13. TRANSACTIONS WITH RELATED PARTIES
In connection with the OEI acquisition (see Note 2), Key has agreed to grant D.
Kirk Edwards (President and CEO of OEI) a percentage reversionary working
interest in five deep gas wells located in West Texas upon repayment of
$1,622,000 of the assumed bank debt from Key's earnings from the five wells. The
percentage reversionary working interest decreases based on the date of
repayment of the assumed bank debt and ranges from 20% of the earnings from the
five wells if repayment occurs on or prior to July 7, 1995, to 5% of the
earnings from the five wells if repayment occurs after July 7, 1996. The value
of the reversionary interest assigned was insignificant at July 1, 1993.
Key leases automotive equipment from an independent third party (see Note 10),
which purchases the automotive equipment from an automobile dealership in which
a former officer owns a majority interest. Net proceeds to the automobile
dealership totaled $399,000 and $1,058,000 for years ended June 30, 1995 and
1994, respectively, and $449,000 and $132,000 for the seven months ended June
30, 1993 and the five months ended November 30, 1992, respectively. The leases
are considered operating leases. In the opinion of the Board of Directors of
Key, the net proceeds from automotive equipment were on terms at least as
favorable to Key as could have been obtained from a third party. This opinion is
based on information provided by a third party leasing company, that is not
affiliated with the former officer or Key, to the Board of Directors regarding
purchase prices and equipment lease rentals offered by third parties.
Key paid $55,000, $57,000 and $33,000 for the year ended June 30, 1994, the
seven months ended June 30, 1993 and the five months ended November 30, 1992,
respectively (none during fiscal 1995), for oil field related services and
equipment to two oil field related companies in which two officers of Key have
an interest. In the opinion of the Board of Directors of Key, based on the
Board's review of competitive bids, these transactions were on terms at least as
favorable to Key as could have been obtained from a third party.
During fiscal 1992, two officers of Key loaned Key $90,000 to purchase a shop
and office building from a related party. The note bears interest at 8% with
interest payable monthly beginning January 19, 1992. The principal balance is
due and payable on December 19, 1993. Key paid approximately $6,000 in principal
and interest during fiscal 1992. The principal balance of the note was $32,000
at November 30, 1992 and June 30, 1992. At June 30, 1992, the two officers who
held the note agreed to reduce the note by $57,000 in lieu of accounts
receivable due to Key from the same two officers. During fiscal 1994, the same
two officers agreed to forgive $32,000, the balance of the note, due from Key.
On February 27, 1991, Key completed the private placement of $525,000 principal
amount of Senior Convertible Notes (the "Notes") due 1995 with individual and
institutional investors, some of whom are current officers and directors of Key.
The principal amount at June 30, 1994 and 1993 was $19,000 and $149,000,
respectively. The Notes bear interest at 8%, and the principal balance is to be
paid over 20 equal monthly installments. In addition, each $1,000 Note is
accompanied by a warrant to purchase Key's Common Stock for $14.50 per share.