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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 8, 1999
KEY ENERGY SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
Maryland 1-8038 04-2648081
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Two Tower Center, 20th Floor, East Brunswick, New Jersey 08816
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (732) 247-4822
N/A
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
(a) COMMON STOCK OFFERING.
PRESS RELEASE. On April 8, 1999, Key Energy Services, Inc. (the
"Registrant") issued a press release (the "Press Release") announcing, among
other things, that it had initiated a recapitalization plan. In connection with
the recapitalization plan, the Registrant announced that it intends to commence
an underwritten offering of $150 million of common stock (the "Offering"), and
two institutional investors have agreed, subject to documentation, to purchase
up to $60 million of common stock in the Offering. The net proceeds of the
Offering will be used to repay outstanding senior indebtedness and provide
additional working capital.
Since the date of the Press Release, the Registrant has increased the
size of the Offering to $175 million. In connection with the Offering, the
Registrant has filed a preliminary prospectus supplement which contains revised
financial estimates based on preliminary interim financial data. The Registrant
estimates that the net loss for the quarter ended March 31, 1999 will be between
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$1.05 and $1.10 per diluted share, excluding non-recurring pretax charges of
approximately $19 million to $20 million consisting primarily of a write-off of
bridge financing fees, unusual bad debt losses, office lease accruals and
employee terminations, which the Registrant does not expect to recur in the
fiscal fourth quarter. Based on these assumptions, the estimated EBITDA for the
fiscal quarter ended March 31, 1999 will be in a range of $10 million to $11
million, excluding approximately $13 million to $15 million of similar
non-recurring pretax charges.
PURCHASE AGREEMENT WITH CERTAIN INVESTORS. In connection with the
Offering, the Registrant has entered into a purchase agreement, dated April 15,
1999 (the "Purchase Agreement"), with Green-Cohn Group, LLC, ZPG Securities
L.L.C. and DFG Corporation (collectively, the "Purchasers"). The Purchase
Agreement provides, among other things, that subject to delivery of a final
prospectus to the Purchasers, the Purchasers shall purchase directly from the
Registrant $10 million in the aggregate of the Registrant's common stock, par
value $.10 per share (the "Common Stock"). The Purchasers' obligation to
purchase the Common Stock is conditioned upon the simultaneous closing of the
Offering with gross proceeds therefrom of at least $90 million. Pursuant to the
Purchase Agreement, the per share price paid by the Purchasers will be the same
price paid by the underwriters in the Offering.
COMMITMENT LETTER WITH PNC INVESTMENT CORP. The Registrant has also
entered into a purchase commitment letter, dated April 15, 1999 (the "Commitment
Letter"), with PNC Investment Corp. ("PNC"), an affiliate of PNC Bank, N.A., the
senior lender under the Registrant's senior credit facility. The Commitment
Letter provides, among other things, that if the gross proceeds to the
Registrant from the Offering and the sale of Common Stock to the Purchasers
discussed in the preceding paragraph total at least $100 million in the
aggregate, PNC will, if requested by the Registrant, purchase up to $50 million
in Common Stock (the "Committed Amount"). PNC's obligation to purchase up to $50
million of Common Stock shall be reduced by an amount and to the extent that the
gross proceeds from the Offering and from the sale of Common Stock to the
Purchasers, in the aggregate, exceed $125 million, but PNC will have the option
(the "Optional Investment") to purchase additional Common Stock to increase its
total investment under the Commitment Letter to the full $50 million. PNC shall
have the right to the Optional Investment subject to the limitation that gross
proceeds from the Offering, the sale of Common Stock to the Purchasers, and
sales to PNC under the Commitment Letter do not result in aggregate gross
proceeds to the Registrant in excess of $200 million.
The per share price for the Common Stock purchased by PNC shall be at
a discount ranging from 1.0% to 5.0% from the price paid by the public in the
Offering depending on the amount of Common Stock purchased by PNC pursuant to
the Commitment Letter. Due to certain regulatory constraints, PNC is prohibited
from owning 5.0% or more of the outstanding voting stock, or 25.0% or more of
the total equity, of any non-financial institution such as the Registrant. If
PNC is obligated or elects to purchase a number of shares that would result in
PNC and its affiliates owning in excess of 4.9999% of the outstanding Common
Stock in the aggregate, the Registrant shall issue to PNC such number of shares
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of a new class of non-voting common stock (the "Non-Voting Common Stock")
covering the amount in excess of 4.9999% so purchased. Other than voting rights,
the Non-Voting Common Stock will have the same characteristics as the Common
Stock and each share of Non-Voting Common Stock will convert into one share of
Common Stock upon resale by PNC.
FEE LETTER WITH PNC CAPITAL MARKETS, INC. The Registrant and PNC
Capital Markets, Inc. ("PNC Capital") have entered into a letter agreement,
dated as of April 15, 1999 (the "Fee Letter"), which provides that if the
Offering and the sale of Common Stock to the Purchasers results in aggregate
gross proceeds to the Registrant of at least $100 million, then the Registrant
shall pay a fee of $2.5 million (the "Services Fee") to PNC Capital as
compensation for certain financial advisory services previously provided to the
Registrant. The Services Fee is payable in cash or Common Stock at the election
of the Registrant. To the extent the Services Fee is paid in Common Stock, the
same ownership restrictions applicable to PNC under the Commitment Letter apply
to PNC Capital and its affiliates and the Registrant is obligated to issue
Non-Voting Common Stock to comply with such regulatory constraints. The Fee
Letter also provides that in the event that aggregate gross proceeds to the
Registrant are at least $125 million, the Registrant shall issue to PNC Capital
warrants to purchase 750,000 shares of Common Stock at the price to the public
in the Offering.
(b) AMENDMENTS TO SENIOR CREDIT FACILITY.
The Press Release also announced that the Registrant, PNC Bank, N.A.,
as Administrative Agent, Norwest Bank Texas, N.A., as Collateral Agent, PNC
Capital Markets, Inc., as Arranger and other lenders to the Registrant's senior
credit facility executed the third amendment, dated as of April 8, 1999 (the
"Third Amendment"), to the Registrant's Second Amended and Restated Credit
Agreement (the "Senior Credit Facility"). The Third Amendment provides, among
other things, for certain changes and additions to the definitions in the Senior
Credit Facility, amendments to the terms of mandatory prepayments and commitment
reductions, and amendments to the covenants concerning the financial condition
of the Registrant. In addition, the Third Amendment provides for an increase of
75 basis points to the applicable margins on amounts outstanding under the
Senior Credit Facility.
The Registrant and the parties to the Senior Credit Facility have also
executed a fourth amendment (the "Fourth Amendment") to the Senior Credit
Facility, dated as of April 15, 1999. The Fourth Amendment provides, among other
things, for additional changes and additions to the definitions in the Senior
Credit Facility, amendments to the terms of mandatory prepayments and commitment
reductions, and amendments to the covenants concerning the financial condition
of the Registrant.
The descriptions of the Press Release, the Purchase Agreement, the
Commitment Letter, the Fee Letter, the Third Amendment and the Fourth Amendment
do not purport to be complete, and are qualified in their entirety by reference
to such documents, which are filed as exhibits to this Form 8-K and are
incorporated by reference.
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The statements made in this Current Report on Form 8-K that are not
statements of historical fact are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe," or similar terminology.
The forward-looking statements include expectations concerning market position,
future operations, margins, profitability, liquidity and capital resources, and
the integration into our business of the operations we have acquired. Although
the Registrant believes that the expectations in such statements are reasonable,
the Registrant cannot give any assurance that those expectations will be
correct. The Registrant cautions you not place undue reliance on these forward-
looking statements. The operations of the Registrant are subject to several
uncertainties, risks and other influences, many of which are outside its control
and any of which could materially affect the Registrant's results of operations
and ultimately prove the statements the Registrant makes to be inaccurate.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) NO. EXHIBIT
99.1 Press Release, issued by the Registrant on April 8,
1999.
99.2 Purchase Agreement, among the Registrant, Green-Cohn
Group, LLC, ZPG Securities L.L.C. and DFG Corporation,
dated as of April 15, 1999.
99.3 Commitment Letter, between the Registrant and PNC
Investment Corp., dated April 15, 1999.
99.4 Fee letter, between the Registrant and PNC Capital
Markets, Inc., dated April 15, 1999.
99.5 Third Amendment, dated as of April 8, 1999, to the
Second Amended and Restated Credit Agreement, among the
Registrant, the several lenders from time to time
parties thereto, PNC Bank, National Association, as
Administrative Agent, Norwest Bank Texas, N.A., as
Collateral Agent and PNC Capital Markets, Inc., as
Arranger.
99.6 Fourth Amendment, dated as of April 15, 1999, to the
Second Amended and Restated Credit Agreement, among the
Registrant, the several lenders from time to time
parties thereto, PNC Bank, National Association, as
Administrative Agent, Norwest Bank Texas, N.A., as
Collateral Agent and PNC Capital Markets, Inc., as
Arranger.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KEY ENERGY SERVICES, INC.
Date: April 20, 1999 By: /s/ Francis D. John
---------------------------------
Francis D. John
Chairman, President and
Chief Executive Officer
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EXHIBIT INDEX
NO. EXHIBIT
99.1* Press Release, issued by the Registrant on April 8,
1999.
99.2* Purchase Agreement, among the Registrant, Green-Cohn
Group, LLC, ZPG Securities L.L.C. and DFG Corporation,
dated as of April 15, 1999.
99.3* Commitment Letter, between the Registrant and PNC
Investment Corp., dated April 15, 1999.
99.4* Fee letter, between the Registrant and PNC Capital
Markets, Inc., dated April 15, 1999.
99.5* Third Amendment, dated as of April 8, 1999, to the
Second Amended and Restated Credit Agreement, among
the Registrant, the several lenders from time to time
parties thereto, PNC Bank, National Association, as
Administrative Agent, Norwest Bank Texas, N.A., as
Collateral Agent and PNC Capital Markets, Inc., as
Arranger.
99.6* Fourth Amendment, dated as of April 15, 1999, to the
Second Amended and Restated Credit Agreement, among
the Registrant, the several lenders from time to time
parties thereto, PNC Bank, National Association, as
Administrative Agent, Norwest Bank Texas, N.A., as
Collateral Agent and PNC Capital Markets, Inc., as
Arranger.
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* Filed herewith.
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[KEY ENERGY SERVICES, INC. Letterhead]
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NEWS RELEASE
FOR IMMEDIATE RELEASE: CONTACT: JIM DEAN
THURSDAY, APRIL 8, 1999 (732) 247-4822
KEY ENERGY ANNOUNCES RECAPITALIZATION PLAN
AND REVISED LOAN COVENANTS
EAST BRUNSWICK, N.J., Apr. 8, 1999 - Key Energy Services, Inc. (NYSE: KEG)
announced today that it has initiated a recapitalization plan which, when
completed, will significantly reduce debt, increase shareholder equity and
provide additional working capital. In response to recent depressed industry
conditions, the company's senior lending group has approved a new covenant
package which provides additional financial flexibility, even if such depressed
industry conditions were to continue.
In connection with the recapitalization plan, the company intends to commence an
underwritten offering of $150 million of common stock. Two institutional
investors have agreed, subject to documentation, to purchase up to $60 million
of common stock in the offering. The net proceeds of the offering will be used
to repay outstanding senior indebtedness and provide additional working capital.
The company expects to commence the offering within the next two weeks.
During the quarter ended March 31, 1999 with oil prices at depressed levels,
particularly in late January through February, oil and gas drilling and service
activity hit all time lows in many of the company's markets. During the month of
March and thus far in April, the company has experienced a material increase in
utilization of drilling and service rigs from those levels experienced in
February as many of the company's customers are increasing maintenance and
lower-end workover activity.
In response to depressed market conditions in late January and February, the
company initiated additional cost cuts and consolidation steps, which included
yard closures and reductions in divisional and corporate overhead expenses, that
are expected to reduce the company's cost structure by $5 million annually.
These savings are in addition to the $20 million of cost savings that are
expected to result from the company's recently completed restructuring program.
In addition to the cost reduction initiatives, Kenneth V. Huseman, the company's
Chief Operating Officer, will leave the company. Mr. Huseman served in this
capacity for over two and one-half years and was instrumental in the company's
acquisition and integration program. The company continues to operate within a
low-cost, decentralized management structure with the divisional management
reporting directly Francis D. John, the company's Chairman, President and Chief
Executive Officer.
Based on preliminary and unreviewed interim financial data, the company expects
that the net loss per diluted share for the March quarter, excluding
nonrecurring and extraordinary pretax charges of between approximately $15
million and $16 million, will be between $1.15 and $1.20. Revenues are expected
to be approximately $105 million, compared to $143.6 million in the previous
quarter, a 27% decrease. Actual results are expected to be announced within the
next few weeks.
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Mr. John stated, "We believe the worst market conditions are behind us and that
customer activity will continue to increase over the next several quarters. From
the third week of January through February, oil and gas producers dramatically
reduced expenditures in all areas of drilling and well service activity.
Revenues and utilization hit bottom in February. The month of March showed
approximately a 10% increase in total rig hours over the levels experienced in
February. We expect April and the balance of the quarter ending June 30, 1999 to
show substantial improvement in operating results as compared to the March
quarter."
Mr. John added, "Currently, the company has approximately $35 million in cash
and revolver availability. We are very pleased and optimistic that with a
successful recapitalization, the company will be well positioned to expand and
respond to improving market conditions. We have aggressively and continuously
implemented steps to reduce costs. Nevertheless, even with the recent increases
in oil and gas prices, it may take several quarters to as long as 18 months for
our customers' expenditures to rebound from the depressed market of the past 15
months."
Mr. John concluded, "We appreciate the vote of confidence we have received from
our senior bank group that has worked effectively with the company to amend the
bank loan covenants."
Key Energy is the world's largest rig-based well servicing firm, owning
approximately 1,420 well service rigs, 1,130 oilfield trucks and 75 drilling
rigs. The company provides diversified energy operations including well
servicing, contract drilling and other oilfield services and oil and natural gas
production. The company has operations in all major onshore oil and gas
producing regions of the continental United States and in Argentina and Canada.
Certain comments contained in this news release concerning the business outlook
and anticipated financial results of the company constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are subject to the safe harbor created by that act. Whenever
possible, the company has identified these "forward-looking statements" by words
such as "expects", "believes", "anticipates" and similar phrases. The
forward-looking statements are based upon management's expectations and beliefs
and, although these statements are based upon reasonable assumptions, there can
be no assurances that the financial results or components will be as estimated.
The company assumes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Securities offered in connection with the recapitalization plan will be made
only by means of a prospectus.
- # # # -
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PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made among Green-Cohn
Group LLC, ZPG Securities, L.L.C. and DFG Corporation (each a "Purchaser") and
Key Energy Services, Inc., a Maryland corporation (the "Company").
1. PURCHASE COMMITMENT
1.1 THE COMMITMENT. Upon the terms and subject to the conditions set
forth herein, the Purchasers hereby agree and commit, subject to the delivery of
a Final Prospectus (defined below), to purchase (the "Commitment") from the
Company $10 million of the Company's common stock, par value $.10 per share (the
"Common Stock"), to be offered pursuant to a prospectus (the "Prospectus")
contained in the Company's registration statement, including the documents
incorporated therein by reference, (the "Registration Statement") on Form S-3
(No. 333-67655) that has been declared effective under the Securities Act of
1933, as amended (the "Securities Act"), as supplemented by a prospectus
supplement to be filed with the Securities and Exchange Commission (the "SEC")
(such Prospectus, as supplemented, the "Final Prospectus"). The purchase price
per share of the Common Stock purchased hereunder shall be the purchase price
paid by the underwriters (the "Underwriters") in the Company's public offering
(the "Public Offering") of Common Stock that is being conducted simultaneously
with the offering and sale of the Common Stock being sold pursuant to this
Agreement. The Common Stock being sold in the Public Offering will be issued
under the Registration Statement and the Prospectus but under a different
prospectus supplement than the one being delivered in connection with the Common
Stock being sold hereunder. The allocation of the Commitment among the
Purchasers is set forth on EXHIBIT A hereto.
1.2 CLOSING. The sale of Common Stock hereunder shall occur on the
date of the Closing of the Public Offering (the "Closing Date"). On the Closing
Date, upon receipt by the Company of the payment provided for in Section 1.1 for
shares of Common Stock to be purchased by the Purchasers hereunder, the Company
will issue to each Purchaser certificates representing the shares of Common
Stock purchased in the name of each such Purchaser, and the name of such
Purchaser will be registered on the books of the Company as the record owner of
such shares of Common Stock.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser hereby represents and warrants to, and agrees with the
Company, as follows:
2.1 ORGANIZATION. Each of the Purchasers is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing and is authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary.
2.2 AUTHORIZATION. The consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary action, corporate
or otherwise, on the part of each of the Purchasers, and this Agreement is a
valid and binding obligation of each of the Purchasers enforceable against each
of the Purchasers in accordance with its terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
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contemplated hereby will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the organizational
documents of any of the Purchasers or (ii) any obligation, indenture, mortgage,
deed of trust, lease, contract or other agreement to which any of the Purchasers
is a party or by which any of the Purchasers, or their respective properties are
bound.
2.3 ADDITIONAL MATTERS. The Common Stock being purchased by each
Purchaser is for such Purchaser's own account and not for the account of any
other person, and not with a view to distribution, assignment or resale to
others. Such Purchaser will not sell, hypothecate, or otherwise transfer its
Common Stock purchased hereunder (i) except in accordance with applicable state
and federal securities laws and (ii) until the Underwriters have completed the
distribution of Common Stock in the Public Offering, conclusive evidence of
which shall be the written notice provided in Section 6.1. Each Purchaser will
otherwise purchase or sell Common Stock only in accordance with applicable state
and federal securities laws.
3. COMPANY REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to each of the Purchasers
as follows:
3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary.
3.2 AUTHORIZATION. The consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, and this Agreement is a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement will not conflict with or result
in a violation or breach of any term or provision of, nor constitute a default
under (i) the Certificate of Incorporation or Bylaws of the Company or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Company or any of its subsidiaries is a party or by which
the Company or its subsidiaries, or their respective properties are bound.
3.3 VALID ISSUANCE. Common stock being sold to the Purchasers
hereunder, when issued, will be validly issued, fully paid and nonassessable and
not subject to any preemptive right. The sale of such Common Stock hereunder has
been registered under the Securities Act and the Registration Statement will, on
the date such Common Stock is issued, be effective under the Securities Act.
3.4 REGISTRATION STATEMENT AND PROSPECTUS. The Registration Statement
has been declared effective under the Securities Act. The Company has not
received any stop order from the SEC suspending effectiveness of the
Registration Statement, and to the Company's knowledge, no such stop order has
been threatened to be issued. The Registration Statement, at the time it was
declared effective under the Securities Act, did not contain a misstatement of a
material fact or omit a material fact necessary to make the statements therein
not misleading, and the Prospectus, as supplemented by a prospectus supplement
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in connection with the sale of the Common Stock being sold hereunder, will not,
on the date it is delivered to the Purchasers, contain a misstatement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. CONDITIONS TO OBLIGATIONS
4.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASERS. The
obligations of the Purchasers to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by the Purchasers before the Closing Date;
4.1.1. REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Company herein contained shall be, in all material
respects, true as of and at the Closing Date with the same effect as
though made at such date, except as affected by transactions permitted
or contemplated by this Agreement. The Registration Statement will be
effective under the Securities Act on the Closing Date, and on the
Closing Date, no stop order suspending the effectiveness of the
Registration Statement will be issued or threatened.
4.1.2. CLOSING OF PUBLIC OFFERING. The Public Offering shall
have closed concurrently with the closing of the sale of the Common
Stock hereunder and the gross proceeds to the Company from the Public
Offering shall be at least $90 million.
4.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by the Company before the Closing Date;
4.2.1. CLOSING. The representations and warranties of the
Purchasers herein contained shall be, in all material respects, true
as of and at the Closing Date with the same effect as though made at
such date, except as affected by transactions permitted or
contemplated by this Agreement.
5. INDEMNIFICATION AND CONTRIBUTION
5.1 INDEMNIFICATION OF THE COMPANY. The Company shall indemnify and
hold harmless each Purchaser, its officers and employees and each person, if
any, who controls any Purchaser within the meaning of the Securities Act, from
and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which that Purchaser, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus, as supplemented by the prospectus supplement
delivered to the Purchasers in connection with their purchase of common stock
hereunder (the "Supplemented Prospectus"); or (ii) the omission or alleged
omission to state in the Supplemented Prospectus any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and shall reimburse each Purchaser and each such officer, employee or
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Purchaser, officer, employee or controlling person
in connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
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provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in the Supplemented Prospectus in reliance upon and in
conformity with written information concerning such Purchaser furnished to the
Company by the Purchasers by or on behalf of any Purchaser specifically for
inclusion therein.
5.2 INDEMNIFICATION BY THE PURCHASERS. Each Purchaser, severally and
not jointly, shall indemnify and hold harmless the Company, its officers and
employees, each of its directors, and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company or any such director, officer, employee or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Supplemented Prospectus; or (ii) the omission or alleged
omission to state in the Supplemented Prospectus of any material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Purchaser furnished to the
Company by or on behalf of that Purchaser specifically for inclusion therein,
and shall reimburse the Company and any such director, officer, employee or
controlling person for any legal or other expenses reasonably incurred by the
Company or any such director, officer, employee or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred.
5.3 FURTHER INDEMNIFICATION BY THE PURCHASERS. The Purchasers,
jointly and severally, shall indemnify and hold harmless the Company, its
officers and employees, each of its directors, and each person, if any, who
controls the Company within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer, employee or
controlling person may become subject, under the Securities or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, related to or arising out of any wrongful actions or alleged
wrongful actions by the Purchasers in connection with the purchase of Common
Stock hereunder or the resale by the Purchasers of the Common Stock they
purchase hereunder, and shall reimburse the Company and any such director,
officer, employee or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred.
5.4 INDEMNIFICATION PROCEDURES. Promptly after receipt by an
indemnified party under this Section 5 of notice of any claim or the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 5 except to the extent it has been materially prejudiced by such failure
and, provided further, that the failure to notify the indemnifying party shall
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 5. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
4
<PAGE>
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 5 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the Purchasers shall
have the right to employ counsel to represent jointly the Purchasers and their
respective officers, employees and controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Purchasers against the Company under this Section 5 if, in the reasonable
judgment of the Purchasers, it is advisable for the Purchasers and those
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
5.5 LIMITATION ON THE COMPANY'S OBLIGATIONS. Notwithstanding anything
in this Section 5 to the contrary, the Company shall not be subject to any
obligations to indemnify the Purchasers in any action in which a court of
competent jurisdiction finds that one or more of the Purchasers resold the
Common Stock purchased hereunder in violation of any securities laws or in a
transaction in which such Purchaser acted as an underwriter as defined in the
Securities Act. Upon such a finding by such a court of competent jurisdiction,
any Purchaser who has been indemnified by the Company hereunder shall within two
business days reimburse the Company for all amounts paid by the Company to such
Purchaser under this Section 5.
6. MISCELLANEOUS
6.1 COMPLETION OF DISTRIBUTIONS. The Company will give written notice
of the completion of the distributions of the Common Stock being sold in the
Public Offering promptly upon notice thereof from the Underwriters.
6.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties set forth herein shall survive the closing of the transactions
contemplated hereby.
6.3 WAIVER AND MODIFICATION. Neither this Agreement nor any
provisions hereof shall be waived, modified, changed, discharged, terminated,
revoked, or canceled except by an instrument in writing signed by the party
against whom any change, discharge, or termination is sought.
5
<PAGE>
6.4 NOTICES. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed to the
other party at the address provided on Exhibit A to this Agreement, or to such
other address furnished by notice given in accordance with this Section 6.
6.5 NO WAIVER OF RIGHTS. Failure of a party hereto to exercise any
right or remedy under this Agreement or any other agreement between the Company
and the Purchasers, or otherwise, or delay by a party hereto in exercising such
right or remedy, will not operate as a waiver thereof. No waiver by a party
hereto will be effective unless and until it is in writing and signed against
which such waiver is asserted.
6.6 APPLICABLE LAW. This Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New York,
as such laws are applied by New York courts to agreements entered into and to be
performed in New York and shall be binding upon the undersigned, the
undersigned's heirs, estate, legal representatives, successors and assigns.
6.7 ENFORCEABILITY. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
6.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
any and all prior or contemporaneous representations, warranties, agreements and
understandings in connection therewith.
6.9 TERMINATION. The Commitment shall automatically terminate upon
the earlier of (i) a decision by the Company not to proceed with the Public
Offering, (ii) the existence of a final order, injunction or notice from a court
or administrative agency of competent jurisdiction that prohibits consummation
of the transaction contemplated herein, or (iii) May 15, 1999.
6.10 EXECUTION AND DELIVERY. This Agreement may be executed by
facsimile, and/or in two or more counterparts, each of which shall be deemed to
be an original but all of which shall constitute one and the same agreement.
6.11 EXPENSES. The Company agrees to reimburse the Purchasers upon
written request (including a summary of items for which reimbursement is
requested) for reasonable out-of-pocket expenses incurred by the Purchasers in
connection with the matters contemplated under this Agreement, including without
limitation, reasonable attorneys' fees and disbursements of the Purchasers'
legal counsel and other professional advisors (if any), in an aggregate amount
not to exceed $10,000.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Purchase
Agreement this 15th day of April 1999.
COMPANY:
KEY ENERGY SERVICES, INC.
By: /s/ Stephen E. McGregor
-----------------------------------
Stephen E. McGregor
Executive Vice President
PURCHASERS:
GREEN-COHN GROUP LLC
By: /s/ Van Greenfield
-----------------------------------
Name: Van Greenfield
Title: Manager
ZPG SECURITIES, L.L.C.
By: /s/ Van Greenfield
-----------------------------------
Name: Van Greenfield
Title: Managing Member
DFG CORPORATION
By: /s/ Van Greenfield
-----------------------------------
Name: Van Greenfield
Title: President
7
<PAGE>
EXHIBIT A
Purchaser Purchase Commitment Allocation*
- --------- ------------------------------
Green-Cohn Group LLC 33.333%
360 East 88th Street, Apt. 2D =======
New York, NY 10128
Tel: (212) 426-1700
Fax: (212) 426-5677
ZPG Securities, L.L.C. 33.333%
360 East 88th Street, Apt. 2D =======
New York, NY 10128
Tel: (212) 426-1700
Fax: (212) 426-5677
DFG Corporation 33.333%
360 East 88th Street, Apt. 2D =======
New York, NY 10128
Tel: (212) 426-1700
Fax: (212) 426-5677 -------
100%
====
Company:
Key Energy Services, Inc.
Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Tel: (732) 247-4822
Fax: (732) 247-5148
- ---------------
* The Purchase Commitment Allocation may be amended by written notice to the
Company signed by each of the Purchasers provided that the Purchase
Commitment Allocations shall total 100%.
8
<PAGE>
PNC INVESTMENT CORP.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
April 15, 1999
Key Energy Services, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Dear Sirs:
PNC Investment Corp. ("PNC"), upon the terms and subject to the
conditions set forth herein, hereby agrees to purchase from Key Energy Services,
Inc. (the "Company"), up to $50 million of the Company's common stock, par value
$.10 per share (the "Common Stock"), to be offered pursuant to a prospectus
previously filed and related prospectus supplement (the "PNC Prospectus") to be
filed by the Company with the Securities and Exchange Commission in connection
with the Company's effective Registration Statement on Form S-3 (File No.
333-67665) (the "Registration Statement"). We have been advised that in
connection with the Registration Statement the Company has filed a prospectus
and intends to file a related prospectus supplement (the "Public Prospectus")
relating to shares of Common Stock being offered by Friedman, Billings, Ramsey &
Co. and Dain Rauscher Wessels (together, the "Underwriters") to the public (the
"Offering").
1. PURCHASE COMMITMENT. PNC hereby commits, subject to the Company's
delivery to PNC of a final PNC Prospectus, that if the Underwriters and the
Company sell shares of Common Stock in the Offering that result in at least $100
million in gross proceeds to the Company (inclusive for purposes of this letter
agreement of the $10 million committed to be purchased by Green-Cohn Group LLC,
DFG Corporation and ZPG Securities, L.L.C. (collectively, the "Institutional
Investors")), PNC will, if requested by the Company, purchase from the Company
such number of shares of Common Stock that will result in gross proceeds to the
Company, when aggregated with the gross proceeds from the Offering and from the
Institutional Investors, of $175 million, subject to the $50 million limitation
in the preceding paragraph and to the limitations set forth in Section 2 below
(the "Purchase Commitment"). Once gross proceeds to be received by the Company
from the Offering, the Institutional Investors' purchase of Common Stock and any
purchase of Common Stock by PNC, in the aggregate, equal $175 million, PNC shall
have no further obligation to purchase any additional shares of Common Stock.
Any purchase made by PNC pursuant to its Purchase Commitment or the Optional
Investment (as defined below) provided for herein, shall be consummated
<PAGE>
Page 2
simultaneously with the purchase by the Underwriters in connection with the
Offering on the date of such purchase (the "Closing Date").
2. INVESTMENT LIMITATIONS. Under the Purchase Commitment, PNC shall
purchase (i) first, voting Common Stock, up to such number of shares of voting
Common Stock ("Voting Shares") as would result in PNC and its affiliates, in the
aggregate, holding not more than 4.9999% of the total number of Voting Shares
outstanding upon issuance of such shares, after giving effect to such issuance
and including all other Voting Shares held by PNC and its affiliates at such
time, and (ii) second, a new class of nonvoting Common Stock (having the terms
set forth on Appendix A hereto), up to such number of shares of nonvoting Common
Stock ("Nonvoting Shares") as would result in PNC and its affiliates, in the
aggregate, holding not more than 24.9999% of the total equity of the Company
upon issuance of such Nonvoting Shares, after giving effect to such issuance and
including all other shares of Common Stock held by PNC and its affiliates at
such time. The calculations contemplated by this Section 2 shall be made by PNC
in accordance with Section 4 of the Bank Holding Company Act of 1956, as
amended, and the regulations and policy statements of the Board of Governors of
the Federal Reserve System thereunder. Notwithstanding any other provisions set
forth in this letter agreement, PNC shall in no event be required to purchase
shares of Common Stock to the extent PNC determines that such purchase would
result in a violation of any law or regulation.
3. OPTIONAL INVESTMENT. If the Underwriters and the Company sell
shares of Common Stock in the Offering and to the Institutional Investors that,
in the aggregate, result in more than $125 million in gross proceeds to the
Company and, thus, PNC's Purchase Commitment is not fully utilized by the
Company, PNC shall have the right, but not the obligation, to purchase an
additional number of shares of Common Stock in the Offering to increase PNC's
total investment in the Common Stock pursuant to this letter agreement to an
amount not to exceed $50 million calculated at the Offering Price (the "Optional
Investment"); provided that PNC's Optional Investment shall be limited to a
number of shares such that the gross proceeds to the Company therefrom, when
aggregated with the gross proceeds to the Company from the Offering, the
purchase by the Institutional Investors and the Purchase Commitment, do not
exceed $200 million. To the extent not theretofore exercised, PNC's rights with
respect to the Optional Investment shall terminate on the Closing Date.
Notwithstanding the preceding sentence, PNC's rights to the Optional Investment
shall become exercisable only at such time as the distribution of the Common
Stock in the Offering, including shares issuable pursuant to the underwriters'
over-allotment option, has been completed. PNC's must exercise its Optional
Investment rights within three business days of the completion of such
distribution by the underwriters.
<PAGE>
Page 3
4. SHARE PRICE. The per share price for shares of Common Stock
purchased by PNC pursuant to PNC's Purchase Commitment and Optional Investment
shall be determined as follows:
(a) if PNC purchases less than $10 million of Common Stock, then the
per share purchase price for each share purchased by PNC shall be equal to 99%
multiplied by the Offering Price (as defined below);
(b) if PNC purchases at least $10 million of Common Stock but less
than $20 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 98% multiplied by the Offering Price;
(c) if PNC purchases at least $20 million of Common Stock but less
than $30 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 97% multiplied by the Offering Price;
(d) if PNC purchases at least $30 million of Common Stock but less
than $40 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 96% multiplied by the Offering Price; and
(e) if PNC purchases at least $40 million of Common Stock, then the
per share purchase price for each share purchased shall be equal to 95%
multiplied by the Offering Price.
For purposes of determining the per share price payable by PNC under
this Section 4, the dollar amount of Common Stock required or permitted to be
purchased by PNC pursuant to this letter agreement shall be calculated based on
the number of shares purchased by PNC multiplied by the Offering Price and not
by the per share purchase price paid by PNC. For purposes of this letter
agreement, the "Offering Price" shall mean the price per share at which Common
Stock is offered by the Underwriters to the public in the Offering.
5. TERMINATION OF PURCHASE COMMITMENT. PNC's Purchase Commitment
shall automatically terminate upon the earlier of (i) written notice from the
Company to PNC that it will not proceed with the Offering, (ii) the existence of
a final order, injunction or notice from a court or administrative agency of
competent jurisdiction that prohibits consummation of the transaction
contemplated herein, or (iii) May 15, 1999.
<PAGE>
Page 4
6. TRANSFERABILITY. PNC agrees (i) not to transfer a number of
shares of Common Stock to any one person or entity if in the aggregate, after
giving effect to such transfer, such person or entity together with its
affiliates and persons who collectively are acting as a group for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to PNC's knowledge after review of filings under Section 13(d) and 13(g)
of the Exchange Act available on the EDGAR system, would be the "beneficial
owner" (as such term is defined in Rules 13d-3 and 13d-5 promulgated under the
Securities Exchange Act of 1934, as amended) of 5% or more of the total
outstanding shares of Common Stock and (ii) not to transfer any Nonvoting Shares
that will not convert to Voting Shares upon such transfer in accordance with the
terms set forth in Appendix A. The preceding sentence shall not apply to
transfers among affiliates of PNC and clause (i) of the preceding sentence shall
not apply to open market transactions on the New York Stock Exchange or through
a registered broker-dealer in which PNC does not know the identity of the
purchaser of the shares sold. PNC further agrees (i) to consult with the Company
and its specialist on the New York Stock Exchange with respect to transfers of
Common Stock by PNC and (ii) to develop jointly with them means of selling its
Common Stock so as not to significantly disrupt the market for the shares of
Common Stock. In addition, PNC agrees for the benefit of the Underwriters that
for 180 days following the Closing Date it will not transfer any of the shares
of Common Stock acquired pursuant to this letter agreement without prior consent
from the Underwriters, such consent not to be unreasonably withheld, conditioned
or delayed; provided that PNC may dispose of shares of Common Stock within the
180 day period without the Underwriters' consent if it is required to do so to
comply with applicable law or regulation.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to PNC as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a material adverse effect
on the business or operations of the Company.
(b) The consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
<PAGE>
Page 5
of the Company, and this letter agreement is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. The
execution and delivery of this letter agreement has been authorized by the board
of directors of the Company and no other corporate action is necessary. The
execution, delivery and performance of this letter agreement and the
consummation of the transactions contemplated by this letter agreement will not
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under (i) the Certificate of Incorporation or Bylaws of
the Company, or (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Company or any of its subsidiaries is a
party or by which the Company or its subsidiaries, or their respective
properties are bound, which in the case of either (i) or (ii), would have a
material adverse effect on the business or operation of the Company.
(c) All of the Voting Shares and Nonvoting Shares, when issued, will
be duly authorized, validly issued, fully paid and nonassessable and not subject
to any preemptive right.
(d) The PNC Propectus and all documents incorporated therein by
reference do not, and will not, on the date it is delivered to PNC, contain any
untrue statement or a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made not misleading and complied with all
applicable requirements of securities laws and regulations.
8. DELIVERIES AT CLOSING. If PNC purchases any Common Stock pursuant
to its Purchase Commitment or its Optional Investment, then PNC shall receive as
a condition to closing and the Company agrees to deliver to PNC:
(a) a certificate, dated as of the Closing Date and executed by the
President of the Company, certifying that (i) the shares of Common Stock
purchased by PNC pursuant to this letter agreement are duly authorized and
validly issued, fully paid and nonassessable, and (ii) the Company is not
subject to any Redemption Requirements. As used herein "Redemption Requirement"
means any requirement, obligation or agreement of the Company to redeem or
repurchase any shares of its outstanding stock or otherwise reduce the number of
shares of its outstanding Common Stock; and.
(b) a favorable opinion, dated as of the Closing Date, from Porter &
Hedges, L.L.P., counsel for the Company, in form and substance reasonably
satisfactory to PNC, to the effect that (i) the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of Maryland; (ii) all corporate proceedings required to be taken by or on
<PAGE>
Page 6
the part of the Company to authorize the execution of this letter agreement and
the consummation of the transactions contemplated hereby have been taken; (iii)
the shares of Common Stock to be delivered in accordance with this letter
agreement will, when issued, be validly issued, fully paid and nonassessable
outstanding securities of the Company; and (iv) this letter agreement has been
duly executed and delivered by, and is the legal, valid and binding obligation
of, the Company and is enforceable against the Company in accordance with its
terms, except as enforceability may be limited by (A) equitable principles of
general applicability or (B) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may relay upon (I) certificates of public
officials and of officers of the Company as to matters of fact and (ii) the
opinion or opinions of other counsel, which opinions shall be reasonably
satisfactory to PNC, as to matters other than federal or Texas law.
9. NON-ATTRIBUTION. PNC and PNC Bank, National Association ("PNC
Bank") are separate legal entities, and no action or omission of PNC relating to
the Company shall be attributed to PNC Bank, and no action or omission of PNC
Bank relating to the Company shall be attributed to PNC; provided, however, that
each PNC affiliate shall be deemed to possess the same information regarding the
Company that all other PNC affiliates possess as of the date of this letter
agreement.
10. PASSIVE INVESTOR. PNC and its affiliates are acquiring the shares
of Common Stock of the Company solely for investment purposes and shall not
exercise or attempt to exercise any controlling influence over the business or
affairs of the Company or any of its subsidiaries, as set forth in detail in
Appendix B hereto.
11. EXPENSES. In addition to any other amounts payable hereunder, and
regardless of whether the Offering is consummated, the Company agrees to
reimburse PNC from time to time promptly upon written request (including a
summary of items for which reimbursement is requested) for reasonable out of
pocket expenses incurred by PNC or its affiliates in connection with the matters
contemplated under this letter agreement, including without limitation,
reasonable attorneys' fees and disbursements of PNC's legal counsel and other
professional advisors (if any), in an aggregate amount not to exceed $50,000.
12. ASSIGNABILITY. PNC may assign all of its rights and obligations
under this letter agreement to any affiliate of PNC, or, with the prior written
consent of the Company, to any unaffiliated third party.
<PAGE>
Page 7
13. MISCELLANEOUS.
(a) Nothing in this letter agreement is intended to obligate or
commit PNC or any of its affiliates to provide any services or financing other
than as set forth above.
(b) This letter agreement may be executed by facsimile, and/or in two
or more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement. This letter agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings (both written and oral) of the parties hereto with respect to the
subject matter hereof, and cannot be amended or otherwise modified except in
writing executed by the parties hereto.
(c) This letter agreement shall in all respects be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any choice or conflict of law provisions or rules thereof.
(d) The terms and provisions of this letter agreement are solely for
the benefit of the Company, PNC and their respective successors and assigns, and
no other persons shall acquire or have any rights by virtue of this letter
agreement. The provisions hereof shall inure to the benefit of and be binding
upon the successors and assigns of the Company and PNC.
<PAGE>
Page 8
Please confirm that the foregoing is our mutual understanding by
signing and returning to us an executed counterpart of this letter agreement.
Very truly yours,
PNC INVESTMENT CORP.
By: /s/ Thomas R. Moore
-----------------------------------
By: Thomas R. Moore
Title: Assistant Secretary
Accepted and agreed to this
15th day of April, 1999, by:
KEY ENERGY SERVICES, INC.
By: /s/ Stephen E. McGregor
-----------------------
Stephen E. McGregor
Executive Vice President and Chief Financial Officer
<PAGE>
Page 9
APPENDIX A
TERMS OF NONVOTING COMMON STOCK
The Company shall authorize a new, nonvoting class of Common Stock (the
"Nonvoting Common Stock"), identical in all respects to the existing class of
voting Common Stock (the "Voting Common Stock"), except as set forth below:
1. VOTING RIGHTS. The holders of the shares of Nonvoting Common Stock
shall be entitled to vote as follows:
(a) The holders of the shares of Nonvoting Common Stock shall be
entitled to vote,
(i) as a class, each share having one vote, with respect to any
matters submitted to a vote at a meeting of the stockholders
affecting the rights, preferences or obligations relating to
the Nonvoting Common Stock, and
(ii) together with all other classes, each share having one vote,
with respect to any matter submitted to a vote at a meeting
of the stockholders relating to (x) consolidation, merger,
or sale of substantially all of the assets of the Company,
or (y) dissolution or liquidation, of the Company.
(b) Except as set forth in paragraph (a) of this Section 1, or as
specifically required by law, the holders of the shares of
Nonvoting Common Stock shall not be entitled to vote on any
matter submitted to a vote at a meeting of the stockholders, but
shall be entitled to notice of, and participation in, the
meetings of the stockholders of the Company. To the extent that
the Nonvoting Common Stock is entitled to vote on the increase in
the number of authorized shares of Nonvoting Common Stock, it
shall vote together with the Voting Common Stock as a single
class.
4. CONVERSION OF NONVOTING COMMON STOCK. Outstanding shares of Nonvoting
Common Stock shall, automatically and without any action by the holder thereof
except as required by Section 3 hereof, convert into an equal number of shares
of Voting Common Stock:
<PAGE>
Page 10
(a) if such shares have been:
(i) transferred in a widely dispersed public offering; or
(ii) transferred, sold or otherwise disposed of to a transferee
who will then hold Voting Common Stock that is less than
2% of the then-outstanding Voting Common Stock; or
(iii) transferred, sold or otherwise disposed of to a transferee
who, prior to acquiring the shares of Voting Common Stock
from the holder, already owned more than 50% of the
then-outstanding shares of Voting Common Stock; or
(b) upon the agreement of the Company in its sole discretion.
3. PROCEDURES RELATING TO CONVERSION.
(a) Each share of Nonvoting Common Stock transferred in accordance
with Section 2 will, as set forth therein, automatically convert into one share
of Voting Common Stock. Such conversion of shares of Nonvoting Common Stock into
shares of Voting Common Stock shall be effected by the surrender of the
certificate or certificates representing the shares to be transferred at the
principal office of the Company (or such other office or agency of the Company
as the Company may designate by notice in writing to the holder or holders of
the Nonvoting Common Stock) at any time during normal business hours, together
with a certificate of the holder of such Nonvoting Common Stock stating that the
shares, or a stated number of the shares, of Nonvoting Common Stock represented
by such certificate or certificates have been transferred in accordance with the
provisions of Section 2. Upon receipt of such statement and the surrender of the
certificates representing the shares to be converted, the Company or its agent
shall issue the number of shares of Voting Common Stock as is equal to the
number of shares to be transferred without further inquiry and shall issue to
the holder a certificate representing the shares of Nonvoting Common Stock that
have not been converted into Voting Common Stock. Such conversion shall be
deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holders of the converted Nonvoting
Common Stock shall cease and the person or persons in whose name or names the
certificate or certificates for shares of Voting Common Stock are to be issued
<PAGE>
Page 11
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Voting Common Stock represented thereby.
(b) Promptly after such surrender and the receipt of such written
notice, the Company shall issue and deliver in accordance with the surrendering
holder's instructions (1) the certificate or certificates for the Voting Common
Stock issuable upon such conversion, and (2) a certificate representing any
Nonvoting Common Stock that was represented by the certificate or certificates
delivered to the Company in connection with such conversion but that was not
converted.
(c) The issuance of certificates for Voting Common Stock upon
conversion of Nonvoting Common Stock shall be made without charge to the holders
of such shares for any stamp, transfer or issuance tax in respect thereof or
other cost incurred by the Company in connection with such conversion and the
related issuance of Voting Common Stock.
4. CHANGES TO CAPITAL STRUCTURE. Any subdivision, split, reverse-split
or reclassification of any class of Common Stock shall be applied equally to all
other classes of Common Stock.
<PAGE>
Page 12
APPENDIX B
PASSIVE INVESTMENT TERMS
PNC does not seek to control or participate in the management of the
Company. PNC will be a passive investor in the Company and agrees with the
Company as follows:
1. PNC will not seek or accept representation on the board of
directors of the Company;
2. PNC will not take action causing the Company to become a
subsidiary of PNC;
3. PNC will not acquire or retain shares that would cause the
combined ownership interests of PNC and its subsidiaries
(excluding shares held by PNC or its subsidiaries in a fiduciary
or representative capacity for the benefit of a third party) in
the Company to exceed 4.9999 percent of any "class" of
outstanding "voting securities" (both as defined in Regulation Y
of the Board of Governors of the Federal Reserve System or any
successor regulation thereto) of the Company or 24.9999 percent
of the total equity of the Company;
4. PNC will not exercise or attempt to exercise a controlling
influence over the management or policies of the Company;
5. PNC will not have or seek to have any representative serve as an
officer, agent, or employee of the Company or any of its
subsidiaries;
6. PNC will not propose a director or slate of directors in
opposition to a nominee or slate of nominees proposed by the
management or board of directors of the Company;
7. PNC will not solicit or participate in soliciting proxies with
respect to any matter presented to shareholders of the Company;
8. PNC will not attempt to influence the dividend policies or
practices of the Company;
<PAGE>
Page 13
9. PNC will not enter into any joint venture of any kind with the
Company, and there will be no advertising or marketing of each
other's services or products;
10. PNC will not increase the extent of PNC's current banking
relationship or nonbanking services relationship with the Company
in an amount that would be material to PNC or the Company and, to
the extent any such relationships are entered into, they will be
undertaken only in the ordinary course of business and will be on
terms and conditions comparable to those in transactions with
parties in which PNC is not an investor; and
11. PNC will not dispose or threaten to dispose of shares of the
Company in any manner as a condition of specific action or
inaction of the Company;
provided, however, that nothing herein shall in any way condition, limit,
reduce, waive or modify the rights or authority that PNC or its affiliates may
have as a creditor of the Company or the Company's subsidiaries (or as an agent
or manager acting on behalf of other creditors), pursuant to any loan, credit or
similar agreement or under applicable laws governing debtor-credit relationships
including, without limitation, bankruptcy, insolvency, receivership,
reorganization or similar laws or under laws permitting a bank or bank holding
company to acquire or own securities in connection with a debt previously
contracted, nor shall anything herein in any way condition, limit, reduce, waive
or modify in any way any covenants, representations, warrantees or obligations
that the Company or its subsidiaries have under any loan, credit or similar
agreement or under applicable laws governing the debtor-creditor relationship.
<PAGE>
PNC CAPITAL MARKETS, INC.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
April 15, 1999
Key Energy Services, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attn: Stephen E. McGregor, Executive Vice President and Chief Financial Officer
Dear Mr. McGregor:
This letter is to confirm the understanding between Key Energy
Services, Inc. (the "Company") and PNC Capital Markets, Inc. ("PNC") relating to
the total amount of compensation payable to PNC in connection with certain
financial advisory services previously provided by PNC to the Company.
1. FEE. If, and only if, (i) the Offering (as defined below) and the
sale to Green-Cohn Group LLC, DFG Corporation and ZPG Securities, L.L.C. of
common stock, par value $.10 per share, of the Company ("Common Stock") results
in gross proceeds ("Aggregate Gross Proceeds") to the Company of an amount equal
to, in the aggregate, $100 million and (ii) PNC shall not be default of its
obligations under its letter agreement with the Company of even date herewith
(the "Purchase Commitment"), then the Company shall pay to PNC, or to any
affiliate designated by PNC, $2.5 million (the "Financial Services Fee"),
payable, at the Company's election, in immediately available funds, Common
Stock, or any combination thereof. For purposes of calculating the number of
shares of Common Stock to be issued to PNC (or any of its affiliates) pursuant
to this Section 1 (the "Stock Portion"), the value of each share of Common Stock
shall be deemed to be the per share public offering price of the Common Stock
offered by Friedman, Billings, Ramsey & Co. and Dain Rauscher Wessels (together,
the "Underwriters") pursuant to a prospectus supplement to be filed by the
Company with the Securities and Exchange Commission in connection with the
Company's effective Registration Statement on Form S-3 (File No. 333-67665) (the
"Offering"), net of any underwriting discounts and expenses. The Company shall
pay the Financial Services Fee to PNC immediately following consummation of the
Offering. Simultaneously with and conditioned on the payment of the Financial
Services Fee and on Aggregate Gross Proceeds being not less than $125 million,
the Company shall issue to PNC, or to any affiliate designated by PNC, warrants
<PAGE>
Page 2
to purchase 750,000 shares of Common Stock at the Offering Price (the
"Warrants"). The Warrants shall be immediately exercisable, shall expire six
years after the Closing Date and otherwise shall be in a form reasonably agreed
to by PNC and the Company prior to the Closing Date. Terms defined in the
Purchase Commitment and not otherwise defined herein are used herein as defined
in the Purchase Commitment.
2. INVESTMENT LIMITATION. The Stock Portion, if any, shall be paid
(i) first, in shares of the Company's voting Common Stock (the "Voting Shares"),
up to such number of shares as would result in PNC and its affiliates, in the
aggregate, holding not more than 4.9999% of the total number of Voting Shares
outstanding upon issuance of such shares, after giving effect to such issuance
and including all other Voting Shares held by PNC and its affiliates at such
time, and (ii) second, in shares of a new class of nonvoting Common Stock having
the terms set forth in Appendix A to the Purchase Commitment ("Nonvoting
Shares"), up to such number of shares as would result in PNC and its affiliates,
in the aggregate, holding not more than 24.9999% of the total equity of the
Company upon issuance of such Nonvoting Shares, after giving effect to such
issuance and including all other shares of Common Stock held by PNC and its
affiliates at such time. In the event payment of the Stock Portion amount
elected by the Company would cause PNC and its affiliates, in the aggregate, to
hold more than 4.9999% of the Voting Shares, the number of Voting Shares in the
Stock Portion shall be decreased, and the number of Nonvoting Shares in the
Stock Portion shall be increased such that PNC and its affiliates, in the
aggregate, shall hold no more than 4.9999% of the Voting Shares after giving
effect to the payment of the Stock Portion. In addition, in the event payment of
the Stock Portion amount elected by the Company would cause PNC and its
affiliates, in the aggregate, to hold more than 24.9999% of the total equity of
the Company, the Stock Portion shall be decreased, and the portion of the
Financial Services Fee payable in immediately available funds shall be increased
such that PNC and its affiliates, in the aggregate, shall hold no more than
24.9999% of the total equity of the Company after giving effect to the payment
of the Stock Portion. The calculations contemplated by this Section 2 shall be
made by PNC in accordance with Section 4 of the Bank Holding Company Act of
1956, as amended, and the regulations and policy statements of the Board of
Governors of the Federal Reserve System thereunder. Notwithstanding any other
provision in this letter agreement, neither PNC nor any of its affiliates shall
be required to accept shares of Common Stock, if such receipt would result in a
violation of any law or regulation; and in such case, the amount of the Stock
Portion that would have resulted in such violation shall instead be payable in
immediately available funds.
3. OFFICER'S CERTIFICATE. If the Financial Services Fee consists as
a whole or in part of shares of Common Stock, PNC shall receive a certificate,
dated as of the date of payment of the Financial Services Fee and executed by
<PAGE>
Page 3
the President of the Company, certifying that (i) the shares of Common Stock
constituting the Stock Portion are duly authorized and validly issued, fully
paid and nonassessable, and (ii) the Company is not subject to any Redemption
Requirements. As used herein, "Redemption Requirements" means any requirement,
obligation or agreement of the Company to redeem or repurchase any shares of its
outstanding capital stock.
4. REGISTRATION AND REGISTRATION RIGHTS. The issuance of the Stock
Portion of the Financial Services Fee, if any, the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants will be registered under the
Securities Act of 1933, as amended, and applicable state securities laws.
Simultaneously with the purchase of shares under the Purchase Commitment, if
any, the Company and PNC shall enter into a registration rights agreement
substantially in the form of Appendix A.
5. MISCELLANEOUS. This letter agreement and the Purchase Commitment
constitute the entire agreement between the parties hereto, and supersedes all
prior agreements and understandings (both written and oral) of the parties
hereto, with respect to the subject matter hereof, and may not be amended or
waived except by an instrument in writing signed by PNC and the Company. This
letter shall be governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to any choice or conflict of law
provisions or rules thereof. This letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one instrument. Delivery of an executed signature
page of this letter agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart thereof.
<PAGE>
Page 4
Please confirm that the foregoing is our mutual understanding by
signing and returning to us an executed counterpart of this letter agreement.
Very truly yours,
PNC CAPITAL MARKETS, INC.
By: /s/ William F. Strome
-----------------------------------
William F. Strome
Managing Director
Accepted and agreed to this
15th day of April, 1999, by:
KEY ENERGY SERVICES, INC.
By: /s/ Stephen E. McGregor
----------------------------------
Stephen E. McGregor
Executive Vice President and Chief Financial Officer
<PAGE>
Page 5
APPENDIX A
[REGISTRATION RIGHTS AGREEMENT]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
April __, 1999, by and between PNC Investment Corp. ("PNC"), PNC Capital
Markets, Inc. ("PNC Capital") and Key Energy Services, Inc. (the "Company").
WHEREAS, the Company, in connection with an effective registration
statement on Form S-3 (File No. 333-67665), has filed a prospectus and a related
prospectus supplement relating to shares of the Company's common stock, par
value $.10 per share (the "Common Stock") being offered by Friedman, Billings,
Ramsey & Co. and Dain Rauscher Wessels (the "Underwriters") to the public (the
"Offering");
WHEREAS, the Company and PNC are parties to a letter agreement (the
"Purchase Commitment"), dated April 15, 1999, relating to PNC's potential
purchase of up to $50 million of Common Stock upon consummation of the Offering
(the "Closing Date");
WHEREAS, the Company and PNC Capital are parties to a letter agreement
(the "Fee Letter Agreement"), providing for the payment to PNC or any affiliate
of PNC an amount equal to $2.5 million, payable, at the Company's option, in
immediately available funds or shares of Common Stock, or any combination
thereof and for the issuance to PNC or an affiliate of warrants to purchase
750,000 shares of Common Stock (the "Warrants");
WHEREAS, on April 13, 1999, the Company issued to PNC 200,000 shares
of Common Stock (together with the shares acquired by PNC or its affiliates or
assignees pursuant to the Fee Letter Agreement and the Purchase Commitment and
that may be acquired pursuant to the Warrants, the "Shares");
WHEREAS, in order to induce PNC Capital to enter into the Purchase
Commitment and the Fee Letter Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement to PNC, any PNC affiliates
holding Shares and their respective permitted assignees under Section 12 of the
Purchase Commitment (collectively, the "Stockholders"); and
WHEREAS, the execution and delivery of this Agreement is a condition
to the consummation of the transactions contemplated by the Purchase Commitment
and Fee Letter Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by all of the parties hereto and
intending to be legally bound hereby, the parties agree as follows:
<PAGE>
1. REGISTRATION. (a) As soon as practicable, but no later than
thirty days after the Closing Date, the Company shall prepare and file with the
Securities and Exchange Commission (the "Commission") a registration statement
(the "Resale Registration Statement") on a form available for the Company that
allows the Stockholders to resell the Shares from time to time in transactions
registered under the Securities Act of 1933, as amended (the "Securities Act"),
subject to the transfer restrictions set forth in Section 6 of the Purchase
Commitment. The Resale Registration Statement shall be in a form and contain
terms reasonably satisfactory to PNC and PNC Capital. The Company will use its
reasonable best efforts, subject to receipt of all information required under
applicable securities laws with respect to the Stockholders, to cause the Resale
Registration Statement to become effective as soon as practicable after the
filing thereof.
(b) A registration required under Section 1(a) shall not be deemed to
have been effected (A) unless it either has become effective or is filed but
does not become effective solely by reason of a Stockholder's act or omission,
or (B) if, after it has become effective, the Commission shall have issued a
stop order suspending the effectiveness of the Resale Registration Statement
under the Securities Act for any reason other than a misrepresentation or an
omission by a Stockholder.
(c) The Company shall prepare and file with the Commission such
amendments and supplements to the Resale Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the Resale
Registration Statement effective until the earlier of (i) the date all the
Shares have been sold pursuant thereto or (ii) such time as the Stockholders may
sell the Shares without limitation under the Securities Act and the Commission's
rules thereunder.
(d) The Company shall furnish to each Stockholder with respect to the
Shares registered for resale on the Resale Registration Statement such number of
copies of prospectuses in conformity with the requirements of the Securities Act
and such other documents as the Stockholder may reasonably request, in order to
facilitate the public sale or other disposition of all or any of the Shares by
the Stockholder, PROVIDED, HOWEVER, that the obligation of the Company to
deliver copies of prospectuses to any Stockholder shall be subject to the
receipt by the Company of reasonable assurances from such Stockholder that the
Stockholder will comply with the applicable provisions of the Securities Act and
of such other securities or blue sky laws as may be applicable in connection
with any use of such prospectuses.
(e) The Company shall file documents required for blue sky clearance
for the sale of the Shares in states specified in writing by any Stockholder;
(f) The Company shall bear all expenses in connection with the
procedures in paragraphs (a) through (e) of this Section 1 and the registration
of the Shares on the Resale Registration Statement and the satisfaction of the
blue sky laws of such states, including but not limited to all registrations,
exemptions, qualifications and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and
2
<PAGE>
excluding any selling commissions, and fees and expenses, if any, of separate
counsel or other independent advisors to the Stockholder or other Stockholders.
2. TRANSFER OF SHARES. After the registration of the Shares pursuant
to Section 1 above, PNC and PNC Capital agree that each Stockholder, during the
period the registration statement remains effective, will not make any sale of
the Shares without effectively causing the prospectus delivery requirements
under the Securities Act to be satisfied.
3. INDEMNIFICATION. (a) The Company shall defend, indemnify and hold
harmless the Stockholders and each of them and each Stockholder's directors,
officers, employees and representatives and each person, if any, that controls
such Stockholder within the meaning of section 15 of the Securities Act, from
any obligation, liability, claim, loss, cost, suit, damage, action, proceeding
or cause of action including, without limitation, attorneys' fees and expenses
(collectively, "Claims") arising from or pertaining to: (i) the registration of
the Shares described in this Agreement and/or the registration or exemption of
the Shares under state blue sky laws, including but not limited to all Claims
arising under federal and state securities laws and including (except as
expressly set forth below) any misrepresentation or omission of a material fact
contained in the registration statement covering the Shares; and (ii) any
failure by the Company to fulfill any undertaking included in the registration
statement and/or this Agreement; PROVIDED, HOWEVER, that the foregoing shall not
apply and instead a Stockholder shall be obligated to defend, indemnify and hold
harmless the Company (and each person, if any, that controls the Company within
the meaning of Section 15 of the Securities Act, each officer of the Company who
signs the registration statement, and each director of the Company) and the
other Stockholders from any Claim if and to the extent such Claim arises from or
pertains to (a) the failure of such indemnifying Stockholder to comply with the
covenants and agreements contained in this Agreement; and/or (b) any
misrepresentation or omission of a material fact contained, as of the effective
date of any registration statement covering the Shares, in information furnished
to the Company by or on behalf of such indemnifying Stockholder specifically for
use in the preparation of such registration statement.
(b) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, PROVIDED, HOWEVER,
that if there exists or shall exist a conflict of interest that would make it
3
<PAGE>
inappropriate in the reasonable judgment of the indemnified person for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person. The failure
of an indemnified person to give any notice shall not effect its entitlement to
indemnity hereunder except to the extent that the indemnifying person is
actually and materially prejudiced by such failure.
4. INFORMATION AVAILABLE. So long as the Resale Registration
Statement is effective and Shares remain unsold, the Company, upon the
reasonable request of any Stockholder, will meet with the Stockholder or a
representative thereof at the Company's headquarters to discuss all information
relevant for disclosure in the Resale Registration Statement and will otherwise
cooperate with any Stockholder conducting an investigation for the purpose of
reducing or eliminating such Stockholders' exposure to liability under the
Securities Act, including the production of information at the Company's
headquarters. The Stockholders shall execute a mutually acceptable
confidentiality agreement concerning any information obtained pursuant to this
Section 4.
5. NO SALE PERIODS. The Company will notify each Stockholder, at any
time when a prospectus relating to the registered Shares is required to be
delivered under the Securities Act, if the Company becomes aware of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated in the
prospectus or necessary to make the statements made in the prospectus not
misleading in the light of the then existing circumstances. The Company will use
its reasonable best efforts to amend the prospectus to correct such untrue
statement or omission. PNC and PNC Capital agree that each Stockholder shall not
effect a sale of the Shares pursuant to the Resale Registration Statement during
any period that the Company reasonably requests due to the existence of
information relating to events outside the ordinary course of the Company's
business that has not been publicly disclosed, it being understood and agreed
that the Company is under no obligation to disclose any such information for the
purpose of permitting any such sale.
6. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed by first-class registered or
certified air mail, postage prepaid, and shall be deemed given when so mailed:
if to the Company, to:
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
PH: (732)-247-4822
Attn:
4
<PAGE>
if to PNC or PNC Capital:
c/o PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Attn:
PH:
or, if to any transferee or transferees of the Stockholder, at such address or
addresses as shall have been furnished to the Company at the time of the
transfer or transfers, or at such other address or addresses as may have been
furnished by such transferee or transferees to the Company in writing.
7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
any choice or conflict or law provisions or rules thereof.
8. SURVIVAL. The representations, covenants, rights and obligations
set forth in this Agreement shall remain in effect throughout the effectiveness
of any registration statement covering the Shares and for a period of three
years thereafter.
9. COUNTERPARTS. This Agreement may be executed by facsimile, and/or
in two or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one instrument.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement, and supersedes all prior agreements and understandings (both
written and oral) of the parties hereto with respect to the subject matter
hereof, and cannot be amended or modified except in writing executed by the
parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Registration
Rights Agreement as of the date first written above.
PNC INVESTMENT CORP.
By:
-----------------------------------
Name:
Title:
PNC CAPITAL MARKETS, INC.
By:
-----------------------------------
Name:
Title:
KEY ENERGY SERVICES, INC.
By:
-----------------------------------
Name:
Title:
6
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT, dated as of April 8, 1999 (this "Amendment"), to the
Second Amended and Restated Credit Agreement, dated as of June 6, 1997, as
amended and restated through September 14, 1998 and as amended by the First
Amendment dated as of November 19, 1998 and the Second Amendment dated as of
December 29, 1998 (the "Credit Agreement"), among Key Energy Group, Inc. (now
known as Key Energy Services, Inc.), a Maryland corporation (the "Borrower"),
the several Lenders from time to time parties thereto, PNC Bank, National
Association ("PNC"), as Administrative Agent, Norwest Bank Texas, N.A., as
Collateral Agent and PNC Capital Markets, Inc., as Arranger.
The parties hereto hereby agree as follows:
Section 1. DEFINED TERMS. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein as defined terms are so used
as so defined.
Section 2. AMENDMENTS TO SUBSECTION 1.1 (DEFINITIONS). Subsection 1.1
of the Credit Agreement is hereby amended as follows:
(a) by deleting from clause (g) of the definition of "Consolidated
EBITDA" the reference to "non-recurring transaction expenses" and
substituting in lieu thereof a reference to "(i) non-recurring business
expenses and (ii) non-recurring transaction expenses, in the case of clause
(ii),";
(b) by deleting the definition of "Pricing Grid" in its entirety and
substituting in lieu thereof the following:
"'PRICING GRID': the pricing grid set forth on Annex I.";
(c) by deleting the definitions of "Consolidated Leverage Ratio" and
"Minimum Equity Event", each in its entirety;
(d) by inserting in the appropriate alphabetical order the following
new definition of "Consolidated Debt-to-Capitalization Ratio":
"'CONSOLIDATED DEBT-TO-CAPITALIZATION RATIO': on the date of any
determination thereof, the ratio (expressed as a percentage) of (a)
the difference between (i) Consolidated Total Debt on such date and
(ii) the amount of cash and Cash Equivalents in excess of $5,000,000
held by the Borrower and its Subsidiaries on such date (the difference
between the foregoing clause (i) and clause (ii), "ADJUSTED
CONSOLIDATED TOTAL DEBT"), to (b) the sum of (i) Adjusted Consolidated
Total Debt on such date and (ii) Consolidated Net Worth on such
date.";
(e) by inserting in the appropriate alphabetical order the
following new definition of "$125,000,000 Equity Issuance Date":
<PAGE>
2
"'$125,000,000 EQUITY ISSUANCE DATE': any date occurring
after April 7, 1999 and on or prior to May 15, 1999 on which the
Borrower shall have received at least $125,000,000 (but less than
$150,000,000) of gross cash proceeds from the issuance of its
Capital Stock to a Person or to Persons that, prior to such
issuance, are not Affiliates of the Borrower.";
(f) by inserting in the appropriate alphabetical order the
following new definition of "$150,000,000 Equity Issuance Date":
"'$150,000,000 EQUITY ISSUANCE DATE': any date occurring
after April 7, 1999 and on or prior to May 15, 1999 on which the
Borrower shall have received at least $150,000,000 of gross cash
proceeds from the issuance of its Capital Stock to a Person or to
Persons that, prior to such issuance, are not Affiliates of the
Borrower.";
(g) by deleting sub-clause (x) from clause (i) of the proviso
contained in the definition of "Permitted Acquisitions" and inserting
in lieu thereof the following new sub-clause (x):
"(x) the Consolidated Debt-to-Capitalization Ratio shall not
exceed the lesser of 60% and the ratio set forth in subsection
7.1(a) applicable to the Borrower at the time of such
acquisition"; and
(h) by deleting clause (ii) from the proviso contained in the
definition of "Permitted Acquisitions" and inserting in lieu thereof
the following new clause (ii):
"(ii) after giving effect to such acquisition, the Consolidated
Debt-to-Capitalization Ratio is not increased and such
acquisition is funded solely with the Borrower's Capital Stock."
Section 3. AMENDMENTS TO SUBSECTION 2.10 (MANDATORY PREPAYMENTS AND
COMMITMENT REDUCTIONS). Subsection 2.10 of the Credit Agreement is hereby
amended as follows:
(a) Subsection 2.10(b) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and substituting in lieu thereof
the following new Subsection 2.10(b):
"(b) Unless the Required Prepayment Lenders shall otherwise agree, if
any Capital Stock shall be issued by the Borrower or any of its
Subsidiaries, an amount equal to (i) until the amount of Net Cash Proceeds
received from all such issuances of Capital Stock from and after the
Closing Date aggregate $75,000,000, 100% of the Net Cash Proceeds thereof,
and (ii) thereafter, (x) in the case of cash proceeds received on the
$125,000,000 Equity Issuance Date or the $150,000,000 Equity Issuance Date,
55% of the Net Cash Proceeds thereof, and (y) otherwise, 75% of the Net
<PAGE>
3
Cash Proceeds thereof, shall be applied on the date of such issuance or
incurrence toward the prepayment of the Term Loans (or reduction of Term
Loan Commitments) as set forth in Section 2.10(f); PROVIDED that so long as
no Event of Default has occurred or is continuing pursuant to Sections
8(a), 8(e)(i), 8(e)(ii), 8(f) or 8(k), Net Cash Proceeds of Capital Stock
(other than Disqualified Stock) issued by the Borrower may be used to
prepay the Put Facility and to the extent so used shall not be required to
be used as mandatory prepayments or Term Loan Commitment reductions
hereunder."
(b) The first sentence of Subsection 2.10(c) of the Credit Agreement
is hereby amended by deleting the proviso contained therein in its entirety
and substituting in lieu thereof the following new proviso:
"PROVIDED that if the Consolidated Debt-to-Capitalization Ratio as of
the last day of the fiscal year immediately prior to such Excess Cash Flow
Application Date shall be less than 60%, the Borrower shall be required to
apply only 50% of such Excess Cash Flow toward such prepayment of the Term
Loans."
Section 4. AMENDMENT TO SUBSECTION 6.12 (INTEREST RATE PROTECTION
COVENANT). Subsection 6.12 of the Credit Agreement is hereby amended by deleting
therefrom the introductory phrase "Within 180 days after the Closing Date" and
substituting in lieu thereof the phrase "On or prior to May 15, 1999".
Section 5. AMENDMENTS TO SUBSECTION 7.1 (FINANCIAL CONDITION
COVENANTS). Subsection 7.1 is hereby amended as follows (PROVIDED that, for
purposes of application of each of the financial covenants set forth in
Subsection 7.1 of the Credit Agreement with respect to the fiscal quarter ended
March 31, 1999, such Subsection 7.1 shall be applied in accordance with the
terms and provisions thereof as in effect on April 7, 1999 (I.E, without giving
effect to Section 5 of this Amendment) EXCEPT that the amendment contained in
Section 2(a) hereof shall be deemed to be in effect on April 7, 1999):
(a) by deleting Subsection 7.1(a) in its entirety and substituting in
lieu thereof the following:
"7.1 FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED DEBT-TO-CAPITALIZATION RATIO. Permit the
Consolidated Debt-to-Capitalization Ratio as of any date set
forth below to exceed the percentage set forth below opposite
such date (i) under the column headed "Base Case" below (unless
the $125,000,000 Equity Issuance Date or the $150,000,000 Equity
Issuance Date shall have occurred, in which case the following
clause (ii) or (iii), respectively, shall apply), (ii) under the
column headed "$125,000,000 Issuance" below, if the $125,000,000
Equity Issuance Date shall have occurred, or (iii) under the
<PAGE>
4
column headed "$150,000,000 Issuance" below, if the $150,000,000
Equity Issuance Date shall have occurred:
<TABLE>
<CAPTION>
Consolidated Debt-to-Capitalization Ratio
$125,000,000 $150,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 90.0% 78.0% 75.0%
September 30, 1999 90.0% 78.0% 75.0%
December 31, 1999 90.0% 78.0% 75.0%
March 31, 2000 90.0% 78.0% 75.0%
June 30, 2000 78.0% 78.0% 75.0%
September 30, 2000 78.0% 78.0% 75.0%
December 31, 2000 78.0% 78.0% 75.0%
March 31, 2001 78.0% 78.0% 75.0%
June 30, 2001 78.0% 78.0% 75.0%
September 30, 2001 76.0% 75.0% 72.5%
December 31, 2001 76.0% 75.0% 72.5%
March 31, 2002 76.0% 75.0% 72.5%
June 30, 2002 76.0% 75.0% 72.5%
September 30, 2002 72.5% 72.5% 70.0%
December 31, 2002 72.5% 72.5% 70.0%
March 31, 2003 72.5% 72.5% 70.0%
June 30, 2003 72.5% 72.5% 70.0%
September 30, 2003 72.5% 72.5% 70.0%
December 31, 2003 70.0% 70.0% 65.0%
March 31, 2004 70.0% 70.0% 65.0%
June 30, 2004 70.0% 70.0% 65.0%
September 30, 2004 70.0% 70.0% 65.0%
--------
</TABLE>
(b) by deleting Subsection 7.1(b) in its entirety and substituting in
lieu thereof the following:
"(b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the
Consolidated Interest Coverage Ratio for any period of four
consecutive fiscal quarters of the Borrower ending as of any date set
forth below to be less than the ratio set forth below opposite such
date (i) under the column headed "Base Case" below (unless the
$125,000,000 Equity Issuance Date or the $150,000,000 Equity Issuance
Date shall have occurred, in which case the following clause (ii) or
(iii), respectively, shall apply), (ii) under the column headed
"$125,000,000 Issuance" below, if the $125,000,000 Equity Issuance
Date shall have occurred, or (iii) under the column headed
"$150,000,000 Issuance" below, if the $150,000,000 Equity Issuance
Date shall have occurred:
<PAGE>
5
<TABLE>
<CAPTION>
Consolidated Interest Coverage Ratio
$125,000,000 $150,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 1.25 to 1.00 1.35 to 1.00 1.35 to 1.00
September 30, 1999 1.15 to 1.00 1.20 to 1.00 1.20 to 1.00
December 31, 1999 1.20 to 1.00 1.35 to 1.00 1.35 to 1.00
March 31, 2000 1.40 to 1.00 1.45 to 1.00 1.45 to 1.00
June 30, 2000 1.50 to 1.00 1.75 to 1.00 1.75 to 1.00
September 30, 2000 1.75 to 1.00 1.75 to 1.00 1.75 to 1.00
December 31, 2000 1.75 to 1.00 1.75 to 1.00 1.75 to 1.00
March 31, 2001 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2001 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2001 2.00 to 1.00 2.00 to 1.00 2.25 to 1.00
December 31, 2001 2.25 to 1.00 2.25 to 1.00 2.50 to 1.00
March 31, 2002 2.50 to 1.00 2.50 to 1.00 2.75 to 1.00
June 30, 2002 2.50 to 1.00 2.50 to 1.00 2.75 to 1.00
September 30, 2002 2.50 to 1.00 2.50 to 1.00 3.00 to 1.00
December 31, 2002 2.75 to 1.00 2.75 to 1.00 3.25 to 1.00
March 31, 2003 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
June 30, 2003 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
September 30, 2003 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
December 31, 2003 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
March 31, 2004 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
June 30, 2004 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
September 30, 2004 3.00 to 1.00 3.00 to 1.00 3.50 to 1.00
</TABLE>
; PROVIDED, that for the purposes of determing the ratio described above
for the fiscal quarter of the Borrower ending June 30, 1999, Consolidated
Interest Expense shall be deemed to equal Consolidated Interest Expense for
the period commencing October 1, 1998 and ending June 30, 1999, multiplied
by 4/3.";
(c) by deleting Subsection 7.1(c) in its entirety and substituting in lieu
thereof the following:
"(c) CONSOLIDATED SENIOR LEVERAGE RATIO. Permit the Consolidated
Senior Leverage Ratio as of any date set forth below to exceed the ratio
set forth below opposite such date (i) under the column headed "Base Case"
below (unless the $125,000,000 Equity Issuance Date or the $150,000,000
Equity Issuance Date shall have occurred, in which case the following
clause (ii) or (iii), respectively, shall apply), (ii) under the column
headed "$125,000,000 Issuance" below, if the $125,000,000 Equity Issuance
Date shall have occurred, or (iii) under the column headed "$150,000,000
<PAGE>
6
Issuance" below, if the $150,000,000 Equity Issuance Date shall have
occurred::
<TABLE>
<CAPTION>
Consolidated Senior Leverage Ratio
$125,000,000 $150,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 6.00 to 1.00 4.75 to 1.00 4.50 to 1.00
September 30, 1999 6.00 to 1.00 4.75 to 1.00 4.50 to 1.00
December 31, 1999 6.00 to 1.00 4.50 to 1.00 4.25 to 1.00
March 31, 2000 4.75 to 1.00 4.00 to 1.00 3.75 to 1.00
June 30, 2000 3.50 to 1.00 3.50 to 1.00 3.25 to 1.00
September 30, 2000 3.25 to 1.00 3.25 to 1.00 2.75 to 1.00
December 31, 2000 3.00 to 1.00 3.00 to 1.00 2.50 to 1.00
March 31, 2001 2.75 to 1.00 2.75 to 1.00 2.50 to 1.00
June 30, 2001 2.75 to 1.00 2.75 to 1.00 2.25 to 1.00
September 30, 2001 2.25 to 1.00 2.25 to 1.00 2.00 to 1.00
December 31, 2001 2.25 to 1.00 2.25 to 1.00 2.00 to 1.00
March 31, 2002 2.25 to 1.00 2.25 to 1.00 2.00 to 1.00
June 30, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
December 31, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
March 31, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
December 31, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
March 31, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00";
</TABLE>
(d) by deleting from clause (i)(x) of Subsection 7.1(d) the reference
to "$135,000,000" and substituting in lieu thereof a reference to
"$110,000,000".
(e) by deleting Subsection 7.1(e) in its entirety and substituting in
lieu thereof the following:
"(e) CONSOLIDATED EBITDA. Permit the Consolidated EBITDA of
the Borrower and its Subsidiaries for any period of four
consecutive fiscal quarters of the Borrower ending on any date
set forth below to be less than the amount set forth below
opposite such date:
<PAGE>
7
<TABLE>
<CAPTION>
Consolidated
Date EBITDA
---- ------
<S> <C>
June 30, 1999 $85,000,000
September 30, 1999 $80,000,000
December 31, 1999 $85,000,000
March 31, 2000 $105,000,000
June 30, 2000 $115,000,000
September 30, 2000 $120,000,000
December 31, 2000 $125,000,000
March 31, 2001 $130,000,000
June 30, 2001 $135,000,000
September 30, 2001 $140,000,000
December 31, 2001 $145,000,000
March 31, 2002 $150,000,000
June 30, 2002 $150,000,000
September 30, 2002 $150,000,000
December 31, 2002 $150,000,000
March 31, 2003 $150,000,000
June 30, 2003 $150,000,000
September 30, 2003 $150,000,000
December 31, 2003 $150,000,000
March 31, 2004 $150,000,000
June 30, 2004 $150,000,000
September 30, 2004 $150,000,000
</TABLE>
; PROVIDED that for purposes of calculating Consolidated EBITDA of the
Borrower and its Subsidiaries for any such period of four consecutive
fiscal quarters, the Consolidated EBITDA of any Person acquired by the
Borrower or its Subsidiaries which upon such acquisition becomes a
Consolidated Subsidiary or is merged into the Borrower or a Subsidiary
(including, without limitation, Dawson and its Subsidiaries) during such
period shall be included on a PRO FORMA basis for such period of four full
fiscal quarters (assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith
occurred on the first day of such period of four full fiscal quarters and
assuming only such cost reductions as are related to such acquisition and
are realizable on or before the date of calculation) if the consolidated
balance sheet of such acquired Person and its consolidated Subsidiaries as
at the end of the period preceding the acquisition of such Person and the
related consolidated statements of income and stockholders' equity and of
cash flows for such period (i) have been previously provided to the
Administrative Agent and the Lenders and (ii) either (A) have been reported
on without a qualification arising out of the scope of the audit (other
than a "going concern" or like qualification or exception) by independent
certified public accountants of nationally recognized standing or (B) have
been found acceptable by the Administrative Agent."
<PAGE>
8
Section 6. AMENDMENTS TO SUBSECTION 7.7 (LIMITATION ON RESTRICTED
PAYMENTS). Subsection 7.7 of the Credit Agreement is hereby amended as follows:
(a) by deleting clause (a) thereof in its entirety and redesignating
the existing clauses (b) and (c) thereof as the new clauses (a) and (b),
respectively; and
(b) by deleting clause (iii) from the proviso contained therein and
inserting in lieu thereof the following new clause (iii):
"(iii) after giving PRO FORMA effect to such payment and conversion as
if it had occurred on the last day of the most recently ended fiscal
quarter, the Consolidated Debt-to-Capitalization Ratio would not
exceed 40%."
Section 7. AMENDMENT TO SUBSECTION 7.10 (LIMITATION ON OPTIONAL
PAYMENTS AND MODIFICATIONS, ETC.). Subsection 7.10 of the Credit Agreement is
hereby amended by deleting the first proviso contained therein and inserting in
lieu thereof the following new proviso:
"PROVIDED that the Borrower may not repurchase, redeem or defease
such Convertible Subordinated Debentures at any time when the
Consolidated Debt-to-Capitalization Ratio is or, after giving effect
to such repurchase or redemption, would be, greater than 50%."
Section 8. DELETION OF ANNEX II TO CREDIT AGREEMENT (PRICING GRID B).
Annex II to the Credit Agreement is hereby deleted in its entirety.
Section 9. AMENDMENT TO ANNEX I TO CREDIT AGREEMENT (PRICING GRID A).
Annex I to the Credit Agreement is hereby amended by deleting such Annex I in
its entirety and substituting in lieu thereof Annex I to this Amendment.
Section 10. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall become effective as of the date (the "Effective Date") that the
Administrative Agent shall have received (a) this Amendment, executed and
delivered by a duly authorized officer of the Borrower and the Required Lenders
(and, in the case of Section 3 of this Amendment, the Required Prepayment
Lenders), (b) the attached Acknowledgment and Consent, executed and delivered by
a duly authorized officer of each of the signatories thereto, and (c) such other
corporate documents and resolutions as the Administrative Agent may request.
Section 11. MISCELLANEOUS.
(a) REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Administrative Agent and the Lenders that as of the
Effective Date, after giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing, and the representations and
warranties made by the Borrower in or pursuant to the Credit Agreement or
any Loan Documents are true and correct in all material respects on and as
of the Effective Date as if made on such date (except to the extent that
<PAGE>
9
any such representations and warranties expressly relate to an earlier
date, in which case such representations and warranties were true and
correct in all material respects on and as of such earlier date).
(b) CONTINUING EFFECT OF THE CREDIT AGREEMENT. This Amendment shall
not constitute an amendment or waiver of or consent to any provision of the
Credit Agreement not expressly referred to herein and shall not be
construed as an amendment, waiver or consent to any action on the part of
the borrower that would require an amendment, waiver or consent to any
action on the part of the Borrower that would require an amendment, waiver
or consent of the Agents or the Lenders except as expressly stated herein.
Except as expressly consented to hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
(c) FEES AND EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent on demand for all its reasonable out-of-pocket costs
and expenses incurred in connection with the preparation and execution of
this Amendment, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts (including by telecopy) by the parties hereto, each of which
counterparts when so executed shall be an original, but all counterparts
taken together shall constitute one and the same instrument.
(e) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
KEY ENERGY SERVICES, INC. (formerly
known as Key Energy Group, Inc.)
By: /s/ Stephen E. McGregor
--------------------------------
Title: Executive Vice President
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent and as a Lender
By: /s/ Thomas A. Majeski
--------------------------------
Title: Senior Vice President
NORWEST BANK TEXAS, N.A.
By: /s/ Dale Gravelle
--------------------------------
Title: Vice President
BANK POLSKA KASA OPIEKI S.A.,
PEKAO S.A. GROUP, NEW YORK
BRANCH
By: /s/ Hussein B. El-Tawil
--------------------------------
Title: Vice President
BANK LEUMI, USA
By: /s/ Joung Hee Hong
--------------------------------
Title: Vice President
<PAGE>
BOEING CAPITAL CORPORATION
By: /s/ David Nelson
--------------------------------
Title: Special Credit Officer
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ Eric M. Moore
--------------------------------
Title: Assistant Vice President
KZH HIGHLAND-2 LLC
By: /s/ Virginia Conway
--------------------------------
Title: Authorized Agent
KZH PAMCO LLC
By: /s/ Virginia Conway
--------------------------------
Title: Authorized Agent
PAMCO CAYMAN LTD.
By: Highland Capital Management,
L.P., as Collateral Manager
By: /s/ James Dondero, CFA, CPA
--------------------------------
Title: President Highland Capital
Management L.P.
<PAGE>
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim Investments, Inc. as its
Investment Manager
By: /s/ Robert L. Wilson
--------------------------------
Title: Vice President
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc., as
its Investment Manager
By: /s/ Robert L. Wilson
--------------------------------
Title: Vice President
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Gil Marchand
--------------------------------
Title:
--------------------------------
MERRILL SENIOR FLOATING RATE
FUND, INC.
By: /s/ Gil Marchand
--------------------------------
Title:
--------------------------------
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under that
certain Amended and Restated Master Guarantee and Collateral Agreement, dated as
of June 6, 1997, as amended and restated through September 14, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"), made by
each of such corporations in favor of the Collateral Agent, ackowledges the
foregoing amendment and confirms and agrees that the Guarantee is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects and the guarantee and all of the Collateral (as defined in the
Guarantee) do, and shall continue to, secure the payment of all of the
Obligations (as defined in the Guarantee) pursuant to the terms of the
Guarantee. Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement referred to in the Amendment
to which this Acknowledgment and Consent is attached.
YALE E. KEY, INC.
KEY ENERGY DRILLING, INC.
WELLTECH EASTERN, INC.
ODESSA EXPLORATION INCORPORATED
KALKASKA OILFIELD SERVICES, INC.
WELL-CO OIL SERVICE, INC.
PATRICK WELL SERVICE, INC.
MOSLEY WELL SERVICE, INC.
RAM OIL WELL SERVICE, INC.
ROWLAND TRUCKING CO., INC.
LANDMARK FISHING & RENTAL, INC.
DUNBAR WELL SERVICE, INC.
FRONTIER WELL SERVICE, INC.
KEY ROCKY MOUNTAIN, INC.
KEY FOUR CORNERS, INC.
JETER SERVICE CO.
JETER WELL SERVICE, INC.
JETER TRANSPORTATION, INC.
INDUSTRIAL OILFIELD SUPPLY, INC.
BROOKS WELL SERVICING, INC.
UPDIKE BROTHERS, INC.
J.W. GIBSON WELL SERVICE COMPANY
KEY ENERGY SERVICES-SOUTH TEXAS, INC.
WATSON OILFIELD SERVICE & SUPPLY, INC.
WELLTECH MID-CONTINENT, INC.
<PAGE>
DAWSON PRODUCTION MANAGEMENT, INC.
DAWSON PRODUCTION ACQUISITION CORP.
DAWSON PRODUCTION TAYLOR, INC.
KEY ENERGY SERVICES-CALIFORNIA, INC.
By: /s/ Stephen E. McGregor
--------------------------------
Name: Stephen E. McGregor
-------------------
Title: Vice President of each
of the foregoing companies
DAWSON PRODUCTION PARTNERS, L.P.
By: DAWSON PRODUCTION MANAGEMENT,
INC., Its sole general partner,
By: /s/ Stephen E. McGregor
-----------------------
Name: Stephen E. McGregor
-------------------
Title: Vice President
<PAGE>
<TABLE>
<CAPTION>
Annex I
PRICING GRID
==================================================================================================================================
REVOLVING LOANS
==================================================================================================================================
Level Pricing Ratio Applicable Margin for Loans Applicable Margin for Loans Commitment
which are Eurodollar Loans which are Base Rate Loans Fee Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I less than or equal to 3.0 to 1.0 2.25 0.75 0.25
- ----------------------------------------------------------------------------------------------------------------------------------
II greater than 3.0 to 1.0 but less 2.50 1.00 0.375
than or equal to 3.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
III greater than 3.5 to 1.0 but less 2.75 1.25 0.375
than or equal to 4.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
IV greater than 4.0 to 1.0 but less 3.00 1.50 0.50
than or equal to 4.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
V greater than 4.5 to 1.0 but 3.25 1.75 0.50
less than or equal to 5.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
VI greater than 5.0 to 1.0 3.50 2.00 0.50
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
TRANCHE A TERM LOANS
==================================================================================================================================
Level Pricing Ratio Applicable Margin for Loans Applicable Margin for Loans Commitment
which are Eurodollar Loans which are Base Rate Loans Fee Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I less than or equal to 3.0 to 1.0 2.25 0.75 0.25
- ----------------------------------------------------------------------------------------------------------------------------------
II greater than 3.0 to 1.0 but less 2.50 1.00 0.375
than or equal to 3.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
III greater than 3.5 to 1.0 but less 2.75 1.25 0.375
thank or equal to 4.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
IV greater than 4.0 to 1.0 but less 3.00 1.50 0.50
than or equal to 4.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
V greater than 4.5 to 1.0 but less 3.25 1.75 0.50
than or equal to 5.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
VI greater than 5.0 to 1.0 3.50 2.00 0.50
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
TRANCHE B TERM LOANS
==================================================================================================================================
Level Pricing Ratio Applicable Margin for Loans Applicable Margin for Loans Commitment
which are Eurodollar Loans which are Base Rate Loans Fee Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I less than or equal to 3.0 to 1.0 4.00 2.50 0.25
- ----------------------------------------------------------------------------------------------------------------------------------
II greater than 3.0 to 1.0 but less 4.00 2.50 0.375
than or equal to 3.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
III greater than 3.5 to 1.0 but less 4.00 2.50 0.375
thank or equal to 4.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
IV greater than 4.0 to 1.0 but less 4.00 2.50 0.50
than or equal to 4.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
V greater than 4.5 to 1.0 but less 4.00 2.50 0.50
than or equal to 5.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
VI greater than > 5.0 to 1.0 4.00 2.50 0.50
==================================================================================================================================
</TABLE>
<PAGE>
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of April 15, 1999 (this "Amendment"), to
the Second Amended and Restated Credit Agreement, dated as of June 6, 1997, as
amended and restated through September 14, 1998 and as amended by the First
Amendment dated as of November 19, 1998, the Second Amendment dated as of
December 29, 1998 and the Third Amendment dated as of April 8, 1999 (the "Credit
Agreement"), among Key Energy Group, Inc. (now known as Key Energy Services,
Inc.), a Maryland corporation (the "Borrower"), the several Lenders from time to
time parties thereto, PNC Bank, National Association ("PNC"), as Administrative
Agent, Norwest Bank Texas, N.A., as Collateral Agent and PNC Capital Markets,
Inc., as Arranger.
The parties hereto hereby agree as follows:
Section 1. DEFINED TERMS. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein as defined terms are so used
as so defined.
Section 2. AMENDMENTS TO SUBSECTION 1.1 (DEFINITIONS). Subsection 1.1
of the Credit Agreement is hereby amended as follows:
(a) by deleting the definition of "$125,000,000 Equity Issuance Date"
in its entirety;
(b) by deleting the definition of "$150,000,000 Equity Issuance Date"
in its entirety and substituting in lieu thereof the following new
definition:
"'$150,000,000 EQUITY ISSUANCE DATE': any date occurring after
April 7, 1999 and on or prior to May 15, 1999 on which the Borrower
shall have received at least $150,000,000 (but less than $175,000,000)
of gross cash proceeds from the issuance of its Capital Stock to a
Person or to Persons that, prior to such issuance, are not Affiliates
of the Borrower.";
(c) by inserting in the appropriate alphabetical order the following
new definition of "$175,000,000 Equity Issuance Date":
"'$175,000,000 EQUITY ISSUANCE DATE': any date occurring after
April 7, 1999 and on or prior to May 15, 1999 on which the Borrower
shall have received at least $175,000,000 of gross cash proceeds from
the issuance of its Capital Stock to a Person or to Persons that,
prior to such issuance, are not Affiliates of the Borrower.";
(d) by inserting in the appropriate alphabetical order the following
new definition of "Consolidated Fixed Charge Coverage Ratio":
<PAGE>
2
"'CONSOLIDATED FIXED CHARGE COVERAGE RATIO': for any period, the
ratio of (a) the sum of (i) Consolidated EBITDA of the Borrower and
its Subsidiaries for such period and (ii) Consolidated Liquidity as of
the end of the last day of such period to (b) the sum of (i)
Consolidated Interest Expense for such period, (ii) the aggregate
amount of Capital Expenditures made by the Borrower and its
Subsidiaries during such period and (iii) the aggregate amount of
principal payments scheduled to be made during the twelve months
following the last day of such period in respect of Indebtedness of
the Borrower or any of its Subsidiaries (including scheduled principal
payments in respect of the Term Loans); PROVIDED that for purposes of
calculating Consolidated EBITDA of the Borrower and its Subsidiaries
for any period of four full fiscal quarters, the Consolidated EBITDA
of any Person acquired by the Borrower or its Subsidiaries which upon
such acquisition becomes a Consolidated Subsidiary or is merged into
the Borrower or a Subsidiary (including, without limitation, Dawson
and its Subsidiaries) during such period shall be included on a PRO
FORMA basis for such period of four full fiscal quarters (assuming the
consummation of each such acquisition and the incurrence or assumption
of any Indebtedness in connection therewith occurred on the first day
of such period of four full fiscal quarters and assuming only such
cost reductions as are related to such acquisition and are realizable
on or before the date of calculation) if the consolidated balance
sheet of such acquired Person and its consolidated Subsidiaries as at
the end of the period preceding the acquisition of such Person and the
related consolidated statements of income and stockholders' equity and
of cash flows for such period (i) have been previously provided to the
Administrative Agent and the Lenders and (ii) either (A) have been
reported on without a qualification arising out of the scope of the
audit (other than a "going concern" or like qualification or
exception) by independent certified public accountants of nationally
recognized standing or (B) have been found acceptable by the
Administrative Agent."; and
(e) by inserting in the appropriate alphabetical order the following
new definition of "Consolidated Liquidity":
"'CONSOLIDATED LIQUIDITY': at any date, the sum of (a) the amount
of cash and Cash Equivalents in excess of $5,000,000 held by the
Borrower and its Subsidiaries on such date and (b) the aggregate
Available Revolving Commitments of all Lenders on such date."
Section 3. AMENDMENT TO SUBSECTION 2.10(b) (MANDATORY PREPAYMENTS AND
COMMITMENT REDUCTIONS - EQUITY ISSUANCES). Subsection 2.10(b) of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following new Subsection 2.10(b):
<PAGE>
3
"(b) Unless the Required Prepayment Lenders shall otherwise agree, if
any Capital Stock shall be issued by the Borrower or any of its
Subsidiaries, an amount equal to (i) 100% of the Net Cash Proceeds received
from all such issuances of Capital Stock from and after the Closing Date up
to an aggregate amount equal to $75,000,000, (ii) 55% of the Net Cash
Proceeds received from all such issuances of Capital Stock from and after
the Closing Date in excess of an aggregate amount equal to $75,000,000 but
less than $165,750,000, and (iii) 25% of the Net Cash Proceeds received
from all such issuances of Capital Stock from and after the Closing Date in
excess of an aggregate amount equal to $165,750,000, shall be applied on
the date of such issuance or incurrence toward the prepayment of the Term
Loans (or reduction of Term Loan Commitments) as set forth in Section
2.10(f); PROVIDED that so long as no Event of Default has occurred or is
continuing pursuant to Sections 8(a), 8(e)(i), 8(e)(ii), 8(f) or 8(k), Net
Cash Proceeds of Capital Stock (other than Disqualified Stock) issued by
the Borrower may be used to prepay the Put Facility and to the extent so
used shall not be required to be used as mandatory prepayments or Term Loan
Commitment reductions hereunder."
Section 4. AMENDMENTS TO SUBSECTION 7.1 (FINANCIAL CONDITION
COVENANTS). Subsection 7.1 is hereby amended as follows (PROVIDED that, for
purposes of application of each of the financial covenants set forth in
Subsection 7.1 of the Credit Agreement with respect to the fiscal quarter ended
March 31, 1999, such Subsection 7.1 shall be applied in accordance with the
terms and provisions thereof as in effect on April 7, 1999 (except that the
amendment contained in Section 2(a) of the Third Amendment referred to in the
preamble to this Amendment shall be deemed to be in effect on March 31, 1999):
(a) by deleting Subsection 7.1(a) in its entirety and substituting in
lieu thereof the following:
"7.1 FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED DEBT-TO-CAPITALIZATION RATIO. Permit the
Consolidated Debt-to-Capitalization Ratio as of any date set
forth below to exceed the percentage set forth below opposite
such date (i) under the column headed "Base Case" below (unless
the $150,000,000 Equity Issuance Date or the $175,000,000 Equity
Issuance Date shall have occurred, in which case the following
clause (ii) or (iii), respectively, shall apply), (ii) under the
column headed "$150,000,000 Issuance" below, if the $150,000,000
Equity Issuance Date shall have occurred, or (iii) under the
column headed "$175,000,000 Issuance" below, if the $175,000,000
Equity Issuance Date shall have occurred:
<PAGE>
4
<TABLE>
<CAPTION>
Consolidated Debt-to-Capitalization Ratio
$150,000,000 $175,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 90.0% 75.0% 79.0%
September 30, 1999 90.0% 75.0% 79.0%
December 31, 1999 90.0% 75.0% 79.0%
March 31, 2000 90.0% 75.0% 79.0%
June 30, 2000 78.0% 75.0% 79.0%
September 30, 2000 78.0% 75.0% 79.0%
December 31, 2000 78.0% 75.0% 79.0%
March 31, 2001 78.0% 75.0% 75.0%
June 30, 2001 78.0% 75.0% 75.0%
September 30, 2001 76.0% 72.5% 72.5%
December 31, 2001 76.0% 72.5% 72.5%
March 31, 2002 76.0% 72.5% 72.5%
June 30, 2002 76.0% 72.5% 72.5%
September 30, 2002 72.5% 70.0% 70.0%
December 31, 2002 72.5% 70.0% 70.0%
March 31, 2003 72.5% 70.0% 70.0%
June 30, 2003 72.5% 70.0% 70.0%
September 30, 2003 72.5% 70.0% 70.0%
December 31, 2003 70.0% 65.0% 65.0%
March 31, 2004 70.0% 65.0% 65.0%
June 30, 2004 70.0% 65.0% 65.0%
September 30, 2004 70.0% 65.0% 65.0%
---------
</TABLE>
(b) by deleting Subsection 7.1(b) in its entirety and substituting in
lieu thereof the following:
"(b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the
Consolidated Interest Coverage Ratio for any period of four
consecutive fiscal quarters of the Borrower ending as of any date set
forth below to be less than the ratio set forth below opposite such
date (i) under the column headed "Base Case" below (unless the
$150,000,000 Equity Issuance Date or the $175,000,000 Equity Issuance
Date shall have occurred, in which case the following clause (ii) or
(iii), respectively, shall apply), (ii) under the column headed
"$150,000,000 Issuance" below, if the $150,000,000 Equity Issuance
Date shall have occurred, or (iii) under the column headed
"$175,000,000 Issuance" below, if the $175,000,000 Equity Issuance
Date shall have occurred:
<PAGE>
5
<TABLE>
<CAPTION>
Consolidated Interest Coverage Ratio
$150,000,000 $175,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 1.25 to 1.00 1.35 to 1.00 N/A
September 30, 1999 1.15 to 1.00 1.20 to 1.00 N/A
December 31, 1999 1.20 to 1.00 1.35 to 1.00 N/A
March 31, 2000 1.40 to 1.00 1.45 to 1.00 N/A
June 30, 2000 1.50 to 1.00 1.75 to 1.00 N/A
September 30, 2000 1.75 to 1.00 1.75 to 1.00 N/A
December 31, 2000 1.75 to 1.00 1.75 to 1.00 N/A
March 31, 2001 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2001 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2001 2.00 to 1.00 2.25 to 1.00 2.25 to 1.00
December 31, 2001 2.25 to 1.00 2.50 to 1.00 2.50 to 1.00
March 31, 2002 2.50 to 1.00 2.75 to 1.00 2.75 to 1.00
June 30, 2002 2.50 to 1.00 2.75 to 1.00 2.75 to 1.00
September 30, 2002 2.50 to 1.00 3.00 to 1.00 3.00 to 1.00
December 31, 2002 2.75 to 1.00 3.25 to 1.00 3.25 to 1.00
March 31, 2003 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
June 30, 2003 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
September 30, 2003 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
December 31, 2003 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
March 31, 2004 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
June 30, 2004 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
September 30, 2004 3.00 to 1.00 3.50 to 1.00 3.50 to 1.00
</TABLE>
; PROVIDED, that for the purposes of determing the ratio described
above for the fiscal quarter of the Borrower ending June 30, 1999,
Consolidated Interest Expense shall be deemed to equal Consolidated
Interest Expense for the period commencing October 1, 1998 and ending
June 30, 1999, multiplied by 4/3.";
(c) by deleting Subsection 7.1(c) in its entirety and substituting in
lieu thereof the following:
"(c) CONSOLIDATED SENIOR LEVERAGE RATIO. Permit the Consolidated
Senior Leverage Ratio as of any date set forth below to exceed the
ratio set forth below opposite such date (i) under the column headed
"Base Case" below (unless the $150,000,000 Equity Issuance Date or the
$175,000,000 Equity Issuance Date shall have occurred, in which case
the following clause (ii) or (iii), respectively, shall apply), (ii)
under the column headed "$150,000,000 Issuance" below, if the
$150,000,000 Equity Issuance Date shall have occurred, or (iii) under
the column headed "$175,000,000 Issuance" below, if the $175,000,000
Equity Issuance Date shall have occurred:
<PAGE>
6
<TABLE>
<CAPTION>
Consolidated Senior Leverage Ratio
$150,000,000 $175,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 6.00 to 1.00 4.50 to 1.00 N/A
September 30, 1999 6.00 to 1.00 4.50 to 1.00 N/A
December 31, 1999 6.00 to 1.00 4.25 to 1.00 N/A
March 31, 2000 4.75 to 1.00 3.75 to 1.00 N/A
June 30, 2000 3.50 to 1.00 3.25 to 1.00 N/A
September 30, 2000 3.25 to 1.00 2.75 to 1.00 N/A
December 31, 2000 3.00 to 1.00 2.50 to 1.00 N/A
March 31, 2001 2.75 to 1.00 2.50 to 1.00 2.50 to 1.00
June 30, 2001 2.75 to 1.00 2.25 to 1.00 2.25 to 1.00
September 30, 2001 2.25 to 1.00 2.00 to 1.00 2.00 to 1.00
December 31, 2001 2.25 to 1.00 2.00 to 1.00 2.00 to 1.00
March 31, 2002 2.25 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
December 31, 2002 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
March 31, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
December 31, 2003 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
March 31, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
June 30, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00
September 30, 2004 2.00 to 1.00 2.00 to 1.00 2.00 to 1.00";
</TABLE>
(d) by deleting Subsection 7.1(d) in its entirety and substituting in
lieu thereof the following:
"(d) CONSOLIDATED NET WORTH. Permit the Consolidated Net Worth of
the Borrower and Subsidiaries to be less than the sum of (i) (x) if
the $175,000,000 Equity Issuance Date shall have occurred,
$195,000,000, and (y) otherwise, the difference between (A)
$110,000,000 and (B) the amount (in the aggregate for the following
clauses (I), (II) and (III), taken together, not to exceed
$15,000,000) of (I) non-recurring transaction expenses incurred in
connection with the consummation of the Acquisition, (II) related
financing and restructuring charges and (III) writeoff of goodwill and
<PAGE>
7
licensing agreements, PLUS (ii) 75% of Consolidated Net Income of the
Borrower and its Subsidiaries (to the extent a positive number) for
each fiscal quarter completed after the Closing Date commencing with
the fiscal quarter ending December 31, 1998, PLUS (iii) 75% of the Net
Cash Proceeds of any offerings or issuances of Capital Stock of the
Borrower or any of its Subsidiaries after the Closing Date (other than
the Net Cash Proceeds of any Capital Stock issued on the $175,000,000
Equity Issuance Date), PLUS (iv) 75% of the increase in the
Consolidated Net Worth of the Borrower and its Subsidiaries resulting
from any conversion of the 1997 Convertible Subordinated Notes or any
future convertible indebtedness of the Borrower and its
Subsidiaries.";
(e) by deleting Subsection 7.1(e) in its entirety and substituting in
lieu thereof the following:
"(e) CONSOLIDATED EBITDA. Permit the Consolidated EBITDA of the
Borrower and its Subsidiaries for any period of four consecutive
fiscal quarters of the Borrower ending on any date set forth below to
be less than the amount set forth below opposite such date (i) under
the column headed "Base Case" below (unless the $150,000,000 Equity
Issuance Date or the $175,000,000 Equity Issuance Date shall have
occurred, in which case the following clause (ii) or (iii),
respectively, shall apply), (ii) under the column headed "$150,000,000
Issuance" below, if the $150,000,000 Equity Issuance Date shall have
occurred, or (iii) under the column headed "$175,000,000 Issuance"
below, if the $175,000,000 Equity Issuance Date shall have occurred:
<TABLE>
<CAPTION>
$150,000,000 $175,000,000
Date Base Case Issuance Issuance
---- --------- -------- --------
<S> <C> <C> <C>
June 30, 1999 $85,000,000 $85,000,000 $50,000,000
September 30, 1999 $80,000,000 $80,000,000 $50,000,000
December 31, 1999 $85,000,000 $85,000,000 $50,000,000
March 31, 2000 $105,000,000 $105,000,000 $50,000,000
June 30, 2000 $115,000,000 $115,000,000 $50,000,000
September 30, 2000 $120,000,000 $120,000,000 $50,000,000
December 31, 2000 $125,000,000 $125,000,000 $50,000,000
March 31, 2001 $130,000,000 $130,000,000 $130,000,000
June 30, 2001 $135,000,000 $135,000,000 $135,000,000
September 30, 2001 $140,000,000 $140,000,000 $140,000,000
December 31, 2001 $145,000,000 $145,000,000 $145,000,000
March 31, 2002 $150,000,000 $150,000,000 $150,000,000
<PAGE>
8
June 30, 2002 $150,000,000 $150,000,000 $150,000,000
September 30, 2002 $150,000,000 $150,000,000 $150,000,000
December 31, 2002 $150,000,000 $150,000,000 $150,000,000
March 31, 2003 $150,000,000 $150,000,000 $150,000,000
June 30, 2003 $150,000,000 $150,000,000 $150,000,000
September 30, 2003 $150,000,000 $150,000,000 $150,000,000
December 31, 2003 $150,000,000 $150,000,000 $150,000,000
March 31, 2004 $150,000,000 $150,000,000 $150,000,000
June 30, 2004 $150,000,000 $150,000,000 $150,000,000
September 30, 2004 $150,000,000 $150,000,000 $150,000,000
</TABLE>
; PROVIDED that for purposes of calculating Consolidated EBITDA of the
Borrower and its Subsidiaries for any such period of four consecutive
fiscal quarters, the Consolidated EBITDA of any Person acquired by the
Borrower or its Subsidiaries which upon such acquisition becomes a
Consolidated Subsidiary or is merged into the Borrower or a Subsidiary
(including, without limitation, Dawson and its Subsidiaries) during
such period shall be included on a PRO FORMA basis for such period of
four full fiscal quarters (assuming the consummation of each such
acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period of four
full fiscal quarters and assuming only such cost reductions as are
related to such acquisition and are realizable on or before the date
of calculation) if the consolidated balance sheet of such acquired
Person and its consolidated Subsidiaries as at the end of the period
preceding the acquisition of such Person and the related consolidated
statements of income and stockholders' equity and of cash flows for
such period (i) have been previously provided to the Administrative
Agent and the Lenders and (ii) either (A) have been reported on
without a qualification arising out of the scope of the audit (other
than a "going concern" or like qualification or exception) by
independent certified public accountants of nationally recognized
standing or (B) have been found acceptable by the Administrative
Agent.";
(f) by adding a new Subsection 7.1(f) as follows:
"(f) CONSOLIDATED LIQUIDITY. From and after the $175,000,000
Equity Issuance Date (if any) until January 1, 2001, permit
Consolidated Liquidity on the last day of any fiscal quarter of the
Borrower commencing with the fiscal quarter ending June 30, 1999 to be
less than $25,000,000."; and
(g) by adding a new Subsection 7.1(g) as follows:
<PAGE>
9
"(g) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters of the Borrower ending as of any date set
forth below to be less than the ratio set forth below opposite such
date:
<TABLE>
<CAPTION>
Consolidated
Fixed Charge
Date Coverage Ratio
---- --------------
<S> <C>
June 30, 1999 1.25 to 1.00
September 30, 1999 1.15 to 1.00
December 31, 1999 1.00 to 1.00
March 31, 2000 1.00 to 1.00
June 30, 2000 1.00 to 1.00
September 30, 2000 1.00 to 1.00
December 31, 2000 1.00 to 1.00"
</TABLE>
Section 5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall become effective as of the date (the "Effective Date") that the
Administrative Agent shall have received (a) this Amendment, executed and
delivered by a duly authorized officer of the Borrower and the Required Lenders
(and, in the case of Section 3 of this Amendment, the Required Prepayment
Lenders), (b) the attached Acknowledgment and Consent, executed and delivered by
a duly authorized officer of each of the signatories thereto, and (c) such other
corporate documents and resolutions as the Administrative Agent may request.
Section 6. MISCELLANEOUS.
(a) REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Administrative Agent and the Lenders that as of the
Effective Date, after giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing, and the representations and
warranties made by the Borrower in or pursuant to the Credit Agreement or
any Loan Documents are true and correct in all material respects on and as
of the Effective Date as if made on such date (except to the extent that
any such representations and warranties expressly relate to an earlier
date, in which case such representations and warranties were true and
correct in all material respects on and as of such earlier date).
<PAGE>
10
(b) CONTINUING EFFECT OF THE CREDIT AGREEMENT. This Amendment shall
not constitute an amendment or waiver of or consent to any provision of the
Credit Agreement not expressly referred to herein and shall not be
construed as an amendment, waiver or consent to any action on the part of
the borrower that would require an amendment, waiver or consent to any
action on the part of the Borrower that would require an amendment, waiver
or consent of the Agents or the Lenders except as expressly stated herein.
Except as expressly consented to hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
(c) FEES AND EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent on demand for all its reasonable out-of-pocket costs
and expenses incurred in connection with the preparation and execution of
this Amendment, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts (including by telecopy) by the parties hereto, each of which
counterparts when so executed shall be an original, but all counterparts
taken together shall constitute one and the same instrument.
(e) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
KEY ENERGY SERVICES, INC. (formerly
known as Key Energy Group, Inc.)
By: /s/ Stephen E. McGregor
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
--------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent and as a Lender
By: /s/ Thomas K. Grundman
--------------------------------
Title: Senior Vice President
--------------------------------
<PAGE>
NORWEST BANK TEXAS, N.A.
By: /s/ Dale Gravelle
--------------------------------
Title: Vice President
--------------------------------
BANK POLSKA KASA OPIEKI S.A.,
PEKAO S.A. GROUP, NEW YORK
BRANCH
By: /s/ Hussein El-Tawil
--------------------------------
Title: Vice President
--------------------------------
BANK LEUMI, USA
By: /s/ Joung Hee Hong
--------------------------------
Title: Vice President
--------------------------------
BOEING CAPITAL CORPORATION
By: /s/ Jim Hammersmith
--------------------------------
Title: Senior Documentation Officer
--------------------------------
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ Eric M. Moore
--------------------------------
Title: Assistant Vice President
--------------------------------
<PAGE>
KZH HIGHLAND-2 LLC
By: /s/ Virginia Conway
--------------------------------
Title: Authorized Agent
--------------------------------
KZH PAMCO LLC
By: /s/ Virginia Conway
--------------------------------
Title: Authorized Agent
--------------------------------
PAMCO CAYMAN LTD.
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ James Dondero, CFA, CPA
--------------------------------
Title: President
--------------------------------
PAM CAPITAL FUNDING, L.P.
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ James Dondero, CFA, CPA
--------------------------------
Title: President of Highland Capital
Management, L.P.
--------------------------------
<PAGE>
ML CLO IV (Cayman)
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ James Dondero, CFA, CPA
--------------------------------
Title: President of Highland Capital
Management, L.P.
--------------------------------
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim Investments, Inc. as its
Investment Manager
By:
--------------------------------
Title:
--------------------------------
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc., as its
Investment Manager
By:
--------------------------------
Title:
--------------------------------
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By:
--------------------------------
Title:
--------------------------------
MERRILL SENIOR FLOATING RATE
FUND, INC.
By:
--------------------------------
Title:
--------------------------------
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under that
certain Amended and Restated Master Guarantee and Collateral Agreement, dated as
of June 6, 1997, as amended and restated through September 14, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"), made by
each of such corporations in favor of the Collateral Agent, ackowledges the
foregoing amendment and confirms and agrees that the Guarantee is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects and the guarantee and all of the Collateral (as defined in the
Guarantee) do, and shall continue to, secure the payment of all of the
Obligations (as defined in the Guarantee) pursuant to the terms of the
Guarantee. Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement referred to in the Amendment
to which this Acknowledgment and Consent is attached.
YALE E. KEY, INC.
KEY ENERGY DRILLING, INC.
WELLTECH EASTERN, INC.
ODESSA EXPLORATION INCORPORATED
KALKASKA OILFIELD SERVICES, INC.
WELL-CO OIL SERVICE, INC.
PATRICK WELL SERVICE, INC.
MOSLEY WELL SERVICE, INC.
RAM OIL WELL SERVICE, INC.
ROWLAND TRUCKING CO., INC.
LANDMARK FISHING & RENTAL, INC.
DUNBAR WELL SERVICE, INC.
FRONTIER WELL SERVICE, INC.
KEY ROCKY MOUNTAIN, INC.
KEY FOUR CORNERS, INC.
JETER SERVICE CO.
JETER WELL SERVICE, INC.
JETER TRANSPORTATION, INC.
INDUSTRIAL OILFIELD SUPPLY, INC.
BROOKS WELL SERVICING, INC.
UPDIKE BROTHERS, INC.
J.W. GIBSON WELL SERVICE COMPANY
KEY ENERGY SERVICES-SOUTH TEXAS, INC.
WATSON OILFIELD SERVICE & SUPPLY, INC.
WELLTECH MID-CONTINENT, INC.
DAWSON PRODUCTION MANAGEMENT, INC.
DAWSON PRODUCTION ACQUISITION CORP.
DAWSON PRODUCTION TAYLOR, INC.
KEY ENERGY SERVICES-CALIFORNIA, INC.
By: /s/ Stephen E. McGregor
----------------------------------------
Name: Stephen E. McGregor
Title: Vice President of each of the
foregoing companies
<PAGE>
DAWSON PRODUCTION PARTNERS, L.P.
By: DAWSON PRODUCTION
MANAGEMENT, INC., Its sole
general partner,
By: /s/ Stephen E. McGregor
----------------------------------------
Name: Stephen E. McGregor
Title: Vice President
