Tender-Offer Solicitation/Recommendation Statement — Schedule 14D-9
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 14D9 Tender-Offer Solicitation/Recommendation Statement 37 195K
2: EX-99.1 Agreement and Plan of Merger Dated August 11, 1998 64 193K
11: EX-99.10 Amend. # 1 to Employment Agreement Re: Byerlotzer 2 13K
12: EX-99.11 Employment Agreement Re: P. Mark Stark 14 61K
13: EX-99.12 Amendment No. 1 to Employment Agreement Re: Stark 2 13K
14: EX-99.13 Employee Severance Pay Plan 14 58K
15: EX-99.14 Consulting Agreement Term Sheet Re: Little 1 8K
16: EX-99.15 Consulting Agreement Term Sheet Re: Byerlotzer 2 9K
17: EX-99.16 Consulting Agreement Term Sheet Re: Eustace 2 9K
3: EX-99.2 Confidentiality Agreement Dated August 8, 1998 5 21K
4: EX-99.3 Form of Indemnification Agreement 14 51K
5: EX-99.4 Employment Agreement Re: Michael E. Little 14 57K
6: EX-99.5 Amendment No. 1 to Employment Agreement Re: Little 5 22K
7: EX-99.6 Amendment No. 2 to Employment Agreement Re: Little 2± 10K
8: EX-99.7 Employment Agreement Re: Joseph Eustace 14 55K
9: EX-99.8 Amend. No 1 to Employment Agreement Re: Eustace 2 13K
10: EX-99.9 Employment Agreement Re: Jim Byerlotzer 14 61K
SC 14D9 — Tender-Offer Solicitation/Recommendation Statement
Document Table of Contents
[Dawson Production Services LOGO]
August 17, 1998
To Shareholders of Dawson Production Services, Inc.:
On behalf of the Board of Directors of Dawson Production Services, Inc.
(the "Company"), I am pleased to inform you that the Company has entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Key Energy Group,
Inc. and Midland Acquisition Corp., its wholly-owned subsidiary, pursuant to
which Midland Acquisition Corp. today has commenced a cash tender offer (the
"Offer") to purchase all of the outstanding shares of the Company's Common
Stock, including the associated Common Stock Purchase Rights, (the "Shares") at
$17.50 per share. The Merger Agreement provides that, upon satisfaction of
certain conditions, the Offer will be followed by a merger (the "Merger") in
which any remaining Shares will be converted into the right to receive $17.50
per Share in cash, without interest.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY (A) DETERMINED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER
AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS; (B) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY; AND (C) RESOLVED TO RECOMMEND THAT THE COMPANY'S
SHAREHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES AND APPROVE AND ADOPT THE
MERGER AGREEMENT AND APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board of Directors considered the opinion of its financial
advisor, Morgan Stanley & Co. Incorporated, that the consideration to be
received by the holders of Shares in the Offer and Merger is fair to such
holders from a financial point of view.
In addition to the attached Schedule 14D-9, enclosed is the Offer to
Purchase dated August 17, 1998, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ Michael E. Little
Michael E. Little
Chairman, President and Chief
Executive Officer
112 E. Pecan St., Suite 1000 S San Antonio, TX 78205 S (210) 476-0420 S Fax
(210) 476-0444
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
DAWSON PRODUCTION SERVICES, INC.
(NAME OF SUBJECT COMPANY)
DAWSON PRODUCTION SERVICES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
239423-10-6
(CUSIP NUMBER OF CLASS OF SECURITIES)
MICHAEL E. LITTLE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAWSON PRODUCTION SERVICES, INC.
112 E. PECAN STREET, SUITE 1000
SAN ANTONIO, TEXAS 78205
(210) 476-0420
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------
COPIES TO:
[Download Table]
J. ROWLAND COOK, ESQ. JOSEPH CIALONE, ESQ.
JENKENS & GILCHRIST, P.C. BAKER & BOTTS, L.L.P.
600 CONGRESS AVENUE, SUITE 2200 3000 ONE SHELL PLAZA
AUSTIN, TEXAS 78701 910 LOUISIANA
(512) 499-3821 HOUSTON, TEXAS 77002
(713) 229-1261
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ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Dawson Production Services, Inc., a
Texas corporation (the "Company"), and the address of the principal executive
office of the Company is 112 E. Pecan Street, Suite 1000, San Antonio, Texas
78205. The title of the class of equity security to which this statement relates
is the Common Stock, par value $0.01 per share of the Company, and the related
Common Stock Purchase Rights (together, the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated August 17, 1998 (the "Schedule 14D-1") of
Midland Acquisition Corp., a New Jersey corporation (the "Purchaser"), a
wholly-owned subsidiary of Key Energy Group, Inc., a Maryland corporation (the
"Parent" or "Key"), to purchase for cash all issued and outstanding shares of
common stock of the Company at $17.50 per share upon the terms and subject to
the conditions set forth in the Offer to Purchase dated August 17, 1998 (the
"Offer to Purchase") and in the related Letter of Transmittal (which, together
with the Offer to Purchase and any amendments or supplements thereto,
collectively constitute the "Offer.") The Schedule 14D-1 states that the
principal executive offices of the Purchaser and Parent are located at Two Tower
Center, Twentieth Floor, East Brunswick, New Jersey 08816.
The Offer is made pursuant to an Agreement and Plan of Merger dated August
11, 1998 between the Company, the Purchaser and the Parent, a copy of which is
filed as Exhibit 1 hereto. The Merger Agreement provides, among other things,
that following satisfaction or waiver of the conditions set forth in the Merger
Agreement, Purchaser shall be merged with and into the Company, the separate
corporate existence of Purchaser shall cease and the Company shall continue as
the surviving corporation and a direct wholly owned subsidiary of Parent. The
Merger Agreement is described in greater detail in Item 3 of this Schedule
14D-9.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described herein or in the Information Statement attached as
Annex A hereto, to the knowledge of the Company, as of the date hereof, there
are no material contracts, agreements, arrangements or understandings, or any
potential or actual conflicts of interest between the Company or its affiliates
and
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(i) the Company, its directors, executive officers or affiliates or (ii) the
Purchaser or their directors, executive officers or affiliates.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Certain contracts, arrangements and understandings between the Company and
certain of its directors and executive officers are described in Annex A hereto,
which description is incorporated by reference.
EMPLOYMENT AGREEMENTS; AMENDMENTS TO EMPLOYMENT AGREEMENTS
Little Employment Agreement. The Company and Michael E. Little, Chairman,
President and Chief Executive Officer of the Company entered into an employment
agreement effective April 1, 1996. Mr. Little and the Company amended this
employment agreement effective April 1, 1998. The employment agreement, as
amended, provides for a four-year term that will expire on March 31, 2000. Mr.
Little's annual base salary is $300,000 for 1997, 1998 and 1999. Mr. Little is
eligible for a bonus pursuant to the benefit plan entitled "Compensation
Program, Board of Directors Summary," which was approved by the Board of
Directors on July 31, 1997. Mr. Little's bonus is capped at 100% of his annual
base salary. Prior to a change of control of the Company, (i) if Mr. Little
terminates his employment with the Company for cause, or if the Company
terminates Mr. Little's employment without cause, Mr. Little will receive two
year's base salary as severance, and (ii) if Mr. Little terminates his
employment with the Company without cause, or if the Company terminates Mr.
Little's employment for cause, Mr. Little will not receive any severance
payment. For a period of one year after a change of control of the Company, if
Mr. Little terminates his employment with the Company for cause, or if the
Company terminates Mr. Little's employment without cause, Mr. Little will
receive three year's base salary as severance. For a period of 60 days after a
change of control, Mr. Little may terminate his employment with the Company
without cause and still receive three years' base salary as severance. If Mr.
Little is terminated by the Company for cause at any time, Mr. Little will not
receive any severance. On August 10, 1998, Mr. Little and the Company entered
into a second amendment to the employment agreement, in which the Company agreed
to pay Mr. Little such additional amounts as may be necessary to cover the taxes
Mr. Little would have to pay on any "excess parachute payments" he is entitled
to receive pursuant to his employment agreement.
Byerlotzer Employment Agreement. The Company and Jim Byerlotzer, Senior
Vice President and Chief Operating Officer of the Company, entered into an
employment agreement effective July 1, 1998. The employment agreement provides
for a two-year term that will expire on June 30, 2000. Mr. Byerlotzer's annual
base salary during the term of the agreement is $150,000. Mr. Byerlotzer is
eligible for a discretionary bonus from the Company. Prior to a change of
control of the Company, if Mr. Byerlotzer terminates his employment with the
Company for cause, or if the Company terminates Mr. Byerlotzer's employment
without cause, Mr. Byerlotzer will receive one year's base salary as severance.
For a period of one year after a change of control, if the Company terminates
Mr. Byerlotzer without cause, Mr. Byerlotzer will receive 18 months' salary as
severance. For a period of two years after a change of control, if Mr.
Byerlotzer terminates his employment with the Company for cause, he will receive
one year's salary as severance. After a change of control, if Mr. Byerlotzer
terminates his employment with the Company without cause, or if the Company
terminates Mr. Byerlotzer's employment for cause, Mr. Byerlotzer will not
receive any severance payment. On August 10, 1998, Mr. Byerlotzer and the
Company entered into an amendment to the employment agreement, in which the
Company agreed to pay Mr. Byerlotzer such additional amounts as may be necessary
to cover the taxes Mr. Byerlotzer would have to pay on any "excess parachute
payments" he is entitled to receive pursuant to his employment agreement.
Stark Employment Agreement. The Company and P. Mark Stark, Chief Financial
Officer of the Company, entered into an employment agreement effective April 1,
1998. The employment agreement provides for a two-year term that will expire on
March 31, 2000. Mr. Stark's annual base salary is $120,000 for 1998 and $140,000
for 1999. Mr. Stark is eligible for a discretionary bonus from the Company.
Prior to a change of control of the Company, if Mr. Stark terminates his
employment with the Company for cause, or if the Company terminates Mr. Stark's
employment without cause, Mr. Stark will receive one year's base salary as
severance. For a period of one year after a change of control, if the Company
terminates Mr. Stark without
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cause, Mr. Stark will receive 18 months' salary as severance. For a period of
two years after a change of control, if Mr. Stark terminates his employment with
the Company for cause, he will receive one year's salary as severance. After a
change of control, if Mr. Stark terminates his employment with the Company
without cause, or if the Company terminates Mr. Stark's employment for cause,
Mr. Stark will not receive any severance payment. On August 10, 1998, Mr. Stark
and the Company entered into an amendment to the employment agreement, in which
the Company agreed to pay Mr. Stark such additional amounts as may be necessary
to cover the taxes Mr. Stark would have to pay on any "excess parachute
payments" he is entitled to receive pursuant to his employment agreement.
Eustace Employment Agreement. The Company and Joseph Eustace, Vice
President of the East Texas/Gulf Coast Region, entered into an employment
agreement effective April 1, 1996. The employment agreement provides for a
three-year term that will expire on March 31, 1999. Mr. Eustace's annual base
salary is $125,000 for the first year, increasing to $132,500 in the second year
and to $140,000 in the third year. Mr. Eustace is eligible for a discretionary
bonus from the Company. If Mr. Eustace's employment is terminated by the Company
without cause, Mr. Eustace will receive one year's salary as severance. If Mr.
Eustace's employment is terminated by the Company without cause during the
12-month period following a change of control of the Company, Mr. Eustace will
receive 18 months' salary as severance. If Mr. Eustace terminates his employment
with the Company for cause within 12 months of a change of control of the
Company, Mr. Eustace will receive 12 months' salary as severance. If the Company
terminates Mr. Eustace's employment for cause, Mr. Eustace is not entitled to
any severance. On August 10, 1998, Mr. Eustace and the Company entered into an
amendment to the employment agreement, in which the Company agreed to pay Mr.
Eustace such additional amounts as may be necessary to cover the taxes Mr.
Eustace would have to pay on any "excess parachute payments" he is entitled to
receive pursuant to his employment agreement.
EMPLOYEE SEVERANCE PAY PLAN
As of August 7, 1998, the Board of Directors adopted an Employee Severance
Pay Plan ("Severance Plan"). The Severance Plan provides severance benefits to
office employees and salaried employees, as those categories of employees are
set forth in the Company's payroll records. The Severance Plan provides
severance benefits only if the employee is a full-time employee. The Chief
Executive Officer, Chief Financial Officer, and Chief Operating Officer are
entitled to receive benefits under the Severance Plan unless they are entitled
to severance benefits from the Company through a separate agreement, in which
case the separate agreement will control.
Severance benefits are triggered if an employee is involuntarily terminated
by the Company, or its successor, within 18 months after the Company undergoes a
Change of Control (as defined in the Severance Plan), except if (a) the employee
is terminated with cause, (b) the employee is terminated but is immediately
offered a similar or equivalent position, with similar duties and with no
decrease in base pay, and which is within commuting distance from the employee's
principal residence, or (c) the employee is terminated due to the sale of the
Company where the individual is immediately offered a similar or equivalent
position, with similar duties and with no decrease in base pay, and which is
within commuting distance from the employee's principal residence. The Severance
Plan provides for severance benefits of one month's salary for each full year of
service, except that the minimum amount of severance benefits which an eligible
employee can receive is three months' salary. The Severance Plan cannot be
modified by the new management of the Company for 18 months after a Change of
Control. The Severance Plan will automatically terminate five years after the
effective date of the Severance Plan if there has not been a Change of Control.
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DIRECTORS' AND OFFICERS' INDEMNIFICATION
The Company's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation") and Bylaws (the "Bylaws") provide that the Company shall
indemnify any person who was, is or is threatened to be made a named defendant
or respondent in a proceeding because the person (a) is or was a director or
officer of the Company, or (b) while a director or officer of the Company, is or
was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, to the fullest
extent that a corporation may grant indemnification under the Texas Business
Corporation Act, as the same exists or as amended. The Articles and Bylaws
further provide that this indemnification right is a contract right and as,
such, runs to the benefit of any director or officer who is elected and accepts
the position of director or officer of the Company or elects to continue to
serve as a director or officer of the Company while the applicable
indemnification provisions in the Articles and the Bylaws are in effect.
The Company has entered into indemnification agreements (the
"Indemnification Agreements") with each of its directors and officers. The
Indemnification Agreements generally provide that if the party to be indemnified
(the "Indemnitee") was, is or becomes a party to or witness or other participant
in, a claim by reason of (or arising in part out of) an Indemnifiable Event (as
defined in the Indemnification Agreements), the Company shall indemnify the
Indemnitee to the fullest extent permitted by law as soon as practicable but in
not event later than 30 days after written demand is present to the Company,
against any and all expenses, judgments, fines, penalties, and amounts paid in
settlement of with respect to the relevant claim. A form of the Indemnification
Agreements is filed as Exhibit 3 hereto.
CONSULTING AGREEMENTS
Pursuant to the Merger Agreement, the Company has agreed to use its best
efforts to cause Messrs. Little, Byerlotzer and Eustace to enter into definitive
consulting agreements with Parent and Purchaser on the terms set forth on the
term sheets executed August 11, 1998 between Parent, Purchaser and each of
Messrs. Little, Byerlotzer and Eustace, which are filed herewith as Exhibits 14,
15 and 16, respectively. The term sheets provide that, in connection with the
Merger, for a period of three years, Messrs. Little, Byerlotzer and Eustace will
provide consulting services to Parent and the Purchaser (in the case of Mr.
Little, estimated at less than 40 hours per month) for which they will receive
annual compensation of $250,000, $100,000 and $75,000, respectively. The term
sheets include covenants not to compete in certain businesses and the definitive
agreements will include usual and customary terms, including terms relating to
confidentiality of information and non-solicitation of employees.
THE MERGER AGREEMENT
As of August 11, 1998, Parent, the Purchaser and the Company entered into
the Merger Agreement, pursuant to which the Purchaser agreed to make the Offer.
The following is a summary of certain provisions of the Merger Agreement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of which is filed
as Exhibit 1 hereto and is incorporated herein by reference. Capitalized terms
not otherwise defined below shall have the meanings set forth in the Merger
Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the satisfaction or waiver of
the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The obligation of the Purchaser to accept for
payment and pay for any Shares validly tendered prior to the expiration of the
Offer is conditioned upon there being validly tendered and not withdrawn prior
to the expiration of the Offer, that number of Shares which, together with the
Shares owned by Parent or the Purchaser, represents at least a majority of the
Shares outstanding on a fully diluted basis and to the satisfaction or waiver of
the other conditions described in Annex A to the Merger Agreement. The Merger
Agreement provides that the Purchaser may not amend or waive the Minimum
Condition, or decrease the Offer Price or the number of Shares sought, or amend
any other condition of the Offer in any manner adverse to the holders of Shares
without the written consent of the Company. Notwithstanding the foregoing
provisions, if on the initial scheduled expiration of the Offer (as it may be
4
extended), all conditions to the Offer shall not have been satisfied or waived,
the Offer may be extended from time to time until December 31, 1998. In
addition, the Offer Price may be increased and the Offer may be extended to the
extent required by law in connection with such increase, in each case without
the consent of the Company.
Designation of Directors. The Merger Agreement provides that, promptly
upon the purchase of and payment for Shares by Parent or any of its subsidiaries
which represents at least a majority of the outstanding Shares (on a fully
diluted basis), Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board so that the percentage
of Parent's nominees on the Company Board equals the percentage of outstanding
Shares beneficially owned by Parent, the Purchaser and their affiliates. The
Company shall, upon request by the Purchaser, use its best efforts promptly
either to increase the size of the Company Board or, at the Company's election,
secure the resignations of incumbent directors, and shall cause Parent's
designees to be so elected. Notwithstanding the foregoing, until the effective
time of the Merger ("the Effective Time"), the Company will use its reasonable
efforts to retain as members of the Company Board at least two directors who
were directors of the Company on the date of the Merger Agreement; provided,
that, subsequent to the purchase of and payment for Shares pursuant to the
Offer, Parent will always have its designees represent at least a majority of
the entire Company Board. The Company's obligation to appoint Parent's designees
to the Company Board is subject to compliance with Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder. Following the election of Parent's
designees to the Company Board, any amendment of the Merger Agreement, any
termination of the Merger Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or the Purchaser, or any waiver
of any condition or any of the Company's rights thereunder may be effected only
by the action of a majority of the directors of the Company then in office who
were directors on the date of the Merger Agreement, which action shall be deemed
to constitute the action of the full Company Board; provided, that, if there are
no such directors, such actions may be effected by the majority vote of the
entire Company Board.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser will be merged with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") and a wholly owned subsidiary of Parent. At Parent's election, the
Merger may be restructured so that the Company is merged with or into Parent or
any other direct or indirect subsidiary of Parent or so that any direct or
indirect subsidiary of Parent other than the Purchaser is merged with and into
the Company. At the Effective Time, each issued and outstanding Share (other
than Shares owned by Parent, the Purchaser or any other wholly owned Subsidiary
of Parent, Shares owned by the Company as treasury stock and Shares held by
holders who perfect any available appraisal rights under the Texas Business
Corporation Act (the "TBCA")) shall be converted into the right to receive the
Offer Price, without interest thereon, and each issued and outstanding share of
common stock of the Purchaser shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
Treatment of Options. The Merger Agreement provides that Parent and the
Company will take all actions necessary so that, immediately prior to the
Effective Time, the Company shall pay to the holder of each option to purchase
Shares, whether or not then vested or exercisable, which has been granted under
the Company's stock option plans an amount equal to the product of (A) the
excess, if any, of the Offer Price over the per share exercise price thereof and
(B) the number of Shares subject to such option. Each outstanding option will be
canceled as of the Effective Time and all plans, programs or arrangements of the
Company providing for the issuance or grant of options or other interests in the
capital stock of the Company will be terminated.
Conditions. The respective obligations of each party to effect the Merger
are subject to the satisfaction, on or prior to the closing of the Merger, of
each of the following conditions: (a) the Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote of the holders of Common
Stock if required by applicable law and the Company's Articles, in order to
consummate the Merger; (b) no statute, rule, order, decree or regulation shall
have been enacted or promulgated by any foreign or domestic government or any
governmental agency or authority of competent jurisdiction which prohibits the
consum-
5
mation of the Merger and all foreign or domestic governmental consents, orders
and approvals required for the consummation of the Merger and the transactions
contemplated by the Merger Agreement shall have been obtained and shall be in
effect at the Effective Time; (c) there shall be no order or injunction of a
foreign or United States federal or state court or other governmental authority
of competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; and (d) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company
shall, if required by applicable law in order to consummate the Merger, (i) duly
call, give notice of, convene and hold a special meeting of its shareholders as
soon as practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering and taking
action upon the Merger Agreement; (ii) prepare and file with the Commission a
preliminary proxy or information statement relating to the Merger and the Merger
Agreement and shall use its reasonable efforts to (A) cause a definitive Proxy
Statement to be mailed to its shareholders and (B) obtain the necessary
approvals of the Merger and the Merger Agreement by its shareholders; and (iii)
subject to the fiduciary obligations of the Company Board, the Company shall
include in the Proxy Statement the recommendation of the Company Board that
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of the Merger Agreement. In the event that Parent, the Purchaser or any
other subsidiary of Parent shall acquire at least 90% of the outstanding Shares,
pursuant to the Offer or otherwise, the parties shall take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of the Company's
shareholders, in accordance with the TBCA and the New Jersey Business
Corporation Act.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto, including representations
by the Company as to, among other things (i) organization and good standing,
(ii) capitalization, (iii) authorization, validity of the Merger Agreement and
all required Company action taken with respect to the Offer and the Merger, (iv)
required consents or approvals, (v) no material misstatements in filings made
with the Commission or financial statements, (vi) absence of material adverse
changes, (vii) no undisclosed liabilities, (viii) no misstatements or omissions
of a material fact in the Proxy Statement or other filings with the Commission
with respect to the Offer and the Merger, (ix) employee benefit plans and ERISA,
(x) litigation, (xi) interim conduct of businesses, (xii) compliance with
environmental laws and regulations, (xiii) tax returns and tax liabilities,
(xiv) labor relations, (xv) compliance with all laws, (xvi) insurance, (xvii)
material contracts, (xviii) valid title to, or leasehold interests in, all
property, (xix) valid title to, or leasehold interests in, all equipment, (xx)
all necessary permits and licenses, (xxi) intellectual property, (xxii) receipt
of fairness opinion from financial advisor and (xxiii) vote required to approve
the Merger. In addition, the Merger Agreement contains representation by Parent
and the Purchaser as to, among other things, (i) organization and good standing,
(ii) authorization, validity of the Merger Agreement and all required action
taken with respect to the Offer and the Merger, (iii) required consents or
approvals, (iv) information in the Proxy Statement, (v) financing the Offer and
the Merger and (vi) operations of the Purchaser.
Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that after the date of the Merger Agreement and prior to the time
Parent's designees have been elected to, and constitute a majority of, the
Company Board, unless Parent otherwise agrees in writing and except as otherwise
contemplated by the Merger Agreement the business of the Company and each of its
Subsidiaries shall be conducted only in the ordinary and usual course and, to
the extent consistent therewith, each of the Company and its Subsidiaries shall
use its best efforts to preserve its business organization intact and maintain
its existing relations with customers, suppliers, employees, creditors and
business partners. Without limiting the generality of the foregoing, during such
period, the Company shall not, and shall not permit any of its Subsidiaries to:
(a) sell, transfer or pledge any Common Stock, preferred stock of the
Company or capital stock of any of its Subsidiaries beneficially owned by
it, or split, combine or reclassify the outstanding Common Stock or any
outstanding capital stock of any of its Subsidiaries;
(b) except for those actions contemplated by the Merger Agreement, (i)
amend its articles of incorporation or by-laws or similar organizational
documents; (ii) declare, set aside or pay any dividend
6
or other distribution payable in cash, stock or property with respect to
its capital stock, (iii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of capital stock of any class of the Company or any of its
Subsidiaries, other than Shares reserved for issuance on the date of the
Merger Agreement upon exercise of outstanding Rights pursuant to the Rights
Agreement or issuances pursuant to the exercise of stock options
outstanding on the date of the Merger Agreement; (iv) transfer, lease,
license, sell, mortgage, pledge, dispose of, or encumber any material
assets other than in the ordinary and usual course of business and
consistent with past practice, or incur or modify any material indebtedness
or other liability, other than in the ordinary and usual course of business
and consistent with past practice; or (v) redeem, purchase or otherwise
acquire directly or indirectly more than 5,000 shares of its capital stock,
(c) (i) grant any increase in the compensation payable or to become
payable by the Company or any of its Subsidiaries to any of its executive
officers or key employees or (A) adopt any new, or (B) amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement; or (ii) enter into any employment or severance agreement with
or, except in accordance with the existing written policies of the Company,
grant any severance or termination pay to any officer, director or employee
of the Company or any of its Subsidiaries;
(d) modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice;
(e) permit any material insurance policy naming it as a beneficiary or
a loss payable payee to be canceled or terminated without notice to Parent,
except in the ordinary course of business and consistent with past
practice;
(f) (i) incur or assume any long-term debt, or except in the ordinary
course of business, incur or assume any short-term indebtedness in amounts
not consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practice; (iii) make any loans,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned Subsidiaries of the Company or customary loans
or advances to employees in accordance with past practice); or (iv) except
for commitments or transactions not in excess of $500,000, enter into any
material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets);
(g) change any of the accounting principles used by it unless required
by GAAP;
(h) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such claims, liabilities
or obligations, (x) in the ordinary course of business and consistent with
past practice, properly reflected or reserved against in, the consolidated
financial statements (or the notes thereto) as of and for the fiscal year
ended March 31, 1998 of the Company and its consolidated Subsidiaries, (y)
incurred since March 31, 1998 in the ordinary course of business and
consistent with past practice or (z) which are legally required to be paid,
discharged or satisfied (provided that if such claims, liabilities or
obligations referred to in this clause (z) are legally required to be paid
and are also not otherwise payable in accordance with clauses (x) or (y)
above, the Company will notify Parent in writing if such claims,
liabilities or obligations exceed, individually or in the aggregate,
$500,000 in value, reasonably in advance of their payment) (except for
reasonable, documented fees and expenses related to the Merger Agreement
and the transactions contemplated thereby);
(i) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than the
Merger);
7
(j) take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate in
any material respect at, or as of any time prior to, the Effective Time;
and
(k) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
Rights Agreement. Pursuant to the Merger Agreement, the Company has agreed
that except for the Rights Amendment or amendments approved in writing by Parent
or the Purchaser, the Company will not amend the Rights Agreement in any manner
and that the Company will not redeem the rights unless such redemption is
consented to in writing by Parent prior to such redemption.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither it nor any of its Subsidiaries or affiliates shall (and the Company
shall use its best efforts to cause its and each of its Subsidiaries' officers,
directors, employees, representatives and agents, including, but not limited to,
investment bankers, attorneys and accountants, not to), directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with,
provide any information to, or enter into any agreement with, any corporation,
partnership, person or other entity or group (other than Parent, any of its
affiliates or representatives) concerning any merger, tender offer, exchange
offer, sale of assets, sale of shares of capital stock or debt securities or
similar transactions involving the Company or any Subsidiary, division or
operating or principal business unit of the Company (an "Acquisition Proposal").
The Company has further agreed that it will immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, the Company
may, directly or indirectly, provide access and furnish information concerning
its business, properties or assets to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group if (w) such entity or group has submitted an unsolicited bona fide
written proposal to the Company Board relating to any such transaction, (x) such
proposal provides for the acquisition for cash and/or publicly traded securities
of all of the outstanding Shares, (y) the Company Board determines in good
faith, after consultation with its independent financial advisor, that such
proposal is financially superior to the Offer and the Merger and fully financed
or reasonably capable of being financed, and (z) the Company Board determines in
good faith, after consultation with independent legal counsel, that the failure
to provide such information or access or to engage in such discussions or
negotiations would violate their fiduciary duties to the Company's shareholders
under applicable law. A proposal meeting all of the criteria in the preceding
sentence is referred to in the Merger Agreement as a "Superior Proposal."
Nothing contained in this section of the Merger Agreement shall prohibit the
Company or the Company Board from taking and disclosing to the Company's
shareholders a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act. The Company has
agreed to immediately notify Parent of any Acquisition Proposal, or if an
inquiry is made, will keep Parent fully apprised of all developments with
respect to any Acquisition Proposal, will immediately provide to Parent copies
of any written materials received by the Company in connection with any
Acquisition Proposal, discussion, negotiation or inquiry and the identify of the
party making any Acquisition Proposal or inquiry or engaging in such discussion
or negotiation. The Company has also agreed to promptly provide to Parent any
non-public information concerning the Company provided to any other party which
was not previously provided to Parent. The Company has agreed not to release any
third party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. Notwithstanding anything to the
contrary contained in the Merger Agreement, except in connection with the valid
termination of the Merger Agreement in connection with a Superior Proposal, the
Company has agreed that neither the Company Board nor any committee thereof
shall (i) withdraw, or modify or change in a manner adverse to Parent or the
Purchaser, or propose to withdraw, or propose to modify or change in a manner
adverse to Parent or the Purchaser, the approval or recommendation by the
Company Board or any such committee thereof of the Offer, the Merger Agreement
or the Merger, (ii) approve or recommend or propose to approve or recommend, any
Acquisition Proposal or (iii) enter into any agreement with respect to any
Acquisition Proposal.
8
Directors' and Officers' Indemnification. The Merger Agreement provides
that for six years after the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries (each an "Indemnified Party") against all losses, claims, damages,
liabilities, fees and expenses (including reasonable fees and disbursements of
counsel and judgments, fines, losses, claims, liabilities and amounts paid in
settlement (provided that any such settlement is effected with the written
consent of the Parent or the Surviving Corporation)) in connection with any
claim, suit, action, proceeding or investigation that is, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer, employee or agent of the Company or its Subsidiaries and arising out of
actions or omissions occurring at or prior to the Effective Time, to the fullest
extent permitted under Texas law.
Disposition of Litigation. Under the terms of the Merger Agreement, each
party to the Merger Agreement has agreed to a dismissal with prejudice of the
Complaint (as defined below) and any and all counterclaims asserted in
connection with the Complaint, with each party bearing its own costs and
expenses in connection therewith. The Company has also agreed that it will not
settle any litigation currently pending, or commenced after the date hereof,
against the Company or any of its directors by any shareholder of the Company
relating to the Offer or the Merger Agreement, without the prior written consent
of Parent.
Consulting Agreements. Pursuant to the Merger Agreement, the Company has
agreed to use its best efforts to cause Mr. Little, Mr. James J. Byerlotzer,
Chief Operating Officer of the Company and Mr. Joseph B. Eustace, Vice President
of East Texas/Gulf Coast Region of the Company, to enter into definitive
consulting agreements with Parent and the Purchaser on the terms set forth in
the term sheets executed by Messrs. Little, Byerlotzer and Eustace. The term
sheets provide that, in connection with the Merger, for a period of three years,
Messrs. Little, Byerlotzer and Eustace will provide consulting services to
Parent and the Purchaser (in the case of Mr. Little, estimated at less than 40
hours per month) for which they will receive annual compensation of $250,000,
$100,000 and $75,000, respectively. The term sheets include covenants not to
compete in certain businesses and the definitive agreements will include usual
and customary terms, including terms relating to confidentiality of information
and non-solicitation of employees.
Termination. The Merger Agreement provides that it may be terminated or
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof:
(a) by the mutual consent of the Parent Board and the Company Board.
(b) by either of the Company Board or the Parent Board:
(i) if Shares shall not have been purchased pursuant to the Offer
on or prior to December 31, 1998; provided, however, that the right to
terminate the Merger Agreement pursuant to this paragraph shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of
the Purchaser to purchase Shares pursuant to the Offer on or prior to
such date; or
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties shall use their reasonable efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order,
decree, ruling or other action shall have become final and
non-appealable.
(c) by the Company Board:
(i) if, prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn, or modified or changed in a manner
adverse to Parent or the Purchaser its approval or recommendation of the
Offer, the Merger Agreement or the Merger in order to approve and permit
the Company to execute a definitive agreement providing for a Superior
Proposal; provided that (A) at least five (5) business days prior to
terminating the Merger Agreement pursuant to this paragraph the Company
has provided Parent with written notice advising Parent that the Company
Board has received a Superior Proposal that it intends to accept,
specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal, and (B) the
Company shall have caused its financial and legal advisors to negotiate
in good faith with
9
Parent to make such adjustments in the terms and conditions of the
Merger Agreement as would enable the Company to proceed with the
transactions contemplated therein on such adjusted terms; and further
provided that simultaneously with any termination of the Merger
Agreement pursuant to this paragraph, the Company shall pay to Parent
the Termination Fee (as defined below); and further provided that the
Company may not terminate the Merger Agreement pursuant to this
paragraph if the Company is in material breach of the Merger Agreement;
or
(ii) if, prior to the purchase of Shares pursuant to the Offer,
Parent or the Purchaser breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained in the Merger Agreement or breaches its representations and
warranties in any material respect; or
(iii) if Parent or the Purchaser shall have terminated the Offer,
or the Offer shall have expired, without Parent or the Purchaser, as the
case may be, purchasing any Shares pursuant thereto; provided that the
Company may not terminate the Merger Agreement pursuant to this
paragraph if the Company is in material breach of the Merger Agreement;
or
(iv) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A to the Merger Agreement, Parent, the
Purchaser or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided, that the Company may
not terminate the Merger Agreement pursuant to this paragraph if the
Company is in material breach of the Merger Agreement.
(d) by the Parent Board:
(i) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A to the Merger Agreement, Parent, the
Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer, provided that Parent may not
terminate this Agreement pursuant to this paragraph if Parent or the
Purchaser is in material breach of the Merger Agreement; or
(ii) if prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn, or modified or changed in a manner
adverse to Parent or the Purchaser its approval or recommendation of the
Offer, the Merger Agreement or the Merger or shall have recommended an
Acquisition Proposal or offer, or shall have executed an agreement in
principle (or similar agreement) or definitive agreement providing for a
tender offer or exchange offer for any shares of capital stock of the
Company, or a merger, consolidation or other business combination with a
person or entity other than Parent, the Purchaser or their affiliates
(or the Company Board resolves to do any of the foregoing); provided
that Parent may not terminate the Merger Agreement pursuant to this
paragraph if Parent or the Purchaser is in material breach of the Merger
Agreement; or
(iii) if Parent or the Purchaser, as the case may be, shall have
terminated the Offer, or the Offer shall have expired without Parent or
the Purchaser, as the case may be, purchasing any Shares thereunder,
provided that Parent may not terminate the Merger Agreement pursuant to
this paragraph if it or the Purchaser has failed to purchase Shares in
the Offer in violation of the material terms thereof or hereof.
Effect of Termination; Termination Fee. The Merger Agreement provides that
in the event of the termination of the Merger Agreement written notice thereof
shall forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and the Merger Agreement
shall forthwith become null and void, and there shall be no liability on the
part of the Parent, the Purchaser or the Company except (A) for fraud or for
intentional material breach of the Merger Agreement and (B) as set forth in this
paragraph.
Set forth below are the circumstances under which a Termination Fee (as
defined below) is payable under the terms of the Merger Agreement. All
references to paragraph numbers refer to the section entitled "Termination"
above.
10
If (w) the Company Board shall terminate the Merger Agreement pursuant to
paragraph (c) (i), (x) the Parent Board shall terminate the Merger Agreement
pursuant to paragraph (d) (ii), (y) the Company Board shall terminate the Merger
Agreement pursuant to paragraph (b) (i) or paragraph (c) (iii) or the Parent
Board shall terminate the Merger Agreement pursuant to paragraph (b) (i) or (d)
(iii) and prior thereto there shall have been publicly announced another
Acquisition Proposal or (z) the Parent Board shall terminate the Merger
Agreement pursuant to paragraph (d) (i) or (d) (iii) in each case due to a
material breach of the Merger Agreement by the Company, then in any such case as
described in clause (w), (x), (y) or (z) (each such case of termination being
referred to as a "Trigger Event"), the Company shall pay to Parent (not later
than one business day after such termination of the Merger Agreement or, in the
case of any termination by the Company pursuant to paragraph (c) (i),
simultaneously with such termination) an amount equal to $10 million (the
"Termination Fee").
The Merger Agreement provides that upon the termination of the Merger
Agreement due to the occurrence of a Trigger Event, the Company agrees that, in
addition to the payment of the Termination Fee referred to above, the Company
shall promptly reimburse Parent for all actual, documented and reasonable
out-of-pocket expenses incurred, or to be incurred by Parent, the Purchaser and
their affiliates (including the fees and expenses of legal counsel, accountants,
financial advisors, other consultants, financial printers and financing sources)
("Expenses") in connection with the Offer, the Merger and the consummation of
the transactions contemplated by the Merger Agreement, in an amount not to
exceed $5 million in the aggregate.
The Merger Agreement also provides that if the Company shall terminate the
Merger Agreement pursuant to paragraph (c) (ii), and the Company is not in
material breach of the Merger Agreement at the time of such termination, or if
the Purchaser fails to fund the purchase of Shares pursuant to the Offer as a
result of its failure to secure financing for the Offer and the Merger pursuant
to the Financing Commitment and/or the Proposed Bridge Arrangements or otherwise
secure financing, Parent shall pay to the Company (not later than one business
day after such termination) an amount equal to the Termination Fee, together
with an amount not to exceed $5 million as reimbursement to the Company for its
actual, documented and reasonable out-of-pocket Expenses.
Fees and Expenses. Except as set forth above, whether or not the Merger is
consummated, the Merger Agreement provides that all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expenses.
THE CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated August 8, 1998 between the Company, Parent and the Purchaser
(the "Confidentiality Agreement"). The following summary of the Confidentiality
Agreement does not purport to be complete and is qualified in its entirety by
reference to the text of the Confidentiality Agreement, which is filed as
Exhibit 2 hereto and incorporated herein by reference.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, the parties have agreed to keep confidential all
nonpublic, confidential or proprietary information furnished to each party
relating to the Company or Parent, as the case may be, subject to certain
exceptions (the "Confidential Information"), and to use the Confidential
Information solely in connection with the evaluation of a possible negotiated
transaction between the parties.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting commenced on the evening of August 10, 1998 and reconvened on
the morning of August 11, 1998, the Company's Board of Directors (the "Company
Board" or the "Board") unanimously (i) determined that the terms of Merger
Agreement and the transactions contemplated thereby are fair and in the best
interest of the Company's shareholders, (ii) approved and adopted the Merger
Agreement and the transactions contemplated thereby, and (iii) resolved to
recommend that the Company's
11
shareholders accept the Offer, tender their Shares and approve and adopt the
Merger Agreement and the transactions contemplated thereby.
(B)(1) BACKGROUND OF THE OFFER.
Since 1993, representatives of the Company and representatives of Parent
have periodically engaged in discussions concerning a possible business
combination between the Company and Parent.
In January 1998, W. Philip Marcum, a director of Parent, and Stephen E.
McGregor, the Executive Vice President and Chief Financial Officer of Parent met
with Michael E. Little, Chairman, President and Chief Executive Officer of the
Company in San Antonio, Texas, to discuss possible ways in which Parent and the
Company could take advantage of the complementary strengths of their respective
businesses, including a merger of the Company and Parent. In late January 1998,
Francis D. John, Chairman, President and Chief Executive Officer of Parent and
Mr. McGregor met with Mr. Little in Houston to further discuss the possibility
of a merger between the two companies. At this meeting, Mr. John explained why
he believed that a combination of Parent and the Company would result in
significant benefits for both companies. The conversations were general in
nature and did not involve price.
On February 10, 1998, Mr. Little sent a memo to the Company's Board of
Directors attaching the information he received in January 1998 from Mr. John
and Mr. McGregor and reporting the substance of their conversations. The Company
Board met on February 16, 1998 to discuss issues relating to a business
combination with Parent.
On February 24, 1998, Mr. Little sent a letter to Mr. John advising him
that the Company Board had decided that a possible business combination with
Parent was not in the best interests of the Company's shareholders at that time.
Mr. John responded by letter dated March 10, 1998, in which he expressed
disappointment with the decision of the Company Board.
Parent publicly disclosed in a Schedule 13D filed with the Securities and
Exchange Commission (the "Commission") on June 15, 1998 its ownership of an
aggregate of 820,500 Shares, representing 7.3% of the Shares outstanding based
on publicly available information.
On June 29, 1998, Parent delivered the following letter (the "June 29th
Letter") to Mr. Little and the other members of the Company Board:
June 29, 1998
The Board of Directors
of Dawson Production Services, Inc.
112 E. Pecan Street
Suite 1000
San Antonio, Texas 78205
Mr. Michael E. Little and other Board Members:
Mike, over the past three years you and I with our respective Board members
have discussed the significant value that would be created by a combination of
Key Energy Group, Inc. ("Key") and Dawson Production Services, Inc. ("Dawson").
Since May of last year we have made three specific proposals to Dawson that we
believe would have benefitted both companies' shareholders. Subsequent to our
most recent discussions, in January and February of this year, Key has continued
to analyze the possible benefits of such a combination. This analysis reconfirms
our belief that the companies would be a superb fit. Key/Dawson would be the
largest well servicing company in the world, positively staged for future
growth, with leading positions in nearly all major domestic producing regions
and with great expansion prospects throughout the world. The combination would
provide substantial benefits to shareholders, employees and customers of both
companies.
Key and Dawson have each shown significant operating improvements as we
have successfully consolidated the well servicing industry. We believe more than
ever that a Key/Dawson combination creates real shareholder value; therefore,
Key is pleased to submit to you its proposal to acquire, at a cash price of
12
$16.00 per share, all issued and outstanding shares of common stock of Dawson.
This price represents a premium of 62% over the closing price of Dawson's shares
on June 12, 1998, the last trading day prior to the date on which Key disclosed
its present investment in Dawson.
While this is an all-cash proposal, we believe that the combined company's
equity would be highly attractive, and accordingly we would be willing to
consider a stock-for-stock transaction or a mixed stock-and-cash transaction.
The combination of Key and Dawson would create a stronger, more competitive
entity. In addition, a Key/Dawson combination would provide significant
operational and financial consolidation benefits and, based on our current
analyses and projections, should be accretive within the first year of combined
operations.
Based on extensive conversations with a major commercial bank and a leading
investment bank, Key is highly confident that financing would be available to
pay for all transaction-related financing requirements, including Dawson's
shares and for any necessary refinancing of existing debt.
This proposal obviously is subject to the negotiation and execution of
definitive documentation on mutually satisfactory terms; however, we believe
that this could be accomplished quite expeditiously.
Our interest in Dawson is strong, and, as stated above, we have made a
substantial investment in Dawson. As disclosed in our Schedule 13D filed with
the SEC on June 15, 1998, Key now owns 820,500 shares of Dawson common stock,
representing approximately 7.3% of the shares outstanding based on current
publicly available information. Simultaneously with the transmission of this
letter, we have issued a public announcement setting forth the text of this
letter.
We believe that Dawson's shareholders will find our proposal extremely
attractive and trust that you will give careful consideration to it. Our strong
preference is to proceed harmoniously and cooperatively within the framework of
a negotiated transaction. To this end, we would welcome the opportunity to meet
with you to discuss our proposal at the earliest possible date. We look forward
to hearing from you in the near future.
Very truly yours,
/s/ Francis D. John
Francis D. John
In addition, on June 29, 1998, Parent issued a press release publicly
disclosing the June 29th Letter. On July 1, 1998, the Company's management
informed the Company Board of its interviews with investment banking firms and
its comparison of several firms. Based on management's recommendation, the
Company Board approved the hiring of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). On July 7, 1998, the Company issued a press release announcing that
it had retained Morgan Stanley to review Parent's proposal to acquire the
Company set forth in the June 29th Letter.
On July 14, 1998, Company Board held an informal briefing in Houston to
discuss financial and legal aspects of the Parent's proposal.
On July 17, 1998, Paul McCollam, a director of the Company, and Kevin
Collins, a director of Parent, engaged in a brief conversation in which Mr.
McCollam indicated to Mr. Collins that the Company was working diligently with
Morgan Stanley.
On July 20, 1998, Parent sent the following letter to each member of the
Company Board (and issued a press release publicly disclosing the same):
July 20, 1998
The Board of Directors
Dawson Production Services, Inc.
112 E. Pecan Street
Suite 1000
San Antonio, TX 78205
13
Dear Board Members:
On June 29, 1998 Key Energy Group, Inc. made an all cash proposal to you
for the acquisition of Dawson Production Services, Inc. To date, no one from
your company has contacted us with respect to the proposal even though three
weeks have passed since it was delivered to you. Over the past several weeks,
many of your shareholders have contacted Key expressing concern and frustration
about Dawson's unresponsiveness. It is our understanding that you too have heard
by phone and in writing from many of these Dawson shareholders. Their unanimous
view as expressed to Key is that the combination of our companies makes
tremendous sense and would be beneficial to all relevant parties, including our
respective shareholders, employees and customers.
In our June 29 letter we noted that our $16 per share proposal represented
a premium of more than 60% to Dawson's market value the day prior to the
disclosure of Key's investment in your company. Subsequent to our proposal,
oilfield service stocks have continued to decline as the outlook for oil and
natural gas prices remains uncertain. As a result, and based on a review of
comparable service companies, it is reasonable to conclude that Dawson in all
likelihood would be trading in the $8 range today if it were not for Key's
attractive proposal. Accordingly, Key's proposal now represents a premium of
approximately 100% to Dawson's unaffected stock price.
We are certain that Dawson's Management and Directors want to act in the
best interest of the company's shareholders. As I previously mentioned, many of
Dawson's shareholders have expressed their desire to see this transaction
completed expeditiously. Hopefully, we will hear from you in the very near
future with a commitment to proceed forward in good faith. Such constructive
action would mitigate the possibility of our proposal being reduced which would
have a negative impact on your shareholders' value.
As you know, we have been and continue to be prepared to meet immediately
with representatives of Dawson to discuss our proposal. Given the financing
commitment we have in hand from PNC Bank, we believe a definitive agreement
between our companies could be achieved in no more than thirty days from the
date we initially meet and with no material disruption to our companies'
operations. No doubt, a large majority of your shareholders would applaud such
an outcome.
Sincerely,
/s/ Francis D. John
Francis D. John
President, Chairman & CEO
On July 21, 1998, Mr. Little sent the following letter to Mr. John (and the
Company issued a press release disclosing the same):
July 21, 1998
Mr. Francis D. John
Chairman, President and Chief Executive Officer
Key Energy Group, Inc.
Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Dear Fran:
We received this morning your letter dated July 20, 1998. As we said in our
press release dated July 7, 1998, we have engaged Morgan Stanley & Co.
Incorporated, are reviewing the situation with them, and will respond in due
course.
Sincerely,
/s/ Michael E. Little
Michael E. Little
14
Chairman, President and Chief Executive Officer
cc: Dawson's Board of Directors
At a meeting of the Company Board on July 30, 1998, representatives of
Morgan Stanley made an extensive presentation regarding valuation of the Company
and its competitors, the effect of oil and gas prices on the Company's
valuation, and various valuation methods. Morgan Stanley also presented an
analysis of various strategic alternatives that might be available to maximize
shareholder value. The Company Board met again the next day, August 1, 1998 to
discuss Parent's proposal and possible alternatives. After extensive
discussions, the Board instructed Morgan Stanley to communicate to Key's
financial advisors that, although the Company did not find the offer of $16 per
Share compelling, it would be open to discussing a possible business combination
with Parent at a higher price.
On August 3, 1998, the Company issued a press release (the "August 3rd
Press Release") announcing its earnings for the quarter ended June 30, 1998 and
that the Company had signed a letter of intent to acquire Hellums Services II,
Inc., Superior Completion Services, Inc., South Texas Disposal, Inc. and Elsik,
Inc. (collectively the "HSI Group").
On August 3, 1998, after the release of the August 3rd Press Release, a
representative of Morgan Stanley telephoned a representative of Parent's
financial advisor, Bear, Stearns & Co. Inc. ("Bear Stearns"). Morgan Stanley
informed Bear Stearns that the Company Board had met on a number of occasions to
review Parent's $16 offer and had concluded, after receiving advice from Morgan
Stanley, that the Company did not find the $16 offer compelling, but would be
open to discussing a possible combination at a higher price.
On August 4, 1998, the Company held a telephone conference call with
industry analysts and other members of the investment community at which the
Company reviewed the contents of the August 3rd Press Release and announced the
letter of intent with the HSI Group. On the conference call, Mr. Little stated
that Parent's proposal was still under review and that the Company had no
comment on Parent's offer at that time.
On August 5, 1998, Parent and the Purchaser issued a press release
announcing, among other things, that the Purchaser intended to commence an offer
for all outstanding Shares at a price of $14.00 per Share.
Also on August 5, 1998, the Purchaser filed a complaint against the Company
(the "Complaint") in United States District Court for the Western District of
Texas, Midland/Odessa Division.
On August 5, 1998, the Company issued a press release responding to
Parent's August 5, 1998 press release and reconfirming the Company's willingness
to entertain discussions at a price higher than $16 per Share.
On August 6 and 7, 1998, Bear Stearns had discussions with Morgan Stanley
concerning the possibility of Parent and the Company meeting to discuss a
potential negotiated transaction.
At a meeting of the Company Board on the afternoon of August 7, 1998,
representatives of Morgan Stanley reported their discussions with Bear Stearns
regarding Purchaser's tender offer, as well as their discussions with other
companies regarding possible business combinations. Morgan Stanley reported that
Bear Stearns had only a few questions to resolve before proposing an offer price
greater than $16 per Share. One issue Bear Stearns was considering was the
Company's proposed acquisition of the HSI Group and whether the acquisition
would be accretive. The Company Board discussed the possibility of a merger
agreement with Purchaser and the terms of such an agreement, including the
whether the agreement would include (i) a so-called fiduciary duty out (i.e., a
provision allowing the Company Board to pursue an unsolicited third-party offer
to acquire the Company on terms more favorable than those contained in the
Merger Agreement); (ii) a break-up fee payable by one party to the other under
certain conditions; (iii) provisions related to the Parent's financing
arrangements and the Company's contractual remedies if such financing were not
funded; and (iv) a possible standstill agreement (i.e., a provision that would
prevent Parent from pursuing a business combination with the Company for a
specific period of time in the event the Merger Agreement was terminated under
certain conditions).
15
On August 8, 1998, legal counsel for the Company and legal counsel for
Parent and the Purchaser negotiated, and the Company, Parent and the Purchaser
executed, a confidentiality agreement. Thereafter on August 8, 1998 and August
9, 1998, representatives of Parent, the Company, their respective legal counsel,
Bear Stearns and Morgan Stanley met in Houston, Texas to conduct financial due
diligence and to further consider and discuss a possible negotiated transaction
resulting in the acquisition of the Company by Parent. Following additional
conversations, financial due diligence and negotiations, on August 9, 1998 the
parties agreed to proceed with negotiation of a definitive agreement. Legal
counsel to Parent and the Purchaser then provided an initial draft of the Merger
Agreement to the Company and its legal counsel. On August 10, 1998, negotiations
were conducted with respect to the Merger Agreement.
On the evening of August 10, 1998, the Company Board met to consider the
Merger Agreement with Purchaser. The Company's management and financial advisors
reported their negotiations over the weekend, and the terms of the proposed
agreement. The Board concluded that it would not take action on the Merger
Agreement until certain issues were resolved satisfactorily and the Board
members had an opportunity to review the Merger Agreement. During the night,
copies of the Merger Agreement were delivered to the Company's directors for
their review and negotiations with respect to outstanding issues were completed.
The Company Board reconvened early on the morning of August 11, 1998, and
Company's legal counsel extensively reviewed the terms of the Merger Agreement
with the Board. Representatives of Morgan Stanley presented their assessment of
Purchaser's proposal of $17.50 per Share and the Company's other alternatives,
and gave the Board Morgan Stanley's verbal opinion (with a commitment that it
would be promptly confirmed in its written opinion) that the Merger Agreement
was fair from a financial point of view to the holders of the Company's Shares
(other than Parent and its affiliates). After extensive discussion of the terms
of the Merger Agreement and the Company's other alternatives, the Company Board
unanimously approved the Merger Agreement. The written opinion of Morgan Stanley
is set forth in full as Annex B. Shareholders of the Company are urged to read
that opinion in its entirety.
Following the approval of the Company Board, on August 11, 1998, Parent,
the Purchaser and the Company executed and delivered the Merger Agreement and
issued a press release announcing the execution of the Merger Agreement and the
transactions contemplated thereby.
On August 17, 1998, the Purchaser and Parent commenced the Offer.
(2) REASONS FOR RECOMMENDATION.
In making the determinations and recommendations set forth in subparagraph
(a) above, the Board considered a number of factors, including the following:
(i) the amount of consideration to be received by the Company's
shareholders in the Offer and the Merger;
(ii) the historical trading prices for the Shares;
(iii) the prospects for the Company if the Company were to remain
independent and the risks inherent in remaining independent, including the
fact that the Company is in a cyclical industry, that oil and gas prices
are at a 12-year low and that the Company is in an industry that is
consolidating;
(iv) that the Merger Agreement provides for a prompt cash tender offer
for all Shares, to be followed by a merger for the same consideration,
thereby enabling the Company's shareholders to obtain the benefits of the
transaction at the earliest possible time;
(v) the Board's view regarding the likelihood of a superior offer from
a third party;
(vi) the extensive negotiations between the Company and Parent and
their respective financial advisors, leading to the Board's belief that
$17.50 per Share represented the highest price per Share that could be
negotiated with Parent;
(vii) the Company's discussions with other companies regarding
potential business combinations;
(viii) possible alternatives to the Merger;
16
(ix) the presentation of Morgan Stanley at the Board's meeting on July
30, 1998, and the verbal opinion of Morgan Stanley (subsequently submitted
in writing) to the Company Board that, as of August 11, 1998, the
consideration of the Company's shareholders would receive pursuant to the
Offer and the Merger is fair to the Company's shareholders (excluding
Purchaser, Parent and their affiliates) from a financial point of view;
(x) Parent's financial condition and ability to cause Purchaser to
meet its obligations under the Merger Agreement;
(xi) that the $17.50 per Share tender offer price represents an
approximately 36% premium over the closing price of $12.875 for the Shares
on the New York Stock Exchange on August 10, 1998, the last trading day
before the public announcement of the Merger Agreement; a 25% premium over
the Purchaser's previously announced offer of $14 per Share; and a 62%
premium over the closing price of the Shares on June 12, 1998, the last
trading day prior to the Parent's public disclosure of its investment in
the Company.
The information and factors described above are not intended to be
exhaustive. Furthermore, the Board did not assign relative weights to the
factors listed above or determine that any factor was of particular importance.
Rather, the Board viewed its position and recommendations as based on all
information it received and considered. Different members of the Board may have
given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company and Morgan Stanley entered into a letter agreement dated July
3, 1998 pursuant to which the Company engaged Morgan Stanley to act as financial
advisor to the Company in connection with the Purchaser's proposal, including
the Offer. In connection with this agreement, the Company has paid Morgan
Stanley an initial fee of $250,000. Additionally, if the Offer does not result
in an acquisition of 50% or more of the voting stock of the Company or a change
in the majority of the Company's board of directors, the Company has agreed to
pay Morgan Stanley a fee of $4,000,000, against which any prior fee payments
will be credited. If the Offer results in an acquisition of a majority of the
voting stock of the Company by the Purchaser or another third party, or in a
change in the majority of the Company's board of directors, Morgan Stanley will
receive a fee equal to 1.25% of the value of the Company, against which all
prior fees will be credited. Morgan Stanley's out-of-pocket expenses are
included in its advisory fees; however, the Company has agreed to reimburse
Morgan Stanley for the fees of any outside counsel or other professional
advisors it may engage. In addition, the Company has agreed to indemnify Morgan
Stanley against certain liabilities incurred in connection with this engagement.
The Company also has retained Corporate Investor Communications, Inc., Sard
Verbennin & Co. and Easterly Investor Relations to assist the Company with
communications with shareholders. The Company will pay Corporate Investors
Communications, Inc., Sard Verbennin & Co. and Easterly Investor Relations
reasonable and customary compensation for their services, reimburse them for
their reasonable out-of-pocket expenses and provide customary indemnities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the Company's knowledge, the only transactions in the Shares
effected during the past 60 days by the Company or its executive officers,
directors, affiliates or subsidiaries were as follows:
During the past 60 days, the Compensation Committee of the Board of
Directors approved Director Ward Greenwood's pledge of options to acquire
17,200 shares of the Company's Common Stock to secure a loan with Guaranty
Federal Bank FSB in Austin, Texas.
During the past 60 days, the Company completed a listing on the New
York Stock Exchange of 11,202,965 shares of its common stock, $0.01 par
value per share (the "Common Stock") issued and outstanding, and 2,357,286
shares of its Common Stock reserved for issuance.
17
On July 17, 1998, Michael E. Little, Chief Executive Officer of the
Company, purchased 1,000 shares of the Company's common stock, representing
the first trade in the Company's shares on the New York Stock Exchange.
(b) To the Company's knowledge, all of the Company's executive officers,
directors, affiliates and subsidiaries currently intend to tender, pursuant to
the Offer, all shares of Common Stock which are held of record or beneficially
owned by such persons (other than shares, if any, which if tendered would cause
such persons to incur liability under the provisions of Section 16 of the
Securities Exchange Act of 1934), subject to and consistent with any fiduciary
obligations of such persons. To address the Section 16 issues that would be
presented with respect to any shares tendered pursuant to the Offer by persons
subject to Section 16, the Merger Agreement permits the Company to repurchase up
to 5,000 Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiations in response to the Offer which relate to or would result in
(i) an extraordinary transaction such as a merger or reorganization involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as set forth herein, there are no transactions, Company Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
INFORMATION STATEMENT
The Information Statement attached hereto as Annex A is being furnished in
connection with the contemplated designation by Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed by the Board of Directors
of the Company other than at a meeting of the Company's shareholders.
SENIOR NOTES
In accordance with the terms of the Indenture dated February 20, 1997
between the Company and U. S. Trust Company of Texas, N. A., as trustee (the
"Trustee"), with respect to the Company's 9 3/8% Senior Notes due 2007 (the
"Senior Notes"), within 30 days following a Change of Control (as defined in the
Indenture), the Company must send written notice to each holder of the Senior
Notes (i) describing the Change of Control transaction and (ii) offering to
repurchase the Senior Notes at a purchase price in cash equal to 101% of the
principal amount of such Senior Notes, plus accrued and unpaid interest thereon
to the date of purchase. The closing of the Offer in accordance with the terms
set forth in the Merger Agreement would constitute a Change in Control under the
Indenture.
FROST BANK LOAN AGREEMENT
A Credit Agreement is in effect between the Company and The Frost National
Bank ("Frost Bank") dated February 20, 1997, relating to a $50.0 million working
capital revolving facility (the "Frost Facility"). As of the date hereof, the
Company has not drawn any amounts under the Frost Facility, other than $1.8
million used to secure letters of credit issued by Frost Bank and provided by
the Company to certain of its workers' compensation insurance carriers. Certain
provisions of the Credit Agreement would require the consent of Frost Bank in
connection with the change of control and merger contemplated by the Merger
Agreement. The Company proposes to negotiate with Frost Bank with a view of
obtaining their consent or of terminating the Frost Facility.
18
AMENDMENT TO RIGHTS AGREEMENT
On August 11, 1998, the Company's Board of Directors amended the Rights
Agreement (the "Rights Amendment") (i) to prevent the Merger Agreement or the
consummation of any of the transactions contemplated thereby, including but not
limited to the announcement of the Offer and the consummation of the Offer and
the Merger, from resulting in the distribution of separate rights certificates
or the occurrence of a Distribution Date, Shares Acquisition Date, Flip-In Event
or Triggering Event (each as defined in the Rights Agreement) and (ii) to
provide that neither Parent nor Purchaser nor their affiliates shall be deemed
an Acquiring Person (as defined in the Rights Agreement) by reason of the
transactions provided for in the Merger Agreement. Thus, the Rights Amendment
renders the Rights inoperative with respect to the acquisition of any Shares by
Parent, Purchaser or any of their affiliates pursuant to the Merger Agreement.
As a result of the Rights Amendment, the Rights will not be exercisable upon or
at any time after the acceptance for payment of Shares pursuant to the Offer.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
[Download Table]
Exhibit 1 Agreement and Plan of Merger dated August 11, 1998 between
the Company, Purchaser and Parent.
Exhibit 2 Confidentiality Agreement dated August 8, 1998 between the
Company, Purchaser and Parent.
Exhibit 3 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Articles of Incorporation and Bylaws.
Exhibit 4 Employment Agreement effective as of April 1, 1998 between
the Company and Michael E. Little.
Exhibit 5 Amendment No. 1 to Employment Agreement between the Company
and Michael E. Little.
Exhibit 6 Amendment No. 2 to Employment Agreement between the Company
and Michael E. Little.
Exhibit 7 Employment Agreement effective as of April 1, 1996 between
the Company and Joseph Eustace.
Exhibit 8 Amendment No. 1 to Employment Agreement between the Company
and Joseph Eustace.
Exhibit 9 Employment Agreement effective as of April 1, 1998 between
the Company and Jim Byerlotzer.
Exhibit 10 Amendment No. 1 to Employment Agreement between the Company
and Jim Byerlotzer.
Exhibit 11 Employment Agreement effective April 1, 1996 between the
Company and P. Mark Stark.
Exhibit 12 Amendment No. 1 to Employment Agreement between the Company
and P. Mark Stark.
Exhibit 13 Employee Severance Pay Plan.
Exhibit 14 Consulting Agreement Term Sheet dated August 11, 1998
between Parent, Purchaser and Michael E. Little.
Exhibit 15 Consulting Agreement Term Sheet dated August 11, 1998
between Parent, Purchaser and James J. Byerlotzer.
Exhibit 16 Consulting Agreement Term Sheet dated August 11, 1998
between Parent, Purchaser and Joseph E. Eustace.
Exhibit 17 Opinion of Morgan Stanley dated August 11, 1998.*
Exhibit 18 Letter to Shareholders of the Company dated August 17,
1998.*
* Included in copies of the Schedule 14D-9 mailed to the Company's Shareholders.
19
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
DAWSON PRODUCTION SERVICES, INC.
/s/ MICHAEL E. LITTLE
By: Michael E. Little
Chairman, President and Chief
Executive Officer
Dated: August 17, 1998
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ANNEX A
DAWSON PRODUCTION SERVICES, INC.
112 EAST PECAN STREET, SUITE 1000
SAN ANTONIO, TEXAS 78205
--------------------------------------------------------------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 17, 1998 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 ("Schedule
14D-9") to the holders of shares ("Shares") of common stock, $0.01 par value
(the "Common Stock"), of Dawson Production Services, Inc., a Texas corporation
("Company"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of person
designated by Midland Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Key Energy Group, Inc. ("Parent"), to the board of directors of the Company
("Company Board"). Such designation is to be made pursuant to an Agreement and
Plan of Merger, dated August 11, 1998 ("Merger Agreement") by and among Parent,
Purchaser, and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer
to acquire all of the Shares ("Offer"). The Offer is scheduled to expire at
12:00 Midnight, New York City time, on Monday, September 14, 1998, unless the
Offer is extended. Following the successful completion of the Offer, upon
approval by a shareholder vote, if required, and subject to certain other
conditions, the Purchaser will be merged with and into the Company ("Merger"). A
detailed description of the Merger Agreement is set forth in Item 3, "The Merger
Agreement," of the Company's Schedule 14D-9 delivered to holders of Shares
concurrent herewith.
The information contained in this Information Statement concerning
Purchaser has been furnished to the Company by Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
21
GENERAL INFORMATION ABOUT THE COMPANY
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each Share entitles its record holder to one vote. As of August 11,
1998, there were 11,202,965 issued and outstanding shares of the Company's
Common Stock.
THE COMPANY'S BOARD OF DIRECTORS AS AFFECTED BY THE MERGER AGREEMENT
If Purchaser purchases Shares pursuant to the Offer, the Merger Agreement
provides that Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of the total number of directors (determined after giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Parent or its affiliates
bears to the total number of Shares then outstanding. The Company has further
agreed, upon the request of Parent, to promptly take all actions necessary to
cause Parent's designees to be so elected, including, if necessary, increasing
the size of the Company Board (to the extent permitted by the Company's Articles
of Incorporation and Bylaws) and seeking the resignations of one or more
existing directors, provided, however, that prior to the effective time of the
Merger, the Company shall use reasonable efforts to retain at least two members
of the Board who are members of the Company Board on the date of the Merger
Agreement.
Parent has informed the Company that Parent will choose Parent's designees
from the list of persons set forth in the following table. With respect to the
Parent's designees, the following table, prepared from information furnished to
the Company by Parent, sets forth the name, age, present principal occupation or
employment and five-year employment history for each of the persons who may be
designated by Parent as Parent's designees. Each of Parent's designees is a
United States citizen. Each occupation set forth opposite a person's name,
unless otherwise indicated, refers to employment with the Parent. If necessary,
the Parent may choose additional or other Parent's designees, subject to the
requirements of Rule 14f-1. Unless otherwise indicated below, the business
address of each person is Two Tower Center, 20th Floor, East Brunswick, New
Jersey 08816.
[Enlarge/Download Table]
NAME AGE POSITION
---- --- --------
Francis D. John 44 Chairman of the Board since August 1996 and Chief Executive
Officer and President since October 1989; Chief Financial
Officer from October 1989 through July 1997; Director of the
Purchaser.
Stephen E. 49 Executive Vice President and Chief Financial Officer since
McGregor July 1997; Senior Advisor to BT Wolfensohn from July 1995 to
July 1997; President and Member of Pacific Century Group
L.L.C. from September 1993 to July 1995; President and Chief
Executive Officer of the Purchaser.
Danny R. Evatt 39 Vice President and Chief Accounting Officer since July 1995
and Treasurer since July 1990.
Kenneth V. Huseman 46 Executive Vice President since March 1996 and Chief
Operating Officer since August 1996; Mid-Continent Regional
President of WellTech, Inc. from August 1994 to March 1996
and Vice President and Mid-Continent Regional Manager of
WellTech, Inc. from April 1993 to August 1994; Vice
President and Treasurer of the Purchaser.
Morton Wolkowitz 70 Private investor since 1989; Director of Parent.
Parent has advised the Company that to the best knowledge of the Parent,
none of the Parent's designees is currently a director of, or holds any position
with, the Company, and except as disclosed in the Offer to Purchase, none of
Parent's designees beneficially owns any securities (or rights to acquire any
securities) of the Company or has been involved in any transactions with the
Company or any or its directors, executive
22
officers or affiliates that are required to be disclosed pursuant to the rules
of the Securities and Exchange Commission ("SEC"), except as may be disclosed in
the Offer. None of the Parent's designees have any family relationship with any
director or executive officer of the Company.
Parent has advised the Company that each of the persons listed in the table
above has consented to act as a director, and that none of such persons have
during the last five years been convicted in a criminal proceeding (excluding
traffic violations and similar misdemeanors) or was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was, or is, subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws or is
involved in any other legal proceeding which is required to be disclosed under
Item 401(f) of Regulation S-K promulgated by the SEC.
It is expected that the Parent's designees may assume office at any time
following the purchase by Parent of a majority of the outstanding Shares
pursuant to the Offer, which purchase cannot be earlier than September 15, 1998,
and that, upon assuming office, Parent's designees will thereafter constitute at
least a majority of the Company Board.
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DIRECTORS AND EXECUTIVE OFFICERS
THE CURRENT MEMBERS OF THE BOARD
The names of the current directors, their ages as of August 15, 1998, and
certain other information about them are set forth below. Some of the current
directors may resign effective immediately following the purchase of Shares by
Purchaser pursuant to the Offer.
[Enlarge/Download Table]
NAME AGE POSITION
---- --- --------
Michael E. Little(1)...................... Chairman of the Board, President and Chief
43 Executive Officer
Russell Banks(1).......................... 78 Director
J. Michael Bell(2)........................ 59 Director
Wm. Ward Greenwood(1)(3).................. 45 Director
Douglas D. Lewis(2)....................... 52 Director
Paul E. McCollam(2)....................... 53 Director
Stephen E. Oakes.......................... 48 Director
Lawrence C. Petrucci(3)................... 39 Director
---------------
(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Michael E. Little has been President, Chief Executive Officer and a
director of the Company since 1982 and Chairman of the Board since 1983. From
1980 to 1982, he was Vice President of Cambern Engineering, Inc., a company that
provided drilling and completion consulting services in the Texas Gulf Coast
area. From 1976 to 1980, he was employed by Chevron USA as a drilling foreman in
Midland, Texas and as a drilling engineer in New Orleans, Louisiana. Mr. Little
received his Bachelor of Science degree in Petroleum Engineering in 1978 from
Texas Tech University.
Russell Banks has been a director of the Company since April 1996. From
1962 to 1995, Mr. Banks was president and chief executive officer of Grow Group,
Inc., which was a New York Stock Exchange company that produced coatings, paints
and household products. Since 1995, Mr. Banks has been a principal of Russell
Banks & Co., Ltd., a financial consulting firm. Mr. Banks is also on the board
of directors of GVC Venture Corporation. Mr. Banks is a past president of the
National Paint and Coatings Association, has served on the executive committee
of the board of directors of the American Management Association and is
currently on its general management council.
J. Michael Bell has been a director of the Company since 1982. For more
than the past five years, he has served as the president of Southwest Venture
Management Company, a firm that provides investment management and advisory
services to three venture capital funds. Mr. Bell also serves as the managing
general partner of each of these funds, one of which is HixVen Partners, a
shareholder of the Company.
Wm. Ward Greenwood has been a director of the Company since 1983. Mr.
Greenwood served as Chief Financial Officer of the Company from December 1994
through December 1995. Since 1990, Mr. Greenwood has been the president and sole
shareholder of Nueces Ventures, Inc. ("Nueces"), a firm that provides financial
consulting services with respect to acquisitions and capital formation. Since
October 1995, he has also served as a principal of First Capital Group of Texas
II, L.P., a private equity fund. Since 1982, Mr. Greenwood has provided
financial consulting services to the Company, most recently through Nueces. See
"Certain Relationships and Related Transactions."
Douglas D. Lewis has been a director of the Company since 1982. Since 1972,
Mr. Lewis has been in the real estate construction, development and management
business, most recently as principal of Vanguard Development, Inc., which he
formed in 1987.
24
Paul E. McCollam has been a director of the Company since 1991. Since 1985,
he has been a managing director of Resource Investors Management Company Limited
Partnership, a full service investment management company specializing in the
energy industry, and the general partner of the RIMCO Parties. Mr. McCollam
serves as a director of the Company pursuant to the Voting Agreement described
below. See "Agreements Relating to Directors."
Stephen F. Oakes has been a director of the Company since 1994. From 1989
to 1992, he served as managing director of Robert Fleming, Inc., an investment
banking company. He has been associated with Resource Investors Management
Company Limited Partnership, a full service investment management company
specializing in the energy industry, and the general partner of RIMCO Partners,
L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III and RIMCO Partners, L.P.
IV (the "RIMCO Parties"), since 1992, serving as managing director since 1993.
Mr Oakes is also a director of Universal Seismic Associates, Inc., a publicly
traded company. Mr. Oakes serves as a director of the Company pursuant to the
Voting Agreement described below. See "Agreements Relating to Directors."
Lawrence C. Petrucci has been a director of the Company since 1996. Since
June 1997, Mr. Petrucci has served as an Associate Director of Scotia Capital
Markets (U.S.A.), Inc., an investment banking and financial advisory service.
From 1991 to 1997, Mr. Petrucci served as vice president of First Albany
Corporation, a provider of investment banking, financial advisory and brokerage
services. From April 1990 through June 1991, Mr. Petrucci was a portfolio
manager with Westinghouse Credit Corporation, a financial services company.
There are no family relationships among any of the directors or executive
officers of the Company.
AGREEMENTS RELATING TO DIRECTORS
An Agreement Regarding Election of Directors dated as of November 21, 1996
(the "Voting Agreement"), provides that the Company will use its best efforts to
cause the election of two persons reasonably acceptable to the Company
designated by the RIMCO Parties to the Company's Board of Directors as long as
the RIMCO Parties own at least 10% of the issued and outstanding shares of
Common Stock, on a fully diluted basis. In addition, as long as the RIMCO
Parties own less than 10% but 5% or more of the issued and outstanding shares of
Common Stock, the Company is required to use its best efforts to elect one
person reasonably acceptable to the Company designated by the RIMCO Parties to
the Company's Board of Directors. Messrs. McCollam and Oakes currently serve as
directors pursuant to these provisions.
INFORMATION CONCERNING THE BOARD
The Board of Directors met eight times in the twelve months ended March 31,
1998. During such twelve-month period, each incumbent director of the Company
attended 75% or more of the aggregate number of (a) meetings of the Board of
Directors held during his tenure, and (b) meetings held by committees of the
Board of Directors on which he served.
The Board of Directors has established standing Audit, Compensation, and
Nomination Committees.
Audit Committee. The Audit Committee annually recommends to the Board of
Directors the appointment of independent certified public accountants as
auditors for the Company, discusses and reviews the fees for the prospective
annual audit, reviews the results with the auditors, reviews the Company's
compliance with its existing accounting and financial policies, reviews the
adequacy of the financial organization of the Company and considers comments by
auditors regarding internal controls and accounting procedures and management's
response to those comments. Messrs. Petrucci and Greenwood currently serve on
the Audit Committee. Mr. Greenwood serves as chair of the committee. One vacancy
exists on this Committee. This Committee met four times during the fiscal year
ended March 31, 1998.
Compensation Committee. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding salaries, compensation and
benefits of executive officers and employees of the Company and administers the
Company's 1995 Incentive Plan. The Compensation Committee currently
25
consists of Messrs. Bell, Lewis and McCollam. Mr. McCollam serves as chair of
the committee. This Committee met four times during fiscal year ended March 31,
1998.
Nominations Committee. The Nominations Committee is responsible for
recommending to the Board of Directors those persons who will be nominated as
the Board of Directors' nominees for positions on the Board of Directors. The
Nominations Committee is comprised of Messrs. Little, Greenwood and Banks. Mr.
Greenwood serves as chair of the committee. The Nominations Committee met once
during the fiscal year ended March 31, 1998. The Nominations Committee will
consider nominations made by shareholders.
COMPENSATION OF DIRECTORS
Pursuant to the Company's director compensation plan, effective September
11, 1997, each director receives (i) an annual retainer of $10,000 earned at
$2,500 per calendar quarter; (ii) Board meeting fees of $2,500 per meeting
attended in person ($500 for meetings attended via teleconference), to a maximum
of $10,000 per fiscal year; (iii) Committee meeting fees of $1,000 per meeting
($1,200 for the Committee Chair), to a maximum of $4,000 per fiscal year (or
$4,800 for the Committee Chair); (iv) annual stock option awards on April 1 of
each year, beginning April 1, 1998, for 5,000 shares of the Company's Common
Stock at the then fair market value, vesting upon termination of service as a
director of the Company, with a five-year term following vesting; and (v) the
reimbursement of reasonable travel expenses incurred in attending meetings of
the Board of Directors.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to each
executive officer of the Company.
[Enlarge/Download Table]
NAME AGE POSITION
---- --- --------
James Byerlotzer..................... 52 Senior Vice President and Chief Operating Officer
P. Mark Stark........................ 43 Chief Financial Officer
Joseph B. Eustace.................... 43 Vice President of East Texas/Gulf Coast Region
Michael R. Furrow.................... 51 Vice President of Permian Basin Region
Jim D. Flynt......................... 53 Vice President of California Region
Officers are elected annually by the Board of Directors and serve until
their successors are chosen or until their resignation or removal.
James Byerlotzer was appointed Senior Vice President and Chief Operating
Officer of the Company on or about April 3, 1997. Mr. Byerlotzer was employed by
the Company on February 20, 1997 upon the closing of the acquisition by the
Company of a transaction (the "Pride Acquisition") in which it acquired all of
the domestic onshore operations of Pride Petroleum Services, Inc., a Louisiana
corporation ("Pride"). From 1981 until his employment with the Company, Mr.
Byerlotzer was employed by Pride. Beginning in February 1996, Mr. Byerlotzer
served as the Vice President Domestic Operations of Pride. Prior to that time,
he served as Pride's Vice President -- Central Area and in various other
operating positions.
P. Mark Stark has served as Chief Financial Officer of the Company since
January 1996. From 1991 through 1995, he was chief financial officer of the Y.O.
Ranch and family holdings of the Schreiner family which has interests in
agribusiness, tourism, lodging and retail and real estate development. From 1979
through 1991, Mr. Stark was employed by Shelton Ranch Corporation and its
successor, Texas Hill Country Orchards, LLP, serving as chief financial officer
from 1984 through 1991. His duties with Shelton Ranch Corporation included
serving as treasurer of Shelton Energy Resources, Ltd., an oil and gas
exploration and production partnership among Shelton Ranch Corporation,
Prudential Insurance Company of America and Shell Oil Company. Mr. Stark
received his Bachelor of Business Administration degree in Finance from the
University of Texas in 1977, and his Master of Business Administration degree in
1978 from Southern Methodist University.
26
Joseph B. Eustace was appointed Vice President of East Texas/Gulf Coast
Region in April 1997. From March 1983 until the Pride Acquisition in February
1997, he served as Vice President of Operations and Chief Operating Officer of
the Company. From June 1981 to March 1982, he served as assistant manager of
ServRigs, Inc., the Company's largest competitor at the time. Mr. Eustace
received his Bachelor of Arts degree in Agribusiness in 1978 from Texas Tech
University.
Michael R. Furrow was appointed Vice President of Permian Basin Region in
April 1997. He was employed by the Company in February 1997 upon the closing of
the Pride Acquisition. Mr. Furrow joined Pride Petroleum Services, Inc. in
February, 1990 where he held the positions of Vice President and area manager in
locations such as Alice, Texas and Bakersfield, California. He has served in his
capacity as a regional manager over the Permian Basin region since January 1996.
Prior to his employment with Pride, Mr. Furrow worked for Harkins & Company for
six years and with Shell Oil Company for 15 years. Pursuant to the provisions of
the Pride Agreement, the Company has agreed that, if it terminates certain
former employees of Pride, including Mr. Furrow, without cause prior to August
1998, the Company shall pay such employee an amount which is equal to the
product of one month's current salary at the time of termination, times such
employee's number of full years of service for Pride.
Jim D. Flynt was appointed Vice President of California Region in April
1997. He was employed by the Company in February 1997 upon the closing of the
Pride Acquisition. Mr. Flynt joined Pride Petroleum Services, Inc. in January,
1996 as the Vice President and area manager for the Western Area which is the
California Region for Dawson. Prior to his employment with Pride, Mr. Flynt
worked for California Production Service for over 19 years, 12 of which were in
the capacity of Vice President of Operations. Pursuant to the provisions of the
Pride Agreement, the Company has agreed that, if it terminates certain former
employees of Pride, including Mr. Flynt, without cause prior to August 1998, the
Company shall pay such employee an amount which is equal to the product of one
month's current salary at the time of termination, times such employee's number
of full years of service for Pride.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal years
ended March 31, 1998, 1997 and 1996, with respect to the Chief Executive Officer
(Mr. Little), the Chief Operating Officer (Mr. Byerlotzer), the Vice President
of East Texas/Gulf Coast Region (Mr. Eustace), the Vice President of the
California Region (Mr. Flynt) and the Vice President of the Permian Basin (Mr.
Furrow) (collectively, the "Named
27
Executive Officers"). There were no other executive officers of the Company who
received annual compensation (including salary and bonuses earned) which
exceeded $100,000 during fiscal year 1998.
[Enlarge/Download Table]
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
----------------------- -------------------------
SECURITIES
FISCAL PRINCIPAL UNDERLYING ALL OTHER
NAME YEAR POSITION SALARY BONUS(2) OPTIONS COMPENSATION
---- ------ --------- ---------- ---------- ---------- ------------
Michael E.
Little........... 1998 Chairman of the Board, $264,423 $163,489(3) 30,000 --
1997 President and Chief $174,038 $175,000 87,380 --
1996 Executive Officer $150,000 $ 50,000 51,600 --
James Byerlotzer... 1998 Chief Operating $166,519(4) $ 59,265 12,429 --
1997 Officer $ 22,749 -- -- --
1996 -- -- -- --
Joseph B.
Eustace.......... 1998 Vice President of East $132,212 $ 33,398(3) 7,125 --
1997 Texas/Gulf Coast $124,000 $ 80,000 63,520 --
1996 Region $ 96,200 $ 20,000 17,200 --
Jim D. Flynt....... 1998 Vice President of $120,000(4) $ 30,802 6,964 --
1997 California Region $ 20,577 -- -- --
1996 -- -- -- --
Michael R.
Furrow........... 1998 Vice President of $112,568(4) $ 45,698 6,429 --
1997 Permian Basin Region $ 18,849 -- -- --
1996 -- -- -- --
---------------
(1) The value of perquisites and personal benefits are excluded because the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each Named Executive Officer.
(2) Bonuses are awarded annually in the discretion of the Compensation Committee
with respect to performance in the fiscal year indicated; the amount of the
bonuses is determined and the bonuses are paid in the following fiscal year.
(3) In the fiscal year ended March 31, 1996, in addition to standard bonuses,
the Board of Directors declared special bonuses in the amount of $241,000
for Mr. Little and $24,000 for Mr. Eustace, each of whom exercised
non-statutory stock options and incurred federal income tax liability in
connection with such exercises.
(4) Employment commenced February 1, 1997.
STOCK OPTION GRANTS IN FISCAL 1998
The following table shows information concerning individual grants of stock
options during fiscal year 1998 to the Named Executive Officers.
[Enlarge/Download Table]
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
NO. OF SECURITIES OPTIONS OPTION TERM
UNDERLYING GRANTED TO EXERCISE EXPIRATION ---------------------------
NAME OPTIONS GRANTED EMPLOYEES PRICE DATE 5% 10%
---- ----------------- ---------- -------- ---------- -- ---
Michael E. Little.......... 30,000 34.7% $17.25 6/30/07 $325,453 $824,762
James Byerlotzer........... 12,429 14.4% $17.25 6/30/07 $134,835 $341,699
Joseph B. Eustace.......... 7,125 8.2% $17.25 6/30/07 $ 77,295 $195,881
Jim D. Flynt............... 6,964 8.0% $17.25 6/30/07 $ 75,548 $191,455
Michael R. Furrow.......... 6,429 7.4% $17.25 6/30/07 $ 69,745 $176,746
28
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended March 31, 1998, and the number and value of
unexercised stock options held as of the end of the fiscal year ended March 31,
1998 by the Named Executive Officer.
[Enlarge/Download Table]
AT MARCH 31, 1998
-----------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
OPTIONS OPTIONS
OPTIONS --------------------------- -----------------------------
NAME EXERCISED EXERCISABLE UNEXERCISABLE EXERCISABLE* UNEXERCISABLE*
---- --------- ----------- ------------- ------------ --------------
Michael E. Little................... 0 151,052 82,428 $1,907,032 $661,904
James Byerlotzer.................... 0 0 12,429 $ 0 $ 0
Joseph B. Eustace................... 0 64,108 45,237 $ 809,364 $481,164
Jim D. Flynt........................ 0 0 6,964 $ 0 $ 0
Michael R. Furrow................... 0 0 6,429 $ 0 $ 0
---------------
* Based on closing price of $12.625 on March 31, 1998.
ACCELERATION OF OPTION VESTING UNDER MERGER AGREEMENT
Under the Merger Agreement, vesting of all of the Company's outstanding
options will be accelerated immediately prior to the effectiveness of the
Merger, and the Company will pay in cash the net value reflected by each such
option (comparing the exercise price thereof with the Offer Price of $17.50) to
each option holder in cancellation of the option.
EMPLOYMENT AGREEMENTS
Little Employment Agreement. The Company and Michael E. Little, Chairman,
President and Chief Executive Officer of the Company entered into an employment
agreement effective April 1, 1996. Mr. Little and the Company amended this
employment agreement effective April 1, 1998. The employment agreement, as
amended, provides for a four-year term that will expire on March 31, 2000. Mr.
Little's annual base salary is $300,000 for 1997, 1998 and 1999. Mr. Little is
eligible for a bonus pursuant to the benefit plan entitled "Compensation
Program, Board of Directors Summary," which was approved by the Board of
Directors on July 31, 1997. Mr. Little's bonus is capped at 100% of his annual
base salary. Before a change of control of the Company, (i) if Mr. Little
terminates his employment with the Company for cause, or if the Company
terminates Mr. Little's employment without cause, Mr. Little will receive two
year's base salary as severance, and (ii) if Mr. Little terminates his
employment with the Company without cause, or if the Company terminates Mr.
Little's employment for cause, Mr. Little will not receive any severance
payment. For a period of one year after a change of control of the Company, if
Mr. Little terminates his employment with the Company for cause, or if the
Company terminates Mr. Little's employment without cause, Mr. Little will
receive three year's base salary as severance. For a period of 60 days after a
change of control, Mr. Little may terminate his employment with the Company
without cause and still receive three year's base salary as severance. If Mr.
Little is terminated by the Company for cause, even after a change of control,
Mr. Little will not receive any severance. On August 10, 1998, Mr. Little and
the Company entered into a second amendment to the employment agreement, in
which the Company agreed to pay Mr. Little such additional amounts as may be
necessary to cover the taxes Mr. Little would have to pay on any "excess
parachute payments" he is entitled to receive pursuant to his employment
agreement.
Byerlotzer Employment Agreement. The Company and Jim Byerlotzer, Senior
Vice President and Chief Operating Officer of the Company, entered into an
employment agreement effective July 1, 1998. The employment agreement provides
for a two-year term that will expire on June 30, 2000. Mr. Byerlotzer's annual
base salary during the term of the agreement is $150,000. Mr. Byerlotzer is
eligible for a bonus from the Company, but such bonus is discretionary upon a
determination by the Board of Directors. Before a change of control of the
Company, (i) if Mr. Byerlotzer terminates his employment with the Company for
cause, or if the Company terminates Mr. Byerlotzer's employment without cause,
Mr. Byerlotzer will receive one year's
29
base salary as severance, and (ii) if Mr. Byerlotzer terminates his employment
with the Company without cause, or if the Company terminates Mr. Byerlotzer's
employment for cause, Mr. Byerlotzer will not receive any severance payment. For
a period of one year after a change of control, if the Company terminates Mr.
Byerlotzer without cause, Mr. Byerlotzer will receive 18 months' salary as
severance. For a period of two years after a change of control, if Mr.
Byerlotzer terminates his employment with the Company for cause, he will receive
one year's salary as severance. After a change of control, if Mr. Byerlotzer
terminates his employment with the Company without cause, or if the Company
terminates Mr. Byerlotzer's employment for cause, Mr. Byerlotzer will not
receive any severance payment. On August 10, 1998, Mr. Byerlotzer and the
Company entered into an amendment to the employment agreement, in which the
Company agreed to pay Mr. Byerlotzer such additional amounts as may be necessary
to cover the taxes Mr. Byerlotzer would have to pay on any "excess parachute
payments" he is entitled to receive pursuant to his employment agreement.
Stark Employment Agreement. The Company and P. Mark Stark, Chief Financial
Officer of the Company, entered into an employment agreement effective April 1,
1998. The employment agreement provides for a two-year term that will expire on
March 31, 2000. Mr. Stark's annual base salary is $120,000 for 1998 and $140,000
for 1999. Mr. Stark is eligible for a bonus from the Company, but such bonus is
discretionary upon a determination by the Board of Directors. Before a change of
control of the Company, (i) if Mr. Stark terminates his employment with the
Company for cause, or if the Company terminates Mr. Stark's employment without
cause, Mr. Stark will receive one year's base salary as severance, and (ii) if
Mr. Stark terminates his employment with the Company without cause, or if the
Company terminates Mr. Stark's employment for cause, Mr. Stark will not receive
any severance payment. For a period of one year after a change of control, if
the Company terminates Mr. Stark without cause, Mr. Stark will receive 18
months' salary as severance. For a period of two years after a change of
control, if Mr. Stark terminates his employment with the Company for cause, he
will receive one year's salary as severance. After a change of control, if Mr.
Stark terminates his employment with the Company without cause, or if the
Company terminates Mr. Stark's employment for cause, Mr. Stark will not receive
any severance payment. On August 10, 1998, Mr. Stark and the Company entered
into an amendment to the employment agreement, in which the Company agreed to
pay Mr. Stark such additional amounts as may be necessary to cover the taxes Mr.
Stark would have to pay on any "excess parachute payments" he is entitled to
receive pursuant to his employment agreement.
Eustace Employment Agreement. The Company and Joseph Eustace, Vice
President of the East Texas/Gulf Coast Region, entered into an employment
agreement effective April 1, 1996. The employment agreement provides for a
three-year term that will expire on March 31, 1999. Mr. Eustace's annual base
salary is $125,000 for the first year, increasing to $132,500 in the second year
and to $140,000 in the third year. Mr. Eustace is eligible for a bonus from the
Company, but such bonus is discretionary upon a determination by the Board of
Directors. If Mr. Eustace's employment is terminated by the Company without
cause, Mr. Eustace will receive one year's salary as severance. If Mr. Eustace's
employment is terminated by the Company without cause during the 12-month period
following a change of control of the Company, Mr. Eustace will receive 18
months' salary as severance. If Mr. Eustace terminates his employment with the
Company for cause within 12 months of a change of control of the Company, Mr.
Eustace will receive 12 months' salary as severance. If the Company terminates
Mr. Eustace's employment for cause, Mr. Eustace is not entitled to any
severance. On August 10, 1998, Mr. Eustace and the Company entered into an
amendment to the employment agreement, in which the Company agreed to pay Mr.
Eustace such additional amounts as may be necessary to cover the taxes Mr.
Eustace would have to pay on any "excess parachute payments" he is entitled to
receive pursuant to his employment agreement.
EMPLOYEE SEVERANCE PAY PLAN
As of August 7, 1998, the Board of Directors adopted an Employee Severance
Pay Plan ("Severance Plan"). The Severance Plan provides severance benefits to
office employees and salaried employees, as those categories of employees are
set forth in the Company's payroll records. The Severance Plan provides
severance benefits only if the employee is a full-time employee. The Chief
Executive Officer, Chief Financial Officer, and Chief Operating Officer are
entitled to receive benefits under the Severance Plan unless they are entitled
30
to severance benefits from the Company through a separate agreement, in which
case the separate agreement will control.
Severance benefits are triggered if an employee is involuntarily terminated
by the Company, or its successor, within 18 months after the Company undergoes a
Change of Control (as defined in the Severance Plan), except if (a) the employee
is terminated with cause, (b) the employee is terminated but is immediately
offered a similar or equivalent position, with similar duties and with no
decrease in base pay, and which is within commuting distance from the employee's
principal residence, or (c) the employee is terminated due to the sale of the
Company where the individual is immediately offered a similar or equivalent
position, with similar duties and with no decrease in base pay, and which is
within commuting distance from the employee's principal residence. The Severance
Plan provides for severance benefits of one month's salary for each full year of
service, except that the minimum amount of severance benefits which an eligible
employee can receive is three months' salary. The Severance Plan cannot be
modified by the new management of the Company for 18 months after a Change of
Control. The Severance Plan will automatically terminate five years after the
effective date of the Severance Plan if there has not been a Change of Control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 15, 1998 by (i) each director of the
Company, (ii) each Named Executive Officer, (iii) each person known or believed
by the Company to own beneficially 5% or more of the Common Stock, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each
person has sole voting and dispositive power with respect to such shares.
[Enlarge/Download Table]
NUMBER OF PERCENT BENEFICIALLY
NAME OF BENEFICIAL OWNER SHARES(1) OWNED(1)
------------------------ --------- --------------------
Michael E. Little........................................... 295,197(2) 2.6%
Russell Banks............................................... 11,600(3) *
J. Michael Bell............................................. 21,500(4) *
James Byerlotzer............................................ 3,486(5) *
Joseph B. Eustace........................................... 87,530(6) *
Michael R. Furrow........................................... 2,646(7) *
Wm. Ward Greenwood.......................................... 17,723(8) *
Douglas D. Lewis............................................ 23,933(8) *
Paul E. McCollam............................................ 1,267,334(9) 11.3%
Stephen F. Oakes............................................ 1,263,034(10) 11.3%
Lawrence C. Petrucci........................................ 9,100(11) *
P. Mark Stark............................................... 17,803(12) *
RIMCO Partners, L.P.
RIMCO Partners, L.P. II
RIMCO Partners, L.P. III
RIMCO Partners, L.P. IV................................ 1,280,234(13) 11.4%
Resource Investors Management Company
Limited Partnership, their general partner
RIMCO Associates, Inc., its general partner
22 Waterville Road
Avon, Connecticut 06001
Key Energy Group, Inc....................................... 820,500(14) 7.3%
All executive officers and directors as a group (12
persons).................................................. 1,770,252(15) 15.34%
---------------
* Less than 1%
(1) Shares of Common Stock that are not outstanding but that can be acquired by
a person within 60 days upon exercise of an option or similar right are
included in the number of shares beneficially owned and
31
in computing the percentage for such person but are not included in the number
of shares beneficially owned and in computing the percentage for any other
person.
(2) Includes immediately exercisable options to purchase 157,052 shares of
Common Stock.
(3) Includes immediately exercisable options to purchase 8,600 shares of Common
Stock.
(4) Includes immediately exercisable options for the purchase of 17,200 shares
of Common Stock, and 4,300 shares of Common Stock owned by Mr. Bell's wife
as to which Mr. Bell disclaims any beneficial ownership.
(5) Includes immediately exercisable options to purchase 2,486 shares of Common
Stock.
(6) Includes immediately exercisable options to purchase 65,533 shares of
Common Stock.
(7) Includes 560 shares held by Michael R. Furrow's wife, Peggy H. Furrow.
(8) Includes immediately exercisable options to purchase 17,200 shares of
Common Stock.
(9) Includes 1,250,134 shares of Common Stock beneficially owned by the RIMCO
Parties and immediately exercisable options to purchase 17,200 shares of
Common Stock. Mr. McCollam intends to direct to the RIMCO Parties the
economic benefit of any options he has acquired in his capacity as a
director of the Company. Mr. McCollam's address is c/o RIMCO Associates,
Inc., 600 Travis Street, Suite 6875, Houston, Texas 77002.
(10) Includes 1,250,134 shares of Common Stock beneficially owned by the RIMCO
Parties and immediately exercisable options to purchase 12,900 shares of
Common Stock. Mr. Oakes intends to direct to the RIMCO Parties the economic
benefit of any options he has acquired in his capacity as a director of the
Company. Mr. Oakes' address is c/o RIMCO Associates, Inc., 22 Waterville
Road, Avon, Connecticut 06001.
(11) Includes immediately exercisable options to purchase 8,600 shares of Common
Stock.
(12) Represents immediately exercisable options to purchase shares of Common
Stock.
(13) The RIMCO Parties are limited partnerships; the general partner of each is
Resource Investors Management Company Limited Partnership, and its general
partner is RIMCO Associates, Inc. Voting and investment power over the
shares held by the RIMCO Parties is exercised by the managing
directors of Resource Investors Management Company Limited Partnership, and
by the officers and directors of RIMCO Associates, Inc. Messrs. McCollam
and Oakes, directors of the Company, are managing directors of Resource
Investors Management Company Limited Partnership. Includes immediately
exercisable options to purchase 30,100 shares of Common Stock held by
Messrs. McCollam and Oakes.
(14) The address of Key Energy Group is Two Tower Center, Twentieth Floor, East
Brunswick, NJ 08816.
(15) Includes immediately exercisable options to purchase 338,760 shares of
Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 1, 1994, the Company loaned Mr. Little, Chairman of the Board,
President and Chief Executive Officer of the Company, $55,456, which amount
bears interest at 7.5% per annum, provides for annual payments of interest and
for one principal payment at the end of the six-year term of the note. The loan
was made to enable Mr. Little to acquire 33,699 shares of Common Stock and is
secured by those shares. In February 1996, the Company loaned Mr. Little
$75,000, which amount bears interest at 7.5% per annum, provides for annual
payments of interest and provides for one principal payment at the end of the
six-year term of the note. This loan was made to enable Mr. Little to exercise
options to acquire 32,250 shares of Common Stock and is secured by those shares.
The maximum indebtedness from Mr. Little to the Company during the fiscal year
ended March 31, 1998 was $134,374 and the balance due on that indebtedness as of
July 15, 1998 was $135,580.
32
See "Agreements Relating to Directors," in this Information Statement, for
a discussion of the Voting Agreement.
Gene Little, the father of Michael E. Little, serves as an operations
consultant to the Company and received fees and expense reimbursements of
approximately $54,450 in the fiscal year ended March 31, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
During the fiscal year ended March 31, 1998, based on a review of Forms 3
and 4 furnished to the Company during its most recent fiscal year and Forms 5
furnished to the Company with respect to its most recent fiscal year, Mike
Furrow failed to make a timely filing of one Form 4 which was required to report
one transaction involving the purchase of shares of Common Stock.
33
ANNEX B
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
August 11, 1998
Board of Directors
Dawson Production Services, Inc.
112 E. Pecan Street, Suite 1000
San Antonio, TX 78205
Members of the Board:
We understand that Dawson Production Services, Inc. ("Dawson" or the
"Company"), Key Energy Group, Inc. ("Key") and Midland Acquisition Corp., a
wholly-owned subsidiary of Key, ("Midland") propose to enter into an Agreement
and Plan of Merger substantially in the form of the draft dated August 11, 1998
(the "Merger Agreement") which provides, among other things, for (i) the
commencement by Midland of a tender offer (the "Tender Offer") for all
outstanding shares of common stock, par value $.01 per share (the "Dawson Common
Stock") of Dawson for $17.50 per share net to the seller in cash, and (ii) the
subsequent merger (the "Merger") of Midland with and into Dawson. Pursuant to
the Merger, Dawson will become a wholly owned subsidiary of Key, and each
outstanding share of Dawson Common Stock, other than shares held in treasury or
held by Key or any affiliate of Key or as to which dissenters' rights have been
perfected, will be converted into the right to receive $17.50 per share in cash.
The terms and conditions of the Tender Offer and the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Dawson Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than Key
and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Dawson
Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Dawson Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives
of the Company, Key and their financial and legal advisors;
(ix) reviewed the estimates of the fair market value of certain of the
assets of the Company prepared by the management of the Company;
Board of Directors
August 11, 1998
Page 2
(x) reviewed the draft Merger Agreement and certain related documents; and
(xi) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgements of the future financial performance of the
Company. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company; however, we have reviewed the estimates referred
to in (ix) above and have relied without independent verification upon such
estimates for purposes of this opinion. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent except that this opinion may be included in its entirety
in any filing made by the Company in respect of the transaction with the
Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to whether the shareholders of the Company should
accept the Tender Offer.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Dawson Common Stock is
fair from a financial point of view to such holders (other than Key and its
affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Gordon E. Dyal
------------------------------------
Gordon E. Dyal
Managing Director
2
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘SC 14D9’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 6/30/00 | | 4 | | 31 | | | 10-K, 10-K/A, 8-K/A |
| | 3/31/00 | | 4 | | 32 | | | 10-Q |
| | 3/31/99 | | 5 | | 32 | | | 10-K/A, 10-Q, 10-Q/A, 8-K/A, S-3/A, S-4/A |
| | 12/31/98 | | 7 | | 11 | | | 10-Q, 10-Q/A |
| | 9/15/98 | | 25 | | | | | 8-K, 8-K/A, SC 14D1/A |
| | 9/14/98 | | 23 |
| Filed on: | | 8/18/98 |
| | 8/17/98 | | 1 | | 23 | | | SC 14D1 |
| | 8/15/98 | | 26 |
| | 8/11/98 | | 3 | | 37 |
| | 8/10/98 | | 4 | | 32 |
| | 8/9/98 | | 18 |
| | 8/8/98 | | 13 | | 21 |
| | 8/7/98 | | 5 | | 32 | | | PREC14A |
| | 8/5/98 | | 17 | | | | | PREM14A, SC 13D/A |
| | 8/4/98 | | 17 |
| | 8/3/98 | | 17 | | | | | S-3 |
| | 8/1/98 | | 17 |
| | 7/30/98 | | 17 | | 19 | | | 8-K |
| | 7/21/98 | | 16 | | | | | SC 13D/A |
| | 7/20/98 | | 15 | | 16 |
| | 7/17/98 | | 15 | | 20 |
| | 7/15/98 | | 33 | | 34 |
| | 7/14/98 | | 15 |
| | 7/7/98 | | 15 | | 16 |
| | 7/3/98 | | 19 |
| | 7/1/98 | | 4 | | 31 |
| | 6/30/98 | | 17 | | | | | 10-K, 10-K/A, 10-Q, NT 10-Q |
| | 6/29/98 | | 14 | | 16 | | | SC 13D/A |
| | 6/15/98 | | 14 | | 15 | | | SC 13D |
| | 6/12/98 | | 15 | | 19 |
| | 4/1/98 | | 4 | | 32 |
| | 3/31/98 | | 9 | | 35 | | | 10-K, 10-K/A, 10-Q |
| | 3/10/98 | | 14 |
| | 2/24/98 | | 14 |
| | 2/16/98 | | 14 |
| | 2/10/98 | | 14 | | | | | SC 13G |
| | 9/11/97 | | 28 | | | | | DEF 14A, SC 13D/A |
| | 7/31/97 | | 4 | | 31 |
| | 4/3/97 | | 28 | | | | | S-3 |
| | 3/31/97 | | 29 | | | | | 10-K, 10-Q |
| | 2/20/97 | | 20 | | 28 | | | 8-K |
| | 2/1/97 | | 30 |
| | 11/21/96 | | 27 |
| | 4/1/96 | | 4 | | 32 |
| | 3/31/96 | | 29 | | 30 | | | 10-Q |
| | 11/1/94 | | 34 |
| List all Filings |
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Filing Submission 0000950133-98-003123 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
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