PNC INVESTMENT CORP.
One PNC Plaza
000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
April 15, 1999
Key Energy Services, Inc.
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Dear Sirs:
PNC Investment Corp. ("PNC"), upon the terms and subject to the
conditions set forth herein, hereby agrees to purchase from Key Energy Services,
Inc. (the "Company"), up to $50 million of the Company's common stock, par value
$.10 per share (the "Common Stock"), to be offered pursuant to a prospectus
previously filed and related prospectus supplement (the "PNC Prospectus") to be
filed by the Company with the Securities and Exchange Commission in connection
with the Company's effective Registration Statement on Form S-3 (File No.
333-67665) (the "Registration Statement"). We have been advised that in
connection with the Registration Statement the Company has filed a prospectus
and intends to file a related prospectus supplement (the "Public Prospectus")
relating to shares of Common Stock being offered by Xxxxxxxx, Xxxxxxxx, Xxxxxx &
Co. and Xxxx Xxxxxxxx Xxxxxxx (together, the "Underwriters") to the public (the
"Offering").
1. PURCHASE COMMITMENT. PNC hereby commits, subject to the Company's
delivery to PNC of a final PNC Prospectus, that if the Underwriters and the
Company sell shares of Common Stock in the Offering that result in at least $100
million in gross proceeds to the Company (inclusive for purposes of this letter
agreement of the $10 million committed to be purchased by Xxxxx-Xxxx Group LLC,
DFG Corporation and ZPG Securities, L.L.C. (collectively, the "Institutional
Investors")), PNC will, if requested by the Company, purchase from the Company
such number of shares of Common Stock that will result in gross proceeds to the
Company, when aggregated with the gross proceeds from the Offering and from the
Institutional Investors, of $175 million, subject to the $50 million limitation
in the preceding paragraph and to the limitations set forth in Section 2 below
(the "Purchase Commitment"). Once gross proceeds to be received by the Company
from the Offering, the Institutional Investors' purchase of Common Stock and any
purchase of Common Stock by PNC, in the aggregate, equal $175 million, PNC shall
have no further obligation to purchase any additional shares of Common Stock.
Any purchase made by PNC pursuant to its Purchase Commitment or the Optional
Investment (as defined below) provided for herein, shall be consummated
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simultaneously with the purchase by the Underwriters in connection with the
Offering on the date of such purchase (the "Closing Date").
2. INVESTMENT LIMITATIONS. Under the Purchase Commitment, PNC shall
purchase (i) first, voting Common Stock, up to such number of shares of voting
Common Stock ("Voting Shares") as would result in PNC and its affiliates, in the
aggregate, holding not more than 4.9999% of the total number of Voting Shares
outstanding upon issuance of such shares, after giving effect to such issuance
and including all other Voting Shares held by PNC and its affiliates at such
time, and (ii) second, a new class of nonvoting Common Stock (having the terms
set forth on Appendix A hereto), up to such number of shares of nonvoting Common
Stock ("Nonvoting Shares") as would result in PNC and its affiliates, in the
aggregate, holding not more than 24.9999% of the total equity of the Company
upon issuance of such Nonvoting Shares, after giving effect to such issuance and
including all other shares of Common Stock held by PNC and its affiliates at
such time. The calculations contemplated by this Section 2 shall be made by PNC
in accordance with Section 4 of the Bank Holding Company Act of 1956, as
amended, and the regulations and policy statements of the Board of Governors of
the Federal Reserve System thereunder. Notwithstanding any other provisions set
forth in this letter agreement, PNC shall in no event be required to purchase
shares of Common Stock to the extent PNC determines that such purchase would
result in a violation of any law or regulation.
3. OPTIONAL INVESTMENT. If the Underwriters and the Company sell
shares of Common Stock in the Offering and to the Institutional Investors that,
in the aggregate, result in more than $125 million in gross proceeds to the
Company and, thus, PNC's Purchase Commitment is not fully utilized by the
Company, PNC shall have the right, but not the obligation, to purchase an
additional number of shares of Common Stock in the Offering to increase PNC's
total investment in the Common Stock pursuant to this letter agreement to an
amount not to exceed $50 million calculated at the Offering Price (the "Optional
Investment"); provided that PNC's Optional Investment shall be limited to a
number of shares such that the gross proceeds to the Company therefrom, when
aggregated with the gross proceeds to the Company from the Offering, the
purchase by the Institutional Investors and the Purchase Commitment, do not
exceed $200 million. To the extent not theretofore exercised, PNC's rights with
respect to the Optional Investment shall terminate on the Closing Date.
Notwithstanding the preceding sentence, PNC's rights to the Optional Investment
shall become exercisable only at such time as the distribution of the Common
Stock in the Offering, including shares issuable pursuant to the underwriters'
over-allotment option, has been completed. PNC's must exercise its Optional
Investment rights within three business days of the completion of such
distribution by the underwriters.
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4. SHARE PRICE. The per share price for shares of Common Stock
purchased by PNC pursuant to PNC's Purchase Commitment and Optional Investment
shall be determined as follows:
(a) if PNC purchases less than $10 million of Common Stock, then the
per share purchase price for each share purchased by PNC shall be equal to 99%
multiplied by the Offering Price (as defined below);
(b) if PNC purchases at least $10 million of Common Stock but less
than $20 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 98% multiplied by the Offering Price;
(c) if PNC purchases at least $20 million of Common Stock but less
than $30 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 97% multiplied by the Offering Price;
(d) if PNC purchases at least $30 million of Common Stock but less
than $40 million of Common Stock, then the per share purchase price for each
share purchased shall be equal to 96% multiplied by the Offering Price; and
(e) if PNC purchases at least $40 million of Common Stock, then the
per share purchase price for each share purchased shall be equal to 95%
multiplied by the Offering Price.
For purposes of determining the per share price payable by PNC under
this Section 4, the dollar amount of Common Stock required or permitted to be
purchased by PNC pursuant to this letter agreement shall be calculated based on
the number of shares purchased by PNC multiplied by the Offering Price and not
by the per share purchase price paid by PNC. For purposes of this letter
agreement, the "Offering Price" shall mean the price per share at which Common
Stock is offered by the Underwriters to the public in the Offering.
5. TERMINATION OF PURCHASE COMMITMENT. PNC's Purchase Commitment
shall automatically terminate upon the earlier of (i) written notice from the
Company to PNC that it will not proceed with the Offering, (ii) the existence of
a final order, injunction or notice from a court or administrative agency of
competent jurisdiction that prohibits consummation of the transaction
contemplated herein, or (iii) May 15, 1999.
Page 4
6. TRANSFERABILITY. PNC agrees (i) not to transfer a number of
shares of Common Stock to any one person or entity if in the aggregate, after
giving effect to such transfer, such person or entity together with its
affiliates and persons who collectively are acting as a group for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to PNC's knowledge after review of filings under Section 13(d) and 13(g)
of the Exchange Act available on the XXXXX system, would be the "beneficial
owner" (as such term is defined in Rules 13d-3 and 13d-5 promulgated under the
Securities Exchange Act of 1934, as amended) of 5% or more of the total
outstanding shares of Common Stock and (ii) not to transfer any Nonvoting Shares
that will not convert to Voting Shares upon such transfer in accordance with the
terms set forth in Appendix A. The preceding sentence shall not apply to
transfers among affiliates of PNC and clause (i) of the preceding sentence shall
not apply to open market transactions on the New York Stock Exchange or through
a registered broker-dealer in which PNC does not know the identity of the
purchaser of the shares sold. PNC further agrees (i) to consult with the Company
and its specialist on the New York Stock Exchange with respect to transfers of
Common Stock by PNC and (ii) to develop jointly with them means of selling its
Common Stock so as not to significantly disrupt the market for the shares of
Common Stock. In addition, PNC agrees for the benefit of the Underwriters that
for 180 days following the Closing Date it will not transfer any of the shares
of Common Stock acquired pursuant to this letter agreement without prior consent
from the Underwriters, such consent not to be unreasonably withheld, conditioned
or delayed; provided that PNC may dispose of shares of Common Stock within the
180 day period without the Underwriters' consent if it is required to do so to
comply with applicable law or regulation.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to PNC as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a material adverse effect
on the business or operations of the Company.
(b) The consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
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of the Company, and this letter agreement is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. The
execution and delivery of this letter agreement has been authorized by the board
of directors of the Company and no other corporate action is necessary. The
execution, delivery and performance of this letter agreement and the
consummation of the transactions contemplated by this letter agreement will not
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under (i) the Certificate of Incorporation or Bylaws of
the Company, or (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Company or any of its subsidiaries is a
party or by which the Company or its subsidiaries, or their respective
properties are bound, which in the case of either (i) or (ii), would have a
material adverse effect on the business or operation of the Company.
(c) All of the Voting Shares and Nonvoting Shares, when issued, will
be duly authorized, validly issued, fully paid and nonassessable and not subject
to any preemptive right.
(d) The PNC Propectus and all documents incorporated therein by
reference do not, and will not, on the date it is delivered to PNC, contain any
untrue statement or a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made not misleading and complied with all
applicable requirements of securities laws and regulations.
8. DELIVERIES AT CLOSING. If PNC purchases any Common Stock pursuant
to its Purchase Commitment or its Optional Investment, then PNC shall receive as
a condition to closing and the Company agrees to deliver to PNC:
(a) a certificate, dated as of the Closing Date and executed by the
President of the Company, certifying that (i) the shares of Common Stock
purchased by PNC pursuant to this letter agreement are duly authorized and
validly issued, fully paid and nonassessable, and (ii) the Company is not
subject to any Redemption Requirements. As used herein "Redemption Requirement"
means any requirement, obligation or agreement of the Company to redeem or
repurchase any shares of its outstanding stock or otherwise reduce the number of
shares of its outstanding Common Stock; and.
(b) a favorable opinion, dated as of the Closing Date, from Xxxxxx &
Xxxxxx, L.L.P., counsel for the Company, in form and substance reasonably
satisfactory to PNC, to the effect that (i) the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of Maryland; (ii) all corporate proceedings required to be taken by or on
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the part of the Company to authorize the execution of this letter agreement and
the consummation of the transactions contemplated hereby have been taken; (iii)
the shares of Common Stock to be delivered in accordance with this letter
agreement will, when issued, be validly issued, fully paid and nonassessable
outstanding securities of the Company; and (iv) this letter agreement has been
duly executed and delivered by, and is the legal, valid and binding obligation
of, the Company and is enforceable against the Company in accordance with its
terms, except as enforceability may be limited by (A) equitable principles of
general applicability or (B) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally. In
rendering such opinion, such counsel may relay upon (I) certificates of public
officials and of officers of the Company as to matters of fact and (ii) the
opinion or opinions of other counsel, which opinions shall be reasonably
satisfactory to PNC, as to matters other than federal or Texas law.
9. NON-ATTRIBUTION. PNC and PNC Bank, National Association ("PNC
Bank") are separate legal entities, and no action or omission of PNC relating to
the Company shall be attributed to PNC Bank, and no action or omission of PNC
Bank relating to the Company shall be attributed to PNC; provided, however, that
each PNC affiliate shall be deemed to possess the same information regarding the
Company that all other PNC affiliates possess as of the date of this letter
agreement.
10. PASSIVE INVESTOR. PNC and its affiliates are acquiring the shares
of Common Stock of the Company solely for investment purposes and shall not
exercise or attempt to exercise any controlling influence over the business or
affairs of the Company or any of its subsidiaries, as set forth in detail in
Appendix B hereto.
11. EXPENSES. In addition to any other amounts payable hereunder, and
regardless of whether the Offering is consummated, the Company agrees to
reimburse PNC from time to time promptly upon written request (including a
summary of items for which reimbursement is requested) for reasonable out of
pocket expenses incurred by PNC or its affiliates in connection with the matters
contemplated under this letter agreement, including without limitation,
reasonable attorneys' fees and disbursements of PNC's legal counsel and other
professional advisors (if any), in an aggregate amount not to exceed $50,000.
12. ASSIGNABILITY. PNC may assign all of its rights and obligations
under this letter agreement to any affiliate of PNC, or, with the prior written
consent of the Company, to any unaffiliated third party.
Page 7
13. MISCELLANEOUS.
(a) Nothing in this letter agreement is intended to obligate or
commit PNC or any of its affiliates to provide any services or financing other
than as set forth above.
(b) This letter agreement may be executed by facsimile, and/or in two
or more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement. This letter agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings (both written and oral) of the parties hereto with respect to the
subject matter hereof, and cannot be amended or otherwise modified except in
writing executed by the parties hereto.
(c) This letter agreement shall in all respects be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any choice or conflict of law provisions or rules thereof.
(d) The terms and provisions of this letter agreement are solely for
the benefit of the Company, PNC and their respective successors and assigns, and
no other persons shall acquire or have any rights by virtue of this letter
agreement. The provisions hereof shall inure to the benefit of and be binding
upon the successors and assigns of the Company and PNC.
Page 8
Please confirm that the foregoing is our mutual understanding by
signing and returning to us an executed counterpart of this letter agreement.
Very truly yours,
PNC INVESTMENT CORP.
By: /s/ Xxxxxx X. Xxxxx
-----------------------------------
By: Xxxxxx X. Xxxxx
Title: Assistant Secretary
Accepted and agreed to this
15th day of April, 1999, by:
KEY ENERGY SERVICES, INC.
By: /s/ Xxxxxxx X. XxXxxxxx
-----------------------
Xxxxxxx X. XxXxxxxx
Executive Vice President and Chief Financial Officer
Page 9
APPENDIX A
TERMS OF NONVOTING COMMON STOCK
The Company shall authorize a new, nonvoting class of Common Stock (the
"Nonvoting Common Stock"), identical in all respects to the existing class of
voting Common Stock (the "Voting Common Stock"), except as set forth below:
1. VOTING RIGHTS. The holders of the shares of Nonvoting Common Stock
shall be entitled to vote as follows:
(a) The holders of the shares of Nonvoting Common Stock shall be
entitled to vote,
(i) as a class, each share having one vote, with respect to any
matters submitted to a vote at a meeting of the stockholders
affecting the rights, preferences or obligations relating to
the Nonvoting Common Stock, and
(ii) together with all other classes, each share having one vote,
with respect to any matter submitted to a vote at a meeting
of the stockholders relating to (x) consolidation, merger,
or sale of substantially all of the assets of the Company,
or (y) dissolution or liquidation, of the Company.
(b) Except as set forth in paragraph (a) of this Section 1, or as
specifically required by law, the holders of the shares of
Nonvoting Common Stock shall not be entitled to vote on any
matter submitted to a vote at a meeting of the stockholders, but
shall be entitled to notice of, and participation in, the
meetings of the stockholders of the Company. To the extent that
the Nonvoting Common Stock is entitled to vote on the increase in
the number of authorized shares of Nonvoting Common Stock, it
shall vote together with the Voting Common Stock as a single
class.
4. CONVERSION OF NONVOTING COMMON STOCK. Outstanding shares of Nonvoting
Common Stock shall, automatically and without any action by the holder thereof
except as required by Section 3 hereof, convert into an equal number of shares
of Voting Common Stock:
Page 10
(a) if such shares have been:
(i) transferred in a widely dispersed public offering; or
(ii) transferred, sold or otherwise disposed of to a transferee
who will then hold Voting Common Stock that is less than
2% of the then-outstanding Voting Common Stock; or
(iii) transferred, sold or otherwise disposed of to a transferee
who, prior to acquiring the shares of Voting Common Stock
from the holder, already owned more than 50% of the
then-outstanding shares of Voting Common Stock; or
(b) upon the agreement of the Company in its sole discretion.
3. PROCEDURES RELATING TO CONVERSION.
(a) Each share of Nonvoting Common Stock transferred in accordance
with Section 2 will, as set forth therein, automatically convert into one share
of Voting Common Stock. Such conversion of shares of Nonvoting Common Stock into
shares of Voting Common Stock shall be effected by the surrender of the
certificate or certificates representing the shares to be transferred at the
principal office of the Company (or such other office or agency of the Company
as the Company may designate by notice in writing to the holder or holders of
the Nonvoting Common Stock) at any time during normal business hours, together
with a certificate of the holder of such Nonvoting Common Stock stating that the
shares, or a stated number of the shares, of Nonvoting Common Stock represented
by such certificate or certificates have been transferred in accordance with the
provisions of Section 2. Upon receipt of such statement and the surrender of the
certificates representing the shares to be converted, the Company or its agent
shall issue the number of shares of Voting Common Stock as is equal to the
number of shares to be transferred without further inquiry and shall issue to
the holder a certificate representing the shares of Nonvoting Common Stock that
have not been converted into Voting Common Stock. Such conversion shall be
deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holders of the converted Nonvoting
Common Stock shall cease and the person or persons in whose name or names the
certificate or certificates for shares of Voting Common Stock are to be issued
Page 11
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Voting Common Stock represented thereby.
(b) Promptly after such surrender and the receipt of such written
notice, the Company shall issue and deliver in accordance with the surrendering
holder's instructions (1) the certificate or certificates for the Voting Common
Stock issuable upon such conversion, and (2) a certificate representing any
Nonvoting Common Stock that was represented by the certificate or certificates
delivered to the Company in connection with such conversion but that was not
converted.
(c) The issuance of certificates for Voting Common Stock upon
conversion of Nonvoting Common Stock shall be made without charge to the holders
of such shares for any stamp, transfer or issuance tax in respect thereof or
other cost incurred by the Company in connection with such conversion and the
related issuance of Voting Common Stock.
4. CHANGES TO CAPITAL STRUCTURE. Any subdivision, split, reverse-split
or reclassification of any class of Common Stock shall be applied equally to all
other classes of Common Stock.
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APPENDIX B
PASSIVE INVESTMENT TERMS
PNC does not seek to control or participate in the management of the
Company. PNC will be a passive investor in the Company and agrees with the
Company as follows:
1. PNC will not seek or accept representation on the board of
directors of the Company;
2. PNC will not take action causing the Company to become a
subsidiary of PNC;
3. PNC will not acquire or retain shares that would cause the
combined ownership interests of PNC and its subsidiaries
(excluding shares held by PNC or its subsidiaries in a fiduciary
or representative capacity for the benefit of a third party) in
the Company to exceed 4.9999 percent of any "class" of
outstanding "voting securities" (both as defined in Regulation Y
of the Board of Governors of the Federal Reserve System or any
successor regulation thereto) of the Company or 24.9999 percent
of the total equity of the Company;
4. PNC will not exercise or attempt to exercise a controlling
influence over the management or policies of the Company;
5. PNC will not have or seek to have any representative serve as an
officer, agent, or employee of the Company or any of its
subsidiaries;
6. PNC will not propose a director or slate of directors in
opposition to a nominee or slate of nominees proposed by the
management or board of directors of the Company;
7. PNC will not solicit or participate in soliciting proxies with
respect to any matter presented to shareholders of the Company;
8. PNC will not attempt to influence the dividend policies or
practices of the Company;
Page 13
9. PNC will not enter into any joint venture of any kind with the
Company, and there will be no advertising or marketing of each
other's services or products;
10. PNC will not increase the extent of PNC's current banking
relationship or nonbanking services relationship with the Company
in an amount that would be material to PNC or the Company and, to
the extent any such relationships are entered into, they will be
undertaken only in the ordinary course of business and will be on
terms and conditions comparable to those in transactions with
parties in which PNC is not an investor; and
11. PNC will not dispose or threaten to dispose of shares of the
Company in any manner as a condition of specific action or
inaction of the Company;
provided, however, that nothing herein shall in any way condition, limit,
reduce, waive or modify the rights or authority that PNC or its affiliates may
have as a creditor of the Company or the Company's subsidiaries (or as an agent
or manager acting on behalf of other creditors), pursuant to any loan, credit or
similar agreement or under applicable laws governing debtor-credit relationships
including, without limitation, bankruptcy, insolvency, receivership,
reorganization or similar laws or under laws permitting a bank or bank holding
company to acquire or own securities in connection with a debt previously
contracted, nor shall anything herein in any way condition, limit, reduce, waive
or modify in any way any covenants, representations, warrantees or obligations
that the Company or its subsidiaries have under any loan, credit or similar
agreement or under applicable laws governing the debtor-creditor relationship.
