AGREEMENT
THIS AGREEMENT is made and entered into as of this 2nd day of August,
1999, by and between XXXXXXX X. XXXX, residing at 0000 Xxxxx Xxxx, Xxxxxxxx,
Xxxxxxxxxxxx 00000 (the "Borrower") and KEY ENERGY SERVICES, INC., a Maryland
corporation with its principal offices at Xxx Xxxxx Xxxxxx, 00xx Xxxxx, Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000 (the "Lender").
BACKGROUND
A. The Borrower has borrowed from the Lender, on the dates and in the
amounts set forth on Schedule I hereto, an aggregate of $2,345,000.00 (the
"Bridge Indebtedness"). The Bridge Indebtedness is evidenced by a series of
demand notes which have been executed and delivered to the Lender and are
attached hereto as Exhibits A, B, and C, respectively (the "Bridge Notes").
These Bridge Notes were secured by an open-end mortgage in the amount of
$2,500,000.00, which was dated August 31, 1998 and duly filed and recorded on
September 2, 1998, in the office of the Recorder of Deeds in and for Bucks
County, Pennsylvania (the "Recorder's Office") in Book 1662, page 294, a copy
of which is attached hereto as Attachment I (the "Bridge Financing
Mortgage").
B. The Borrower has also borrowed from the Lender, on the dates and in
the amounts set forth on Schedule II hereto, an aggregate of $490,000.00 (the
"Tranche II Indebtedness"). These borrowings are evidenced by a series of
demand notes attached hereto as Exhibits D, E, F, G, H and I, respectively
(the "Tranche II Notes").
C. In addition, the Borrower has borrowed from the Lender, on the
dates and in the amounts set forth on Schedule III hereto, an aggregate of an
additional $2,165,000.00 (the "Tranche III Indebtedness"). These borrowings
are evidenced by a series of demand notes attached hereto as Exhibits J and
K, respectively (the "Tranche III Notes").
D. In order to secure the repayment by the Borrower to the Lender of
the Bridge Indebtedness, Tranche II Indebtedness and Tranche III
Indebtedness, as evidenced by the Bridge Notes, Tranche II Notes and Tranche
III Notes, the Borrower will execute and deliver to the Lender a new open-end
mortgage in the amount of $5,000,000.00, a copy of the form of which is
attached hereto as Attachment II (the "New Mortgage") and the Lender will
cause the Bridge Financing Mortgage to be satisfied. In addition, the Lender
will obtain a title insurance policy in the amount of $5,000,000.00 insuring
the Lender's position as first lien holder against the parcel of real
property covered by the New Mortgage.
E. The members of the Board of Directors of the Lender (other than the
Borrower) have unanimously determined that it would be in the best interests
of the Lender and its shareholders if the Borrower were to remain in his
positions as Chairman of the Board, President and Chief Executive Officer of
the Lender for a period of at least five (5) years.
F. In furtherance of that objective, the Lender has entered into an
Amended And Restated Employment Agreement, dated as of July 1, 1999 (the
"Employment Agreement"), with the Borrower which has an initial term, subject
to automatic renewals, of five (5) years.
G. As an additional inducement for the Borrower to remain in his
current positions as Chairman of the Board, President and Chief Executive
Officer of the Lender for a period of at least five (5) years, the Board of
Directors of the Lender has also determined that it would be in the best
interests of the Lender and its shareholders if the Bridge Indebtedness,
Tranche II Indebtedness and Tranche III Indebtedness between the Borrower and
Lender, as evidenced by the Bridge Notes, Tranche II Notes and the Tranche
III Notes and secured by the New Mortgage, together with accrued and unpaid
interest thereon, were to be forgiven and extinguished ratably over a five
(5) year period, commencing on July 1, 2000, on the terms and subject to the
conditions hereinafter set forth.
H. Unless the context otherwise requires, (1) the principal amount of
the Bridge Indebtedness, the Tranche II Indebtedness and the Tranche III
Indebtedness (together with the accrued but unpaid interest thereon) will
sometimes hereinafter be collectively referred to as the "Indebtedness" and
(2) the Bridge Notes, the Tranche II Notes, and the Tranche III Notes will
sometimes hereinafter be individually referred to as a "Note" and
collectively referred to as the "Notes".
NOW, THEREFORE, intending to be legally bound, the Borrower and the
Lender hereby agree as follows:
1. FORGIVENESS/CANCELLATION OF INDEBTEDNESS. Except (a) in the
event of an acceleration in Borrower's obligation to repay the outstanding
Indebtedness and make payment on any of the outstanding Notes as a result of
(i) the termination of the Borrower's employment by the Lender for "Cause"
(as defined and described below) or (ii) the voluntary termination by the
Borrower of his employment with the Lender for any reason or (b) in the event
of an acceleration in the Lender's obligation to forgive/cancel the
Indebtedness and cancel the Notes as a result of (i) the Borrower's
termination of his employment with the Lender as a result of "Good Reason",
"Change in Control" or "Disability" (as defined and described below) or (ii)
the death of the Borrower, the Lender hereby agrees that, for so long as the
Borrower remains employed by the Lender, the Indebtedness will be
forgiven/cancelled in the proportions and amounts and on the dates set forth
below:
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PROPORTION/AMOUNT OF
INDEBTEDNESS TO BE
DATE FORGIVEN/CANCELLED
---- ------------------
July 1, 2000 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2001 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2002 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2003 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2004 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
The Indebtedness will be forgiven/cancelled by Lender chronologically in
the order in which it was incurred by the Borrower.
2. SURRENDER AND CANCELLATION OF NOTES.
(a) In the event of the forgiveness/cancellation of all or a
portion of the Indebtedness evidenced by the Notes in accordance with the
terms of this Agreement, the Lender will cause any one or more of the Notes
which evidence such Indebtedness to be surrendered for cancellation thereof.
To the extent that any portion of the Indebtedness represented by any such
Note surrendered for cancellation has not been forgiven/cancelled, the Lender
will cause a new demand note, evidencing the portion of the Indebtedness
represented by the cancelled Note which has not been forgiven/cancelled (the
"New Note"), to be issued in the name of the Borrower and cause such New Note
to be executed and delivered by or on behalf of the Borrower; PROVIDED,
HOWEVER, that any New Note which is issued shall be dated as of the date of
the Note which was surrendered and which evidences a portion of the
Indebtedness on the date of the surrender thereof which has not yet been
forgiven/cancelled and such New Note shall indicate that it is intended to be
secured by the New Mortgage. Notes or New Notes, as the case may be, shall
be surrendered for cancellation in chronological order of the date thereof
until all Notes or New Notes have been cancelled.
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(b) The Borrower hereby agrees to take all actions (or cause
his authorized legal representative to take all actions) requested by the
Lender to cause such New Notes to be executed and delivered to the Lender.
Furthermore, Borrower hereby acknowledges his obligations under the
preceding sentence and paragraph. In order to facilitate the discharge of
his obligations thereunder, the Borrower acknowledges that contemporaneous
with the execution and delivery of this Agreement he has caused the execution
and delivery to the Lender of signature pages, executed in blank, to be
affixed to the New Notes. Borrower hereby appoints the General Counsel and
Secretary of the Lender to act as his attorney in fact in connection with the
execution and delivery of any New Notes and the Borrower also hereby
authorizes the General Counsel and Secretary of the Lender, acting as the
Borrower's attorney in fact, to affix to any New Note, which may be issued by
the Lender in accordance with the procedures described above, a signature
page which has been executed in blank by the Borrower and to cause such New
Note to be delivered to the Lender. The Borrower hereby indemnifies and
holds harmless the General Counsel and Secretary of the Lender for any and
all actions taken by him acting in his capacity as the Borrower's attorney in
fact in connection with the execution and delivery of any New Note to the
Lender in accordance with the procedures described above.
3. ADDITIONAL SECURITY; REVIEW OF ADEQUACY OF COLLATERAL. The
Borrower shall be required to post such additional collateral to secure the
Indebtedness and the Notes or New Notes, as the case may be, as the Board of
Directors of the Lender in its sole discretion may from time to time deem to
be necessary and/or appropriate under the circumstances. The Board of
Directors of the Lender will review the adequacy of collateral on at least an
annual basis and will advise the Borrower in writing regarding the need for
any additional collateral. In the event that the Board of Directors of the
Lender requires additional collateral, the Borrower hereby agrees to take all
actions, and execute and deliver all instruments and documents, deemed
necessary or appropriate by the Lender to satisfy its determination as to the
requirements for additional collateral.
4. ACCELERATION OF PAYMENT OF INDEBTEDNESS. In the event that
(a) the Borrower's employment with the Lender is terminated for "Cause" as
defined in his Employment Agreement with the Lender or (b) the voluntary
termination by the Borrower of his employment with the Lender for any reason,
any remaining amount of Indebtedness which is then outstanding, and all Notes
or New Notes, as the case may be, evidencing such Indebtedness, shall become
immediately due and payable.
5. ACCELERATION OF FORGIVENESS/CANCELLATION OF INDEBTEDNESS. In
the event that (a) the Borrower terminates his employment for "Good Reason",
or as a result of a "Change in Control" or "Disability", all as defined in
his Employment Agreement or (b) the Borrower dies, any remaining amount of
Indebtedness which is then outstanding, and all Notes or New Notes, as the
case may be, evidencing such Indebtedness, shall be immediately forgiven
and/or cancelled, and the New Mortgage released or satisfied, upon the
occurrence of such event.
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6. GRANT OF NEW MORTGAGE/SATISFACTION OF BRIDGE FINANCING
MORTGAGE. The Borrower will execute and deliver to the Lender as promptly as
practicable the New Mortgage, a copy of the form of which is attached hereto
as Attachment II, and the Lender will thereafter, as promptly as practicable,
cause the Bridge Financing Mortgage to be satisfied and released.
7. CERTAIN TAX CONSEQUENCES.
(a) The Lender shall provide to the Borrower tax gross-up
payments with respect to any taxes incurred by him on any
forgiveness/cancellation of the Indebtedness as described in Sections 1
and/or 5 above, as the case may be, so that no such taxes shall be borne by
the Borrower (the "Tax Gross Up Payment"). The intent of this provision is
that all Federal, state and local income taxes, the Excise Tax Payment under
Section 6(b) below and any other taxes (including any penalties and interest
thereon) incurred by borrower on any forgiveness/ cancellation of the
Indebtedness as described in Sections 1 and/or 5 above and any additional
taxes resulting from the payment of such taxes by Lender shall also be paid
by Lender. For purposes of determining the Tax Gross Up Payment for any
calendar year in which the forgiveness/cancellation of the Indebtedness
occurs, Borrower shall be deemed to pay Federal, state and local income taxes
at the highest marginal rate of taxation in such calendar year. The amount
of such Tax Gross Up Payment for any calendar year shall be determined by
Xxxxxxx Xxxxxxx, CPA, Xxxxxxx & Xxxxxxx LLP, or in the event Xxxxxxx Xxxxxxx
is unable or unwilling to make such computation, such computation shall be
made by such other certified public accountant as is selected by Lender and
is reasonably acceptable to Borrower, no later than 30 days after the date of
the forgiveness/cancellation of the Indebtedness occurs and shall be paid by
Lender to Borrower in one lump sum within 30 days of such determination
(b) If any (a) forgiveness/cancellation of Indebtedness
described in Sections 1 or 5 of this Agreement or (b) Tax Gross Up Payment
described in Section 6 (a) of this Agreement received or to be received by
the Borrower in connection with a change in ownership or control of the
Lender (a "Statutory Change in Control"), described in section 280G(b)(2)(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and defined in
Proposed Treas. Reg. Section 1.280G-1Q/A-27, or the Borrower's termination of
employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Lender, any person whose actions
result in a Statutory Change in Control or any person affiliated with the
Lender or such person) (collectively, the "Severance Benefits") will be
subject to any excise tax (the "Excise Tax") imposed under section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Lender shall
pay to the Borrower an additional amount equal to the Excise Tax (the "Excise
Tax Payment"). Such Excise Tax Payment shall be included in the Tax Gross Up
Payment provided for under Section 6(a) of this Agreement.
For purposes of determining whether any of the Severance Benefits
will be subject to the Excise Tax and the amount of such Excise Tax:
(i) all of the Severance Benefits shall be treated as
"parachute payments" within the meaning of Code section 280(G)(b)(2),
and all "excess
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parachute payments" within the meaning of Code section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless, in the
opinion of tax counsel selected by Xxxxxxx Xxxxxxx, CPA, Xxxxxxx &
Xxxxxxx LLP, and reasonably acceptable to the Borrower, or, in the
event Xxxxxxx Xxxxxxx is unable or unwilling to make such selection,
by other tax counsel selected by Lender and reasonably acceptable to
Borrower, such other payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of Code section
280G(b)(4)(A), or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered,
within the meaning of Code section 280G(b)(4)(B), in excess of the
"Base Amount" as defined in Code section 280G(b)(3) allocable to such
reasonable compensation, or are otherwise not subject to the Excise
Tax; and
(ii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by Xxxxxxx Xxxxxxx, CPA, Xxxxxxx &
Xxxxxxx LLP, in accordance with the principles of Code section
280G(d)(3) and (4). In the event Xxxxxxx Xxxxxxx is unable or
unwilling to make such determination, such determination shall be made
by such other certified public accountant as is selected by Lender and
is reasonably acceptable to Borrower.
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Borrower's employment, the Borrower shall repay to the Lender, at the
time that the amount of such reduction in Excise Tax is finally determined
(the "Reduced Excise Tax"), the difference of the Excise Tax Payment and the
Reduced Excise Tax. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Borrower's employment (including by reason of any payment the existence or
amount of which could not be determined at the time of the Excise Tax
Payment), the Lender shall make an additional Excise Tax payment in respect
of such excess (plus any interest or penalties payable by the Borrower with
respect to such excess) at the time that the amount of such excess is finally
determined. The Borrower and the Lender shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Severance Benefits.
(c) All Computations of any Tax Gross Up Payment and/or
Excise Tax Payment to be made pursuant to the terms of this Agreement shall
be made by Xxxxxxx Xxxxxxx, CPA, Xxxxxxx & Xxxxxxx LLP. In the event Xxxxxxx
Xxxxxxx is unable or unwilling to make such computations, such computations
shall be made by such other certified public accountant as is selected by
Lender and is reasonably acceptable to borrower.
8. ENFORCEABILITY. If any provision of this Agreement shall be
deemed invalid or unenforceable as written, this Agreement shall be
construed, to the greatest extent possible, or modified, to the extent
allowable by law, in a manner which shall render it valid and enforceable and
any limitation on the scope or duration of any such provision necessary to
make it valid and
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enforceable shall be deemed to be a part thereof. No invalidity or
unenforceability of any provision contained herein shall affect any other
portion of this Agreement unless the provision deemed to be so invalid or
unenforceable is a material element of this Agreement, taken as a whole.
9. LEGAL EXPENSES. The Lender shall pay the Borrower's
reasonable fees for legal and tax advice and other related expenses
associated with the negotiation and completion of this Agreement.
10. NOTICES. All notices which the Lender is required or
permitted to give to the Borrower shall be given by registered or certified
mail or overnight courier, with a receipt obtained, addressed to the Borrower
at the address referred to above, or at such other place as the Borrower may
from time to time designate in writing, or by personal delivery, and to
counsel for the Borrower as may be requested in writing by the Borrower from
time to time. All notices which the Borrower is required or permitted to give
to the Lender shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Lender at the address set
forth above, or at such other address as the Lender may from time to time
designate in writing, or by personal delivery, and to counsel for the Lender
as may be requested in writing by the Lender. A notice will be deemed given
upon the mailing thereof or delivery to an overnight courier for delivery the
next business day, except for a notice of a change of address, which will not
be effective until receipt.
11. WAIVERS. No waiver by either party of any breach or
nonperformance of any provision or obligation of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision of this Agreement.
12. HEADINGS; OTHER LANGUAGE. The headings contained in this
Agreement are for reference purposes only and shall in no way affect the
meaning or interpretation of this Agreement. In this Agreement, as the
context may require, the singular includes the plural and the singular, the
masculine gender includes both male and female reference, the word "or" is
used in the inclusive sense and the words "including," "includes," and
"included" shall not be limiting.
13. COUNTERPARTS. This Agreement may be executed in duplicate
counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one agreement.
14. AGREEMENT COMPLETE; AMENDMENTS. This Agreement, together with
the Notes attached hereto as Exhibits A through K, any New Notes which may be
issued pursuant to the terms hereof, and the New Mortgage attached hereto as
Attachment II, is the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral,
with respect thereto. This Agreement may not be amended, supplemented,
cancelled or discharged except by a written instrument executed by both of
the parties hereto, PROVIDED, HOWEVER, that the immediately foregoing
provision shall not prohibit the
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termination of rights and obligations under this Agreement which termination
is made in accordance with the terms of this Agreement.
15. BENEFIT AND BINDING NATURE/NONASSIGNABILITY. This Agreement
shall be binding upon and inure to the benefit of the successors and
permitted assigns of the respective parties hereto. This Agreement and the
rights and obligations hereunder are personal to the Lender and the Borrower
and are not assignable or transferable to any other person, firm or
corporation without the consent of the other party, except as contemplated
hereby; PROVIDED, HOWEVER, in the event of the merger or consolidation of the
Lender, whether or not the Lender is the surviving or resulting corporation,
the transfer of all or substantially all of the assets of the Lender, or the
voluntary or involuntary dissolution of the Lender, then the surviving or
resulting corporation or the transferee or transferees of the Lender's assets
shall be bound by this Agreement and the Lender shall take all actions
necessary to insure that such corporation, transferee or transferees are
bound by the provisions of this Agreement, and provided, further, this
Agreement shall inure to the benefit of the Borrower's estate, heirs,
executors, administrators, personal and legal representatives, distributees,
devisees, and legatees. Notwithstanding the foregoing provisions of this
Section 15, the Lender shall not be required to take all actions necessary to
insure that a transferee or transferees of the Lender's assets are bound by
the provisions of this Agreement and such transferee or transferees of the
Lender's shall not be bound by the obligations of the Lender under this
Agreement if the Lender shall have (a) paid to the Borrower or made provision
satisfactory to the Borrower for payment to him of all amounts which are or
may become payable to him hereunder in accordance with the terms hereof and
(b) made provision satisfactory to the Borrower for the
forgiveness/cancellation of the Indebtedness and the cancellation of the
Notes and/or New Notes, as the case may be in accordance with the terms
hereof.
16. GOVERNING LAW. This Agreement will be governed and construed
in accordance with the law of Pennsylvania applicable to agreements made and
to be performed entirely within such state, without giving effect to the
conflicts of laws principles thereof.
17. INTERPRETATION. The Lender and the Borrower each acknowledge
and agree that this Agreement has been reviewed and negotiated by such party
and its or his counsel, who have contributed to its revision, and the normal
rule of construction, to the effect that any ambiguities are resolved against
the drafting party, shall not be employed in the interpretation of it.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
KEY ENERGY SERVICES, INC.,
THE LENDER
BY: /s/ XXXXXX XXXXXXXXX
----------------------------------
XXXXXX XXXXXXXXX
DIRECTOR
BORROWER
/s/ XXXXXXX X. XXXX
---------------------------------
XXXXXXX X. XXXX
