, plus accrued and unpaid interest to the date
purchase. To the extent that the aggregate offer price for the notes tendered is
less than the excess proceeds, we may use that amount for any purposes, subject
to the limitations contained in the indenture. If the aggregate offer price for
the notes validly tendered exceeds the excess proceeds, notes to be purchased
will be selected on a pro rata basis. Upon completion of an asset sale offer,
the amount of excess proceeds will be reset to zero.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. We will
not, and will not permit any Restricted Subsidiary to create or permit to exist
or allow to become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock,
or make payments on any indebtedness owed to us or any Restricted
Subsidiary;
(2) make any distributions with respect to any interest or participation
in, or measured by, its profits, to us or any Restricted Subsidiary;
(3) make loans or advances to us or any Restricted Subsidiary; or
(4) transfer any of its property or assets to us or any Restricted
Subsidiary.
These restrictions are referred to as a payment restriction. This term does
not include any encumbrances or restrictions existing under or because of:
(1) the Credit Agreement and Existing Indebtedness as in effect on the
date of the Indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof; PROVIDED that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
are not materially more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the Credit
Agreement or such Existing Indebtedness, as in effect on the dat of the
Indenture;
(2) the Indenture, the Subsidiary Guarantees and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at the
time of such acquisition, except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition, which
encumbrance or restriction is not applicable to any Person, or other
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred;
(5) customary provisions restricting the assignment of any lease entered
into in the ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (4) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
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(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"-- Liens" that limit the right of Key or any of our Restricted Subsidiaries
to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(12) restrictions imposed with respect to a subsidiary imposed pursuant
to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such subsidiary, provided that such disposition will comply with the
covenant entitled "Asset Sales".
MERGER, CONSOLIDATION OR SALE OF ASSETS. WE WILL NOT:
(1) merge or consolidate with or into any other Person; or
(2) sell, assign, convey, transfer or otherwise dispose of substantially
all of its properties and assets to any Person or group; unless
(A) either
- We are the surviving corporation; or
- the Person, if other than us, formed by such consolidation or
merger to which our properties and assets are disposed of shall be
a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; and
(B) the Person, if other than us formed by such consolidation or
merger or to which our properties and assets are disposed shall expressly
assume all our obligations under the notes and the indenture pursuant to
agreements reasonably satisfactory to the Trustee;
(C) immediately after giving effect to such transaction no default or
event of default exists; or
(D) We or the surviving Person, if other than us, after giving effect
such transactions on a pro forma basis and any related financing
transactions as if such transactions had occurred at the beginning of the
applicable four quarter period, either:
- could incur $1.00 of additional indebtedness under the Fixed Charge
Coverage Ratio Test; or
- has a fixed Charge Coverage Ratio that is the same or higher than
the ratio was immediately prior to such transactions.
Additionally, we may not lease all or substantially all of our properties or
assets to any Person. This covenant will not apply to a sale, assignment,
transfer or other disposition of assets between us, our wholly owned
subsidiaries or the guarantors.
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TRANSACTIONS WITH AFFILIATES. We will not, and will not permit any
Restricted Subsidiary to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of its Affiliates, unless:
(1) such transaction is on terms that are no less favorable to us or
such Restricted Subsidiary than those that would be available in a
comparable arm's-length transaction with unrelated third parties; and
(2) if the transaction(s) involve aggregate payments in excess of $2.5
million, we deliver an officers' certificate to the trustee certifying that:
(a) such transaction or series of related transactions complies with
paragraph (1); and
(b) such transaction or series of related transactions has been
approved by a majority of the disinterested members of the board of
directors; and
(3) if the transaction(s) involve aggregate payments in excess of $10.0
million, we deliver an opinion from a nationally recognized accounting,
appraisal or investment banking firm as to the fairness to the holders of
notes of the transaction(s) from a financial point of view.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. Unless such
designation would cause a default under the indenture, the board of directors
may:
- designate any Restricted Subsidiary to be an Unrestricted Subsidiary; and
- redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary.
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary:
- all outstanding Investments owned by us and our Restricted Subsidiaries in
the designated subsidiary will be valued at their fair market value and
deemed to be made as of the time of such designation; and
- will reduce the amounts available for Restricted Payments or Permitted
Investments.
SALE AND LEASEBACK TRANSACTIONS. We will not, and will not permit any
Restricted Subsidiary to enter into or otherwise become liable with respect to
any sale and leaseback transaction unless:
(1) Key or that Guarantor, as applicable, would be able to incur
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction under the Fixed Charge Coverage Ratio test in
the first paragraph of the covenant described above under the caption " --
Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) incurred
a Lien to secure such Indebtedness pursuant to the covenant described above
under the caption
" -- Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, which (if in excess of $10 million)
will be determined in good faith by the board of directors and set forth in
an Officer's Certificate delivered to the trustee, of the property that is
the subject of such sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Key applies the proceeds of such transaction in compliance
with, the covenant described above under the caption "-- Asset Sales."
LIMITATION ON ISSUANCES OF GUARANTEE OF INDEBTEDNESS; ADDITIONAL
GUARANTORS. Key will not permit any of its Restricted Subsidiaries, directly or
indirectly, to guarantee or pledge any assets to secure the
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payment of any Indebtedness of Key under any Credit Facility unless such
Restricted Subsidiary contemporaneously executes and delivers a supplemental
indenture guaranteeing payment of the notes. Any guarantee of the noted shall be
subordinated to the Credit Facility to the same extent the notes are
subordinated to the Credit Facility:
- permit any Restricted Subsidiary to issue or sell any Capital Stock to any
Person other than Key or a Wholly Owned Restricted Subsidiary; or
- permit any person other than Key or a Wholly Owned Restricted Subsidiary
to own any Capital Stock of any Restricted Subsidiary.
The sale of all of the Capital Stock of any Restricted Subsidiary is
permitted by this covenant but is subject to the limitations described under "--
Limitations on Asset Sales."
BUSINESS ACTIVITIES. Key will not, and will not permit any of its
Restricted Subsidiaries to, engage in any business other than Permitted
Businesses.
PAYMENTS FOR CONSENT. Key will not, and will not permit any of its
subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the notes unless such consideration is offered to be paid
and is paid to all holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or amendment.
NO AMENDMENT OF SUBORDINATION PROVISIONS. Without the consent of each
holder of notes so affected, Key will not amend, modify or alter the
Subordinated Convertible Note Indentures in any way that will (i) increase the
principal of, advance the final maturity date of or shorten the Weighted Average
Life to Maturity of any Subordinated Convertible Notes, (ii) alter the
redemption provisions or the price or terms at which Key is required to offer to
purchase such Convertible Subordinated Notes in any manner adverse to such
holder or (iii) amend the provisions of Article 10 of the Senior Subordinated
Note Indenture (which relate to subordination) in any manner adverse to such
holder.
Designation of a subsidiary will only be permitted if any Restricted Payment
which may arise because of any such designation would be permitted at that time
and such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
REPORTS. So long as any notes are outstanding Key, whether or not required
by the Commission, will provide holders of notes, within the time periods
specified in the Commissions rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in Forms 10-Q and 10-K if Key were required to file
such forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Key's
independent public accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Key were required to file such reports.
If Key has designated any of its subsidiaries as Unrestricted Subsidiaries,
then the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of Key and its Restricted
Subsidiaries separate from the financial condition and results of operations of
Key's Unrestricted Subsidiaries.
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In addition, whether or not required by the Commission, Key will file a copy
of all of the information and reports referred to in clauses (1) and (2) above
on a timely basis with the Commission for public availability, unless the
Commission will not accept such a filing, and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The following will be events of default under the indenture:
(a) default for 30 days in the payment of any installment of interest on
any of the notes, when due, whether or not prohibited by the subordination
provisions of the indenture; or
(b) default in the payment of the principal of or premium, if any, on
the notes, whether such payment is in connection with an offer to purchase,
whether or not prohibited by the subordination provisions of the indenture;
or
(c) Key's or any of its subsidiaries failure to comply with the merger,
consolidation and sale of assets and asset sales provisions of the indenture
and the continuance of such failure for 15 days; and the failure by Key or
any of its subsidiaries to comply with the Restricted Payments or Incurrence
of Indebtedness and Issuance of Preferred Stock provisions of the indenture
and the continuance of such failure for 30 days; or
(d) under any mortgage, indenture or instrument under which there may be
issued or by which any Indebtedness for money borrowed by Key or any of its
Restricted Subsidiaries may be secured or evidenced or the payment of which
is guaranteed by Key or any of its Restricted Subsidiaries whether such
Indebtedness or guarantee now exists, or is created after the date of the
indenture, if that default:
- is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness before the expiration of any applicable
grace period; or
(e) Key's failure or any of its Restricted Subsidiaries to comply with
any other agreement contained in the indenture for a period of 60 days after
notice shall have been given to Key by trustee or the holders of at least
25% in aggregate principal amount of the notes then outstanding; or
(f) the occurrence of any default or other Indebtedness of Key or any
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $5.0 million and
provided, further, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of
10 days from the continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, such event of default under
the indenture and any consequential acceleration of the notes shall be
automatically rescinded, so long as such rescission does not conflict with
any judgment or decree; or
(g) Key's failure or any Restricted Subsidiary's that are significant
subsidiaries, or that would be a significant subsidiary if taken together,
to pay final judgments that require the payment in an aggregate amount of
more than $10.0 million over a 60-day period which are not paid, discharged
or stayed for; or
(h) the entry of a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of Key or any Restricted Subsidiary in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) adjudging
Key or any Restricted Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of
Key or any Restricted Subsidiary under any applicable federal or state law,
or appointing under any such law a custodian,
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receiver, liquidator, assignee, trustee, sequestrator or other similar
official of Key or any Restricted Subsidiary or of a substantial part of its
consolidated assets, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(i) the commencement by Key or any Restricted Subsidiary of a voluntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or
proceeding to be adjudicated bankrupt or insolvent, or the consent by Key or
any Restricted Subsidiary to the entry of a decree or order for relief in
respect thereof in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by Key or any Restricted Subsidiary of a petition
or consent seeking reorganization or relief under any applicable federal or
state law, or the consent by it under any such law to the filing of any such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of Key or any Restricted Subsidiary or of any substantial part of
its consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking of
corporate action by Key or any Restricted Subsidiary in furtherance of any
such action.
If an event of default, other than as specified in clause (g) or (h) above,
shall occur and be continuing, the trustee may, and the trustee upon the request
of the holders of not less than 25% in aggregate principal amount of the notes
then outstanding shall, declare the principal of, premium, if any, accrued and
unpaid interest on all of the notes due and payable immediately, upon which
declaration all amounts payable in respect of the notes shall be immediately due
and payable. If an event of default specified in clause (g) or (h) above occurs
and is continuing, then the principal of, premium, if any, accrued and unpaid
interest on all of the notes shall become and be immediately due and payable
without any declaration, notice or other act on the part of the trustee or any
holder of notes.
After a declaration of acceleration under the indenture, but before a
judgment or decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount of the
outstanding notes, by written notice to Key and the trustee, may rescind and
annul such declaration if:
(a) Key has paid or deposited with the trustee a sum sufficient to pay:
(1) all sums paid or advanced by the trustee under the indenture and
the reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel;
(2) all overdue interest on all notes;
(3) the principal of and premium on any notes which have become due
otherwise than by such declaration of acceleration and interest thereon
at the rate borne by the notes; and
(4) to the extent that payment of such interest is lawful, interest
upon overdue interest and principal at the rate borne by the notes;
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(c) all events of default, other than the non-payment of principal of,
premium, if any, or interest on the notes that has become due solely by such
declaration of acceleration, have been cured or waived.
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No holder will have any right to institute any proceeding with respect to
the indenture or any remedy thereunder, unless such holder has notified the
trustee of a continuing event of default and the holders of at least 25% in
aggregate principal amount of the outstanding notes have made written request,
and offered reasonable indemnity, to the trustee to institute such proceeding as
trustee under the indenture, the trustee has failed to institute such proceeding
within 60 days after receipt of such notice and the trustee, within such 60-day
period, has not received directions inconsistent with such written request by
holders of a majority in aggregate principal amount of the outstanding notes.
Such limitations will not apply, however, to a suit instituted by the holder of
a note for the enforcement of the payment of the principal of, premium, if any,
or interest on such note on or after the respective due dates expressed in such
note.
During the existence of an event of default, the trustee will be required to
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default shall occur and be continuing, the trustee
will not be under any obligation to exercise any of its rights or powers under
the indenture at the request or direction of any of the holders unless such
holders shall have offered to the trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the trustee, the holders
of a majority in aggregate principal amount of the outstanding notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the trustee, or exercising any trust or power conferred
on the trustee under the indenture.
If a default or an event of default occurs and is continuing and is known to
the trustee, the trustee shall mail to each holder notice of the default or
event of default within 60 days after the occurrence thereof. Except in the case
of a default or an event of default in payment of principal of, premium, if any,
or interest on any notes, the trustee may withhold the notice to the holders of
the notes if the trustee determines in good faith that withholding the notice is
in the interest of the holders.
Key is required to furnish to the trustee annual and quarterly statements as
to the performance by Key of its obligations under the indenture and as to any
default in such performance. Key will also be required to notify the trustee
within 10 days of any default or event of default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE
Key may, at its option and at any time, elect to have its obligations
discharged with respect to the notes and all obligations of the Guarantors
discharged except for:
(1) the rights to receive payments in respect of the principal of, premium,
if any, and interest on such notes when such payments are due from the
trust;
(2) Key's obligations concerning issuing temporary notes, registration of
notes, mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Key's related obligations; and
(4) the legal defeasance provisions of the indenture.
In addition, Key may, at its option and at any time, elect to have its
obligations and the Guarantors released with respect to certain covenants that
are described in the indenture and any omission to comply with those covenants
shall not constitute a Default or Event of Default with respect to the notes. In
the event a covenant defeasance occurs, certain events (not including
non-payment,
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bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will not longer constitute an Event of Default with respect
to the notes.
To exercise either legal defeasance or covenant defeasance:
(a) Key must irrevocably deposit with the trustee, in trust for the
benefit of the holders of the notes, cash in U.S. dollars, non-callable U.S.
Government, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on a redemption date;
(b) in the case of legal defeasance, Key shall have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that based upon, and referring to, a published ruling of the IRS
or change in applicable federal income tax laws, to the effect that the
holders of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such legal defeasance had not
occurred;
(c) in the case of covenant defeasance, Key shall have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(d) such legal or covenant defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument to which Key or any of its Restricted Subsidiaries is a party or
by which it is bound; and
(e) no default or event of default shall have occurred and be continuing
either on the date of such deposit or insofar as events of default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit.
AMENDMENT, SUPPLEMENT AND WAIVERS
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
- reduce the principal amount of any note;
- change the fixed maturity of any note;
- change the redemption provisions of any note;
- reduce the rate of or change the time for payment of interest on any note;
- waive a default or event of default in the payment of principal of or
premium, if any, or interest on the notes;
- change the coin or currency on any note;
- modify any provision of the indenture relating to the modification and
amendment of the indenture or the waiver of past defaults or covenants,
except as otherwise specified;
- modify or change the rights of holders to receive payments of principal of
or premium, if any, or interest on the notes;
- reduce the above-stated percentage of aggregate principal amount of
outstanding notes necessary to modify or amend the indenture;
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- reduce the percentage of aggregate principal amount of outstanding notes
necessary for waiver of compliance with certain provisions of the
indenture or for waiver of certain defaults; or
- amend, change or modify the obligation of Key to repurchase any note in
the event of a change of control offer or asset sale.
The holders of not less than a majority in aggregate principal amount of the
outstanding notes may waive any past default under the indenture, except a
default in the payment of principal of, premium, if any, or interest on the
notes, or in respect of a covenant or provision which under the indenture cannot
be modified or amended without the consent of the holder of each note
outstanding.
THE TRUSTEE
The Bank of New York serves as trustee under the indenture relating to the
notes.
The indenture contains limitations on the rights of the trustee thereunder,
should it become a creditor of Key, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The indenture permits the trustee to engage in other
transactions; provided, however if it acquires any conflicting interest, as
defined in the Trust Indenture Act of 1939, it must eliminate such conflict or
resign.
As mandated by the Trust Indenture Act of 1939, if a default occurs with
respect to either the Series B notes or the outstanding notes, the Bank of New
York would be required to resign as trustee under one of them within 90 days of
such default unless the default cured, waived or otherwise eliminated.
GOVERNING LAW
The indenture and the notes are governed by the laws of the State of New
York.
BOOK ENTRY; DELIVERY AND FORM
The Series B note will be issued in the form of one permanent global
certificate in definitive, fully registered form. The global certificate will be
deposited with, or on behalf of, DTC and registered in the name of the nominee
of DTC.
Except as set forth below, the global certificate may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee.
DTC has advised Key as follows: It is a limited-purpose trust company which
was created to hold securities for its participating organizations and to
facilitate the clearance and settlement of transactions in such securities
between participants through electronic book-entry changes in accounts of its
participants. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Access to the
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant. Persons may beneficially own securities held by
DTC only through participants.
DTC has also advised that pursuant to procedures established by it (i) upon
the issuance by Key of the Series B notes, DTC will credit the accounts of
participants with the principal amount of the Series B notes equivalent to their
interest in the outstanding notes tendered for exchange, and (ii) ownership of
beneficial interests in the global certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC, the participants and the indirect participants. The laws of some states
require that certain persons take physical delivery in definitive form of
securities which they own. Consequently, the ability to transfer beneficial
interests in the global certificate is limited to such extent.
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So long as a nominee of DTC is the registered owner of the global
certificate, such nominee will be considered the sole owner or holder of the
Series B notes for all purposes under the indenture. Except as provided below,
owners of beneficial interests in the global certificate will not be entitled to
have Series B notes registered in their names, will not receive or be entitled
to receive physical delivery of Series B notes in definitive form and will not
be considered the owners or holders thereof under the indenture.
Neither Key, the trustee, the paying agent nor the note registrar will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
certificate, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Principal and interest payments on the global certificate will be made by
Key, either directly or through a paying agent, to DTC's nominee as the
registered owner of the global certificate. Under the terms of the indenture,
Key and the trustee will treat the persons in whose names the notes are
registered as the owners of such notes for all purposes. Therefore, neither Key,
the trustee nor any paying agent has any direct responsibility or liability for
the payment of principal or interest on the notes to beneficial owners. DTC has
advised Key and the trustee that its present practice is, upon receipt of any
payment of principal or interest to credit immediately the accounts of the
participants with payment in amounts proportionate to their respective holdings
in the global certificate as shown on the records of DTC. Payments by
participants and indirect participants to beneficial owners will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name" and will be the responsibility of such participants or indirect
participants.
As long as the Series B notes are represented by a global certificate, DTC's
nominee will be the holder of the Series B notes and therefore will be the only
entity that can exercise a right to repayment or repurchase of the notes. Notice
by participants or indirect participants or by beneficial owners held through
such participants or indirect participants of the exercise of the option to
elect repayment of beneficial interests in Series B notes must be transmitted to
DTC in accordance with its procedures on a form required by DTC and provided to
participants. In order to ensure that DTC's nominee will timely exercise a right
to repayment with respect to a particular beneficial interest, the beneficial
owner must instruct the broker or other participant or exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other participant or indirect participant through which it holds its
interest in order to ascertain the cut-off time by which such an instruction
must be given in order for timely notice to be delivered to DTC. Key Energy
Services will not be liable for any delay in delivery of notices of the exercise
of the option to elect repayment.
Key will issue Series B notes in definitive form in exchange for the global
certificate if, and only if, DTC is at any time unwilling or unable to continue
as depository and a successor depository is not appointed by Key within 90 days.
In such an instance, a beneficial owner will be entitled to have Series B notes
equal in principal amount to such beneficial interest issued in fully registered
certificated form. Series B notes so issued in definitive form will be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form only, without coupons.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the IRS will
not take a contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may
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or may not be retroactive and could affect the tax consequences to holders.
Certain holders of the Series B notes (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who hold Series B notes in connection with a hedging transaction,
straddle, or conversion transaction) may be subject to special rules not
discussed below.
The issuance of the Series B notes to holders of the outstanding notes
pursuant to the terms set forth in this prospectus will not constitute an
exchange for federal income tax purposes. Consequently, no gain or loss will be
recognized by holders of the outstanding notes upon receipt of the Series B
notes, and ownership of the Series B notes should be treated for federal income
tax purposes either (i) as merely a continuation of a single debt obligation as
to which no gain or loss is realized or (ii) as an exchange of debt securities
on which no gain or loss is recognized. In either event, for purposes of
determining gain or loss upon the subsequent sale or exchange of the Series B
notes, a holder's basis in the Series B notes will be the same as such holder's
basis in the outstanding notes exchanged therefor. A holder's holding period for
the Series B notes should include the holder's holding period for the notes
exchanged. Each holder's taxation of a Series B note will be the same as for the
outstanding notes, and the issue price, original issue discount, bond premium
and market discount inclusion and other tax characteristics of the Series B
notes should be identical to the issue price, original issue discount, bond
premium and market discount inclusion and other tax characteristics of the
outstanding notes exchanged therefor.
PLAN OF DISTRIBUTION
Each broker-dealer that acquires Series B notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B notes. This prospectus, as
supplemented, as it may be amended or further supplemented from time to time,
may be used by a broker-dealer in connection with resales of Series B notes
received in exchange for outstanding notes where such outstanding notes were
acquired as a result of market-making activities or other trading activities.
Key has agreed that it will make this prospectus, as supplemented, as amended or
further supplemented, available to any broker-dealer for use in connection with
any such resale for a period of one year.
Key will not receive any proceeds from any sales of the Series B notes by
broker-dealers. Series B notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Series B notes or a combination of such methods or
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B notes. Any
broker-dealer that resells the Series B notes that were received by it for its
own account pursuant to the exchange offer may be deemed to be an underwriter
within the meaning of the Securities Act of 1933 and any profit on any such
resale of Series B notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act
of 1933. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act of
1933.
For the period of time as such broker-dealers must comply with prospectus
delivery requirements of the Exchange Act in order to resell the Series B notes,
Key will promptly send additional copies of this prospectus, as supplemented,
and any amendment or additional supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal. Key has
agreed to pay certain expenses incident to the exchange offer, other than
commission or concessions of any brokers or dealers, and will indemnify the
holders of the outstanding notes against certain liabilities, including
liabilities under the Securities Act of 1933.
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By acceptance of this exchange offer, each broker-dealer that receives
Series B notes for its own account pursuant to the exchange offer agrees that,
upon receipt of notice from Key of the happening of any event which makes any
statement in the prospectus, as supplemented, untrue in any material respect or
which requires the making of any changes in the prospectus in order to make the
statements therein not misleading (which notice Key agrees to deliver promptly
to such broker-dealer), such broker-dealer will suspend use of the prospectus
until Key has amended or supplemented the prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemental
prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Exchange Notes
offered hereby will be passed on for Key by Porter & Hedges, L.L.P., Houston,
Texas.
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June 21, 1999
[LOGO]
KEY ENERGY SERVICES, INC.
$150,000,000
EXCHANGE OFFER
OF
14% SENIOR SUBORDINATED NOTES DUE 2009, SERIES B
FOR
ALL OUTSTANDING 14% SENIOR SUBORDINATED NOTES DUE 2009
--------------
PROSPECTUS
SUPPLEMENT
--------------
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We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
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