STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of March 24,
1997, by and among Yale E. Key, Inc., a Texas corporation ("Key"), and Keith
Neill and wife, Leslie Neill, individual residents of the State of Texas
(individually, a "Shareholder" and collectively the "Shareholders").
RECITATIONS
WHEREAS, the Shareholders own 15,282 shares (the "TST Shares") of common stock,
par value $1.00 per share, of T.S.T. Paraffin Service Company, Inc. ("TST Common
Stock"), which constitutes all of the issued and outstanding shares of capital
stock of T.S.T. Paraffin Service Company, Inc., a Texas corporation ("TST"); and
WHEREAS, the Shareholders desire to sell to Key, and Key desires to purchase
from the Shareholders, all of the issued and outstanding capital stock of TST.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of TST Shares. Subject to the terms and conditions of this
Agreement, the Shareholders agree to sell and convey to Key, free and clear of
all Encumbrances (as defined in Section 2.1.8.1 hereof), and Key agrees to
purchase and accept from the Shareholders, all of the TST Shares. In
consideration of the sale of the TST Shares, Key shall pay to the Shareholders,
at the Closing (as defined in Section 1.3 hereof) the sum of $8,150,000.00 (the
"Purchase Price"), to be paid to Shareholders by means of a wire transfer of
immediately available funds to the account designated in writing by the
Shareholders.
1.2 Delivery of TST Certificates. The Shareholders shall deliver to Key, at the
Closing, duly and validly issued certificate(s) representing all of the TST
Shares, each such certificate having been endorsed in blank and in good form for
transfer or accompanied by stock powers duly executed in blank, sufficient and
in good form to promptly transfer the TST Shares to Key.
1.3 Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur on April 4, 1997 at l0:00 a.m. at the
offices of Bradford L. Moore, Attorney at Law, 508 West Broadway, Brownfield,
Texas 79316 provided that the conditions set forth in Article 5 hereof have been
satisfied or waived or if such closing conditions have been satisfied or waived
prior to April 4, 1997 at such earlier date as is mutually agreed to by the
parties hereto. The date on which the Closing occurs is referred to elsewhere
herein as the "Closing Date".
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
2.1 Representations and Warranties of the Shareholders. The express
representations and warranties of the Shareholders contained in this Article 2
are exclusive and are in lieu of all other representations and warranties,
express, implied or statutory, or otherwise. Subject to the foregoing, each of
the Shareholders jointly and severally represents and warrants to Key as
follows:
2.1.1 Organization and Standing. TST is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, 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. Copies of TST's Certificate of Incorporation, Articles of
Incorporation, Bylaws (all as amended to the date hereof), Articles of Merger of
K&L Neill Corp. ("K&L") into TST, and a Certificate of Good Standing issued by
the Comptroller of the State of Texas are attached hereto as Schedule 2.1.1. TST
does not now conduct (and has never conducted) operations outside of the State
of Texas.
2.1.2 Agreement Authorized and its Effect on Other Obligations. Each of the
Shareholders is a resident of the State of Texas, above the age of 18 years, and
each has the legal capacity and requisite power and authority to enter into, and
perform his or her obligations under this Agreement. This Agreement is a valid
and binding obligation of each of the Shareholders enforceable against each of
the Shareholders (subject to normal equitable principles) in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of creditors
generally. The execution, delivery and performance of this Agreement by the
Shareholders will not conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under (i) the Articles of
Incorporation or Bylaws of TST or (ii) any obligation, indenture, mortgage, deed
of trust, lease, contract or other agreement to which TST or either of the
Shareholders is a party or by which TST or either of the Shareholders or their
respective properties are bound.
2.1.3 Capitalization of TST. The authorized capitalization of TST consists of
50,000 shares of TST Common Stock of which, as of the date hereof, 15,282 shares
are issued and outstanding (the "TST Shares") and held beneficially and of
record by the Shareholders. On the date hereof, TST does not have any
outstanding options, warrants, calls or commitments of any character relating to
any of its authorized but unissued shares of capital stock. All issued and
outstanding shares of TST Common Stock are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. None of the outstanding
shares of TST Common Stock are subject to any voting trust, voting agreement or
other agreement or understanding with respect to the voting thereof, nor is any
proxy in existence with respect thereto.
2.1.4 Ownership of TST Shares. Except as disclosed on Schedule 2.1.4 hereto, the
Shareholders hold good and valid title to all of the TST Shares, free and clear
of all Encumbrances. The Shareholders possess full authority and legal right to
sell, transfer and assign to Key the TST Shares, free and clear of all
Encumbrances. Upon transfer of the TST Shares to Key by the Shareholders, Key
will own the TST Shares free and clear of all Encumbrances. There are no claims
pending or, to the knowledge of either of the Shareholders, threatened, against
TST or either of the Shareholders that concern or affect the title to the TST
Shares or that seek to compel the issuance of capital stock or other securities
of TST.
2.1.5 No Subsidiaries. Except as disclosed on Schedule 2.1.5 hereto, there is no
corporation, partnership, joint venture, business trust or other legal entity in
which TST, either directly or indirectly, through one or more intermediaries,
owns or holds beneficial or record ownership of at least a majority of the
outstanding voting securities.
2.1.6 Financial Statements. The Shareholders have delivered to Key TST's audited
balance sheet (the "12/31 Balance Sheet ") and related statements of income,
retained earnings and cash flows, with appended notes which are an integral part
of such statements (collectively, the "12/31 Financial Statements"), as of and
for the 12 months ended December 31, 1996 (the "Balance Sheet Date"). The 12/31
Financial Statements are attached hereto as Schedule 2.1.6. The 12/31 Financial
Statements are true, correct and complete in all material respects and present
fairly the financial condition of TST as of the dates indicated, and the results
of operations for the respective periods indicated, and have been prepared in
accordance with generally accepted accounting principles as promulgated by the
American Institute of Certified Public Accountants ("GAAP") applied on a
consistent basis, except as noted therein. The accounts receivable reflected in
the 12/31 Balance Sheet, or which have been thereafter acquired by TST, have
been collected or are current and collectible in the aggregate recorded amounts
thereof. The inventories of TST reflected in the 12/31 Balance Sheet, or which
have been thereafter acquired by TST, consist of items of quality and quantity
usable and salable in the normal course of TST's business, and the values at
which such inventories are carried are the lower of cost or market.
2.1.7 Liabilities. Except as disclosed on Schedule 2.1.7 hereto, TST has no
liabilities or obligations, either accrued, absolute or contingent, nor do
either of the Shareholders have any knowledge of any potential liabilities or
obligations, which would materially or adversely affect the value and conduct of
the business of TST, other than those (i) reflected or reserved against in the
12/31 Balance Sheet or (ii) incurred in the ordinary course of business since
the Balance Sheet Date.
2.1.8 Additional Information. Attached as Schedule 2.1.8 hereto are true,
complete and correct lists of the following items:
2.1.8.1 Real Estate. All real property and structures thereon owned, leased or
subject to a contract of purchase and sale, or lease commitment, by TST, with a
description of the nature and amount of any Encumbrances thereon. The term
"Encumbrances" means all liens, security interests, pledges, mortgages, deeds of
trust, claims, rights of first refusal, options, charges, restrictions or
conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights-of-way, limitations, reservations, restrictions and
other encumbrances of any kind or nature;
2.1.8.2 Machinery and Equipment. All vehicles, equipment, machinery, tools,
furnishings, and fixtures owned, leased or subject to a contract of purchase and
sale, or lease commitment by TST with a description of the nature and amount of
any Encumbrances thereon;
2.1.8.4 Receivables. All accounts and notes receivable, together with (i) aging
schedules by invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of any asset in which
TST holds a security interest to secure payment of the underlying indebtedness,
and (iv) a description of the nature and amount of any Encumbrance on such
accounts and notes receivable;
2.1.8.5 Payables. All accounts and notes payable of TST, together with an
appropriate aging schedule;
2.1.8.7 [Reserved]
2.1.8.8 Employee Compensation Plans. All bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, welfare, group insurance,
death benefit, or other fringe benefit plans, arrangements or trust agreements
of TST (collectively, the "TST Employee Benefit Arrangements"), together with
copies of the most recent reports with respect to such plans, arrangements, or
trust agreements filed with any governmental agency, and all Internal Revenue
Service determination letters that have been received with respect to such
plans;
2.1.8.9 Certain Salaries. The names and salary rates of all present employees of
TST (the "TST Employees") and, to the extent existing on the date of this
Agreement, all TST Employee Benefit Arrangements with respect thereto;
2.1.8.10 Bank Accounts. The name of each bank in which TST has an account, the
account numbers of each account and the names of all persons authorized to draw
thereon; 2.1.8.11 Employee Agreements. Any collective bargaining agreements of
TST with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all employment
and consulting and severance agreements of TST;
2.1.8.13 Trade Names. All trade names, assumed names and fictitious names used
or held by TST, whether and where such names are registered, and where used;
2.1.8.14 Promissory Notes. All long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, and any other
agreements of TST relating thereto or with respect to collateral securing the
same;
2.1.8.15 Guaranties. All indebtedness, liabilities and commitments of others as
to which TST is a guarantor, endorser, co-maker, surety, or accommodation maker,
or contingently liable therefor and all letters of credit, whether stand-by or
documentary, issued by any third party;
2.1.8.16 Reserves and Accruals. All accounting reserves and accruals, maintained
in the 12/31 Balance Sheet;
2.1.8.17 Leases. All leases to which TST is a party (whether as lessor or
lessee); and
2.1.8.18 Environment. All environmental permits, approvals, certifications,
licenses, registrations, orders and decrees applicable to current operations
conducted by TST and all environmental audits, assessments, investigation and
reviews conducted by TST within the last five years of any property owned or
used by it.
2.1.9 No Defaults. TST is not in default in any material obligation or covenant
on its part to be performed under any obligation, lease, contract, order, plan
or other agreement or arrangement other than those that are not material to the
business or business prospects of TST.
2.1.10 Absence of Certain Changes and Events. Except as disclosed on Schedule
2.1.10 hereto, and except for the payment by TST of (i) the Shareholders' legal
fees incurred through February 28, 1997 in connection with the negotiation of
this Agreement and (ii) the professional fees associated with the costs of the
environmental study performed in connection with this Agreement and other than
as a result of the transactions contemplated by this Agreement, since the
Balance Sheet Date, there has not been:
2.1.10.1 Financial Change. Any material adverse change in the financial
condition, backlog, operations, assets, liabilities or business of TST;
2.1.10.2 Property Damage. Any material damage, destruction, or loss to the
business or properties of TST (whether or not covered by insurance);
2.1.10.3 Dividends. Any declaration, setting aside, or payment of any dividend
or other distribution in respect of the TST Common Stock, or any direct or
indirect redemption, purchase or any other acquisition by TST of any such stock;
2.1.10.4 Capitalization Change. Any change in the capital stock or in the number
of shares or classes of the authorized or outstanding capital stock of TST as
described in Section 2.1.3 hereof;
2.1.10.5 Labor Disputes. Any labor disputes involving TST; or
2.1.10.6 Other Material Changes. Any other event or condition known to either of
the Shareholders, particularly pertaining to and adversely affecting the
operations, assets or business of TST which would constitute a material adverse
change.
2.1.11 Taxes. All federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs, duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by TST
for each period for which any such returns, reports, or estimates were due
(taking into account any extensions of time to file before the date hereof); all
taxes shown by such returns to be payable and any other taxes due and payable
have been paid other than those being contested in good faith by TST, a
description of which is included in Schedule 2.1.11 hereto; and the tax
provisions reflected in the 12/31 Balance Sheet are adequate, in accordance with
GAAP, to cover liabilities of TST at the date thereof for all taxes, including
any assessed interest, assessed penalties and additions to taxes of any
character whatsoever applicable to TST or its assets or business. No waiver of
any statute of limitations executed by TST with respect to any income or other
tax is in effect for any period. The income tax returns of TST or of K&L have
never been examined by the Internal Revenue Service or the taxing authorities of
any other jurisdiction for the time period commencing January 1, 1993 up to and
including the date of this Agreement and to the best knowledge of the
Shareholders, for any period prior to January 1, 1993, and there are no current
or pending audits by the Internal Revenue Service. There are no tax liens on any
assets of TST except for taxes not currently due. TST is not now, never has
been, and has never attempted to become, a Subchapter S Corporation under the
Internal Revenue Code of 1986, as amended.
2.1.12 Intellectual Property. TST owns or possess licenses to use all patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, "Intellectual Property") that are either material to
its business or that are necessary for the rendering of any services rendered by
it and the use or sale of any equipment or products used or sold by it
(collectively, the "TST Intellectual Property"), including all such Intellectual
Property listed in Schedule 2.1.12 hereto. The TST Intellectual Property is
owned or licensed by TST free and clear of any Encumbrance. TST has not granted
to any other person any license to use any of the TST Intellectual Property. TST
has not received any notice of infringement, misappropriation, or conflict with,
the intellectual property rights of others in connection with the use by it of
the TST Intellectual Property or otherwise in connection with the operation of
its business.
2.1.13 Title to and Condition of Assets. TST has good, indefeasible and
marketable title to all its properties, interests in properties and assets, real
and personal, reflected in the 12/31 Balance Sheet or in Schedule 2.1.8 hereto,
free and clear of any Encumbrance, except (i) Encumbrances reflected in the
12/31 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes
not yet due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any, as are not substantial in character, amount, or extent and
do not and will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or otherwise
materially impair the business operations of TST. All leases pursuant to which
TST leases (whether as lessee or lessor) any substantial amount of real or
personal property are in good standing, valid and effective; and there is not,
under any such leases, any existing default or event of default or event which
with notice or lapse of time, or both, would constitute a default by TST and in
respect to which TST has not taken adequate steps to prevent a default from
occurring. The buildings and premises of TST that are used in its business are
in good operating condition and repair, subject only to ordinary wear and tear.
All hot oilers, vacuum trucks, pump trucks, transport trucks, machinery,
transportation equipment, vehicles, tools and other major items of equipment of
TST are in good operating condition and in a state of reasonable maintenance and
repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as to
not substantially interfere with the continued use thereof in the conduct of
normal operations. All such assets conform in all material respects to all
applicable laws governing their use. No notice of any violation of any law,
statute, ordinance, or regulation relating to any such assets has been (or are
being) received by TST or any of the Shareholders, except such as have been
fully complied with.
2.1.14 Contracts. All contracts, leases, plans or other arrangements to which
TST is a party, by which it is bound or to which TST or the assets of TST are
subject are in full force and effect, and constitute valid and binding
obligations of TST and the other parties thereto. TST is not, and to the
knowledge of either of the Shareholders, no other party to any such contract,
lease, plan or other arrangement, is in default thereunder, and no event has
occurred which (with or without notice, lapse of time, or the happening of any
other event) would constitute a material default thereunder. No contract has
been entered into on terms which could reasonably be expected to have a
materially adverse effect on TST. Neither of the Shareholders has received any
information which would cause such Shareholder to conclude that any customer of
TST will (or is likely to) cease doing business with TST (or any successors
thereto) as a result of the consummation of the transactions contemplated
hereby. The Shareholders have provided Key with copies of all of TST's material
contracts which are to be performed in whole or in part after the date hereof.
2.1.15 Licenses and Permits. Except as set forth on Schedule 2.1.15 hereto and
on Schedule 2.1.17 hereto, TST possesses all permits, authorizations,
certificates, approvals, registrations, variances, waivers, exemptions,
rights-of-way, franchises, ordinances, licenses and other rights of every kind
and character (collectively, the "Permits") necessary under law or otherwise for
it to conduct its business as now being conducted and to own, operate, maintain
and use its assets in the manner in which they are now being operated,
maintained and used (collectively, the "TST Permits"). Each of the TST Permits
and the rights of TST with respect thereto is (and will be following the
consummation of the transactions contemplated hereby) valid and subsisting, in
full force and effect, and enforceable by TST subject to administrative powers
of regulatory agencies having jurisdiction. TST is in compliance in all material
respects with the terms of each of the TST Permits. None of the TST Permits have
been, or to the knowledge of either of the Shareholders, are threatened to be,
revoked, canceled, suspended or modified. Copies of the TST Permits are attached
hereto as Schedule 2.1.15.
2.1.16 Litigation. Except as set forth on Schedule 2.1.16 hereto, there is no
suit, action, or legal or administrative, arbitration, or other proceeding or
governmental investigation pending to which TST is a party or, to the knowledge
of either of the Shareholders, might become a party or which particularly
affects TST, nor is any change in the zoning or building ordinances directly
affecting the real property or leasehold interests of TST, pending or, to the
knowledge of either of the Shareholders, threatened.
2.1.17 Environmental Compliance.
2.1.17.1 Environmental Conditions. Except as set forth on Schedule 2.1.17
hereto, there are no environmental conditions or circumstances, including,
without limitation, the presence or release of any hazardous substance, on any
property presently or previously owned or leased by TST, or on any property to
which hazardous substances or waste generated by the operations of TST or by the
use of the assets of TST were disposed of, which would result in a material
adverse change in the business or business prospects of TST. The term "hazardous
substance" means (i) asbestos, polychlorinated biphenyls, urea formaldehyde,
lead based paint, radon gas, petroleum, oil, solid waste, pollutants and
contaminants, and (ii) any chemicals, materials, wastes or substances that are
defined, regulated, determined or identified as toxic or hazardous in any
Applicable Environmental Laws (as defined in Section 2.1.17.3 hereof),
including, but not limited to, substances defined as "hazardous substances",
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, HMTA, or comparable
state and local statutes or in the regulations adopted and promulgated pursuant
to said statutes;
2.1.17.2 Permits, etc. Except as set forth on Schedule 2.1.17 hereto, TST has in
full force and effect all environmental permits, licenses, approvals and other
authorizations required to conduct its operations, other than those that are not
material to its business or operations, and is operating in substantial
compliance thereunder;
2.1.17.3 Compliance. Except as set forth on Schedule 2.1.17 hereto, neither the
operations of TST nor the use of the assets of TST violate in any respect any
applicable federal, state or local law, statute, ordinance, rule, regulation,
order or notice requirement pertaining to (a) the condition or protection of
air, groundwater, surface water, soil, or other environmental media, (b) the
environment, including natural resources or any activity which affects the
environment, or (c) the regulation of any pollutants, contaminants, waste, or
substances (whether or not hazardous or toxic), including, without limitation,
the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.
C. ss.9601 et seq.) ("CERCLA") , the Hazardous Materials Transportation Act (49
U.S. C. ss.1801 et seq.) ("HMTA"), the Resource Conservation and Recovery Act
(42 U.S.C. ss.6901 et seq.) ("RCRA"), the Clean Water Act (33 U.S.C. 1251 et
seq.) , the Clean Air Act (42 U.S. C. ss.7401 et seq.), the Toxic Substances
Control Act (17 U.S.C. ss.2601 et seq.) the Federal Insecticide Fungicide and
Rodenticide Act (7 U.S.C. ss.136 et seq.), the Safe Drinking Water Act (42
U.S.C. ss.201 and ss.300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss.401
et seq.), the Oil Pollution Act (33 U.S.C. ss.2701 et seq.) and analogous
federal, interstate, state and local requirements, as any of the foregoing may
have been amended or supplemented from time to time (collectively the
"Applicable Environmental Laws"), other than violations that in the aggregate
are not material to the business or operations of TST;
2.1.17.4 Past Compliance. None of the operations or assets of TST has ever been
conducted or used in such a manner as to constitute a violation of any
Applicable Environmental Laws, other than violations that in the aggregate are
not material to the business or operations of TST;
2.1.17.5 Environmental Claims. No notice has been served on TST or either of the
Shareholders from any entity, governmental agency or individual regarding any
existing, pending or threatened investigation, inquiry, enforcement action or
litigation related to alleged violations under any Applicable Environmental
Laws, or regarding any claims for remedial obligations, response costs or
contribution under the Applicable Environmental Laws;
2.1.17.6 Renewals. Neither of the Shareholders knows of any reason TST or its
successors would not be able to renew any of the permits, licenses, or other
authorizations required pursuant to any Applicable Environmental Laws to operate
and use any of assets of TST for their current purposes and uses; and
2.1.17.7 Asbestos and PCBS. No known material amounts, except as may be
described on Schedule 2.1.17 hereto, of friable asbestos currently exist on any
property owned or operated by TST, nor do known polychlorinated biphenyls exist
in concentrations of 50 parts per million or more in electrical equipment owned
or being used by TST in the operations or on the properties of TST.
2.1.18 Compliance with Other Laws. TST is not in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to, the
Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.) as amended, or any
other applicable law (including zoning laws) or any applicable rule, regulation,
or any writ or decree of any court or any governmental commission, board,
bureau, agency, or instrumentality, or delinquent with respect to any report
required to be filed with any governmental commission, board, bureau, agency or
instrumentality, other than violations that in the aggregate are not material to
the business or operations of TST.
2.1.19 ERISA Plans, Labor Issues. Other than TST's employee health plan (the
"TST Health Plan") and profit sharing plan (the "TST Profit Sharing Plan")
contained or described in Schedule 2.1.8.8 hereto, TST does not currently
sponsor, maintain or contribute to, and has not at any time sponsored,
maintained or contributed to any employee benefit plan which is or was subject
to any provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). As to the TST Health Plan, the TST Profit Sharing Plan and
all other TST Employee Benefit Arrangements:
(i) the TST Health Plan, the TST Profit Sharing Plan and all other TST Employee
Benefit Arrangements comply with and have been administered in form and in
operation in compliance with all applicable laws including, without limitation,
ERISA, the Internal Revenue Code of 1986, as amended (the "Code), and the
Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"), and
neither of the Shareholders has received any notice from any governmental
authority questioning or challenging such compliance; (ii) TST's administration
and operation of the TST Health Plan and the TST Profit Sharing Plan has not
been conducted in such a manner as would give rise to any material fines,
penalties, taxes, claims or charges against TST by a governmental entity or any
third party or otherwise, result in a material adverse effect on TST's financial
condition;
(iii) funding of the TST Profit Sharing Plan is in the sole discretion of TST
regardless of past funding practices, and the TST Profit Sharing Plan may be
terminated at any time without liability to TST other than the obligation to
distribute the funds held by the TST Profit Sharing Plan in accordance with the
provisions thereof;
(iv) there has been no event or condition which presents a material risk of
termination of the TST Profit Sharing Plan or the TST Health Plan; and
(v) the execution, delivery and performance of this Agreement will not cause
either the TST Health Plan or the TST Profit Sharing Plan to be terminated or
otherwise adversely affect the administration or operation thereof. TST's
administration of the TST Health Plan and the TST Profit Sharing Plan following
the Closing in the same manner as such plans were administered by TST prior to
the Closing will not violate any applicable laws or otherwise result in the
material adverse effect on the financial condition of TST. TST has not engaged
in any unfair labor practices which could reasonably be expected to result in a
material adverse effect on the operations or assets of TST. Except as described
in Schedule 2.1.16 hereto, TST has no dispute with any of its existing or former
employees. There are no labor disputes or, to the knowledge of either of the
Shareholders, any disputes threatened by current or former employees of TST.
2.1.20 Investigations; Litigation. No investigation or review by any
governmental entity with respect to TST or any of the transactions contemplated
by this Agreement is pending or, to the knowledge of either of the Shareholders,
threatened, nor has any governmental entity indicated to TST an intention to
conduct the same, and, except as set forth on Schedule 2.1.16 hereto, there is
no action, suit or proceeding pending or, to the knowledge of either of the
Shareholders, threatened against or affecting TST at law or in equity, or before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that either individually or in the
aggregate, does or is likely to result in a material adverse change in the
financial condition, properties or business of TST.
2.1.21 Absence of Certain Business Practices. Neither TST, nor any officer of
TST, nor, to the knowledge of either of the Shareholders, any employee or agent
of TST or any other person acting on behalf of TST, has, directly or indirectly,
within the past five years, given or agreed to give any gift or similar benefit
to any customer, supplier, government employee or other person who is or may be
in a position to help or hinder the business of TST (or to assist TST in
connection with any actual or proposed transaction) which (i) might subject TST
to any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of TST, or (iii) if not continued
in the future, might materially and adversely affect the assets, business
operations or prospects of TST or which might result in liability to TST in a
private or governmental litigation or proceeding.
2.1.22 Consents and Approvals. No consents, approvals, or authorizations of, or
filing a registration with any governmental or regulatory authority, or any
other person is required to be made or obtained by the Shareholders or TST in
connection with the consummation of the transactions contemplated hereby.
2.1.23 Broker or Financial Advisor Fee. Neither the Shareholders nor TST have
retained any broker, agent, or finder or agreed to pay any financial broker,
agent or finder on account of this Agreement in such a manner as to give rise to
any valid claim against Key for any finder's fee, brokerage commission, or
similar payment.
2.1.24 Relationship to K&L. On February 18, 1997 (the "Merger Date") K&L was
merged into TST. Prior to the Merger Date, K&L was the sole shareholder of TST.
From the date K&L became the sole shareholder of TST through the Merger Date,
the business operations of TST were conducted solely by TST and not by K&L.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KEY
3.1 Representations and Warranties of Key. The express representations and
warranties of Key contained in this Article 3 are exclusive and are in lieu of
all other representations and warranties, express, implied or statutory, or
otherwise. Subject to the foregoing, Key represents and warrants to each of the
Shareholders as follows:
3.1.1 Organization and Standing. Key is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, 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.
3.1.2 Agreement Authorized and its Effect on Other Obligations. The consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Key, and this Agreement is a valid
and binding obligation of Key enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally. The execution, delivery and
performance of this Agreement by Key will not conflict with or result in a
violation or breach of any term or provision of, or constitute a default under
(i) the Articles of Incorporation or Bylaws of Key, or (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Key or any of its property is bound.
3.1.3 Consents and Approvals. No consent, notice, approval, order or
authorization of, or declaration, filing, or registration with, any governmental
or regulatory authority, or any other person is required to be obtained or made
by Key in connection with its execution, delivery or performance of this
agreement or the consummation by it of the transactions contemplated hereby.
3.1.4 Key's Access to TST's Assets and Records. Key acknowledges that it is
actively engaged in the same business as is TST, that it has been afforded an
opportunity to examine the assets and records of TST, discuss TST's business and
operations with the Shareholders, and investigate the condition of the assets of
TST, and that Key is entering into this Agreement on the basis of such
investigation and the representations and warranties of the Shareholders.
3.1.5 TST's Stock Not Registered. TST is a privately held corporation, and Key
acknowledges such. TST's stock has not been registered under the Securities Act
of 1933, as amended (the "Act"), or under any applicable state securities laws,
and the stock, therefore, cannot be offered for sale, sold, transferred, pledged
or otherwise hypothecated except in accordance with the registration
requirements of the Act and such other state laws as may be applicable. Key
acknowledges that TST has made available to it such information and documents,
and that Key understands the risk associated with ownership of TST and Key is
capable of bearing the financial risk associated therewith. The TST Shares and
the dealings with Key are proceeding in reliance on exemptions from registration
or qualification requirements pursuant to state law.
ARTICLE 4
OBLIGATIONS PENDING CLOSING DATE
4.1 Affirmative Covenants of the Shareholders. Except as expressly contemplated
elsewhere in this Agreement, the Shareholders agree that from the date hereof
until the Closing Date, the Shareholders will cause TST to (and unless otherwise
indicated by the context, since the Balance Sheet Date, TST has):
4.1.1 Maintenance of Present Business. Operate its business only in the usual,
regular, and ordinary manner so as to maintain the goodwill it now enjoys and,
to the extent consistent with such operation, use all reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees, and preserve its relationships with
customers, suppliers, jobbers, distributors, and others having business dealings
with it;
4.1.2 Maintenance of Properties. At its expense, maintain all of its property
and assets in customary repair, order, and condition, reasonable wear and tear
excepted;
4.1.3 Maintenance of Books and Records. Maintain its books of account and
records in the usual, regular, and ordinary manner, in accordance with GAAP
applied on a consistent basis;
4.1.4 Compliance with Law. Duly comply in all material respects with all laws
applicable to it and to the conduct of its business;
4.1.5 Inspection. Permit Key and its authorized representatives, during normal
business hours, to inspect its records and to consult with its officers,
employees, attorneys, and agents for the purpose of determining the accuracy of
the representations and warranties herein made and the compliance with covenants
contained in this Agreement; and
4.1.6 Notice of Material Developments. Promptly notify Key in writing of any
material adverse change in, or any changes which, in the aggregate, could result
in a material adverse change in, the consolidated financial condition, business
or affairs of TST, whether or not occurring in the ordinary course of business.
4.2 Negative Covenants of the Shareholders. Except as expressly contemplated
elsewhere in this Agreement, each of the Shareholders agrees that from the date
hereof until the Closing Date, they will cause TST not to (and unless otherwise
indicated by the context, since the Balance Sheet Date, it has not):
4.2.1 Prohibition of Certain Employment Contracts. Enter into any contracts of
employment which cannot be terminated on notice of 30 days or less or which
provide for any severance payments or benefits covering a period beyond the
earlier of the termination date or notice thereof;
4.2.2 Prohibition of Certain Loans. Incur any borrowings which would exceed
$50,000.00, in the aggregate, for any purpose except (i) the prepayment by
customers of amounts due or to become due for services rendered or to be
rendered in the future, or (ii) as is otherwise approved in writing by Key;
4.2.3 Prohibition of Certain Commitments. Enter into commitments of a capital
expenditure nature or incur any contingent liabilities which would exceed
$10,000.00 in the aggregate except (i) as may be necessary for the maintenance
of existing facilities, machinery and equipment in good operating condition and
repair in the ordinary course of business, or (ii) as is otherwise approved in
writing by Key;
4.2.4 Disposal of Assets. Other than as set forth in Schedule 4.2.4 hereto,
sell, dispose of, or encumber, any property or assets, except (i) in the usual
and ordinary course of business, (ii) property or assets which individually have
a value of less than $1,000.00, or (iii) as may be approved in writing by Key;
4.2.5 Maintenance of Insurance. Discontinue its current level of insurance;
4.2.6 Acquisition Proposals. Directly or indirectly (i) solicit, initiate or
encourage any inquiry or Acquisition Proposal (defined below) from any person or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person other than Key or its representatives any information with respect to, or
otherwise facilitate or encourage any Acquisition Proposal by any other person.
As used herein "Acquisition Proposal" means any proposal for a merger,
consolidation or other business combination involving TST or for the acquisition
or purchase of any equity interest in, or a material portion of the assets of,
TST, other than the transactions with Key and the Shareholders contemplated by
this Agreement. TST shall promptly communicate to Key the terms of any such
written Acquisition Proposal which it may receive or any written inquiries made
to it or any of its directors, officers, representatives or agents;
4.2.7 No Amendment to Articles of Incorporation. Amend its Articles of
Incorporation or merge or consolidate with or into any other corporation or
change in any manner the rights of the TST Common Stock or the character of its
business;
4.2.8 No Issuance, Sale, or Purchase of Securities. Issue or sell, or issue
options or rights to subscribe to, or enter into any contract or commitment to
issue or sell (upon conversion or otherwise) any shares of TST Common Stock, or
subdivide or in any way reclassify any shares of TST Common Stock or acquire, or
agree to acquire, any shares of TST Common Stock; and
4.2.9 Prohibition on Dividends. Other than as set forth on Schedule 4.2.4
hereto, declare or pay any dividend on shares of TST Common Stock or make any
other distribution of assets to the holders thereof.
4.3 Control of Operations. Nothing contained in this Agreement shall give Key,
directly or indirectly, the right to control or direct the operations of TST
prior to the Closing. Prior to the Closing, the Shareholders shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision of TST's operations.
4.4 Agreements of Key. Key agrees that from the date hereof until the Closing
Date it will, and will cause its representatives to hold all data and
information obtained with respect to TST, in confidence and further agrees that
it will not use such data or information or disclose the same to others, except
to the extent such data or information either are, or become, published or a
matter of public knowledge through no fault of Key.
4.5 Agreements of Key and the Shareholders. Each party hereto agrees that it
will not voluntarily undertake any course of action inconsistent with the
provisions or intent of this Agreement and will use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper, or advisable under applicable laws to consummate the
transactions contemplated by this Agreement, including, without limitation (i)
cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings or registrations of or with any
governmental entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) the use of reasonable
best efforts to obtain any such consents, approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and/or registrations;
(iii) the use of reasonable best efforts to cause to be lifted or rescinded any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby; (iv) the use
of reasonable best efforts to defend, and cooperate in defending, all lawsuits
or other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby; (v) the use of reasonable best efforts to
satisfy the Closing conditions set forth in Article 5 hereof to the extent that
the fulfillment of the requirements thereof are within the control of such
party, and (vi) the execution of any additional instruments necessary to
consummate the transactions contemplated hereby.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of the Shareholders. The obligations of
the Shareholders to consummate and effect the transactions contemplated
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by the Shareholders, before the Closing Date:
5.1.1 Representations and Warranties of Key True at the Closing Date. The
representations and warranties of Key herein contained shall be, in all material
respects, true as of and at the Closing Date with the same effect as though made
at such date, except as affected by transactions permitted or contemplated by
this Agreement; Key shall have performed and complied, in all material respects,
with all covenants required by this Agreement to be performed or complied with
by Key before the Closing Date; and Key shall have delivered to the Shareholders
a certificate, dated the Closing Date and signed by its president or vice
president, to such effect.
5.1.2 No Material Litigation. No suit, action, or other proceeding shall be
pending or threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or provide
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
5.1.3 Opinion of Key Counsel. The Shareholders shall have received a favorable
opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, counsel for
Key, in form and substance satisfactory to the Shareholders, to the effect that
(i) Key has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Texas; (ii) all corporate
proceedings required to be taken by or on the part of Key to authorize the
execution of this Agreement and the implementation of the transactions
contemplated hereby have been taken; (iii) this Agreement has been duly executed
and delivered by, and is the legal, valid and binding obligation of Key and is
enforceable against Key in accordance with its terms, except as unenforceability
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. No opinion need be expressed as to
the enforceability of any indemnification provisions of this Agreement. In
rendering such opinion, such counsel may rely upon certificates of public
officials and of officers of Key as to matters of fact.
5.2 Conditions Precedent to Obligations of Key. The obligations of Key to
consummate and effect the transactions contemplated hereunder shall be subject
to the satisfaction of the following conditions, or to the waiver thereof by
Key, before the Closing Date.
5.2.1 Representations and Warranties of the Shareholders True at Closing Date.
The representations and warranties of the Shareholders herein contained shall
be, in all material respects, true as of and at the Closing Date with the same
effect as though made at such date, except as affected by transactions permitted
or contemplated by this Agreement; the Shareholders shall have performed and
complied in all material respects, with all covenants required by this Agreement
to be performed or complied with by them before the Closing Date; and each of
the Shareholders each shall have delivered to Key a certificate, dated the
Closing Date and signed by each of the Shareholders, to such effect.
5.2.2 No Material Litigation. No suit, action, or other proceeding shall be
pending or threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or which might result in a material adverse change in the
value of the assets and business of TST.
5.2.3 Opinion of Counsel. Key shall have received a favorable opinion, dated as
of the Closing Date, from Bradford L. Moore, counsel to the Shareholders, in
form and substance satisfactory to Key, to the effect that (i) TST has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Texas; (ii) all outstanding shares of the TST Common Stock
have been validly issued and are fully paid and non-assessable; and (iii) this
Agreement has been duly executed and delivered by, and is the legal, valid and
binding obligation of the Shareholders, and is enforceable against the
Shareholders in accordance with its terms, except as the 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. No opinion need be expressed as to the
enforceability of any indemnification provisions of this Agreement. In rendering
such opinion, such counsel may rely upon certificates of public officials and of
officers of TST or the Shareholders as to matters of fact.
5.2.4 Consent of Certain Parties in Privity with TST or the Shareholders. The
holders of any material indebtedness of TST or the Shareholders, the lessors of
any material property leased by TST or the Shareholders, and the other parties
to any other material agreements to which TST or the Shareholders are a party
shall, when and to the extent necessary in the reasonable opinion of Key, have
consented to the transaction contemplated hereby.
5.2.5 Title Policies. Key shall have received a commitment to issue a title
insurance policy covering title to those properties of TST identified in Tracts
1, 2, 3, 4, 5, 6A, 7, 8, 9, 10, 14, 15, 16 and 17 on Schedule 2.1.8.1 hereto,
with each such policy to be issued by an insurer in an amount equal to the
greater of (i) the appraisal value of such property for property tax assessment
purposes or (ii) the original purchase price of such property (subject to the
consent of the insurance provider) and subject only to such conditions and
exceptions as are reasonably acceptable to Key; provided, however, that if TST
holds existing title insurance policies covering any of such properties, Key
agrees to accept, in lieu of title commitments, run-sheets since the original
date of such existing policies covering such properties, the accuracy of which
has been certified by the Shareholders' counsel, indicating (together with those
conditions and exceptions shown on such original policies) such Encumbrances as
are reasonably acceptable to Key.
5.2.6 Resignations. Key shall have received a written resignation from each
officer and director of TST from their respective positions with TST effective
as of the Closing Date.
5.2.7 Lien Releases. Key shall have received documentation reasonably
satisfactory to it that, as of the Closing Date, (i) the TST shares are free and
clear of all Encumbrances and (ii) all of the assets, real and personal, of TST
are held by TST free and clear of all liens, security interests, mortgages and
deeds trust; provided, however, that in connection with obtaining such releases,
subject to TST having received, on or before the Closing, proceeds from the
asset transfers, note repayment and capital contributions referred to in
Schedule 2.1.4 hereto in an amount equal to the Payoff Amount (defined below)
less $750,000, Key consents and agrees to (i) TST's repayment, at the Closing,
of the Bobby Knight Promissory Note referred to in Schedule 2.1.8.14 hereto
together with all interest that would have been payable over the term of such
note (the "Payoff Amount") and (ii) pay the holder of such note an additional
$500,000 at the Closing.
5.2.8 TST Health Plan. Key shall have received assurances satisfactory to Key
that the TST Health Plan will remain in effect following the Closing.
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1 Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the purchase and sale
contemplated hereby abandoned at any time before the Closing Date:
6.1.1 By Mutual Consent. By mutual consent of Key and the Shareholders.
6.1.2 By Key Because of Failure to Perform Agreements or Conditions Precedent.
By Key, if the Shareholders have failed to perform or comply with any material
agreement set forth in Sections 4.1 or 4.2 hereof, or if any condition set forth
in Section 5.2 hereof has not been met, and such condition has not been waived
by Key.
6.1.3 By the Shareholders Because of Key's Failure to Perform Agreements or
Conditions Precedent. By the Shareholders, if Key has failed to perform or
comply with any material agreement set forth in Section 4.4 hereof, or if any
condition set forth in Section 5.1 hereof has not been met, and such condition
has not been waived by the Shareholders. .
6.1.4 By Key or by the Shareholders if No Closing by April 4, 1997. By either
Key or the Shareholders, if the Closing shall not have occurred on or before
April 4, 1997, provided, however, that this Agreement may not be terminated by
any party hereto pursuant to the provisions of this Section 6.1.4 if the Closing
has not occurred due to the breach of any provision of this Agreement by the
party desiring to terminate this Agreement.
6.2 Effect of Termination. In the event the termination and abandonment of this
Agreement pursuant to and in accordance with the provisions of Section 6.1
hereof, this Agreement shall become void and have no effect, without any
liability on the part of any party hereto (or its Shareholders or controlling
persons or directors or officers), except as otherwise provided in this
Agreement; provided, however, that a termination of this Agreement shall not
relieve any party hereto from any liability for damages incurred as a result of
a breach by such party of its representations, warranties, covenants, agreements
or other obligations hereunder, occurring before such termination.
6.3 Waiver of Conditions. Subject to the requirements of any applicable law, any
of the terms or conditions of this Agreement may be waived at any time by the
party which is entitled to the benefit thereof.
6.4 Expense on Termination. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of Section 6.1
hereof, all expenses will be paid by the party incurring them.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Fees and Expenses. Except as otherwise expressly provided in this Agreement,
all fees and expenses, including fees and expenses of counsel, financial
advisors, and accountants incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fee
or expense by or on the date hereof. Key expressly agrees to the payment by TST
of the legal and environmental fees referred to in Section 2.1.10 hereof. Key
also agrees to pay to the Shareholders one-half (l/2) of the costs incurred by
the Stockholders in fulfilling the closing conditions set forth in Section 5.2.5
hereof.
7.2 Further Assurances. From time to time, as and when requested by any party
hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby.
7.3 TST Employees. The Shareholders will use their reasonable best efforts to
cause the TST Employees to remain in the employment of TST through the Closing
Date. Key will cause TST to continue the employment of the TST Employees;
provided, however, nothing herein shall be construed as creating any contractual
obligation of TST to continue any such employee as an employee of TST.
7.4 Employee Benefit Plans. The TST Employee Benefit Arrangements as currently
in effect may, at the option of Key, be continued, amended or terminated. Key
shall cause TST to pay, without offset, deduction, counterclaim, interruption,
or deferment, in accordance with the applicable terms thereof, all benefits due
under the terms of all such TST Employee Benefit Arrangements that have vested
or accrued at or prior to the Closing Date or that become vested or accrued as a
result of the transactions contemplated hereby.
7.5 Noncompetition. Each of the Shareholders agrees that for a period of five
(5) years from the Closing Date, such Shareholder will not, directly or
indirectly, acting alone or as a member of a partnership or as an officer,
director, employee, consultant, representative, holder of, or investor in as
much as 3% of any security of any class of any corporation or other business
entity (i) engage in competition with the business or businesses conducted by
TST, Key or any affiliate of Key as of the Closing Date, or in any service
business the services of which are provided and marketed by TST, Key or any
affiliate of Key as of the Closing Date in Texas or New Mexico; (ii) request any
present customers or suppliers of TST to curtail or cancel their business with
TST, Key or any affiliate of Key; (iii) disclose to any person, firm or
corporation any trade, technical or technological secrets of TST, Key or any
affiliate of Key or any details of their organization or business affairs or
(iv) induce or actively attempt to influence any employee of TST, Key or any
affiliate of Key to terminate his employment. Each of the Shareholders agrees
that if either the length of time or geographical area set forth in this Section
7.5 is deemed too restrictive in any court proceeding, the court may reduce such
restrictions to those which it deems reasonable under the circumstances. The
obligations expressed in this Section 7.5 are in addition to any other
obligations that the Shareholders may have under the laws of the State of Texas
requiring an employee of a business or a shareholder who sells his stock in a
corporation (including a disposition in a merger) to limit his activities so
that the goodwill and business relations of his employer and of the corporation
whose stock he has sold (and any successor corporation) will not be materially
impaired. Each of the Shareholders further agrees and acknowledges that TST, Key
and its affiliates do not have any adequate remedy at law for the breach or
threatened breach by such Shareholder of this covenant, and agree that TST, Key
or any affiliate of Key may, in addition to the other remedies which may be
available to it hereunder, file a suit in equity to enjoin such Shareholder from
such breach or threatened breach. If any provisions of this Section 7.5 are held
to be invalid or against public policy the remaining provisions shall not be
affected thereby. Each of the Shareholders acknowledges that the covenants set
forth in this Section 7.5 are being executed and delivered by such Shareholder
in consideration of the covenants of Key contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
7.6 Material Adverse Change. As used in this Agreement, the term "material
adverse change" means any change, event, circumstance or condition
(collectively, a "Change") which when considered with all other Changes would
reasonably be expected to result in a "loss" having the effect of so
fundamentally adversely affecting the business or financial prospects of Key or
TST, as the case may be, that the benefits reasonably expected to be obtained by
Key or TST, as the case may be, as a result of the consummation of the
transactions contemplated by this Agreement would be jeopardized with relative
certainty. The term "loss" shall mean any and all direct or indirect payments,
obligations, assessments, losses, loss of income, liabilities, fines, penalties,
costs and expenses paid or incurred or more likely than not to be paid or
incurred, or diminutions in value of any kind or character (whether known or
unknown, conditional or unconditional, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise)
that are more likely than not to occur, including without limitation penalties,
interest on any amount payable to a third party as a result of the foregoing and
any legal or other expenses reasonably incurred or more likely than not to be
incurred in connection with investigating or defending any demands, claims,
actions or causes of action that, if adversely determined, would likely result
in losses, and all amounts paid in settlement of claims or actions; provided,
that losses shall be net of any recoveries by TST from third parties and any
insurance proceeds TST is entitled to receive from a non-affiliated insurance
company on account of such losses (after taking into account any costs incurred
in obtaining such proceeds and any increase in insurance premiums as a result of
a claim with respect to such proceeds).
7.7 Shareholder Employment. After the Closing Date, Keith Neill shall remain in
the employment of TST at a monthly salary of $8,000.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by the Shareholders. In addition to any other remedies
available to Key under this Agreement, or at law or in equity, each of the
Shareholders shall jointly and severally indemnify, defend and hold harmless
Key, and its officers, directors, employees, agents and stockholders, against
and with respect to any and all claims, costs, damages, losses, expenses,
obligations, liabilities, recoveries, suits, causes of action and deficiencies,
including interest, penalties and reasonable attorneys' fees and expenses
(collectively, the "Damages") in excess of $150,000.00 in the aggregate that
such indemnitees shall incur or suffer, which arise, result from or relate to
any breach of, or failure by, the Shareholders to perform, their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or delivered to Key
by the Shareholders under this Agreement; provided, however, that (i) the
Shareholders' aggregate obligations to indemnify Key and the other parties
identified above shall never exceed the aggregate sum of $8,500,000.00; (ii) the
Shareholders shall not be required to so indemnify, defend and hold harmless Key
and its officers, directors, employees, agents and stockholders, against and
with respect to any Damages incurred as a result of a breach by either of the
Shareholders of their respective representations and warranties in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to Key by any of the Shareholders under this Agreement for which
Key fails to provide written notice of a claim for such Damages to the
Shareholders on or before the expiration of the survival period (as specified in
Section 9.2 hereof) of the specific representation or warranty alleged to have
been breached; (iii) in the event that Key can recover Damages for which it is
indemnified by the Shareholders pursuant to this Section 8.1 from a collateral
source including, but not limited to, a third party or insurance coverage, and
does in fact collect all or a portion of such Damages from such collateral
source, then Key agrees not to enforce its right to indemnification under this
Section 8.1 to the extent of such third party collections; and (iv) Key agrees
that it will not seek indemnification under this Section 8.1 for any
environmental remedial work on TST's properties unless TST (or Key) is required
to perform such work by a third party or by a governmental entity or agency.
8.2 Indemnification by Key. In addition to any other remedies available to the
Shareholders under this Agreement, or at law or in equity, Key shall indemnify,
defend and hold harmless each of the Shareholders against and with respect to
any and all Damages in excess of $150,000.00 in the aggregate that such
indemnitees shall incur or suffer, which arise, result from or relate to any
breach of, or failure by Key to perform, any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or delivered to the Shareholders by or on
behalf of Key under this Agreement; provided, however, that (i) Key's aggregate
obligation to indemnify the Shareholders shall never exceed the sum of
$8,500,000.00; (ii) Key shall not be required to so indemnify, defend and hold
harmless the Shareholders and their employees and agents against and with
respect to any Damages incurred as a result of a breach by Key of any of its
representations and warranties in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or delivered to the
Shareholders by Key under this Agreement for which the Shareholders fail to
provide written notice of a claim for such Damages to Key on or before the
expiration of the survival period (as is specified in Section 9.2 hereof) of the
specific representations or warranty alleged to have been breached; and (iii) in
the event that the Shareholders can recover Damages for which it is indemnified
by Key pursuant to this Section 8.1 from a collateral source including, but not
limited to, a third party or insurance coverage, and does in fact collect all or
a portion of such Damages from such collateral source, then the Shareholders
agree not to enforce its right to indemnification under this Section 8.2 to the
extent of such third party collections.
8.3 Indemnification Procedures. If any party hereto discovers or otherwise
becomes aware of a claim for Damages arising under this Article 8, such
indemnified party shall give written notice to the indemnifying party,
specifying such claim, and may thereafter exercise any remedies available to
such party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party 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 Damages arising under
Sections 8.1 or 8.2 hereof may be made, such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party 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 indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. Any indemnifying party who elects not
to assume the defense of a claim shall not be liable for the fees and expenses
of more than one counsel in any single jurisdiction for all parties indemnified
by such indemnifying party 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 indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, and the
expenses of such defense shall be paid by the indemnifying party. No
indemnifying party shall 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 an indemnifying party, without the consent of such
indemnifying party, which consent shall not be unreasonably withheld.
8.4 Litigation Indemnification. The parties hereto acknowledge that TST is a
defendant in Cause No. H-96-0163 pending in the United States District Court for
the Southern District of Texas, Houston Division, entitled AMERADA HESS
CORPORATION VS. T.S.T. PARAFFIN SERVICE COMPANY, INC. (the "Amerada Hess
Litigation"). The parties hereto further acknowledge that there are collateral
matters which are being litigated insofar as the validity of an indemnity
agreement executed as a result of settlement by TST in Cause No. C-2244-94-D
pending in the 206th Judicial District Court of Hidalgo County, Texas, which
involved Regina Valenzuela as Next Friend of Brenda Janette Montanez. The
parties hereto further acknowledge that TST has remaining upon its insurance
coverage the sum of $250,000 which can be applied toward any damages awarded in
the Amerada Hess Litigation or which may be used to help fund a settlement of
this litigation. In addition to any other remedies available to the parties
hereto under this Agreement, or at law or in equity, the parties hereto hereby
agree that in the event that damages and/or settlement of the Amerada Hess
Litigation results in an amount in excess of the $250,000 insurance coverage,
that such excess will be paid as follows:
(i) The Shareholders shall commence paying with the first dollar over the
$250,000 and shall continue paying all dollars thereafter until such award
and/or settlement amount reaches $1,250,000; and
(ii) For all amounts awarded or for which settlement may be had in excess of
$1,250,000 and commencing with the first dollar after $1,250,000, the
Shareholders shall pay 20% of each dollar and TST shall pay 80% of each dollar.
The Shareholders and Key agree that they will jointly, at TST's expense, pursue
any third party, including Petrosurance Company, for reimbursement, collateral
source money, or to enforce any other indemnity agreements. For monies recovered
as a result of such pursuit, the Shareholders and TST shall divide each dollar
recovered according to a ratio formula determined by a fraction whose numerator
shall consist of the total amount of money paid by either the Shareholders or
TST, and the denominator shall consist of the total monies paid by both the
Shareholders and TST. Such fraction shall then be multiplied times the recovered
amount of money to determine those sums reimbursable either to the Shareholders
or TST. Key further agrees that upon the Closing, it shall cause TST to directly
participate in the Amerada Hess Litigation and proceed with due diligence to
reach resolution thereof by employing its own counsel to commence such legal
activities as may be necessary to (i) apply pressure to TST's insurance carrier,
AIG, to settle the Amerada Hess Litigation, and/or to tender the full policy
amounts to assist in funding the settlement of said litigation, and (ii)
initiate such activities as may be necessary to commence meaningful settlement
discussions with Amerada Hess and other matters which management may deem
prudent to rapidly conclude the Amerada Hess Litigation. The first $25,000 of
the costs and expenses of such counsel shall be borne by TST with the remaining
costs and expenses being shared equally by TST and the Shareholders. Key shall
not consent to settle the Amerada Hess Litigation for an amount above $250,000
without the prior consent of the Shareholders, such consent not to be
unreasonably withheld.
ARTICLE 9
MISCELLANEOUS
9.1 Press Releases. Key, on the one hand, and the Shareholders, on the other,
shall consult with each other before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions
contemplated hereby, and shall not issue any such press release or make any such
public statement prior to receiving approval from the other party, such approval
not to be unreasonably withheld or delayed. No announcement shall be made by any
of the parties hereto prior to the Closing except as may specifically be
required under the terms of this Agreement, except when in the opinion of the
parties' counsel such public statement or announcement is legally required.
9.2 Survival of Representations, Warranties and Covenants. All representations
and warranties made by the parties hereto shall survive for a period of 12
months from the Closing Date, notwithstanding any investigation made by or on
behalf of any of the parties hereto; provided, however, that the representations
and warranties contained in Section 2.1.11 hereof shall survive until the
expiration of the applicable statute of limitations associated with the taxes at
issue. All statements contained in any certificate, schedule, exhibit or other
instrument delivered pursuant to this Agreement shall be deemed to have been
representations and warranties by the respective party or parties, as the case
may be, and shall also survive for a period of 12 months from the Closing Date
despite any investigation made by any party hereto or on its behalf. All
covenants and agreements contained herein shall survive as provided herein.
9.3 Entirety. This Agreemennt embodies the entire agreement among the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
9.4 Counterparts. Any number of counterparts of this Agreement may be executed
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
9.5 Notices and Waivers. Any notice or waiver to be given to any party hereto
shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
If to Key:
Addressed to: With a copy to:
Yale E. Key, Inc. Key Energy Group, Inc.
1501 E. Taylor Two Tower Center, Tenth Floor
Midland, Texas 79702 East Brunswick, New Jersey 08816
Attention: C. Ron Laidley Attention: General Counsel
Facsimile: (915) 570-8990 Facsimile: (908) 247-5148
and
Lynch, Chappell & Alsup,
a Professional Corporation
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attention: James M. Alsup
Facsimile: (915) 683-2587
If to either Shareholder:
Addressed to: With a copy to:
Keith and Leslie Neill Bradford L. Moore
1309 East Harris P. O. Box 352
Brownfield, Texas 79316 Brownfield, Texas 79316
Facsimile: (806) 637-3877
Any communication so addressed and mailed by first-class registered or certified
mail, postage prepaid, with return receipt requested, shall be deemed to be
received on the third business day after so mailed, and if delivered by courier
or facsimile to such address, upon delivery during normal business hours on any
business day.
9.6 Table of Contents and Captions. The table of contents and captions contained
in this Agreement are solely for convenient reference and shall not be deemed to
affect the meaning or interpretation of any article, section, or paragraph
hereof.
9.7 Binding Effect; Assignment; No Third Party Benefit. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns Nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than Key and the
Shareholders, any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
9.8 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
9.9 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
9.10 Knowledge. References to "knowledge" contained in Sections 2.1.4, 2.1.7,
2.1.11, 2.1.14, 2.1.16, 2.1.19, and 2.1.20 hereof refer only to the actual
knowledge of each Shareholder. References to "knowledge", "known"or "knows"
contained in Sections 2.1.10.6, 2.1.13, 2.1.15, 2.1.17.6, 2.1.17.7 and 2.1.21
hereof refer to, in addition to the actual knowledge of each Shareholder, that
level of knowledge which a person in the same office, position and relationship
to TST (and the same level of responsibility and authority over the operations
of TST) as such Shareholder would be reasonably expected to possess. IN WITNESS
WHEREOF, the Shareholders have executed this Agreement and Key has caused this
Agreement to be signed in its corporate name by its duly authorized
representative, all as of the day and year first above written.
YALE E. KEY, INC.
By:________________________________
C. Ron Laidley, President
SHAREHOLDERS
-----------------------------------
Keith Neill
-----------------------------------
Leslie Neill
pbooker\jma\key energy group\neill 7 unmarked agreement