<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 1-8038
------
KEY ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, 20th Floor, East Brunswick, NJ 08816
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number including area code: (732) 247-4822
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Common Shares outstanding at May 11, 2000 - 85,733,461
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and June 30, 1999..................... 3
Unaudited Consolidated Statements of
Operations for the Three and Nine Months Ended
March 31, 2000 and 1999.......................................... 4
Unaudited Consolidated Statements of
Cash Flows for the Three and Nine Months Ended
March 31, 2000 and 1999.......................................... 5
Unaudited Consolidated Statements of Comprehensive
Income for the Three and Nine Months Ended
March 31, 2000 and 1999.......................................... 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 22
Item 2. Changes in Securities and Use of Proceeds............................ 22
Item 3. Defaults Upon Senior Securities...................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.................. 22
Item 5. OtherInformation..................................................... 23
Item 6. Exhibits and Reports on Form 8-K..................................... 23
Signatures...................................................................... 24
</TABLE>
2
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
-------------- -------------
(UNAUDITED)
(THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash ......................................................................................... $ 22,601 $ 23,478
Accounts receivable, net of allowance for doubtful accounts ($8,548 - 2000, $6,790 - 1999) ... 114,529 91,998
Inventories .................................................................................. 14,490 12,742
Prepaid income taxes ......................................................................... - 916
Prepaid expenses and other current assets .................................................... 7,687 3,409
----------- -----------
Total current assets ........................................................................... 159,307 132,543
----------- -----------
Property and equipment:
Oilfield service equipment ................................................................... 652,706 632,854
Contract drilling equipment .................................................................. 88,799 86,225
Motor vehicles ............................................................................... 72,691 70,398
Oil and gas properties and other related equipment, successful efforts method ................ 43,249 42,925
Furniture and equipment ...................................................................... 10,617 8,452
Buildings and land ........................................................................... 31,946 31,086
----------- -----------
900,008 871,940
Accumulated depreciation & depletion ........................................................... (146,097) (102,378)
----------- -----------
Net property and equipment ..................................................................... 753,911 769,562
----------- -----------
Goodwill, net ................................................................................ 201,316 205,423
Deferred costs, net .......................................................................... 20,309 23,779
Notes receivable - related parties ........................................................... 5,150 2,835
Other assets ................................................................................. 9,234 13,996
----------- -----------
Total assets ................................................................................... $ 1,149,227 $ 1,148,138
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................................. $ 28,107 $ 18,527
Other accrued liabilities .................................................................... 22,105 25,291
Accrued interest ............................................................................. 8,534 13,079
Current portion of long-term debt ............................................................ 17,189 16,254
Current portion of deferred revenue .......................................................... 4,933 -
----------- -----------
Total current liabilities ...................................................................... 80,868 73,151
----------- -----------
Long-term debt, less current portion ........................................................... 681,692 683,724
Deferred revenue, less current portion ......................................................... 13,338 -
Non-current accrued expenses ................................................................... 1,685 1,739
Deferred tax liability ......................................................................... 93,708 101,430
Commitments and contingencies .................................................................. - -
Stockholders' equity:
Common stock, $.10 par value; 100,000,000 shares authorized, 85,401,356 and 83,155,072 shares
issued, respectively at March 31, 2000 and June 30, 1999, respectively ....................... 8,542 8,317
Additional paid-in capital ................................................................... 310,500 301,615
Treasury stock, at cost; 416,666 shares at March 31, 2000 and June 30, 1999 .................. (9,682) (9,682)
Accumulated other comprehensive income ....................................................... 35 9
Retained earnings (deficit) .................................................................. (31,459) (12,165)
----------- -----------
Total stockholders' equity ..................................................................... 277,936 288,094
----------- -----------
Total liabilities and stockholders' equity ..................................................... $ 1,149,227 $ 1,148,138
----------- -----------
----------- -----------
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------------------------------------------------------------------
(Thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Well servicing ............................... $ 141,306 $ 96,644 $ 410,845 $ 319,583
Contract drilling ............................ 14,337 7,204 49,007 39,354
Oil and gas production ....................... 2,359 1,195 7,021 4,802
Other, net ................................... 549 (120) 959 417
----------------------------- -----------------------------
158,551 104,923 467,832 364,156
----------------------------- -----------------------------
----------------------------- -----------------------------
COSTS AND EXPENSES:
Well servicing ............................... 99,320 76,813 297,486 235,080
Contract drilling ............................ 12,285 7,338 42,322 33,357
Oil and gas production ....................... 767 929 2,703 2,567
Depreciation, depletion and amortization ..... 18,264 18,498 53,140 43,628
General and administrative ................... 14,849 15,833 43,491 40,754
Bad debt expense ............................. 160 4,865 1,426 5,720
Debt issuance costs .......................... - 6,268 - 6,268
Interest ..................................... 18,636 21,032 54,138 48,359
Corporate restructuring ...................... - 1,500 - 8,199
----------------------------- -----------------------------
164,281 153,076 494,706 423,932
----------------------------- -----------------------------
----------------------------- -----------------------------
Income (loss) before income taxes ............... (5,730) (48,153) (26,874) (59,776)
Income tax benefit .............................. 1,580 16,102 7,580 19,765
----------------------------- -----------------------------
NET INCOME/(LOSS) ............................... $ (4,150) $ (32,051) $ (19,294) $ (40,011)
----------------------------- -----------------------------
----------------------------- -----------------------------
EARNINGS/(LOSS) PER SHARE :
Basic ......................................... $ (0.05) $ (1.75) $ (0.23) $ (2.19)
Diluted ....................................... $ (0.05) $ (1.75) $ (0.23) $ (2.19)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ......................................... 84,633 18,293 83,646 18,286
Diluted ....................................... 84,633 18,293 83,646 18,286
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ............................................. $ (4,150) $ (32,051) $ (19,294) $ (40,011)
ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO
NET CASH PROVIDED BY (USED IN) OPERATIONS:
Depreciation, depletion and amortization ...................... 18,264 18,498 53,140 43,628
Bad debt expense .............................................. 160 4,865 1,426 5,720
Amortization of deferred debt costs ........................... 1,273 1,626 3,820 3,990
Deferred income taxes ......................................... (1,580) (15,773) (7,580) (19,423)
(Gain) loss on sale of assets ................................. 87 (34) 283 13
Other non-cash items .......................................... (214) 7,099 (300) 12,936
CHANGE IN ASSETS AND LIABILITIES NET OF EFFECTS
FROM THE ACQUISITIONS:
(Increase) decrease in accounts receivable .................. 734 21,241 (23,957) 17,188
(Increase) decrease in other current assets ................. 3,296 537 (5,110) 1,731
Increase (decrease) in accounts payable ..................... (5,445) 7,079 9,580 (37,097)
Increase (decrease) in other current liabilities ............ (4,038) 1,246 (7,731) 1,578
Other assets and liabilities ................................ (1,336) (6,466) (3,300) (6,605)
------------------------- -------------------------
Net cash provided (used) by operating activities .............. 7,051 7,867 1,577 (16,352)
------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - oilfield service operations ............ (6,324) (5,090) (15,769) (19,617)
Capital expenditures - oil and gas well drilling operations ... (973) (593) (4,194) (2,039)
Capital expenditures - oil and gas operations ................. (202) (448) (343) (3,828)
Capital expenditures - other .................................. (740) (827) (2,567) (827)
Proceeds from sale of fixed assets ............................ 383 5,477 2,352 5,637
Notes receivable from related parties ......................... - - (2,065) -
Cash received in acquisitions ................................. - - - 27,252
Acquisitions - oilfield service operations .................... - - - (275,106)
------------------------- -------------------------
Net cash used in investing activities ......................... (7,856) (1,481) (22,586) (268,528)
------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt and capital lease obligations ...... (11,703) (1,971) (17,775) (6,176)
Repayment of long-term debt ................................... - (148,594) - (288,594)
Borrowings under line-of-credit ............................... - 20,000 12,000 458,000
Proceeds from long-term debt .................................. - 142,566 - 142,566
Proceeds paid for debt issuance costs ......................... - (5,681) - (25,317)
Proceeds from other long-term debt ............................ - 130 - 153
Proceeds from forward sale .................................... 20,000 - 20,000 -
Proceeds from stock option warrants ........................... - 7,434 - 7,434
Proceeds from warrants exercised .............................. 5,123 - 5,123 -
Proceeds from stock options exercised ......................... 784 - 784 -
------------------------- -------------------------
Net cash provided by (used in) financing activities ........... 14,204 13,884 20,132 288,066
------------------------- -------------------------
Net increase (decrease) in cash ............................... 13,399 20,270 (877) 3,186
Cash at beginning of period ................................... 9,202 8,181 23,478 25,265
------------------------- -------------------------
Cash at end of period ......................................... $ 22,601 $ 28,451 $ 22,601 $ 28,451
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
5
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
------------------------- -------------------------
(Thousands)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) .......................................... $ (4,150) $(32,051) $(19,294) $(40,011)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on available-for-sale securities ........ - - - 1,200
Foreign currency translation gain, net of tax of $14 ..... 26 - 26 -
------------------------- -------------------------
COMPREHENSIVE INCOME (LOSS), NET
OF TAX ................................................... $ (4,124) $(32,051) $(19,268) $(38,811)
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Key Energy Services, Inc. (the
"Company") and its wholly-owned subsidiaries for the three and nine month
periods ended March 31, 2000 and 1999 are unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, in the opinion of management, these
interim financial statements include all the necessary adjustments to fairly
present the results of the interim periods presented. These unaudited interim
consolidated financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999. The results of operations for the three and
nine month periods ended March 31, 2000 are not necessarily indicative of the
results of operations for the full fiscal year ending June 30, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for quarters
of fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company is currently evaluating what effect, if any, this
statement will have on the Company's financial statements. The Company will
adopt this statement no later than July 1, 2000.
RECLASSIFICATIONS AND ADJUSTMENTS
Certain reclassifications have been made to the consolidated financial
statements for the three and nine month periods ended March 31, 1999 to conform
to the presentation for the three and nine month periods ended March 31, 2000.
7
<PAGE>
2. EARNINGS PER SHARE
The Company accounts for earnings per share based upon Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128,
basic earnings per common share are determined by dividing net earnings
applicable to common stock by the weighted average number of common shares
actually outstanding during the period. Diluted earnings per common share is
based on the increased number of shares that would be outstanding assuming
conversion of dilutive outstanding convertible securities using the "as if
converted" method.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
------------------------- -------------------------
(THOUSANDS, EXCEPT PER (THOUSANDS, EXCEPT
SHARE DATA) PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION:
NUMERATOR
Net income (loss) ............................... $ (4,150) $(32,051) $(19,294) $(40,011)
DENOMINATOR
Weighted average common shares outstanding ...... 84,633 18,293 83,646 18,286
------------------------- -------------------------
BASIC EPS ......................................... $ (0.05) $ (1.75) $ (0.23) $ (2.19)
------------------------- -------------------------
------------------------- -------------------------
DILUTED EPS COMPUTATION:
NUMERATOR
Net income (loss) ............................... $ (4,150) $(32,051) $(19,294) $(40,011)
Effect of dilutive securities, tax effected:
Convertible securities .......................... - - - -
------------------------- -------------------------
$ (4,150) $(32,051) $(19,294) $(40,011)
------------------------- -------------------------
------------------------- -------------------------
DENOMINATOR
Weighted average common shares outstanding: ..... 84,633 18,293 83,646 18,286
Warrants ........................................ - - - -
Stock options ................................... - - - -
7% Convertible Debentures ....................... - - - -
5% Convertible Debentures ....................... - - - -
------------------------- -------------------------
84,633 18,293 83,646 18,286
------------------------- -------------------------
DILUTED EPS ....................................... $ (0.05) $ (1.75) $ (0.23) $ (2.19)
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
The earnings per share calculation for the three and nine month periods ended
March 31, 2000 and 1999 excludes the Company's convertible debt, outstanding
warrants and stock options, because the effects of such instruments on earnings
per share would be anti-dilutive.
8
<PAGE>
3. ACQUISITIONS
There were no acquisitions by the Company during the nine months ended March 31,
2000.
DAWSON PRODUCTION SERVICES, INC.
In September 1998, the Company completed the acquisition of all of the capital
stock of Dawson Production Services, Inc. ("Dawson") for an aggregate
consideration of approximately $382.6 million, including approximately $207.1
million of cash paid for the Dawson stock and for transactional fees and
approximately $175.5 million of net liabilities assumed. The Dawson acquisition
was accounted for using the purchase method of accounting and the results of
operations from the Dawson assets are included in the Company's results of
operations effective September 14, 1998.
Expenditures for the Dawson acquisition, including acquisition costs, less cash
acquired were as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill............................................ $409,722
Liabilities assumed.......................................................................... (199,439)
Liabilities for employee termination costs and lease termination costs....................... (3,162)
--------
Cash paid, including acquisition related expenditures and the cost of Dawson common stock
previously held............................................................................ 207,121
Less: Cash acquired.......................................................................... (27,008)
--------
Net cash used for the acquisition............................................................ $180,113
--------
--------
</TABLE>
At the time of the closing, Dawson owned approximately 527 well service rigs,
200 oilfield trucks, and 21 production testing units in South Texas and the Gulf
Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico,
the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters
of the Gulf of Mexico.
OTHER FISCAL 1999 ACQUISITIONS
In addition to its acquisition of Dawson, the Company acquired the assets and/or
capital stock of six well servicing and contract drilling businesses during the
first two quarters of fiscal 1999, increasing its rig and truck fleet by a total
of approximately 93 well service rigs, 4 drilling rigs and 185 oilfield trucks
(and related equipment) for an aggregate purchase price of approximately $93.7
million in cash. Each of the acquisitions was accounted for using the purchase
method and the results of the operations, generated from the acquired assets,
are included in the Company's results of operations as of the completion date of
each acquisition.
9
<PAGE>
PRO FORMA RESULTS OF OPERATIONS - (UNAUDITED)
The following unaudited pro forma results of operations have been prepared as
though Dawson had been acquired on July 1, 1998 with adjustments to record
specifically identifiable decreases in direct costs and general and
administrative expenses related to the termination of individual employees. Pro
forma amounts are not necessarily indicative of the results that may be reported
in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH NINE MONTHS ENDED MARCH
31, 1999 (THOUSANDS, 31, 1998 (THOUSANDS,
EXCEPT PER SHARE DATA) EXCEPT PER SHARE DATA)
----------------------- -----------------------
<S> <C> <C>
Revenues................................................. $400,511 $477,226
Net income/(loss)........................................ (62,848) 10,874
Basic earnings/(loss) per share.......................... $ (3.44) $ 0.65
</TABLE>
4. STOCKHOLDERS' EQUITY
EQUITY OFFERING
On May 7, 1999, the Company closed the public offering of 55,300,000 shares of
common stock (300,000 shares of which were sold pursuant to the underwriters'
over-allotment option discussed below) at $3.00 per share, or $165.9 million
(the "Public Offering"). In addition, the Company closed the offering of
3,508,772 shares of common stock at $2.85 per share, or $10.0 million (the
"Concurrent Offering" and together with the Public Offering, the "Equity
Offering"). In addition, on June 7, 1999, the underwriters of the Public
Offering exercised an over-allotment option to purchase an additional 5,436,000
million shares to cover over-allotments. Net proceeds from the Equity Offering
of approximately $180.4 million were used to repay a portion of the Company's
term loan borrowings under its senior credit facility.
5. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position, results of operations or cash flows of the Company.
10
<PAGE>
6. INDUSTRY SEGMENT INFORMATION
The Company operates in three business segments: well servicing, contract
drilling and oil and gas production.
WELL SERVICING: The Company's operations provide well servicing (ongoing
maintenance of existing oil and natural gas wells), workover (major repairs or
modifications necessary to optimize the level of production from existing oil
and natural gas wells) and production services (fluid hauling, salt water
disposal and fluid storage tank rental).
CONTRACT DRILLING: The Company provides contract onshore drilling services for
major and independent oil companies in the continental United States, Argentina
and Ontario, Canada.
OIL AND GAS PRODUCTION: The Company produces crude oil and natural gas in the
Permian Basin and Panhandle areas of West Texas.
<TABLE>
<CAPTION>
WELL CONTRACT OIL AND CORPORATE /
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Operating revenues .............................. $ 141,306 $ 14,337 $ 2,359 $ 549 $ 158,551
Operating profit ................................ 41,986 2,052 1,592 549 46,179
Depreciation, depletion and amortization ........ 14,701 2,735 537 291 18,264
Interest expense ................................ 969 - - 17,667 18,636
Net income/(loss) * ............................. 15,970 (2,253) 904 (18,771) (4,150)
Identifiable assets ............................. 735,368 109,983 59,025 43,534 947,910
Capital expenditures (excluding acquisitions) ... 6,324 973 202 740 8,239
THREE MONTHS ENDED MARCH 31, 1999
Operating revenues .............................. $ 96,644 $ 7,204 $ 1,195 $ (120) $ 104,923
Operating profit ................................ 19,831 (134) 266 (120) 19,843
Depreciation, depletion and amortization ........ 14,411 1,660 685 1,742 18,498
Interest expense ................................ 469 - - 20,563 21,032
Net income/(loss) * ............................. (10,960) (3,282) (592) (17,217) (32,051)
Identifiable assets ............................. 754,665 99,013 40,219 62,302 956,199
Capital expenditures (excluding acquisitions) ... 5,090 593 448 827 6,958
* - Net income (loss) for the contract drilling
segment includes a portion of well servicing
general and administrative expenses allocated
on a percentage of revenue basis.
</TABLE>
Operating revenues for the Company's foreign operations for the three months
ended March 31, 2000 and 1999 were $8.2 million and $3.4 million, respectively.
Operating profits for the Company's foreign operations for the three months
ended March 31, 2000 and 1999 were $1.3 million and $90,000, respectively. The
Company's assets related to foreign operations for the period ended March 31,
2000 and 1999 were $60.9 million and $51 million, respectively.
11
<PAGE>
<TABLE>
<CAPTION>
WELL CONTRACT OIL AND CORPORATE /
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED MARCH 31, 2000
Operating revenues ............................... $ 410,845 $ 49,007 $ 7,021 $ 959 $ 467,832
Operating profit ................................. 113,359 6,685 4,318 959 125,321
Depreciation, depletion and amortization ......... 44,273 6,323 1,709 835 53,140
Interest expense ................................. 2,390 - - 51,748 54,138
Net income/(loss) * .............................. 37,930 (4,167) 1,706 (54,763) (19,294)
Identifiable assets .............................. 735,368 109,983 59,025 43,534 947,910
Capital expenditures (excluding acquisitions) .... 15,769 4,194 343 2,567 22,873
NINE MONTHS ENDED MARCH 31, 1999
Operating revenues ............................... $ 319,583 $ 39,354 $ 4,802 $ 417 $ 364,156
Operating profit ................................. 84,743 5,757 2,235 417 93,152
Depreciation, depletion and amortization ......... 34,848 4,758 1,999 2,023 43,628
Interest expense ................................. 1,116 - - 47,243 48,359
Net income/(loss) * .............................. 12,245 (3,457) (316) (48,483) (40,011)
Identifiable assets .............................. 754,665 99,013 40,219 62,302 956,199
Capital expenditures (excluding acquisitions) .... 19,617 2,039 3,828 827 26,311
* - Net income (loss) for the contract drilling
segment includes a portion of well servicing
general and administrative expenses allocated on
a percentage of revenue basis.
</TABLE>
Operating revenues for the Company's foreign operations for the nine months
ended March 31, 2000 and 1999 were $23.8 million and $19.4 million,
respectively. Operating profits for the Company's foreign operations for the
nine months ended March 31, 2000 and 1999 were $4.6 million and $3.5 million,
respectively. The Company's assets related to foreign operations for the period
ended March 31, 2000 and 1999 were $60.9 million and $51million, respectively.
7. DEFERRED INCOME
Deferred income relates to a $20.0 million forward sale of oil and natural gas
pursuant to an agreement under which the purchaser is entitled to receive a
share of the production from certain oil and gas properties which range from
10,000 to 3,500 Barrels (Bbl) of oil and 122,100 to 58,800 Mmbtu of natural gas
per month over a six year period ending February 2006. The total volume of the
forward sale is approximately 486 million barrels of oil and 6.135 million
Mmbtus. At March 31, 2000, 10,000 Bbl's of oil and 122,100 Mmbtus of gas had
been delivered under the agreement. Revenue on the volume subject to the
agreement is recognized ratably based on production.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NOTE REGARDING FORWARD - LOOKING STATEMENTS
The statements in this document that relate to matters that are not historical
facts 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.
When used in this document and the documents incorporated by reference, words
such as "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may," "predict" and similar expressions are
intended to identify forward-looking statements. Further events and actual
results may differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include:
- fluctuations in world-wide prices and demand for oil and gas;
- fluctuations in level of oil and gas exploration and
development activities;
- fluctuations in the demand for well servicing, contract
drilling and ancillary oilfield services;
- the existence of competitors, technological changes and
developments in the industry;
- the existence of operating risks inherent in the well
servicing, contract drilling and ancillary oilfield services;
- the existence of regulatory uncertainties, the possibility of
political instability in any of the countries in which the
Company does business; and
- general economic conditions, in addition to the other matters
discussed herein.
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the consolidated financial statements and related notes
appearing elsewhere in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999
The Company's revenue for the third quarter of fiscal 2000 totaled $158,551,000,
representing an increase of $53,628,000, or 51% as compared to the prior year
period. The increase in the current period reflects higher activity levels and
improved rates. Profitability continued to improve, but was negatively impacted
by additional costs associated with hiring crews and reactivating equipment, and
by higher interest rates on its floating rate debt. The Company's net loss for
the third quarter of fiscal 2000 totaled $4,150,000, or $0.05 per share, versus
a net loss of $32,051,000, or $1.75 per share, for the prior year period. The
prior year period, however, included a corporate restructuring charge of
$1,500,000.
13
<PAGE>
OPERATING REVENUES
WELL SERVICING. Well servicing revenues increased $44,662,000, or 46.2%, from
$96,644,000 for the three months ended March 31, 1999 to $141,306,000 for the
three months ended March 31, 2000. The increase in revenues was primarily due to
an increase in the number of hours worked and the effect of higher rig and fluid
hauling rates.
CONTRACT DRILLING. Revenues from contract drilling activities increased
$7,133,000, or 99.0%, from $7,204,000 for the three months ended March 31, 1999
to $14,337,000 for the three months ended March 31, 2000. The increase in
revenues was primarily due to an increase in equipment utilization and the
effect of higher prices.
OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities increased $1,164,000, or 97.4%, from $1,195,000 for the three months
ended March 31, 1999 to $2,359,000 for the three months ended March 31, 2000.
The increase in revenues was primarily due to a 88% increase in the price of oil
and gas received on a barrel of oil equivalent ("BOE") basis for the three
months ended March 31, 2000 compared to the prior year period, and a 5% increase
in the volume of oil and gas produced on a BOE basis for the three months ended
March 31, 2000 compared to the prior year period.
OPERATING EXPENSES
WELL SERVICING. Well servicing expenses increased $22,507,000, or 29.3%, from
$76,813,000 for the three months ended March 31, 1999 to $99,320,000 for the
three months ended March 31, 2000. The increase was primarily due to a higher
level of activity and the cost of bringing crews and previously idle equipment
on line and was partially offset by cost reductions effected as a result of the
Company's consolidation and restructuring efforts. Well servicing expenses, as a
percentage of well servicing revenue, decreased from 79.5% for the three months
ended March 31, 1999 to 70.3% for the three months ended March 31, 2000.
CONTRACT DRILLING. Expenses related to contract drilling activities increased
$4,947,000, or 67.4%, from $7,338,000 for the three months ended March 31, 1999
to $12,285,000 for the three months ended March 31, 2000. The increase was
primarily due to the cost of bringing crews and previously idle equipment on
line and was partially offset by cost reductions effected as a result of the
Company's consolidation and restructuring efforts as well as a shift away from
turnkey contracts to footage and dayrates. Contract drilling expenses, as a
percentage of contract drilling revenues, decreased from 101.9% for the three
months ended March 31, 1999 to 85.7% for the three months ended March 31, 2000.
OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities decreased $162,000, or 17.4%, from $929,000 for the
three months ended March 31, 1999 to $767,000 for the three months ended
March 31, 2000. The decrease in production costs is primarily due to the
effects of the Company's consolidation and restructuring efforts as well as
lower water disposal charges partially offset by increased rates for
electricity and other operating services. Oil and natural gas production
costs decreased from $8.76 per BOE for the three months ended March 31, 1999
to $6.89 per BOE for the three months ended March 31, 2000.
14
<PAGE>
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense decreased
$234,000, or 1.3%, from $18,498,000 for the three months ended March 31, 1999 to
$18,264,000 for the three months ended March 31, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses decreased $984,000, or 6.2%,
from $15,833,000 for the three months ended March 31, 1999 to $14,849,000 for
the three months ended March 31, 2000. The decrease was primarily due to the
cost reductions effected as a result of the Company's consolidation and
restructuring efforts. General and administrative expenses, as a percentage of
revenues, decreased from 15.1% for the three months ended March 31, 1999 to 9.4%
for the three months ended March 31, 2000.
INTEREST EXPENSE
The Company's interest expense decreased $2,396,000, or 11.4%, from $21,032,000
for the three months ended March 31, 1999 to $18,636,000 for the three months
ended March 31, 2000. The decrease was primarily due to a significant reduction
in the Company's debt using proceeds from the Equity Offering and operating cash
flow and was partially offset by higher interest rates on the Company's floating
rate debt.
BAD DEBT EXPENSE
The Company's bad debt expense decreased $4,705,000, or 96.7%, from $4,865,000
for the three months ended March 31, 1999 to $160,000 for the three months ended
March 31, 2000. The decrease was largely due to an improvement in market
conditions for its customers.
INCOME TAXES
The Company's income tax benefit decreased $14,522,000 from a benefit of
$16,102,000 for the three months ended March 31, 1999 to a benefit of $1,580,000
for the three months ended March 31, 2000. The decrease in the income tax
benefit is due to the decrease in pretax losses. The Company's effective tax
rate for the three months ended March 31, 2000 and 1999 was 28% and 33%,
respectively. The effective tax rates are different from the statutory rate of
35% because of the disallowance of certain goodwill amortization, other
non-deductible expenses and state and local taxes. The Company does not expect
to be required to remit federal income taxes for the next few fiscal years
because of the availability of net operating loss carry forwards from fiscal
1999 and previous years.
15
<PAGE>
NINE MONTHS ENDED MARCH 31, 2000 VERSUS NINE MONTHS ENDED MARCH 31, 1999
The Company's revenue for the first nine months of fiscal 2000 totaled
$467,832,000 representing an increase of $103,676,000, or 28.5% as compared to
the prior year period. The results for the prior year period do not include a
full nine months of Dawson's results as well as several other fiscal 1999
acquisitions. The Company's net loss for the nine months of fiscal 2000 totaled
$19,294,000 or $0.23 per share, versus net loss of $40,011,000 or $2.19 per
share, for the prior year period.
OPERATING REVENUES
WELL SERVICING. Well servicing revenues increased $91,262,000 or 28.6%, from
$319,583,000 for the nine months ended March 31, 1999 to $410,845,000 for the
nine months ended March 31, 2000. The increase in revenues was due to the full
period effect of the acquisitions completed during the early portion of fiscal
1999, improved equipment utilization and the effect of higher rig and fluid
hauling rates.
CONTRACT DRILLING. Revenues from contract drilling activities increased
$9,653,000, or 24.5%, from $39,354,000 for the nine months ended March 31, 1999
to $49,007,000 for the nine months ended March 31, 2000. The increase in
revenues was primarily due to an increase in equipment utilization and the
effect of higher prices.
OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities increased $2,219,000 or 46.2%, from $4,802,000 for the nine months
ended March 31, 1999 to $7,021,000 for the nine months ended March 31, 2000. The
increase in revenues was primarily due to a 61% increase in the price of oil and
gas received on a barrel of oil equivalent ("BOE") basis for the nine months
ended March 31, 2000 compared to the prior year period, and was partially offset
by a 9% decrease in the volume of oil and gas produced on a BOE basis for the
nine months ended March 31, 2000 compared to the prior year period.
OPERATING EXPENSES
WELL SERVICING. Well servicing expenses increased $62,406,000 or 26.5%, from
$235,080,000 for the nine months ended March 31, 1999 to $297,486,000 for the
nine months ended March 31, 2000. The increase was primarily due to the full
period effect of the acquisitions completed during the early portion of fiscal
1999 and the cost of bringing crews and previously idle equipment on line and
was partially offset by cost reductions effected as a result of the Company's
consolidation and restructuring efforts. Well servicing expenses, as a
percentage of well servicing revenue, decreased from 73.6% for the nine months
ended March 31, 1999 to 72.4% for the nine months ended March 31, 2000.
16
<PAGE>
CONTRACT DRILLING. Expenses related to contract drilling activities increased
$8,965,000 or 26.9%, from $33,357,000 for the nine months ended March 31, 1999
to $42,322,000 for the nine months ended March 31, 2000. The increase was
primarily due to the full period effect of the acquisition completed during the
early portion of fiscal 1999 and the cost of bringing crews and previously idle
equipment on line and was partially offset by cost reductions effected as a
result of the Company's consolidation and restructuring efforts. Contract
drilling expenses, as a percentage of contract drilling revenues, increased from
84.8% for the nine months ended March 31, 1999 to 86.4% for the nine months
ended March 31, 2000.
OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities increased $136,000, or 5.3%, from $2,567,000 for the
nine months ended March 31, 1999 to $2,703,000 for the nine months ended
March 31, 2000. Oil and natural gas production costs increased from $6.05 per
BOE for the nine months ended March 31, 1999 to $7.02 per BOE for the nine
months ended March 31, 2000. The increase per BOE is primarily due to the
costs of placing wells back on production that were not producing prior to
the period and, to a lesser extent, increased rates for electricity and other
operating services partially offset by the effects of the Company's
consolidation and restructuring efforts.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense increased
$9,512,000, or 21.8%, from $43,628,000 for the nine months ended March 31, 1999
to $53,140,000 for the nine months ended March 31, 2000. The increase is
primarily due to an increase in oilfield service depreciation resulting from a
full period effect of the acquisitions completed during the early portion of
fiscal 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses increased $2,737,000, or 6.7%,
from $40,754,000 for the nine months ended March 31, 1999 to $43,491,000 for the
nine months ended March 31, 2000. The increase was primarily due to the full
period effect of the acquisitions completed during the early portion of fiscal
1999 and was largely offset by cost reductions effected as a result of the
Company's consolidation and restructuring efforts. General and administrative
expenses, as a percentage of revenues, decreased from 11.2% for the nine months
ended March 31, 1999 to 9.3% for the nine months ended March 31, 2000.
INTEREST EXPENSE
The Company's interest expense increased $5,779,000 or 12.0%, from $48,359,000
for the nine months ended March 31, 1999 to $54,138,000 for the nine months
ended March 31, 2000. The increase was primarily due to the full period effect
of the additional debt incurred in connection with the acquisitions completed
during the early portion of fiscal 1999 and, to a lesser extent, higher interest
rates and amortization of additional debt issuance costs and was partially
offset by a significant reduction in the Company's debt using proceeds from the
Equity Offering and operating cash flow.
BAD DEBT EXPENSE
The Company's bad debt expense decreased $4,294,000, or 75.1%, from $5,720,000
for the nine months ended March 31, 1999 to $1,426,000 for the nine months ended
March 31, 2000. The decrease was largely due to an improvement in market
conditions for its customers.
17
<PAGE>
INCOME TAXES
The Company's income tax benefit decreased $12,185,000 from a benefit of
$19,765,000 for the nine months ended March 31, 1999 to a benefit of $7,580,000
for the nine months ended March 31, 2000. The decrease in the income tax benefit
is due to the increase in pretax income. The Company's effective tax rate for
the nine months ended March 31, 2000 and 1999 was 28% and 33%, respectively. The
effective tax rates are different from the statutory rate of 35% because of the
disallowance of certain goodwill amortization, other non-deductible expenses and
state and local taxes. The Company does not expect to be required to remit
federal income taxes for the next few fiscal years because of the availability
of net operating loss carry forwards from fiscal 1999 and previous years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings, and the issuance of long term debt and equity. We believe that
the current reserves of cash and cash equivalents, access to our existing credit
lines and internally generated cash flow from operations are sufficient to
finance the cash requirements of our current and future operations.
As of March 31, 2000, the Company had working capital (after taking into account
the current portion of long term debt) of approximately $78,439,000 and cash and
cash equivalents of approximately $22,601,000 as compared to working capital
(after taking into account the current portion of long term debt) of
approximately $59,392,000 and cash and cash equivalents of approximately
$23,478,000 as of June 30, 1999. This increase in working capital is primarily
related to the timing of cash receipts and disbursements. Receivables are higher
due to the increase in revenues caused by the increased utilization of the
Company's equipment base and payables are also higher due to the addition of
more employees and greater costs related to the increased equipment utilization.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 2000 are expected to approximate fiscal 1999
levels. Expenditures will be directed toward selectively refurbishing our assets
as business conditions warrant. The Company will continue to evaluate
opportunities to acquire or divest assets or businesses to enhance the Company's
primary operations. Such capital expenditures, acquisitions and divestitures are
at the discretion of the Company and will depend on management's view of market
conditions as well as other factors.
LONG-TERM DEBT
SENIOR CREDIT FACILITY
As of March 31, 2000, the Company had an approximately $365 million senior
credit facility (the "Senior Credit Facility") with a syndicate of banks led
by PNC Bank, N.A. which consisted of a $150,000,000 revolving loan facility,
$38,601,374 in Tranche A term loans and $176,834,306 in Tranche B term loans.
In addition, up to $20,000,000 of letters of credit can be issued under the
Senior Credit Facility, but any outstanding letters of credit reduce the
borrowing availability under the revolving loan facility. As of March 31,
2000, approximately $98,000,000 was drawn under the revolving loan facility
and approximately $15,132,000 of letters of credit related to workmen's
compensation insurance was outstanding. Subsequent to March 31, 2000, the
Company repaid $14,569,536 principal amount of the Tranche A term loans,
$430,464 principal amount of the Tranche B term loans, and $5,000,000
principal amount of the revolving loan facility.
The revolving loans and Tranche A term loans bear interest based upon, at the
Company's option, the prime rate plus a variable margin of 0.75% to 2.00% or a
Eurodollar rate plus a variable margin of 2.25% to 3.50%. The Tranche B loans
bear interest based upon, at the Company's option, the prime rate plus 2.50% or
a Eurodollar rate plus 4.00%. The Credit Facility has customary affirmative and
negative covenants including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a maximum senior leverage ratio, a minimum net worth
and minimum EBITDA ratio as well as restrictions on capital expenditures,
acquisitions and dispositions.
18
<PAGE>
14% SENIOR SUBORDINATED NOTES
On January 22, 1999, the Company completed the private placement of 150,000
units (the "Units") consisting of $150,000,000 of 14% Senior Subordinated Notes
due 2009 (the "14% Senior Subordinated Notes") and 150,000 warrants to purchase
2,032,565 shares of common stock at an exercise price of $4.88125 per share (the
"Unit Warrants"). The cash proceeds from the private placement, net of fees and
expenses, were used to repay substantially all of the remaining $148,600,000
principal amount (plus accrued interest) owed under the Company's bridge loan
facility arranged in connection with the acquisition of Dawson. The 14% Senior
Subordinated Notes are subordinate to the Company's senior indebtedness which
includes borrowings under the Senior Credit Facility and the Dawson 9 3/8%
Senior Notes.
5% CONVERTIBLE SUBORDINATED NOTES
On September 25, 1997, the Company completed an initial closing of its private
placement of $200,000,000 of 5% Convertible Subordinated Notes due 2004 (the "5%
Convertible Subordinated Notes"). On October 7, 1997, the Company completed a
second closing of its private placement of an additional $16,000,000 of the 5%
Convertible Subordinated Notes pursuant to the exercise of the remaining portion
of an over-allotment option. The 5% Convertible Subordinated Notes are
subordinate to the Company's senior indebtedness which includes borrowings under
the Senior Credit Facility, the 14% Senior Subordinated Notes and the Dawson
9 3/8% Senior Notes. The 5% Convertible Subordinated Notes are convertible, at
the holder's option, into shares of the Company's common stock at a
conversion price of $38.50 per share, subject to certain adjustments.
7% CONVERTIBLE SUBORDINATED DEBENTURES
In July 1996, the Company completed a $52,000,000 private placement of 7%
Convertible Subordinated Debentures due 2003 (the "7% Convertible Subordinated
Debentures"). The 7% Convertible Subordinated Debentures are subordinate to the
Company's senior indebtedness which includes borrowings under the Senior Credit
Facility, the 14% Senior Subordinated Notes and the Dawson 9 3/8% Senior Notes.
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of the Company's common stock at a conversion price of $9.75
per share, subject to certain adjustments. In addition, holders who converted
prior to July 1, 1999 were entitled to receive a payment, in cash or the
Company's common stock (at the Company's option) generally equal to 50% of the
interest otherwise payable from the date of conversion through July 1, 1999. As
a result of conversions, only $1,000,000 principal amount of the 7% Convertible
Subordinated Debentures remained outstanding at March 31, 2000.
DAWSON 9 3/8% SENIOR NOTES
In February 1997, Dawson issued $140,000,000 9 3/8% Senior Notes due 2007
(the "Dawson 9 3/8% Senior Notes"). As the result of the Dawson acquisition,
the Company assumed Dawson's obligations under the Dawson 9 3/8% Senior Notes
which were equally and ratably secured with the obligations under the Senior
Credit Facility. As a result of mandatory tender offer made in connection
with the Dawson acquisition, only $1,406,000 principal amount of the Dawson 9
3/8% Senior Notes remained outstanding at March 31, 2000. Subsequent to March
31, 2000, the Company purchased $300,000 of the Dawson 9 3/8% Senior Notes
and has tendered them for cancellation.
19
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for quarters
of fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company is currently evaluating what effect, if any, this
statement will have on the Company's financial statements. The Company will
adopt this statement no later than July 1, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements". See "Special Note Regarding Forward-Looking
Statements" for additional factors relating to such statements.
The primary objective of the following information is to provide forward-looking
quantitative and qualitative information about the Company's potential exposure
to market risk. The term "market risk" refers to the risk of loss arising from
adverse changes in foreign currency exchange, interest rates and oil and gas
prices. The disclosures are not meant to be precise indicators of expected
future losses, but rather indicators of reasonably possible losses. This
forward-looking information provides indicators of how the Company views and
manages its ongoing market risk exposures.
INTEREST RATE RISK
At March 31, 2000, Key had long-term debt outstanding of $698,881,000. Of this
amount $363,055,000 or 52%, bears interest at fixed rates as follows:
<TABLE>
<CAPTION>
(000's)
Balance at
3/31/00
--------
<C> <C>
5% Convertible Subordinated Notes Due 2004....................................... $216,000
14% Senior Subordinated Notes Due 2009........................................... 143,464
7% Convertible Subordinated Debentures Due 2003.................................. 1,000
Dawson 9 3/8% Senior Notes Due 2007.............................................. 1,406
Other (rates generally ranging from 8.0% to 8.5%)................................ 1,185
--------
$363,055
--------
</TABLE>
The remaining $335,826,000 of debt outstanding as of March 31, 2000 bears
interest at floating rates which averaged approximately 10.01% at March 31,
2000. A 10% increase in short-term interest rates on the floating-rate debt
outstanding at March 31, 2000 would equal approximately 100 basis points. Such
an increase in interest rates would increase Key's fiscal 2000 interest expense
by approximately $3.4 million assuming borrowed amounts remain outstanding.
20
<PAGE>
The above sensitivity analysis for interest rate risk excludes accounts
receivable, accounts payable and accrued liabilities because of the short-term
maturity of such instruments.
FOREIGN CURRENCY RISK
Key's net assets, net earnings and cash flows from its Argentina subsidiaries
are currently not exposed to foreign currency risk, as Argentina's currency is
tied to the U.S. dollar. Key's net assets, net earnings and cash flows from its
Canadian subsidiary is based on the U.S. dollar equivalent of such amounts
measured in Canadian dollars. Assets and liabilities of the Canadian operations
are translated to U.S. dollars using the applicable exchange rate as of the end
of a reporting period. Revenues, expenses and cash flow are translated using the
average exchange rate during the reporting period.
A 10% change in the Canadian-to-U.S. Dollar exchange rate would not be material
to the net assets, net earnings or cash flows of Key.
COMMODITY PRICE RISK
Key's major market risk exposure for its oil and gas production operations is in
the pricing applicable to its oil and gas sales. Realized pricing is primarily
driven by the prevailing worldwide price for crude oil and spot market for
natural gas. Pricing for oil and gas production has been volatile and
unpredictable for several years.
Key periodically enters into financial hedging activities with respect to a
portion of its projected oil and natural gas production through commodity option
contracts whereby Key will receive a fixed price for its production if the
market price is in excess of the contract's stated price. Key pays a premium for
its option contracts. Such premiums are amortized to oil and gas revenues over
the life of the related option contracts. These financial hedging activities are
intended to support oil and natural gas prices at targeted levels and to manage
Key's exposure to oil and gas price fluctuations. Realized gains from the
settlement of these financial hedging instruments are recognized in oil and gas
sales when the associated production occurs. The gains and losses realized as a
result of these hedging activities are substantially offset in the cash market
when the hedged commodity is delivered.
As of March 31, 2000, Key had oil and gas price hedging instruments in place
which represented 22,000 barrels of oil production per month and approximately
100,000 Mmbtu of gas production per month. The total fiscal 2000 hedged oil and
gas volumes represent the majority of expected calendar year total production. A
10% increase in the index price of oil or gas from their levels at March 31,
2000 would have no impact on the Company's net assets, net earnings or cash
flows (as derived from the commodity option contracts), as the put options
outstanding at March 31, 2000 are not "in-the-money".
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 14, 2000, the Company issued a total of 1,673,684 shares of its
Common Stock to Nabors Acquisition Corp. IV ("Nabors") for an aggregate purchase
price of $4,769,999 in connection with the exercise of a certain warrant dated
January 8, 1998 ("Warrant"). No underwriters were involved in the exercise of
the Warrant. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
On March 17, 2000, the Company also issued a total of 369,229 shares of its
Common Stock in connection with the conversion of $3,600,000 principal amount of
7% Convertible Subordinated Debentures Due 2003 (the "Debentures"). The Holders
of the Debentures, Green-Cohn Group L.L.C., DFG Corporation, ZPG Securities
L.L.C. and Acorn Overseas Securities Ltd., received 158,974 shares, 97,435
shares, 60,205 shares, and 52,615 shares, respectively, from the conversion. No
underwriters were involved in the conversion of the Debentures. The shares were
issued in a transaction exempt from registration pursuant to Section 3(a)(9) of
the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 31, 2000, a meeting of the holders of Common Stock was held to
elect the Company's Board of Directors and to vote on certain other matters.
Only the holders of record as of the close of business on November 11, 1999 (the
"Record Date") were entitled to notice of and to vote at the meeting and at any
adjournment thereof. On the Record Date, the outstanding number of shares
entitled to vote consisted of 82,740,330 shares of Common Stock. The
stockholders took the following actions at the meeting:
1. Elected the following six Directors, with the votes indicated opposite each
director's name:
<TABLE>
<CAPTION>
For Against
--------------------------
<S> <C> <C>
Francis D. John 74,075,648 1,903,017
Kevin P. Collins 74,068,425 1,910,240
William Manly 74,077,750 1,900,915
W. Phillip Marcum 74,068,425 1,910,240
David J. Breazzano 74,077,891 1,900,774
22
<PAGE>
Morton Wolkowitz 74,068,421 1,910,244
</TABLE>
2. Approved a proposal to amend the Company's Amended and Restated Articles of
Incorporation to increase the Company's authorized capital stock, par value
$.10 per share, from 100,000,000 shares to 200,000,000 shares. The vote was
72,392,594 for and 3,403,379 against, with 182,692 abstentions.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1* Articles of Amendment to Amended and Restated Articles of
Incorporation of the Company.
3.2* Unanimous Consent of the Board of Directors of the Company
dated January 11, 2000 limiting the designation of the
additional authorized shares to common stock.
10.1* Sixth Amendment, dated as of July 14, 1999 to the Second
Amended and Restated Credit Agreement, among the Company, 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.
10.2* Seventh Amendment, dated as of March 1, 2000 to the Second
Amended and Restated Credit Agreement, among the Company, 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.
10.3* Production and Delivery Agreement dated March 31, 2000 among
Odessa Exploration Incorporated and Norwest Energy Capital,
Inc.
10.4* Closing Agreement dated March 31, 2000 among Odessa
Exploration Incorporated, Norwest Energy Capital, Inc. and the
Company.
27* Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March
31, 2000.
- ------------------
* Filed herewith.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY ENERGY SERVICES, INC.
Dated: May 15, 2000 By: /s/ Francis D. John
-------------------
President and Chief Executive Officer
Dated: May 15, 2000 By: /s/ Thomas K. Grundman
----------------------
Chief Financial Officer and
Chief Accounting Officer
24
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KEY ENERGY SERVICES, INC.
Key Energy Services, Inc., a Maryland corporation (the "Corporation"),
certifies to the Maryland Department of Assessments and Taxation as follows:
(1) The Corporation desires to amend its Amended and Restated
Articles of Incorporation as are currently in effect (the "Articles of
Incorporation") in accordance with Section 2-601 and 2-602 of the
Maryland General Corporation Law.
(2) These Articles of Amendment amend Paragraph (a) of Article
FIFTH of the Amended and Restated Articles of Incorporation of the
Corporation.
(3) The Board of Directors of the Corporation, by unanimous
written consent effective as of October 19, 1999, adopted a resolution
that these Articles of Amendment shall be submitted for shareholder
approval as being advisable and in the best interests of the
Corporation.
(4) These Articles of Amendment were duly adopted by the
stockholders of the Corporation in accordance with Section 2-604 of the
Maryland General Corporation Law at the Corporation's Annual Meeting
held on January 31, 2000.
Paragraph (a) of Article FIFTH of the Articles of Incorporation is
amended to read in its entirety as follows:
"FIFTH: (a) The total number of shares of shares of stock of all
classes which the Corporation has authority to issue is Two Hundred
Million (200,000,000) shares of capital stock amounting in aggregate
par value to $20,000,000. All of such shares are initially classified
as "Common Stock" (Par value $.10 per share). The Board of Directors
may classify and reclassify any unissued shares of capital stock by
setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations
as to dividends, qualifications or terms or conditions of redemption
of such shares of stock, provided, however, that, notwithstanding
anything to the contrary in these Articles, no such classification or
reclassification shall create a class of stock which shall (i) have
more than one vote per share, (ii) be issued in connection with any
so-called "shareholder rights plan," "poison pill" or other
anti-takeover measure, or (iii) be issued for consideration which is
less than fair consideration as determined in good faith by the
Corporation's Board of Directors."
<PAGE>
Immediately before the effectiveness of these Articles of Amendment,
the Corporation has authority to issue 100,000,000 shares of Common Stock, par
value $.10 per share, with an aggregate par value of $10,000,000.
Upon effectiveness of these Articles of Amendment, the Corporation will
have authority to issue 200,000,000 shares of capital stock, all of which will
be initially classified as Common Stock, par value $.10 per share, with an
aggregate par value of $20,000,000.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its President and
witnessed by its Secretary on January 31, 2000.
/s/ Jack D. Loftis, Jr. /s/ Francis D. John
- -------------------------------- ------------------------------
Jack D. Loftis, Jr., SECRETARY Francis D. John, PRESIDENT
THE UNDERSIGNED, President of Key Energy Services, Inc., who executed
on behalf of the Corporation these Articles of Amendment, hereby acknowledges in
the name and on behalf of the Corporation that the foregoing Articles of
Amendment are to be the corporate act of the Corporation and hereby certifies
that the matters and facts set forth herein with respect to authorization and
approval thereof are true in all material respects under the penalties of
perjury.
/s/ Francis D. John
------------------------------
Francis D. John, PRESIDENT
<PAGE>
EXHIBIT 3.2
KEY ENERGY SERVICES, INC.
CONSENT OF BOARD OF DIRECTORS
Pursuant to Section 2-408(c) of the Maryland General Corporation Law
(the "MGCL"), the undersigned, being all of the members of the Board of
Directors of Key Energy Services, Inc., a Maryland corporation (the "Company"),
hereby approve, consent to and adopt the following recitals and resolutions, and
the actions therein contained as the act of the Company's Board of Directors by
written consent, such consent to have the same force and effect as if adopted at
a duly called meeting of the Board of Directors:
WHEREAS, the Company's Amended and Restated Articles of Incorporation,
as amended through the date hereof (the "Articles of Incorporation") provides
that the the Company's authorized capital stock is 100,000,000 shares, all of
which shares of capital stock are initially classified as "Common Stock" but,
prior to their issuance, can be reclassified by setting or changing in any one
or more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of capital stock (such reclassified shares being
referred to herein as "Preferred Stock"); and
WHEREAS, as a result of such provision, the number of authorized shares
of Preferred Stock at any given time is 100,000,000 shares less the number of
shares of Common Stock that have been issued as of such time; and
WHEREAS, effective as of October 19, 1999, the Board of Directors
approved and submitted to its stockholders for approval, an amendment (the
"Amendment") to the Articles of Incorporation that, if duly adopted by the
stockholders of the Company in accordance with Section 2-604 of the MGCL, would
increase the authorized capital stock of the Company from 100,000,000 shares to
200,000,000 shares; and
WHEREAS, pursuant to the Amendment, such additional shares of capital
stock would be initially classified as "Common Stock" but, prior to their
issuance, could be reclassified as Preferred Stock; and
WHEREAS, the Company does not intend for the Amendment to have the
effect of increasing the number of authorized shares of Preferred Stock and
desires to clarify this intent.
<PAGE>
NOW THEREFORE, BE IT RESOLVED, that if the Amendment is duly adopted by
the stockholders of the Company in accordance with Section 2-604 of the MGCL,
notwithstanding the express provisions of the Amendment, the Company shall not,
without the approval of its stockholders required to approve a charter amendment
under Section 2-604 of the MGCL, issue shares of Preferred Stock in excess of
100,000,000 shares less the number of shares of Common Stock that have been
issued at the time that the Amendment becomes effective; and
RESOLVED, FURTHER, that the foregoing resolution may not be revoked,
rescinded, modified or amended without the approval of its stockholders required
to approve a charter amendment under Section 2-604 of the MGCL.
IN WITNESS WHEREOF, the undersigned, being all of the members of the
Board of Directors, hereby consent to all of the foregoing this 11th day of
January, 2000 which consent may be executed by facsimile signature and in one or
more counterparts, each of which is an original and all of which together
constitute one and the same instrument.
/s/ Francis D. John
____________________________
Francis D. John
/s/ David J. Breazzano
____________________________
David J. Breazzano
/s/ Kevin P. Collins
____________________________
Kevin P. Collins
/s/ William D. Manly
____________________________
William D. Manly
/s/ W. Phillip Marcum
____________________________
W. Phillip Marcum
/s/ Morton Wolkowitz
____________________________
Morton Wolkowitz
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
SIXTH AMENDMENT
SIXTH AMENDMENT, dated as of July 14, 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, the Third Amendment dated as of April 8, 1999, the Fourth
Amendment dated as of April 15, 1999 and the Fifth Amendment dated as of May 10,
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 (and in the
recitals hereto) as defined terms are so used as so defined.
Section 2. AMENDMENT TO SUBSECTION 1.1 (DEFINITIONS).
Subsection 1.1 of the Credit Agreement is hereby amended as follows:
(a) by inserting in the appropriate alphabetical order the
following new definition of "Designated Joint Venture":
"'DESIGNATED JOINT VENTURE': any joint venture,
partnership or other similar entity in each case in which the
Borrower has made an Investment pursuant to subsection 7.9(q)
as a result of which the Borrower has received an ownership
interest."; and
(b) by deleting the definition of "Foreign Subsidiary" in its
entirety and substituting in lieu thereof the following new definition:
"'FOREIGN SUBSIDIARY': any Subsidiary of the Borrower
and any Designated Joint Venture which, in each case, is
organized under the laws of any jurisdiction outside the
United States.";
Section 3. AMENDMENTS TO SUBSECTION 2.3. Subsection 2.3 of the
Credit Agreement is hereby amended by deleting paragraphs (a) and (b) therefrom
and substituting in lieu thereof the following:
"(a) The Tranche A Term Loan of each Tranche A Lender
shall mature in sixteen consecutive quarterly installments
commencing on the date fifteen months after the Closing Date,
each of which shall be in an amount equal to such Lender's
<PAGE>
2
Tranche A Term Percentage multiplied by the percentage set
forth below opposite such installment of the Tranche A Term
Loans outstanding on the Merger Date (after giving effect to
any Term Loans made on such date and, in any event, subject to
subsection 2.16(b)):
<TABLE>
<CAPTION>
Principal Amount
Installment of each Installment
----------- -------------------
<S> <C>
1 to 4 4%
5 to 8 6%
9 to 12 7%
13 to 16 8%
</TABLE>
(b) The Tranche B Term Loan of each Tranche B Lender
shall mature in nineteen consecutive quarterly installments
commencing on the date fifteen months after the Closing Date,
each of which shall be in an amount equal to such Lender's
Tranche B Term Percentage multiplied by the percentage set
forth below opposite such installment of the Trance B Term
Loans outstanding on the Merger Date (after giving effect to
any Term Loans made on such date and, in any event, subject to
subsection 2.16(b)):
<TABLE>
<CAPTION>
Principal Amount
Installments of each Installment
------------ -------------------
<S> <C> <C>
1 to 4 0.25%
5 to 8 0.25%
9 to 12 0.25%
13 to 16 0.25%
17 to 18 24.00%
19 48.00%"
</TABLE>
Section 4. AMENDMENTS TO SUBSECTION 2.10. Subsection 2.10 of
the Credit Agreement is hereby amended by:
(a) deleting in its entirety paragraph (b) of subsection 2.10
and substituting in lieu thereof the following new paragraph (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) 100% of the Net Cash Proceeds
received from all such issuances of Capital Stock
<PAGE>
3
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 (other than any Net Cash
Proceeds received as the result of the issuance of Capital Stock by a
Subsidiary Guarantor or a Foreign Subsidiary (in accordance with
subsection 7.9(e)) to the Borrower or another Subsidiary), shall be
applied on the date of such issuance (or, in the case of Net Cash
Proceeds received as the result of any exercise with respect to
warrants, rights or options to purchase Capital Stock of the Borrower
or any Subsidiary, on each date on which the aggregate amount of Net
Cash Proceeds so received but not previously applied as set forth in
this subsection 2.10(b) equals or exceeds $5,000,000) 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."; and
(b) deleting subsection 2.10(d) in its entirety and
substituting in lieu thereof the following new subsection 2.10(d):
"(d) Unless the Required Prepayment Lenders otherwise agree,
if the Borrower or any of its Subsidiaries shall receive Net Cash
Proceeds from any asset sale permitted under Section 7.6(e), then 100%
of such Net Cash Proceeds shall be applied on the date such Net Cash
Proceeds are received toward the prepayment of the Term Loans and the
reduction of the Term Loan Commitments as set forth in Section
2.10(f)."
Section 5. AMENDMENT TO SUBSECTION 4.2 (NO CHANGE). Subsection
4.2 of the Credit Agreement is hereby amended by deleting such subsection in its
entirety and substituting in lieu thereof the following new subsection 4.2:
"(a) From June 30, 1998 through March 31, 1999, there has been
no development or event which has had or could reasonably be expected to have a
Material Adverse Effect other than the lower spending levels by oil and gas
producers attributable to the deterioration of prevailing market prices of oil
and gas sustained during such period. Since March 31, 1999, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from June 30, 1998 to and
including the date hereof no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Borrower nor has any of the
Capital Stock of the Borrower been redeemed, retired, purchased or otherwise
acquired for value by the Borrower. Without limiting the representation in the
preceding sentence, from June 30, 1998 to the Merger Date there has been no
development or event which, to the best knowledge of the Borrower, has had or
could reasonably be expected
<PAGE>
4
to have a material adverse effect on the business, operations, property,
condition (financial or otherwise) or prospects of Dawson and its Subsidiaries
taken as a whole.
Section 6. AMENDMENT TO SUBSECTION 4.25 (YEAR 2000 MATTERS).
Subsection 4.25 of the Credit Agreement is hereby amended by deleting the
reference to "July 1, 1999" and substituting in lieu thereof a reference to
"September 30, 1999".
Section 7. AMENDMENT TO SUBSECTION 6.9 (FURTHER ASSURANCES).
Subsection 6.9 (b) of the Credit agreement is hereby amended by deleting such
subsection in its entirety and substituting in lieu thereof the following new
subsection 6.9(b):
"(b) Notwithstanding any other provision herein, the Borrower
shall not be deemed to have failed to satisfy the conditions of Section
5.1(p) or 5.2(c) or to be in violation of Section 6.10 or 6.14 for
failure to have caused a duly perfected Lien to be placed on any
Vehicles (other than Excluded Vehicles) covered by a certificate of
title of any State if the aggregate fair market value of such
unperfected Vehicles is less than $5,000,000."
Section 8. AMENDMENT TO SUBSECTION 7.2(c) (LIMITATION ON
INDEBTEDNESS). Subsection 7.2(c) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and substituting in lieu thereof the
following new subsection 7.2(c):
"(c) Indebtedness (i) of the Borrower to a Wholly Owned
Subsidiary, (ii) of a Domestic Wholly Owned Subsidiary to the Borrower
or any other Subsidiary and (iii) of any Foreign Subsidiary to the
Borrower or any Subsidiary in an aggregate principal amount at any time
outstanding (with respect to all such Foreign Subsidiaries of the
Borrower) not to exceed $10,000,000 in excess of the amount of such
Indebtedness outstanding on September 14, 1998; PROVIDED, that any such
Indebtedness referred to in this clause (c) provided to Odessa shall be
for capital expenditure purposes only."
Section 9. AMENDMENT TO SUBSECTIONS 7.2(d), (g) AND (j)
(LIMITATION ON INDEBTEDNESS). Subsections 7.2(d), (g) and (j) of the Credit
Agreement are hereby amended by deleting each of the references to "$15,000,000"
contained therein and substituting in lieu of each thereof a reference to
"$25,000,000".
Section 10. AMENDMENT TO SUBSECTION 7.4(g) (LIMITATION ON
GUARANTEE OBLIGATIONS). Subsection 7.4(g) of the Credit Agreement is hereby
amended by deleting the reference to "$5,000,000" contained therein and
substituting in lieu thereof a reference to "$7,500,000".
Section 11. AMENDMENTS TO SUBSECTION 7.6 (LIMITATION ON SALE
OF ASSETS). Subsection 7.6 of the Credit Agreement is hereby amended:
(a) by deleting the proviso contained in subsection 7.6(a) and
substituting in lieu thereof the following new proviso:
5
<PAGE>
"PROVIDED that (other than inventory and light vehicles)
the aggregate proceeds received from all assets so sold, leased or
disposed of in any fiscal year shall not exceed (i) for the fiscal year
ending June 30, 1999, 10%, and (ii) for each fiscal year thereafter,
5% of the Borrower's Consolidated Net Worth as of the end of the
immediately preceding fiscal year;";
(b) by deleting subsection 7.6(d) in its entirety and
substituting in lieu thereof the following new subsection 7.6(d):
"(d) the sale of Odessa, PROVIDED that the consideration
received by the Borrower and its Subsidiaries in respect of any such
sale shall include cash in an amount greater than or equal to the
greater of (i) 50% of the aggregate consideration received in respect
of such sale and (ii) $15,000,000 (the "SIGNIFICANT DISPOSITION");
and"; and
(c) by adding the following new paragraph (e):
"(e) the sale of any Argentine Subsidiary or all or any
portion of the assets thereof, PROVIDED that, subject to subsection
7.9(q), the consideration received by the Borrower and its Subsidiaries
in respect of any such sale shall be solely in the form of cash."
Section 12. AMENDMENT TO SUBSECTION 7.8 (LIMITATION ON CAPITAL
EXPENDITURES). Subsection 7.8 of the Credit Agreement is hereby amended by
deleting each reference to "$30,000,000" contained therein and substituting in
lieu of each thereof a reference to "$37,500,000".
Section 13. AMENDMENTS TO SUBSECTION 7.9 (LIMITATION ON
INVESTMENTS, LOANS AND ADVANCES). Subsection 7.9 of the Credit Agreement is
hereby amended as follows:
(a) by deleting from the fourth line of the first sentence
thereof the reference to "any Person, except:" and inserting in lieu
thereof a reference to "any Person (any of the foregoing, an
"INVESTMENT"), except:";
(b) by deleting subsection 7.9(e) in its entirety and
substituting in lieu thereof the following new subsection 7.9(e):
"(e) loans by the Borrower or any Subsidiary to, and equity
investments by the Borrower or any Subsidiary in, Foreign Subsidiaries
in an aggregate amount (or, in the case of loans, outstanding principal
amount) at any time not to exceed the amount thereof outstanding on
September 14, 1998, plus $10,000,000 (for all such Foreign
Subsidiaries, taken together, net of the aggregate amount of any
dividends or other distributions received by the Borrower and any such
Subsidiary in respect of such equity investments in Foreign
Subsidiaries and excluding the amount of any such equity investments in
a Designated Joint Venture made in accordance with subsection 7.9(q));"
6
<PAGE>
(c) by deleting from subsection 7.9(i) the reference to
"$5,000,000" and substituting in lieu thereof "$7,500,000";
(d) by deleting subsection 7.9(q) in its entirety and
substituting in lieu thereof the following new subsection 7.9(q):
"(q) any Investments occasioned by the transfer or sale of any
or all of the Argentine Subsidiaries or all or any portion of the
assets thereof to any joint venture, partnership or other similar
entity; PROVIDED that such transfer or sale shall be on terms
reasonably satisfactory to the Administrative Agent;"
(e) by deleting the period at the end of subsection 7.9(r) and
inserting in lieu thereof a semicolon;
(f) by adding the following new paragraph (s):
"(s) other Investments not otherwise permitted pursuant to
this subsection 7.9 in an aggregate amount not to exceed $5,000,000;";
(g) by adding the following new paragraph (t):
"(t) any Investments made in connection with the Significant
Disposition; and"; and
(h) by adding the following new paragraph (u):
"(u) deferred compensation (and/or oil and gas interests taken
in lieu of cash payment) at any time owing by customers to (or, in the
case of oil and gas interests, owned by) the Borrower and its
Subsidiaries (in the case of each such arrangement agreed to on or
after July [9], 1999, on terms reasonably satisfactory to the
Administrative Agent) for services rendered to such customers by the
Borrower and its Subsidiaries, so long as the value of such services
(as determined in good faith by the Borrower and its Subsidiaries),
minus the amount of any cash compensation received in respect of such
services and/or oil and gas interests) does not exceed (i) $15,000,000
for all such customers and (ii) $5,000,000 for all such customers whose
long-term debt either (x) has been assigned a rating of less than
"BBB-" by Standard and Poor's Ratings Services ("S&P") or "Baa3" by
Moody's Investors Service, Inc. ("MOODY'S") or (y) has not been rated
by either S&P or Moody's."
Section 14. AMENDMENT TO SUBSECTION 7.12 (LIMITATION ON SALES
AND LEASEBACKS). Subsection 7.12 of the Credit Agreement is hereby amended by
deleting each reference to "$15,000,000"contained therein and substituting in
lieu of each thereof a reference to "$25,000,000".
7
<PAGE>
Section 15. 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,
(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 16. 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).
(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 WAIVER AND 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.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
KEY ENERGY SERVICES, INC. (formerly
known as Key Energy Group, Inc.)
By: /s/ Thomas K. Grundman
__________________________________
Title: Executive Vice President and Chief
Financial Officer
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent and as a Lender
By: /s/ Thomas Majeski
__________________________________
Title: Vice President
<PAGE>
WELLS FARGO BANK
By:
______________________________________
Title:
____________________________________
<PAGE>
BANK POLSKA KASA OPIEKI S.A.,
PEKAO S.A. GROUP, NEW YORK
BRANCH
By: /s/ Hussein B. El-Tawil
______________________________________
Title: Vice President
<PAGE>
BANK LEUMI, USA
By: /s/ Joung Hee Hong
______________________________________
Title: Vice President
<PAGE>
BOEING CAPITAL CORPORATION
By: /s/ David Nelson
______________________________________
Title: Special Credits Officer
<PAGE>
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By:
______________________________________
Title:
<PAGE>
KZH HIGHLAND-2 LLC
By: /s/ Peter Chin
______________________________________
Title: Authorized Agent
KZH PAMCO LLC
By: /s/ PETER CHIN
______________________________________
Title: Authorized Agent
<PAGE>
BEAR STEARNS INVESTMENT
PRODUCT INC.
By: /s/ Harry Rosenberg
______________________________________
Title: Authorized Signatory
<PAGE>
Crescent/Mach I Partners, L.P.
by: TCW Asset Management Company
its investment Manager
By: /s/ Justin L. Driscoll
______________________________________
Title: Senior Vice President
<PAGE>
Continental Assurance Company
Separate Account (E)
By: TCW Asset Management Company
as Attorney-in-Fact
By: /s/ Mark L. Gold
______________________________________
Title: Managing Director
By: /s/ Justin L. Driscoll
______________________________________
Title: Senior Vice President
<PAGE>
United Of Omaha Life Insurance Company
By: TCW Asset Management Company,
its Investment Advisor
By: /s/ Justin L. Driscoll
______________________________________
Title: Senior Vice President
By: /s/ Jonathan R. Insull
______________________________________
Title: Vice President
<PAGE>
SEQUILS 1. LTD
By: TCW Advisors, Inc. as its Collateral
Manager
By: /s/ Justin L. Driscoll
______________________________________
Title: Senior Vice President
By: /s/ Jonathan R. Insull
______________________________________
Title: Vice President
<PAGE>
ELC (CAYMAN) LTD. CDO SERIES
1999-1
By: /s/ Mark B. Mahoney
______________________________________
Title: President
<PAGE>
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: /s/ MELISSA MARANO
______________________________________
Title: Vice President
INDOSUEZ CAPITAL FUNDING IIA,
LIMITED
By: /s/ MELISSA MARANO
______________________________________
Title: Vice President
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management, L.P., as
Collateral Manager
By: /s/ James Dondero
______________________________________
Title: President
Highland Capital Management, L.P.
ML CBO IV (Cayman)
By: Highland Capital Management, L.P., as
Collateral Agent
By: /s/ James Dondero
______________________________________
Title: President
Highland Capital Management, L.P.
PAM CAPITAL FUNDING, L.P.
By: Highland Capital Management, L.P., as
Collateral Manager
By: /s/ James Dondero
______________________________________
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
<PAGE>
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Giles Marchand
______________________________________
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By: /s/ Giles Marchand
______________________________________
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By: /s/ Giles Marchand
______________________________________
Title: Authorized Signatory
MERRILL LYNCH DEBT STRATEGIES
FUND II, INC.
By: /s/ Giles Marchand
______________________________________
Title: Authorized Signatory
MERRILL LYNCH DEBT STRATEGIES
FUND III, INC.
By: /s/ Giles Marchand
______________________________________
Title: Authorized Signatory
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under
that certain Amended and Restated Master Guarantee and Collateral Agreement,
dated as of June 6, 1997, as amended and restated through September 14, 1998 (as
amended, supplemented or otherwise modified from time to time, the "GUARANTEE"),
made by each of such corporations in favor of the Collateral Agent, acknowledges
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/ Thomas K. Grundman
________________________________________
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/ Thomas K. Grundman
________________________________________
Title: Vice President
<PAGE>
EXHIBIT 10.2
CONFORMED COPY
SEVENTH AMENDMENT
SEVENTH AMENDMENT, dated as of March 1, 2000 (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, the Third Amendment dated as of April 8, 1999, the
Fourth Amendment dated as of April 15, 1999, the Fifth Amendment dated as of May
10, 1999 and the Sixth Amendment dated as of July 14, 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 (and in the
recitals hereto) as defined terms are so used as so defined.
Section 2. AMENDMENT TO SUBSECTION 1.1 (DEFINITIONS).
Subsection 1.1 of the Credit Agreement is hereby amended by inserting in the
appropriate alphabetical order the following new definition of "Production
Payment Transaction":
"'PRODUCTION PAYMENT TRANSACTION': the sale by
Odessa, pursuant to a production payment of a specified
quantity of hydrocarbons to be produced from oil and gas
interests owned by Odessa for an aggregate purchase price of
at least $15,000,000."
Section 3. AMENDMENT TO SUBSECTION 7.2 (LIMITATION ON
INDEBTEDNESS). Subsection 7.2 of the Credit Agreement is hereby amended as
follows:
(a) by deleting from paragraph (c) the reference to
"$10,000,000" and substituting in lieu thereof a reference to
"$20,000,000"; and by adding the following immediately after the
reference to "September 14, 1998":
", plus any amount loaned in connection with the
acquisition of any Foreign Subsidiary listed on Schedule
7.9(c);";
(b) by deleting from paragraph (d) the reference to
"$25,000,000" and substituting in lieu thereof a reference to
"$30,000,000";
(c) by deleting from paragraph (g) the reference to
"$25,000,000" and substituting in lieu thereof a reference to
"$30,000,000";
<PAGE>
(d) by deleting from paragraph (j) the reference to
"$25,000,000" and substituting in lieu thereof a reference to
"$30,000,000";
(e) by deleting the word "and" at the end of paragraph (l);
(f) by deleting the period at the end of paragraph (m) and
substituting in lieu thereof a semicolon and the word "and"; and
(g) by adding the following new paragraph (n):
"(n) in the event that the Production Payment
Transaction involves the incurrence of Indebtedness,
Indebtedness represented thereby.
Section 4. AMENDMENTS TO SUBSECTION 7.3 (LIMITATION ON LIENS).
Subsection 7.3 of the Credit Agreement is hereby amended as follows:
(a) by deleting the word "and" at the end of paragraph (k);
(b) by deleting the period at the end of paragraph (l) and
substituting in lie thereof a semicolon and the word "and"; and
(c) by adding the following new paragraph (m):
"(m) Liens on oil and gas properties and stock of
Odessa, arising in connection with the Production Payment
Transaction.".
Section 5. AMENDMENTS TO SUBSECTION 7.6 (LIMITATION ON SALE
OF ASSETS). Subsection 7.6 of the Credit Agreement is hereby amended as follows:
(a) by deleting the word "and" at the end of paragraph (c);
(b) by deleting the word "and" at the end of paragraph (d);
(c) by deleting the period at the end of paragraph (e) and
substituting in lieu thereof a semicolon;
(d) by adding the following new paragraph (f):
"(f) Odessa may consummate the Production Payment
Transaction, PROVIDED that $10,000,000 of the proceeds is used
to prepay the Term Loans; and"; and
(e) by adding the following new paragraph (g):
2
<PAGE>
"(g) the swap of a portion of the Borrower's
production testing, slickline, wireline and pipe testing
business in Texas and Louisiana in exchange for trucking
assets of substantially equivalent value, PROVIDED that (i)
the fair market value of the assets swapped by the Borrower in
the asset swap is no more than $10,000,000 and (ii) the
Borrower shall comply with the provisions of Section
6.10 with respect to the trucking assets acquired by the
Borrower in the asset swap."
Section 6. AMENDMENT TO SECTION 7.8 (LIMITATION ON CAPITAL
EXPENDITURES). Section 7.8 of the Credit Agreement is hereby amended as follows:
(a) by adding after "Significant Disposition" in Subsection
7.8(a) the words "or the Production Payment Transaction"; and
(b) by adding the following after the reference to "plus (ii)"
in Subsection 7.8(b):
"the amount of any Indebtedness incurred pursuant to
Subsection 7.2(d) during such fiscal year plus (iii)".
Section 7. AMENDMENT TO SECTION 7.9 (LIMITATION ON
INVESTMENTS, LOANS AND ADVANCES). Section 7.9 of the Credit Agreement is hereby
amended as follows:
(a) Subsection 7.9(d) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(d) Permitted Acquisitions after the Merger Loan
Date and the exchange of assets permitted by Subsection 7.6(g)";
(b) Subsection 7.9(e) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(e) loans by the Borrower or any Subsidiary to, and
equity investments by the Borrower or any Subsidiary in,
Foreign Subsidiaries in an aggregate amount (or, in the case
of loans, outstanding principal amount) at any time not to
exceed the amount thereof outstanding on September 14, 1998,
plus any amount invested in the acquisition of any Foreign
Subsidiaries listed on Schedule 7.9(c), plus $20,000,000 (for
all such Foreign Subsidiaries, taken together, net of the
aggregate amount of any dividends or other distributions
received by the Borrower and any such Subsidiary in respect of
such equity investments in Foreign Subsidiaries and excluding
the amount of any such equity investments in a Designated
Joint Venture made in accordance with Subsection 7.9(q)),
PROVIDED that, of the amounts of investments in Foreign
Subsidiaries made pursuant to this paragraph after the
effective date of the Seventh Amendment hereto, not more than
$5,000,000 may be loaned to, or invested in, Foreign
Subsidiaries in the form of cash or Cash Equivalents and the
remaining amount which may be loaned to or
3
<PAGE>
invested in Foreign Subsidiaries shall be in the form of loans
or contributions of supplies, equipment and other non-cash
items;"; and
(c) Subsection 7.9(f) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(f) as permitted by Subsection 7.2(c)(iii);".
Section 8.AMENDMENT TO SUBSECTION 7.10 (LIMITATION ON OPTIONAL
PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS AND ORGANIZATIONAL DOCUMENTS,
ETC.). Subsection 7.10 of the Credit Agreement is hereby amended by adding the
following new sentence at the end of such Subsection:
"Notwithstanding anything to the contrary contained
in the foregoing, the Borrower may apply to the purchase of
Indebtedness (including the Convertible Subordinated
Debentures, the 1997 Convertible Subordinated Notes and the
Senior Subordinated Notes) the sum of (i) up to $75,000,000 of
the Net Cash Proceeds of any issuance of its Capital Stock,
PROVIDED that the Borrower shall have applied toward
prepayment of the Term Loans the portion of such Net Cash
Proceeds required by Subsection 2.10, and (ii) all the sale
proceeds of the Production Payment Transaction in excess of
the amount to be applied to prepay the Term Loans pursuant to
Section 7.6(f)."
Section 9. INSTRUCTION OF COLLATERAL AGENT. The Lenders hereby
instruct the Collateral Agent to release its Liens on the stock and assets of
Odessa upon receipt by the Collateral Agent of written notice from the Borrower
that the Borrower is ready, willing and able to consummate the Production
Payment Transaction and to comply with the provisions of Subsection 7.6(f).
Section 10. RESIGNATION OF COLLATERAL AGENT; APPOINTMENT OF
SUCCESSOR COLLATERAL AGENT. If Norwest Bank Texas N.A., gives notice of
resignation as Collateral Agent pursuant to Section 9.9 of the Credit Agreement
within ninety (90) days of the Effective Date (as defined below), the Required
Lenders hereby approve the future appointment of PNC Bank, National Association
as the successor Collateral Agent, and the Borrower hereby consents pursuant to
Section 9.9 of the Credit Agreement.
Section 11. 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,
(b) the attached Acknowledgment and Consent, executed and delivered by a duly
authorized officer of each of the signatories thereto, (c) from the Borrower, an
amendment fee of 5.0 basis points on the Aggregate Exposure as in effect on the
Effective Date of each Lender consenting to the Amendment, such amendment fee to
be payable to the Administrative Agent for the account of such Lender, on the
Effective Date, and (d) such other corporate documents and resolutions as the
Administrative Agent may request.
4
<PAGE>
Section 12. 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).
(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 WAIVER AND 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
KEY ENERGY SERVICES, INC. (formerly
known as Key Energy Group, Inc.)
By: /s/ THOMAS K. GRUNDMAN
________________________________________
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent and as a Lender
By: /s/ Thomas A. Majeski
________________________________________
Title: Vice President
<PAGE>
BANK POLSKA KASA OPIEKI S.A.,
PEKAO S.A. GROUP, NEW YORK
BRANCH
By: /s/ Barry W. Henry
________________________________________
Title: Vice President
<PAGE>
BANK LEUMI, USA
By: /s/ Joung Hee Hong
_______________________________________
Title: Vice President
<PAGE>
BOEING CAPITAL CORPORATION
By:
_______________________________________
Title:
<PAGE>
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ Daniel E. A. Nichols
_______________________________________
Title: Assistant Vice President
<PAGE>
KZH CRESCENT LLC
By: /s/ Peter Chin
________________________________________
Title: Authorized Agent
KZH CRESCENT-2 LLC
By: /s/ Peter Chin
________________________________________
Title: Authorized Agent
KZH CRESCENT-3 LLC
By: /s/ Peter Chin
________________________________________
Title: Authorized Agent
<PAGE>
KZH HIGHLAND-2 LLC
By: /s/ Peter Chin
________________________________________
Title: Authorized Agent
KZH PAMCO LLC
By: /s/ Peter Chin
________________________________________
Title: Authorized Agent
<PAGE>
BEAR STEARNS INVESTMENT
PRODUCT INC.
By:
________________________________________
Title:
________________________________________
<PAGE>
Crescent/Mach I Partners, L.P.
by: TCW Asset Management Company
its investment Manager
By: /s/ Jonathan R. Insull
________________________________________
Title: Vice President
<PAGE>
Continental Assurance Company
Separate Account (E)
By: TCW Asset Management Company
as Attorney-in-Fact
By: /s/ Mark L. Gold
________________________________________
Title: Managing Director
By: /s/ Jonathan R. Insull
________________________________________
Title: Vice President
<PAGE>
United Of Omaha Life Insurance Company
By: TCW Asset Management Company,
its Investment Advisor
By: /s/ Mark L. Gold
________________________________________
Title: Managing Director
By: /s/ Jonathan R. Insull
________________________________________
Title: Vice President
<PAGE>
SEQUILS 1. LTD
By: TCW Advisors, Inc. as its Collateral
Manager
By: /s/ Mark L. Gold
________________________________________
Title: Managing Director
By: /s/ Jonathan R. Insull
________________________________________
Title: Vice President
<PAGE>
ELC (CAYMAN) LTD. CDO SERIES
1999-1
By: /s/ Joseph H. Towell
________________________________________
Title: Senior Vice President
<PAGE>
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Advisor
By: /s/ Melissa Marano
________________________________________
Title: Vice President
INDOSUEZ CAPITAL FUNDING IIA,
LIMITED
By: Indosuez Capital as Portfolio Advisor
By: /s/ Melissa Marano
________________________________________
Title: Vice President
<PAGE>
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.
ML CBO IV (Cayman)
By: Highland Capital Management, L.P.
as Collateral Agent
By: /s/ James Dondero, CFA, CPA
________________________________________
Title: President
Highland Capital Management, L.P.
PAM CAPITAL FUNDING, L.P.
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/ Charles E. Lemieux, CFA
________________________________________
Title: Assistant Vice President
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc., as its
Investment Manager
By: /s/ Charles E. Lemieux, CFA
________________________________________
Title: Assistant Vice President
<PAGE>
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Giles Marchand, CFA
________________________________________
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By: /s/ Giles Marchand, CFA
________________________________________
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By: /s/ Giles Marchand, CFA
________________________________________
Title: Authorized Signatory
MERRILL LYNCH DEBT STRATEGIES
FUND II, INC.
By: /s/ Giles Marchand, CFA
________________________________________
Title: Authorized Signatory
MERRILL LYNCH DEBT STRATEGIES
FUND III, INC.
By: /s/ Giles Marchand, CFA
________________________________________
Title: Authorized Signatory
<PAGE>
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
_______________________________________
Title: Authorized Signatory
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned corporations, as a guarantor under
that certain Amended and Restated Master Guarantee and Collateral Agreement,
dated as of June 6, 1997, as amended and restated through September 14, 1998 (as
amended, supplemented or otherwise modified from time to time, the "GUARANTEE"),
made by each of such corporations in favor of the Collateral Agent, acknowledges
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/ Thomas k. Grundman
_______________________________________
Title: Vice President
DAWSON PRODUCTION PARTNERS, L.P.
By: DAWSON PRODUCTION
MANAGEMENT, INC., Its sole
general partner,
By: /s/ Thomas k. Grundman
_______________________________________
Title: Vice President
<PAGE>
EXHIBIT 10.3
PRODUCTION AND DELIVERY AGREEMENT
This Agreement ("Agreement") is made and entered into this 31st day
of March, 2000, but effective as of 7:00 a.m. on March 1, 2000, by and
between ODESSA EXPLORATION INCORPORATED, a Delaware corporation, whose
address is 6010 Highway 191, Suite 210, Odessa, Texas 79762 ("Seller"), and
NORWEST ENERGY CAPITAL, INC., a Texas corporation, whose address is 500 West
Texas Avenue, Midland, Texas 79701 ("Buyer").
WHEREAS, by Conveyance of Production Payment of even date herewith
from Seller to Buyer (the "Conveyance"), Buyer has purchased and acquired
from Seller and Seller has sold and conveyed to Buyer a production payment
interest in the Subject Interests described in Exhibit A hereto.
NOW, THEREFORE, as a material inducement to cause Buyer to purchase
the Production Payment and in consideration of the mutual benefits and
obligations of the parties hereunder, Buyer and Seller have agreed, and
hereby agree, as follows:
1. DEFINITIONS. Each capitalized term used herein but not defined
herein shall have the meaning given to it in the Conveyance.
2. TAKING IN KIND; MARKETING. (a) The Hydrocarbons comprising a part
of the Production Payment (the "Production Payment Hydrocarbons") shall be
delivered to Buyer in kind or to the credit of Buyer, free of cost, at the
Delivery Point.
(b) It is recognized and understood that the Production
Payment Hydrocarbons are subject to the terms of product sales contracts
described on Exhibit B attached hereto (such contracts, together with any
amendments, renewals or extensions approved by Buyer pursuant to Subsection
2(c) hereof and any new or replacement contracts which Seller and Buyer may
hereafter agree in writing are Existing Sales Contracts, the "Existing Sales
Contracts"). It is the intention of Buyer and Seller that until Buyer gives
Seller thirty (30) days prior written notice that Buyer intends to take all
or any portion of the Production Payment Hydrocarbons in kind or enter into
separate product sales contracts therefor, Seller shall deliver under the
Existing Sales Contracts on behalf of and for the credit of Buyer all of the
Production Payment Hydrocarbons during the remaining term of the Existing
Sales Contracts and as any such term may be extended pursuant to paragraph
(c) of this Section 2 below, at the contract price and terms applicable
thereto without deduction for nonperformance or noncompliance.
<PAGE>
(c) Seller shall not amend the Existing Sales Contracts
without Buyer's prior written consent, which consent shall not be
unreasonably withheld. Other than for those periods of time which would allow
Seller to cancel any such Existing Sales Contract upon thirty (30) days
notice or unless Buyer consents in writing otherwise, which consent shall not
be unreasonably withheld, Seller shall not renew or extend the Existing Sales
Contracts. Upon Buyer giving Seller notice of Buyer's intention to take all
or any portion of the Production Payment Hydrocarbons in kind or enter
separate product sales contracts therefor pursuant to paragraph (b) of this
Section 2, Seller shall give such notices and take other actions, if any, as
may be required or appropriate to cause the relevant Existing Sales Contracts
not to be extended or renewed, but to expire at the end of their then
respective current terms.
(d) All Production Payment Hydrocarbons shall be delivered
to Buyer, or to Buyer's credit, into the facilities installed and maintained
by the First Transporter or first purchaser located at the Delivery Point,
currently as produced and saved, in its natural state after removal of other
substances by conventional mechanical field separation facilities.
(e) All Production Payment Hydrocarbons that Buyer has
elected to take in kind, if any, that is not made available to Buyer at the
Delivery Point (and excluding any Production Payment Hydrocarbons to be sold
pursuant to the Existing Sales Contracts) shall be marketed by Seller on
behalf of Buyer and sold pursuant to arm's length contracts with parties not
affiliated with Seller, containing terms negotiated by Seller as a prudent
operator. Any such sale by Seller shall be subject always to the right of
Buyer, upon notice to Seller, to separately dispose of all or any portion of
such Production Payment Hydrocarbons and shall be only for such minimum
periods of time (not to exceed one year) as are reasonably appropriate under
the circumstances, unless Buyer consents in writing to a longer contract term.
(f) All proceeds received by Seller from the sale of
Production Payment Hydrocarbons sold on behalf of Buyer pursuant to the terms
hereof (which shall include any Production Payment Hydrocarbons sold pursuant
to the Existing Sales Contracts) are received by Seller in trust for Buyer
and shall be held in trust by Seller for Buyer; provided, however, Seller
shall pay such proceeds by wire transfer to such account as Buyer shall have
designated from time to time to Buyer within forty-five (45) days after the
month of production; and provided further that in the event any proceeds
received by Seller from the sale of Production Payment Hydrocarbons payable
to Buyer are not received by Buyer within such period, interest shall
thereafter accrue at an annual rate of twelve percent (12%), calculated on
the basis of a three hundred sixty-five (365) day year, on the amount of said
unreceived proceeds and shall be paid to Buyer at the time said proceeds are
paid to Buyer.
2
<PAGE>
For all Gas comprising part of the Production Payment that is sold and for
which proceeds are received by Seller pursuant to any Existing Sales
Contract, Seller and Buyer agree that the amount payable to Buyer by Seller
pursuant to this paragraph (f) shall be calculated using the actual quantity
of Gas sold during the relevant month and for which proceeds are received by
Seller and a price per MMBtu for West Texas-Waha as published in the first of
the month publication for the month of production in Inside F.E.R.C.'s Gas
Market Report. For all Oil comprising part of the Production Payment that is
sold and for which proceeds are received by Seller pursuant to any Existing
Sales Contract, Seller and Buyer agree that the amount payable to Buyer by
Seller pursuant to this paragraph (f) shall be calculated using the actual
quantity of Oil sold during the relevant month and for which proceeds are
received by Seller and a price per Barrel for the month of production equal
to the price per Barrel in an Existing Sales Contract that governs the sale
of fifty percent (50%) or more of all of the Oil sold from the Subject
Interests in such month; provided, however, if no one Existing Sales Contract
governs the sale of fifty percent (50%) or more of all of the Oil sold from
the Subject Interests for a month, the price per Barrel shall equal the
unweighted average of the price per Barrel in those of the Existing Sales
Contracts which govern the largest quantities of Oil sold and which
cumulatively govern the sale of fifty percent (50%) or more of all Oil sold
from the Subject Interests; and further provided, however, if the average of
the daily price of West Texas Intermediate deemed 40 degrees (EDQ) posted by
Koch Oil falls below $21.00 for a month (or if there is no such posting, then
the daily average of the four highest postings for West Texas Intermediate
deemed 40 degrees (EDQ)), the amount payable to Buyer shall be increased by
$0.25 per Barrel for such month. Seller will diligently enforce the terms of
all sales agreements under which Production Payment Hydrocarbons are sold on
behalf of Buyer, including full and prompt payment of all amounts due from
such sales. In the event of any late payment by any purchaser, Seller shall
remit to Buyer any interest or penalties collected with respect to the sale
of Production Payment Hydrocarbons. In the event Seller is in default in its
obligations hereunder, and such default is continuing for fifteen (15) days
after written notice from Buyer, Buyer shall have the right to direct the
purchasers of any Production Payment Hydrocarbons to pay the proceeds thereof
directly to Buyer by delivering to such purchasers the letters in lieu of
transfer orders previously executed by Seller and held by Buyer. In the event
of Seller's default as described above and in the event Buyer requests direct
payment, Seller will cooperate in instructing the purchasers to pay such
proceeds directly to Buyer and shall execute such additional instruments as
may be necessary or appropriate in connection therewith.
3. GATHERING AND TRANSPORTATION. Seller at its sole cost and expense
shall gather or cause to be gathered all Production Payment Hydrocarbons at
the wellheads where produced and transport the same to the Delivery Points,
without any charge or deduction to Buyer for any costs attributable to
preparing Hydrocarbons for delivery, and delivering same
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to the Delivery Points. Seller shall be in exclusive control and possession
of the Production Payment Hydrocarbons gathered at the wellheads and
responsible for any loss, damage or injury caused thereby until the same
shall have been redelivered to Buyer, or to Buyer's credit, as herein
provided.
4. RATE OF PRODUCTION. Seller shall cause (or if Seller is not the
operator, shall use its reasonable best efforts to cause) any wells now
located or hereafter drilled on the lands covered by the Subject Interests
(the "Subject Wells") to be prudently operated and produced in accordance
with good engineering practices. Seller shall also use its reasonable best
efforts to cause the Subject Wells to produce each day that quantity of
Production Payment Hydrocarbons equal to its pro rata part of the Gas Subject
Quantity and Oil Subject Quantity for such day.
5. QUALITY REQUIREMENTS. All Production Payment Hydrocarbons
delivered to Buyer, or to Buyer's credit, shall satisfy the quality
requirements and specifications as set forth in the First Transporter's
transportation agreements and/or published tariffs filed with the FERC for
acceptance and transportation of Gas at each Delivery Point or as set forth
in the first purchaser's agreements for acceptance and purchase of Oil, all
without penalty or deduction for nonconformity, as the same may be modified
from time to time. All costs and expenses of dehydrating, treating, and
compressing Production Payment Gas to satisfy such quality requirements shall
be borne and paid by Seller.
6. PRESSURE. Seller shall deliver, or cause to be delivered, Gas
comprising a part of the Production Payment at a pressure sufficient to
deliver the same into the First Transporter's pipeline at each Delivery Point
against the operating pressure of First Transporter's pipeline in existence
from time to time. Seller shall inform Buyer, as often as may be necessary,
of the delivery rate and pressure of such Gas delivered to Buyer or to
Buyer's credit.
7. OPERATION OF SUBJECT INTERESTS. Except to the extent that there
is no material adverse effect as to the ownership or operation of the Subject
Interests or Production Payment, at all times from the date hereof until the
termination of the Production Payment, if Seller is the operator of the
Subject Interests, Seller, at Seller's cost and expense, shall, (and in the
event Seller is not the operator, Seller shall use its reasonable best
efforts to cause the operator of such Subject Interests to):
(a) Cause the Subject Interests to be maintained in full force
and effect, and to be developed, protected against drainage, and
continuously operated for the production of Hydrocarbons in a good and
workmanlike
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manner as would a prudent operator (and without regard to the burden of
the Production Payment), all in accordance with generally accepted
industry practices, applicable operating agreements, and all applicable
federal, state and local laws, rules and regulations (including any and
all duties arising under common law or applicable laws, rules or
regulations relating to the protection or conservation of human health
or safety or the environment), and shall otherwise comply with all
applicable laws, rules and regulations;
(b) Pay, or cause to be paid, promptly as and when due and
payable, all rentals and royalties payable in respect of the Subject
Interests or the production therefrom, and all costs, expenses and
liabilities incurred in or arising from the operation or development of
the Subject Interests, or the producing, treating, gathering, storing,
marketing or transporting of Hydrocarbons therefrom;
(c) Cause all wells, machinery, equipment and facilities of
any kind now or hereafter located on the Subject Interests, and
necessary or useful in the operation thereof for the production of
Hydrocarbons therefrom, to be provided and to be kept in good and
effective operating condition as would a prudent operator (and without
regard to the burden of the Production Payment), and all repairs,
renewals, replacements, additions and improvements thereof or thereto,
useful or needful to such end, to be promptly made;
(d) Give or cause to be given to Buyer written notice of every
adverse claim or demand made by any person affecting the Subject
Interests, the Hydrocarbons produced therefrom and/or the Production
Payment in any manner whatsoever, and of any suit or other legal
proceeding instituted with respect thereto, and at Seller's expense
cause all necessary and proper steps to be taken with reasonable
diligence to protect and defend the Subject Interests, the Hydrocarbons
produced therefrom and/or the Production Payment against any such
adverse claim or demand, including (but not limited to) the employment
of counsel for the prosecution or defense of litigation and the
contest, release or discharge of such adverse claim or demand;
(e) Cause the Subject Interests to be kept free and clear of
liens, charges and encumbrances of every character, other than (i)
Taxes constituting a lien but not due and payable (except to the extent
contested in good faith), and (ii) the Permitted Encumbrances;
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(f) Pay all Taxes when due and before they become delinquent
(except to the extent contested in good faith), and reimburse Buyer for
any Taxes paid by Buyer as a result of the Production Payment or the
Production Payment Hydrocarbons or the production of same;
(g) Pay promptly when due and before they become delinquent
all operating expenses and all billings under applicable joint
operating agreements (except to the extent contested in good faith);
(h) Not (i) resign as operator of any of the Subject Interests
operated by Seller or (ii) approve a successor operator of any of the
Subject Interests, in each case until and unless a successor operator
has been consented to in writing by Buyer, which consent shall not be
unreasonably withheld;
(i) Maintain or cause to be maintained segregated storage
facilities, tank batteries and receiving vessels for Oil comprising a
part of the Production Payment unless (a) any Oil which does not
comprise part of the Production Payment which is commingled therewith
is continuously metered separately, and (b) any such Oil which does not
comprise part of the Production Payment is gathered with and sold to
the same first purchaser to whom the Oil comprising a part of the
Production Payment is sold; and
(j) Not conduct any work or operation in any well-bore of a
Subject Well, which work or operation is related to any horizon, zone,
formation or interval not included in the Subject Interests, without
the prior written consent of Buyer, which consent shall not be
unreasonably withheld.
8. INSURANCE; DAMAGE OR LOSS. (a) Seller shall maintain or cause to
be maintained, at its sole cost and expense and with financially sound and
reputable insurers , insurance covering the Leases and all pipelines, wells,
and facilities located thereon against such liabilities, casualties, risks
and contingencies, and in such types as is customary in the case of
independent oil companies engaged in operations of similar property. Such
insurance shall name Buyer as an additional insured as Buyer's interests
appear. Seller shall furnish certificates of such insurance to Buyer and
shall obtain endorsements to such policies providing that the insurer will
notify Buyer not less than thirty (30) days prior to the expiration or
termination of such policy of insurance.
(b) In the event of any damage to or loss of any platform,
pipeline, well, equipment or facility on the Leases, Seller (at no cost to
Buyer) shall promptly redrill,
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rebuild, reconstruct, repair, restore or replace such damaged or lost
property, unless to do so would not be economically feasible (without regard
to the burden of the Production Payment, but taking into account insurance
proceeds and recoveries).
9. ABANDONMENT OF WELLS. (a) Until the termination of the Production
Payment, Seller shall not (to the extent within its control), without first
obtaining the written consent of Buyer, which consent shall not be
unreasonably withheld, agree to the abandonment of any well heretofore or
hereafter completed for production of Hydrocarbons on any of the lands
covered by or attributable to the Subject Interests or agree to surrender,
abandon or release any Lease or Subject Interest or any part thereof;
provided, however, that, without the consent of Buyer:
(i) If and when, in Seller's reasonable judgment, exercised in
good faith and as would a prudent operator not burdened by the
Production Payment, a well becomes no longer capable of producing
Hydrocarbons in paying quantities (without regard to the burden of the
Production Payment) and it would not be economically feasible (without
regard to the burden of the Production Payment) to restore the
productivity of such well by reworking, reconditioning, deepening,
plugging back, or otherwise, Seller shall have the right to agree to
abandon such well, subject to the provisions of Section 9(b) of this
Agreement.
(ii) Subject to the provisions of Section 9(b), Seller shall
have the right to surrender and release any Subject Interest or part
thereof when, in the reasonable judgment of Seller exercised in good
faith and as would a prudent operator not burdened by the Production
Payment, there is no well located thereon which is capable of producing
Hydrocarbons in paying quantities and the drilling of an additional
well thereon would not, in Seller's reasonable opinion, be economically
feasible (without regard to the burden of the Production Payment).
(b) Subject to prior rights granted to other parties under
applicable contracts, before abandoning any well or surrendering or releasing
any Subject Interest or part thereof, Seller shall offer to assign the same
to Buyer upon Buyer's payment of the net salvage value (if any) attributable
to Seller's interest therein and assumption of the obligations attributable
to Seller's interest therein.
10. DRILLING OF REPLACEMENT WELLS. Seller covenants and agrees that,
in the event that any well now or hereafter completed for production of
Hydrocarbons on any of the lands
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and waterbottoms covered by or attributable to the Subject Interests shall
for any reason (other than depletion of the reserves otherwise recoverable
from such well) be no longer capable of producing Hydrocarbons in paying
quantities, Seller shall, to the extent within its control, promptly drill a
well to replace such well, unless in Seller's reasonable judgment, exercised
in good faith and as would a prudent operator not burdened by the Production
Payment, the drilling of such replacement well would not be economically
feasible.
11. SELLER'S FINANCIAL CAPABILITY. At all times from the date hereof
until the termination of the Production Payment,
(a) Seller will upon the execution of this Agreement, purchase
and maintain in effect price hedging contracts which have a length of
not less than two (2) years in volumes of Gas equal to at least
seventy-five percent (75%) of the projected volumes of Gas attributable
to the Subject Interests which do not comprise a part of the Production
Payment and price hedging contracts which have a length of not less
than two (2) years in volumes of Oil equal to at least seventy-five
percent (75%) of the projected volumes of Oil attributable to the
Subject Interests and which do not comprise a part of the Production
Payment, and upon each anniversary of the execution of this Agreement,
Seller will purchase and maintain in effect price hedging contracts for
an additional year such that the hedged volumes are hedged for a period
of two (2) years.
(b) Seller will not enter into any transaction of
consolidation, merger or amalgamation; liquidate, wind up or dissolve
(or suffer any liquidation or dissolution); or convey, sell, lease,
assign, transfer or otherwise dispose of all or substantially all of
its property or business.
(c) Seller will not allow any account payable to be in excess
of ninety (90) days past due, except such as are being contested in
good faith.
(d) Seller will not directly or indirectly, enter into any
transaction (including the sale, lease or exchange of property or the
rendering of service) with Key Energy Services, Inc., its parent
corporation ("Parent"), or any of its affiliates, other than upon fair
and reasonable terms no less favorable than could be obtained in an
arm's length transaction with an entity which was not an affiliate.
(e) Seller will not enter into any contract to provide
services to Seller with Parent or any of its affiliates which is in
excess of thirty (30) days without
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the prior written consent of Buyer, which consent shall not be
unreasonably withheld.
(f) Seller will not make any material change in the character
of its business, which is the management of, operation of, consulting
about, drilling on and the acquisition and divestiture of oil and gas
properties and equipment.
12. INFORMATION. (a) At all times from the date hereof until the
termination of the Production Payment, Seller, at its own expense, shall
furnish to Buyer the following reports and information at the times indicated
below.
(i) Within one hundred five (105) days after the end of each
fiscal year of Parent, Seller shall furnish the most recent audited
consolidated financial statements of Parent as of the end of and for
such period, including a balance sheet and statements of income,
stockholder's equity and cash flow, each of which shall have been
prepared in accordance with generally accepted accounting principles,
including consolidating schedules prepared in sufficient detail to
present the separate financial position and results of operations of
Parent (including all consolidated subsidiaries other than Seller) and
Seller, together with the related consolidating eliminations and
consolidated amounts for the latest fiscal year, and accompanied by a
report of KPMG LLP or another firm of independent certified public
accountants reasonably acceptable to Buyer stating that their
examination was made in accordance with generally accepted auditing
standards and that in their opinion they fairly present the
consolidated financial condition, results of operations and changes in
the consolidated financial position of Parent in accordance with
generally accepted accounting principles consistently applied.
(ii) Within sixty (60) days after the end of each fiscal
quarter of Parent, Seller shall furnish the most recent unaudited
consolidated financial statements of Parent as of the end of and for
such period, including a balance sheet and statements of income,
stockholder's equity and cash flow, each of which shall have been
prepared in accordance with generally accepted accounting principles
and accompanied by a certificate of the chief financial officer of
Parent stating that such financial statements fairly present the
consolidated financial condition, results of operations and changes in
financial position of Parent in accordance with generally accepted
accounting principles consistently applied, subject to changes
resulting from year-end audit adjustments.
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(iii) Within sixty (60) days after the end of each fiscal
quarter of Seller, Seller shall furnish the most recent unaudited
financial statements of Seller as of the end of and for such period,
including a balance sheet and statements of income, stockholder's
equity and cash flow, each of which shall have been prepared in
accordance with generally accepted accounting principles and
accompanied by a certificate of the chief financial officer of Parent
stating that such financial statements fairly present the financial
condition, results of operations and changes in financial position of
Seller in accordance with generally accepted accounting principles
consistently applied, subject to changes resulting from year-end audit
adjustments.
(iv) Annually on or before August 1 of each year (commencing
August 1, 2000, Seller shall furnish an engineering report reasonably
satisfactory to Buyer (together with Seller's internally prepared
summary of such report), as of July 1 of such year prepared by an
independent petroleum engineering consulting firm reasonably acceptable
to Buyer, incorporating all current information and data available to
Seller pertinent to the estimation of oil and gas reserves attributable
to Subject Interests and setting forth the following:
(A) an estimation of the oil and gas reserves,
classified by appropriate categories, as of such date
attributable to the Subject Interests (with that portion of
such reserves attributable to the Production Payment and to
Seller's interest in the Subject Interests (after giving
effect to the Production Payment) being set forth separately
in the internally prepared summary),
(B) a projection of the rate of production of, and
net income from, such reserves,
(C) a calculation of the present worth of such net
income discounted at a rate or rates designated from time to
time by Buyer, and
(D) a schedule or complete description of all
assumptions, estimates and projections made or used in the
preparation of such report, including without limitation
estimated future product prices, capital expenditures,
operating expenses and taxes.
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Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers,
shall be based on such assumptions as to costs, product prices and
similar factors as Buyer shall designate from time to time. Buyer shall
be furnished a copy of any other reserve report prepared for Seller by
any independent petroleum engineering firm covering the Properties.
(v) Within sixty (60) days from the end of each calendar
quarter for operated Subject Interests (and ninety (90) days for
non-operated Subject Interests), and at such other time as may be
requested by Buyer, Seller shall furnish reports for such calendar
quarter covering the expediency of any change in methods of treatment
or operation of all or any Subject Wells and productive of
Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect
to the Subject Interests, the decision as to which may increase or
reduce the quantity of Hydrocarbons ultimately recoverable from the
Subject Interests, or the rate of production therefrom, or which may
shorten or prolong the period of time required for liquidation of the
Production Payment.
(vi) Within sixty (60) days from the end of each month for
operated Subject Interests (and ninety (90) days for non-operated
Subject Interests), Seller shall furnish a report for such month
showing: (A) the gross production of Hydrocarbons from each Subject
Well or Property, (B) the gross production of Hydrocarbons attributable
to the Subject Interests (including any thereof used in lease
operations), (C) the quantity of Hydrocarbons sold for Seller's account
or taken in kind by Seller, (D) the quantity of Production Payment
Hydrocarbons sold for Buyer's account, (E) the quantity of Production
Payment Hydrocarbons delivered in kind to Buyer and disposed of by
Buyer, (F) the Taxes, rentals and royalties paid by Seller on
production from the Subject Interests (including the Production
Payment) or deducted from or paid out of such proceeds (and upon
request of Buyer, evidence of payment thereof), (G) the current status
of any Gas imbalances, if any, affecting the Subject Interests, (H) the
cumulative amount of Hydrocarbons remaining to be delivered pursuant to
the Production Payment, and (I) the number of wells operated, wells
drilled and wells abandoned.
(vii) Within sixty (60) days from the end of each month for
operated Subject Interests (and ninety (90) days for non-operated
Subject Interests), Seller shall furnish Buyer for such month a lease
operating statement showing
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gross and net volumes of Hydrocarbons produced and sold from the
Leases, average sales prices, severance taxes, lease operating
expenses, capital expenditure and any other revenues and expenses
associated with each Lease.
(viii) Within forty-five (45) days from the end of each month,
Seller shall furnish Buyer copies of all filings made during such month
with the Texas Railroad Commission or any other state or federal agency
which relate to the Subject Interests.
(ix) Upon request, Seller shall furnish Buyer copies of
surface maps showing property lines and well locations, well logs, core
analysis data, flow and pressure tests, natural gas analysis and casing
programs and other similar information related to the Subject
Interests, Subject Wells and the production therefrom.
(x) Within thirty (30) days from the end of each calendar
quarter, Seller shall furnish Buyer a certificate executed by an
officer of Seller certifying that as of the end of such calendar
quarter that to the best of his knowledge after reasonable
investigation Seller is in compliance in all material respects with the
terms of the Conveyance and this Agreement, or if not, specifying in
reasonable detail any exceptions thereto.
(xi) Upon request, Seller shall furnish such other information
as Buyer may reasonably request.
(b) Buyer shall have the right from time to time but not more
often than once every fiscal quarter of Buyer to audit the books and records of
Seller with respect to the Subject Interests. Such audits shall be conducted by
Buyer so as to result in a minimum disruption in the ongoing business and
affairs of Seller and shall be conducted during normal business hours at
Seller's offices or at the offices where Seller maintains the records relating
to the items set forth above. This right to audit shall be a free and
unrestricted right, subject to limitations above set forth, and shall survive
the termination of the Production Payment and for one (1) year thereafter. If,
as a result of any such audit, it is determined that any amount is due Buyer as
a result of the failure of Seller to properly deliver all Production Payment
Hydrocarbons, or the proceeds thereof, to Buyer in accordance with the terms of
the Conveyance and this Agreement, Seller shall pay Buyer the value of the
Production Payment Hydrocarbons which Seller failed to deliver, or the proceeds
which Seller failed to remit, together with interest at an annual rate of twelve
percent (12%) calculated on the basis of a three hundred sixty-five (365) day
year, from the date that such amount should have
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been delivered or paid in accordance with the terms of the Conveyance and
this Agreement to the date of payment.
13. ACCESS TO SUBJECT INTERESTS. Seller shall permit, or use its
reasonable best efforts to cause the operator of the Subject Wells to permit,
the duly authorized representatives of Buyer, at any reasonable time, but at
Buyer's risk and expense, to make such inspection of the Subject Interests
and the property, machinery, equipment and facilities used in the operation
thereof as such representatives shall deem proper.
14. REMEDIES OF BUYER; MORTGAGE AND SECURITY INTEREST. At any time
and from time to time until the termination of the Production Payment, if
Seller shall fail to perform or observe any of the material covenants or
agreements provided herein or in the Conveyance to be performed or observed
by Seller which results or in Buyer's reasonable good faith opinion would
result in a material adverse affect to the Subject Interests or the
Production Payment, Buyer, in addition to Buyer's right to recover damages
and all other remedies available to Buyer at law or in equity, may, if such
failure shall continue unremedied 30 days after written notice thereof is
delivered to Seller (it being agreed that such 30-day grace period shall not
apply in emergencies or situations where observing such grace period might,
in the reasonable judgment of Buyer, result in a loss of rights or the
incurrence of penalties or other damages):
(a) pay, or cause to be paid, any of the costs, expenses,
Taxes or other amounts (which Taxes are not being contested in good
faith by Seller) which Seller has agreed to pay under the Conveyance
which have become delinquent, and be reimbursed on demand by Buyer for
all amounts so paid or incurred, together with interest at the Floating
Rate from the date of such payment until the date of reimbursement; and
(b) sell, on behalf and for the account of Seller, all of the
Hydrocarbons attributable to Seller's interest in the Subject Interests
and apply the proceeds thereof to any amount owed by Seller hereunder;
and
(c) setoff any amount owed by Seller or its affiliates to
Buyer or its Affiliates against any amount owed to Seller hereunder;
and
(d) apply to a court of equity for the specific performance or
observance of any such covenant or condition and in aid of the
execution of any power herein granted and for the appointment of a
receiver of the Subject Interests and the Hydrocarbons produced
therefrom.
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In order to secure payment of all amounts advanced or paid by Buyer
under this Section 14 and to secure performance by Seller of all of its other
obligations under this Agreement and the Closing Agreement of even date
herewith between Seller and Buyer, as such agreements may be modified or
amended from time to time, (all of such payment and performance obligations
being hereinafter collectively referred to as the "Obligations"), Seller does
hereby mortgage, grant, affect and hypothecate to Buyer, and grant to Buyer a
lien and security interest in all of Seller's interest in the Subject
Interests (all of which Subject Interests are more fully described in the
exhibits attached to this Agreement and any amendments or modifications to
this Agreement executed from time to time) and all of Seller's equipment,
fixtures, inventory, goods, accounts, contracts rights and general
intangibles, whether presently existing or to arise in the future, now owned
or hereafter acquired, insofar as the same are (x) located on the leases more
fully described in the exhibits to this Agreement and any amendments or
modifications to this Agreement executed from time to time (the "Leases"), or
(y) are used in connection with, or relate to the ownership or operation of,
the Leases or Subject Interests, or (z) arise out of the sale or other
conveyance of oil, gas or other minerals produced and saved from the Leases
relating to the Subject Interests, together with any and all products and
proceeds of any of the foregoing. The security interest perfected hereby will
attach to minerals, including oil and gas, at the wellheads and to accounts
resulting from the sale thereof, at the wellheads located on the Leases. The
mortgage, lien and security interest granted hereby shall be subject only to
the Permitted Encumbrances and Seller shall not create or suffer to exist any
mortgage, lien and security interest superior to those granted hereby, except
for the Permitted Encumbrances. The mortgage, lien and security interest
granted pursuant hereto is granted pursuant to the laws of the State of
Texas, and Buyer shall be entitled to exercise all of the rights and remedies
of a mortgagee and secured party under the laws of the State of Texas in the
event of any default by Seller in the performance or payment (as applicable)
of the Obligations.
Any purchaser of Hydrocarbons from or attributable to the Subject
Interests is authorized to make payment to the Buyer out of the Hydrocarbons
attributable to Seller's interest in the Subject Interests for any amount
which Buyer shall certify to such purchaser that it has paid and which Seller
is obligated to pay hereunder. Any insurer is authorized to make payment to
the Buyer of proceeds of insurance described in Section 8(a) hereof for any
amount which Buyer shall certify to such insurer that it has expended in
redrilling, rebuilding, reconstructing, repairing, restoring or replacing
damaged or lost property which Seller has failed or refused to do promptly
pursuant to Section 8(b) hereof. Seller hereby designates Buyer as its agent
and attorney in fact to execute any instruments which may be necessary or
appropriate, including without limitation designations of operator, to enable
Buyer to exercise its rights under this Section 14. This designation and
appointment shall be irrevocable as long as the Production Payment remains in
effect.
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15. NOTICES. All notices, requests, demands, instructions and other
communications required or permitted to be given hereunder shall be in
writing and shall be delivered personally, mailed by certified mail, postage
prepaid and return receipt requested or sent by telecopier, as follows:
If to Seller, addressed to:
Odessa Exploration Incorporated
6010 Highway 191, Suite 210
Odessa, Texas 79762
Attn: D. Kirk Edwards
Telecopy: (915) 550-0544
With a copy to:
Key Energy Services Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attn: General Counsel
Telecopy: (732) 247-5148
If to Buyer, addressed to:
Norwest Energy Capital, Inc.
500 West Texas Avenue
Midland, Texas 79701
Attention: Mark D. McKinney
Telecopy: (915) 685-5441
or to such other place within the United States of America as either party
may designate as to itself by written notice to the other. All notices given
by personal delivery or mail shall be effective on the date of actual receipt
at the appropriate address. Notice given by telecopier shall be effective
upon actual receipt if received during recipient's normal business hours or
at the beginning of the next business day after receipt if received after the
recipient's normal business hours.
16. PURCHASE OF PRODUCTION PAYMENT. Seller may repurchase the
Production Payment from Buyer for an amount equal to the sum of:
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(a) an amount which when added to the product of the volume of
Production Payment Hydrocarbons delivered or sold (and for which
proceeds have been received by Seller and paid to Buyer) times the
price per month set forth in Exhibit C attached hereto and made a part
hereof equals the sum of (x) $19,435,000.00 plus (y) an amount
sufficient to provide a twelve percent (12%) internal rate of return
for the period from the effective date of the Production Payment to the
effective date of any such repurchase (for purposes of making such
internal rate of return calculation, each payment shall be deemed to
have been made on the last day of the month during which it was paid or
received); plus
(b) so long as Buyer does not engage in any price hedge transactions
with respect to Production Payment Hydrocarbons that do not comply with
commodity derivative policies of Wells Fargo Bank, N.A., all costs and
penalties, if any, incurred by Buyer in terminating any price hedge
agreements entered into by Buyer with respect to Hydrocarbons
comprising a part of the Production Payment (any gain resulting from
any such termination shall be for the credit of Buyer); plus
(c) all legal costs incurred by Buyer in connection with the sale of
the Production Payment to Seller.
17. INDEMNITY. It is understood and agreed that under neither this
Agreement nor the Conveyance does Buyer assume or shall Buyer ever be liable
or responsible in any way for the payment of any costs, expenses or
liabilities incurred in connection with developing, exploring, drilling,
equipping, testing, operating, producing, maintaining or abandoning the
Subject Interests or any well or facility thereon or storing, handling,
treating or transporting to each Delivery Point production therefrom. Seller
shall fully defend, protect, indemnify and hold Buyer, its successors and
permitted assigns, its general partners and limited partners and its and all
such partners' officers, employees, representatives and agents harmless from
and against any and all claims, demands, suits and causes of action of every
kind and character, including reasonable attorneys' fees and costs of
defense, which may be made or asserted by any third party or governmental
agency or entity, or by Seller, Seller's employees, agents, contractors and
subcontractors and their employees and agents, on account of personal injury,
death or property damage (including, without limitation, claims for pollution
and environmental damage), any civil or criminal fines or penalties and any
causes of action alleging statutory liability, relating to, arising out of,
or in any way incidental to the Subject Interests, the wells and facilities
thereon or used in connection therewith, the operation thereof and the
production therefrom (including, without limitation, rentals, royalties and
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taxes thereon), WHETHER THROUGH AN ACT OR OMISSION OF BUYER OR ANY OTHER
PARTY HERETO OR OTHERWISE, AND WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT
OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF BUYER OR ANY OTHER
PERSON OR ENTITY INDEMNIFIED HEREUNDER. This indemnity shall apply, without
limitation, to any liability imposed upon any party indemnified hereunder as
a result of any statute, rule, regulation or theory of strict liability.
18. SUCCESSORS AND PERMITTED ASSIGNS. All the covenants and
agreements of Seller and Buyer herein contained shall be deemed to be
covenants running with the land and shall be binding upon the successors and
assigns of Seller's interest in the Subject Interests and Buyer's interest in
the Production Payment, and shall inure to the benefit of Seller, Buyer, and
their respective successors and permitted assigns and shall be enforceable by
their respective successors and permitted assigns. The foregoing
notwithstanding, nothing herein is intended to modify or shall have the
effect of modifying the restrictions on assignment set forth in the
Conveyance regarding assignments, transfer or pooling of Seller's interest in
the Subject Interests; and the preceding sentence shall not be deemed to
permit any assignment or other transfer of the interest of Seller in any of
the Subject Interests that is not specifically permitted by the provisions of
the Conveyance. Buyer, or Buyer's successors and assigns, shall not partially
transfer, sell, convey, assign or mortgage their respective rights or
obligations hereunder to any third party without the prior written consent of
Seller. Nothing contained in this instrument or in the Conveyance shall in
any way limit or restrict the right of Buyer, or Buyer's successors and
assigns, to transfer, sell, convey, assign or mortgage all of the Production
Payment and all of the respective rights or obligations hereunder
appertaining thereto without the consent of Seller. If Buyer, or Buyer's
successors and assigns, at any time shall execute a mortgage, pledge or deed
of trust covering all or any part of the Production Payment as security for
any obligation, the mortgagee, the pledgee or the trustee therein named or
the holder of the obligation secured thereby shall be entitled, to the extent
such mortgage, pledge or deed of trust so provides and upon the occurrence or
existence of the event or condition therein stated, if so conditioned, to
exercise all of the rights, remedies, powers and privileges herein conferred
upon Buyer, and to give or withhold all consents herein required or permitted
to be obtained from Buyer.
19. DAMAGES. It is recognized that Buyer will look solely to the
Production Payment Hydrocarbons for satisfaction and discharge of the
Production Payment, and that Seller is not personally liable for the payment
and discharge thereof. However, the foregoing provision shall not relieve
Seller of any obligations under this Agreement or any obligation to respond
in damages for any breach of any of the provisions hereof or of the
Conveyance.
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20. COST OF LITIGATION. In the event of a breach of this Agreement,
or if a dispute arising hereunder is not resolved by mutual agreement, and
either party should sue the other party to enforce its rights hereunder or
for breach hereof, the party prevailing in such litigation shall be entitled
to recover its costs and reasonable attorneys' fees in addition to any other
remedy or recovery to which it may be entitled.
21. ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement, the
Conveyance and that certain Closing Agreement of even date herewith
constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and thereof and supersede and replace any and all
prior or contemporaneous agreements, understandings, representations or
warranties by or between the parties hereto with respect to the subject
matter hereof. This Agreement may not be amended and no rights hereunder may
be waived except by a written document signed by the duly authorized
representatives of the parties. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute
a continuing waiver unless otherwise expressly provided.
22. HEADINGS. The headings of the sections of this Agreement are for
guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
23. COUNTERPART EXECUTION. This Agreement is executed in multiple
counterparts. For recording purposes, various counterparts have been
executed, and there may be attached to each such counterpart an Exhibit A
containing only the description of the Subject Interests, or portions
thereof, which relates to the county in which the particular counterpart is
to be recorded. Each of the counterparts hereof so executed shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. A complete counterpart
of this instrument shall be recorded in the records of the County Clerk of
Midland County, Texas and a complete counterpart of this instrument may be
obtained from Seller or Buyer.
24. PARTIAL INVALIDITY. Except as otherwise expressly stated herein,
in the event any provision contained in this Agreement shall for any reason
be held invalid, illegal or unenforceable by a court or regulatory agency of
competent jurisdiction by reason of a statutory change or enactment, such
invalidity, illegality or unenforceability shall not affect the remaining
provisions of this Agreement.
25. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
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26. NO THIRD-PARTY BENEFICIARY. This Agreement is not intended to
create, nor shall it be construed to create, any rights in any third party under
doctrines concerning third-party beneficiaries.
EXECUTED in multiple originals on the date first set forth above.
SELLER:
ODESSA EXPLORATION INCORPORATED
By: /s/ D. Kirk Edwards
---------------------
D. Kirk Edwards
President
BUYER:
NORWEST ENERGY CAPITAL, INC.
By: /s/ Mark D. McKinney
---------------------
Mark D. McKinney
Senior Vice President
EXHIBITS:
A - Subject Interests
B - Existing Sales Contracts
19
<PAGE>
STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
BEFORE ME, the undersigned authority, on this day
personally appeared D. Kirk Edwards, President of Odessa Exploration
Incorporated, a Delaware corporation, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, as
the act and deed of such corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 31st day of March,
2000.
/s/ LindaAnn Wyman
-------------------------------
Notary Public in and for
the State of Texas
My Commission Expires:
February 26, 2002 LindaAnn Wyman
- ---------------------- -------------------------------
(Printed Name of Notary Public)
STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
BEFORE ME, the undersigned authority, on this day
personally appeared Mark D. McKinney, Senior Vice President of Norwest Energy
Capital, Inc., a Texas corporation, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, as
the act and deed of such corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 31st day of
March, 2000.
/s/ LindaAnn Wyman
------------------------------
Notary Public in and for
the State of Texas
My Commission Expires:
February 26, 2002 LindaAnn Wyman
- ---------------------- -------------------------------
(Printed Name of Notary Public)
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EXHIBIT 10.4
CLOSING AGREEMENT
This Closing Agreement (this "Agreement") is made and entered into
this 31st day of March, 2000, by and between ODESSA EXPLORATION INCORPORATED,
a Delaware corporation ("Seller"), NORWEST ENERGY CAPITAL, INC., a Texas
corporation ("Buyer"), and KEY ENERGY SERVICES, INC., a Maryland corporation
("Parent").
RECITALS
Seller is the owner of certain oil and gas leasehold interests in
Carson, Dawson, Glasscock, Hutchinson, Loving, Martin, Midland, Pecos,
Potter, Reagan, Reeves and Upton Counties, Texas.
On even date herewith, Seller has sold to Buyer, and Buyer has
purchased from Seller, a production payment interest in such oil and gas
leasehold interests.
As an inducement to Buyer to purchase such production payment
interest, Seller and Parent have agreed to enter into this Agreement, and as
an inducement to Seller to sell such production payment interest, Buyer has
agreed to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual benefits and
obligations of the parties contained herein, Buyer, Seller and Parent agree
as follows:
ARTICLE I
DEFINITIONS
Any capitalized terms used herein but not defined shall have the
meaning given such term in that certain Conveyance of Production Payment of
even date herewith between Seller and Buyer, a copy of which is attached
hereto as Exhibit A (the "Conveyance").
ARTICLE II
ACKNOWLEDGMENT OF PURCHASE AND SALE
2.1 PURCHASE AND SALE. In consideration of the execution and
delivery by Seller of this Agreement, the Conveyance and that certain
Production and Delivery Agreement dated of even date herewith, a copy of
which is attached hereto as Exhibit B (the "Production
<PAGE>
and Delivery Agreement") (the Conveyance and the Production and Delivery
Agreement, together with any other documents or instruments referred to
hereunder, being herein referred to as the "Closing Documents"), and as full
payment of the purchase price for the Production Payment conveyed by Seller
to Buyer pursuant to the Conveyance, Buyer has paid to Seller, and Seller
acknowledges receipt of, an amount equal to $20,000,000.00.
2.2 ADDITIONAL ACTIONS TAKEN. In connection with the purchase
by Buyer of the Production Payment from Seller, Buyer and Seller acknowledge
that the following events have taken place on or prior to the date hereof:
(a) Seller and Buyer have each executed and delivered to the
other multiple counterparts of the Conveyance and the Production and
Delivery Agreement;
(b) Seller has executed and delivered to Buyer such financing
statements as Buyer has reasonably deemed necessary or appropriate to
perfect the liens and security interests granted to Buyer pursuant to
Section 14 of the Production and Delivery Agreement;
(c) Seller has executed and delivered to Buyer letters in lieu
of transfer orders addressed in blank covering Hydrocarbons produced
from or attributable to each of the Subject Interests;
(d) Seller has executed and delivered to Buyer such other
instruments as Buyer has reasonably requested in order to effectuate
the conveyance of the Production Payment to Buyer;
(e) Seller has delivered to Buyer a certificate of Seller's
secretary certifying resolutions of the board of directors of Seller
authorizing and approving the transactions contemplated in the
Conveyance and the Production and Delivery Agreement;
(f) Seller has paid Buyer or Buyer's designee transaction fees
totaling $565,000.00;
(g) Seller has delivered to Buyer an opinion of Porter &
Hedges, L.L.P., counsel for Seller and Parent, in the form attached
hereto as Exhibit C, and such opinion to cover corporate matters, due
authorization, enforceability and no violations; and
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(h) Other than Permitted Liens, Seller has delivered to Buyer
a release of any liens and mortgages burdening the Subject Interests.
2.3 RECORDING OF CERTAIN DOCUMENTS. After the date hereof,
Buyer shall cause (a) counterparts of the Conveyance, the Production and
Delivery Agreement and associated financing statements to be filed for record
in all appropriate records in Carson, Dawson, Glasscock, Hutchinson, Loving,
Martin, Midland, Pecos, Potter, Reagan, Reeves and Upton Counties, Texas and
(b) a counterpart of the financing statement associated with the Production
and Delivery Agreement to be filed with the Secretary of State of the State
of Texas. Seller shall reimburse Buyer for all documentary, filing and
recording fees required in connection with the filing and recording of such
Closing Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Buyer as follows:
(a) To the best of Seller's Knowledge (Seller's Knowledge
shall mean the actual, not deemed, Knowledge of senior management of
Seller), all of the information, reports and other data furnished by
Seller to Buyer, or made available for review by Buyer, in connection
with the transactions described herein all of which information is
specifically described in Schedule 3.1(a) attached hereto and made a
part hereof, is accurate and complete in all material respects and none
of such information, reports or data contains an untrue statement of a
material fact or omits to state any material fact which is necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) The actions of Seller in furnishing information to Buyer
in connection with the transactions described herein do not and will
not violate any duty owed by Seller to any person to which such
information relates or any obligation of Seller under any existing
agreement.
(c) Seller owns Good and Marketable Title (as defined below)
to the Subject Interests and, to the best of Seller's Knowledge, any
other real or personal property interests of Seller used in connection
with or attributable in any way to the Subject Interests (the Subject
Interests and such other real or personal property interests being
herein collectively referred to as the
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<PAGE>
"Assets"). As used herein, the term "Good and Marketable Title" means
such record title that:
(i) in the case of the Subject Interests, (1)
entitles Seller to receive a percentage of all Hydrocarbons
produced, saved and marketed from each Subject Well not less
than the net revenue interest set forth in Exhibit A to the
Conveyance for such well, without reduction, suspension or
termination for the respective productive life of such well,
(2) obligates Seller to bear a percentage of the costs and
expenses relating to operations on and the maintenance and
development of each Subject Well not greater than the
undivided leasehold or working interest set forth in Exhibit A
to the Conveyance for such well, without increase for the
respective productive life of each such well, (3) entitles
Seller to a share of the working interest or operating rights
in each Subject Well which is not less than the undivided
leasehold or working interest set forth in Exhibit A to the
Conveyance for such well and (4) is free and clear of any
encumbrances, liens, mortgages, or pledges, preferential
purchase rights or requirements for consents to assignment
applicable to or exercisable as a result of the Conveyance,
and any other defects that would materially affect or
interfere with the operation, use, possession, ownership or
value thereof, except for the Permitted Encumbrances; and
(ii) in the case of the Assets other than the Subject
Interests, constitutes good and indefeasible title, free and
clear of all encumbrances, liens, mortgages, or pledges,
preferential purchase rights or requirements for consents to
assignment applicable to or exercisable as a result of the
Conveyance, and any other defects that would materially affect
or interfere with the operation, use, possession, ownership or
value thereof, except for the Permitted Encumbrances.
(d) All Taxes imposed or assessed with respect to or
measured by or charged against or attributable to the Assets have been
duly paid (except for those Taxes being disputed in good faith).
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<PAGE>
(e) Except as may be set forth on Exhibit D, there are no
suits or proceedings pending or, to the best of Seller's Knowledge,
threatened against Seller or the Assets before any court, or by or
before any governmental commission, bureau or any regulatory authority,
that if decided adversely to the interest of Seller could materially
adversely affect Seller, any of the Assets or the rights of Buyer under
the Closing Documents.
(f) The Leases are in full force and effect; and, to the best
of Seller's Knowledge, Seller has complied with the terms of all
governmental orders or directives naming Seller or applicable directly
to the Subject Interests.
(g) All rents and royalties with respect to the Leases have
been paid in a timely manner, and all liabilities of any kind or nature
incurred with respect to the Leases have been paid before delinquent;
Seller has not received any notice of default or, to the best of
Seller's Knowledge, Seller has not received any notice of a claimed
default with respect to the Subject Interests or any Lease or any part
thereof; and, to the best of Seller's Knowledge, all wells, facilities
and equipment which constitute part of the Assets are in good repair
and working condition and have been designed, installed and maintained
in accordance with good industry standards and all applicable legal
requirements other than which would not have a material adverse effect
on the ownership or operation of the Subject Interests.
(h) Except as set forth in Exhibit D, neither the Subject
Interests nor the Hydrocarbons attributable thereto are subject,
committed or dedicated to any contract, agreement or arrangement
regarding the gathering, transportation, processing, storing, delivery,
sale, use or marketing thereof; and no third party has any call, right
of first refusal or preferential right to purchase any such
Hydrocarbons.
(i) Except as set forth in Exhibit D, Seller is not a party to
or bound by, and the Subject Interests and the Hydrocarbons
attributable thereto are not encumbered or affected by, any gas
balancing, deferred production, gas banking or similar agreement or
arrangement; and except as shown on Exhibit D, Seller is not in an
"overlift," "over-produced," or similar status under any such agreement
or arrangement.
(j) Neither the Subject Interests nor the Hydrocarbons
attributed thereto is subject to any contract, agreement or arrangement
(including,
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<PAGE>
without limitation, advance payment agreements, prepayments,
take-or-pay makeup obligations or otherwise) whereby the owner of such
Hydrocarbons or any part thereof is not entitled to convey such
Hydrocarbons or to market such Hydrocarbons and to obtain the full
market price or value of the same.
(k) To the best of Seller's Knowledge, the Subject Interests
have been operated in accordance with all laws, rules and regulations
of all governmental authorities having or asserting jurisdiction
relating to the ownership and operation of the Subject Interests,
including the production of Hydrocarbons attributable thereto, and,
except as set forth on Exhibit D, are not subject to reduced allowances
or other penalties on account of overproduction or otherwise. To the
best of Seller's Knowledge, the Subject Interests are, and at all times
have been, operated in accordance with all laws, rules, regulations and
decisions (including any requirements under applicable common law)
relating to the protection or conservation of human health or safety or
the environment, and no conditions exist on the land covered by the
Subject Interests that are in violation of such laws, rules,
regulations or decisions or that require the taking of remedial action
under such laws, rules, regulations or decisions which would have a
material adverse effect on the ownership or operation of the Subject
Interests.
(l) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is duly
qualified and in good standing as a foreign corporation in the State of
Texas, and has the legal right, power and authority, and qualifications
to conduct its business and own its properties (including the Subject
Interests); and Seller has the legal right, power and authority (i) to
execute and deliver the Conveyance and to convey to Buyer the
Production Payment and all of the rights and privileges appurtenant
thereto and (ii) to execute and deliver this Agreement and those of the
Closing Documents to which it is a party and perform all of its
obligations under the same.
(m) The execution, delivery and performance by Seller of those
of the Closing Documents to which it is a party are within its
corporate powers, have been duly authorized by all necessary corporate
action on the part of Seller and do not and will not (i) violate any
provision of law or any rule, regulation, order, writ, judgment,
decree, or determination currently in effect having applicability to
Seller or Seller's certificate of incorporation, bylaws, or other
governing documents, (ii) result in a breach of or constitute a default
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<PAGE>
under any indenture, bank loan or credit agreement to which Seller is a
party or by which Seller or its properties may be currently bound or
affected, (iii) result in a breach of or constitute a default under any
farmout agreement, program agreement or operating agreement, or any
other agreement or instrument (other than any indenture, bank loan or
credit agreement) to which Seller is a party or by which Seller or its
properties may be currently bound or affected which would have a
material adverse effect on the Production Payment , (iv) result in or
require the creation or imposition of any mortgage, lien, pledge,
security interest, charge, or other encumbrance upon or of any of the
properties or assets of Seller (including the Subject Interests) under
any such indenture, bank loan or credit agreement or (v) result in or
require the creation or imposition of any mortgage, lien, pledge,
security interest, charge, or other encumbrance upon or of any of the
properties or assets of Seller (including the Subject Interests) under
any other agreement or instrument (other than any indenture, bank loan
or credit agreement) which would have a material adverse effect on the
Production Payment; and Seller is not in default under any such order,
writ, judgment, decree, determination, indenture, agreement, or
instrument in any way that now or in the future will materially
adversely affect the ability of Seller to perform its obligations under
this Agreement or those of the Closing Documents to which it is a
party; and all consents or approvals under such indentures, agreements,
and instruments necessary to permit valid execution, delivery, and
performance by Seller of those of the Closing Documents to which Seller
is a party and the conveyance of the Production Payment to Buyer have
been obtained.
(n) This Agreement and each of the Closing Documents to which
Seller is a party has been duly executed and delivered by Seller and
constitutes the legal, valid, and binding acts and obligations of
Seller enforceable against Seller in accordance with its terms,
subject, however, to bankruptcy, insolvency, reorganization, and other
laws affecting creditors' rights generally and, with regard to any
equitable remedies, to the discretion of the court before which
proceedings to obtain such remedies may be pending. There are no
bankruptcy, insolvency, reorganization, receivership or arrangement
proceedings pending, being contemplated by, or to the Knowledge of
Seller, threatened against Seller.
(o) Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland, is duly
qualified and in good standing as a foreign corporation in the State of
Texas, and has the
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<PAGE>
legal right, power and authority, and qualifications to conduct its
business and own its properties; and Parent has the legal right, power
and authority to execute and deliver those of the Closing Documents to
which it is a party and perform all of its obligations under the same.
(p) The execution, delivery and performance by Parent of this
Agreement are within its corporate powers, been duly authorized by all
necessary corporate action on the part of Parent and do not and will
not (i) violate any provision of law or any rule, regulation, order,
writ, judgment, decree, or determination currently in effect having
applicability to Parent or Parent's certificate of incorporation,
bylaws, or other governing documents, (ii) result in a breach of or
constitute a default under any indenture, bank loan or credit agreement
to which Parent is a party or by which Parent or the capital stock of
Seller may be currently bound or affected except as disclosed on
Exhibit E, or (iii) result in or require the creation or imposition of
any mortgage, lien, pledge, security interest, charge, or other
encumbrance upon the capital stock of Seller under any such indenture,
bank loan or credit agreement; and Parent is not in default under any
such order, writ, judgment, decree, determination, indenture,
agreement, or instrument in any way that now or in the future will
materially adversely affect the ability of Parent to perform its
obligations under those of the Closing Documents to which it is party;
and all consents or approvals under such indentures, agreements, and
instruments necessary to permit valid execution, delivery, and
performance by Parent of those of the Closing Documents to which it is
a party have been obtained.
(q) Each of the Closing Documents to which Parent is a party
has been duly executed and delivered by Parent and constitutes the
legal, valid, and binding acts and obligations of Parent enforceable
against Parent in accordance with its terms, subject, however, to
bankruptcy, insolvency, reorganization, and other laws affecting
creditors' rights generally and, with regard to any equitable remedies,
to the discretion of the court before which proceedings to obtain such
remedies may be pending. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by, or to the Knowledge of Seller, threatened against
Parent.
(r) Upon due execution and delivery by Seller of the
Conveyance, (i) the Conveyance will constitute the legal, valid, and
binding conveyance of
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the Production Payment out of the entire Subject Interests, subject to
(x) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity) (y)
matters of public policy and (z) other applicable laws and procedures
which may affect the rights and remedies provided therein, (ii) the
Production Payment will constitute an interest in real property, (iii)
the Production Payment will constitute a "production payment" within
the meaning of Section 541 of the United States Bankruptcy Code, and
(iv) neither the Conveyance nor any Subject Interest will or does
constitute an executory contract or unexpired lease within the meaning
of Section 365 of the United States Bankruptcy Code.
(s) All consents and waivers of preferential purchase or other
rights necessary to permit the valid conveyance to Buyer of the
Production Payment and execution and delivery of this Agreement and the
Closing Documents have been obtained or the time for giving such
consents or waivers has expired following a written request therefor.
(t) All advance notifications to third parties of the
transactions contemplated herein and in the Closing Documents necessary
to permit the valid conveyance to Buyer of the Production Payment and
execution and delivery of this Agreement and the Closing Documents have
been timely and properly given.
(u) To the best of Seller's Knowledge, no authorization,
consent, approval, license, or exemption of, and no filing or
registration with, any court or governmental department, commission,
board, bureau, agency, or instrumentality, domestic or foreign, is
necessary to the valid execution and delivery by Seller of, or the
performance by Seller of its obligations under, this Agreement or the
Closing Documents that has not been obtained or performed or the period
for objection thereto expired.
(v) No fire, explosion, accident, earthquake, act of public
enemy, or other casualty (regardless of whether covered by insurance)
adversely affecting any material portion of the Subject Interests or
the operation thereof, or adversely affecting the ability of Seller to
perform its obligations under this Agreement or the Closing Documents,
has occurred.
(w) To the best of Seller's Knowledge, seller has obtained all
permits, licenses and other authorizations which are required under
federal,
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state and local laws with respect to pollution or protection of the
environment relating to Subject Interests, the failure of which to
obtain would materially adversely affect the value, use or operation of
any of the Subject Interests; and Seller (with respect to the Assets
operated by it), and to the best of Seller's Knowledge third parties
operating the Assets for Seller (with respect to the Assets not
operated by Seller) are in compliance in all material respects with all
terms and conditions of such laws, permits, licenses and
authorizations, relating to the Assets, the failure with which to
comply would materially adversely affect the value, use or operation of
any Subject Interest; and neither Seller nor, to Seller's Knowledge,
any third party operator of the Subject Interests has received notice
alleging or suggesting the violation of, or indicating that there will
or may be an investigation relating to the possible violation of, any
federal, state or local laws (including common law) with respect to
pollution or protection of the environment, in either case which
involves the Subject Interests.
(y) The financial statements furnished to Buyer listed as
Schedule 3.1(a) have been prepared in accordance with generally
accepted accounting principles, consistently applied, and fairly and
accurately reflect the financial condition of Seller as of such date
and the results of operations for such periods, as applicable, and
Seller's financial position has not suffered a material adverse change
since the date of such financial statements.
ARTICLE IV
REPRESENTATIONS AND COVENANTS OF PARENT
4.1 REPRESENTATIONS OF PARENT. Parent represents and warrants that it
owns good and indefeasible title to all of the capital stock of Seller free and
clear of all security interests, liens, adverse claims or options.
4.2 COVENANTS OF PARENT. Parent covenants and agrees that it will not
pledge, mortgage, or otherwise encumber, create or suffer a security interest to
exist in or sell, assign, or otherwise transfer any of the capital stock of
Seller.
ARTICLE V
REPRESENTATIONS OF BUYER
5.1 REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to
Seller as follows:
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(a) Buyer is a corporation duly organized and validly existing
under the laws of the State of Texas. The execution, delivery and
performance of this Agreement and the transactions described herein
have been duly and validly authorized by all necessary corporate action
on the part of Buyer.
(b) This Agreement and each of the Closing Documents has been
duly executed and delivered on behalf of Buyer and constitutes the
legal, valid and binding obligations of Buyer enforceable against it in
accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights
generally and with regard to any equitable remedies, to the discretion
of the court before which proceedings to obtain such remedies may be
pending.
ARTICLE VI
MISCELLANEOUS
6.1 ANNOUNCEMENTS. Each party covenants and agrees with the
other that, subject to applicable law, each party shall promptly advise and
consult with the other and obtain the other's written consent before issuing
any press release with respect to this Agreement or the transactions
described herein.
6.2 FURTHER ASSURANCES. Seller and Buyer agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful to effectuate the conveyance of the
Production Payment and to carry out the purposes of this Agreement or any of
the Closing Documents.
6.3 SURVIVAL. The representations, warranties, covenants,
agreements and indemnities in this Agreement and the Closing Documents shall
survive the Closing and the consummation of the transactions described herein
and therein.
6.4 EXPENSES. Seller shall reimburse Buyer for all legal and
title and environmental due diligence fees, costs and expenses reasonably
incurred by Buyer with respect to the negotiation, documentation and
consummation of the transactions described herein. Each party hereto shall
bear and be responsible for all other fees, costs and expenses incurred with
respect to the transaction described herein (including accounting and
engineering expenses). Seller shall indemnify and hold harmless Buyer from
and against any and all liability for any brokers' or
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<PAGE>
finders' fees arising with respect to brokers or finders retained or engaged by
Seller in respect of the transactions described herein and Buyer shall indemnify
and hold harmless Seller from and against any and all liability for any brokers'
or finders' fees arising with respect to brokers or finders retained or engaged
by Buyer in respect of the transactions described herein.
6.5 NOTICES. All notices, requests, demands, instructions and
other communications required or permitted to be given hereunder shall be
delivered in the manner and to the addresses of Seller and Buyer as provided
in the Production and Delivery Agreement.
6.6 INDEMNIFICATION. (a) Until the termination of the
Production Payment, Seller shall fully defend, protect, indemnify and hold
harmless Buyer, its successors and assigns, its officers, employees,
representatives and agents ("Indemnified Parties") from and against any and
all losses which may be suffered by Indemnified Parties and from and against
any and all claims, demands, suits and causes of action (collectively
"Claims") of every kind and character (together with reasonable attorneys'
fees and costs of defense) relating to, arising out of, or in any way
incidental to the breach of any warranty or representation contained in this
Agreement, regardless of whether Buyer may have known of such breach or of
the condition giving rise to such breach. Without limiting the foregoing, if
the representation and warranty contained in Section 3.1(r)(iv) is breached
and the Conveyance or any Subject Interest is rejected as an unexpired lease
or executory contract pursuant to any of the provisions of Section 365 of the
United States Bankruptcy Code, the damages recoverable as a result of such
rejection shall equal the value as of the date of rejection of the future
Hydrocarbons delivery obligations remaining under the Conveyance at the time
of the rejection determined in a commercially reasonably manner. Seller
acknowledges that the mortgage, lien and security interest granted in Section
14 of the Production and Delivery Agreement secures, among other things, any
amount owed pursuant to this Section 6.6.
(b) If any Indemnified Party discovers or otherwise becomes
aware of an indemnification Claim arising under Section 6.6(a) of this
Agreement, such Indemnified Party shall give written notice to the Seller,
specifying such Claim, and may thereafter exercise any remedies available to
such Indemnified Party under this Agreement; PROVIDED, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the Seller
of any obligations hereunder, to the extent the Indemnifying Party is not
materially prejudiced thereby. Further, promptly after receipt by an Indemnified
Party hereunder of written notice of the commencement of any action or
proceeding with respect to which a Claim for indemnification may be made
pursuant to Section 6.6(a), such Indemnified Party shall, if a Claim in respect
thereof is to be made against Seller, give written notice to the latter of the
commencement of such action; PROVIDED, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve Seller of any obligations
hereunder, to the extent the Indemnifying Party is not materially prejudiced
thereby. In case any such action is brought against an Indemnified Party, the
Seller shall be entitled to participate in
12
<PAGE>
and to assume the defense thereof to the extent that it may wish, with counsel
reasonably satisfactory to such Indemnified Party, and after such notice from
the Seller to such Indemnified Party of its election so to assume the defense
thereof, the Seller shall not be liable to such Indemnified Party for any legal
fees and expenses subsequently incurred by the latter in connection with the
defense thereof unless the Seller has failed to assume the defense of such Claim
and to employ counsel reasonably satisfactory to such Indemnified Party. The
Seller shall not be liable for the fees and expenses of more than one counsel in
any single jurisdiction for all parties indemnified by the Seller with respect
to such Claim or with respect to Claims separate but similar or related in the
same jurisdiction arising out of the same general allegations. Notwithstanding
any of the foregoing to the contrary, the Indemnified Party will be entitled to
select its own counsel and assume the defense of any action brought against it
if the Seller fails to select counsel reasonably satisfactory to the Indemnified
Party, the expenses of such defense to be paid by the Seller. The Seller shall
not consent to entry of any judgment or enter into any settlement with respect
to a Claim without the consent of the Indemnified Party, which consent shall not
be unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such Claim. No
Indemnified Party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by the
Seller, without the consent of the Seller, which consent shall not be
unreasonably withheld.
6.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
6.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and, subject to the following restriction, shall inure to the benefit of the
parties hereto and their respective permitted successors and assigns. Buyer
or Buyer's successors and assigns, shall not partially transfer, sell,
convey, assign or mortgage their respective rights or obligations hereunder
to any third party without the prior written consent of Seller. Nothing
contained herein shall in any way limit or restrict the right of Buyer, or
Buyer's successors and assigns to transfer, sell, convey, assign or mortgage
all of the Production Payment and all of the respective rights or obligations
hereunder appertaining thereto without the consent of Seller. Except to the
extent same is effected in connection with and as a part of an assignment
permitted by the Conveyance, Seller shall not transfer, assign or pledge its
rights or obligations hereunder without the prior written consent of Buyer.
6.9 SCHEDULES AND EXHIBITS. The Exhibits attached hereto and
referred to herein constitute a part of this Agreement.
13
<PAGE>
6.10 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement and
the Closing Documents constitute the entire agreement between the parties
hereto with respect to the transactions described herein, superseding all
prior negotiations, discussions, agreements and understandings, whether oral
or written, relating to such subject matter. This Agreement may not be
amended and no rights hereunder may be waived except by a written document
signed by the party to be charged with such amendment or waiver. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
6.11 COUNTERPARTS. This Agreement may be executed by Buyer and
Seller in any number of counterparts, each of which shall be deemed an
original instrument, but all of which together shall constitute but one and
the same instrument.
6.12 NO THIRD-PARTY BENEFICIARY. This Agreement is not intended
to create, nor shall it be construed to create, any rights in any third party
under doctrines concerning third-party beneficiaries.
6.13 EXECUTION BY PARENT. Parent's execution of this Agreement is
for the sole purpose of making the representations and covenants set forth in
Article IV.
EXECUTED on the date first set forth above.
SELLER:
ODESSA EXPLORATION INCORPORATED
By: /s/ D. Kirk Edwards
-----------------------------
D. Kirk Edwards
President
PARENT:
KEY ENERGY SERVICES, INC.
By: /s/ Jack D. Loftis, Jr.
-----------------------------
Jack D. Loftis, Jr.
Senior Vice President and
General Counsel
14
<PAGE>
BUYER:
NORWEST ENERGY CAPITAL, INC.
By: /s/ Mark D. McKinney
---------------------------
Mark D. McKinney
Senior Vice President
EXHIBITS
A - Conveyance of Production Payment
B - Production and Delivery Agreement
C - Opinion of Counsel
D - Seller's Disclosure Statement
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 22,601
<SECURITIES> 0
<RECEIVABLES> 114,529
<ALLOWANCES> 0
<INVENTORY> 14,490
<CURRENT-ASSETS> 159,307
<PP&E> 900,008
<DEPRECIATION> 146,097
<TOTAL-ASSETS> 1,149,227
<CURRENT-LIABILITIES> 80,868
<BONDS> 681,692
0
0
<COMMON> 8,542
<OTHER-SE> 300,853
<TOTAL-LIABILITY-AND-EQUITY> 1,149,227
<SALES> 467,832
<TOTAL-REVENUES> 467,832
<CGS> 342,511
<TOTAL-COSTS> 439,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,426
<INTEREST-EXPENSE> 54,138
<INCOME-PRETAX> (26,874)
<INCOME-TAX> 7,580
<INCOME-CONTINUING> (19,294)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,294)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
