-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L2Xw8dit2HITuvP7UYv1Mujud+OPEc2FfDfBBRs4tAvmD+h6QZY+cyvinf/mI8ib JcrXjtzBi92Cgiy/9tFHJw== 0000318996-97-000013.txt : 19971117 0000318996-97-000013.hdr.sgml : 19971117 ACCESSION NUMBER: 0000318996-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEY ENERGY GROUP INC CENTRAL INDEX KEY: 0000318996 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 042648081 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22665 FILM NUMBER: 97721832 BUSINESS ADDRESS: STREET 1: TWO TOWER CTR TENTH FLOOR CITY: EAST BRUNSWICK STATE: NJ ZIP: 08816 BUSINESS PHONE: 9082474822 MAIL ADDRESS: STREET 1: P O BOX 10627 CITY: MIDLAND STATE: TX ZIP: 79702 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE COMPANIES INC DATE OF NAME CHANGE: 19891012 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE OIL & GAS INC DATE OF NAME CHANGE: 19841122 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8038 KEY ENERGY GROUP, INC. (Exact name of registrant as specified in its charter) Maryland 04-2648081 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Tower Center, Twentieth Floor, East Brunswick, NJ 08816 (Address of Principal executive offices) (ZIP Code) Registrant's telephone number including area code: (732) 247-4822 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant has filed documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court since there was a distribution of securities under a plan confirmed by a court. Yes X No Common Shares outstanding at November 14, 1997: 18,148,056 KEY ENERGY GROUP, INC. AND SUBSIDIARIES INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 19 Item 2. Changes in Securities and Use of Proceeds. 19 Item 3. Defaults Upon Senior Securities. 19 Item 4. Submission of Matters to a Vote of Security Holders. 19 Item 6. Exhibits and Reports on Form 8-K. 19 Signatures. 22 - 2 - Key Energy Group, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) September 30, June 30, (Thousands, except share and per share data) 1997 1997 - ------------------------------------------------------------------------------- ASSETS Current Assets: Cash $49,276 $41,704 Accounts receivable, net of allowance for doubtful accounts 64,909 45,230 Inventories 6,421 5,171 Prepaid expenses and other current assets 995 1,228 - ------------------------------------------------------------------------------ Total Current Assets 121,601 93,333 - ------------------------------------------------------------------------------ Oilfield service equipment 301,313 176,326 Oil and gas well drilling equipment 6,658 6,319 Motor vehicles 11,848 10,569 Oil and gas properties and other related equipment, successful efforts method 25,680 23,622 Furniture and equipment 1,980 1,661 Buildings and land 10,059 8,758 - ------------------------------------------------------------------------------ 354,538 227,255 Accumulated depreciation & depletion (23,890) (19,069) - ------------------------------------------------------------------------------ Net Property and Equipment 330,648 208,186 - ------------------------------------------------------------------------------ Other Assets 45,979 18,576 - ------------------------------------------------------------------------------ Total Assets $501,228 $320,095 ============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $17,149 $15,339 Other accrued liabilities 20,947 12,507 Accrued interest 273 2,102 Accrued income taxes 3,943 1,664 Deferred tax liability 126 126 Current portion of long-term debt 1,270 1,404 - ------------------------------------------------------------------------------ Total Current Liabilities 43,708 33,142 - ------------------------------------------------------------------------------ Long-term debt, less current portion 263,712 172,763 Non-current accrued expenses 4,015 4,017 Deferred tax liability 61,957 35,738 Minority interest - 1,256 Commitments and contingencies Stockholders' equity: Common stock, $.10 par value; 25,000,000 shares authorized, 17,954,672 and 12,297,752 shares issued and outstanding at September 30, 1997 and June 30, 1997, respectively 1,795 1,230 Additional paid-in capital 104,185 55,031 Retained earnings 21,856 16,918 - ------------------------------------------------------------------------------ Total Stockholders' Equity 127,836 73,179 - ------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $501,228 $320,095 ============================================================================== See the accompanying notes which are an integral part of these Consolidated financial statements. - 3 - Key Energy Group, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) Three Months Ended September 30, (Thousands, except per share data) 1997 1996 - ------------------------------------------------------------------------------- REVENUES: Oilfield services $69,498 $27,311 Oil and gas 2,154 1,525 Oil and gas well drilling 2,823 2,324 Other, net 1,081 302 - ------------------------------------------------------------------------------ 75,556 31,462 - ------------------------------------------------------------------------------ COSTS AND EXPENSES: Oilfield services 48,239 19,700 Oil and gas 937 513 Oil and gas well drilling 2,263 1,881 Depreciation, depletion and amortization 5,147 2,095 General and administrative 7,701 3,527 Interest 3,438 1,350 - ------------------------------------------------------------------------------ 67,725 29,066 - ------------------------------------------------------------------------------ Income before income taxes and minority interest 7,831 2,396 Income tax expense 2,893 784 Minority interest in net income - 58 - ------------------------------------------------------------------------------ NET INCOME $4,938 $1,554 ============================================================================== EARNINGS PER SHARE : Primary: Net income $0.32 $0.14 Assuming full dilution: Net income $0.25 $0.13 ============================================================================== WEIGHTED AVERAGE OUTSTANDING: Primary 15,665 10,894 Assuming full dilution 20,161 16,974 ============================================================================== See the accompanying notes which are an integral part of these consolidated financial statements. - 4 - Key Energy Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended (unaudited) September 30, (Thousands) 1997 1996 - ------------------------------------------------------------------------------- Net income $4,938 $1,554 Adjustments to reconcile income from operations to net cash provided by operations: Depreciation, depletion and amortization 5,147 2,095 Deferred income taxes 2,893 784 Minority interest in net income - 58 Change in assets and liabilities net of effects from the acquisitions: Increase in accounts receivable (6,224) (1,912) Increase (decrease) in other current assets 1,400 (449) Decrease in accounts payable and accrued expenses (972) 853 Increase (decrease) in accrued interest (1,829) 664 Other assets and liabilities (1,293) (631) - ------------------------------------------------------------------------------ Net cash provided by operating activities 4,060 3,016 - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures - Well service operations (6,694) (2,900) Capital expenditures - Oil and gas operations (2,058) (41) Capital expenditures - Oil and gas well drilling operations (339) (323) Cash received in acquisitions 2,903 - Acquisitions - well service operations - net of cash acquired (107,630) - Acquisitions - oil and gas well drilling operations (14,610) - Acquisitions - minority partnership interests (3,426) - Expenditures for oil and gas properties - (281) - ------------------------------------------------------------------------------ Net cash used in investing activities (131,854) (3,545) - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt (318) (899) Repayment of long-term debt (197,000) (35,413) Borrowings (payments) under line-of-credit 134,000 939 Proceeds from stock options exercised - 58 Proceeds from warrants exercised 4,123 - Proceeds from long-term debenture - net - 50,440 Proceeds from long-term commercial paper debt - net 194,500 - Proceeds from other long-term debt 61 - - ------------------------------------------------------------------------------ Net cash provided by financing activities 135,366 15,125 - ------------------------------------------------------------------------------ Net increase in cash 7,572 14,596 Cash at beginning of period 41,704 4,211 - ------------------------------------------------------------------------------ Cash at end of period $49,276 $18,807 ============================================================================== See the accompanying notes which are an integral part of these consolidated financial statements. - 5 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company The consolidated financial information in this report includes the accounts of Key Energy Group, Inc. (the "Company" or "Key") and its wholly-owned subsidiaries and was prepared in conformity with accounting policies used in the Annual Report on Form 10-K furnished for the preceding fiscal year. As of November 14, 1997, the Company operated a fleet of approximately 775 well service rigs, 608 fluid hauling and other trucks, and 27 drilling rigs (including 17 workover rigs, 14 trucks, and six drilling rigs in Argentina). The Company believes that, as of November 14, 1997, Key's well service and workover rig fleet and fluid hauling and other truck fleet were the largest active fleets onshore in the continental United States and the second largest fleet in Argentina. The Company operates in most onshore oil and natural gas producing regions of the continental United States and provides a full range of maintenance and workover services to major and independent oil and gas companies in all its operating regions. In addition to maintenance and workover services, Key also provides services which include the completion of newly drilled wells, the re-completion of existing wells (including horizontal recompletions) and the plugging and abandonment of wells at the end of their useful lives. Other services include oil field fluid transportation, storage and disposal services, frac tank rentals, fishing and rental tools, wire-line services, air drilling and hot oiling. In addition, the Company is engaged in contract drilling in West Texas and Argentina and owns and produces oil and natural gas in the Permian Basin. The Company conducts its domestic operations primarily through six wholly-owned subsidiaries: Yale E. Key, Inc. ("Yale E. Key"); WellTech Eastern, Inc. ("WellTech Eastern"); Key Four Corners, Inc. ("Key Four Corners"); Key Rocky Mountain, Inc. ("Key Rocky Mountain"); Odessa Exploration Incorporated ("Odessa Exploration"); and Key Energy Drilling, Inc. ("Key Energy Drilling"). In addition, Key operates in Argentina through its indirect wholly-owned subsidiaries, Servicios WellTech S.A. ("Servicios") and Kenting Drilling (Argentina) S.A. ("Kenting"). WellTech Eastern operates through three divisions: WellTech Mid-Continent Division, WellTech Eastern Division and Brooks Well Servicing Division. Yale E. Key, WellTech Eastern, Key Four Corners, Key Rocky Mountain, Servicios and Kenting provide oil and gas well services. Odessa Exploration is engaged in the production of oil and gas, and Key Energy Drilling, Servicious, Kenting, Brooks Well Servicing Division and Key Four Corners provide contract oil and gas well drilling services. Odessa Exploration utilizes the successful efforts method of accounting for its oil and gas properties. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized, while nonproductive exploration costs and geological and geophysical costs (if any), are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method based on proved reserves expressed as net equivalent barrels as reviewed by independent petroleum engineers. The carrying amounts of properties sold or otherwise disposed of and the related allowance for depletion are eliminated from the accounts and any gain/loss is included in results of operations. Odessa Exploration's aggregate oil and gas properties are stated at cost, not in excess of total estimated future net revenues net of related income tax effects. - 6 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 (unaudited) In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position as of September 30, 1997, the statement of cash flows for the three months ended September 30, 1997 and 1996, and the results of operations for the three month period then ended. 2. BUSINESS AND PROPERTY ACQUISITIONS Acquisitions Completed after September 30, 1997 The following described acquisitions have been completed since September 30, 1997. The results of operations from these acquisitions are not included in the Company's results of operations for the three months ended September 30, 1997. GSI Trucking Company, Inc., Kahlden Production Services, Inc. and McCurdy Well Service, Inc. On October 3, 1997, the Company acquired certain assets of GSI Trucking Company, Inc., Kahlden Production Services, Inc. and McCurdy Well Service, Inc. ("GSI, Kahlden and McCurdy") for approximately $1.6 million in cash. GSI, Kahlden and McCurdy operate 12 fluid hauling trucks. Upon completion of the acquisition, the GSI, Kahlden and McCurdy assets are operated by the Brooks Well Servicing Division of Welltech Eastern out of Bryan, Texas. The acquisition was accounted for using the purchase method. Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc. Effective October 1, 1997, the Company completed the acquisition of substantially all of the assets of Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc. (collectively "Big A/Sunco") for approximately $28 million in cash and 125,000 shares of the Company's comon stock. Big A/Sunco operates 29 well service rigs, four drilling rigs, 75 fluid hauling and other trucks, related equipment and a machine shop/supply store in the four corners region of the Southwestern United States. The acquired Big A/Sunco assets are operated by Key Four Corners primarily out of Farmington, New Mexico. The acquisition was accounted for using the purchase method. Acquisitions Completed During the Three Months Ended September 30, 1997 The following described acquisitions have been completed during the three months ended September 30, 1997. Except as noted below, the results of operations from these acquisitions are included in the Company's results of operations for the three months ended September 30, 1997 (effective as of the date of completion of the acquisition unless otherwise noted). Frontier Well Service, Inc. Effective as of September 30, 1997, the Company completed the acquisition of Frontier Well Service, Inc. ("Frontier") for approximately $3.5 million in cash. Frontier operates 12 well service rigs and related equipment in Wyoming. Frontier is operated by Key Rocky Mountain and is based in Casper, Wyoming. The operating results of Frontier will be included in the Company's results of operations effective as of October 1, 1997. The acquisition was accounted for using the purchase method. - 7 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) Dunbar Well Service, Inc. Effective as of September 29, 1997, the Company completed the acquisition of Dunbar Well Service, Inc. ("Dunbar") for approximately $11.8 million in cash. Dunbar operates 38 well service rigs and related equipment in Wyoming. Dunbar is operated by Key Rocky Mountain and is based in Casper, Wyoming. The operating results of Dunbar will be included in the Company's results of operations effective as of October 1, 1997. The acquisition was accounted for using the purchase method. BRW Drilling, Inc. Effective as of September 25, 1997, the Company completed its acquisition of BRW Drilling, Inc. ("BRW") for approximately $14.6 million in cash. BRW operates seven drilling rigs and related equipment in the Permian Basin. The Company plans to combine the BRW operations with the Key Energy Drilling operations in the Permian Basin to form a thirteen rig shallow drilling operation. The operating results of BRW will be included in the Company's results of operations effective as of October 1, 1997. The acquisition was accounted for using the purchase method. Waco Oil & Gas Co., Inc. Effective as of September 1, 1997, the Company completed its acquisition of certain assets of Waco Oil & Gas Co., Inc. ("Waco") for approximately $7.0 million in cash. The Waco assets included 12 well service rigs, three drilling rigs, 33 fluid hauling trucks and other trucks operated out of Glenville, West Virginia. Following the consummation of the acquisition, the three drilling rigs acquired from Waco were sold to an independent third party for $2.3 million in cash. No gain or loss was recognized in this transaction. The Waco assets are operated by the WellTech Eastern Division of WellTech Eastern. The operating results of Waco are included in the Company's results of operations effective September 23, 1997. The acquisition was accounted for using the purchase method. Landmark Fishing & Rental, Inc. Effective as of September 16, 1997, the Company completed the acquisition of Landmark Fishing & Rental, Inc. ("Landmark") for approximately $3.3 million in cash. Landmark operates a rental tool business in Western Oklahoma and the Texas Panhandle. Landmark is operated by the WellTech Mid-Continent Division of WellTech Eastern. The operating results of Landmark are included in the Company's results of operations effective September 16, 1997. The acquisition was accounted for using the purchase method. Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc. Effective as of September 1, 1997, the Company completed the acquisition of Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc. ("Ram/Rowland") for $21.5 million in cash. Ram/Rowland operates 17 well service rigs, 93 fluid hauling and other trucks, 290 frac tanks, three disposal and brine wells, and dirt construction equipment in West Texas and Southeast New Mexico. Ram/Rowland is operated by Company's by Yale E. Key, Inc. The operating results of Ram/Rowland are included in the Company's results of operations effective September 1, 1997. The acquisition was accounted for using the purchase method. - 8 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) Mosley Well Service, Inc. Effective as of August 22, 1997, the Company completed the acquisition of Mosley Well Service, Inc., ("Mosley") which operates thirty-six well service rigs and related equipment in East Texas, Northern Louisiana and Arkansas for approximately $16.2 million in cash. The Company plans to integrate the Mosley operations with the Brooks Well Servicing Division of WellTech Eastern. The operating results of Mosley are included in the Company's results of operations effective September 1, 1997. The acquisition was accounted for using the purchase method. Kenting Holdings (Argentina) S.A. Effective as of July 30, 1997, the Company completed the acquisition of Kenting Holdings (Argentina) S.A. ("Kenting") for approximately $10.1 million in cash. Kenting is the sole shareholder of Kenting Driling (Argentina) S.A. which operates six well service rigs, three drilling rigs and related equipment in Argentina. The operating results of Kenting are included in the Company's results of operations effective August 1, 1997. The acquisition was accounted for using the purchase method. Patrick Well Service, Inc. Effective as of July 17, 1997, the Company completed the acquisition of Patrick Well Service, Inc. ("Patrick") for $7.0 million in cash. Patrick operates 29 well service rigs and related equipment in Southwest Kansas, Oklahoma and Southeast Colorado. Patrick is operated by the WellTech Mid-Continent Division of WellTech Eastern. The operating results of Patrick are included in the Company's results of operations effective August 1, 1997. The acquisition was accounted for using the purchase method. Servicios WellTech S.A. Minority Interest Effective as of July 1, 1997, the Company purchased the remaining 37% interest in Servicios from two unrelated parties for approximately $3.4 million in cash. As a result of the purchase, the Company now owns 100% of Servicios. Pending Acquisition J.W. Gibson Well Service Company Effective as of July 31, 1997, the Company entered into a definitive agreement for the acquisition of J.W. Gibson Well Service Company ("Gibson") for cash, stock and warrants with an estimated value at that time of approximately $25.0 million. Gibson operates 74 well service rigs and related equipment in eight states. Since July 31, 1997, the Company, through Key Rocky Mountain, has managed the operations of Gibson pursuant to an interim operations agreement under which Key Rocky Mountain receives a management fee equal to the net income from Gibson's operations less $25,000 per month. In addition, Key Rocky Mountain received a one-time management fee of $300,000 for the three months ended September 30, 1997. These management fees are included in the Company's results of operations for the three months ended September 30, 1997. On October 10, 1997, the Company entered into an amendment to the definative agreement, which amendment provided for, among other things, an extension of the closing and the interim operating agreement to January 1998. - 9 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) 3. LONG-TERM DEBT As of September 30, 1997, the Company had three major components of long-term debt which are more fully described below. 7% Convertible Subordinated Debentures In July 1996, the Company completed the offering of $52,000,000 of 7% Convertible Subordinated Debentures due 2003 (the"7% Debentures"). The offering was a private offering pursuant to Rule 144A under the Securities Act. As the result of the conversion of a significant portion of the 7% Debentures into the Company's common stock as more fully described below, the remaining principal balance at September 30, 1997 was $4,600,000. The remaining 7% Debentures mature on July 1, 2003 and remain convertible at any time before maturity, unless previously redeemed, into shares of the Company's common stock at a conversion price of $9 3/4 per share, subject to adjustment in certain events. In addition, the remaining holders of the Debentures who convert prior to July 1, 1999 will be entitled to receive, in addition to the Company's common stock, a payment equal to 50% of the interest otherwise payable on the converted Debentures from the date of conversion through July 1, 1999, payable in cash or common stock, at the Company's option. Interest on the remaining 7% Debentures is payable semi-annually on January 1 and July 1 of each year. The Company has made interest payments on the 7% Debentures on January 1, 1996 and July 1, 1997. As of September 30, 1997, $47,400,000 in principal amount of the 7% Debentures had been converted into the Company's common stock. The conversion was at the option of the holders. The Debentures converted into 5,062,369 shares of the Company's common stock. The conversion included 200,831 shares in excess of the number of shares issuable at the conversion price of $9.75 per share. Such additional consideration will be accounted for as an increase to the Company's equity. In addition, the proportional amount of debt issuance costs associated with the converted Debentures will be accounted for as a decrease to the Company's equity. PNC Credit Agreement On June 6, 1997, the Company entered into an agreement (the"PNC Credit Agreement") with PNC Bank, N.A., as administrative agent, Norwest Bank Texas, N.A. , as collateral agent, Lehman Commercial Paper, Inc., as advisor, arranger and syndication agent and the lenders named therein pursuant to which the lenders provided a $255 million credit facility, consisting of a $120 million seven-year term loan and a $135 million five-year revolver. The interest rate on the term loan was LIBOR plus 2.75 percent. The interest rate on the revolver varied based on the LIBOR and the level of the Company's indebtedness and at September 30, 1997 was LIBOR plus 2.25 percent. The credit facility contained certain restrictive covenants and requires the Company to maintain certain financial ratios. At September 30, 1997, the principal balance of the PNC Credit Agreement revolver was $57 million and there was approximately $78 million in unused credit line facilities. On September 25, 1997, the Company repaid the term loan and a portion of the amount then outstanding under the revolver using the proceeds from the initial closing of the Company's private placement of the 5% Notes, (discussed below). On October 7, 1997, the Company again prepaid a portion of the amount then outstanding under the revolver using the proceeds from the second closing of the Company's private placement of the 5% Notes (discussed below). Effective as of November 6, 1997, the Company completed the re-negotiation of the - 10 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) PNC Credit Agreement by entering into an amended and restated PNC Credit Agreement providing for, among other things, an increase in borrowing availability under the revolver from $135 million to $200 million and a decrease in the revolver's interest rate from LIBOR plus 2.25 percent to LIBOR plus 1.25 percent. 5% Subordinated Notes On September 25, 1997, the Company completed an initial closing of its private placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the "5% Notes"). On October 7, 1997, the Company completed a second closing of its private placement of an additional $16 million of the 5% Notes pursuant to the exercise of the remaining portion of an over-allotment option granted to the initial purchasers of the 5% Notes. The placement was a private offering pursuant to Rule 144A under the Securities Act. The 5% Notes bear interest at a 5% coupon rate and are convertible into shares of the Company's common stock at a conversion price of $38.50 per share at the holder's option on the earlier of (i) the date that the registration statement on Form S-3 required to be filed with the Securities and Exchange Commission (the "Commission") covering resales of the 5% Notes and the underlying common stock by the holders thereof is declared effective by the Commission and (ii) 270 days from the date of issuance. Interest is payable on March 15 and September 15, commencing March 15, 1998. The 5% Notes are redeemable at the Company's option on or after September 15, 2000, in whole or part, together with accrued and unpaid interest. Proceeds from the private placement of the 5% Notes were used to repay the outstanding balances under the Company's revolving credit facility and term loan facility (see above). 4. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 128 - Earnings per Share Statement of Financial Accounting Standards No. 128 ("SFAS 128") - Earnings per Share, is effective for periods ending on or after December 15, 1997. SFAS 128 replaces the presentation of primary earnings per share ("EPS") with the presentation of basic EPS, which excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. SFAS 128 also requires dual presentation of basic EPS and diluted EPS on the face of the income statement and requires a reconciliation of the numerators and denominators of basic EPS and diluted EPS. Management believes the adoption of SFAS 128 will not have a material effect on its financial position or results of operations of the Company. Statement of Financial Accounting Standards No. 130 - Reporting Comprehensive Income Statement of Financial Accounting Standards No. 130 ("SFAS 130") - Reporting Comprehensive Income, is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company will adopt SFAS 130 for the fiscal year ended June 30, 1999. Management believes the adoption of SFAS 130 will not have a material effect on its financial position or results of operations of the Company. - 11 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) Statement of Financial Accounting Standards No. 131 - Disclosures about Segments of an Enterprise and Related Information Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures about Segments of an Enterprise and Related Information, is effective for financial statements for periods beginning after December 15, 1997. SFAS 131 need not be applied to interim financial statements in the initial year of its application. However, comparative information for interim periods in the initial year of application is to be reported in the financial statements for interim periods in the second year of application. The Company will adopt SFAS 131 for the fiscal year ended June 30, 1999. Management believes the adoption of SFAS 131 will not have a material effect on its financial position or results of operations of the Company. 5. COMMITMENTS AND CONTINGENCIES Various suits and claims arising in the ordinary course of business are pending against the Company. Management does not believe that the disposition of any of these items will result in a material adverse impact to the consolidated financial position of the Company. - 12 - KEY ENERGY GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following discussion and analysis should be read in conjunction with the Company's audited Form 10-K for the year ended June 30, 1997. Current and Subsequent Events During the three month interval beginning July 1, 1997, and ending September 30, 1997, the Company purchased the remaining 37% interest in Servicios WellTech Argentina and completed the acquisition of six well servicing and trucking companies: Patrick Well Service, Kenting Holdings (Argentina) S.A., Mosley Well Service, Ram/Rowland Oil Well Service, Landmark Fishing and Rental and Waco Oil and Gas. These acquisitions, (which are more fully described in Note 2), collectively operate 97 well service rigs (including six in Argentina), 108 fluid hauling and other trucks and six drilling rigs, including three in Argentina. Subsequent to September 30, 1997, the Company has announced or completed the acquisition of six well service companies and two contract drilling companies which, collectively, operate 164 well service rigs, 17 drilling rigs and 118 fluid hauling and other trucks. These eight announced or completed acquisitions, (which are more fully described in Note 2), have allowed the Company to expand its operating presence into markets it previously did not serve, including the Rocky Mountains and the Four Corners area. Assuming completion of the pending acquisitions, Key's operations will include 790 well service and workover rigs, 623 fluid hauling and other trucks, 33 drilling rigs and numerous ancillary operations. Based upon the number of active well service rigs and fluid hauling and other trucks that the Company would operate assuming the completion of all announced acquisitions, the Company believes that Key Energy Group, Inc. will be the largest onshore well service provider within the continental United States and the second largest well service provider in Argentina. Future Growth Strategy Historically, the domestic well service rig and production service industry has been highly fragmented, characterized by a large number of smaller companies which have competed effectively on a local basis in terms of pricing and the quality of services offered. In recent years, however, many major and independent oil and gas companies have placed increasing emphasis upon not only pricing, but also on safety records and quality management systems of, and the breadth of services offered by, their vendors, including well servicing contractors. This market environment, which requires significant expenditures by smaller companies to meet these increasingly rigorous standards, has forced many smaller well servicing companies to sell their operations to larger competitors. As a result, the industry has seen high levels of consolidation among the competing contractors. Over the past eighteen months, Key has been the leading consolidator of this industry, completing twenty-six acquisitions of well servicing operations (32, including pending transactions and transaction completed subsequent to September 30, 1997). This consolidation has led to reduced fragmentation in the market and has led to more predictable demand for well services for the Company and its competitors. Key's management structure is decentralized, which allows for rapid integration of acquisitions and the retention of strong local identities of many of the acquired businesses. As a result of these and other factors, the Company has developed a growth strategy to: (i) identify, negotiate and consummate additional acquisitions of complementary well servicing operations, including rigs, trucking and - 13 - other ancillary services; (ii) fully-integrate acquisitions into the Company's decentralized organizational structure and thereby attempt to maximize operating margins; (iii) expand business lines and services offered by the Company in existing areas of operations; and (iv) extend the geographic scope and operating environments for the Company's operations. RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1997 VERSUS QUARTER ENDED SEPTEMBER 30, 1996 The following discussion provides information to assist in the understanding of the Company's financial condition and results of operations. It should be read in conjunction with the financial statements and related notes appearing elsewhere in this report. Operating Income The Company Revenues of the Company for the quarter ended September 30, 1997 increased $44,094,000, or 140%, from $31,462,000 for the quarter ended September 30, 1996 to $75,556,000 for the current quarter. Net income for the quarter ended increased $3,384,000, or 218%, from $1,554,000 for the quarter ended September 30, 1996 to $4,938,000 for the current quarter. The increase in revenues and net income was primarily due to the completed acquisitions of well service operations (see Note 2), increased oil and gas revenues from Odessa Exploration, and a general increase in oil-well service equipment utilization. Oilfield Services Oilfield service revenues increased $42,187,000, or 154%, from $27,311,000 for the quarter ended September 30, 1996, to $69,498,000 for the current quarter. The increase in revenues is primarily attributable to acquisitions as well as higher equipment use and pricing resulting from an increase in demand for oilfield services. Oil and Natural Gas Exploration and Production Revenues from oil and gas activities increased $629,000, or 41%, from $1,525,000 for the quarter ended September 30, 1996, to $2,154,000 for the current quarter. The increase in revenues was primarily the result of increased production of oil and natural gas as several oil and natural gas wells, which were drilled during fiscal 1997 began production and higher oil and natural gas prices for the current period. Of the total $2,154,000 of revenues for the quarter ended September 30, 1997, approximately $1,852,000 was from the sale of oil and natural gas with the remainder of $302,000 representing primarily administrative fee income. Oil and Natural Gas Well Drilling Oil and natural gas well drilling revenues increased $499,000, or 22%, from $2,324,000 for the quarter ended September 30, 1996 to $2,823,000 for the current quarter. The increase in revenues is primarily attributable to higher equipment utilization and an increase in pricing. - 14 - Operating Expenses Oilfield Services Oilfield service expenses increased $28,539,000, or 145%, from $19,700,000 for the quarter ended September 30, 1996 to $48,239,000 for the current quarter. The increase was due primarily to acquisitions and the increased demand for oilfield services. In addition, the Company has continued to expand its services, offering ancillary services and equipment such as well fishing tools, blow-out preventers and well frac tanks. Oil and natural Gas Exploration and Production Expenses related to oil and gas activities increased $424,000, or 83%, from $513,000 for the quarter ended September 30, 1996 to $937,000 for current quarter. The increase in expenses was primarily the result of increased production of oil and natural gas as several oil and natural gas wells, which were drilled during fiscal 1997, began production during the quarter. Oil and Natural Gas Well Drilling Expenses related to oil and natural gas well drilling activities increased $382,000, or 20%, from $1,881,000 for the quarter ended September 30, 1996 $2,263,000 for current quarter. The increase in expenses is attributable to higher equipment utilization and increased revenues. Depreciation, Depletion and Amortization Expense Depreciation, depletion and amortization expense increased $3,052,000, or 146%, from $2,095,000 for the quarter ended September 30, 1996 to $5,147,000 for the current quarter. The increase is primarily due to oilfield service depreciation expense, which is the result of increased oilfield service capital expenditures for the current period versus the prior period and the acquisitions of oilfield service assets. General and Administrative Expenses General and administrative expenses increased $4,174,000, or 118%, from $3,527,000 for the quarter ended September 30, 1996 to $7,701,000 for the current quarter. The increase was primarily attributable to the Company's recent acquisitions and expanded services. Interest Expense Interest expense increased $2,088,000, or 155%, from $1,350,000 for the quarter ended September 30, 1996 to $3,438,000 for the current quarter. The increase was primarily the result of increased indebtedness as a result of the Company's acquisition program. Income Taxes Income tax expense increased $2,109,000, or 269%, from $784,000 for the quarter ended September 30, 1996, to $2,893,000 for the current quarter. The increase in income taxes is primarily due to the increases in operating income and a higher effective tax rate. However, the Company does not expect to be required to remit the total amount of the $2,893,000 in total federal income tax expense for the quarter ended September 30, 1997, because of the availability of net operating loss carryforwards, accelerated tax depreciation and oil and natural gas drilling tax attributes. - 15 - Cash Flow Net cash provided by operating activities increased $1,044,000, or 35%, from $3,016,000 during the quarter ended September 30, 1996, to $4,060,000 for the current quarter. The increase is attributable primarily to increases in net income and depreciation, depletion and amortization which was largely off-set by a decrease in accounts receivable. Net cash used in investing activities increased $128,309,000, or 362%, from $3,545,000 during the quarter ended September 30, 1996, $131,854,000 for the current quarter. The increase is primarily the result of increased capital expenditures for well service operations as well as the Company's recent acquisitions. Net cash provided by financing activities increased $120,241,000, or 795%, from $15,125,000 during the quarter ended September 30, 1996, to $135,366,000 for the current quarter. The increase is primarily the result of the proceeds from long-term commercial paper and borrowings under line-of-credit, and the issuance of the Company's 5% Notes (see Note 2) which are partially off-set by the repayment of long-term debt. LIQUIDITY AND CAPITAL RESOURCES The Company's cash increased by $7.6 million for the quarter ended September 30, 1997 from $41.7 as of June 30, 1997 to $49.3 million. The Company has projected $40 million for capital expenditures for fiscal 1998, as compared to $24.8 million for fiscal 1997. Oilfield service capital expenditures for the three months ended September 30, 1997 were $6.7 million compared to $2.9 million during the same quarter last year. Of the total $40.0 million in capital expenditures the Company is projecting for fiscal 1998, approximately $30 million is expected to be attributable to oilfield service operations. Capital expenditures are expected to be primarily capitalized improvement costs to existing equipment and machinery. The Company expects to finance these capital expenditures utilizing the operating cash flows of the Company. The Company's oil and natural gas exploration and development operations are forecasting outlays of approximately $8.0 million in development costs for fiscal 1998, as compared to $8.2 million during fiscal 1997. For the quarter ended September 30, 1997, these outlays totaled $2.1 million as compared to none for the quarter ended September 30, 1996. Financing is expected to come from operations and available credit facilities. The Company's oil and natural gas well drilling operations have forecast approximately $2.0 million in oil and natural gas drilling capital expenditures for fiscal 1998, as compared to $1.5 million during fiscal 1997. Capital expenditures are primarily for improvements to existing equipment and machinery. For the quarter ended September 30, 1997, capital expenditures totaled $339,000 as compared to $323,000 for the quarter ended September 30, 1996. Financing is expected to come from existing cash flow. Debt 7% Convertible Subordinated Debentures In July 1996, the Company completed the offering of $52,000,000 of 7% Convertible Subordinated Debentures due 2003 (the "7% Debentures"). The offering was a private offering pursuant to Rule 144A under the Securities Act. As the result of the conversion of a significant portion of the 7% Debentures into the Company's common stock as more fully described below, the remaining principal balance at September 30, - 16 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) 1997 was $4,600,000. The remaining 7% Debentures mature on July 1, 2003 and remain convertible at any time before maturity, unless previously redeemed, into shares of the Company's common stock at a conversion price of $9 3/4 per share, subject to adjustment in certain events. In addition, the remaining holders of the Debentures who convert prior to July 1, 1999 will be entitled to receive, in addition to the Company's common stock, a payment equal to 50% of the interest otherwise payable on the converted Debentures from the date of conversion through July 1, 1999, payable in cash or common stock, at the Company's option. Interest on the remaining 7% Debentures is payable semi-annually on January 1 and July 1 of each year. The Company has made interest payments on the 7% Debentures on January 1, 1996 and July 1, 1997. As of September 30, 1997, $47,400,000 in principal amount of the 7% Debentures had been converted into the Company's common stock. The conversion was at the option of the holders. The Debentures converted into 5,062,369 shares of the Company's common stock. The conversion included 200,831 shares in excess of the number of shares issuable at the conversion price of $9.75 per share. Such additional consideration will be accounted for as an increase to the Company's equity. In addition, the proportional amount of debt issuance costs associated with the converted Debentures will be accounted for as a decrease to the Company's equity. PNC Credit Agreement On June 6, 1997, the Company entered into an agreement (the "PNC Credit Agreement") with PNC Bank, N.A., as administrative agent, Norwest Bank Texas, N.A. , as collateral agent, Lehman Commercial Paper, Inc., as advisor, arranger and syndication agent and the lenders named therein pursuant to which the lenders provided a $255 million credit facility, consisting of a $120 million seven-year term loan and a $135 million five-year revolver. The interest rate on the term loan was LIBOR plus 2.75 percent. The interest rate on the revolver varied based on the LIBOR and the level of the Company's indebtedness and at September 30, 1997 was LIBOR plus 2.25 percent. The credit facility contained certain restrictive covenants and requires the Company to maintain certain financial ratios. At September 30, 1997, the principal balance of the PNC Credit Agreement revolver was $57 million and there was approximately $78 million in unused credit line facilities. On September 25, 1997, the Company repaid the term loan and a portion of the amount then outstanding under the revolver using the proceeds from the initial closing of the Company's private placement of the 5% Notes, (discussed below). On October 7, 1997, the Company again prepaid a portion of the amount then outstanding under the revolver using the proceeds from the second closing of the Company's private placement of the 5% Notes (discussed below). Effective as of November 6, 1997, the Company completed the re-negotiation of the PNC Credit Agreement by entering into an amended and restated PNC Credit Agreement providing for, among other things, an increase in borrowing availability under the revolver from $135 million to $200 million and a decrease in the revolver's interest rate from LIBOR plus 2.25 percent to LIBOR plus 1.25 percent. 5% Subordinated Notes On September 25, 1997, the Company completed an initial closing of its private placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the "5% Notes"). On October 7, 1997, the Company completed a second closing of its private placement of an additional $16 million of the 5% Notes pursuant to the exercise of the remaining portion of an over-allotment option granted to the initial purchasers of the 5% Notes. The placement was a private offering pursuant to Rule 144A under the Securities Act. The 5% Notes bear interest - 17 - Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (unaudited) at a 5% coupon rate and are convertible into shares of the Company's common stock at a conversion price of $38.50 per share at the holder's option on the earlier of (i) the date that the registration statement on Form S-3 required to be filed with the Securities and Exchange Commission (the "Commission") covering resales of the 5% Notes and the underlying common stock by the holders thereof is declared effective by the Commission and (ii) 270 days from the date of issuance. Interest is payable on March 15 and September 15, commencing March 15, 1998. The 5% Notes are redeemable at the Company's option on or after September 15, 2000, in whole or part, together with accrued and unpaid interest. Proceeds from the private placement of the 5% Notes were used to repay the outstanding balances under the Company's revolving credit facility and term loan facility (see above). Impact of Recently Issued Accounting Standards Statement of Financial Accounting Standards No. 128 - Earnings per Share Statement of Financial Accounting Standards No. 128 ("SFAS 128") - Earnings per Share, is effective for periods ending on or after December 15, 1997. SFAS 128 replaces the presentation of primary earnings per share ("EPS") with the presentation of basic EPS, which excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. SFAS 128 also requires dual presentation of basic EPS and diluted EPS on the face of the income statement and requires a reconciliation of the numerators and denominators of basic EPS and diluted EPS. Management believes the adoption of SFAS 128 will not have a material effect on its financial position or results of operations of the Company. Statement of Financial Accounting Standards No. 130 - Reporting Comprehensive Income Statement of Financial Accounting Standards No. 130 ("SFAS 130") - Reporting Comprehensive Income, is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company will adopt SFAS 130 for the fiscal year ended June 30, 1999. Management believes the adoption of SFAS 130 will not have a material effect on its financial position or results of operations of the Company Statement of Financial Accounting Standards No. 131 - Disclosures about Segments of an Enterprise and Related Information Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures about Segments of an Enterprise and Related Information, is effective for financial statements for periods beginning after December 15, 1997. SFAS 131 need not be applied to interim financial statements in the initial year of its application. However, comparative information for interim periods in the initial year of application is to be reported in the financial statements for interim periods in the second year of application. The Company will adopt SFAS 131 for the fiscal year ended June 30, 1999. Management believes the adoption of SFAS 131 will not have a material effect on its financial position or results of operations of the Company Impact of Inflation on Operations Although in our complex environment it is extremely difficult to make an accurate assessment of the impact of inflation on the Company's operations, management is of the opinion that inflation has not had a significant impact on its business. - 18 - PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (c) Recent Sales of Unregistered Securities: The Company effected the following unregistered sales of its securities during the three months ended September 30, 1997. Each of the following issuance's by the Company of the securities sold in the transactions referred to below were not registered under the Securities Act of 1933, as amended, pursuant to the exemption provided under Section 4(2) thereof for transactions not involving a public offering: Effective as of September 25, 1997, the Company issued $200 million of its 5% Convertible Subordinated Notes due 2004 to McMahan Securities Co. LP. and Lehman Brothers Inc., as intitial purchasers, in connection with the Company's private placement of the 5% Notes. Effective as of October 7, 1997, the Company issued $16 million of its 5% Convertible Subordinated Notes due 2004 to McMahan Securities Co. LP. and Lehman Brothers Inc., as intitial purchasers, in connection with the Company's private placement of the 5% Notes. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of the Form 10-Q: Number Description 10(a) Stock Purchase Agreement between WellTech Eastern, Inc. and Monty D. Elmore dated as of July 17, 1997. 10(b) Stock Purchase Agreement between WellTech Eastern, Inc. and Kenting Energy Services, Inc. dated as of July 30, 1997. 10(c) Stock Purchase Agreement by and among Nabors Acquisition Corp. IV, as Seller, Key Rocky Mountain, Inc., as Buyer, and Key Energy Group, Inc. dated as of July 31, 1997.("Gibson Stock Purchase Agreement") - 19 - 10(d) Amendment One to the Gibson Stock Purchase Agreement Stock Purchase Agreement dated as of October 10, 1997. 10(e) Stock Purchase Agreement among WellTech Eastern, Inc., Robert E. Mosley, Jr., Thelma Scoggin Mosley, Thomas A. Mosley, Nancy Evans Mosley, James R. Mosley, Dennis W. Mosley and Melanie Ostrum Mosley dated as of August 22, 1997. 10(f) Stock Purchase Agreement (Ram Oil Well Service, Inc.) by and among, Yale E. Key, Inc. and Robert D. Calhoon dated as of September 1, 1997 (ncorporated by reference to Exhibit 2.2 of the Company's Report on Form 8-K dated September 1, 1997, File No. 1-8038). 10(g) Stock Purchase Agreement (Rowland Trucking Co.) by and among, Yale E. Key, Inc. and Robert D. Calhoon dated as of September 1, 1997 (incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8-K dated September 1, 1997, File No. 1-8038). 10(h) Asset Purchase Agreement among WellTech Eastern, Inc., Waco Oil & Gas Co., Inc. and I.L. Morris dated as of September 1, 1997. 10(i) Asset Purchase Agreement among Key Four Corners, Inc., Key Energy Group,Inc., Coleman Oil & Gas Co., Big A Well Service Co., Sunco Trucking Co., Justis Supply Co., Inc. and George E. Coleman dated as of September 2, 1997 (incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8-K dated October 1, 1997, File No. 1-8038). 10(j) Stock Purchase Agreement between WellTech Eastern, Inc. and William Gregory Wines dated as of September 16, 1997. 10(k) Stock Purchase Agreement among, Key Energy Drilling, Inc. and S.K. Rogers, Joe Dee Brooks, Lynn E. Waters and Donnie Roberts dated as of September 25, 1997. 10(l) Indenture dated as of September 25, 1997, among Key Energy Group, Inc. and American Stock Transfer and Trust Company. 10(m) Stock Purchase Agreement among Key Rocky Mountain, Inc., Joseph R.Dunbar and Janice N. Dunbar dated as of September 29, 1997. 10(n) Stock Purchase Agreement among Key Rocky Mountain, Inc., Bruce L. Bummer, Jack Hartnett, Diane Hartnett and Bruce Bummer 7/14/82 Family Trust dated as of September 30, 1997. 11(a) Statement - Computation of per share earnings. 27(a) Statement - Financial Data Schedule - 20 - (b) The following reports on Form 8-K were filed during the quarter ended September 30, 1997: The Company's Report on Form 8-K dated June 25, 1997, File No. 1-8038, as amended by the Company's report on Form 8-K/A dated June 25, 1997, File No. 1-8038. The Report on Form 8-K concerned the Company's acquisition of Well-Co. The Company's Report on Form 8-K dated September 1, 1997, File No. 1-8038. The Report on Form 8-K concerned the Company's acquisition of Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc. The Company's Report on Form 8-K dated September 25, 1997, File No. 1-8038, as amended by the Company's report on Form 8-K/A dated September 25, 1997, File No. 1-8038. The Report on Form 8-K concerned the private placement of the Company's 5% Notes. - 21 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEY ENERGY GROUP, INC. (Registrant) By /s/ Francis D. John Dated: November 14, 1997 President and Chief Executive Officer By /s/ Stephen E. McGregor Dated: November 14, 1997 Chief Financial Officer By /s/ Danny R. Evatt Dated: November 14, 1997 Chief Accounting Officer - 22 - EX-10.(A) 2 ELMORE STOCK PURCHASE AGREEMENT Stock Purchase Agreement between WellTech Eastern, Inc. and Monty D. Elmore Dated as of July 17, 1997 C:\WELLTECH\STOCKPUR\PATRICK 13 Stock Purchase Agreement This Stock Purchase Agreement (this AAgreement@) is entered into as of July 17, 1997, by and among WellTech Eastern, Inc., a Delaware corporation (ABuyer@), and Monty D. Elmore (the AShareholder@). WITNESSETH: Whereas, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and Whereas, Patrick Well Service, Inc. (the ACompany@) is a corporation duly organized and validly existing under the laws of the State of Kansas, with its principal executive offices at 2007 W. 7th Street, Liberal, Kansas; and Whereas, the Shareholder owns 82 shares (the ACompany Shares@) of common stock, par value $10 per share, of the Company (the ACompany Common Stock@), which constitutes all of the issued and outstanding shares of capital stock of the Company; and Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to purchase from the Shareholder all of the issued and outstanding capital stock of the Company. Now, Therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Purchase and Sale 1.1. Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholder agree to sell and convey to Buyer, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholder, all of the Company Shares. In consideration of the sale of the Company Shares, Buyer shall pay to the Shareholder $7,000,000 in cash by wire transfer of immediately available funds, and the Cash Adjustment Payment (as defined in Section 1.3 hereof), if any, in accordance with Section 1.3 hereof. 1.2. Delivery of the Company Certificates. The Shareholder shall deliver to Buyer on the date hereof duly and validly issued certificate(s) representing all of the Company Shares, each such certificate having been duly endorsed in blank and in good form for transfer or accompanied by stock powers duly executed in blank, sufficient and in good form to properly transfer such shares to Buyer. 1.3. Adjustment of Purchase Price. Buyers shall cause to be prepared and delivered to the Shareholder a balance sheet of the Company in accordance with generally accepted accounting principles (except for use of accelerated depreciation method) as of the date hereof (the AFinal Balance Sheet@) within sixty (60) days after the date hereof . Buyer and the Shareholder shall jointly review the Final Balance Sheet and such supplemental report, endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days from the date hereof. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If the sum of (A) Final Net Current Value of the Company (defined below) plus (B) (the ACapital Expenditure Allowance@), which is the amount of approved capital equipment purchases since 3/31 shown on Schedule 2.1.3., exceeds the 3/31 Net Current Value of the Company (defined below) Buyer shall pay to the Shareholder the amount of such excess (the ACash Adjustment Payment@). (2) If the sum of (A) the Final Net Current Value of the Company plus (B) the Capital Expenditure Allowance, is less than the 3/31 Net Current Value of the Company, the Shareholder shall pay to Buyer the amount of such difference. The term AFinal Net Current Value of the Company@ means the dollar value of the amount by which (i) the ATotal Current Assets@ plus the ATotal Other Assets@ as recorded on the Final Balance Sheet exceeds (ii) the ATotal Liabilities@ as recorded on the Final Balance Sheet. The term A3/31 Net Current Value of the Company@ means the dollar value of the amount by which (i) the ATotal Current Assets@ plus the ATotal Other Assets@ as recorded on the 3/31 Balance Sheet (as defined in Section 2.1.6 hereof) exceeds (ii) the ATotal Liabilities@ as recorded on the 3/31 Balance Sheet. ARTICLE 2 Representations and Warranties 2.1. Representations and Warranties of the Shareholder. The Shareholder represents and warrants to Buyer as follows: 2.1.1. Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Kansas, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. The Shareholder is a resident of Kansas, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his or her obligations under this Agreement. This Agreement is a valid and binding obligation of the Shareholder enforceable against each of the Shareholder (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Shareholder will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of the Company or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company or the Shareholder is a party or by which the Company or any of the Shareholder or their respective properties are bound. 2.1.3. Capitalization. The authorized capitalization of the Company consists of 25,000 shares of Company Common Stock, of which, as of the date hereof, 82 shares were issued and outstanding and held beneficially and of record by the Shareholder. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of the Company Shares. The Shareholder holds good and valid title to all of the Company Shares, free and clear of all Encumbrances. The Shareholder possesses full authority and legal right to sell, transfer and assign to Buyer the Company Shares, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholder of the Company Shares, Buyer will own the Company Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of the Shareholder, threatened, against the Company or any of the Shareholder that concern or affect title to the Company Shares, or that seek to compel the issuance of capital stock or other securities of the Company. 2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. The Company has delivered to Buyer copies of the Company=s unaudited balance sheet, a copy of which is attached hereto as Schedule 2.1.6 (the A3/31 Balance Sheet@), and related statements of income, retained earnings and cash flow (collectively, the "3/31 Financial Statements") as at and for the 3 months ended March 31, 1997 (the ABalance Sheet Date@). The 3/31 Financial Statements are complete in all material respects. The 3/31 Financial Statements presents fairly the financial condition of the Company as at the dates and for the periods indicated. The 3/31 Financial Statements have been prepared in accordance with generally accepted accounting principles (except for use of accelerated depreciation method) applied on a consistent basis. The accounts receivable reflected in the 3/31 Balance Sheet, or which have been thereafter acquired by the Company, have been collected or are believed to be collectible. 2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, the Shareholder has no knowledge of any liabilities or obligations or potential liabilities or obligations, other than those (i) reflected or reserved against in the 3/31 Balance Sheet, or (ii) incurred in the ordinary course of business since the Balance Sheet Date that would not materially adversely affect the value and conduct of the business of the Company. 2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists to the best of Shareholder=s knowledge of the following items: 2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company, with a description of the nature and amount of any Encumbrances (defined below) thereon. The term AEncumbrances@ means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2. Machinery, Equipment and Supplies. All rigs, carriers, rig equipment, machinery, transportation equipment, supplies, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3. Receivables. All accounts and notes receivable of the Company. 2.1.8.4. Payables. All accounts payable of the Company; 2.1.8.5. Insurance. All insurance policies or bonds currently maintained by the Company, including title insurance policies, with respect to the Company, including those covering the Company=s properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.6. Contracts. All contracts which are to be performed in whole or in part after the date hereof; 2.1.8.7. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other employee benefit or fringe benefit plans, arrangements or trust agreements of the Company or any employee benefit plan maintained by the Company (collectively, AEmployee Plans@), together with copies of the most recent reports with respect to such Employee Plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters and other correspondence from governmental entities that have been received with respect to such plans, arrangements or agreements. 2.1.8.8. Employee Lists and Salaries. The names and salary rates of all present employees of the Company, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.9. Bank Accounts. The name of each bank in which The Company has an account and the names of all persons authorized to draw thereon; 2.1.8.10. Employee Agreements. Any collective bargaining agreements of the Company with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of the Company; 2.1.8.11. Intellectual Property. All patents, patent applications, trademarks and service marks (including registrations and applications therefor), copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the AIntellectual Property@) used by the Company; 2.1.8.12. Trade Names. All trade names, assumed names and fictitious names used or held by the Company, whether and where such names are registered and where used; 2.1.8.13. Licenses and Permits. All permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the APermits@) of the Company under which it conducts its business. 2.1.8.14. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of the Company relating thereto or with respect to collateral securing the same; 2.1.8.15. Guaranties. All indebtedness, liabilities and commitments of others and as to which the Company is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor (other than indemnification provisions in master service agreements) and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.16. Reserves and Accruals. All accounting reserves and accruals maintained in the 3/31 Balance Sheet; 2.1.8.17. Leases. All leases to which the Company is a party; 2.1.8.18. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by the Company and all environmental audits, assessments, investigations and reviews conducted by the Company within the last five years or otherwise in the Company=s possession on any property owned, leased or used by the Company. 2.1.9. No Defaults. The Company is not in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement to the best of Shareholder=s knowledge. 2.1.10. Absence of Certain Changes and Events. Other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been to Shareholder=s knowledge: 2.1.10.1. Financial Change. Any material adverse change in the financial condition, backlog, operations, assets, liabilities or business of the Company; 2.1.10.2. Property Damage. Any material damage, destruction, or loss to the business or properties of the Company (whether or not covered by insurance); 2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Company Common Stock, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; 2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of the Company=s authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature; or 2.1.10.6. Other Material Changes. Any other material event or condition known to the Shareholder particularly pertaining to and adversely affecting the operations, assets or business of the Company. 2.1.11. Taxes. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by the Company for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all such returns are true and correct; the Company has only done business in Texas, Kansas, Oklahoma and Colorado; all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by the Company; and the tax provision reflected in the 3/31 Balance Sheet is adequate, in accordance with generally accepted accounting principles (except for use of accelerated depreciation method), to cover liabilities of the Company at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to the Company or its assets or business. No waiver of any statute of limitations executed by the Company with respect to any income or other tax is in effect for any period. Other than as disclosed on Schedule 2.1.11 hereto, the income tax returns of the Company have never been examined by the Internal Revenue Service or the taxing authority of any other jurisdiction. There are no tax liens on any assets of The Company except for taxes not yet currently due. The Company is not subject to any tax-sharing or allocation agreement. The Company is not, nor has it ever attempted to become a Subchapter S-Corporation under the Internal Revenue Code of 1986, as amended. The Company is not and never has been, a member of a consolidated group subject to Treasury Regulation 1.1502-6 or any similar provision. 2.1.12. Intellectual Property. The Company owns or possesses licenses to use all Intellectual Property that is either material to the business of the Company or that is necessary for the rendering of any services rendered by the Company and the use or sale of any equipment or products used or sold by the Company, including all such Intellectual Property listed in Schedule 2.1.8 hereto (the ARequired Intellectual Property@). The Required Intellectual Property is owned or licensed by the Company free and clear of any Encumbrance. The Company has not granted to any other person any license to use any Required Intellectual Property. The Company has not received any notice of infringement, misappropriation, or conflict with, the Intellectual Property rights of others in connection with the use by the Company of the Required Intellectual Property or otherwise in connection with the Company=s operation of its business. 2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule 2.1.13 hereto, the Company has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 3/31 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 3/31 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. To Shareholder=s knowledge, all leases pursuant to which the Company leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company and in respect to which the Company has not taken adequate steps to prevent a default from occurring. To Shareholder=s knowledge, the buildings and premises of the Company that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. To Shareholder=s knowledge, all rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of the Company are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To Shareholder=s knowledge, all such assets conform to all applicable laws governing their use. To Shareholder=s knowledge, no notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by the Company or any of the Shareholder, except such as have been fully complied with. 2.1.14. Contracts. To Shareholder=s knowledge, all contracts, leases, plans or other arrangements to which the Company is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of the Company. To the knowledge of the Shareholder, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which Shareholder knows will have an adverse effect on the Company. The Shareholder has no knowledge that any customer of the Company is going to cease doing business with the Company (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.15. Licenses and Permits. To Shareholder=s knowledge, the Company possesses all Permits necessary under law or otherwise for the Company to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used, including all such Permits listed in Schedule 2.1.8 hereto (collectively, the ARequired Permits@); each of the Required Permits and the Company=s rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Company subject to administrative powers of regulatory agencies having jurisdiction; the Company is in compliance in all respects with the terms of each of the Required Permits; and none of the Required Permits have been, or to the knowledge the Shareholder, is threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation. To Shareholder=s knowledge, except as set forth in Schedule 2.1.16 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending or threatened to which the Company is a party which particularly affects the Company or its assets, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of the Company. 2.1.17. Environmental Compliance. 2.1.17.1. Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any Substance of Environmental Concern, on any property presently or previously owned, leased or operated by the Company, or on any property to which any Substance of Environmental Concern or waste generated by the Company=s operations or use of its assets were disposed of, which would have a result a material adverse effect on the business or business prospects of the Company. The term ASubstance of Environmental Concern@ means (a) any gasoline, petroleum (including crude oil or any fraction thereof), petroleum product, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant, contaminant, radiation and any other substance of any kind, whether or not any such substance is defined as toxic or hazardous under any Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give rise to liability under any Environmental Law; 2.1.17.2. Permits, etc. The Company has, and within the period of all applicable statute of limitations has had, in full force and effect all environmental Permits required to conduct its operations, and is, within the period of all applicable statutes of limitations has been, operating in compliance thereunder; 2.1.17.3. Compliance. The Company=s operations and use of its assets are, and within the period of all applicable statutes of limitations, have been in compliance with applicable Environmental Law. AEnvironmental Law@ as used herein means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any State, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing liability or standards of conduct concerning protection of the environmental or of human health, or employee health and safety as from time to time has been or is now in effect. 2.1.17.4. Environmental Claims. No notice has been received by the Company or the Shareholder from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action. litigation, or liability, including, without limitation any claim for remedial obligations, response costs or contribution, relating to any Environmental Law; 2.1.17.5. Enforcement. Neither the Company nor any predecessor of the Company or other party acting on behalf of the Company, has entered into or agreed to any consent, decree, order, settlement or other agreement, nor is subject to any judgment, decree, order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law; 2.1.17.6. Liabilities. The Company has not assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law, other than master service agreements, leases, or other contracts made available to Buyer. 2.1.17.7. Renewals. The Shareholder does not know of any reason the Company (or its successors) would not be able to renew without material expense any of the permits, licenses, or other authorizations required pursuant to any of the Environmental Law to conduct and use any of the Company=s current or planned operations; and 2.1.17.8. Asbestos and PCBs. To Shareholder=s knowledge, no material amounts of friable asbestos currently exist on any property owned or operated by the Company, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by the Company in its operations or on its properties. 2.1.18. Compliance with Other Laws. To Shareholder=s knowledge, the Company is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.19. Employee Plans and Labor Issues. To Shareholder's knowledge, all Employee Plans (as defined in Section 2.1.8.7) covering active, former or retired employees of the Company are listed on Schedule 2.1.8.7. Solely for purposes of the representations in this Section 2.1.19, the term ACompany@ means Patrick Well Service, Inc., as well as any other entity which is considered one employer with Patrick Well Service, Inc., under Sections 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as amended (the ACode@). The Company has made available to Buyer a copy of each Employee Plan, any related trust agreement and annuity or insurance contract, and each plan=s most recent annual report (Form 5500 series) filed with the Internal Revenue Service, if applicable. The only Employee Plan that the Company maintains, or that the Company or any predecessor thereto has ever maintained, that is intended to be qualified under Section 401(a) of the Code is the Patrick Well Service, Inc., Profit Sharing Plan (the "Profit Sharing Plan") and, without limitation, no pension plan or multiemployer plan subject to Title IV (Plan Termination Insurance) of the Employee Retirement Income Security Act 1974, as amended ("ERISA") or the minimum funding requirements of Section 412 of the Code has ever been maintained. Each Employee Plan has been maintained and administered, in all material respects, in compliance with its terms and with the requirements prescribed by any applicable statutes, orders, rules and regulations, including the Code and ERISA, and (i) all required Forms 5500 for the Employee Plans have been timely filed with the Internal Revenue Service or an extension of the filing due date has been granted by the Internal Revenue Service; (ii) the Profit Sharing Plan has received a current favorable determination letter from the Internal Revenue Service to the effect that the Profit Sharing Plan is qualified under Section 401(a) of the Code, and nothing has occurred since the effective date of such determination letter to adversely affect, or cause the appropriate governmental agency or authority to revoke, such qualification or approval; (iii) there are no pending or anticipated claims against or otherwise involving any of the Employee Plans, and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Employee Plan activities) has been brought against or with respect to any Employee Plan; (iv) all contributions, reserves or premium payments required to be made to the Employee Plans have either been made or properly accrued on the Company's financial statements; (v) the Company does not have any obligations for retiree health and life benefits under any Employee Plan, (vi) there are no restrictions on the rights of the Company to amend or terminate any Employee Plan without incurring any liability thereunder; and (vii) none of the Employee Plans provide for additional or accelerated payments or benefits to employees or shareholders of the Company upon a change of control or ownership of the Company. The Company is not obligated to pay any severance or benefits to any employee or former employee of the Company as the result of any change in the ownership or control of the Company. The Company has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on its operations or assets. The Company does not have any dispute with any of its existing or former employees. There are no labor disputes or, to the knowledge of any of the Shareholder, any disputes threatened by current or former employees of the Company. 2.1.20. Investigations; Litigation. To Shareholder=s knowledge, no investigation or review by any governmental entity with respect to the Company or any of the transactions contemplated by this Agreement is pending or threatened, nor has any governmental entity indicated to the Company an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of the Shareholder, threatened against or affecting the Company at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of the Company. 2.1.21. Absence of Certain Business Practices. To Shareholder=s knowledge, neither the Company nor any officer, employee or agent of the Company, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of the Company (or to assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in the 3/31 Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of the Company or which might subject the Company to suit or penalty in a private or governmental litigation or proceeding. 2.1.22. Copies of Documents - No Untrue Statements. The Shareholder has made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Company=s assets and business, and such information covers all commitments and liabilities of the Company relating to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any known material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.23. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than the Shareholder, is required to be made or obtained by the Company or of the Shareholder in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.24. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholder and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payments. ARTICLE 3 Additional Agreements 3.1. Noncompetition. Except as otherwise consented to or approved in writing by Buyer, the Shareholder agrees that for a period of 60 months from the date hereof, such Shareholder will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in competition with the well servicing business or businesses conducted by the Company, on the date hereof, or in any service business the services of which are provided and marketed by the Company, on the date hereof in any area of the state of the United States, or any foreign country in which the Company, transacts business on the date hereof; (ii) request any present customers or suppliers of the Company to curtail or cancel their business with Buyer or any affiliate of Buyer; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of the Company, Buyer or any affiliate of Buyer or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of the Company, Buyer or any affiliate of Buyer to terminate his employment; provided, however, that the Shareholder shall be able to buy, sell, build and overhaul well servicing rigs, and to work on any rig on Shareholder's own production. Shareholder agrees that if either the length of time or geographical area set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Shareholder may have under the laws of the states in which he does business requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. The Shareholder further agrees and acknowledges that the Company, Buyer and its affiliates do not have any adequate remedy at law for the breach or threatened breach by such Shareholder of this covenant, and agree that the Company, Buyer or any affiliate of Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin such Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Shareholder acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such Shareholder in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 3.2. Release of Shareholder from Guaranty. Within 30 days, Buyers shall obtain a complete release of the personal guaranty of Shareholder and his wife from NationsBank, Liberal, Kansas, and indemnify Shareholder and his wife during that period of time should the guaranty be invoked by NationsBank. 3.3. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 4 Indemnification 4.1. Indemnification by and Remedies Against the Shareholder. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Shareholder shall indemnify, defend and hold harmless the Company, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the ABuyer Indemnified Parties@), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the ADamages@) in excess of $150,000 in the aggregate that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to any breach by the Shareholder of (or the failure of the Shareholder to perform) his respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Shareholder under this Agreement or provided, however, that the Shareholder shall not be required to so indemnify, defend and hold harmless Buyer Indemnified Parties against and with respect to any Damages incurred as a result of a breach by the Shareholder of his representations and warranties in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Shareholder under this Agreement for which Buyer fails to provide written notice of a claim for such Damages to the Shareholder on or before the expiration of the survival period (as specified in Section 5.1 hereof) of the specific representation or warranty alleged to have been breached. 4.2. Indemnification by and Remedies Against Buyer. In addition to any other remedies available to the Shareholder under this Agreement or at law or in equity, Buyer shall indemnify and hold harmless the Shareholder, his wife, children, agents, representatives, attorneys, successors, heirs, executors and administrators (collectively the AShareholder Indemnified Parties@) from any Damages that the Shareholder Indemnified Parties shall incur or suffer, which arise, result from or relate to (i) any breach of or failure by Buyer to perform any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholder by or on behalf of Buyer under this Agreement or (ii) the conduct of the Company=s business on or after the date hereof, provided, however, that Buyer shall not be required to so indemnify, defend and hold harmless the Shareholder Indemnified Parties as a result of a breach by Buyer of any of its representations and warranties in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholder by Buyer under this Agreement for which the Shareholder fails to provide written notice of the claim for such damages to Buyer on or before the expiration of the survival period (as specified in Section 5.1 hereof) of the specific representation or warranty alleged to have been breached. 4.2. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Section 4.1 or 4.2 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. ARTICLE 5 Miscellaneous 5.1. Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 24 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 24 months from the date hereof despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive as provided herein. 5.2. Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3. Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4. Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer Addressed to: With a copy to: WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to Shareholder Addressed to: With a copy to: Monty D. Elmore Gene H. Sharp, Esq. 2133 Sierra Sharp, McQueen, McKinley, Dreiling, Morain & Tate, P.A. Liberal, Kansas 67901 419 N. Kansas - P. O. Box 2619 Liberal, Kansas 67905-2619 Facsimile: (316) 624-9163 Rex A. Sharp, Esq. Husch & Eppenberger 1200 Main Street, Suite 1700 Kansas City, Missouri 64105-2100 Facsimile: (816) 421-0596 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Kansas. IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. WELLTECH EASTERN, INC. By: _____________________ Name: Bill Bixler Title: Vice President SHAREHOLDER ________________________ Monty D. Elmore EX-10.(B) 3 KENTING STOCK PURCHASE AGREEMENT EXECUTION COPY Stock Purchase Agreement Between WellTech Eastern, Inc. and Kenting Energy Services Inc. Dated as of July 30, 1997 C:\DOCUMENT\KENTSTAG.07 Stock Purchase Agreement This Stock Purchase Agreement (this "Agreement") is entered into as of July 30, 1997 by and between WellTech Eastern, Inc., a Delaware corporation ("Buyer"), and Kenting Energy Services Inc., an Alberta corporation (the "Shareholder"). WITNESSETH : Whereas, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and Whereas, Kenting Holdings (Argentina) S.A. (the "Company") is a corporation duly organized and validly existing under the laws of the republic of Argentina, with its principal executive offices at Uruguay 1134-Piso 3, (1016) Buenos Aires, Argentina; and Whereas, Kenting Drilling (Argentina) S.A. (the "Company Subsidiary") is a subsidiary of the Company and is a corporation duly organized and validly existing under the laws of the republic of Argentina, with its principal executive offices at Uruguay 1134-Piso 3, (1016) Buenos Aires, Argentina; and Whereas, the Shareholder owns 15,300,000 shares (the "Company Shares") of common stock, par value $1.00 per share, of the Company ("Company Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of the Company Whereas, the Company owns 24,545,362 shares (the "Company-Owned Subsidiary Shares") of common stock, par value $1.00 per share, of the Company Subsidiary ("Subsidiary Common Stock"), and the Shareholder owns 37,386 shares (the "Shareholder-Owned Subsidiary Shares") of Subsidiary Common Stock, which constitutes all of the issued and outstanding shares of capital stock of the Company Subsidiary; and Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to purchase from the Shareholder all of the issued and outstanding capital stock of the Company and all of the shares of capital stock of the Company Subsidiary owned by the Shareholder. Now, Therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: C:\DOCUMENT\KENTSTAG.07 i ARTICLE 1 Purchase and Sale 1.1. Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholder agrees to sell and convey to Buyer, free and clear of all Encumbrances (defined below) and Buyer agrees to purchase and accept from the Shareholder, all of the Company Shares and all of the Shareholder-Owned Subsidiary Shares. In consideration of the sale of the Company Shares and the Shareholder-Owned Subsidiary Shares, Buyer shall pay to the Shareholder $9,575,000 in cash by wire transfer of immediately available funds, and the Cash Adjustment Payment (as defined in Section 1.3 hereof), if any, in accordance with Section 1.3 hereof. In addition, on the date hereof Buyer shall pay to the Shareholder $525,000 in satisfaction of all debts remaining due to the Shareholder or irs affiliates on the date hereof. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature. 1.2. Recording the Transfer of Shares. The parties hereto acknowledge that the Company Shares are currently held of record as follows: 15,299,988 shares (the "KID Company Shares") by Kenting Drilling International, Inc., a predecessor (by amalgamation) to the Shareholder ("KID") and 12 shares (the "KESL Company Shares") by Kenting Energy Services Ltd, a predecessor (by amalgamation) to the Shareholder ("KESL"). The parties hereto acknowledge that the Shareholder- Owned Subsidiary Shares are currently held of record by KID. The Shareholder represents and warrants to Buyer that it has validly acquired the KID Company Shares, the KESL Company Shares and the Shareholder-Owned Subsidiary Shares by means of an amalgamation of various affiliated corporate entities and a subsequent liquidation of the resulting entity without having such acquisitions (the "Shareholder Stock Acquisitions") formally recorded in the appropriate stock records of the Company and the Company Subsidiary. On the date hereof, the Shareholder shall caused to be filed in the appropriate stock records of the Company and the Company Subsidiary those transfer documents necessary to properly record the Shareholder Stock Acquisitions in accordance with Argentina law (the "Delinquent Filings") and those transfer documents necessary to properly record the transfer of the Company Shares and the Shareholder-Owned Shares hereunder in accordance with Argentina law such that, as a result of such filings, the Buyer (and its designees) will become the record and beneficial owners of the Company Shares and the Shareholder-Owned Subsidiary Shares. 1.3 Adjustment of Purchase Price. Buyer shall cause to be prepared and delivered to the Shareholder a consolidated balance sheet of the Company as of the date hereof (the "Final Balance Sheet") within sixty (60) days after the date hereof, which balance sheet will be prepared in accordance with Canadian generally accepted accounting principles, consistently applied in all respects (which shall not include any reserve or accruals for employee termination costs). Buyer and the Shareholder shall jointly review the Final Balance Sheet, and endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days C:\DOCUMENT\KENTSTAG.07 2 from the date hereof. In the event that the parties cannot agree on the entries to be placed on the Final Balance Sheet, the dispute will be resolved by an independent accounting firm mutually agreed to by the Shareholder and Buyer (such agreement not to be unreasonably withheld or delayed) whose resolution shall be binding on and enforceable against the parties hereto. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If the sum of (A) the Final Net Current Value of the Company (defined below) plus (B) $100,056 (the"Capital Expenditure Amount") exceeds the 4/30 Net Current Value of the Company (defined below), Buyer shall pay to the Shareholder the amount of such excess (the "Cash Adjustment Payment"). (2) If the sum of (A) the Final Net Current Value of the Company plus the Capital Expenditure Amount is less than the 4/30 Net Current Value of the Company, the Shareholder shall pay to Buyer the amount of such difference. The term "Final Net Current Value of the Company" means the dollar value of the amount by which (i) the "Total Current Assets" (excluding any prepaid job costs relating to the assets referred to in Schedule 2.1.8 hereto (the "Excluded Assets") transferred from the Company to the Shareholder or an associated company of the Shareholder in anticipation of the consummation of the transactions contemplated hereby but including the book value of any "Inventories" included in the Excluded Assets) plus the "Other Assets" minus the "Due from Kenting Group" as recorded on the Final Balance Sheet exceeds (ii) the 'Total Current Liabilities" plus the " Term Debt" plus the "Deferred Income Taxes" minus the "Due to Kenting Group" as recorded on the Final Balance Sheet. The term"4/30 Net Current Value of the Company" means the dollar value of the amount by which (i) the "Total Current Assets" (excluding any prepaid job costs relating to the Excluded Assets but including the book value of any "Inventories" included in the Excluded Assets) plus the "Other Assets" minus the "Due from Kenting Group" as recorded on the 4/30 Balance Sheet (as defined in Section 2.1.6 hereof) exceeds (ii) the "Total Current Liabilities" plus the "Term Debt" plus the"Deferred Income Taxes" minus the "Due to Kenting Group" as recorded on the 4/30 Balance Sheet. ARTICLE 2 Representations and Warranties 2.1. Representations and Warranties of the Shareholder. The Shareholder represents and warrants to Buyer as follows: 2.1.1. Organization and Standing. Each of the Company, the Company Subsidiary and the Shareholder is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business C:\DOCUMENT\KENTSTAG.07 3 and is in good standing and is authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have an adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all of necessary corporate action on the part of the Shareholder, and the Shareholder has the legal capacity and requisite power and authority to enter into, and perform its obligations under this Agreement. This Agreement is a valid and binding obligation of the Shareholder enforceable against the Shareholder (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Shareholder will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) any of the organizational or other documents of the Company or the Company Subsidiary or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company, the Company Subsidiary or the Shareholder is a party or by which the Company, the Company Subsidiary or the Shareholder or their respective properties are bound. 2.1.3. Capitalization. The authorized capitalization of the Company consists of 15,300,000 shares of Company Common Stock, of which, as of the date hereof, 15,300,000 shares were issued and outstanding and, following the recording of the Delinquent Filings, are held beneficially and of record by the Shareholder. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non- assessable and are not subject to preemptive rights. None of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. The authorized capitalization of the Company Subsidiary consists of 24,582,748 shares of Subsidiary Common Stock, all of which shares were issued and outstanding as of the date hereof, with 24,545,362 shares held beneficially and of record by the Company (following the recording of the Delinquent Filings) and 37,386 shares held beneficially and of record by the Shareholder (following the recording of the Delinquent Filings). On the date hereof, the Company Subsidiary does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Subsidiary Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Subsidiary Common Stock is subject to any voting C:\DOCUMENT\KENTSTAG.07 4 trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of the Company Shares. Following the recording of the Delinquent Filings, the Shareholder holds good and valid title to all of the Company Shares and the Shareholder-Owned Subsidiary Shares, free and clear of all Encumbrances. Following the recording of the Delinquent Filings, the Shareholder possesses full authority and legal right to sell, transfer and assign to Buyer the Company Shares and the Shareholder-Owned Subsidiary Shares, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholder of the Company Shares and the Shareholder-Owned Subsidiary Shares, Buyer will own the Company Shares and the Shareholder-Owned Subsidiary Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of the Shareholder, threatened, against the Company or the Shareholder that concern or affect title to the Company Shares or the Shareholder-Owned Subsidiary Shares, or that seek to compel the issuance of capital stock or other securities of either the Company or the Company Subsidiary. 2.1.5. No Subsidiaries. Other than the Company Subsidiary, there is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. The Company has delivered to Buyer copies of the unaudited consolidated balance sheet of the Company and the Company Subsidiary (the "4/30 Balance Sheet") and related consolidated statements of income, copies of which are attached hereto as Schedule 2.1.6 (collectively, the "4/30 Financial Statements"), as at and for the four months ended April 30, 1997 (the "Balance Sheet Date"). The 4/30 Financial Statements are complete in all material respects. The 4/30 Financial Statements presents fairly in all material respects the consolidated financial condition of the Company as at the dates and for the periods indicated. The 4/30 Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles applied on a consistent basis. 2.1.7. Liabilities. Except as provided in Schedule 2.1.7 hereto, to the knowledge of any of (i) the directors and officers of the Company, (ii) the directors and officers of the Company Subsidiary, (iii) Gary Meier and (iv) Ricardo Lopez Olaciregui (collectively, the "Company Management"), neither the Company nor the Company Subsidiary has any liabilities or obligations, either accrued, absolute or contingent, nor are any of the foregoing persons aware of any potential liabilities or obligations (including, without limitation, liabilities related to non-performance of contracts, non-payment of taxes, infringement of the intellectual property rights of others, violations of applicable laws, current or pending litigation, environmental conditions or labor disputes) that could materially adversely affect the value and conduct of the business of the Company and the Company Subsidiary, taken C:\DOCUMENT\KENTSTAG.07 5 as a whole, other than those required to be reflected or properly reserved against in the 4/30 Balance Sheet and the Final Balance Sheet (and which will be reflected in an accurate calculation of the 4/30 Net Current Value of the Company and the Final Net Current Value of the Company). 2.1.8. Absence of Certain Changes and Events. The Shareholder has caused the Company and the Company Subsidiary to make those fixed asset transfers and those balance sheet adjustments referred to in Schedule 2.1.8 hereto. To the knowledge of Company Management, other than the transactions specified in Schedule 2.1.8 hereto, since the Balance Sheet Date, there has not been any material reduction in the value of the fixed assets of the Company or the Company Subsidiary or the occurrence of any other transaction or event that could materially adversely affect the value and conduct of the business of the Company and the Company Subsidiary, taken as a whole, other than those that will be reflected in an accurate calculation of the Final Net Current Value of the Company. 2.1.9. Title to and Condition of Assets. Except as disclosed on Schedule 2.1.9 hereto, the Company and the Company Subsidiary have good title to all their assets reflected in the 4/30 Balance Sheet, including, without limitation, all of the Company-Owned Subsidiary Shares, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 4/30 Balance Sheet, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. 2.1.10. Consents and Approvals. All consents, approvals and authorizations required to be made or obtained by the Company, the Company Subsidiary or the Shareholder in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby have been obtained. 2.1.11. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholder and its counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payments. 2.2. Representations and Warranties of Buyer. Buyer represents and warrants to the Shareholder as follows: 2.2.1. Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly C:\DOCUMENT\KENTSTAG.07 6 qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have an adverse effect on its financial condition, properties or business. 2.2.2. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3. Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Company, the Company Subsidiary and the Shareholder and its counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against any of the parties hereto for any brokerage commission, finder's fee or any similar payments. ARTICLE 3 Additional Agreements 3.1. Noncompetition. Except as otherwise consented to or approved in writing by Buyer, the Shareholder agrees that for a period of 42 months from the date hereof, it will not (and will cause its affiliates not to), directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in any businesses involved in providing well servicing or shallow/moderate depth drilling services within the country of Argentina; (ii) request any present customers or suppliers of the Company or the Company Subsidiary to curtail or cancel their business with the Company, the Company Subsidiary, Buyer or C:\DOCUMENT\KENTSTAG.07 7 any affiliate of Buyer; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of the Company, the Company Subsidiary, Buyer or any affiliate of Buyer or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of the Company, the Company Subsidiary, Buyer or any affiliate of Buyer to terminate his employment. The Shareholder agrees that if either the length of time or geographical area set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Shareholder may have under the laws of any jurisdiction in which they do business requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. Each of the Shareholder further agrees and acknowledges that the Company, the Company Subsidiary, Buyer and its affiliates do not have any adequate remedy at law for the breach or threatened breach by the Shareholder of this covenant, and agree that the Company, the Company Subsidiary, Buyer or any affiliate of Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin the Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Shareholder acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such Shareholder in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 3.2. Employee Matters. From the date hereof, the Company and the Company Subsidiary shall remain responsible for all costs associated with the termination of any of their employees terminated after the date hereof; provided, however, that the Shareholder shall be solely responsible for any and all liabilities, costs and expenses associated with the termination of Gary Meier by either the Company or the Company Subsidiary, regardless of whether he is terminated before, on or after the date hereof (the "Meier Termination"). 3.3. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. Without limiting the generality of the foregoing, the Shareholder shall take those actions reasonably requested by Buyer to (i) properly record the transfer of the Company Shares and the Shareholder-Owned Subsidiary Shares in accordance with Section 1.2 hereof and (ii) resolve the title exceptions described in Schedule 2.1.9 hereto. C:\DOCUMENT\KENTSTAG.07 8 ARTICLE 4 Indemnification 4.1. Indemnification by the Shareholder. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Shareholder shall indemnify, defend and hold harmless the Company, the Company Subsidiary, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the "Buyer Indemnified Parties"), against and with respect to any and all claims, costs, damages, losses, expenses, obliga tions, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the "Damages") that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to (i) any breach by the Shareholder of (or the failure of the Shareholder to perform) its respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Shareholder under this Agreement or (ii) the Meier Termination. 4.2. Indemnification by Buyer. In addition to any other remedies available to the Shareholder under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Shareholder against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholder by or on behalf of Buyer under this Agreement. 4.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Section 4.1 or 4.2 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party C:\DOCUMENT\KENTSTAG.07 9 for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. ARTICLE 5 Miscellaneous 5.1. Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive indefinitely despite any investigation made by any party hereto or on its behalf. 5.2. Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3. Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4. Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: C:\DOCUMENT\KENTSTAG.07 10 If to Buyer Addressed to: With a copy to: WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to any Shareholder Addressed to: With a copy to: Kenting Energy Services Inc. Howard Mackie Suite 700, 112 - 4th Ave. S.W. 1000 Canterra Tower Calgary, Alberta T2P0H3 400 Third Ave. S.W. Attn: Chief Operating Officer Calgary, Alberta T2P0H3 Facsimile: (403) 264-0251 Attn: Brian Roberts Facsimile: (403) 266-1395 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8. Applicable Law. While the parties hereto acknowledge and agree that the transfer of the Company Shares and the Shareholder-Owned Subsidiary Shares hereunder shall be effected and C:\DOCUMENT\KENTSTAG.07 11 recorded in accordance with Argentina law, this Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the Province of Alberta. 5.9. Fees, Expenses. All legal and other fees and expenses incurred by the parties hereto in connection with the negotiation of this Agreement and the consummation of the transactions contemplated hereby shall be borne solely by the party incurring such fee or expense. Without limiting the generality of the foregoing, any fees and expenses incurred by the Shareholder's counsel in connection with updating the stock records of the Company and the Company Subsidiary as required to properly record the transfer of the shares hereunder shall not be the obligation of the Company or the Company Subsidiary. All out-of-pocket expenses incurred by Buyer, the Company or the Company Subsidiary in connection with resolving the title exceptions described in Schedule 2.1.9 hereto shall be reimbursed by the Shareholder promptly upon written request accompanied by written evidence of such expense. [SIGNATURE PAGE FOLLOWS] C:\DOCUMENT\KENTSTAG.07 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. WELLTECH EASTERN, INC. By: Name: Title: KENTING ENERGY SERVICES INC. By: Name: Title C:\DOCUMENT\KENTSTAG.07 13 Schedule 2.1.6 - 4/30 Financial Statements See the financial statements attached hereto C:\DOCUMENT\KENTSTAG.07 14 Schedule 2.1.7 - Liabilities See the listing attached hereto C:\DOCUMENT\KENTSTAG.07 15 Schedule 2.1.8 - Material Pre-Closing Transactions Excluded Assets: Since the Balance Sheet date and in anticipation of the consummation of the transactions contemplated by this Agreement, the Company Subsidiary has transferred to P.D. Technical Services Inc. the following assets referred to in the attached Bill of Sale (the "Excluded Assets"): Balance Sheet Adjustments: The amounts payable from the Company or the Company Subsidiary to the Shareholder or its affiliates in excess of the amounts payable to the Company or the Company Subsidiary from the Shareholder or its affiliates shall be satisfied as follows: $3,000,000 US will be canceled in consideration for the transfer of the Excluded Assets with the remaining $525,000 US to be paid by the Buyer on the date hereof. C:\DOCUMENT\KENTSTAG.07 16 Schedule 2.1.9 - Title Exceptions 1. The Argentina real property records do not currently show that the Company Subsidiary is the owner of the parcel of real property located in Las Heres, Argentina and the two parcels of real property located in Comodoro Rivadavia, Argentina (the "Company Property") that valid purchase documents in the possession of the Company Subsidiary indicate it as owning. The Shareholder represents and warrants that (i) the Company Subsidiary is the owner in fee simple of the Company Property (with no material Encumbrances thereon), (ii) no other party has claimed or can validly claim title to any portion of the Company Property and (iii) it has (or will cause to be) delivered all documents necessary to file in the appropriate real property records to reflect that the Company Subsidiary owns the Company Property in fee simple, free from any material Encumbrances. 2. Some of the certificates of title covering the thirty-seven (37) automobiles and light pickup trucks owned by the Company Subsidiary (the "Company Vehicles") either do not properly reflect the Company Subsidiary as the owner thereof or indicate that such automobile is subject to a third part lien. The Shareholder represents and warrants that Company Vehicles are owned outright by the Company Subsidiary subject to no Encumbrances, (ii) no other party has claimed or can validly claim title to any of the Company Vehicles and (iii) it has (or will cause to be) delivered to Buyer all documents necessary to file with the appropriate governmental agency to enable the Company Subsidiary to obtain a clear certificate of title to each Company Vehicle. C:\DOCUMENT\KENTSTAG.07 17 EX-10.(C) 4 GIBSON STOCK PURCHASE AGREEMENT 33 STOCK PURCHASE AGREEMENT by and among NABORS ACQUISITION CORP. IV, as Seller, KEY ROCKY MOUNTAIN, INC., as Buyer and KEY ENERGY GROUP, INC. Dated as of July 31, 1997 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS......................................................1 ARTICLE 2. PURCHASE OF STOCK OF THE COMPANY.................................4 2.1 Purchase and Sale of Stock...............................................4 2.2 Purchase Price...........................................................4 2.3 Additional Purchase Price Adjustments and Procedures.....................5 2.4 The Closing..............................................................6 2.5 Deliveries at the Closing................................................6 2.6 Other Agreements.........................................................6 ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY.....7 3.1 Organization and Good Standing...........................................7 3.2 Authorization of Transaction.............................................7 3.3 Capital Structure........................................................7 3.4 Subsidiaries and Non-Subsidiary Equity Investments.......................8 3.5 Title to Company Stock...................................................8 3.6 Noncontravention.........................................................8 3.7 Brokers' Fees............................................................8 3.8 Permits..................................................................8 3.9 Financial Information....................................................8 3.10 No Undisclosed Liabilities..............................................9 3.11 Absence of Certain Changes..............................................9 3.12 No Defaults.............................................................9 3.13 Tax Matters.............................................................9 3.14 Real Property...........................................................9 3.15 Intellectual Property...................................................10 3.16 Contracts...............................................................10 3.17 Insurance...............................................................10 3.18 Litigation..............................................................10 3.19 Employees...............................................................11 3.20 Employee Benefit Plans..................................................11 3.21 Powers of Attorney......................................................12 3.22 Guarantees..............................................................12 3.23 No Implied Representations or Warranties................................12 3.24 Accredited Investor; Investment Intent..................................13 3.25 Drilling and Workover Rigs..............................................13 ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND KEY ENERGY.......13 4.1 Organization and Good Standing...........................................13 4.2 Authorization of Transaction.............................................13 4.3 Noncontravention.........................................................14 4.4 Brokers' Fees............................................................14 4.5 Financial Capability; No Financing Condition.............................14 4.6 Litigation...............................................................14 4.7 Accredited Investor; Investment Intent...................................14 4.8 Capitalization of Key Energy.............................................14 4.9 SEC Filings of Key Energy................................................15 4.10 Material Adverse Effect.................................................15 ARTICLE 5. COVENANTS........................................................15 5.1 General..................................................................15 5.2 Notices and Consents.....................................................15 5.3 Operation of Business....................................................16 5.4 Preservation of Business, Operations, Properties and Assets oftheCompany.16 5.5 Access; Confidentiality; Etc.............................................16 5.6 Notice of Developments...................................................16 5.7 Insurance................................................................16 5.8 Employee Matters.........................................................16 5.9 Further Assurances.......................................................18 5.10 Litigation Support......................................................18 5.11 Tax Matters.............................................................18 5.12 Inspections.............................................................20 5.13 Acquisition Proposals...................................................20 5.14 Registration Rights.....................................................20 5.15 Books and Records.......................................................25 ARTICLE 6. CONDITIONS TO OBLIGATION TO CLOSE................................25 6.1 Conditions to Obligations of the Buyer and Key Energy....................25 6.2 Conditions to Obligations of the Seller..................................26 ARTICLE 7. TERMINATION......................................................28 7.1 Termination of Agreement.................................................28 7.2 Effect of Termination....................................................28 ARTICLE 8. REMEDIES FOR BREACHES OF THIS AGREEMENT..........................28 8.1 Investigations; Survival of Representations, Warranties and Covenants....28 8.2 Indemnification Provisions for Benefit of the Buyer.....................28 8.3 Indemnification Provisions for Benefit of the Seller....................29 8.4 Matters Involving Third Parties.........................................29 8.5 Matters Involving the Parties...........................................30 8.6 Limitations on Indemnification..........................................30 8.7 Environmental Claims....................................................30 ARTICLE 9. MISCELLANEOUS...................................................31 9.1 Press Releases and Public Announcements.................................31 9.2 No Third-Party Beneficiaries............................................31 9.3 Entire Agreement........................................................31 9.4 Succession and Assignment...............................................31 9.5 Counterparts............................................................31 9.6 Headings................................................................31 9.7 Notices.................................................................31 9.8 Governing Law...........................................................32 9.9 Amendments and Waivers..................................................32 9.10 Severability...........................................................32 9.11 Expenses...............................................................32 9.12 Construction...........................................................32 9.13 Specific Performance...................................................33 9.14 Submission to Jurisdiction.............................................33 EXHIBITS EXHIBIT A FORM OF WARRANT..........................................A-1 EXHIBIT B NABORS INDUSTRIES, INC. GUARANTEE........................B-1 EXHIBIT C OPERATING AGREEMENT......................................C-1 EXHIBIT D ESCROW AGREEMENT.........................................D-1 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 31, 1997, is entered into by and among Nabors Acquisition Corp. IV, a Delaware corporation (the "Seller"), Key Rocky Mountain, Inc., a Delaware corporation (the "Buyer"), and Key Energy Group, Inc., a Maryland corporation and the parent corporation of Buyer ("Key Energy"). WHEREAS, the Seller owns all of the issued and outstanding shares of capital stock of J.W. Gibson Well Service Company, a Delaware corporation (the "Company"); and WHEREAS, the Seller desires to sell to the Buyer all of the issued and outstanding shares of capital stock of the Company, and the Buyer desires to purchase such shares from the Seller, upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, in connection with such purchase and sale, the Seller, the Buyer and Key Energy desire to make certain representations, warranties, covenants and agreements and to prescribe various conditions to such purchase and sale; NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, and upon the terms and subject to the conditions hereinafter set forth, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes (including any Tax on any indemnity payments), liens, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses, in each case after taking into account the benefits, if any, to the Seller or the Buyer, as the case may be, from the net tax consequences of the matter as to which it is indemnified. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Buyer" has the meaning specified in the first paragraph of this Agreement. "Closing" has the meaning set forth in Section 2.4. "Closing Date" has the meaning set forth in Section 2.4. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the U.S. Securities and Exchange Commission or any successor entity. "Company" has the meaning specified in the second paragraph of this Agreement. "Company Common Stock" has the meaning set forth in Section 3.3. "Company Stock" means all of the issued and outstanding shares of capital stock of the Company. "Disclosure Schedule" has the meaning set forth in the first paragraph of Section 3. "Employee Benefit Plans" has the meaning set forth in Section 3.20. "Environmental Claims" means any Adverse Consequences attributable to the Company or any successor arising under any Environmental Law. "Environmental Law" means laws, rules, regulations, statutes, ordinances and codes of the United States, or any State, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment as now in effect. "Equity Securities" of any Person means the capital or voting stock of such Person and all other securities convertible into, or exchangeable for, any shares of such capital or voting stock, all rights to subscribe for or to purchase, all options and warrants for the purchase of, and all calls, commitments or claims of any character relating to, any shares of such capital or voting stock, all equity equivalents, interests in the ownership or earnings or other similar rights of, or with respect to, such Person, and any securities convertible into or exchangeable or exercisable for any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any trade or business, whether or not incorporated, which together with the Company would be deemed or treated as a "single employer" within the meaning of Code Section 414 or ERISA Section 4001. "Estimated Working Capital" has the meaning set forth in Section 2.2(b). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Final Determination Date" has the meaning set forth in Section 2.3(a). "Guarantee " means the Guarantee of Nabors Industries, Inc. attached hereto as Exhibit B. "Indemnified Party" has the meaning set forth in Section 8.4(a). "Indemnifying Party" has the meaning set forth in Section 8.4(a). "Industry Material Adverse Event" means the date on which both of the following events shall occur: if (a) the average of the West Texas Intermediate crude oil spot market daily closing prices as reported by the New York Mercantile Exchange for the 45-day period prior to the date is below $15.00 per barrel and (b) the average of the natural gas prices at Henry Hub, Louisiana as reported by the New York Mercantile Exchange for the 45-day period prior to the date is below $1.60 per mmbtu. "Intellectual Property" has the meaning set forth in Section 3.15. "July 31 Balance Sheet" has the meaning set forth in Section 2.3. "Key Energy" has the meaning specified in the first paragraph of this Agreement. "Key Energy Common Stock" means the Common Stock, par value $.10 per share, of Key Energy. "Key Energy Financial Statements" has the meaning set forth in Section 4.9. "Key Energy Reports" has the meaning set forth in Section 4.9. "Knowledge" means the actual knowledge of any director or executive officer of the named entity, after due inquiry. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due and whether based on contract, tort (including negligence), strict liability or other basis), including any liability for Taxes. "Material Adverse Effect" means any event that has or is reasonably expected to have a material adverse effect on the business, operations or financial condition of the applicable party. If quantifiable, an event of series of events shall be considered to have a Material Adverse Effect for purposes of this Agreement if it involves amounts in excess of $1,250,000. A Material Adverse Effect on the business, operations or financial condition of a party is sometimes referred to as a "[Name of Party] Material Adverse Effect". "Operating Agreement" means the Operating Agreement to be entered into by the Seller, Key Energy and the Buyer with respect to the Company, effective on or after the date the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has terminated or been waived, in substantially the form of Exhibit C, with such changes thereto as the parties executing the same may mutually agree. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice. "Oxy" means Occidental Oil and Gas Corporation, a California corporation. "Oxy Purchase Agreement" means the Stock Purchase Agreement between Nabors Industries, Inc. and Oxy dated as of March 8, 1996. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof). "Permits" has the meaning set forth in Section 3.8. "Proceedings" has the meaning set forth in Section 5.11(b). "Purchase Price" has the meaning set forth in Section 2.2(a). "Registered Securities" has the meaning specified in Section 5.14(a). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, claim or other security interest of any kind or nature whatsoever, other than (a) mechanic's, materialmen's and similar liens; (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings; and (c) purchase money liens and liens securing rental payments under capital lease arrangements. "Seller" has the meaning specified in the first paragraph of this Agreement. "Shelf Registration Statement" has the mean specified in Section 5.14(a). "State Tax Detriment" has the meaning specified in Section 2.3(d). "Tax" means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including Taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Third Party Claim" has the meaning set forth in Section 8.4(a). "Unaudited Balance Sheet" means the unaudited balance sheet of the Company as of March 31, 1997 as described in Section 3.9. "Warrants" means warrants, dated the Closing Date and expiring on the Warrant Expiration Date, to acquire 265,000 shares of Key Energy Common Stock, subject to adjustment, at the Warrant Exercise Price in the form set forth in Exhibit A to this Agreement. "Warrant Exercise Price" means $18 per share. "Warrant Expiration Date" means the seventh anniversary of the Closing Date. "Warrant Shares" means 265,000 shares of the Key Energy Common Stock, as adjusted pursuant to the provisions of Section 2.2(d). "Working Capital" means the difference between total current assets and total current liabilities of the Company as of the July 31, 1997, as set forth on the July 31 Balance Sheet. ARTICLE 2. PURCHASE OF STOCK OF THE COMPANY. 2.1 Purchase and Sale of Stock. Upon the terms and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey and deliver to the Buyer, the Company Stock at the Closing for the Purchase Price. 2.2 Purchase Price. (a) The aggregate purchase price to be paid for the Company Stock shall be (i) an amount in cash equal to the sum of (x) $20,000,000 plus (y) the Working Capital of the Company, plus (ii) 100,000 shares of Key Energy Common Stock, plus (iii) the Warrants (collectively the "Purchase Price"). On the date the Operating Agreement becomes effective, the Buyer shall deposit the remaining $20,000,000 cash portion of the Purchase Price and $3,900,000 Estimated Working Capital into an escrow account, as specified in the Escrow Agreement attached hereto as Exhibit D. (b) On the Closing Date, the Buyer shall pay or cause to be paid to the Seller an amount equal to the sum of $20,000,000, plus interest, if any, since the date of deposit of such funds in the escrow account, as specified in the Escrow Agreement attached hereto as Exhibit D, plus Estimated Working Capital in cash by wire transfer or delivery of other immediately available funds to an account or accounts to be designated by the Seller in writing at least one business day prior to the Closing Date. "Estimated Working Capital" means the difference between total current assets and total current liabilities of the Company as shown on a balance sheet of the Company prepared by the Seller in good faith as of July 31, 1997. The cash portion of the Purchase Price, including the Estimated Working Capital, shall be subject to post-Closing adjustment in accordance with Section 2.3. (c) At the Closing, Key Energy will issue to the Seller 100,000 shares of Key Energy Common Stock, subject to adjustment as provided below. The number of the shares shall be adjusted in the event of any change in the Key Energy Common Stock by reason of stock or other non-cash dividends, extraordinary cash dividends, split-ups, mergers, recapitalizations, combinations, subdivisions, conversions, exchange of shares or the like after the date of this Agreement and on or before the Closing Date, such that, in each case, the Seller shall receive the number and class of shares or other securities or property that would have been received in respect of a share of the Key Energy Common Stock if the Closing Date had occurred immediately prior to such event, or the record date therefor, as applicable. (d) At the Closing, Key Energy will issue to the Seller the Warrants, with the Warrant Exercise Price, the Warrant Expiration Date and the Warrant Shares calculated or determined pursuant to the provisions of this Agreement duly inserted in the appropriate places thereon. The number of the Warrant Shares shall be adjusted in the event of any change in the Key Energy Common Stock by reason of stock or other non-cash dividends, extraordinary cash dividends, split-ups, mergers, recapitalizations, combinations, subdivisions, conversions, exchange of shares or the like after the date of this Agreement and on or before the Closing Date, such that, in each case, the Seller shall receive upon the payment of the Warrant Exercise Price the number and class of shares or other securities or property that would have been received in respect of a share of the Key Energy Common Stock if the Closing Date had occurred immediately prior to such event, or the record date therefor, as applicable. 2.3 Additional Purchase Price Adjustments and Procedures. (a) On the Closing Date, the Buyer will prepare and deliver to the Seller a balance sheet of the Company as of July 31, 1997 (the "July 31 Balance Sheet"). The July 31 Balance Sheet shall include all information necessary to compute the Working Capital of the Company. The Buyer shall make available to the Seller all information which may be in the possession of the Buyer or the Company which the Seller requests in order to verify the accuracy of the July 31 Balance Sheet. Within 60 days following delivery of the July 31 Balance Sheet, the Seller shall notify the Buyer whether it agrees with the July 31 Balance Sheet. In the event that the Seller disagrees with the July 31 Balance Sheet, the Seller shall provide the Buyer with a written notice specifying the basis for the Seller's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the composition of the July 31 Balance Sheet, but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a "Big Six" independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the July 31 Balance Sheet (the date on which the determination is made, whether by the accounting firm or by agreement of the parties, is referred to as the "Final Determination Date"). Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. (b) In the event that the Working Capital of the Company is less than the Estimated Working Capital, then the amount of such difference shall be paid by the Seller to the Buyer within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. In the event that the Working Capital of the Company is more than the Estimated Working Capital, then the amount of such difference shall be paid by the Buyer to the Seller within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. (c) The July 31 Balance Sheet shall be prepared in accordance with generally accepted accounting principles applied in a manner consistent with the Company's historical accounting policies and practices; except that all intercompany balances will be eliminated. (d) On or prior to 90 days from the Closing Date, the Seller will prepare and deliver to the Buyer a calculation of the State Tax Detriment (as defined below) resulting from the sale of the Company, showing all necessary information for such calculation. The Seller shall make available to the Buyer all information which may be in the possession of the Seller which the Buyer reasonable requests in order to verify the accuracy of the State Tax Detriment calculation. Within 30 days following delivery of the calculation of the State Tax Detriment, the Buyer shall notify the Seller whether it disagrees with such calculation and the Buyer shall be deemed to agree with such calculation if no notice of disagreement is received within such time period. In the event that the Buyer disagrees with such calculation, the Buyer shall attach to its notice of disagreement or incorporate therein a written notice specifying the basis for the Buyer's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the calculation but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a nationally recognized independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and the disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Seller and the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the calculation. Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. Payment of the amount of the State Tax Detriment shall be made by the Buyer to the Seller no later than five business days after the date agreement is reached between the Buyer and the Seller or the decision of the accounting firm is made. The "State Tax Detriment" equals the difference between (A) the state Taxes payable by the Seller or any related party as a result of making the Section 338(h)(10) election contemplated by Section 5.11(c) of this Agreement and (B) the state Taxes that would have been payable as a result of the sale pursuant to this Agreement had such a Section 338(h)(10) election not been made, such calculation to be grossed up for any additional state or other Taxes payable as a result of the payment to the Seller under this provision. 2.4 The Closing. Except as otherwise set forth herein, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Seller in Houston, Texas, commencing at 10:00 a.m., local time, on (a) the later to occur of (i) a date between October 1 and October 15, 1997 or (ii) the fifth business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself) or (b) such earlier date as the Seller may reasonably request and the parties may mutually agree, which agreement shall not be unreasonably withheld (the "Closing Date"). 2.5 Deliveries at the Closing. At the Closing, (a) the Seller will deliver or cause to be delivered to the Buyer certificates representing the Company Stock and the various certificates, instruments and documents referred to in Section 6.1; (b) the Buyer and Key Energy will deliver or cause to be delivered to the Seller the various certificates, instruments and documents referred to in Section 6.2; and (c) the Buyer will deliver or cause to be delivered to the Seller the Purchase Price. 2.6 Other Agreements. Concurrently herewith, (a) Nabors Industries, Inc. is entering into the Guarantee, (b) the Seller, the Buyer and Key Energy are entering into the Operating Agreement and (c) the Seller, the Buyer, Key Energy and the escrow agent named therein are entering into the Escrow Agreement. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY. The Seller and the Company represent and warrant to the Buyer and Key Energy that the statements contained in this Article 3 are correct and complete as of the date of this Agreement, except as set forth in the disclosure schedule accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule has been arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article 3. 3.1 Organization and Good Standing. Each of the Company and the Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of organization, has full, requisite corporate power and authority to carry on its business as it is currently conducted and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Seller or the Company, respectively. 3.2 Authorization of Transaction. Each of the Seller and the Company has full power and authority (including corporate power and authority) to execute and deliver this Agreement and the Exhibits to which it is a party and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of the Seller and the Company and, if required by applicable law, the stockholders of the Seller, have duly authorized the execution, delivery and performance of this Agreement and such Exhibits by the Seller and the Company, respectively. This Agreement constitutes the valid and legally binding obligation of the Seller and the Company, and each Exhibit to which the Seller is a party constitutes the valid and legally binding obligation of the Seller, in each case enforceable against such party in accordance with its terms and conditions, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and to general principles of equity. 3.3 Capital Structure. (a) The authorized capital stock of the Company consists of 1,000 shares of common stock, $1.00 par value per share ("Company Common Stock"). There are 1,000 shares of Company Common Stock which are issued and outstanding and all of such shares are held by the Seller. All outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. (b) Except for this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which either the Seller or the Company is a party or by which either of them is bound obligating either the Seller to cause the Company or the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of its capital stock or other voting securities of the Company or obligating either the Seller to cause the Company or the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the Company. 3.4 Subsidiaries and Non-Subsidiary Equity Investments. The Company has no subsidiaries and does not own, directly or indirectly, any voting securities, other equity interests or partnership interests in any other Person. 3.5 Title to Company Stock. The Seller has good and valid title to the Company Stock, free and clear of any Security Interest other than claims of the Buyer pursuant to this Agreement. Upon delivery of the Company Stock hereunder and payment of the Purchase Price as herein contemplated, the Buyer will receive good and valid title to the Company Stock, free and clear of any Security Interest. 3.6 Noncontravention. Except, in each case, where such violations individually or in the aggregate would not have a Material Adverse Effect on the applicable party, neither the execution and the delivery of this Agreement and the Exhibits hereto to which the Seller is a party, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which either the Seller or the Company is subject or any provision of the charter or bylaws of the Seller or the Company or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which either the Seller or the Company is a party or by which either of them is bound or to which any of their respective assets or properties is subject (or result in the imposition of any Security Interest upon any of the assets or properties of the Company or the Company Stock). Except for any required filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Company does not need to give any notice to, make any filing with or obtain any authorization, consent or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement. 3.7 Brokers' Fees. Neither the Seller nor the Company has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. 3.8 Permits. The Disclosure Schedule sets forth all material licenses, permits and authorizations of the Company necessary for the Company to own, use, operate and maintain its assets and properties (collectively, the "Permits"). The Company has full corporate power and authority to operate its business pursuant to such Permits, except where the failure to have such Permits, individually or in the aggregate, would not have a Company Material Adverse Effect. All of such Permits are in full force and effect and, except for Permits required to be obtained by the Buyer, as owner of the Company or where the failure to be or to continue to be in full force and effect would not have a Company Material Adverse Effect, and assuming the Company is operated in the same manner after the Closing as before the Closing, then immediately following the Closing, such Permits will continue to be in full force and effect in accordance with their respective terms. The Company is in substantial compliance with all such Permits and with all orders, judgments or decrees applicable to the ownership, use, maintenance or operation of its assets and properties, except, in each case, where the failure to be in compliance would not have a Company Material Adverse Effect. 3.9 Financial Information. Copies of the Company's unaudited balance sheets dated September 30, 1996, December 31, 1996 and March 31, 1997 together with its unaudited statements of operations for the five months ended September 30, 1996, the three months ended December 31, 1996 and the three months ended March 31, 1997 are included in the Disclosure Schedule. Such financial statements are true and complete in all material respects (except for the omission of notes and schedules), present fairly the financial condition of the Company as at the dates indicated, and the results of operations for the respective periods indicated, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as noted therein and subject, in the case of interim financial statements, to normal year-end adjustments and other adjustments described therein. In addition, such financial statements, though unaudited, include all adjustments which the Seller and the Company consider necessary for fair presentation, in all material respects, of the Company's results of operations for each such periods. 3.10 No Undisclosed Liabilities. The Company does not have any liabilities or obligations, absolute or contingent, nor does the Seller or the Company have any Knowledge of any potential liabilities or obligations of the Company, which would be required to be reflected on the Unaudited Balance Sheet in accordance with generally accepted accounting principles and that would reasonably be expected to have a Company Material Adverse Effect, other than those (i) reflected or reserved against in the Unaudited Balance Sheet or (ii) incurred in the Ordinary Course of Business since March 31, 1997. 3.11 Absence of Certain Changes. Since March 31, 1997, no event has occurred, or condition exists, which would constitute or cause, individually or in the aggregate, a Company Material Adverse Effect. 3.12 No Defaults. The Company is not in default under, and no event has occurred which with notice, lapse of time or, to the Knowledge of the Seller and the Company, action by a third party could result in a default under, (a) any outstanding indenture, material contract or agreement to which the Company is a party or to which it or its assets may be subject, except where such default or potential default would not have a Company Material Adverse Effect or (ii) under any provision of the Company's Certificate of Incorporation. 3.13 Tax Matters. (a) The Seller and the Company have caused, or will have caused by the Closing Date, to be timely filed with the appropriate federal, foreign, state, local and other governmental authorities all Tax Returns required to be filed on or before the Closing Date by or with respect to the Company for any taxable period ending on or before the Closing Date. The Seller and the Company have paid, or will have paid by the Closing Date, all Taxes shown to be due from the Seller on such returns or reports. All Tax Returns filed by or on behalf of the Company are true and correct. The Company has no direct or indirect liability for any Taxes of any Affiliate, or any other member of a consolidated group in which the Company is or, since April 30, 1996 has been, a member, particularly pursuant to Treasury Regulation Section 1.1502-6. (b) No Tax Liabilities exist with respect to the Company, except for Liabilities imposed by law and incurred in the Ordinary Course of Business for obligations not yet due and except as may relate to the purchase and sale of Company Stock contemplated hereby. Tax Liabilities not yet due and payable (except as relates to this transaction) will be fully reserved on the July 31 Balance Sheet to the extent not paid by the Seller. (c) There are no claims for Taxes presently being asserted in writing for which the Company may be liable. No extension has been granted by or on behalf of the Company to any Tax authority of the limitation period during which any Tax Liability may be asserted. The Company has not received any written notice of an increase in the assessed value of any of the Company's properties for Tax purposes. (d) The Disclosure Schedule includes a copy of the Form 8023-A that was filed with the Internal Revenue Service in a timely manner following the acquisition of the Company pursuant to the Oxy Purchase Agreement on April 30, 1996. 3.14 Real Property. The Disclosure Schedule lists and describes briefly all real property owned, leased or subleased to the Company and all Security Interests thereon. The Disclosure Schedule also identifies the owned, leased or subleased properties for which title insurance policies have been procured. Each lease and sublease listed in the Disclosure Schedule is in full force and effect, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and to general principles of equity. 3.15 Intellectual Property. The Company holds no patents, patent applications, trademarks (whether registered or not), trademark applications, service marks, trade names, trade secrets, computer software, copyright registrations or applications, or patent or know-how licenses (collectively, "Intellectual Property") relating to or used in connection with its business or operations, other than computer software and other non-proprietary Intellectual Property necessary to operate business systems generally, drilling know-how, patents on equipment used by the Company and the name "J.W. Gibson Well Service Company" . 3.16 Contracts. The Disclosure Schedule lists all contracts and other agreements to which the Company is a party that involve amounts in excess of $250,000 or that continue for a term in excess of six months. Each such agreement is in full force and effect, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and to general principles of equity. The Company is not, and to the Knowledge of the Company and the Seller, no other party to any such agreement is, in material default thereunder and no event has occurred which (with or without notice, lapse of time or, to the Knowledge of the Company and the Seller, action by a third party) would constitute a material default thereunder. 3.17 Insurance. The Disclosure Schedule sets forth the following information with respect to each insurance policy of the Seller, the Company or any Affiliate thereof (including policies providing property, casualty, liability and workers' compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured or otherwise the beneficiary of coverage at any time since April 1, 1995 that covers, affects or relates to the business, operations, assets or properties of the Company: (a) the name, address and telephone number of the agent; (b) the name of the insurer, the name of the policyholder and the name of each covered insured; (c) the policy number and the period of coverage; (d) the scope (including an indication of whether the coverage was on a claims made, occurrence or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (e) a description of any retroactive premium adjustments or other loss-sharing arrangements. Each such insurance policy is or was in full force and effect for the period specified therefor in the Disclosure Statement, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and to general principles of equity and, since April 30, 1996 the assets, properties and personnel of the Company have been covered under one or more of such policies as noted therein. The Disclosure Schedule describes any self-insurance arrangements covering, affecting or relating to the business, operations, assets or properties of the Company. 3.18 Litigation. The Disclosure Schedule sets forth all suits, actions or legal, administrative or other proceedings or governmental investigations pending to which the Company is a party. There is no suit, action or legal, administrative, arbitration or other proceeding or governmental investigation pending to which the Company is a party that may reasonably be expected to have a Company Material Adverse Effect. The Company is not subject to any outstanding injunction, judgment, order, decree, ruling or charge. There are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of the Seller or the Company, threatened, which seek to question, delay or prevent the consummation of, or would materially impair the ability of the parties hereto to consummate, the transactions contemplated hereby. 3.19 Employees. (a) The Disclosure Schedule lists all employees of the Company, the rates of pay for each such employee and any and all commission, bonus or other compensation arrangements between the Company and any of such employees. (b) The Disclosure Schedule lists each management or employment contract or contract for personal services and a brief description of any understanding or commitment between the Company and any officer, consultant, director, employee or independent contractor of the Company. (c) A copy of each written management or employment contract or contract for personal services between the Company and any officer, consultant, director, employee or independent contractor of the Company has been provided to the Buyer. (d) The Company is not a party to or bound by any collective bargaining agreement nor, to the Knowledge of the Seller and the Company, is there any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Company. 3.20 Employee Benefit Plans. (a) The Disclosure Schedule sets forth a brief description of each bonus, pension, profit sharing, retirement, severance, termination pay, stock purchase, incentive or deferred compensation, stock option, medical, hospitalization, disability, life insurance, accident, insurance or similar plan or practice (collectively, "Employee Benefit Plans") in effect with respect to the Company's directors, officers and employees. (b) With respect to each of the Company's Employee Benefit Plans, the Seller has made available to the Buyer true and complete copies of: (i) all plan documents, including any related trust agreements, insurance contracts or other funding arrangements; (ii) the most recent determination letter received from the Internal Revenue Service (where applicable); (iii) the most recent IRS Series 5500 Form, including, where applicable, the most recent financial statement; and (iv) the most recent summary plan description. (c) The Company does not maintain, contribute to or have any Liability under any funded or unfunded medical, health, disability, long-term care or life insurance plan or arrangement for present or future retirees from the Company, except as required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (d) The Company does not maintain or contribute to a trust, organization or association described in any of Section 501(c)(9), 501(c)(17) or 501(c)(20) of the Code. (e) Favorable determination letters have been received from the Internal Revenue Service with respect to each of the Company's Employee Benefit Plans that is intended to comply with the provisions of Section 401(a) of the Code, evidencing compliance with the relevant provisions of the Tax Equity and Fiscal Responsibility Act of 1982, the Tax Reform Act of 1984, the Retirement Equity Act of 1984 and the Tax Reform Act of 1986. To the Knowledge of the Seller and the Company, nothing has occurred since the date of such determination letters that would adversely affect the qualified status of each such Employee Benefit Plan or the tax-exempt status of any related trust. (f) Each of the Company's Employee Benefit Plans that is, or since April 30, 1996 has been, subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA has been terminated and its assets distributed, and the Company does not maintain or contribute to any such plan. (g) Since April 30, 1996, neither the Company nor any ERISA Affiliate of the Company has maintained, contributed to or had any Liability (including current or potential withdrawal liability) with respect to any "multiemployer plan" as such term is defined in Section 3(37) of ERISA. (h) The Company is not a party to any employment agreement, whether written or oral, or any of the Company's Employee Benefit Plans which contains any provision relating to change in control of the Company. (i) The Company has not made or become obligated to make, or will, as a result of any event connected with the acquisition of the Company Stock by the Buyer or any other transaction contemplated herein, make or become obligated to make, any "excess parachute payment" as defined in section 280G of the Code (without regard to subsection (b)(4) thereof). (j) There has been no act or omission by the Company, or by any current Affiliate of the Company, that would impair in any material respect the right or ability of the Company to amend or terminate unilaterally any of the Company's Employee Benefit Plans or to terminate unilaterally, as of the Closing Date, the accrual of any benefits after the Closing Date with respect to employees or former employees of the Company. (k) The J.W. Gibson Well Service Company Profit Sharing Plan does not fail to meet the requirements of a "qualified plan" under Section 401 of the Code as a result of any action, or omission, by the Company prior to the Closing. (l) Each of the Company's Employee Benefit Plans is, in all material respects, in compliance, and has been administered, maintained and funded in all material respects in accordance, with the applicable provisions of ERISA and the Code and all other applicable laws, rules and regulations. All reports and information required to be filed or distributed in accordance with ERISA or the Code with respect to each Employee Benefit Plan have been timely and properly filed and distributed including, without limitation, IRS Forms 5500. (m) All contributions or premiums which are or were due between April 30, 1996 and on or prior to the Closing Date with respect to the Employee Benefit Plans have been or will be timely paid by Company on or prior to the Closing Date. (n) Nothing in this Agreement, express or implied, shall be construed to prevent the Buyer from terminating or modifying to any extent or in any respect whatsoever any employee benefit or fringe benefit plan, policy or program that the Buyer sponsors, assumes or maintains, or to which the Buyer may contribute or have an obligation to contribute. 3.21 Powers of Attorney. There are no outstanding powers of attorney executed by or on behalf of the Company. 3.22 Guarantees. The Company is not a guarantor or otherwise liable for any Liability or obligation (including indebtedness) of any other Person. 3.23 No Implied Representations or Warranties. Notwithstanding anything contained in this Article 3 or any other provisions of this Agreement, it is the explicit intent of each party hereto that neither the Seller nor the Company is making any representation or warranty whatsoever beyond those expressly given in this Agreement. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE ASSETS OF THE COMPANY WHICH THE BUYER IS INDIRECTLY ACQUIRING THROUGH THE PURCHASE OF THE COMPANY STOCK ARE BEING ACQUIRED "AS IS, WHERE IS, WITH ALL FAULTS" AND WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY OR ON BEHALF OF THE SELLER OR THE COMPANY, EXPRESS, IMPLIED OR OTHERWISE, EXCEPT AS OTHERWISE CONTAINED IN THIS SECTION 3. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NEITHER THE SELLER NOR THE COMPANY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED OR OTHERWISE, AS TO THE CONDITION, MERCHANTABILITY, SUITABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES WITH RESPECT TO ANY OF THE ASSETS OF THE COMPANY, INCLUDING ANY REPRESENTATIONS OR WARRANTIES THAT MAY ARISE FROM USAGE OF TRADE OR COURSE OF DEALING. 3.24 Accredited Investor; Investment Intent. The Seller is an "accredited investor," as such term is defined in Regulation D promulgated under the Securities Act of 1933, as amended. The Seller is acquiring the shares of Key Energy Common Stock and the Warrants comprising a portion of the Purchase Price for investment purposes only and not with a view towards resale or distribution. 3.25 Drilling and Workover Rigs. The Disclosure Schedule lists all of the drilling and workover rigs owned or leased by the Company and sets forth the location of such rigs on the date thereof. The Company has good and marketable title to all rigs owned by it, free and clear of all Security Interests. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND KEY ENERGY. The Buyer and Key Energy represent and warrant to the Seller that the statements contained in this Article 4 are correct and complete as of the date of this Agreement, except as set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article 4. 4.1 Organization and Good Standing. Each of the Buyer and Key Energy is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization, has full, requisite corporate power and authority to carry on its business as it is currently conducted and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Buyer or Key Energy, respectively. 4.2 Authorization of Transaction. Each of the Buyer and Key Energy has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and each Exhibit to which it is a party and Key Energy has full power and authority (including full corporate power and authority) to execute and deliver the Warrants and the Key Energy Common Stock to be delivered hereunder and thereunder and to perform its obligations thereunder. Without limiting the generality of the foregoing, the respective boards of directors of the Buyer and Key Energy and, if required by applicable law, the stockholders of the Buyer and Key Energy, have duly authorized the execution, delivery and performance of this Agreement and each Exhibit to which the Buyer or Key Energy is a party by the Buyer and Key Energy, respectively. This Agreement and each Exhibit to which the Buyer or Key Energy is a party constitutes the valid and legally binding obligation of the Buyer and/or Key Energy, enforceable against the Buyer and/or Key Energy, respectively, in accordance with its terms and conditions, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and to general principles of equity. The Warrants, when executed and delivered by Key Energy, will constitute the legally valid and binding obligations of Key Energy, enforceable against Key Energy in accordance with their terms, except as enforceability is limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and equitable principles. 4.3 Noncontravention. Except, in each case, where such violations individually or in the aggregate would not have a Material Adverse Effect on the applicable party, neither the execution and the delivery of this Agreement, the Exhibits hereto and the Warrants, nor the consummation of the transactions contemplated hereby and thereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which the Buyer or Key Energy is subject or any provision of their respective charter or bylaws or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Buyer or Key Energy is a party or by which it is bound or to which any of its assets is subject. Except for (i) any required filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii) filings with federal or state securities commissions in connection with the transactions contemplated in the Warrants and the registration rights contemplated in Section 5.14, neither the Buyer nor Key Energy needs to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement or the Warrants. 4.4 Brokers' Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. 4.5 Financial Capability; No Financing Condition. The Buyer will have available on the Closing Date, funds sufficient to pay the Purchase Price. Key Energy has available and will have available on the Closing Date, and has reserved for issuance, a sufficient number of shares of Key Energy Common Stock to pay the stock portion of the Purchase Price and to issue the Warrant Shares on conversion of the Warrants. Each of the Buyer and Key Energy acknowledges and understands that its obligations to effect the transactions contemplated hereby are not subject to the availability to the Buyer or Key Energy of financing sufficient to pay the Purchase Price. 4.6 Litigation. There are no actions, suits, proceedings or government investigations pending or, to the Knowledge of the Buyer and Key Energy, threatened, which seek to question, delay or prevent the consummation of, or would materially impair the ability of the parties hereto to consummate, the transactions contemplated hereby. 4.7 Accredited Investor; Investment Intent. The Buyer is an "accredited investor," as such term is defined in Regulation D promulgated under the Securities Act. The Buyer is purchasing the Company Stock for investment purposes only and not with a view towards resale or distribution. 4.8 Capitalization of Key Energy. As of the date hereof, the authorized capital stock of Key Energy consists solely of 25,000,000 shares of the Key Energy Common Stock. Other than the Key Energy Common Stock, Key Energy has no class or series of Equity Securities authorized, issued or outstanding. As of July 15, 1997, 12,422,964 shares of the Key Energy Common Stock were issued and outstanding. As of the date hereof, (i) 265,000 shares of the Key Energy Common Stock were reserved for issuance upon the exercise of Warrants and (ii) 8,177,246 shares of Key Energy Common Stock shares are issuable upon the conversion of outstanding convertible securities of Key Energy. Pursuant to Key Energy's Certificate of Incorporation, the board of directors of Key Energy has the authority, without further shareholder action, to redesignate all of the authorized and unissued shares of Key Energy Common Stock into one or more series of preferred stock. No shares of authorized and unissued Key Energy Common Stock have been so designated or issued. All of the issued and outstanding shares of the capital stock of Key Energy have been duly authorized and are validly issued, fully paid and nonassessable, and no shares of the capital stock of Key Energy are subject to, nor have they been issued in violation of, preemptive rights. The shares of Key Energy Common Stock constituting a portion of the Purchase Price when issued and delivered by Key Energy, the Warrants, when executed and delivered by Key Energy, and the Warrant Shares, when issued on conversion of the Warrants, will have been duly authorized and validly issued and will not be subject to, nor issued in violation of, preemptive rights. Except as referred to above, there are outstanding (a) no Equity Securities of Key Energy, and (b), except for the obligations of (1) the parties pursuant to this Agreement, and (2) Key Energy pursuant to the Warrants, no options or other rights to acquire from Key Energy, and no obligations of Key Energy to issue or sell, any Equity Securities of Key Energy. Except as set forth in the Key Energy Reports, there are no outstanding obligations of Key Energy to repurchase, redeem or otherwise acquire any shares of its capital stock. Except as set forth in the Key Energy Reports, there is no agreement or arrangement restricting the voting or transfer of any of the Equity Securities of Key Energy. Except as described in the Key Energy Reports or as contemplated hereby and by the Warrants and the registration rights contemplated in Section 5.14, there are no agreements or arrangements to which Key Energy is a party pursuant to which Key Energy is or could be required to register shares of the Key Energy Common Stock under the Securities Act. 4.9 SEC Filings of Key Energy. Key Energy has delivered to the Seller accurate and complete copies (without exhibits) of (i) the Annual Report on Form 10-K of Key Energy for the fiscal year ended June 30, 1996, (ii) its Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 1996, December 31, 1996 and March 31, 1997, (iii) its Proxy Statement for its last Annual Meeting of Shareholders, (iv) its Current Reports on Form 8-K as filed since June 30, 1996, in each case in the form filed by Key Energy with the Commission and (v) its Registration Statements on Form 8-A dated May 21, 1981, as amended, and June 6, 1997 (collectively, the "Key Energy Reports"). The Key Energy Reports are the only reports, schedules, forms, statements and other documents required by the Exchange Act to be filed by Key Energy with the Commission since June 30, 1996. None of the Key Energy Reports, including, without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited consolidated interim financial statements of Key Energy (collectively, "Key Energy Financial Statements") included in such reports present fairly, in conformity in all material respects with generally accepted accounting principles (except as may be indicated in the notes thereto and except that certain information and disclosure normally included in notes to consolidated financial statements have been condensed or omitted from the unaudited consolidated interim financial statements pursuant to rules and regulations of the Commission, but any resultant disclosures are in accordance with generally accepted accounting principles as they apply to interim reporting), the consolidated financial position of Key Energy as of the dates thereof and its consolidated results of operations and cash flows for the periods then ended (subject to normal year-end audit adjustments in the case of any unaudited interim financial statements). 4.10 Material Adverse Effect. Since March 31, 1997, other than as described in the Key Energy Reports, no event has occurred, or condition exists, which would constitute or cause, individually or in the aggregate, a Material Adverse Effect with respect to Key Energy. ARTICLE 5. COVENANTS. The parties agree as follows: 5.1 General. Each of the parties will use its respective reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article 6). 5.2 Notices and Consents. The Company will give any required notices to third parties, and the Company will use its best efforts to obtain any third party consents required in connection with the matters referred to in Section 3.6. Each of the parties will give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents and approvals of governments and governmental agencies in connection with the matters referred to in Section 3.6 and Section 4.3. 5.3 Operation of Business. Until the earlier of the Closing or the date of the Operating Agreement, the Buyer, Key Energy, the Seller and the Company agree to cooperate with each other to effect an orderly transition of the ongoing operations of the Company. The Company will operate in the Ordinary Course of Business. 5.4 Preservation of Business, Operations, Properties and Assets of the Company. The Seller will, and will cause the Company to, use commercially reasonable efforts to preserve, maintain and protect the business, operations, properties and assets of the Company. The Seller will not, and will cause the Company not to, intentionally take any action to affect in an adverse manner the present business, operations, assets or properties of the Company or its relationships with vendors, suppliers, customers and employees related thereto. 5.5 Access; Confidentiality; Etc.. The Seller will, and will cause the Company to, permit representatives of the Buyer and Key Energy to have reasonable access from time to time during regular business hours of all premises, properties, personnel, books, records, contracts and documents of or pertaining to the Company, as the Buyer or Key Energy may from time to time reasonably request upon at least two business days notice. Until the Closing Date and, in the event that this Agreement is terminated, for a period of three years from the date of this Agreement, each of the Buyer and Key Energy agrees that it and its Affiliates will treat confidentially and not disclose in any manner whatsoever any information regarding the Company or the Seller which the Company or the Seller or any of their officers, directors, employees, agents or representatives furnish to the Buyer, Key Energy or any person acting on behalf of the Buyer or Key Energy, except as required by applicable law. Key Energy will furnish to the Seller, promptly after filing, copies of all annual reports, quarterly reports and current reports filed by Key Energy with the Securities and Exchange Commission until the first anniversary of the Closing Date. 5.6 Notice of Developments. Each party will give prompt written notice to the other parties of the occurrence of any event that has or may reasonably be expected to have a Material Adverse Effect on such party or any event causing a breach of any of its own representations and warranties in Article 3 and Article 4. 5.7 Insurance. The Seller will, or will cause the Company to, maintain appropriate insurance relative to the Company's business operations, assets and properties, consistent with past practice, from the date hereof through the Closing Date. 5.8 Employee Matters. (a) As of the Closing, the Buyer shall, except as otherwise agreed to by the Seller, or shall cause the Company to, continue the employment of employees of the Company and shall provide all of the Company's employees with such benefit plans and arrangements which shall be in effect on the Closing Date with respect to comparable employees of the Buyer located in the same geographic region. (b) Each of the employees of the Company on the Closing Date who are eligible to participate in the Buyer's Employee Benefit Plans or the Company's Employee Benefit Plans shall be entitled to participate in such plans as of and from the Closing Date. (c) The Buyer shall recognize, or cause the Company to recognize, all service credited for each of the employees on the Company's records for purposes of eligibility for participation and vesting under the Buyer's Employee Benefit Plans or the Company's Employee Benefit Plans and the level of benefits under such plans but specifically excluding any benefit accrual under any Employee Benefit Plan of Buyer that is a defined benefit plan. (d) From and after the Closing, the salaried employees of the Company shall be entitled to retain and take any paid vacation days accrued but not taken under the Company's vacation policies prior to the Closing, provided that such vacation days are taken, or paid in lieu of being taken, on or before December 31, 1997. Such employees shall only accrue vacation under the Buyer's vacation policies from and after the Closing Date. (e) The Buyer, the Company and the Seller agree to furnish each other with appropriate records for each of the employees of the Company as may be necessary to assist in proper benefit administration. (f) Nothing expressed or implied in this Agreement shall confer upon any employee of the Company, or any legal representative thereof, any rights or remedies, including any right to employment or continued employment for any specified period, of any nature or kind whatsoever or make such Person third party beneficiaries of this Agreement. Nothing in this Agreement, express or implied, shall be construed to prevent the Buyer from terminating, amending or modifying to any extent any Employee Benefit Plan or other arrangement that the Buyer may establish or maintain or to which it may contribute or have an obligation to contribute. (g) The Buyer, to the extent set forth in Article 8, shall indemnify and hold the Seller harmless (i) from all claims by any employee of the Company who shall continue employment with the Company, the Buyer or any of its Affiliates after the Closing but whom the Buyer or any member of its affiliated group shall thereafter terminate, or by any spouse, dependent, estate or other beneficiary or representative of such employee, and (ii) from any claims or charges by, or relating to, any such employee concerning Employee Benefit Plans of the Company, wrongful termination, discrimination or harassment, or violation of any law, including (1) the Fair Labor Standards Act, (2) the Labor Management Relations Act, (3) the Workers Adjustment and Retraining Notification Act, (4) the Americans With Disabilities Act, (5) ERISA, (6) the Consolidated Omnibus Budget Reconciliation Act of 1985, (7) the National Labor Relations Act, (8) the Family and Medical Leave Act and (9) Title VII of the Civil Rights Act of 1964, all as attributable to the conduct of the Buyer or any member of its affiliated group with respect to such employee occurring subsequent to the date hereof. (h) The Seller, to the extent set forth in Article 8, shall indemnify and hold the Buyer and its Affiliates harmless, (i) from all claims (other than those with respect to the Consolidated Budget Reconciliation Act of 1985, as amended) by any employee or former employee terminated by the Company prior to the Closing, or by any spouse, dependent, estate or other beneficiary or representative of such employee or former employee, and (ii) from any claims or charges by, or relating to, any such employee or former employee concerning wrongful termination, discrimination or harassment, or violation of any law (other than the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended), including, without limitation, (1) the Fair Labor Standards Act, (2) the Labor Management Relations Act, (3) the Workers Adjustment and Retraining Notification Act, (4) the Americans With Disabilities Act, (5) ERISA, (6) the National Labor Relations Act, (7) the Family and Medical Leave Act, and (8) Title VII of the Civil Rights Act of 1964, all as attributable to the conduct of the Company or any member of its affiliated group with respect to the employees or former employees of the Company occurring prior to the date hereof. (i) Notwithstanding anything in this Agreement to the contrary, on and after the Closing Date, the Buyer and the Company shall be responsible for and shall assume, indemnify, defend and hold harmless the Seller, Nabors Industries, Inc. and their ERISA Affiliates and their employees, former employees, agents and representatives from and against any and all Liabilities (including, without limitation, disbursements and reasonable legal fees incurred in connection therewith and in seeking indemnification therefor and any amounts or expenses required to be paid or incurred in connection with any action, suit, proceeding, claim, appeal, demand, assessment or judgment) under the Consolidated Omnibus Reconciliation Act of 1985, as amended (e.g., Code Section 4980B, ERISA Section 601-8 and 502(c)(1)(A) and any predecessors or successors), regarding the Company and its employees and former employees and their qualified beneficiaries under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, regardless of whether such Liabilities were omissions, conditions, occurrences, facts or circumstances for all periods prior to April 30, 1996 and for all periods on or after the Closing Date, including but not limited to, the responsibility of the Buyer and the Company to provide any necessary health coverages to and otherwise satisfy the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, on and after the Closing Date with respect to employees and former employees of the Company and their qualified beneficiaries under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. The Seller shall similarly indemnify, defend and hold harmless the Buyer, the Company and their ERISA Affiliates, and their employees, former employees, agents and representatives with respect to such matters for the period from April 30, 1996 to the date hereof. 5.9 Further Assurances. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request (including any request as may be required to be made by the Seller on behalf of Oxy pursuant to the Oxy Purchase Agreement), all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefor under Article 8 or unless the party subject to the request is otherwise obligated to take such action pursuant to the terms of this Agreement). To the extent necessary for Tax, accounting, collection of receivables assigned to Oxy pursuant to Section 5(b) of the Oxy Purchase Agreement, benefits administration or other reasonable business purposes (including as may be required under the Oxy Purchase Agreement), the Buyer shall provide to the Seller (and, at the Seller's request, Oxy, to the extent provided in the Oxy Purchase Agreement) access at reasonable times during business hours to the records of the Company. 5.10 Litigation Support. In the event and for so long as any party (or Oxy, pursuant to the Oxy Purchase Agreement) actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date involving the Company, the other party will cooperate with the contesting or defending party (or Oxy, as applicable) and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party (or Oxy, as applicable) (unless the contesting or defending party is entitled to indemnification therefor under Article 8). 5.11 Tax Matters. (a) The Buyer shall pay all transfer Taxes, including sales, use, excise, stamp, documentary, filing, recording, permit, license, authorization or other similar Taxes and filing fees and similar charges resulting from this Agreement or the transactions contemplated hereby (including, if applicable, an election under Section 338(h)(10) of the Code), regardless of upon whom such transfer Tax is levied or imposed by law. The Seller shall be liable for all Taxes relating to the Company for taxable periods ending on or before the Closing Date. The Buyer shall be liable for all Taxes imposed with respect to the Company which are attributable to any taxable periods after the Closing Date. In the event the Tax year of the Company does not end on the Closing Date for one or more Taxes, the Seller shall pay such Taxes as are attributable to the period before Closing, as if such Tax year had ended on the Closing Date. The Seller shall be responsible for filing, or causing to be filed, all income or franchise Tax Returns which are required to include the income, deduction and credits, etc. of the Company for any tax period ending before, on or with the Closing Date. After the Closing Date, the parties shall cooperate with each other (and, to the extent required in Section 5(g) of the Oxy Purchase Agreement, with Oxy) in the preparation of any pre-closing or post-closing Tax Returns. (b) In the case of any audit, examination or other proceeding ("Proceedings") with respect to Taxes for which the Seller is or may be liable pursuant to this Agreement, the Buyer shall promptly inform the Seller, and shall afford the Seller, at the Seller's expense, the opportunity to control the conduct of such Proceeding. The Buyer shall execute or cause to be executed powers of attorney or other documents necessary to enable the Seller to take all actions desired by the Seller with respect to such Proceeding to the extent such Proceeding may affect amount of Taxes for which the Seller is liable pursuant to this Agreement. The Seller shall have the right to control any such Proceedings, and, if there is substantial authority thereof, to initiate any claim for refund, file any amended return or take any other action which it deems appropriate with respect to such Taxes. Any Proceeding with respect to Taxes for a period which includes but does not end on the Closing Date shall be controlled jointly by the Seller and the Buyer. Notwithstanding the foregoing, the Seller shall not agree to any settlement concerning Taxes for any taxable period ending on or before the Closing Date which may result in a material increase in Taxes for any taxable period ending after the Closing Date without the prior written consent of the Buyer. (c) The Seller, the Company and their Affiliates, as of the Closing Date, shall terminate all Tax allocation agreements or other Tax sharing arrangements with respect to the Company, shall cause such agreements or arrangements to be of no further force and effect as regards the Company on and after the Closing Date and there shall be no further liability of the Company thereunder from and after the Closing Date. (d) The Buyer and the Seller shall join in an election to have the provisions of Section 338(h)(10) of the Code and similar provisions of federal, state, local or foreign law (where permissible) apply to the acquisition by the Buyer of the Company Stock whereby (i) the Company will be treated as having sold all of its assets in a single transaction as of the close of business on the Closing Date while a member of the Seller's consolidated Tax group and (ii) no gain or loss will be recognized by the Seller or the Company with respect to the sale of Company Stock by the Seller. The election will include the execution and subsequent filing of Internal Revenue Service Form 8023-A pursuant to the requirements as stated therein. The Buyer shall, within 60 days of the Closing Date, provide to the Seller an allocation of the deemed purchase price among the assets of the Company in accordance with Code Sections 338 and 1060 and any comparable provisions of state, local or foreign law, as appropriate. Such allocation shall be deemed acceptable to the Seller unless it notifies the Buyer of any objections within 30 days of receipt of such allocation. If the Seller and the Buyer are unable to agree on such allocation within 120 days of the Closing Date, then an independent accounting firm mutually acceptable to the parties hereto shall make a binding determination with respect to such allocation, the fees and expenses of which shall the paid equally by the Seller and the Buyer. (e) The Buyer, Key Energy and the Seller shall preserve all information, returns, books, records and documents relating to any liabilities for Taxes of the Company with respect to a taxable period until the later of expiration of all applicable statutes of limitation and extensions thereof or a final determination with respect to Taxes of the Company for such period. 5.12 Inspections. EACH OF THE BUYER AND KEY ENERGY ACKNOWLEDGES AND AFFIRMS THAT IT HAS HAD THE OPPORTUNITY TO COMPLETE ITS OWN INDEPENDENT INVESTIGATION, ANALYSIS AND EVALUATION OF THE COMPANY AND ITS ASSETS, THAT IT HAS BEEN AFFORDED THE OPPORTUNITY TO INSPECT AND HAS INSPECTED THE COMPANY AND ITS ASSETS, THAT IN MAKING ITS DECISION TO ENTER IN TO THIS AGREEMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY IT HAS RELIED SOLELY ON (a) ITS INDEPENDENT INVESTIGATION, ANALYSIS AND EVALUATION OF THE COMPANY AND ITS ASSETS AND (b) THE REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER AND THE COMPANY CONTAINED IN THIS AGREEMENT, AND THAT IT HAS MADE ALL SUCH REVIEWS AND INSPECTIONS OF THE FOREGOING AS ITS HAS DEEMED NECESSARY OR APPROPRIATE. Nothing in this Section 5.12 shall relieve the Seller or the Company of any liability or responsibility for its representations, warranties and covenants in this Agreement. 5.13 Acquisition Proposals. The Seller will not, and will cause the Company not to, directly or indirectly at any time before termination of this Agreement (i) solicit, initiate or encourage any inquiries or proposal for a merger, consolidation or other business combination involving the Company or for the acquisition or purchase of any equity interest in, or a material portion of the assets of, the Company, from any Person (other than the transactions with the Buyer and Key Energy contemplated by this Agreement) or (ii) participate in any discussions or negotiations regarding, or furnish to any Person, other than the Buyer, Key Energy or their representatives, any information with respect to, or otherwise, facilitate or encourage any such proposal by any other Person; it being understood that proposals relating to a merger, consolidation, business combination or sale of equity interests or assets involving the Seller or any Affiliate (other than the Company) shall not be prohibited hereby nor require notice to the Buyer or Key Energy so long as such proposals permit the consummation of the transactions contemplated by this Agreement. 5.14 Registration Rights. (a) Agreement to Register Resales. Key Energy agrees that no later than 90 days following the Closing Date, it will file with the Commission on Form S-3, or if Form S-3 is not available to Key Energy, on Form S-1, a shelf registration statement pursuant to Rule 415 of the Securities Act (the "Shelf Registration Statement") covering the offer and resale by the Seller of (i) the shares of Key Energy Common Stock delivered to the Seller pursuant to Section 2.2(a)(ii), and (ii) the Warrant Shares (collectively, the "Registered Securities"), and will use its best efforts to cause the Shelf Registration Statement to be declared effective promptly by the Commission, and in any event within 90 days after the initial filing thereof. (b) Effectiveness of Shelf Registration Statement. Key Energy agrees to maintain the Shelf Registration Statement in effect for the maximum period allowable under the regulations promulgated by the Commission; provided that if such maximum period is less than two years from the Closing Date and if as of the end of such maximum period not all of the Registered Securities registered under the Shelf Registration Statement have been sold or are capable of being sold under Rule 144 of the Securities Act without application of the volume, manner of sale or notice restrictions, then within 10 days after the end of such maximum period Key Energy shall file either a post-effective amendment to the existing Shelf Registration Statement or a new Shelf Registration Statement covering the offer and resale by the Seller of all Registered Securities not previously sold, and Key Energy will use its best efforts to cause the same to be declared effective promptly by the Commission, and in any event within 90 days after the initial filing thereof. (c) Blue Sky Qualification. Key Energy will use its best efforts to effect any qualification and compliance as may be required and as would permit or facilitate the resale of such Registered Securities, including, without limitation, registration under the Securities Act, appropriate qualifications under applicable blue sky or other state securities laws and, appropriate compliance with any other governmental requirements. (d) Registration Expenses. All expenses (except for any legal fees for the Seller's counsel) relating to the registration of the Registered Securities pursuant to this Agreement (including, but not limited to, the expenses of any qualifications under the blue-sky or other state securities laws and compliance with governmental requirements of preparing and filing any post-effective amendments or prospectus supplements required for the lawful distribution of the Registered Securities to the public in connection with such registration) will be paid by Key Energy. (e) Preparation; Reasonable Investigation. Key Energy will give the Seller the opportunity to participate in the preparation of the Shelf Registration Statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give the Seller such access to its books and records and such opportunities to discuss the business of Key Energy with its officers and the independent public accountants who have certified its financial statements as shall be reasonably necessary, in the Seller's judgment, to conduct a reasonable investigation within the meaning of the Securities Act. (f) Transfer of Registration Rights. The registration rights provided by this Section 5.14 are transferable to any Affiliate of the Seller to which the Registered Securities may be transferred and to any single purchaser of all (but not less than all) of the Registrable Securities, provided, in each case, that the Affiliate or the purchaser agrees (in a writing that names the Company as an explicit third party beneficiary) to be bound by all the terms and provisions of this Section 5.14. (g) Undertaking to File Reports and Cooperate in Rule 144 and Rule 145 Transactions. For as long as the Seller is subject to Rule 144 of the Securities Act with respect to the Registered Securities, Key Energy will use its best efforts to timely file all annual, quarterly and other reports required to be filed by it under Section 13 or 15(d) of the Exchange Act and the rules and regulations of the Commission thereunder, as amended from time to time. If the Seller proposes to sell any Registered Securities pursuant to Rule 144, Key Energy shall cooperate with the Seller so as to enable such sales to be made in accordance with applicable laws, rules and regulations, the requirements of Key Energy's transfer agent, and the reasonable requirements of the broker through which the sales are proposed to be executed. Without limiting the generality of the foregoing, Key Energy shall, upon request, furnish with respect to each such sale (i) a written statement certifying that Key Energy has complied with the public information requirements of Rule 144 and (ii) an opinion of Key Energy's counsel regarding such matters as Key Energy's transfer agent or such stockholder's broker may reasonably desire to confirm. (h) Additional Undertakings with Respect to Registration Rights. In connection with its registration obligations under this Section 5.14, Key Energy shall: (i) Delivery of Shelf Registration Statement of Prospectus. Furnish to the Seller such number of copies of the Shelf Registration Statement, each amendment and supplement thereto, the prospectus included in such Shelf Registration Statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as the Seller may reasonably request in order to facilitate the disposition of the Registered Securities. (ii) Notice to the Seller. Promptly notify the Seller and (if requested confirm such notice in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to the Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of the issuance by any state securities or other regulatory authority of any other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registered Securities under state securities or blue sky laws or the initiation of any proceedings for that purpose, and (C) of the happening of any event that makes any statement made in the Shelf Registration Statement or related prospectus untrue or which requires the making of any changes in such Shelf Registration Statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registered Securities, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. (iii) Incorporation of Information. If requested by the Seller, promptly incorporate in a prospectus supplement or post-effective amendment such information as the Seller reasonably requests to be included therein, including, without limitation, with respect to the Registered Securities being sold by the Seller, and promptly make all required filings of such prospectus supplement or post-effective amendment. (iv) Delivery of Documents Incorporated by Reference. As promptly as practicable after filing with the Commission of any document that is incorporated by reference into the Shelf Registration Statement (in the form in which it was incorporated), deliver a copy of each such document to the Seller. (v) Listing. Cause the Registered Securities to be (A) listed on each securities exchange, if any, on which similar securities issued by Key Energy are then listed, or (B) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation or the NASDAQ National Market System if the Key Energy Common Stock so qualifies. (vi) Filing of Exchange Act Reports. During the period when a prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. (vii) Requests for Information by the Commission. Notify the Seller promptly of any request by the Commission for the amending or supplementing of such Shelf Registration Statement or prospectus or for additional information. (viii) Notice of Stop Orders. Advise the Seller, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. For purposes of this Section 5.14(h), the "Seller" shall include any Affiliate of the Seller or other Person to which the Registered Securities and registration rights with respect thereto are transferred. Also for purposes of this Section 5.14(h), Registered Securities shall refer to any capital stock of Key Energy or its successors into which Key Energy shares may be exchanged or converted. (i) Indemnification. (i) Key Energy will, and hereby does, indemnify and hold harmless, to the extent permitted by applicable law, the Seller, its officers and directors, if any, and each Person, if any, who controls the Seller within the meaning of Section 15 of the Securities Act, and their respective successors, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses, including legal fees incurred in investigating or defending any such loss, claim, damage or liability (under the Securities Act or common law or otherwise) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Shelf Registration Statement or prospectus (and as amended or supplemented if Key Energy shall have furnished any amendments or supplements thereto), covering the Registrable Securities or any preliminary prospectus or other document incident thereto or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses arise out of or are based upon any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing to Key Energy by the Seller expressly for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Seller, its officers, directors or any Person, if any, who controls the Seller as aforesaid, and shall survive the transfer of such securities by the Seller. (ii) The Seller will and hereby does indemnify and hold harmless, to the extent permitted by applicable law, Key Energy, its officers and directors and each Person, if any, who controls Key Energy within the meaning of Section 15 of the Securities Act, and their respective successors, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses, including legal fees incurred in investigating or defending any such loss, claim, damage or liability (under the Securities Act or common law or otherwise) arising out of or based upon any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be state in any Shelf Registration Statement or prospectus or preliminary prospectus or any amendment thereof or supplement thereto or other document incident thereto or arising out of or based upon any omission or alleged omission to state therein a material fact, or necessary to make the statements therein by the Seller not misleading, but only to the extent that such untrue statement is contained in, or such omission is in, information furnished in a writing by the Seller expressly for use therein, provided that the Seller's obligations hereunder shall be limited to an amount equal to the proceeds to the Seller of the Registrable Securities sold pursuant to such registration statement. (iii) Any Person entitled to indemnification under the provisions of this Section 5.14(i) shall (A) give prompt notice to the indemnifying Person of any claim with respect to which it seeks indemnification and (B) unless in such indemnified Person's reasonably judgment a conflict of interest between such indemnified and indemnifying Persons may exist in respect to such claim, permit such indemnifying Person to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified Person; and, if such defense is so assumed, such indemnifying Person shall not enter into any settlement without the consent of the indemnified Person if such settlement attributes liability to the indemnified Person and such indemnified Person shall not be subject to any liability for any settlement made without such consent (which shall not be unreasonably withheld). In the event that an indemnifying Person shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying Person shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying Person in respect of such claim, unless, in the reasonable judgment of any such indemnified Person, a conflict of interest may exist between such indemnified Person and any other of such indemnified Persons in respect of such claim. (iv) If for any reason the foregoing indemnity is unavailable, then, subject to the proviso in Section 5.14(i)(ii) in the case of the Seller, the indemnifying Person shall contribute to the amount paid or payable by the indemnified Person as a result of such losses, claims, damages, liabilities or expenses (A) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying Person on the one hand and the indemnified Person on the other or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying Person on the one hand and the indemnified Person on the other but also the relative fault or the indemnifying Person and the indemnified Person as well as any other relevant equitable considerations. The relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying Person or by the indemnified Person and by the Persons' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a Person as a result of the losses, claims, damages, liabilities and expenses shall be deemed to include any legal or other fees or expenses reasonably incurred by the Person in connection with investigating or defending any action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (v) An indemnifying Person shall make payments of all amounts required to be made pursuant to the foregoing provisions of this Section 5.14(i) to or for the account of the indemnified Person from time to time promptly upon receipt of bills or invoices relating thereto or when otherwise due or payable. (j) Suspension of Resales. Key Energy shall be entitled to require that the Seller refrain from effecting any public sales or distributions of the Registered Securities, pursuant to the Shelf Registration Statement that has been declared effective by the Commission, if the board of directors of Key Energy in good faith determines that such public sales or distributions would interfere in any material respect with any transaction involving Key Energy that is material to Key Energy. The board of directors shall, as promptly as practicable, give the Seller written notice of any such development, which notice also shall contain a general statement of the reasons for such restriction on use and an estimate of the anticipated length of the period of the restriction. In the event of a request by the board of directors that the Seller refrain from effecting any public sales or distributions of the Registered Securities, Key Energy shall be required to lift such restrictions regarding effecting public sales or distributions of the Registered Securities as soon as reasonably practicable after the board of directors shall determine that public sales or distributions by the Seller of the Registered Securities shall not interfere with such transaction; provided, that in any event no requirement that the Seller refrain from effecting public sales or distributions in the Registered Securities shall extend for more than 15 days at any one time or more than 30 days over the entire period the Shelf Registration Statement is required to be in effect. 5.15 Books and Records. Until April 30, 2001 (or for such longer period as may be required by law), no party or any of its Affiliates shall destroy or give up possession of an original or any copy of the books and records relative to any matter for which a party or its Affiliates shall have any continuing responsibility under this Agreement or the Oxy Purchase Agreement without first offering the other parties the opportunity, at their expense, to obtain such original or copy thereof. ARTICLE 6. CONDITIONS TO OBLIGATION TO CLOSE. 6.1 Conditions to Obligations of the Buyer and Key Energy. The obligation of the Buyer and Key Energy to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Article 3 shall be true and correct in all material respects at and as of the Closing Date (except for those representations and warranties that are made as of a date other than the date of this Agreement shall continue as of such date to be so true and correct and except as may be modified in the Operating Agreement); (b) the Seller shall have performed and complied, in all material respects, with all of its covenants hereunder, except as may be modified in the Operating Agreement; (c) no order of any court or administrative agency shall be in effect which restrains or prohibits the Seller from consummating the transactions contemplated hereby; (d) the Seller shall have received all material authorizations, consents and approvals of governments and governmental agencies required for the Seller to consummate the transactions contemplated by this Agreement; (e) the Seller shall have delivered to the Buyer and Key Energy a certificate to the effect that each of the conditions specified above in Section 6.1(a)-(d) is satisfied and the Company shall have delivered to the Buyer and Key Energy a certificate to the effect that the condition specified in Section 6.1(a) is satisfied with respect to the Company; (f) the Seller shall have delivered to the Buyer and Key Energy all certificates representing the Company Stock, duly endorsed for transfer; (g) from the date this Agreement there shall not have occurred (i) any suspension or material limitation of trading of any securities on the American Stock Exchange, (ii) any suspension of trading of any securities by Key Energy, including the Key Energy Common Stock, by the Commission or (iii) any banking moratorium which shall have been declared by federal or New York authorities; (h) the Buyer and Key Energy shall have received a favorable opinion, dated as of the Closing Date, from Baker & McKenzie, counsel to the Seller, in form and substance satisfactory to Buyer and Key Energy, to the effect that (i) the Company and the Seller each has been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of incorporation; (ii) the Company Stock is validly issued, fully paid and is nonassessable and is not subject to any statutory preemptive rights; (iii) all corporate action required to be taken by or on the part of the Seller, the Company or any Affiliate of the Seller, the Company and Nabors Industries, Inc., as applicable, to authorize the execution of this Agreement, the Operating Agreement and the Guarantee and the implementation of the transactions contemplated hereby have been taken; and (iv) each of this Agreement, the Operating Agreement and the Guarantee have been duly executed and delivered by, and is the legal, valid and binding obligation of the Seller, the Company and Nabors Industries, Inc., as applicable, and is enforceable against the Seller, the Company and/or such Affiliate, as applicable, in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally (whether applied in a court of law or equity). No opinion need be expressed as to the enforceability of any indemnification provisions of this Agreement or of the Guarantee. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of the Company or the Seller as to matters of fact and (ii) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to the Buyer and Key Energy, as to matters other than federal, Texas or Delaware corporate law; and (i) the Seller shall have delivered to the Buyer and Key Energy evidence of the release of the Seller from the obligations set forth in Schedule 3.6 to the Disclosure Schedule; provided, however, that if any representation or warranty set forth in Article 3 or any covenant of the Seller set forth herein is not true and correct at and as of the Closing Date due to any action or failure to act of Key Energy or its Affiliates taken pursuant to the Operating Agreement, then the accuracy of such representation, warranty or covenant shall not be a condition to the obligation of Buyer and Key Energy to consummate the transactions contemplated by this Agreement, nor shall any indemnity obligations of the Seller arise pursuant to Section 8.2 as a result of any action or failure to act on the part of Key Energy or its Affiliates from and after the date of the Operating Agreement. 6.2 Conditions to Obligations of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Article 4 shall be true and correct in all material respects at and as of the Closing Date (except for those representations and warranties that are made as of a date other than the date of this Agreement shall continue as of such date to be so true and correct); (b) the Buyer and Key Energy shall have performed and complied, in all material respects, with all of its covenants under this Agreement, except as may be modified in the Operating Agreement; (c) no order of any court or administrative agency shall be in effect which restrains or prohibits the Buyer or Key Energy from consummating the transactions contemplated by this Agreement or affect adversely the right of the Seller to own the stock portion of the Purchase Price or the Warrants; (d) the Buyer and Key Energy shall have received all material authorizations, consents and approvals of governments and governmental agencies required for the Buyer and Key Energy to consummate the transactions contemplated by this Agreement; (e) the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified in Section 6.2(a)-(d) is satisfied; (f) the Buyer and Key Energy shall have delivered or caused to be delivered to the Seller the remaining cash portion of the Purchase Price, plus interest, if any, plus the Estimated Working Capital Amount, duly executed certificates representing the stock portion of the Purchase Price and the Warrants in the form of Exhibit A , duly executed by an authorized officer of Key Energy; (g) from the date this Agreement there shall not have occurred (i) any suspension or material limitation of trading of any securities on the American Stock Exchange, (ii) any suspension of trading of any securities by Key Energy, including the Key Energy Common Stock, by the Commission or (iii) any banking moratorium which shall have been declared by federal or New York authorities; (h) each of (i) the Key Energy Common Stock issued as part of the Purchase Price and (ii) the Warrant Shares shall have been authorized for listing on the American Stock Exchange, subject to official notice of issuance; and (i) the Seller shall have received a favorable opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P., counsel for the Buyer and Key Energy, in form and substance satisfactory to the Seller, to the effect that (i) each of the Buyer and Key Energy has been duly incorporated and is validly existing as a corporation in good standing under the laws of its states of organization; (ii) all corporate proceedings required to be taken by or on the part of the Buyer or Key Energy to authorize the execution of this Agreement, the Warrants and the Operating Agreement and the implementation of the transactions contemplated hereby and thereby have been taken; (iii) this Agreement, the Warrants and the Operating Agreement have been duly executed and delivery by, and each is the legal, valid and binding obligations of each of the Buyer and Key Energy, as applicable, and each is enforceable against each of the Buyer and Key Energy, as applicable, in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally; and (iv) (A) the authorized capital stock of Key Energy consists solely of 25,000,000 shares of the Key Energy Common Stock and (B) as of the date of such opinion 265,000 shares of Key Energy Common Stock were reserved for issuance upon the exercise of the Warrants; and (C) the shares of Key Energy Common Stock constituting a portion of the Purchase Price, the Warrants and the Warrant Shares, when issued upon conversion of the Warrants have been duly authorized and are or will be validly issued and are not subject to, nor have they been issued in violation of, preemptive rights. No opinion need be expressed as to the enforceability of any indemnification provisions of this Agreement. In rendering such opinions, such counsel may rely upon (i) certificates of public officials and of officers of the Buyer or Key Energy as to matters of fact and (ii) the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to the Seller, as to matters other than federal or Texas law. ARTICLE 7. TERMINATION. 7.1 Termination of Agreement. The parties may terminate this Agreement as provided below: (a) the Buyer, Key Energy and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) the Buyer or Key Energy may terminate this Agreement by giving written notice to the Seller if the Closing shall not have occurred on or before December 31, 1997 and as a result of the failure of any condition precedent under Section 6.1; provided that the Buyer or Key Energy gave written notice of the failure to Seller and the Seller has not cured such failure within ten business days of such written notice (and provided further that the failure does not result primarily from the Buyer or Key Energy breaching any representation, warranty or covenant applicable to them contained in this Agreement); (c) the Seller may terminate this Agreement by giving written notice to the Buyer and Key Energy if the Closing shall not have occurred on or before December 31, 1997 and as a result of the failure of any condition precedent under Section 6.2; provided that the Seller gave written notice of the failure to Buyer and Key Energy and they have not cured such failure within ten business days of such written notice (and provided further that the failure does not result primarily from the Seller breaching any representation, warranty or covenant applicable to it contained in this Agreement); or (d) the Buyer and Key Energy may elect to terminate this Agreement at any time within two days following the occurrence of an Industry Material Adverse Event; provided, however that irrevocable instructions are issued to the escrow agent under the Escrow Agreement to transfer $5,000,000 in immediately available funds from the amount deposited under the Escrow Agreement to a bank account designated by the Seller. Such $5,000,000 payment shall be as liquidated damages, and not as a penalty, and shall be the Seller's exclusive remedy for such termination, notwithstanding the provisions of Section 7.2. 7.2 Effect of Termination. In the event of a termination of this Agreement as a result Section 7.1(b) or (c), at the sole election of the nonbreaching party, (i) the nonbreaching party shall be entitled to an aggregate of $500,000 in cash from the breaching party or parties; or (ii) the nonbreaching party may exercise any other right or remedy it may have at law, in equity or pursuant to this Agreement, including rights to sue for damages or required specific performance. If the nonbreaching party elects the former remedy, such remedy shall be exclusive, and shall constitute liquidated damages (and not a penalty) for all claims the nonbreaching party may have with respect to such breach. ARTICLE 8. REMEDIES FOR BREACHES OF THIS AGREEMENT. 8.1 Investigations; Survival of Representations, Warranties and Covenants. Each and every representation, warranty and covenant in this Agreement, other than the representations and warranties in Section 3.13 and the covenants contained in Sections 5.8, 5.9, 5.10, 5.11 and 5.14 and in Article 8, shall expire, and shall be terminated and extinguished, by the second anniversary of the Closing Date and thereafter neither the Seller, the Buyer nor Key Energy shall be under any liability whatsoever with respect to any such representation, warranty or covenant. The representations and warranties in Section 3.13 and the covenants in Sections 5.8, 5.9, 5.10 and 5.11 shall expire upon expiration of the applicable statute of limitation periods therefor and the covenants in Section 5.14 and Article 8 shall continue indefinitely (unless any provision thereof is sooner terminated by its terms). 8.2 Indemnification Provisions for Benefit of the Buyer. In the event the Seller breaches any of its representations, warranties and covenants contained in this Agreement, if there is an applicable survival period pursuant to Section 8.1, and provided that the Buyer makes a written claim for indemnification against the Seller pursuant to Section 9.7 within such survival period, then the Seller agrees to indemnify, defend and hold harmless the Buyer from and against any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Buyer may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of or caused by the breach; upon the terms and conditions set forth herein. 8.3 Indemnification Provisions for Benefit of the Seller. (a) In the event the Buyer or Key Energy breaches any of its representations, warranties or covenants contained in this Agreement, if there is an applicable survival period pursuant to Section 8.1, and provided that the Seller makes a written claim for indemnification against the Buyer or Key Energy pursuant to Section 9.7 within such survival period, then the Buyer and Key Energy, jointly and severally, agree to indemnify, defend and hold harmless the Seller from and against any Adverse Consequences the Seller may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Seller may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of or caused by the breach, upon the terms and subject to the conditions set forth herein. (b) Each of the Buyer and Key Energy agrees to indemnify, defend and hold harmless the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of or caused by the business, operations, assets, properties, employees or Employee Benefit Plans of the Company and that occurs after the Closing. 8.4 Matters Involving Third Parties. (a) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Article 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided that no delay on the part of the Indemnifying Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder. (b) Any Indemnifying Party will have the right to assume the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party at any time within 30 days after the Indemnified Party has given notice of the Third Party Claim; provided, however, that the Indemnifying Party must conduct the defense of the Third Party Claim actively and diligently thereafter in order to preserve its rights in this regard; and provided further that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim. (d) So long as the Indemnifying Party has assumed and is conducting the defense of the Third Party Claim in accordance with Section 8.4(b), (i) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages by one or more of the Indemnifying Parties and does not impose an injunction or other equitable relief upon the Indemnified Party and (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably). 8.5 Matters Involving the Parties. In the event an Indemnified Party should have a claim against an Indemnifying Party hereunder that does not involve a Third Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice describing in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within 30 days of its receipt of such notice that the Indemnifying Party disputes such claim, the claim shall be deemed a Liability of the Indemnifying Party hereunder and shall be paid within 30 days of the expiration of the initial 30-day period. If the Indemnifying Party has timely disputed such claim as provided above, such dispute shall be resolved by litigation as provided herein. 8.6 Limitations on Indemnification. (a) No party shall be entitled to indemnification hereunder unless and until the aggregate of all amounts for which indemnity would otherwise be due to such party exceeds $100,000, in which case such other parties shall be responsible for all amounts of such liability excluding such threshold amount; provided that (i) the Seller shall be indemnified for the full amount of any Adverse Consequences pursuant to Section 8.3(b) and (ii) each party shall be indemnified for the full amount of any Taxes for which the other party is liable pursuant to Section 5.11, in each case without regard to any such threshold amount. (b) Notwithstanding anything to the contrary, no party shall be liable for Adverse Consequences pursuant to this Article 8 in excess of the Purchase Price (with stock and warrants valued at the Closing Date) except for liabilities for Adverse Consequences pursuant to Section 8.3(b) and Taxes pursuant to Section 5.11. 8.7 Environmental Claims. Notwithstanding anything in this Agreement to the contrary, and notwithstanding the fact that any representation, warranty or covenant in this Agreement might be interpreted to cover the same, this Section 8.7 shall be the sole and exclusive provision of this Agreement, and represents the Buyer's and Key Energy's sole and exclusive remedy against the Seller or any of its current Affiliates with respect to Environmental Claims. To the extent the Seller or any of its current Affiliates is (i) an indemnified party for Environmental Claims under the Oxy Purchase Agreement and (ii) actually receives payment from Oxy after following the reasonable instructions of the Buyer to prosecute such Environmental Claims, at the sole expense of the Buyer, in accordance with the provisions of the Oxy Purchase Agreement, the Seller shall remit any amounts recovered, less unrecovered costs to prosecute any Environmental Claim, to the Buyer in full payment for such Environmental Claim. In the event (1) the Seller or any of its current Affiliates (A) is not an indemnified party for Environmental Claims under the Oxy Purchase Agreement or (B) is unable to recover any amount thereunder or (2) any Environmental Claim arises with respect to the period between April 30, 1996 and the Closing Date, the Buyer and Key Energy will have no recourse against the Seller or its Affiliates, and shall indemnify, defend and hold the Seller and its Affiliates harmless therefor. ARTICLE 9. MISCELLANEOUS. 9.1 Press Releases and Public Announcements. Neither the Buyer nor Key Energy shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the Seller; provided, however, that the foregoing shall not apply to any announcement or written statement which, upon written advice of counsel provided to the Seller, is required by law to be made. 9.2 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties and their respective successors and permitted assigns. 9.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any prior understandings, agreements or representations by or between the parties, written or oral, to the extent they related in any way to the subject matter hereof, including the J.W. Gibson Well Service Company Descriptive Memorandum dated April 1997 prepared by Simmons & Company International. 9.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party. 9.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Delivery of a fully signed counterpart by facsimile to all other Parties shall constitute delivery to such Parties of a signed original of this Agreement. 9.6 Headings67. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 9.7 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing and addressed to the Buyer, Key Energy or the Seller as set forth below: If to the Buyer or Key Energy c/o Key Energy Group, Inc. Two Tower Center, Tenth Floor East Brunswick, New Jersey 08816 Attention: Jack D. Loftis, Jr., General Counsel Facsimile No.: (908) 247-5148 with a copy to: Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77210-4744 Attention: Samuel N. Allen Facsimile No.: (713) 228-1331 If to the Seller: Nabors Acquisition Corp. IV 515 West Greens Road, Suite 1200 Houston, Texas 77067 Attention: President Facsimile No.: (281) 775-8002 with a copy to: Nabors Corporate Services, Inc. Baker & McKenzie 515 West Greens Road, Suite 1200 805 Third Avenue Houston, Texas 77067 andNew York, New York 10022 Attention: Legal Department Attention: Howard M. Berkower Facsimile No.: (281) 775-8431 Facsimile No.: (212) 759-9133 Notice to a "copy to" address shall be provided as a courtesy, but shall not be deemed to be actual notice received by a party for any purpose. Any party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using registered or certified mail or any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. 9.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS. 9.9 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer, Key Energy and the Seller. No waiver by any party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 9.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 9.11 Expenses. Each of the Buyer, Key Energy and the Seller will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. 9.12 Construction. THE PARTIES HAVE PARTICIPATED JOINTLY IN THE NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IN THE EVENT AN AMBIGUITY OR QUESTION OF INTENT OR INTERPRETATION ARISES, THIS AGREEMENT SHALL BE CONSTRUED AS IF DRAFTED JOINTLY BY THE PARTIES AND NO PRESUMPTION OR BURDEN OF PROOF SHALL ARISE FAVORING OR DISFAVORING ANY PARTY BY VIRTUE OF THE AUTHORSHIP OF ANY OF THE PROVISIONS OF THIS AGREEMENT. Each Disclosure Schedule and each document referred to in such Disclosure Schedule is incorporated by reference in the representation and warranty to which such schedule relates. No representation or warranty of a party contained in this Agreement shall be deemed to be untrue or breached if (a) the inclusion of specific information in the Disclosure Schedule relating to such representation or warranty or breach would have cured such representation or warranty or breach and (b) such information is set forth in the Disclosure Schedule relating to another representation or warranty. As used in this Agreement, the term "day" means a calendar day, unless otherwise specified, and the term "including" means including without limitation. All references herein to Articles, Sections or Exhibits shall be to Articles, Sections and Exhibits of this Agreement, unless the context requires otherwise. 9.13 Specific Performance. Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event that any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which it may be entitled, at law or in equity. 9.14 Submission to Jurisdiction. Each of the parties submits to the jurisdiction of any state or federal court sitting in Houston, Texas in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each party also agrees not to bring any action or proceeding arising out or relating to this Agreement in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, security, or other security that might be required of any other party with respect thereto. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or in equity. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NABORS ACQUISITION CORP. IV By: Thomas C. Goetzinger Vice President KEY ROCKY MOUNTAIN, INC. By: Francis D. John President KEY ENERGY GROUP, INC. By: Francis D. John President The undersigned hereby enters into this Agreement for the purpose of making the representations and warranties of the Company set forth in Article 3 hereof and the covenant of the Company set forth in Section 6.1(d) hereof. J.W. GIBSON WELL SERVICE COMPANY By: Daniel McLachlin Vice President and Secretary k:\word\transact\stocksal\cards\stockag7.doc EX-10.(D) 5 AMENDMENT ONE TO GIBSON STOCK PURCHASE DRAFT: 11/11/97 AMENDMENT ONE TO STOCK PURCHASE AGREEMENT This Amendment One to Stock Purchase Agreement, dated as of October 10, 1997, amends the Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of July 31, 1997 among Nabors Acquisition Corp. IV (the "Seller"), Key Rocky Mountain, Inc. (the "Buyer") and Key Energy Group, Inc. ("Key Energy") with respect to Seller's sale of all the issued and outstanding capital stock of J.W. Gibson Well Service Company (the "Company"). Capitalized terms used but not defined herein are used as defined in the Stock Purchase Agreement. WHEREAS, the parties desire to amend the Stock Purchase Agreement to change the Closing Date, to make certain other changes related thereto and to clarify certain other conditions and provisions thereof; and WHEREAS, the parties are concurrently amending the Operating Agreement and Escrow Agreement to give effect to the changes made hereby and to enter into certain other agreements; NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Buyer and Key Energy agree to make certain amendments to the Stock Purchase Agreement as follows: 1. From and after effectiveness of this Amendment and the amendments to the Operating Agreement and the Escrow Agreement, the terms "Agreement", "Operating Agreement" and "Escrow Agreement" used in the Stock Purchase Agreement shall be deemed to refer to each such agreement as amended on the date hereof or as may be amended from time to time. 2. Section 2.3 is hereby amended to read in its entirety as follows: 2.3 Additional Purchase Price Adjustments and Procedures.ts and Procedures (a) On the date hereof, the Buyer has delivered to the Seller a balance sheet of the Company as of July 31, 1997 (the "July 31 Balance Sheet"). The July 31 Balance Sheet shall have included all information necessary to compute the Working Capital of the Company. The Buyer shall make available to the Seller all information which may be in the possession of the Buyer or the Company which the Seller requests in order to verify the accuracy of the July 31 Balance Sheet. Within 60 days from the date hereof, the Seller shall notify the Buyer whether it agrees with the July 31 Balance Sheet. In the event that the Seller disagrees with the July 31 Balance Sheet, the Seller shall provide the Buyer with a written notice specifying the basis for the Seller's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the composition of the July 31 Balance Sheet, but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a "Big Six" independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the July 31 Balance Sheet (the date on which the determination is made, whether by the accounting firm or by agreement of the parties, is referred to as the "Final Determination Date"). Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. (b) (i) In the event that the Working Capital of the Company is less than the Estimated Working Capital, then the amount of such difference shall be paid by the Seller to the Buyer within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. If the Final Determination Date occurs at least three business days prior to the Closing Date, and the Seller is required to make a payment to the Buyer in accordance with the first sentence of this Section 2.3(b)(i), the additional amount due shall be disbursed to the Buyer from the funds deposited with the escrow agent under the Escrow Agreement. (ii) In the event that the Working Capital of the Company is more than the Estimated Working Capital, then the amount of such difference shall be paid by the Buyer to the Seller within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. If the Final Determination Date occurs at least three business days prior to the Closing Date, and the Buyer is required to make a payment to the Seller in accordance with the third sentence of this Section 2.3(b), the Buyer shall deposit the additional amount due with the escrow agent under the Escrow Agreement. (iii) Each of the Seller, the Buyer and Key Energy agrees to provide such notices as may be required under the Escrow Agreement to carry out the purposes and intents of this Section 2.3(b). (c) The July 31 Balance Sheet shall have been prepared in accordance with generally accepted accounting principles applied in a manner consistent with the Company's historical accounting policies and practices; except that all intercompany balances will be eliminated. Each party agrees to use reasonable efforts to arrive at a final determination of the Purchase Price adjustment on or before the Closing Date. (d) On or prior to 90 days from the Closing Date, the Seller will prepare and deliver to the Buyer a calculation of the State Tax Detriment (as defined below) resulting from the sale of the Company, showing all necessary information for such calculation. The Seller shall make available to the Buyer all information which may be in the possession of the Seller which the Buyer reasonable requests in order to verify the accuracy of the State Tax Detriment calculation. Within 30 days following delivery of the calculation of the State Tax Detriment, the Buyer shall notify the Seller whether it disagrees with such calculation and the Buyer shall be deemed to agree with such calculation if no notice of disagreement is received within such time period. In the event that the Buyer disagrees with such calculation, the Buyer shall attach to its notice of disagreement or incorporate therein a written notice specifying the basis for the Buyer's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the calculation but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a nationally recognized independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and the disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Seller and the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the calculation. Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. Payment of the amount of the State Tax Detriment shall be made by the Buyer to the Seller no later than five business days after the date agreement is reached between the Buyer and the Seller or the decision of the accounting firm is made. The "State Tax Detriment" equals the difference between (A) the state Taxes payable by the Seller or any related party as a result of making the Section 338(h)(10) election contemplated by Section 5.11(c) of this Agreement and (B) the state Taxes that would have been payable as a result of the sale pursuant to this Agreement had such a Section 338(h)(10) election not been made, such calculation to be grossed up for any additional state or other Taxes payable as a result of the payment to the Seller under this provision." 3. Section 2.4, clause (a) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(a) a date between January 2, 1998 and January 15, 1998 or". 4. Sections 7.1 (b) and (c) are hereby amended by changing the date therein from "December 31, 1997" to "January 31, 1998". 5. The Loan Agreement referenced in Schedule 3.6 to the Disclosure Schedule was terminated on September 10, 1997, and UCC-3 termination statements have been filed with respect thereto, all as evidenced on Attachment 1 hereto. The Seller represents and warrants to the Buyer and Key Energy that there are no encumbrances arising under such Loan Agreement on the Company or its property at the date hereof and agrees that it will perform all acts reasonably requested by the Buyer to remove any such encumbrances in the event the foregoing representation is not true. The execution and delivery of this Amendment satisfies the closing condition set forth in Section 6.1(i) of the Stock Purchase Agreement. 6. The parties hereby agree that, notwithstanding footnote 2 to Schedule 3.14 of the Disclosure Schedule, as promptly as practicable after the date hereof an affiliate of the Seller will convey to the Company the yard in Gillette, Wyoming referenced in such Schedule 3.14, and the Company will convey to an affiliate of the Seller the yard in Rock Springs, Wyoming referenced in such Schedule 3.14. Such conveyances will be in substantially the forms attached hereto as Attachment 2. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first written above. NABORS ACQUISITION CORP. IV By: Larry P. Heidt Executive Vice President KEY ROCKY MOUNTAIN, INC. By: Stephen E. McGregor Executive Vice President KEY ENERGY GROUP, INC. By: Stephen E. McGregor Vice President k:\word\transact\stocksal\cards\sideag-5.doc EX-10.(E) 6 MOSLEY STOCK PURCHASE AGREEMENT DRAFT: 11/11/97 AMENDMENT ONE TO STOCK PURCHASE AGREEMENT This Amendment One to Stock Purchase Agreement, dated as of October 10, 1997, amends the Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of July 31, 1997 among Nabors Acquisition Corp. IV (the "Seller"), Key Rocky Mountain, Inc. (the "Buyer") and Key Energy Group, Inc. ("Key Energy") with respect to Seller's sale of all the issued and outstanding capital stock of J.W. Gibson Well Service Company (the "Company"). Capitalized terms used but not defined herein are used as defined in the Stock Purchase Agreement. WHEREAS, the parties desire to amend the Stock Purchase Agreement to change the Closing Date, to make certain other changes related thereto and to clarify certain other conditions and provisions thereof; and WHEREAS, the parties are concurrently amending the Operating Agreement and Escrow Agreement to give effect to the changes made hereby and to enter into certain other agreements; NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Buyer and Key Energy agree to make certain amendments to the Stock Purchase Agreement as follows: 1. From and after effectiveness of this Amendment and the amendments to the Operating Agreement and the Escrow Agreement, the terms "Agreement", "Operating Agreement" and "Escrow Agreement" used in the Stock Purchase Agreement shall be deemed to refer to each such agreement as amended on the date hereof or as may be amended from time to time. 2. Section 2.3 is hereby amended to read in its entirety as follows: 2.3 Additional Purchase Price Adjustments and Procedures.ts and Procedures (a) On the date hereof, the Buyer has delivered to the Seller a balance sheet of the Company as of July 31, 1997 (the "July 31 Balance Sheet"). The July 31 Balance Sheet shall have included all information necessary to compute the Working Capital of the Company. The Buyer shall make available to the Seller all information which may be in the possession of the Buyer or the Company which the Seller requests in order to verify the accuracy of the July 31 Balance Sheet. Within 60 days from the date hereof, the Seller shall notify the Buyer whether it agrees with the July 31 Balance Sheet. In the event that the Seller disagrees with the July 31 Balance Sheet, the Seller shall provide the Buyer with a written notice specifying the basis for the Seller's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the composition of the July 31 Balance Sheet, but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a "Big Six" independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the July 31 Balance Sheet (the date on which the determination is made, whether by the accounting firm or by agreement of the parties, is referred to as the "Final Determination Date"). Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. (b) (i) In the event that the Working Capital of the Company is less than the Estimated Working Capital, then the amount of such difference shall be paid by the Seller to the Buyer within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. If the Final Determination Date occurs at least three business days prior to the Closing Date, and the Seller is required to make a payment to the Buyer in accordance with the first sentence of this Section 2.3(b)(i), the additional amount due shall be disbursed to the Buyer from the funds deposited with the escrow agent under the Escrow Agreement. (ii) In the event that the Working Capital of the Company is more than the Estimated Working Capital, then the amount of such difference shall be paid by the Buyer to the Seller within two business days of the Final Determination Date, plus interest of 8% per annum payable from July 31, 1997 to the Final Determination Date. If the Final Determination Date occurs at least three business days prior to the Closing Date, and the Buyer is required to make a payment to the Seller in accordance with the third sentence of this Section 2.3(b), the Buyer shall deposit the additional amount due with the escrow agent under the Escrow Agreement. (iii) Each of the Seller, the Buyer and Key Energy agrees to provide such notices as may be required under the Escrow Agreement to carry out the purposes and intents of this Section 2.3(b). (c) The July 31 Balance Sheet shall have been prepared in accordance with generally accepted accounting principles applied in a manner consistent with the Company's historical accounting policies and practices; except that all intercompany balances will be eliminated. Each party agrees to use reasonable efforts to arrive at a final determination of the Purchase Price adjustment on or before the Closing Date. (d) On or prior to 90 days from the Closing Date, the Seller will prepare and deliver to the Buyer a calculation of the State Tax Detriment (as defined below) resulting from the sale of the Company, showing all necessary information for such calculation. The Seller shall make available to the Buyer all information which may be in the possession of the Seller which the Buyer reasonable requests in order to verify the accuracy of the State Tax Detriment calculation. Within 30 days following delivery of the calculation of the State Tax Detriment, the Buyer shall notify the Seller whether it disagrees with such calculation and the Buyer shall be deemed to agree with such calculation if no notice of disagreement is received within such time period. In the event that the Buyer disagrees with such calculation, the Buyer shall attach to its notice of disagreement or incorporate therein a written notice specifying the basis for the Buyer's disagreement, and the Seller and the Buyer shall work in good faith to reach agreement on the calculation but, in the event that they shall not agree within 30 days following the date of such written notice, the matter will be referred to a nationally recognized independent public accounting firm mutually agreed to by the Buyer and the Seller. The fees and the disbursements of such accounting firm shall be borne equally by the Buyer and the Seller. Such accounting firm shall examine the records of the Seller and the Company, and, within 30 days following the date upon which such matter shall be referred to such accounting firm, such accounting firm shall determine the disposition of any dispute with respect to the calculation. Any such determination shall be final and binding on the parties, and may be enforced by appropriate judicial or other proceedings. Payment of the amount of the State Tax Detriment shall be made by the Buyer to the Seller no later than five business days after the date agreement is reached between the Buyer and the Seller or the decision of the accounting firm is made. The "State Tax Detriment" equals the difference between (A) the state Taxes payable by the Seller or any related party as a result of making the Section 338(h)(10) election contemplated by Section 5.11(c) of this Agreement and (B) the state Taxes that would have been payable as a result of the sale pursuant to this Agreement had such a Section 338(h)(10) election not been made, such calculation to be grossed up for any additional state or other Taxes payable as a result of the payment to the Seller under this provision." 3. Section 2.4, clause (a) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(a) a date between January 2, 1998 and January 15, 1998 or". 4. Sections 7.1 (b) and (c) are hereby amended by changing the date therein from "December 31, 1997" to "January 31, 1998". 5. The Loan Agreement referenced in Schedule 3.6 to the Disclosure Schedule was terminated on September 10, 1997, and UCC-3 termination statements have been filed with respect thereto, all as evidenced on Attachment 1 hereto. The Seller represents and warrants to the Buyer and Key Energy that there are no encumbrances arising under such Loan Agreement on the Company or its property at the date hereof and agrees that it will perform all acts reasonably requested by the Buyer to remove any such encumbrances in the event the foregoing representation is not true. The execution and delivery of this Amendment satisfies the closing condition set forth in Section 6.1(i) of the Stock Purchase Agreement. 6. The parties hereby agree that, notwithstanding footnote 2 to Schedule 3.14 of the Disclosure Schedule, as promptly as practicable after the date hereof an affiliate of the Seller will convey to the Company the yard in Gillette, Wyoming referenced in such Schedule 3.14, and the Company will convey to an affiliate of the Seller the yard in Rock Springs, Wyoming referenced in such Schedule 3.14. Such conveyances will be in substantially the forms attached hereto as Attachment 2. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first written above. NABORS ACQUISITION CORP. IV By: Larry P. Heidt Executive Vice President KEY ROCKY MOUNTAIN, INC. By: Stephen E. McGregor Executive Vice President KEY ENERGY GROUP, INC. By: Stephen E. McGregor Vice President k:\word\transact\stocksal\cards\sideag-5.doc EX-10.(H) 7 WACO ASSET PURCHASE AGREEMENT A:\WACASSAG.04 EXECUTION COPY Asset Purchase Agreement among WellTech Eastern, Inc. Waco Oil & Gas Co., Inc. and I. L. Morris September 1, 1997 Asset Purchase Agreement This Asset Purchase Agreement (this AAgreement@) is entered into as of September 1, 1997 among WellTech Eastern, Inc., a Delaware corporation (ABuyer@), Waco Oil & Gas Co., Inc., a West Virginia corporation (the ASeller@), and I. L. Morris (the AShareholder@). W I T N E S S E T H: WHEREAS, in addition to other lines of business, the Seller is engaged in the business of providing wireline services, oil field trucking services, water hauling services, drilling and completing wells, tank rentals, pipe hauling and sales, pipeline construction, environmental remediation work and site preparation (the AAcquired Business@); and WHEREAS, the Seller desires to sell all of the assets owned by the Seller and used principally in the Acquired Business, and Buyer desires to acquire such assets. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements, and subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: 65535rt65535cle I Purchase and Sale of Assets W I T N E S S E T H:WHEREAS, in addition to other lines of business, the Seller is engaged in the business of providing wireline services, oil field trucking services, water hauling services, drilling and completing wells, tank rentals, pipe hauling and sales, pipeline construction, environmental remediation work and site preparation (the AAcquired Business@); and WHEREAS, the Seller desires to sell all of the assets owned by the Seller and used principally in the Acquired Business, and Buyer desires to acquire such assets.NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements, and subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: 65535rt65535cle IPurchase and Sale of Assets I.1 Purchase and Sale of the AssetsI.1 Purchase and Sale of the Assets. Subject to the terms and conditions set forth in this Agreement, the Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer all of the following assets of the Seller (all such assets being sold hereunder are referred to collectively herein as the AAssets@): (a) all tangible personal property of the Seller (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles) principally used in the Acquired Business, including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the ATangible Personal Property@); (b) all of the inventory of Seller relating principally to the Acquired Business, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the AInventories@); 19 A:\WACASSAG.04 (c) all of the Seller=s intangible assets principally used in the Acquired Business, including without limitation, (i) all of the Seller=s rights to any patents, patent applications, copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the AIntellectual Property@) used or held in connection with operation of the Assets and the conduct of the Acquired Business including without limitation, that which is more fully described on Schedule 1.1(c) hereto (the ASeller Intellectual Property@), but specifically excluding the corporate name of the Seller and any other names under which the Seller conducted the Acquired Business and (ii) all of the Seller=s account ledgers, sales and promotional literature, computer software, books, records, files and data (including customer and supplier lists), and all other records of the Seller relating to the Assets or the Acquired Business (collectively, the AIntangibles@); (d) those leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Acquired Business specifically listed on Schedule 1.1(d) hereto (collectively, the AContracts@); (e) all permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, orders, licenses and other rights of every kind and character (collectively, the APermits@) relating principally to all or any of the Assets or to the operation of the Acquired Business, including, but not limited to, that which is more fully described on Schedule 1.1(e) hereto (collectively, the ASeller Permits@); (f) the goodwill and going concern value of the Acquired Business; and (g) all other or additional privileges, rights, interests, properties and assets of the Seller of every kind and description and wherever located that are principally used in the Acquired Business, intended for use in the Acquired Business, or that are necessary for the continued conduct of the Acquired Business; provided, however, that the Assets shall not include the following (collectively, the AExcluded Assets@): (i) all of the Seller=s accounts receivable and all other rights of the Seller to payment for services rendered by the Seller in connection with its conduct of the Acquired Business before the date hereof; (ii) all cash accounts of the Seller and all petty cash of the Seller kept on hand for use in the Acquired Business; (iii) all right, title and interest of the Seller in and to all prepaid rentals, other prepaid expenses, bonds, deposits and financial assurance requirements, and other current assets relating to any of the Assets or the Acquired Business; (iv) all assets in possession of the Seller but owned by third parties; (v) the corporate charter, related organizational documents and minute books of the Seller; (vi) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.2 hereof and (vii) any and all assets of the Seller not principally used in the Acquired Business. I.2 Consideration for AssetsI.2 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of the Seller and the Shareholder contained herein, Buyer agrees to pay to the Seller, on the date hereof, the amount of $7,143,598.36 by wire transfer of immediately available funds to an account designated by the Seller. I.3 LiabilitiesI.3 Liabilities. Effective on the date hereof, Buyer shall assume those, and only those, liabilities and obligations of the Seller to perform the Contracts to the extent that the Contracts have not been performed and are not in default on the date hereof (the AAssumed Liabilities@). On and after the date hereof, the Seller shall be responsible for any and all other liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, any obligations arising from the Seller=s conduct of the Acquired Business and operation of the Assets before the date hereof (the ARetained Liabilities@). 65535rt65535cle II Representations and Warranties Representations and Warranties II.1 Representations and Warranties of the Seller and the Shareholder. The Seller and the Shareholder jointly and severally represent and warrant to Buyer as follows: II.1.1. Organization and Good StandingII.1.1. Organization and Good Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. II.1.2. Agreements Authorized and their Effect on Other Obligations.Agreements Authorized and their Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all necessary corporate, shareholder and other action on the part of the Seller and the Shareholder, and this Agreement is the valid and binding obligation of the Seller and the Shareholder enforceable (subject to normal equitable principals) against each of such parties in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws (or other organizational documents) of the Seller or the Shareholder, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Seller or the Shareholder is a party or by which the Seller or the Shareholder or their respective properties are bound; or (iii) any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator, or other governmental authority to which the Seller or the Shareholder or any of their respective properties are subject. II.1.3. ContractsII.1.3. Contracts. Schedule 1.1(d) hereto sets forth a complete list of all contracts, including leases under which the Seller is lessor or lessee, which relate to the Assets and are to be performed in whole or in part after the date hereof. Neither the Seller nor the Shareholder has received any information which would cause any of such parties to conclude that any customer of the Seller will (or is likely to) cease doing business with Buyer (or its successors) as a result of the consummation of the transactions contemplated hereby. II.1.4. Title to and Condition of AssetsII.1.4. Title to and Condition of Assets. The Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). Buyer acknowledges and agrees that all equipment being transferred hereunder is used and is being transferred AS IS, WHERE IS, except that the Seller and the Shareholder expressly represent and warrant that (i) each piece of equipment being transferred hereunder is operable as of the date hereof and (ii) the condition of each such piece of equipment (including all known material defects) has been accurately disclosed to Buyer in writing. All of the Assets conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any of the Assets has been received by the Seller or the Shareholder, except such as have been fully complied with. The term AEncumbrances@ means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights of way, limitations, reservations, restrictions, and other encumbrances of any kind or nature. II.1.5. Licenses and PermitsII.1.5. Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under law or otherwise for the operation, maintenance and use of the Assets in the manner in which they are now being operated, maintained and used. II.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material to or necessary for the continued conduct of the Acquired Business. The conduct of the Acquired Business did not, infringe, misappropriate or conflict with the Intellectual Property rights of others. Neither the Seller nor the Shareholder has received any notice of infringement, misappropriation, or conflict with the Intellectual Property rights of others in connection with the Seller=s operation of the assets or conduct of the Acquired Business. II.1.7. Necessary ConsentsII.1.7. Necessary Consents. The Seller has obtained and delivered to Buyer all consents to assignment or waivers thereof required to be obtained from any governmental authority or from any other third party in order to validly transfer the Assets hereunder, including, without limitation, any consents required to assign the Contracts and the Seller Permits. II.1.8. Environmental MattersII.1.8. Environmental Matters. Buyer will not become liable as a result of the transactions contemplated hereby for any violations of Environmental Law (defined below) by the Seller in connection with the Seller=s operation of the Assets or conduct of the Acquired Business before the date hereof. The term AEnvironmental Law@ means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United states, or any state, regional, city, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing environmental standards of conduct concerning protection of the environment or human health, or employee health and safety as from time to time has been or is now in effect. II.1.9. Investigations; LitigationII.1.9. Investigations; Litigation. No investigation or review by any governmental entity with respect to the Seller or any of the transactions contemplated by this Agreement is pending or, to the knowledge of the Seller or the Shareholder, threatened, nor has any governmental entity indicated to the Seller or any of the Shareholder an intention to conduct the same. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which the Seller or the Shareholder is a party or, to the knowledge of the Seller or the Shareholder, might become a party or which would adversely affect the Assets or the Buyer=s future conduct of the Acquired Business. II.1.10. SolvencyII.1.10. Solvency. The Seller is not presently insolvent, nor will the Seller be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. The term Ainsolvent@, with respect to a particular Seller, means that the sum of the present fair and saleable value of such Seller=s assets does not and will not exceed its debts and other probable liabilities, and the term Adebts@ includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. II.1.11. Untrue StatementsUntrue Statements. This Agreement and all other agreements executed by the Seller or the Shareholder and delivered to Buyer does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has also made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Acquired Business and the Assets, and such information covers all commitments and liabilities of Buyer relating principally to the Acquired Business and the Assets. II.1.12. Finder=s FeeII.1.12. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller, the Shareholder and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payment. II.1.13. Trade NamesII.1.13. Trade Names. Schedule 2.1.13 hereto lists (i) all trade names, assumed names and other names under which the Seller has conducted business other than AWaco Oil & Gas Co., Inc.@ and (ii) all states other than West Virginia where the Assets are located. II.2 Representations and Warranties of BuyerII.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller and the Shareholder as follows II.2.1. Organization and Good StandingII.2.1. Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. II.2.2. Agreement Authorized and its Effect on Other ObligationsII.2.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all necessary corporate, shareholder and other action on the part of Buyer, and this Agreement is the valid and binding obligation of Buyer enforceable (subject to normal equitable principals) against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws (or other organizational documents) of Buyer, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer is a party or by which Buyer or its properties are bound; or (iii) any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator, or other governmental authority to which Buyer or its properties are subject. II.2.3. Consents and Approvals II.2.3. Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. II.2.4. Finder=s FeeII.2.4. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Seller and the Shareholder and their counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against any of the parties hereto for any brokerage commission, finder=s fee or any similar payments. 65535rt65535cle III Additional Agreements Additional Agreements III.1 Noncompetition.Noncompetition. Except as otherwise consented to or approved in writing by Buyer, the Seller and the Shareholder agree that for a period of 60 months following the date hereof, such party will not (and will cause Douglas S. Morris not to), directly or indirectly, acting alone or as a member of a partnership or a holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity, (i) engage in the Acquired Business in the states of West Virginia, Michigan , Indiana and any other state that directly borders West Virginia; (ii) request any present customers or suppliers of the Seller to curtail or cancel their business with Buyer (or Buyer=s affiliates); (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Buyer (or Buyer=s affiliates) or of the Seller or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of Buyer (or Buyer=s affiliates) to terminate his employment. The Seller and the Shareholder agree that if either the length of time or geographical as set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Seller and the Shareholder may have under the laws of any state requiring a corporation selling its assets (or a shareholder of such corporation) to limit its activities so that the goodwill and business relations being transferred with such assets will not be materially impaired. The Seller and the Shareholder further agree and acknowledge that Buyer does not have any adequate remedy at law for the breach or threatened breach by the Seller or the Shareholder of the covenants contained in this Section 3.1, and agree that Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin the Seller or the Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Seller and the Shareholder acknowledge that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged. III.2 Hiring EmployeesIII.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller that devote their full time and effort in the operation of the Assets and the conduct of the Acquired Business (the AEmployees@). Except as provided in Schedule 3.2 hereto, effective as of the date hereof, the Seller shall make all of the Employees available for hire by Buyer, subject to such Employees meeting Buyer=s standard employment eligibility requirements. Any Employee hired by Buyer in connection herewith shall be deemed terminated by the Seller as of the date hereof. Buyer shall have no liability or obligation with respect to any employee benefits of any Employee except those benefits that accrue pursuant to such Employees= employment with Buyer on or after the date hereof. The Seller and the Shareholder shall cooperate with Buyer in connection with any offer of employment from Buyer to the employees and use its best efforts to cause the acceptance of any and all such offers. All Employees hired by Buyer shall be at-will employees of Buyer. III.3 Use of Facility; Facility Lease. The parties hereto agree to negotiate in good faith the terms and provisions of, and execute and deliverto each other, a lease agreement (the AFacility Lease@) covering the facility (the AFacility@) from which the Acquired Business is currently conducted, which lease agreement will be (i) effective as of the date hereof (including rent payment obligations) and (ii) subject to the Buyer=s acceptance of a Phase I environmental report covering the Facility. Until the earlier of (i) the execution and delivery of the Facility Lease and (ii) 60 days from the date hereof, Buyer shall have the exclusive right to store inventory and equipment in the warehouse located on the Facility and shall have the right to ingress and egress the Facility as necessary to use such warehouse. If the Facility Lease is not executed and delivered by the parties hereto within such 60-day time period, no rental or other payments shall be due to the Seller for such right, and Buyer shall have removed all of its property from the warehouse by the end of such 60-day time period. III.4 Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effect the transactions contemplated hereby. 65535rt65535cle IV Indemnification IV.1 Indemnification by the Seller and the Shareholder. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Seller and the Shareholder shall, jointly and severally, indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and stockholders, against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys= fees and expenses (collectively, the ADamages@) that such indemnitee shall incur or suffer, which arise, result from or relate to (i) any breach of, or failure by the Seller or the Shareholder to perform, their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Seller or the Shareholder under this Agreement; and (ii) the Retained Liabilities. IV.2 Indemnification by BuyerIV.2 Indemnification by Buyer. In addition to any other remedies available to the Seller and the Shareholder under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Seller and its officers, directors, employees, agents and stockholders and the Shareholder and his agents against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Seller or the Shareholder by or on behalf of Buyer under this Agreement. IV.3 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article 4, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. 65535rt65535cle V Miscellaneous V Miscellaneous V.1 Survival of Representations, Warranties and CovenantsV.1 Survival of Representations, Warranties and Covenants. All representations, and warranties made by the parties hereto shall for a period of 24 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations of the Seller and the Shareholder as to the operability and condition of the Assets contained in clauses (i) and (ii) in the second sentence of Section 2.1.4 hereof shall survive for a period of 12 months from the date hereof notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 24 months from the date hereof despite any investigation made by any party hereto or on its behalf. All covenants and agreements herein shall survive as provided herein. V.2 EntiretyV.2 Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. V.3 Counterparts.Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. V.4 Notices and Waivers.Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer ----------------------------------------------------------- - -------------------------------------------------------- Addressed to: With a copy to: - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 - ------------------------------------------------------------------------------- If to the Seller or the Shareholder - ------------------------------------------------------------------------------ Addressed to: With a copy to: - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Waco Oil and Gas, Inc. Bowles Rice McDavid Graff & Love P.O. Box 397 600 Quarrier St. 1297 North Lewis St. Charleston, West Virginia 25301 Glenville, West Virginia 26351 Attn: Mark A. Monteleone Facsimile: (304) 343-3058 - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. V.5 Captions.Captions. The captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. V.6 Successors and Assigns.Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. V.7 Severability.Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. V.8 Applicable Law.Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of West Virginia. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. BUYER: WELLTECH EASTERN, INC. By: Name: Title: SELLER: WACO OIL & GAS CO., INC. By: Name: Title: SHAREHOLDER: __________________ I.L. Morris Schedule 1.1(a) - Tangible Personal Property See attached listing Schedule 1.1(b) - Inventories See attached listing Schedule 1.1(c) - Seller Intellectual Property None Schedule 1.1(d) - Contracts None Schedule 1.1(e) - Seller Permits None Schedule 2.1.13 - Trade Names None Schedule 3.2 - Employees See attached listing EX-10.(J) 8 WINES STOCK PURCHASE AGREEMENT 1 Stock Purchase Agreement Between WellTech Eastern, Inc., and William Gregory Wines Dated as of September 16, 1997 18 Stock Purchase Agreement This Stock Purchase Agreement (this AAgreement@) is entered into as of September 16, 1997, by and between WellTech Eastern, Inc., a Delaware corporation (ABuyer@), and William Gregory Wines (the AShareholder@). WITNESSETH: Whereas, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and Whereas, Landmark Fishing & Rental, Inc. (the ACompany@) is a corporation duly organized and validly existing under the laws of the State of Oklahoma, with its principal executive offices at 4009 Oklahoma Avenue, Woodward, Oklahoma 73801; and Whereas, the Shareholder owns 500 shares (the ACompany Shares@) of common stock, par value $1.00 per share, of the Company (the ACompany Common Stock@), which constitutes all of the issued and outstanding shares of capital stock of the Company; and Whereas, the Shareholder desires to sell to Buyer, and Buyer desires to purchase from the Shareholder all of the issued and outstanding capital stock of the Company. Now, Therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Purchase and Sale 1.1. Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholder agrees to sell and convey to Buyer, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholder, all of the Company Shares. In consideration of the sale of the Company Shares, Buyer shall pay to the Shareholder $3,836,489.03 in cash by wire transfer of immediately available funds, and the Cash Adjustment Payment (as defined in Section 1.4 hereof), if any, in accordance with Section 1.4 hereof. 1.2. Payment of Certain Receivables. On the date hereof, the Shareholder shall cause to be paid to the Company (i) $552,889.32, which represents the total amount due and owing to the Company in respect of those receivables represented by the line items on the 6/30 Balance Sheet (as defined in Section 2.1.6. hereof) designated as Accounts Receivable Stockholder, Notes Receivable G. Wines and Notes Receivable Stockholders; (ii) $60,000.00, which represents the total amount of principal due and owing by Stockholder to the Company on a promissory note executed between Shareholder and Company after June 30, 1997; (iii) $24,855.87, which represents the additional amount of principal that Stockholder has borrowed from Company against the account designated as Notes Receivable Stockholder on the 6/30 balance sheet between June 30, 1997, and the date hereof; and (iv) $33,599.71, which represents the total accrued, but unpaid, interest due from Stockholder to Company upon the above-referenced obligations. 1.3. Delivery of the Company Certificates. The Shareholder shall deliver to Buyer on the date hereof duly and validly issued certificate(s) representing all of the Company Shares, each such certificate having been duly endorsed in blank and in good form for transfer or accompanied by stock powers duly executed in blank, sufficient and in good form to properly transfer such shares to Buyer. 1.4 Adjustment of Purchase Price. Seller shall cause to be prepared and delivered to the Buyer a balance sheet of the Company as of the date hereof (the AFinal Balance Sheet@) within 60 days after the date hereof. Buyer and the Shareholder shall jointly review the Final Balance Sheet, endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days from the date hereof. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If the sum of (A) the Final Net Current Value of the Company (defined below) plus (B) $22,623.16, which represents the amount of funds expended by the Company since June 30, 1997 for the purchase of capital equipment that the parties hereto have agreed expands the capability of the Company=s business (the ACapital Expenditure Amount@), exceeds the 6/30 Net Current Value of the Company (defined below), Buyer shall pay to the Shareholder the amount of such excess (the ACash Adjustment Payment@). (2) If the sum of (A) the Final Net Current Value of the Company plus (B) the Capital Expenditure Amount is less than the 6/30 Net Current Value of the Company, the Shareholder shall pay to Buyer the amount of such difference. The term AFinal Net Current Value of the Company@ means the dollar value of the amount by which (i) the ATotal Current Assets@ plus the ATotal Other Assets@ as recorded on the Final Balance Sheet exceeds (ii) the ATotal Liabilities@ as recorded on the Final Balance Sheet. The term A6/30 Net Current Value of the Company@ means the dollar value of the amount by which (i) the ATotal Current Assets@ plus the ATotal Other Assets@ as recorded on the 6/30 Balance Sheet exceeds (ii) the ATotal Liabilities@ as recorded on the 6/30 Balance Sheet. The $60,000.00 promissory note from Company to Shareholder shall be included on the Final Balance Sheet as part of ATotal Current Assets@ with the designation ANote Receivable-Greg Wines.@ Additionally, the amount of $24,855.87 should be included as part of "Total Current Assets" with the designation "Note Receivable Stockholder." ARTICLE 2 Representations and Warranties 2.1. Representations and Warranties of the Shareholder. The Shareholder represents and warrants to Buyer as follows: 2.1.1. Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. The Shareholder is a resident of Texas, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his or her obligations under this Agreement. This Agreement is a valid and binding obligation of the Shareholder enforceable against the Shareholder (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Shareholder will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws of the Company or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company or the Shareholder is a party or by which the Company or the Shareholder or their respective properties are bound. 2.1.3. Capitalization. The authorized capitalization of the Company consists of 10,000 shares of Company Common Stock, of which, as of the date hereof, 500 shares were issued and outstanding and held beneficially and of record by the Shareholder. In addition to the 10,000 shares of Common Stock, Landmark=s authorized capitalization includes 10,000 shares of preferred-voting stock, $1.00 par value. These shares have never been issued. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. Except as above indicated, none of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of the Company Shares. The Shareholder holds good and valid title to all of the Company Shares, free and clear of all Encumbrances. The Shareholder possesses full authority and legal right to sell, transfer and assign to Buyer the Company Shares, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholder of the Company Shares, Buyer will own the Company Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of the Shareholder, threatened, against the Company or the Shareholder that concern or affect title to the Company Shares, or that seek to compel the issuance of capital stock or other securities of either the Company. 2.1.5. No Subsidiaries. Except as specified in Schedule 2.1.5 hereto, there is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. The Company has delivered to Buyer copies of the Company=s unaudited balance sheet (the A6/30 Balance Sheet@) and related statement of income, copies of which are attached hereto as Schedule 2.1.6 (collectively, the A6/30 Financial Statements@), as at and for the 12 months ended June 30, 1997 (the ABalance Sheet Date@). The 6/30 Financial Statements are complete in all respects. The 6/30 Financial Statements present fairly the financial condition of the Company as at the dates and for the periods indicated. The 6/30 Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. The accounts receivable reflected in the 6/30 Balance Sheet, or which have been thereafter acquired by the Company, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. The inventories of the Company reflected in the 6/30 Balance Sheet, or which have thereafter been acquired by it, consist of items of a quality usable and salable in the normal course of the Company=s business. 2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, the Company does not have any liabilities or obligations, either accrued, absolute or contingent, nor does the Shareholder have any knowledge of any potential liabilities or obligations, other than those (i) reflected or reserved against in the 6/30 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date that would not adversely affect the value and conduct of the business of the Company 2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists of the following items: 2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company, with a description of the nature and amount of any Encumbrances (defined below) thereon. The term AEncumbrances@ means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2. Machinery, Equipment and Inventory. All equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company with a description of the nature and amount of any Encumbrances thereon and all inventory items or groups of inventory items owned by the Company, excluding raw materials and work in process, which raw materials and work in process are valued on the 6/30 Balance Sheet, together with the amount of any Encumbrances thereon; 2.1.8.3. Account and Note Receivables. All accounts and notes receivable of the Company, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which the Company holds a security interest to secure payment of the underlying indebtedness, and (iv) a description of the nature and amount of any Encumbrances on such accounts and notes receivable; 2.1.8.4. Payables. All accounts payable of the Company, together with an appropriate aging schedule. 2.1.8.5. Insurance. All insurance policies or bonds currently maintained by the Company, including title insurance policies, with respect to the Company, including those covering the Company=s properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.6. Contracts. All contracts, including leases under which the Company is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.7. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other employee benefit or fringe benefit plans, arrangements or trust agreements of the Company or any employee benefit plan maintained by the Company (collectively, AEmployee Plans@), together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters and other correspondence from governmental entities that have been received with respect to such plans, arrangements or agreements; 2.1.8.8. Certain Salaries. The names and salary rates of all present employees of the Company, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.9. Bank Accounts. The name of each bank in which the Company has an account and the names of all persons authorized to draw thereon; 2.1.8.10. Employee Agreements. Any collective bargaining agreements of the Company with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of the Company; 2.1.8.11. Intellectual Property. All patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the AIntellectual Property@) used by the Company; 2.1.8.12. Trade Names. All trade names, assumed names and fictitious names used or held by the Company, whether and where such names are registered and where used; 2.1.8.13. Licenses and Permits. All permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the APermits@) of the Company under which it conducts its business. 2.1.8.14. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of the Company relating thereto or with respect to collateral securing the same; 2.1.8.15. Guaranties. All indebtedness, liabilities and commitments of others and as to which the Company is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.16. Reserves and Accruals. All accounting reserves and accruals except those maintained in the 6/30 Balance Sheet; 2.1.8.17. Leases. All leases to which the Company is a party; and 2.1.8.18. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by the Company and all environmental audits, assessments, investigations and reviews conducted by the Company within the last five years or otherwise in the Company=s possession on any property owned, leased or used by the Company. 2.1.9. No Defaults. The Company is not in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10. Absence of Certain Changes and Events. Other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.10.1. Financial Change. Any adverse change in the financial condition, backlog, operations, assets, liabilities or business of the Company; 2.1.10.2. Property Damage. Any damage, destruction, or loss to the business or properties of the Company (whether or not covered by insurance); 2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Company Common Stock, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; 2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of the Company=s authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature; or 2.1.10.6. Other Adverse Changes. Any other event or condition known to the Shareholder particularly pertaining to and adversely affecting the operations, assets or business of the Company. 2.1.11. Taxes. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by the Company for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all such returns are true and correct; the Company has only done business in Oklahoma, Texas and Kansas; all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by the Company; and the tax provision reflected in the 6/30 Balance Sheet is adequate, in accordance with generally accepted accounting principles, to cover liabilities of the Company at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to the Company or its assets or business. No waiver of any statute of limitations executed by the Company with respect to any income or other tax is in effect for any period. Except as disclosed on Schedule 2.1.11. hereto, the income tax returns of the Company have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of The Company except for taxes not yet currently due. The Company is not subject to any tax-sharing or allocation agreement. The Company is not, nor has it ever attempted to become a Subchapter S-Corporation under the Internal Revenue Code of 1986, as amended. The Company is not and never has been, a member of a consolidated group subject to Treasury Regulation 1.1502-6 or any similar provision. 2.1.12. Intellectual Property. The Company owns or possesses licenses to use all Intellectual Property that is either material to the business of the Company or that is necessary for the rendering of any services rendered by the Company and the use or sale of any equipment or products used or sold by the Company, including all such Intellectual Property listed in Schedule 2.1.8 hereto (the ARequired Intellectual Property@). The Required Intellectual Property is owned or licensed by the Company free and clear of any Encumbrance. The Company has not granted to any other person any license to use any Required Intellectual Property. The Company has not received any notice of infringement, misappropriation, or conflict with, the Intellectual Property rights of others in connection with the use by the Company of the Required Intellectual Property or otherwise in connection with the Company=s operation of its business. 2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule 2.1.13 hereto, the Company has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. All leases pursuant to which the Company leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company and in respect to which the Company has not taken adequate steps to prevent a default from occurring. The buildings and premises of the Company that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of the Company are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To the best of the Shareholder=s knowledge, all such assets conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by the Company or the Shareholder, except such as have been fully complied with. 2.1.14. Contracts. All contracts, leases, plans or other arrangements to which the Company is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of the Company. The Company is not, and to the knowledge of any of the Shareholder, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on the Company. The Shareholder has not received any information which would cause the Shareholder to conclude that any customer of the Company will (or is likely to) cease doing business with the Company (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.15. Licenses and Permits. The Company possesses all Permits necessary under law or otherwise for the Company to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used, including all such Permits listed in Schedule 2.1.8 hereto (collectively, the ARequired Permits@). Each of the Required Permits and the Company=s rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Company subject to administrative powers of regulatory agencies having jurisdiction. The Company is in compliance in all respects with the terms of each of the Required Permits. None of the Required Permits have been, or to the knowledge of the Shareholder, is threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which the Company is a party or, to the knowledge of the Shareholder, might become a party or which particularly affects the Company or its assets, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of the Company, pending or, to the knowledge of the Shareholder, threatened. 2.1.17. Environmental Compliance. 2.1.17.1. Environmental Conditions. Except as noted in Phase I Environmental Site Assessment prepared contemporaneously with closing by Advantage Environmental Service, Inc., there are no environmental conditions or circumstances, including, without limitation, the presence or release of any Substance of Environmental Concern, on any property presently or previously owned, leased or operated by the Company, or on any property to which any Substance of Environmental Concern or waste generated by the Company=s operations or use of its assets were disposed of, which would have a material adverse effect on the business or business prospects of the Company. The term ASubstance of Environmental Concern@ means (a) any gasoline, petroleum (including crude oil or any fraction thereof), petroleum product, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant, contaminant, radiation and any other substance of any kind, whether or not any such substance is defined as toxic or hazardous under any Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give rise to liability under any Environmental Law; 2.1.17.2. Permits, etc. The Company has, and within the period of all applicable statute of limitations has had, in full force and effect all environmental Permits required to conduct its operations, and is, within the period of all applicable statutes of limitations has been, operating in compliance thereunder; 2.1.17.3. Compliance. The Company=s operations and use of its assets are, and within the period of all applicable statutes of limitations, have been in compliance with applicable Environmental Law. AEnvironmental Law@ as used herein means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any State, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing liability or standards of conduct concerning protection of the environmental or of human health, or employee health and safety as from time to time has been or is now in effect. 2.1.17.4. Environmental Claims. No notice has been received by the Company or the Shareholder from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action. litigation, or liability, including, without limitation any claim for remedial obligations, response costs or contribution, relating to any Environmental Law; 2.1.17.5. Enforcement. The Company, and to the knowledge of the Shareholder, no predecessor of the Company or other party acting on behalf of the Company, has entered into or agreed to any consent, decree, order, settlement or other agreement, nor is subject to any judgment, decree, order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law; 2.1.17.6. Liabilities. The Company has not assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law; 2.1.17.7. Renewals. The Shareholder does not know of any reason the Company (or its successors) would not be able to renew without material expense any of the permits, licenses, or other authorizations required pursuant to any of the Environmental Law to conduct and use any of the Company=s current or planned operations; and 2.1.17.8. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by the Company, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by the Company in its operations or on its properties. 2.1.18. Compliance with Other Laws. The Company is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.19. Employee Plans and Labor Issues. Except as identified in Schedule 2.1.8., the Company does not currently sponsor, maintain or contribute to, and has not at any time sponsored, maintained or contributed to any Employee Plan (as defined in Section 2.1.8.7. hereof) or any other employee benefit plan which is or was subject to any of the provisions of the Employee Retirement Income Security Act 1974, as amended ("ERISA"), in which any of its employees are or were participants (whether or not on an active or frozen basis). Each Employee Plan set forth in Schedule 2.1.8. hereto complies currently, and has complied in the past, in form and operation, with the applicable provisions of ERISA, the Code and other applicable laws including, without limitation, all qualification and reporting and disclosure requirements. Also, with respect to each Employee Plan the company has not engaged in any prohibited transaction or any violation of its fiduciary duties to such plan. All contributions required to be made to each Employee Plan under the terms of such Employee Plan, ERISA or other applicable law have been timely made and there are no delinquent contributions as of the Closing Date. None of the Employee Plans (i) is a Amultiemployer plan@ (as defined in Section 3(37) of ERISA), (ii) is a defined benefit pension plan subject to Title IV of ERISA, (iii) is a Avoluntary employees= beneficiary association@ within the meaning of the Code Section 501(c)(9), (iv) provides for medical or other insurance benefits to current or future retired employees or former employees of the Company (other than as required for group health plan continuation coverage under Code Section 4980B (ACOBRA@) or applicable state law), or (v) obligates the Company to pay benefits solely as a result of a change in control of the Company. During the six years preceding the Closing Date, (i) no under-funded pension plan subject to Section 412 of the Code has been transferred out of the Company and (ii) the Company has not participated in or contributed to, or had an obligation to contribute to, any multiemployer plan (as defined in ERISA Section 3(37)) and has no withdrawal liability with respect to any multiemployer plan. There are no claims or lawsuits which have been asserted, instituted or threatened against any Employee Plan by any fiduciary or participant of such plan, except routine claims for benefits thereunder. The Company has no collective bargaining agreements with any labor union or other representative of employees. The Company has not engaged in any unfair labor practices. The Company has no pending or threatened dispute with any of its existing or former employees. 2.1.20. Investigations; Litigation. No investigation or review by any governmental entity with respect to the Company or any of the transactions contemplated by this Agreement is pending or, to the knowledge of the Shareholder, threatened, nor has any governmental entity indicated to the Company an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of the Shareholder, threatened against or affecting the Company at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of the Company. 2.1.21. Absence of Certain Business Practices. Neither the Company nor any officer, employee or agent of the Company, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of the Company (or to assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in the 6/30 Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of the Company or which might subject the Company to suit or penalty in a private or governmental litigation or proceeding. 2.1.22. No Untrue Statements. The Company and the Shareholder have made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Company=s assets and business, and such information covers all commitments and liabilities of the Company relating to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.23. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by the Shareholder in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.24. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholder and his counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payments. 2.2. Representations and Warranties of Buyer. Buyer represents and warrants to the Shareholder as follows 2.2.1. Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.2.2. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3. Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Company and the Shareholder and his counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against any of the parties hereto for any brokerage commission, finder=s fee or any similar payments. 2.2.5. Buyer=s Assumption of Company Liabilities. Buyer hereby agrees and promises to assume any and all obligations and liabilities that are reflected on Schedules 2.1.8.4. and 2.1.8.14., said obligations and liabilities being reflected on the 6/30 balance sheet. Buyer agrees, under the terms and procedures provided for under Article 4 of the Agreement to indemnify and hold harmless the Shareholder against and with respect to any and all guaranties, obligations, liabilities, sums due or damages (as defined in Section 4.1. hereof) that may arise from or out of the liabilities reflected on Schedules 2.1.8.4. and 2.1.8.14. Buyer further agrees to provide Shareholder with a release from the creditors, or their respective assigns, identified on Schedule 2.1.8.14. within 30 days hereof. ARTICLE 3 Additional Agreements 3.1. Noncompetition Agreement. The Shareholder hereby agrees to certain restrictions with respect to his conduct of business after the date hereof pursuant to the terms and provisions of that certain Noncompetition Agreement of even date herewith by and between the Company and the Shareholder executed and delivered in connection herewith. 3.2. Facility Lease. After the date hereof, the Shareholder hereby agrees to lease to the Company its current Facility in Woodward, Oklahoma pursuant to the terms and provisions of that certain Lease Agreement of even date herewith by and between the Company and the Shareholder executed and delivered in connection herewith. 3.3. Employment Agreement. After the date hereof , the Shareholder shall be employed by the Company pursuant to the terms and provisions of that certain Employment Agreement of even date herewith by and between the Company and the Shareholder executed and delivered in connection herewith. 3.4. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 4 Indemnification 4.1. Indemnification by the Shareholder. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Shareholder shall indemnify, defend and hold harmless the Company, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the ABuyer Indemnified Parties@), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the ADamages@) that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to any breach by the Shareholder of (or the failure of the Shareholder to perform) his representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Shareholder under this Agreement. 4.2. Indemnification by Buyer. In addition to any other remedies available to the Shareholder under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Shareholder against and with respect to any and all Damages that Shareholder shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholder by or on behalf of Buyer under this Agreement. 4.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Section 4.1 or 4.2 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Subject to the following, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. The indemnified party is obligated to specify the basis of any determination that counsel selected by the indemnifying party is unsatisfactory before the indemnifying party shall be liable for attorney fees of counsel selected by the indemnified party. The basis must be reasonable and well grounded before the indemnifying party shall be liable for the expenses of counsel selected by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed, unless the indemnifying party has refused to provide a defense against such claim or action. Likewise, no indemnified party shall consent to entry of judgment or enter into any settlement of such claim where the indemnifying party has refused to provide a defense against such claim or action until the indemnified party has given the indemnifying party notice of the terms of the judgment or settlement and an opportunity to continue with a defense if the judgment or settlement is unsatisfactory. ARTICLE 5 Miscellaneous 5.1. Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive indefinitely despite any investigation made by any party hereto or on its behalf. 5.2. Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3. Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4. Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer Addressed to: With a copy to: WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to the Shareholder Addressed to: With a copy to: William Gregory Wines Cody B. Hodgden, Esq. 72 Possum Point Hodgden & Hallren Possum Kingdom Lake P. O. Box 529 Grayford, Texas 76449 Woodward, Oklahoma 73802 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Oklahoma. IN WITNESS WHEREOF, the Shareholder has executed this Agreement and Buyer has caused this Agreement to be signed in its corporate names by its duly authorized representative, all as of the day and year first above written. WELLTECH EASTERN, INC. By: _________________________________________ Name: ______________________________________ Title: _______________________________________ SHAREHOLDER _________________________________________ William Gregory Wines EX-10.(K) 9 BRW STOCK PURCHASE AGREEMENT I:\PBOOKER\JMA\Key Energy Group\brw\924 Stock Purchase Agreement.wpd Stock Purchase Agreement among, Key Energy Drilling, Inc., and S. K. Rogers, Joe Dee Brooks, Lynn E. Waters and Donnie Roberts Dated as of September ___, 1997 Stock Purchase Agreement This Stock Purchase Agreement (this "Agreement") is entered into as of September ___, 1997 by and among Key Energy Drilling, Inc., a Delaware corporation ("Buyer"), and S. K. Rogers, Joe Dee Brooks, Lynn E. Waters and Donnie Roberts, each joined herein by their respective spouses (collectively, the "Shareholders"). WITNESSETH : Whereas, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and Whereas, BRW Drilling, Inc. (the "Company") is a corporation duly organized and validly existing under the laws of the state of Texas, with its principal executive offices at 1001 8th Street, Levelland, Texas 79336; and Whereas, the Shareholders own 100,000 shares (the "Company Shares") of common stock, no par value, of the Company (the "Company Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of the Company; and Whereas, the Shareholders desire to sell to Buyer, and Buyer desires to purchase from the Shareholders all of the issued and outstanding capital stock of the Company. Now, Therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: I. ARTICLE Purchase and Sale 1.1. Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholders agree to sell and convey to Buyer, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholders, all of the Company Shares. In consideration of the sale of the Company Shares, Buyer shall pay to the Shareholders $14,610,000 (the net amount being determined by a gross sales price of $15,000,000 less a $390,000 adjustment for the unaccrued income taxes disclosed in Section 2.1.6 hereof) in cash by wire transfer of immediately available funds, and the Cash Adjustment Payment (as defined in Section 1.3 hereof), if any, in accordance with Section 1.3 hereof. 1.1. Delivery of the Company Certificates. The Shareholders shall deliver to Buyer on the date hereof duly and validly issued certificates representing all of the Company Shares, each such certificate having been duly endorsed in blank and in good form for transfer or accompanied by stock powers duly executed in blank, sufficient and in good form to properly transfer such shares to Buyer. 1.3 Adjustment of Purchase Price. Buyer shall cause to be prepared and delivered to the Shareholders a balance sheet of the Company as of the date hereof (the "Final Balance Sheet") within sixty (60) days after the date hereof . Buyer and the Shareholders shall jointly review the Final Balance Sheet, endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days from the date hereof. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If (i) the sum of (A) the Final Net Current Value of the Company (defined below) plus (B) the Capital Expenditure Allowance (defined below) exceeds (ii) the 7/31 Net Current Value of the Company (defined below), Buyer shall pay to the Shareholders the amount of such excess (the "Cash Adjustment Payment"). (2) If (i) the sum of (A) the Final Net Current Value of the Company plus (B) the Capital Expenditure Allowance is less than (ii) the 7/31 Net Current Value of the Company, the Shareholders shall pay to Buyer the amount of such difference. ' The term "Final Net Current Value of the Company" means the dollar value of the amount by which (i) the "Total Current Assets" plus the "Other Assets" as recorded on the Final Balance Sheet exceeds (ii) the "Total Liabilities" minus the "Notes Payable - SKROS" as recorded on the Final Balance Sheet. The term "7/31 Net Current Value of the Company" means negative $707,441.51. The term "Capital Expenditure Allowance" means $_____________. 1 ARTICLE Representations and Warranties 1.1. Representations and Warranties of the Shareholders. Each of the Shareholders jointly and severally represents and warrants to Buyer as follows: 1.1.1. Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Texas, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 1.1.1. Agreement Authorized and its Effect on Other Obligations. Each of the Shareholders is a resident of Hockley County, Texas, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his or her obligations under this Agreement. This Agreement is a valid and binding obligation of each of the Shareholders enforceable against each of the Shareholders (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Shareholders will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Articles of Incorporation or Bylaws of the Company or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company or any of the Shareholders is a party or by which the Company or any of the Shareholders or their respective properties are bound. 1.1.1. Capitalization. The authorized capitalization of the Company consists of 100,000 shares of Company Common Stock, of which, as of the date hereof, 100,000 shares were issued and outstanding and held beneficially and of record by the Shareholders. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 1.1.1. Ownership of the Company Shares. The Shareholders hold good and valid title to all of the Company Shares, free and clear of all Encumbrances. The Shareholders possess full authority and legal right to sell, transfer and assign to Buyer the Company Shares, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholders of the Company Shares, Buyer will own the Company Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of any of the Shareholders, threatened, against the Company or any of the Shareholders that concern or affect title to the Company Shares, or that seek to compel the issuance of capital stock or other securities of the Company. 1.1.1. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 1.1.1. Financial Statements. The Company has delivered to Buyer copies of the Company's unaudited balance sheet (the "7/31 Balance Sheet") and related statements of income, copies of which are attached hereto as Schedule 2.1.6 (collectively, the "7/31 Financial Statements"), as, at and for the seven months ended July 31, 1997 (the "Balance Sheet Date"). The 7/31 Financial Statements are complete in all material respects except that the Company's accrual for Federal income taxes has been based solely on quarterly income tax estimates which are based on the Company's total income tax paid for the calendar year 1996. The Shareholders estimate that according to Generally Accepted Accounting Principles (GAAP), the income tax accrual should reflect an additional $390,000. With the exception of the income taxes which have not been properly accrued, the 7/31 Financial Statements presents fairly the financial condition of the Company as and at the dates and for the periods indicated. Except for the inadequate accrual for income taxes (as noted above), the 7/31 Financial Statements have been prepared in accordance with GAAP applied on a consistent basis. The accounts receivable reflected in the 7/31 Balance Sheet, or which have been thereafter acquired by the Company, have been collected or are collectible at the aggregate recorded amounts thereof. The inventories of the Company reflected in the 7/31 Balance Sheet, or which have thereafter been acquired by it, consist of items of a quality usable and salable in the normal course of the Company's business, and the values at which inventories are carried are at the lower of cost or market. 1.1.1. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, the Company does not have any liabilities or obligations, either accrued, absolute or contingent, nor do any of the Shareholders have any knowledge of any potential liabilities or obligations, other than those (i) reflected or reserved against in the 7/31 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date, none of which would materially adversely affect the value and conduct of the business of the Company 1.1.1. Additional Company Information. Attached as Schedule hereto are true, complete and correct lists of the following items: 1.1.1.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company, with a description of the nature and amount of any Encumbrances (defined below) thereon. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 1.1.1.1. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company with a description of the nature and amount of any Encumbrances thereon; 1.1.1.1. Inventory. All inventory items or groups of inventory items owned by the Company, excluding raw materials and work in process, which raw materials and work in process are valued on the 7/31 Balance Sheet, together with the amount of any Encumbrances thereon; 1.1.1.1. Receivables. All accounts and notes receivable of the Company, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which the Company holds a security interest to secure payment of the underlying indebtedness, and (iv)a description of the nature and amount of any Encumbrances on such accounts and notes receivable; 1.1.1.1. Payables. All accounts and notes payable of the Company, together with an appropriate aging schedule; 1.1.1.1. Insurance. All insurance policies or bonds currently maintained by the Company, including title insurance policies and those covering the Company's properties, rigs, carriers, rig equipment, machinery, transportation equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 1.1.1.1. Contracts. All contracts, including leases under which the Company is lessor or lessee, which are to be performed in whole or in part after the date hereof; 1.1.1.1. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other employee benefit or fringe benefit plans, arrangements or trust agreements of the Company or any employee benefit plan maintained by the Company (collectively, the "Employee Plans"), together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters and other correspondence from governmental entities that have been received with respect to such plans, arrangements or agreements; 1.1.1.1. Certain Salaries. The names and salary rates of all present employees of the Company, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 1.1.1.1. Bank Accounts. The name of each bank in which the Company has an account and the names of all persons authorized to draw thereon; 1.1.1.1. Labor Agreements. Any collective bargaining agreements of the Company with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of the Company; 1.1.1.1. Intellectual Property. All patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used by the Company; 1.1.1.1. Trade Names. All trade names, assumed names and fictitious names used or held by the Company, whether and where such names are registered and where used; 1.1.1.1. Licenses and Permits. All permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") of the Company under which it conducts its business. 1.1.1.1. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of the Company relating thereto or with respect to collateral securing the same; 1.1.1.1. Guaranties. All indebtedness, liabilities and commitments of others and as to which the Company is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 1.1.1.1. Reserves and Accruals. All accounting reserves and accruals maintained in the 7/31 Balance Sheet; 1.1.1.1. Leases. All leases to which the Company is a party; and 1.1.1.1. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by the Company and all environmental audits, assessments, investigations and reviews conducted by the Company within the last five years or otherwise in the Company's possession on any property owned, leased or used by the Company. 1.1.1. No Defaults. The Company is not a party to, or bound by, any contract or arrangement of any kind to be performed after the date hereof (except as provided in Schedule 2.1.8.7 hereto), nor is the Company in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 1.1.1. Absence of Certain Changes and Events. Other than as specified in Schedule 2.1.10 hereto, since the Balance Sheet Date, there has not been: 1.1.1.1. Financial Change. Any adverse change in the financial condition, backlog, operations, assets, liabilities or business of the Company; 1.1.1.1. Property Damage. Any material damage, destruction, or loss to the business or properties of the Company (whether or not covered by insurance); 1.1.1.1. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Company Common Stock, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; 1.1.1.1. Capitalization Change. Any change in the capital stock or in the number of shares or classes of the Company's authorized or outstanding capital stock as described in Section 2.1.3 hereof; 1.1.1.1. Labor Disputes. Any labor or employment dispute of whatever nature; or 1.1.1.1. Other Adverse Changes. Any other event or condition known to any of the Shareholders particularly pertaining to and adversely affecting the operations, assets or business of the Company. 1.1.1. Taxes. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by the Company for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all such returns are true and correct; the Company has only done business in the State of Texas with the exception that the Company has qualified to do business and has commenced doing business in the State of New Mexico as of September 3, 1997; all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by the Company; and the tax provision reflected in the 7/31 Balance Sheet is an estimated $390,000 short in accordance with GAAP to cover liabilities of the Company at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to the Company or its assets or business. No waiver of any statute of limitations executed by the Company with respect to any income or other tax is in effect for any period. The income tax returns of the Company have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of The Company except for taxes not yet currently due. The Company is not subject to any tax-sharing or allocation agreement. The Company is not, nor has it ever attempted to become a Subchapter S-Corporation under the Internal Revenue Code of 1986, as amended. The Company is not and never has been, a member of a consolidated group subject to Treasury Regulation 1.1502-6 or any similar provision. 1.1.1. Intellectual Property. The Company owns or possesses licenses to use all Intellectual Property that is either material to the business of the Company or that is necessary for the rendering of any services rendered by the Company and the use or sale of any equipment or products used or sold by the Company, including all such Intellectual Property listed in Schedule hereto (the "Required Intellectual Property"). The Required Intellectual Property is owned or licensed by the Company free and clear of any Encumbrance. The Company has not granted to any other person any license to use any Required Intellectual Property. The Company has not received any notice of infringement, misappropriation, or conflict with, the Intellectual Property rights of others in connection with the use by the Company of the Required Intellectual Property or otherwise in connection with the Company's operation of its business. 1.1.1. Title to and Condition of Assets. The Company has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 7/31 Balance Sheet or in Schedule hereto, free and clear of any Encumbrance of any nature whatsoever, except (i)Encumbrances reflected in the 7/31 Balance Sheet or in Schedule hereto, (ii)liens for current taxes not yet due and payable, and (iii)such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. All leases pursuant to which the Company leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company and in respect to which the Company has not taken adequate steps to prevent a default from occurring. The buildings and premises of the Company that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, carriers, rig equipment, machinery, transportation equipment, tools and other major items of equipment of the Company are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To the best of each Shareholder's knowledge, all such assets conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by the Company or any of the Shareholders, except such as have been fully complied with. 1.1.1. Contracts. All contracts, leases, plans or other arrangements to which the Company is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of the Company. The Company is not, and to the knowledge of any of the Shareholders, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on the Company. None of the Shareholder has received any information which would cause such Shareholder to conclude that any customer of the Company will (or is likely to) cease doing business with the Company (or its successors) as a result of the consummation of the transactions contemplated hereby. 1.1.1. Licenses and Permits. The Company possesses all Permits necessary under law or otherwise for the Company to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used, including all such Permits listed in Schedule 2.1.8 hereto (collectively, the "Required Permits"). Each of the Required Permits and the Company's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Company subject to administrative powers of regulatory agencies having jurisdiction. The Company is in compliance in all respects with the terms of each of the Required Permits. None of the Required Permits have been, or to the knowledge of any of the Shareholders, is threatened to be, revoked, canceled, suspended or modified. 1.1.1. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which the Company is a party or, to the knowledge of any of the Shareholders, might become a party or which particularly affects the Company or its assets, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of the Company, pending or, to the knowledge of any of the Shareholders, threatened. 1.1.1. Environmental Compliance. 1.1.1.1. Environmental Conditions. Except as disclosed on Schedule 2.1.17 hereto, there are no environmental conditions or circumstances, including, without limitation, the presence or release of any Substance of Environmental Concern on any property presently or previously owned, leased or operated by the Company, or on any property to which any Substance of Environmental Concern or waste generated by the Company's operations or use of its assets were disposed of, which would have a material adverse effect on the business or business prospects of the Company. The term "Substance of Environmental Concern" means (a) any gasoline, petroleum (including crude oil or any fraction thereof), petroleum product, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant, contaminant, radiation and any other substance of any kind, whether or not any such substance is defined as toxic or hazardous under any Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give rise to liability under any Environmental Law; 1.1.1.1. Permits, etc. The Company has, and within the period of all applicable statutes of limitations has had, in full force and effect all Environmental Permits required to conduct its operations, and is, within the period of all applicable statutes of limitations has been, operating in compliance thereunder. "Environmental Permits" as used in this Agreement means any and all permits, licenses, registrations, approvals, notifications , exemptions and any other authorizations required under Environmental Laws (as defined in Section 2.1.17.3 hereof); 1.1.1.1. Compliance. The Company's operations and use of its assets are, and within the period of all applicable statutes of limitations, have been in compliance with applicable Environmental Law. "Environmental Law" as used in this Agreement means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any State, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing liability or standards of conduct concerning protection of the environmental or of human health, or employee health and safety as from time to time has been or is now in effect. 2.1.17.4. Environmental Claims. No notice has been received by the Company or any of the Shareholders, or to the knowledge of the Company or any of the Shareholders, by any predecessor of the Company or any Shareholder, from any entity, governmental agency or individual regarding (nor is the Company or any Shareholder otherwise aware of) any existing, pending or threatened investigation, inquiry, enforcement action. litigation, or liability, including, without limitation any claim for remedial obligations, response costs or contribution, relating to any Environmental Law; 2.1.17.5. Enforcement. The Company, and to the knowledge of any of the Shareholders, no predecessor of the Company or other party acting on behalf of the Company, has entered into or agreed to any consent decree, order, settlement or other agreement, nor is subject to any judgment, decree, order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law; 2.1.17.6. Liabilities. The Company has not assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law; 2.1.17.7. Renewals. Neither the Company nor any of the Shareholders knows of any reason the Company (or its successors) would not be able to renew without material expense any Environmental Permit required pursuant to any Environmental Law to conduct and use any of the Company's current or planned operations; and 2.1.17.8. Asbestos and PCBs. No friable asbestos currently exists on any property owned or operated by the Company, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by the Company in its operations or on its properties. 1.1.1. Compliance with Other Laws. The Company is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ss651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 1.1.1. ERISA Plans and Labor Issues. Other than the Company's employee health plan (the "Health Plan") described in Schedule 2.1.8.8 hereto, the Company does not currently sponsor, maintain or contribute to, and has not at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as Amended ("ERISA"). The Health Plan complies with and has been administered in a form and in operation in compliance with all applicable laws, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended (the "Code") and the Consolidated Omnibus budget Reconciliation Act of 1985, as amended ("COBRA"), and none of the Shareholders have received any notice from any governmental authority questioning or challenging such compliance. The Health Plan has not been conducted in such a manner as would give rise to any material fine, penalties, taxes, claims or charges against the Company by a governmental entity or any third party or otherwise result in a material adverse effect on the Company's financial condition. No claims, demands or causes of action exist with respect to the Health Plan except routine claims for benefits thereunder. All contributions required to be made to the Health Plan have been timely made prior to the date hereof. The execution, delivery and performance of this agreement will not cause the Health Plan to be terminated or otherwise adversely affect the administration or operation thereof. The Company's administration of its Health Plan following the closing in the same manner as such Health Plan was administered by the Company prior to the closing will not violate any applicable laws or otherwise result in any material adverse effect on the financial condition of the Company. The Company does not maintain any plan, program, policy, contract or other arrangement that provides retirement, medical, dental, disability, life insurance or other benefits to any current or former employees of the Company, including any retired employees, or their beneficiaries or dependents. During the six years preceding the date hereof (i) the Company has not participated in or contributed to or had any obligation to contribute to any multiemployer plan (as defined in ERISA Section 3(7)) and has no withdrawal liability with respect to any multiemployer plan, and (ii) has not maintained any pension plan subject to ERISA. The Company is not obligated to pay any severance or benefits to any employee or former employee of the Company as the result of any change in the ownership or control of the Company. The Company has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on its operations or assets. The Company does not have any dispute with any of its existing or former employees. The Company is not subject to any collective bargaining agreement with any labor union or other representative of employees. There are no labor disputes or, to the knowledge of any of the Shareholders, any disputes threatened by current or former employees of the Company. 1.1.1. Investigations; Litigation. No investigation or review by any governmental entity with respect to the Company or any of the transactions contemplated by this Agreement is pending or, to the knowledge of any of the Shareholders, threatened, nor has any governmental entity indicated to the Company an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of any of the Shareholders, threatened against or affecting the Company at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of the Company. 1.1.1. Absence of Certain Business Practices. Neither the Company nor any officer, employee or agent of the Company, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of the Company (or to assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in the 7/31 Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of the Company or which might subject the Company to suit or penalty in a private or governmental litigation or proceeding. 1.1.1. No Untrue Statements. The Company and each of the Shareholders have made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Company's assets and business, and such information covers all commitments and liabilities of the Company relating to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 1.1.1. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than the Shareholders, is required to be made or obtained by the Company or any of the Shareholders in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 1.1.1. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholders and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payments. 1.1. Representations and Warranties of Buyer. Buyer represents and warrants to each of the Shareholders as follows 1.1.1. Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 1.1.1. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 1.1.1. Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 1.1.1. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Company and the Shareholders and their counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against any of the parties hereto for any brokerage commission, finder's fee or any similar payments. 1 ARTICLE Additional Agreements 1.1. Noncompetition. Except as otherwise consented to or approved in writing by Buyer, each of the Shareholders agrees that for a period of 60 months from the date hereof, such Shareholder will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in competition with the business or businesses conducted by the Company, Buyer or any affiliate of Buyer on the date hereof, or in any service business the services of which are provided and marketed by the Company, Buyer or any affiliate of Buyer on the date hereof in any state of the United States, or any foreign country in which the Company, Buyer or any affiliate of Buyer transacts business on the date hereof (provided, however, the foregoing shall not be construed as preventing Shareholder Lynn E. Waters from performing any type of activity in the oil and gas industry, including being an employee, consultant or other representative of any other entity, regardless of whether said entity competes against the Company, Buyer or any affiliate of Buyer, so long as Lynn E. Waters does not own, vote or control as much as five percent (5%) of any security of any class of said business entity); (ii) request any present customers or suppliers of the Company, Buyer or any affiliate of Buyer to curtail or cancel their business with the Company, Buyer or any affiliate of Buyer; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of the Company, Buyer or any affiliate of Buyer or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of the Company, Buyer or any affiliate of Buyer to terminate his employment. Each of the Shareholders agrees that if either the length of time or geographical area set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Shareholders may have under the laws of the states in which they do business requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. Each of the Shareholders further agrees and acknowledges that the Company, Buyer and its affiliates do not have any adequate remedy at law for the breach or threatened breach by such Shareholder of this covenant, and agree that the Company, Buyer or any affiliate of Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin such Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Shareholders acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such Shareholder in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 1.1. Employment Agreement. The parties hereto acknowledge the execution and delivery of an employment agreement between Joe Dee Brooks and the Company concurrently herewith. 1.1. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. 3.4. Company's Stock Not Registered. The Company is a privately held corporation and Buyer acknowledges such. The Company's stock has not been registered under the Securities Act of 1933, as Amended (the "Act") or under any applicable state securities laws, and the stock, therefore, cannot be offered for sale, sold, transferred, pledged or otherwise hypothecated except in accordance with the registration requirements of the Act and other such state laws as may be applicable. Buyer acknowledges that Seller has made available to it such information and documents, and that Buyer understands the risk associated with ownership of the capital stock of the Company, and Buyer is capable of bearing the financial risk associated therewith. The Company's shares and the dealings with Buyer are proceeding in reliance on exceptions from registration or qualification requirements pursuant to state law. 3.5. Opinion of Shareholders' Counsel. Buyer shall have received a favorable opinion, dated as of the Closing Date, from Bradford L. Moore, counsel to the Shareholders, in form and substance satisfactory to Buyer, to the effect that (i) the Company has been duly incorporated and is validly existing as a corporation and is in good standing under the laws of the State of Texas; (ii), the Company has fully requisite corporate power and authority to carry on its business as it is currently conducted and to own and operate the properties currently used and operated by it, and is duly qualified to do business and is in good standing as a foreign corporation and authorized to do business in the State of New Mexico; (iii) all outstanding shares of the Company's common stock have been validly issued and are fully paid and non-assessable; (iv) the Shareholders hold good and valid title to all of the Company shares free and clear of all Encumbrances; and (v) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of the Shareholders, and is enforceable against the Shareholders in accordance with its terms, except as the enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon certificates of public officials and of officers of Seller or the Shareholders as to matters of fact. 3.6. Opinion of Buyer's Counsel. Shareholders shall have received a favorable opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, counsel for Buyer, in form and substance satisfactory to the Shareholders, to the effect that (i) Buyer has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has full requisite corporate power and authority to carry on its business as it is currently conducted and to own and operate the properties currently owned and operated by it and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in the State of Texas; (ii) all corporate proceedings required to be taken by or on the part of Buyer to authorize the execution of this Agreement and the implementation of the transactions contemplated hereby have been taken; (iii) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of Buyer and is enforceable against Buyer in accordance with its terms, except as the enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon certificates of public officials and of officers of Buyer as to matters of fact. 3.7. Fees and Expenses. Except as otherwise expressly provided in this Agreement, all fees and expenses, including fees and expenses of counsel, financial advisors and accountants incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fee or expense by or on the date hereof. 1 ARTICLE Indemnification 1.1. Indemnification by the Shareholders. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, each of the Shareholders shall jointly and severally indemnify, defend and hold harmless the Company, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the "Buyer Indemnified Parties"), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the "Damages") in excess of $150,000 in the aggregate that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to (i) any breach by any of the Shareholders of (or the failure of any of the Shareholders to perform) their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by any of the Shareholders under this Agreement, (ii) the Company's ownership and/or operation of those properties distributed to the Shareholders prior to the date hereof referred to in Schedule 2.1.10 hereto, (iii) the promissory note represented by the "Notes Payable - SKROS" line item on the 7/31 Balance Sheet assumed by the Shareholders prior to the date hereof; provided, however, that (iv) the Shareholders' aggregate obligations to indemnify Buyer and the other parties identified above shall never exceed the aggregate sum of $15,000,000.00; (v) the Shareholders shall not be required to so indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and stockholders, against and with respect to any damages incurred as a result of a breach by either of the Shareholders of their respective representations and warranties of this Agreement, or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by any of the Shareholders under this Agreement for which Buyer fails to provide written notice of a claim for such damages to the Shareholders on or before the expiration of the survival period (as specified in Section 5.1 hereof) of the specific representation or warranty alleged to have been breached; (vi) to the extent the Buyer has actually recovered damages from a collateral source including, but not limited to, a third party or insurance coverage, for which Buyer is indemnified by the Shareholders pursuant to this Section 4.1, then Buyer agrees not to enforce its right to indemnification under this Section 4.1 (and the Buyer agrees that it will, to the extent it can legally do so, subrogate its right to collect any such damages from a collateral source to the Shareholders to the extent the Shareholders have paid such indemnification to the Buyer); and (vii) Buyer agrees it will not seek indemnification under this Section 4.1 for any environmental remedial work on any of the Company's properties unless the Company (or Buyer) is required to perform such work by a third party or by a governmental entity or agency. 1.1. Indemnification by Buyer. In addition to any other remedies available to the Shareholders under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless each of the Shareholders against and with respect to any and all Damages in excess of $150,000 in the aggregate, that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to any of the Shareholders by or on behalf of Buyer under this Agreement; provided, however, that (i) Buyer's aggregate obligation to indemnify the Shareholders shall never exceed the sum of $15,000,000.00; (ii) Buyer shall not be required to so indemnify, defend and hold harmless the Shareholders and their employees and agents against and with respect to any damages incurred as a result of a breach by Buyer of any of its representations and warranties in this Agreement, or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholders by Buyer under this Agreement for which the Shareholders fail to provide written notice of a claim for such damages to Buyer on or before the expiration of the survival period (as is specified in Section 5.1 hereof) of the specific representations or warranty alleged to have been breached; and (iii) to the extent the Shareholders have actually recovered damages from a collateral source, including, but not limited to a third party or insurance coverage for which the Shareholders are indemnified by Buyer pursuant to this Section 4.2, then the Shareholders agree not to enforce their right to indemnification under this Section 4.2 (and the Shareholders agree that they will, to the extent they can legally do so, subrogate their rights to collect any such damages from a collateral source to the Buyer to the extent the Buyer has paid such indemnification to the Shareholders. 1.1. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Article 4 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Sections 4.1 or 4.2 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. 1 ARTICLE Miscellaneous 1.1. Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 24 months from the Closing Date, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 24 months from the Closing Date despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive as provided herein. 1.1. Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 1.1. Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 1.1. Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer Addressed to: With a copy to: Key Energy Drilling, Inc. Lynch, Chappell & Alsup Two Tower Center, Tenth Floor 300 N. Marienfeld, Suite 700 East Brunswick, New Jersey 08816 Midland, Texas 79701 Attn: General Counsel Attn: James M. Alsup Facsimile: (908) 247-5148 Facsimile: (915) 683-3351 If to any Shareholder Addressed to: With a copy to: Joe Dee Brooks Bradford L. Moore 2213 S. College Attorney at Law Levelland, Texas 79336 P. O. Box 352 Brownfield, Texas 79316 Facsimile: (806) 637-3877 S. K. Rogers 1001 8th Street Levelland, Texas 79336 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 1.1. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 1.1. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 1.1. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 1.1. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas. 5.9. Multiple Counterparts. This Agreement is executed in duplicate and multiple originals and multiple signature pages. Each duplicate is considered an original and has the same force and effect as if executed with an original signature by all of the parties hereto. [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the Buyer has caused this Agreement to be signed in its corporate name by its respective duly authorized representative, all as of the day and year first above written. KEY ENERGY DRILLING, INC. By: Name: Title: i:\pbooker\jma\key\brw\924 stock purchase agreement EX-10.(L) 10 INDENTURE FOR 5% NOTES Key Energy Group, Inc. $200,000,000 Principal Amount of 5% Convertible Subordinated Notes due 2004 - -------------------------------------------------------------------------------- Indenture - ------------------------------------------------------------------------------- Dated as of September 25, 1997 - -------------------------------------------------------------------------------- American Stock Transfer & Trust Company Trustee - ------------------------------------------------------------------------------- 053113\1008\02764\979QGT85.OTH TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions.......................................... 1 Section 1.2 Other Definitions.................................... 7 Section 1.3 Incorporation by Reference of Trust Indenture Act.... 8 Section 1.4 Rules of Construction................................ 8 ARTICLE II THE SECURITIES Section 2.1. Form and Dating; Securities in Global Form........... 9 Section 2.2. Execution and Authentication......................... 10 Section 2.3. Registrar, Paying Agent, Depository and Securities Custodian............................................ 10 Section 2.4. Paying Agent to Hold Money in Trust.................. 11 Section 2.5. Holder Lists......................................... 11 Section 2.6 Transfer and Exchange................................ 12 Section 2.7 Replacement Securities............................... 18 Section 2.8 Outstanding Securities............................... 18 Section 2.9 Treasury Securities.................................. 19 Section 2.10 Temporary Securities................................. 19 Section 2.11 Cancellation......................................... 19 Section 2.12 Defaulted Interest................................... 19 ARTICLE III REDEMPTION Section 3.1 Notices to Trustee.................................... 20 Section 3.2 Selection of Securities to be Redeemed................ 20 Section 3.3 Notice of Redemption.................................. 21 Section 3.4 Effect of Notice of Redemption........................ 21 Section 3.5 Deposit of Redemption Price........................... 22 Section 3.6 Securities Redeemed in Part........................... 22 Section 3.7 Optional Redemption................................... 22 ARTICLE IV COVENANTS Section 4.1 Payment of Securities................................ 23 053113\1008\02764\979QGT85.OTH i TABLE OF CONTENTS (Continued) Page Section 4.2 Maintenance of Office or Agency...................... 23 Section 4.3 SEC Reports.......................................... 24 Section 4.4 Compliance Certificate............................... 24 Section 4.5 Compliance with Laws; Taxes.......................... 25 Section 4.6 Stay, Extension and Usury Laws....................... 25 Section 4.7 Corporate Existence.................................. 26 Section 4.8 Liquidation.......................................... 26 Section 4.9 Limitation on Dispositions of Assets................. 27 Section 4.10 Change in Control.................................... 27 Section 4.11 Rule 144A Information Requirement.................... 28 ARTICLE V SUCCESSORS Section 5.1 When the Company May Merge, etc...................... 28 Section 5.2 Successor Corporation Substituted.................... 29 ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 Events of Default.................................... 29 Section 6.2 Acceleration........................................ 30 Section 6.3 Other Remedies....................................... 31 Section 6.4 Waiver of Past Defaults.............................. 31 Section 6.5 Control by Majority.................................. 31 Section 6.6 Limitation on Suits.................................. 32 Section 6.7 Rights of Holders to Receive Payment................. 32 Section 6.8 Collection Suit by Trustee........................... 32 Section 6.9 Trustee May File Proofs of Claim..................... 33 Section 6.10 Priorities........................................... 33 Section 6.11 Undertaking for Costs................................ 34 ARTICLE VII TRUSTEE Section 7.1 Duties of a Trustee.................................. 34 Section 7.2 Rights of Trustee.................................... 35 Section 7.3 Individual Rights of Trustee......................... 36 Section 7.4 Trustee's Disclaimer................................. 36 Section 7.5 Notice of Defaults.................................. 36 Section 7.6 Reports by Trustee to Holders........................ 36 053113\1008\02764\979QGT85.OTH ii TABLE OF CONTENTS (Continued) Page Section 7.7 Compensation and Indemnity........................... 37 Section 7.8 Replacement of Trustee................................ 37 Section 7.9 Successor Trustee by Merger, etc..................... 38 Section 7.10 Eligibility; Disqualification........................ 38 Section 7.11 Preferential Collection of Claims Against Company.... 39 Section 7.12 No Obligation of the Trustee......................... 39 ARTICLE VIII DISCHARGE OF INDENTURE Section 8.1 Termination of Company's Obligation.................. 40 Section 8.2 Application of Trust Money........................... 41 Section 8.3 Repayment to Company................................. 41 Section 8.4 Reinstatement........................................ 42 ARTICLE IX AMENDMENTS Section 9.1 Without Consent of Holders........................... 42 Section 9.2 With Consent of Holders.............................. 43 Section 9.3 Compliance with Trust Indenture Act.................. 44 Section 9.4 Revocation and Effect of Consents.................... 44 Section 9.5 Notation on or Exchange of Securities................ 44 Section 9.6 Trustee to Sign Amendments, etc...................... 45 ARTICLE X CONVERSION Section 10.1 Right to Convert.................................... 45 Section 10.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. ........................................ 46 Section 10.3 Cash Payments in Lieu of Fractional Shares.......... 47 Section 10.4 Conversion Price.................................... 47 Section 10.5 Adjustment of Conversion Price...................... 48 Section 10.6 Effect of Reclassification, Consolidation, Merger or Sale................................................ 51 Section 10.7 Taxes on Shares Issued.............................. 51 Section 10.8 Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock........................................ 52 Section 10.9 Responsibility of Trustee........................... 52 Section 10.10 Notice to Holders Before Certain Actions............ 53 053113\1008\02764\979QGT85.OTH iii TABLE OF CONTENTS (Continued) Page ARTICLE XI SUBORDINATION Section 11.1 Agreement to Subordinate............................ 54 Section 11.2 Certain Definitions................................. 54 Section 11.3 Liquidation; Dissolution; Bankruptcy................ 55 Section 11.4 Company Not to Make Payments with Respect to Securities in Certain Circumstances............................ 55 Section 11.5 Acceleration of Securities.......................... 56 Section 11.6 When Distribution Must Be Paid Over................. 56 Section 11.7 Notice by Company................................... 56 Section 11.8 Subrogation......................................... 56 Section 11.9 Relative Rights..................................... 56 Section 11.10 Subordination May Not Be Impaired by Company........ 57 Section 11.11 Distribution or Notice to Representative............ 57 Section 11.12 Rights of Trustee and Paying Agent.................. 57 Section 11.13 Effectuation of Subordination by Trustee............ 58 ARTICLE XII MISCELLANEOUS Section 12.1 Trust Indenture Act Controls........................ 58 Section 12.2 Notices............................................. 59 Section 12.3 Communication to Holders with Other Holders......... 60 Section 12.4 Certificate and Opinion as to Conditions Precedent.. 60 Section 12.5 Statements Required in Certificate.................. 60 Section 12.6 Rules by Trustee and Agents......................... 61 Section 12.7 Additional Rights of Holders of Transfer Restricted Securities........................................ 61 Section 12.8 Legal Holidays...................................... 61 Section 12.9 No Recourse Against Others.......................... 61 Section 12.10 Duplicate Originals................................. 61 Section 12.11 Governing Law....................................... 61 Section 12.12 No Adverse Interpretation of Other Agreements....... 62 Section 12.13 Successors......................................... 62 Section 12.14 Severability........................................ 62 Section 12.15 Counterpart Originals............................... 62 Section 12.16 Table of Contents, Headings, ....................... 62 053113\1008\02764\979QGT85.OTH iv INDENTURE dated as of September 25, 1997, among KEY ENERGY GROUP, INC., a Maryland corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation, as trustee (the "Trustee"). The Company and Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Company's 5% Convertible Subordinated Notes due 2004 (collectively, the "Securities"): ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "144A Global Note" means the global note in the form of Exhibit A-1 hereto deposited with and registered in the name of the Depository, or its nominee, that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of Voting Stock, by agreement or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing; provided, however, that beneficial ownership of 10% or more of the Voting Stock of a person shall be deemed control. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depository, Euroclear and Cedel Bank that apply to such transfer or exchange. "Agent' means any Registrar (as defined in Section 2.3), Paying Agent (as defined in Section 2.3) or co-Registrar. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Board Resolution" means a resolution of the Board of Directors of the Company. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in the Borough of Manhattan, New York, New York are authorized or obligated by law or executive order to close. 053113\1008\02764\979QGT85.OTH 2 "Capital Stock" means, with respect to any Person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such Person and any warrants, options or other rights to acquire such stock. "Closing Price" means, for each Trading Day, the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange (if shares of the Common Stock are listed for trading on such exchange) or the American Stock Exchange (if shares of the Common Stock are listed for trading on such exchange) or, if the Common Stock is not listed or admitted to trading on either such exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations systems ("NASDAQ") National Market System ("NASDAQ/NMS") or, if not listed or admitted to trading on NASDAQ/NMS, on NASDAQ, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or NASDAQ/NMS or quoted on NASDAQ, the average of the closing bid and asked prices in the over-the-counter market as furnished by any National Association of Securities Dealers, Inc. member firm selected from time to time by the Company for that purpose. "Common Stock" means, any stock of any class of the Company that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 10.6, however, shares issuable on conversion of Securities shall include only shares of the class or classes resulting that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company, provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Consolidated Net Worth" with respect to any Person means the amount by which the assets of such Person and its Subsidiaries on a consolidated basis exceed the sum of (i) the total liabilities of such Person and its Subsidiaries on a consolidated basis, plus (ii) Disqualified Capital Stock of such Person or Disqualified Capital Stock of any Subsidiary of such Person issued to any Person other than such Person or another Wholly Owned Subsidiary of such Person, all as determined on a consolidated basis and in accordance with GAAP. "Conversion Price" has the meaning set forth in Section 10.4. 053113\1008\02764\979QGT85.OTH 3 "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.2 or such other address as the Trustee may give by notice to the Company. "Current Market Price" means, for each share of Common Stock, (a) in respect of a conversion of the principal of any Notes into cash pursuant to Section 10.1, the average of the daily Closing Prices for the five consecutive Trading Days immediately preceding the conversion date, or (b) in all other cases, on any date, the average of the daily Closing Prices for the five consecutive Trading Days selected by the Company commencing not more than twenty Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Definitive Securities" means Securities that are in the form of the Note attached hereto as Exhibit A that do not include the information called for by footnotes 1 and 2 thereof. "Depository" means, with respect to the Securities issuable or issued in whole or in part in global form, the Person specified in Section 2.3 as the Depository with respect to the Securities, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "Disqualified Capital Stock" means any Capital Stock that, by its terms or by the terms of any security into which, at the option of the holder, it is convertible or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due, on or before the maturity date of the Securities. "ex date" means, when used with respect to any issuance of distribution, the first date on which the Common Stock trades regular way on an exchange or in such market without the right to receive such issuance or distribution. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Debentures" means the 7% Convertible Subordinated Debentures Due 2003 issued under that certain Indenture dated July 3, 1996 among the Company, the Trustee, and the Subsidiaries. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of any date of determination. 053113\1008\02764\979QGT85.OTH 4 "Global Securities" means individually and collectively, the 144A Global Note and the Regulation S Global Note, issued in accordance with the terms hereof. "Group of Persons" means any group of Persons or other entities acting in concert as a partnership or other group within the meaning of Section 13(d) of the Exchange Act. "Holder" means a person in whose name a Security is registered in the records of the Registrar. "IAI" means an institutional "accredited investor" as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act. "Indebtedness" means, with respect to any Person, without duplication, (i) any indebtedness of such Person for money borrowed or for the deferred purchase price of property or services (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor created, incurred, assumed or guaranteed by such Person in connection with obtaining goods, materials or services and due within 12 months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 120 days, according to the original terms of sale, unless such account payable is being contested in good faith or has otherwise been extended), (ii) all capitalized lease obligations, (iii) any such indebtedness or obligation secured by any Lien on the assets of such Person and (iv) any such indebtedness or obligation of others which such Person has directly or indirectly guaranteed, endorsed with recourse (otherwise than for collection, deposit or other similar transactions in the ordinary course of business), agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds. "Indenture" means this Indenture, as amended or supplemented from time to time. "Issue Date" means the date on which the Notes are originally issued under this Indenture. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction). "Memorandum" means the Offering Memorandum, dated September 18, 1997, of the Company relating to the Securities and the Offering. 053113\1008\02764\979QGT85.OTH 5 "Non-U.S. Person" means anyone who is not a U.S. Person. "Notes" means the 5% Convertible Subordinated Notes due 2004 issued under this Indenture. "Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the sale of the Securities to the Purchasers. "Officers" means the Chairman of the Board, the President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice President of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Property" means with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock in any other Person. "Purchasers" means the initial purchasers of the Notes. "QIB" means a "qualified institutional buyer" as defined in Rule 144A of the Securities Act. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date hereof by and among the Company and the Purchasers, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Note" means a global Note deposited with and registered in the name of the Depository or its nominee that will be issued in a denomination equal to 053113\1008\02764\979QGT85.OTH 6 the outstanding principal amount of the Notes sold in reliance on Regulation S, or a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto deposited with and registered in the name of the Depository or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a single temporary global Note in the form of Note attached hereto as Exhibit A-2 deposited with and registered in the name of the Depository or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Regulation S. "Related Person" means (i) any Affiliate of the Company, (ii) any individual or other Person who directly or indirectly holds 10% or more of any class of Capital Stock of the Company, (iii) any relative of such individual by blood, marriage or adoption not more remote than first cousin and (iv) any officer or director of the Company. "Restricted Period" means the period of 40 days commencing on the latest of the commencement of the Offering and the Issue Date. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Office (or any successor group of the Trustee) including any President, Vice President, Secretary, Assistant Secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SEC" means the Securities and Exchange Commission. "Securities" means the Notes issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the Person named in Section 2.3, as custodian with respect to the Securities in global form, or any successor entity thereto. "Senior Indebtedness" has the meaning provided in Section 11.2 hereof. "Shelf Registration Statement" means a registration statement filed pursuant to the Registration Rights Agreement with the SEC relating to the sale by the holders thereof of Common Stock to be acquired upon conversion of the Securities. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors 053113\1008\02764\979QGT85.OTH 7 or other Persons shall, at the time as of which any determination is being made, be owned by the Company either directly or through Subsidiaries. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SS 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, and as in effect on the date on which this Indenture is qualified under the TIA. "Trading Day" means, if shares of the Common Stock are listed for trading on a national securities exchange, a day on which such securities exchange is open for the transaction of business and if shares of the Common Stock are not listed for trading on a national securities exchange, a day on which the NASDAQ Stock Market is open for the transaction of business. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.6 hereof. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "U.S. Government Obligations" means direct obligations of the United States of America, or any agency or instrumentality thereof for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "Wholly Owned Subsidiary" means a Subsidiary, all the Capital Stock (other than directors' qualifying shares, if applicable) of which is owned by the Company or another Wholly Owned Subsidiary. Section 1.2 Other Definitions. Defined in Term Section "Bankruptcy Law"............................................................6.1 "Cedel Bank" ..............................................................2.1 "Change in Control".........................................................4.10 "Change in Control Date"....................................................4.10 "Change in Control Offer"...................................................4.10 053113\1008\02764\979QGT85.OTH 8 "Change in Control Payment Date"............................................4.10 "Custodian".................................................................6.1 "Euroclear"................................................................2.1 "Event of Default"..........................................................6.1 "Expiration Time"..........................................................10.5 "Legal Holiday"............................................................12.8 "Paying Agent"............................................................2.3 "Purchased Shares".........................................................10.5 "Registrar"................................................................2.3 "Regulation S Temporary Global Note".......................................2.1 "Representative"..........................................................11.2 "Securities Register".................................................2.3 Section 1.3 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.4 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; 053113\1008\02764\979QGT85.OTH 9 (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE II THE SECURITIES Section 2.1. Form and Dating; Securities in Global Form. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, which is incorporated in and made a part of this Indenture and shall be in an aggregate principal amount at maturity of no greater than $216,000,000. The Securities may have notations, legends or endorsements as required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issued initially in denominations of $1,000 and whole multiples thereof. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Except for Notes issued to an IAI, the Notes will initially be issued in global form, substantially in the form of Exhibits A-1 and A-2. Such Global Securities shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any adjustment on the books and records of the Depository or any endorsement of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee, or the Securities Custodian at the direction of the Trustee, and in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, in each case in accordance with instructions given by the Holder thereof. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note (attached hereto as Exhibit A-2), which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depository, and registered in the name of the Depository or the nominee of the Depository for the accounts of designated agents holding on behalf of the Euroclear System ("Euroclear") or Cedel Bank N.A. ("Cedel Bank"), duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depository, together with copies of certificates from Euroclear and Cedel 053113\1008\02764\979QGT85.OTH 10 Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by the agent members through Euroclear or Cedel Bank. Section 2.2. Execution and Authentication. Officers of the Company shall sign and attest the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon receipt of an Officers' Certificate directing it to do so, authenticate Securities for original issue up to an aggregate principal amount stated in Section 2.1. The aggregate principal amount of Securities outstanding at any time may not exceed such amount, except as provided in Section 2.7. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. 053113\1008\02764\979QGT85.OTH 11 Section 2.3. Registrar, Paying Agent, Depository and Securities Custodian. The Company shall maintain (a) an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and (b) an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange (the "Securities Register"). The Company may appoint one or more co-Registrars and one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent. The Company may change any Paying Agent, Registrar, or co-Registrar without notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar, or co-Registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.7 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent, and agent for service of notices and demands in connection with the Securities. The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Securities. The Company initially appoints Trustee to act as Securities Custodian with respect to the Global Securities. Section 2.4. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent in connection with the exercise of a conversion right under Article 10, or for the payment of principal or interest on the Securities, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company or any Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. 053113\1008\02764\979QGT85.OTH 12 Section 2.5. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA S312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of Securities held by them, and the Company shall otherwise comply with TIA S312(a). Section 2.6 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar or co-Registrar with a request (x) to register the transfer of the Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Definitive Securities presented or surrendered for registration of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar or co-Registrar, duly executed by the Holder thereof or by his attorney, duly authorized in writing; and (ii) in the case of Transfer Restricted Securities that are Definitive Securities, shall be accompanied by the following additional information and documents, as applicable: (A) if such Transfer Restricted Security is being delivered to the Registrar or co-Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or (B) if such Transfer Restricted Security is being transferred to a QIB in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rules 144 or 145 or Regulation S or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferee or transferor and an Opinion of Counsel from the transferee or transferor reasonably acceptable to the Company and to the Registrar or co-Registrar to the effect that such transfer is in compliance with the Securities Act, or (C) if such Transfer Restricted Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect and an Opinion of Counsel reasonably acceptable 053113\1008\02764\979QGT85.OTH 13 to the Company and to the Registrar or co-Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (A) if such Definitive Security is a Transfer Restricted Security, certification in form and substance satisfactory to the Trustee that such Definitive Security is being transferred to a QIB in accordance with Rule 144A under the Securities Act or to a Non-U.S. Person in an offshore transaction in accordance with Rule 904 under the Securities Act; and (B) whether or not such Definitive Security is a Transfer Restricted Security, written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an endorsement on the Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased accordingly and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Definitive Security so canceled. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. (1) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor. (i) Notwithstanding any other provisions of this Indenture (other than the provisions set forth in subsection (d) of this Section 2.6), a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (ii) A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order or instruction given in accordance with the Depository's procedures and containing information regarding the account of the Depository to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions, instruct the Depository to credit to the account of the Person specified in such 053113\1008\02764\979QGT85.OTH 14 instruction a beneficial interest in the Global Security and to debit the account of the transferor of the beneficial interest in the Global Security being transferred. Notwithstanding the foregoing to the contrary, all transfers of beneficial interests in Global Securities shall be done in accordance with Applicable Procedures. (d) Transfer of a Beneficial Interest in a Global Security for a Definitive Security. Any Person having a beneficial interest in a Global Security may only exchange such beneficial interest for a Definitive Security if: (i) the Depository for the Securities notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Securities and a successor Depository for the Global Securities is not appointed by the Company within 90 days after delivery of such notice; (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture, or (iii) such exchange is made concurrently with the transfer of such Security to an IAI; or (iv) an Event of Default has occurred and is continuing. Upon on the occurrence of any such event and upon receipt by the Trustee of written instructions (or such other form of instructions as is customary for the Depository) from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Security and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration instructions and, in the case of a beneficial interest in a Transfer Restricted Security only, the following additional information and documents (all of which may be submitted by facsimile): (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification from such Person to that effect; or (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rules 144 or 145 or Regulation S or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferee or transferor and an Opinion of Counsel from the transferee or transferor reasonably acceptable to the Company and to the Registrar or co-Registrar to the effect that such transfer is in compliance with the Securities Act; or (C) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor and an Opinion of Counsel from the 053113\1008\02764\979QGT85.OTH 15 transferee or transferor reasonably acceptable to the Company and to the Registrar or co-Registrar to the effect that such transfer is in compliance with the Securities Act, then the Trustee or the Securities Custodian, at the direction of the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, the aggregate principal amount of the Global Security to be reduced (with appropriate adjustments to the transferor's account) and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate, the Trustee will authenticate and deliver to the transferee, as the case may be, a Definitive Security. (v) Definitive Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.6(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Securities to the Persons in whose names such Securities are so registered. then the Company will execute, and the Trustee, upon receipt of an Officer' Certificate requesting the authentication and delivery of Definitive Securities, will authenticate and deliver Definitive Securities, in an aggregate principal amount equal to the principal amount of the Global Securities, in exchange for such Global Securities. (e) Legends. (i) Except as permitted by the following paragraph (ii), each Note certificate evidencing the Global Securities and the Definitive Securities (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: THE NOTE EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO KEY ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, 053113\1008\02764\979QGT85.OTH 16 (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, BEFORE SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE, (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(E) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(F) ABOVE, THE HOLDER MUST, BEFORE SUCH TRANSFER, FURNISH TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, (OR SUCCESSOR TRUSTEE AS APPLICABLE) SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES' AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to an effective registration statement under the Securities Act or satisfying the condition set forth in subclause (2)(E) of the legend set forth in the immediately preceding paragraph: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar or co-Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the 053113\1008\02764\979QGT85.OTH 17 legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) any such Transfer Restricted Security represented by a Global Security shall not be subject to the provisions set forth in (i) above (such sale or transfer being subject only to the provisions of Section 2.6(c) hereof); provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Security for a Definitive Security that does not bear a legend, which request is made in reliance upon Rule 144 or 145, the Holder thereof shall certify in writing to the Registrar or co-Registrar and shall provide an Opinion of Counsel to the Registrar or co-Registrar that such request is being made pursuant to Rule 144 or 145. (f) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to or retained and canceled by the Trustee. At any time before such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of, or an endorsement shall be made on such Global Security by, the Trustee or the Securities Custodian, at the direction of the Trustee, to reflect the reduction, all in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian. (g) Obligations with respect to Transfers and Exchanges of Definitive Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.6 and 9.5 hereof). (iii) The Registrar or co-Registrar shall not be required to register the transfer or exchange of any Definitive Security selected for redemption in whole or in part, except the unredeemed portion of any Definitive Security being redeemed in part. (iv) All Definitive Securities and Global Securities issued upon any registration of transfer or exchange of Definitive Securities or Global Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the Definitive Securities or Global Securities surrendered upon such registration of transfer or exchange. 053113\1008\02764\979QGT85.OTH 18 (v) The Company shall not be required: (A) to issue, register the transfer of or exchange Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption under Section 3.2 and ending at the close of business of the day of selection, or (B) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (vi) Before due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest and premium, if any, on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent, nor the Company shall be affected by notice to the contrary. Section 2.7 Replacement Securities. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss that any of them may suffer if a Security is replaced. The Company and the Trustee may charge for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. Section 2.8 Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, and those reductions in the interests in a Global Security effected by the Trustee hereunder, and those described in this Section 2.8 as not outstanding. If a Security is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 4.1 hereof, it ceases to be outstanding, and interest on it ceases to accrue. 053113\1008\02764\979QGT85.OTH 19 Except as set forth in Section 2.9 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. Section 2.9 Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company (whether directly or by or through the Depository) shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that a Responsible Officer knows to be so owned shall be so considered. Section 2.10 Temporary Securities. Until Definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of an Officers' Certificate of the Company directing it to do so, shall authenticate Definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as Definitive Securities. Section 2.11 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, conversion, replacement or cancellation and shall destroy canceled Securities and certification of their destruction shall be delivered to the Company (subject to the record retention requirement of the Exchange Act) unless by a written order, signed by two Officers of the Company, the Company shall direct that canceled Securities be returned to it. The Company may not issue new Securities to replace Securities that it has redeemed or paid, converted or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days before the payment date, in each case at the rate provided in the Securities and in Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail 053113\1008\02764\979QGT85.OTH 20 to Holders a notice that states the special record date, the related payment date, and the amount of such interest to be paid. ARTICLE III REDEMPTION Section 3.1 Notices to Trustee. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 60 days but not more than 90 days before a redemption date, an Officers' Certificate setting forth the Section of this Indenture pursuant to which the redemption shall occur, the redemption date, the principal amount of Securities to be redeemed, and the redemption price. If the Company is required to make an offer to redeem Securities pursuant to a Change in Control, it shall furnish to the Trustee, within 60 days after a Change in Control, an Officers' Certificate setting forth (a) the Section of this Indenture pursuant to which the redemption shall occur, (b) the date of the Change in Control, (c) the Change in Control Payment Date, (d) the principal amount of the Securities offered to be redeemed, (e) a statement that a Change in Control has occurred and a description thereof, and (f) a description of the procedures to be followed by Holders in order to have their Securities repurchased. If the Company is required to increase the interest rate on the Securities pursuant to the Registration Rights Agreement, it shall furnish to the Trustee not more than 15 days before the date such interest is due to be paid an Officers' Certificate setting forth the rate at which interest on the Securities is to be paid. The Company, or the Trustee, at the expense of the Company, shall notify the Holders of the change in interest rate by notice sent in accordance with Section 10.10(e) of this Indenture. Notwithstanding any other provisions of this Indenture, the Trustee shall have no duty to inquire as to whether the interest rate on the Securities has increased and shall not be bound by the terms and conditions of the Registration Rights Agreement or any other agreements or documents between the Holders and the Company. Section 3.2 Selection of Securities to be Redeemed. If less than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed among the Holders in accordance with any method the Trustee considers fair and appropriate (and in such manner as complies with applicable legal and stock exchange requirements, if any). In the event of partial redemption by lot, the particular Securities to be redeemed shall be selected, unless otherwise provided herein, not less than 15 nor more than 60 days before the redemption date by the Trustee from the outstanding Securities not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the 053113\1008\02764\979QGT85.OTH 21 principal amount thereof to be redeemed. Securities and portions of them selected shall be in amounts of $1,000 or whole multiples thereof. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3 Notice of Redemption. Subject to the provisions of Sections 4.10 and 4.11 hereof, at least 15 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption to each Holder whose Securities are to be redeemed at its registered address. The notice shall identify the Securities to be redeemed and shall state: (a) the redemption date and that the right to convert such Securities pursuant to Article 10 hereof shall be terminated on such date; (b) the redemption price; (c) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date upon surrender of such Security, a new Security of the same series of Securities in principal amount equal to the unredeemed portion will be issued; (d) the name and address of the Paying Agent; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Securities and Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 60 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. 053113\1008\02764\979QGT85.OTH 22 Section 3.4 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Securities called for redemption become due and payable on the redemption date at the redemption price. On and after the redemption date, unless the Company defaults in the payment of the redemption price, interest shall cease to accrue on the Securities or portions of them called for redemption and all rights of Holders of such Securities shall terminate, including without limitation the right to convert such Securities, except for the right to receive the redemption price. Upon surrender to the Paying Agent, such Holders shall be paid the redemption price plus accrued interest, if any, to the redemption date, but interest installments whose maturity is on or before the redemption date shall be payable to the Holder of record at the close of business on the relevant record dates referred to in the Securities. Section 3.5 Deposit of Redemption Price. One Business Day before the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Securities to be redeemed. Interest on the Securities to be redeemed shall cease to accrue on the applicable redemption date, whether or not such Securities are presented for payment, if the Company provides money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on such date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.1 hereof. Section 3.6 Securities Redeemed in Part. Upon surrender of a Definitive Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Security of the same series equal in principal amount to the unredeemed portion of the Definitive Security surrendered. Section 3.7 Optional Redemption. The Company may redeem at any time on or after September 15, 2000, all or any portion of the Securities outstanding at the following redemption prices expressed as a percentage of the principal amount thereof, if the Securities are redeemed during the 12- month period beginning September 15, of the following years: 053113\1008\02764\979QGT85.OTH 23 Year Percentage 2000........................................................... 102.86% 2001........................................................... 102.14% 2002........................................................... 101.43% 2003........................................................... 100.71% Any redemption pursuant to this Section 3.7 shall be made, to the extent applicable, pursuant to the provisions of Sections 3.1 through 3.6 hereof. ARTICLE IV COVENANTS Section 4.1 Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities. Principal and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds at least one Business Day before that date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal and interest paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Securities to the extent lawful. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, New York, New York, an office or agency (which may be an office of the Trustee, Registrar or co-Registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. 053113\1008\02764\979QGT85.OTH 24 The Company also may from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, New York, New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. Section 4.3 SEC Reports. (a) So long as any of the Securities remain outstanding and the Company is subject to the reporting requirements of the Exchange Act, the Company shall file with the SEC and distribute to the Trustee for delivery to the Holders of the Securities copies of the quarterly and annual reports required to be filed with the SEC, and if the Company ceases to become subject to the reporting requirements of the Exchange Act, the Company shall distribute to the Trustee for delivery to the Holders of the Securities copies of the quarterly and annual financial information that would have been required to be filed with the SEC pursuant to the Exchange Act had the Company been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. All such financial information shall include consolidated financial statements (including footnotes) prepared in accordance with GAAP. Such annual financial information shall also include an opinion thereon expressed by an independent accounting firm of established national reputation. All such consolidated financial statements shall be accompanied by a "Management's Discussion and Analysis of Financial Condition and Results of Operations." (b) The financial information to be distributed to Holders of Securities shall be filed with the Trustee and shall be mailed by the Trustee to the Holders at their addresses appearing in the register of Securities maintained by the Registrar, within 15 days after receipt of such financial information. The Company shall file such financial information with the Trustee within 15 days after it is filed with the SEC, if required, but in no event later than 105 days after the end of the Company's fiscal year or later than 60 days after the end of each of the first three quarters of each such fiscal year, in the case of quarterly reports; provided, however, that the Trustee's only obligation is to mail the financial information that it receives from the Company to the Holders and not to obtain such information from the Company. (c) The Company shall make such financial information described in Section 4.3 (a) available to prospective purchasers of the Notes. (d) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 4.3. 053113\1008\02764\979QGT85.OTH 25 Section 4.4 Compliance Certificate. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge and what action is being taken or is proposed to be taken with respect thereto) and that to the best of his knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities are prohibited or if such event has occurred, a description of the event and what action is being taken or proposed to be taken with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company has violated any provisions of Sections 4.1, 4.5, 4.7, 4.9, 4.10 or 4.11 hereof or of Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture an Officers' Certificate specifying such Default, Event of Default or default and what action the Company is taking or proposes to take with respect thereto. Section 4.5 Compliance with Laws; Taxes. The Company shall, and shall cause each of its Subsidiaries to, comply with all statutes, laws, ordinances or government rules and regulations to which it is subject, noncompliance with which would materially adversely affect the business, prospects, earnings, properties, assets or condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole. The Company shall, and shall cause each of its Subsidiaries to, pay before delinquency all material taxes, assessments, and governmental levies except as contested in good faith and by appropriate proceedings. 053113\1008\02764\979QGT85.OTH 26 Section 4.6 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7 Corporate Existence. Subject to Sections 4.8 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (a) its corporate existence in accordance with its organizational documents (as the same may be amended from time to time) and (b) its rights (charter and statutory), licenses and franchises; provided, however, that the Company shall not be required to preserve any such right, license or franchise, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. Section 4.8 Liquidation. The Board of Directors or the stockholders of the Company may not adopt a plan of liquidation that provides for, contemplates or the effectuation of which is preceded by (a) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than substantially as an entirety (Section 5.1 of this Indenture being the Section hereof that governs any such sale, lease, conveyance or other disposition substantially as an entirety) and (b) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and of the remaining assets of the Company to the holders of Capital Stock of the Company, unless the Company, before making any liquidating distribution pursuant to such plan, makes provision for the satisfaction of the Company's Obligations hereunder and under the Securities as to the payment of principal and premium thereon, if any, and interest. The Company shall be deemed to make provision for such payments only if (x) the Company delivers in trust to the Trustee or Paying Agent (other than the Company or its Subsidiaries) money or U.S. Government Obligations maturing as to principal and interest in such amounts and at such times as are sufficient without consideration of any reinvestment of such interest to pay the principal of and premium on, if any, and accrued interest on the Securities, or (y) there is an express assumption and observance of all covenants and conditions to be performed by the Company hereunder by the execution and delivery of a supplemental indenture in form satisfactory to the Trustee by a Person that acquires or will acquire (otherwise than pursuant to a lease) a portion of the assets of the Company and which Person will have Consolidated Net Worth (immediately after the acquisition) equal to or greater than the Consolidated Net Worth of the 053113\1008\02764\979QGT85.OTH 27 Company immediately preceding the acquisition and which is organized and existing under the laws of the United States, any State thereof or the District of Columbia; provided, however, that the Company shall not make any liquidating distribution until after the Company shall have certified to the Trustee pursuant to an Officers' Certificate at least five days before the making of any liquidating distribution that it has complied with the provisions of this Section 4.8 and that no Default or Event of Default then exists or would occur as a result of any such liquidating distribution. Section 4.9 Limitation on Dispositions of Assets. The Company shall not sell, transfer or otherwise dispose of all or substantially all of its properties or assets (including by way of a sale and leaseback) except in accordance with the provisions of Section 5.1 hereof. Section 4.10 Change in Control. If, at any time, (a) an event or series of events by which any Person or Group of Persons shall, as a result of a tender or exchange offer, open market purchase, privately negotiated purchase, merger, consolidation or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of the then outstanding Voting Stock and warrants or options to acquire such Voting Stock, calculated on a fully-diluted basis, of the Company, (b) the Company is merged with or into another corporation with the effect that immediately after such transaction the stockholders of the Company hold less than a majority of the combined voting power of the then outstanding Voting Stock of the Person surviving such transaction or, (c) the direct or indirect, sale, lease, exchange or other transfer to any Person or Group of Persons of all or substantially all of the assets of the Company (each a "Change in Control" and the time of such Change in Control being referred to as the "Change in Control Date"), then the Company shall notify the Holders in writing of such occurrence and shall make an offer to purchase (as the same may be extended in accordance with applicable law, the "Change in Control Offer") on a Business Day (the "Change in Control Payment Date") not later than 60 days following each Change in Control Date all then outstanding Securities at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Change in Control Payment Date, if any. The Change in Control Offer shall be mailed by the Company not less than 30 days nor more than 45 days before any Change in Control Payment Date to Holders of Securities at their last registered address with a copy to the Trustee and the Paying Agent and shall set forth (w) notice that a Change in Control has occurred and that each Holder of Securities then outstanding has the right to require the Company to repurchase, for cash, all or any portion (which is equal to $1,000 or a whole multiple thereof) of such Holder's Securities at 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Change in Control Payment Date, (x) the Change in Control Payment Date, (y) a description of the Change in Control and (z) a description of the procedures to be followed by such Holder in order to have its Securities repurchased. The Change in Control Offer shall remain open for not less than 30 days, nor more than 45 days, and until the close of business on any such Change in Control Payment Date. If the Change in Control Payment Date is on or after an interest payment record date and on or before the 053113\1008\02764\979QGT85.OTH 28 related Interest Payment Date, any accrued interest will be paid to the person in whose name a Security is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender a Security pursuant to the Change in Control Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that a Change in Control occurs and the Company is required to repurchase the Securities pursuant to this Section 4.10. On the Change in Control Payment Date, the Company shall (x) accept for payment Securities or portions thereof tendered pursuant to the Change in Control Offer, (y) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and (z) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Security of the same series equal in principal amount to any unpurchased portion of the Security surrendered. Section 4.11 Rule 144A Information Requirement. The Company has agreed to furnish to the Holders or beneficial holders of Notes and prospective purchasers of Notes designated by the holders of Transfer Restricted Securities, upon their request, the information required to be delivered pursuant to Rule 144(d)(4) under the Securities Act unless and until such time as the Company has registered the Notes for resale under the Securities Act. ARTICLE V SUCCESSORS Section 5.1 When the Company May Merge, etc. The Company will not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of substantially all of its properties or assets (determined on a consolidated basis for the Company and its Subsidiaries taken as a whole), in one or more related transactions, to another Person or entity (other than a merger between the Company and any Wholly Owned Subsidiary of the Company) unless: (a) the Company survives such merger or such Person is a corporation organized and existing under the laws of the United States of America, one of the states thereof or the District of Columbia, and expressly assumes by supplemental indenture all of the obligations under the Securities, the Indenture, the Registration Rights Agreement, and all other agreements pertaining thereto, 053113\1008\02764\979QGT85.OTH 29 (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing, and (c) immediately after giving effect to such transaction, the Consolidated Net Worth of the resulting, surviving corporation is not less than that of the Company immediately before the transaction. The Company shall deliver to the Trustee before the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel to the effect that such merger, sale, assignment, transfer, lease, conveyance or other disposition and, if applicable, such Supplemental Indenture, comply with this Indenture and all conditions precedent to such merger, sale, assignment, transfer, lease, conveyance or other disposition have been satisfied. The Trustee shall be entitled to rely conclusively upon such Officers' Certificate and Opinion of Counsel. Section 5.2 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of the Company under this Indenture with the same effect as if such successor person had been named as the Company, herein; provided, however, that the Company shall not be released or discharged from the obligation to pay the principal of or interest on the Securities. ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 Events of Default. The following shall constitute an"Event of Default": (a) default in the payment of principal of, or premium, if any, on, the Securities when due at maturity, upon repurchase, upon acceleration or otherwise, including failure of the Company to repurchase the Securities following a Change in Control and failure to make any redemption payment when due; (b) default in the payment of any installment of interest on the Securities when due (including any interest payable in connection with any redemption payment) and continuance of such Default for more than 30 days; (c) default on any other Indebtedness of the Company or any Subsidiary if either (i) such default results from the failure to pay principal of, premium, if any, or interest on any such Indebtedness when due in excess of $25,000,000, or (ii) as a 053113\1008\02764\979QGT85.OTH 30 result of such default, the maturity of such Indebtedness has been accelerated before its expected maturity, without such default and acceleration having been rescinded or annulled within a period of 10 days, and the principal amount of any other such Indebtedness in default, or the maturity of which has been so accelerated, aggregates $25,000,000 or more; (d) default by the Company or any Subsidiary in the performance, or the breach, of any other covenant or warranty of the Company or such Subsidiary in this Indenture and the failure to remedy such Default within a period of 60 days after written notice thereof to the Company from the Trustee or to the Company and the Trustee from the Holders of 25% in principal amount of the outstanding Securities; (e) the entry by a court of one or more judgments or orders against the Company or any Subsidiary in an aggregate amount in excess of $25,000,000 that are not covered by insurance written by third parties that has not been vacated, discharged, satisfied or stayed pending appeal within 60 days after the entry thereof; (f) any act or acts by the Company or its Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (i) commencing a voluntary case, (ii) consenting to the entry of an order for relief against it in an involuntary case, (iii) consenting to the appointment of a Custodian of it or for all or substantially all of its property, (iv) making a general assignment for the benefit of its creditors, or (v) which results in the Company or its Subsidiaries generally not paying its debts as they become due; or (g) the entry of an order or decree by a court of competent jurisdiction under any Bankruptcy Law that: (i) is for relief against the Company or any Subsidiary in an involuntary case, (ii) appoints a Custodian of the Company or any Subsidiary or for all or substantially all of the property of the Company or any Subsidiary, or (iii) orders the liquidation of the Company or any Subsidiary, in each case, if such order or decree remains unstayed and in effect for 120 consecutive days. 053113\1008\02764\979QGT85.OTH 31 The term "Bankruptcy Law" means title 11 of the United States Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. Section 6.2 Acceleration. If an Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.1) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Securities by notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest on all the Securities to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in clause (f) or (g) of Section 6.1 occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in principal amount of the then outstanding Securities by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy occurring upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4 Waiver of Past Defaults. Holders of a majority in principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a continuing Default or Event of Default in the payment of the principal or interest on any Security held by a non-consenting Holder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture. No such waiver shall extend to any subsequent or other Default or impair any right consequent on any subsequent or other Default. 053113\1008\02764\979QGT85.OTH 32 Section 6.5 Control by Majority. The Holders of a majority in principal amount of the outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on such Trustee; provided that (a) such direction is not in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action it deems proper that is not inconsistent with such direction and (c) such Holders have offered to the Trustee indemnity as provided in Section 7.1(e). Section 6.6 Limitation on Suits. No Holder of any of the Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee or for any other remedy under this Indenture, unless: (a) such Holder has previously given notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the outstanding Securities have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee under this Indenture; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 30 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 30-day period by the Holders of a majority in principal amount of the outstanding Securities. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.7 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. 053113\1008\02764\979QGT85.OTH 33 Section 6.8 Collection Suit by Trustee. If an Event of Default specified in Section 6.1(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and if the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders of the Securities may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection. 053113\1008\02764\979QGT85.OTH 34 Second: to Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. ARTICLE VII TRUSTEE Section 7.1 Duties of a Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee undertakes to perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, however, that the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 053113\1008\02764\979QGT85.OTH 35 (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.1; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to the provisions of this Section 7.1. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) The Trustee shall have no responsibility for making any calculations hereunder, including, without limitation, the amount of interest owing on the Securities under any of the provisions of the Registration Rights Agreement. The Company shall deliver to the Trustee an Officers' Certificate specifying any additional interest due under the Registration Rights Agreement on or before the 15th day prior to an interest payment date. Section 7.2 Rights of Trustee. (a) The Trustee may rely and shall be fully protected in relying upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. 053113\1008\02764\979QGT85.OTH 36 (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed and monitored with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. Section 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights; provided, however, the Trustee is subject to Sections 7.10 and 7.11. Section 7.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture, the Securities or any documents relating to the Securities. It shall not be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's discretion under any provision hereof. It shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture, other than its certificate of authentication. Section 7.5 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. A Default or an Event of Default shall not be considered known to the Trustee unless it is a Default or Event of Default under Section 6.1(a) or (b) or the Trustee shall have received notice thereof, in accordance with this Indenture, from the Company or from the Holders of a majority in principal amount of the outstanding Securities, and in the absence of such notice the Trustee may conclusively assume there is no Default or Event of Default. Except in the case of a Default or Event of Default in payment of principal or interest on any Security (including the failure to make a mandatory redemption pursuant hereto), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Holders. 053113\1008\02764\979QGT85.OTH 37 Section 7.6 Reports by Trustee to Holders. Within 60 days after each August 1 beginning with the August 1 following the date hereof, the Trustee shall mail to Holders a brief report dated as of such reporting date that complies with TIA S 313(a) (but if no event described in TIA S 313(a) has occurred within the 12 months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA S 313(n). The Trustee shall also transmit by mail all reports as required by TIA S 313(c). At the time of its mailing to Holders, a copy of each report sent to Holders shall be filed with the SEC and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange. Section 7.7 Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel, and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien with priority over the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or (g) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. 053113\1008\02764\979QGT85.OTH 38 Section 7.8 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Truste's acceptance of appointment as provided in this Section 7.8. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who had been a Holder for at least six months fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all of the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. 053113\1008\02764\979QGT85.OTH 39 Section 7.9 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. There shall at all times be a Trustee hereunder that shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $10 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA S 310(a)(1). The Trustee is subject to TIA S 310(b), including the optional provision permitted by the second sentence of TIA S 310(b)(9). Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA S 311(a), excluding any creditor relationship listed in TIA S 311(b). A Trustee who has resigned or has been removed shall be subject to TIA S 311(a) to the extent indicated therein. Section 7.12 No Obligation of the Trustee. (a) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holder and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security may only be exercised through the Depository subject to the Applicable Procedures. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (b) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under the Indenture or under applicable law with respect to any transfer of any interest in any security (including any transfers between or among Depository participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or 053113\1008\02764\979QGT85.OTH 40 evidence as are expressly required by, and to do so if and when expressly required by, the terms of the Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. ARTICLE VIII DISCHARGE OF INDENTURE Section 8.1 Termination of Company's Obligation. This Indenture shall cease to be of further effect (except that the Company's obligations under Section 7.7 and 8.4, and the Company's, Trustee's and Paying Agent's obligations under Section 8.3 shall survive) when all outstanding Securities theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Securities that have been replaced or paid) to the Trustee for cancellation and the Company has paid all sums payable by the Company under this Indenture. In addition, subject to the conditions described below, at the Company's option, either (a) the Company will be deemed to have been discharged from their obligations with respect to the Securities on the 31st day after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with Article 4 of this Indenture, at any time after the conditions set forth below have been satisfied: (i) the Company has deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders (A) money or (B) noncallable U.S. Government Obligations, which through the payment of interest and principal in respect thereof in accordance with their terms, will provide either (i) payment in full of principal, premium on, if any, and interest on, the outstanding Securities as of the date of such payment, or (II) (without any reinvestment of such interest or principal), not later than one day before the due date of any payment, money or (C) a combination of (A) and (B), in an amount sufficient, in the opinion (with respect to (B) and (C)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee at or before the time of such deposit, to pay and discharge each installment of principal of, premium on, if any, and interest on, the outstanding Securities on the dates such installments are due; (ii) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit, and such deposit shall not result in a breach or violation of, or constitute a Default under, any other instrument to which the Company is a party to or is bound, as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee concurrently with such deposit; (iii) the Company has paid or duly provided for payment of all amounts then due or to become due to the Trustee pursuant to Section 7.7 of the Indenture; and 053113\1008\02764\979QGT85.OTH 41 (iv) the Company has delivered to the Trustee an Officers' Certificate, stating that there has been compliance with all conditions precedent provided for in the Indenture relating to the satisfaction and discharge of this Indenture. If the Company selects option (a) above, this Indenture shall cease to be of further effect on the 31st day after the conditions set forth above have been satisfied (except as provided in this paragraph), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging confirmation of and discharge under this Indenture and the Securities; provided, however, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 4.1, 4.6, 7.7, 7.8, 8.3 and 8.4, and the Trustee's and Paying Agent's obligations in Section 8.3 shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations under Sections 7.7 and 8.4 and the Company's, Trustee's, and Paying Agent's obligations under Section 8.3 shall survive. If the Company elects option (b) above, the Company's obligations under Article 4 hereunder shall terminate upon the satisfaction of the conditions, and all other obligations shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations under Sections 7.7 and 8.4 and the Company's, Trustee's and Paying Agent's obligations under Section 8.3 above shall survive. After such irrevocable deposit is made pursuant to this Section 8.1 and satisfaction of the other conditions set forth herein, the Trustee, upon request, shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal of or interest on the Securities, the U.S. Government Obligations shall be payable as to principal or interest at least one Business Day before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. Section 8.2 Application of Trust Money. The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.1. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal and interest on the Securities. Section 8.3 Repayment to Company. To the extent permitted by applicable law, the Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time in excess of amounts required to pay principal of or interest on the Securities. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains 053113\1008\02764\979QGT85.OTH 42 unclaimed for one year after the date upon which such payment shall have become due; provided, however, that the Company shall have either caused notice of such payment to be mailed to each Holder entitled thereto no less than 30 days before such repayment or within such period shall have published such notice in a financial newspaper of widespread circulation published in New York, New York. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. Section 8.4 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.2; provided, however, that if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS Section 9.1 Without Consent of Holders. The Company and the Trustee may amend this Indenture and the Securities without the consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; (b) to comply with Section 5.1; (c) to provide for uncertificated Securities in addition to certificated Securities; (d) to make any change that does not adversely affect the legal rights hereunder of any Holder; and (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such Supplemental Indenture and upon receipt by 053113\1008\02764\979QGT85.OTH 43 the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of any Supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such Supplemental Indenture which affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2 With Consent of Holders. Except as provided below in this Section 9.2, the Company and the Trustee may amend this Indenture or the Securities with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities. The Holders of a majority in principal amount of the Securities then outstanding may, or the Trustee with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities may, waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. Upon the request of the Company, accompanied by a resolution of its Board of Directors authorizing the execution of any such Supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of such Supplemental Indenture unless such Supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such Supplemental Indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or waiver under this Section becomes effective, the Company shall mail to the Holders of each Security affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities, provided, however, that without the consent of each Holder affected, an amendment or waiver under this Section may not (with respect to any Securities held by a non-consenting Holder): (a) reduce the principal amount of Securities whose Holders must consent to an amendment or waiver; (b) reduce the rate of or change the time for payment of interest, including default interest, on any Security; 053113\1008\02764\979QGT85.OTH 44 (c) reduce the principal of or change the fixed maturity of any Security or alter the optional or mandatory redemption provisions or the price at which the Company shall offer to purchase such Securities pursuant to Sections 3.7 and 4.10 hereof; (d) make any Security payable in money other than that stated in the Security; (e) make any change in Section 6.4 or 6.7 hereof or in this sentence of this Section 9.2; or (f) waive a Default in the payment of principal of, premium or interest on, or redemption payment with respect to, any Security. Section 9.3 Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall be set forth in a Supplemental Indenture that complies with the TIA as then in effect. Section 9.4 Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security; provided, however, that any such Holder or subsequent Holder may revoke the consent as to his or her security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (a) the later of 30 days before the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee before such solicitation pursuant to Section 2.05, or (b) such other date as the Company shall designate. Section 9.5 Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities of the same series that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security of the same series shall not affect the validity and effect of such amendment or waiver. 053113\1008\02764\979QGT85.OTH 45 Section 9.6 Trustee to Sign Amendments, etc. The Trustee shall sign any amendment or Supplemental Indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or Supplemental Indenture, the Trustee shall be entitled to receive, and, subject to Section 7.1, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or Supplemental Indenture until the Board of Directors approves it. ARTICLE X CONVERSION Section 10.1 Right to Convert. (a) Subject to and upon compliance with the provisions of this Indenture, at any time on or after 270 days after the Issue Date and on or before maturity, each Holder shall have the right, at its option, to convert the principal amount of any Security, or any portion of such principal amount which is $1,000 or a whole multiple thereof, into, at the Company's option, either (i) cash, payable by the Company to the Paying Agent for the benefit of such Holder in an amount equal to the Current Market Price, as of the conversion date, of the Common Stock to which the Securities would otherwise be converted, or (ii) that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Security or portion thereof surrendered for conversion by the conversion price in effect at such time, or (iii) a combination of cash and Common Stock in proportions determined by the Company in its sole discretion; provided, however, that the Company's option to convert Securities into cash under Section 10.1(a)(i) or into a combination of cash and Common Stock under Section 10.1(a)(iii), shall terminate at the close of business on the date the Company's charter is amended to increase the number of shares of authorized Common Stock to at least that number of shares sufficient to reserve for the conversion of all the Notes. (b) Notwithstanding anything in this Section 10.1 to the contrary, the right to convert with respect to any Security or portion of a Security that shall be called for redemption or delivered for repurchase, shall terminate at the close of business on the date fixed for redemption of such Security or portion of a Security on the second trading day preceding a Change in Control Payment Date, as the case may be, unless the Company shall default in payment due upon redemption or repurchase thereof. (c) A holder of Securities is not entitled to any rights of a holder of Common Stock until such holder has converted his Securities to Common Stock, and only to the extent such Securities are deemed to have been converted to Common Stock under this Article 10. 053113\1008\02764\979QGT85.OTH 46 Section 10.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege, the Holder of any Security to be converted in whole or in part shall surrender such Security, duly endorsed, at an office or agency maintained by the Company pursuant to Section 2.3, accompanied by the funds, if any, required by the last paragraph of this Section 10.2, and shall give written notice of conversion in the form provided on the Securities (or such other notice that is acceptable to the Company) to the Company at such office or agency that the Holder elects to convert such Security or the portion thereof specified in such notice, stating the name or names (with address) in which the certificate or certificates for shares of Common Stock, if any, that shall be issuable on such conversion shall be issued. So long as the Company's option to convert Securities into cash or a combination of cash and Common Stock exists, then within five business days after receipt of such Holder's notice of conversion, the Company shall notify such Holder of the Company's election to convert the Securities to cash or, Common Stock, or a combination of cash and Common Stock. Holder shall then deliver to the Company any transfer taxes required pursuant to Section 10.7. Each Security surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration under such Security, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the Holder or his duly authorized attorney. Holder may not withdraw its conversion notice after receipt of the Company's notice of its election regarding conversion. As promptly as practicable after the surrender of such Security and the receipt of such notice and funds, if any, as aforesaid, (a) if the conversion is for Common Stock, the Company shall issue and shall deliver at such office or agency to such Holder, or on his written order, (i) a certificate or certificates for the number of full shares issuable upon the conversion of such Security or portion thereof in accordance with the provisions of this Article, and (ii) a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion as provided in Section 10.3, or (b) if the conversion is for cash or a combination of cash and Common Stock, the Company shall, one business day after its notice to Holder of the Company's election regarding conversion, deposit with Paying Agent money sufficient to pay the conversion price for, and all accrued interest on, the Securities being converted to cash. In case any Security of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Article 2, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the holder of the Note so surrendered, without charge to him, a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Security. Each conversion shall be deemed to have been effected on the date on which such Security shall have been surrendered (accompanied by the funds, if any, required by the last paragraph of this Section 10.2) and such notice shall have been received by the Company, as aforesaid, and, if the conversion is for Common Stock, the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be 053113\1008\02764\979QGT85.OTH 47 issued as the record holder thereof for all purposes on the next day on which such stock transfer books are open, but such conversion shall be at the conversion price in effect on the date upon which such Security shall have been surrendered. Any Security or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the opening of business on such interest payment date shall (unless such Security or portion thereof being converted shall have been called for redemption on a date in such period) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Securities. An amount equal to such payment shall be paid by the Company on such interest payment date to the holder of such Security at the close of business on such record date; provided, however, that if the Company shall default in the payment of interest on such interest payment date, such amount shall be paid to the person who made such required payment. Except as provided above in this Section 10.2, no adjustment shall be made for interest accrued on any Security converted or for dividends on any shares issued upon the conversion of such Security as provided in this Article 10. If any Security or portion thereof which has been called for redemption on a date during the period from the close of business on the record date for any interest payment date to the opening of business on such interest payment date is surrendered for conversion during such period, no interest shall be payable to the holder of such Security on account of such Security or portion thereof. Section 10.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of Common Stock would be issuable upon the conversion of any Security or Securities, the Company shall make an adjustment therefor in cash at the current market value thereof. The current market value of a share of Common Stock shall be the Closing Price on the day (that is not a Legal Holiday as defined in Section 12.8) before the day on which the Securities (or specified portions thereof) are deemed to have been converted and such Closing Price shall be determined as provided in subsection (f) of Section 10.5. Section 10.4 Conversion Price. The conversion price shall be as specified in the form of Security hereinabove set forth, subject to adjustment as provided in this Article. 053113\1008\02764\979QGT85.OTH 48 Section 10.5 Adjustment of Conversion Price. (a) In case the Company shall (i) pay a dividend, or make a distribution, in shares of its Common Stock on its Common Stock, (ii) subdivide its outstanding Common Stock into a greater number of shares, or (iii) combine its outstanding Common Stock into a smaller number of shares, the conversion price in effect immediately prior thereto shall be adjusted so that the holder of any Security thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Company that he would have owned or have been entitled to receive after the happening of any of the events described above had such Security been converted immediately before the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination. (b) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock at the record date for the determination of stockholders entitled to receive such rights or warrants, except as provided in subsection (f) below, the conversion price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately before the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price (determined by multiplying the total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by the Current Market Price), and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. Except as provided in subsection (f) below, in determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors of the Company whose determination shall be conclusive and described in a certificate filed with the Trustee. Upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the conversion price pursuant to this subsection (b), if any such right or warrant shall expire and shall not have been exercised, the conversion price shall immediately upon such expiration be recomputed to the conversion price which would have been in effect had the adjustment of the conversion price made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. 053113\1008\02764\979QGT85.OTH 49 (c) In case the Company shall distribute to all holders of its Common Stock any shares of Capital Stock of the Company (other than Common Stock) or evidences of its indebtedness or assets (excluding cash dividends or other distributions to the extent paid from retained earnings of the Company) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in subsection (b) above), then, except as provided in subsection (f) below, in each such case the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately before the date of such distribution by a fraction of which the numerator shall be the Current Market Price per share (as defined in subsection (f) below) of the Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors of the Company, whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the portion of the Capital Stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator shall be the market price per share (as defined in subsection (f) below) of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to received such distribution, except as provided in subsection (f) below. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash in an aggregate amount that, combined together with (1) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (d) has been made and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (e) of this Section has been made, exceeds 10% of the product of the Current Market Price per share of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately before the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the Current Market Price per share of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 10% and (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the Current Market Price per share of the Common Stock on such date for determination. (e) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended at the time of the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchase Shares (as defined below) of an aggregate consideration having a fair market value (as determined by the Board of Directors, 053113\1008\02764\979QGT85.OTH 50 whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) as of the expiration of such tender offer, of consideration payable in respect of any other tender offer, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (e) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (d) of this Section has been made, exceeds 10% of the product of the Current Market Price per share of the Common Stock as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately before the opening of business on the day after the date of the Expiration Time, the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately before close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (1) the Current Market Price per share of the Common Stock on the date of the Expiration Time and (2) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, less (B) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares, and (ii) the denominator of which shall be equal to the product of (A) the Current Market Price per share of the Common Stock as of the Expiration Time and (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (f) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 10 shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. Anything in this Section 10.5 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the conversion price, in addition to those required by this Section 10.5, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable. (g) Whenever the conversion price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the conversion price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the conversion price setting forth the 053113\1008\02764\979QGT85.OTH 51 adjusted conversion price and the date on which such adjustment becomes effective and shall mail or cause to be mailed such notice of such adjustment of the conversion price to the Holder of each Security at his last address appearing on the Security register provided for in Section 2.3 of this Indenture. (h) In any case in which this Section 10.5 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 10.3. Section 10.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock shall occur, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall conform to the TIA as in force at the date of execution of such supplemental indenture) providing that each Security shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities immediately before such reclassification, change, consolidation, merger, combination, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder of Securities, at his address appearing on the Security register provided for in Section 2.3 of this Indenture. The above provisions of this Section 10.6 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. Section 10.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Securities shall be made without charge to the converting Holder of Securities for any tax in respect of the issue thereof. The 053113\1008\02764\979QGT85.OTH 52 Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the Holder of any Security converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 10.8 Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall use its best efforts, including asking its stockholders to authorize additional Common Stock to provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Securities from time to time as such Securities are presented for conversion. Before taking any action which would cause an adjustment reducing the conversion price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Securities, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted conversion price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Securities hereunder require registration with or approval of any governmental authority under any Federal or State law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that if at any time Common Stock shall be listed on the American Stock Exchange or any other national securities exchange the Company will, if permitted by the rules of such exchange, list and keep listed so long as the Common Stock shall be so listed on such exchange, all Common Stock issuable upon conversion of the Securities. Section 10.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the conversion price or other adjustment or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or 053113\1008\02764\979QGT85.OTH 53 property, which may at any time be issued or delivered upon the conversion of any Security; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to the provisions of Section 7.1, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article 10. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 10.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Holders of Securities upon the conversion of their Securities after any event referred to in Section 10.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee before the execution of any such supplemental indenture) with respect thereto. Section 10.10 Notice to Holders Before Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (e) of an increase in the interest rate on the Securities pursuant to the Registration Rights Agreement, the Company shall cause to be filed with the Trustee and to be mailed to each Holder of Securities at his address appearing on the Securities Register provided for in Section 2.3 of this Indenture, as promptly as possible but in any event at least fifteen days before the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights, or, if a record is not to be taken, the date as of which the 053113\1008\02764\979QGT85.OTH 54 holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occurring and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. ARTICLE XI SUBORDINATION Section 11.1 Agreement to Subordinate. The Company agrees, and each Holder by accepting a Security agrees, that the indebtedness evidenced by the Securities, and any guarantee of that indebtedness, is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full of all Senior Indebtedness, and that the subordination is for the benefit of the holders of Senior Indebtedness. Section 11.2 Certain Definitions. "Senior Indebtedness" means: (a) the principal of, interest (including, to the extent permitted by applicable law, interest on or after the commencement of a proceeding referred to in clauses (f) or (g) of Section 6.1 whether or not representing an allowed claim in such proceeding) and premium, if any, on and any other amounts owing with respect to (i)any indebtedness of the Company, now or hereafter outstanding, in respect of borrowed money (other than the Securities and the Existing Debentures), (ii)any indebtedness of the Company, now or hereafter outstanding (other than the Securities and the Existing Debentures), evidenced by a bond, note, debenture, capitalized lease, letter of credit or other similar instrument, (iii)any other written obligation of the Company, now or hereafter outstanding, to pay money issued or assumed as all or part of the consideration for the acquisition of property, assets or securities, including without limitation, interest rate swap agreements, currency hedging obligations, hedging obligations with respect to the purchase or sale of oil and gas, and any other hedging agreement entered into in the ordinary course of business and (iv)any guaranty or endorsement (other than for collection or deposit in the ordinary course of business) or discount with recourse of, or other agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire, to supply or advance funds or to become liable with respect to (directly or indirectly), any indebtedness or obligation of any person of the type referred to in the preceding subclauses (i), (ii) and(iii) now or hereafter outstanding; and 053113\1008\02764\979QGT85.OTH 55 (b) any refundings, refinancings, renewals or extensions of any indebtedness or other obligation described in clause (a) of this Section 11.2. Notwithstanding the foregoing (i) if, by the terms of the instrument creating or evidencing any indebtedness or obligation referred to in clauses (a) or (b) above, it is expressly provided that such indebtedness or obligation is not senior in right of payment to the Securities, such indebtedness or obligation shall not be included as Senior Indebtedness, and (ii) the Notes shall be, pari passu, in right of payment with the Existing Debentures, except that the Existing Debentures have the benefit of guarantees by the Company's Subsidiaries. "Representative" means the indenture trustee or other trustee, agent or representative for an issue of Senior Indebtedness. Section 11.3 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation, dissolution or winding up of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Indebtedness shall be entitled to receive payment in full, in cash or in a manner satisfactory to the holders of such Senior Indebtedness, of all Senior Indebtedness before Holders shall be entitled to receive, from the Company or from any guarantor of the Obligations under this Indenture and the Notes, any payments of principal of or premium, if any, or interest on Securities; and (2) until the Senior Indebtedness is paid in full in cash or in a manner satisfactory to the holders of such Senior Indebtedness, any distribution to which Holders would be entitled but for this Article shall be made to holders of Senior Indebtedness as their interest may appear, except that Holders may receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities. A distribution may consist of cash, securities or other property. Section 11.4 Company Not to Make Payments with Respect to Securities in Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, all principal thereof, premium, if any, and interest thereon and any other amounts owing in respect thereof shall first be paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holders of such Senior Indebtedness, before any payment is made on account of the principal of or premium, if any, or interest on the Securities or to acquire any of the Securities. 053113\1008\02764\979QGT85.OTH 56 (b) Upon the happening of an event of default (or if any event of default would result upon any payment upon or with respect to the Securities) with respect to any Senior Indebtedness as such event of default is defined therein or in the instrument under which it is outstanding, permitting holders to accelerate the maturity thereof, and, if the default is other than default in payment of the principal of, premium, if any, or interest on or any other amount owing in respect of such Senior Indebtedness, upon written notice thereof given to the Company and the Trustee by the holders of Senior Indebtedness or their Representative, then, unless such an event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Company or any guarantor with respect to the principal of or premium, if any, or interest on the Securities or to acquire any of the Securities. Section 11.5 Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration. Section 11.6 When Distribution Must Be Paid Over. If a distribution is made to Holders that, because of this Article 11, should not have been made to them, the Holders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. Section 11.7 Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of principal of or premium, if any, or interest on the Securities to violate this Article 11. Section 11.8 Subrogation. After all Senior Indebtedness is paid in full and until the Securities are paid in full, Holders shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Indebtedness. A distribution made under this Article 11 to holders of Senior Indebtedness which otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on Senior Indebtedness. Section 11.9 Relative Rights. This Article 11 defines the relative rights of Holders and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and premium, if any, and interest on the Securities in accordance with their terms; 053113\1008\02764\979QGT85.OTH 57 (2) affect the relative rights of Holders and creditors of the Company, other than holders of Senior Indebtedness and any guarantors of the Obligation under this Indenture and the Notes; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Holders. If the Company fails because of this Article 11 to pay principal of or premium, if any, or interest on a Security on the due date, such failure shall nevertheless be deemed a Default. Section 11.10 Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with the terms of this Indenture. Section 11.11 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Section 11.12 Rights of Trustee and Paying Agent. Notwithstanding any provisions of this Indenture to the contrary, the Trustee and any Paying Agent may continue to make payments on the Securities and shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of such payments until it receives written notice (received by a Responsible Officer, in the case of the Trustee) reasonably satisfactory to it that payments may not be made under this Article 11 and, before the receipt of any such notice, the Trustee, subject to the provisions of Article 7, and any agent shall be entitled to assume conclusively that no such facts exist. The Company, an Agent, a Representative or a holder of Senior Indebtedness may give the notice. If an issue of Senior Indebtedness has a Representative, only the Representative (or any Representative, if more than one) may give the notice with respect to such Senior Indebtedness. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a Representative) to establish that such notice has been given by a holder of Senior Indebtedness (or a Representative), and shall be entitled to rely on any written notice by a Person representing himself to be a holder of Senior Indebtedness to the effect that such issue of Senior Indebtedness has no Representative. Any deposit of moneys by the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of the principal of or premium, if any, or interest on, or payment on account of Change in Control, if any, of, any Securities shall be subject to the 053113\1008\02764\979QGT85.OTH 58 provisions of this Article 11, except that if, at least three business days before the date on which by the terms of this Indenture any such moneys may become payable for any purpose (including, without limitation, the payment of principal of or premium, if any, or interest on any Security), the Trustee shall not have received with respect to such moneys the notice provided for in this Section 11.12, then the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within three business days before or on or after such date. This Section 11.12 shall be construed solely for the benefit of the Trustee and Paying Agent and shall not otherwise affect the rights of holders of Senior Indebtedness. If the Trustee determines in good faith that further evidence is required with respect to the right of any Person as holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 11, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of the Senior Indebtedness held by such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 11, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive payment. The Trustee shall not be deemed to owe any fiduciary duty to holders of Senior Indebtedness by virtue of the provisions of this Article 11. The Trustee's responsibilities to the holders of Senior Indebtedness are limited to those set forth in this Article 11, and no implied covenants or obligations shall be read into this Indenture. The Trustee shall not become liable to the holders of Senior Indebtedness if it makes a payment prohibited by this Article 11 in good faith. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any agent may do the same with like rights. Section 11.13 Effectuation of Subordination by Trustee. Each Holder of Securities, by acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provided in this Article 11 and appoints the Trustee his attorney-in-fact for any and all such purposes. ARTICLE XII MISCELLANEOUS Section 12.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA S318 (c), the imposed duties shall control. 053113\1008\02764\979QGT85.OTH 59 Section 12.2 Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company: Key Energy Group, Inc. Two Tower Center, Tenth Floor East Brunswick, New Jersey 08816 Attention: Francis D. John Telecopier No.: (732) 247-5148 With a copy to: Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002 Attention: Samuel N. Allen Telecopier No.: (713) 228-1331 If to the Trustee: American Stock Transfer & Trust Company 40 Wall Street 46th Floor New York, New York 10005 Attention: Executive Vice President Telecopier No.: (718) 236-4558 With a copy to: Herbert J. Lemmer American Stock Transfer & Trust Company 6201 15th Avenue, 3rd Floor Brooklyn, New York 11219 Telecopier No.: (718) 331-1552 The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered 053113\1008\02764\979QGT85.OTH 60 back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee at the same time. Section 12.3 Communication to Holders with Other Holders. Holders may communicate pursuant to TIA S 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any anyone else shall have the protection of TIA S 312(c). Section 12.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall, upon request, furnish to the Trustee an Officer's Certificate and Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.5) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with. Section 12.5 Statements Required in Certificate. Each certificate with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA S 314(a) (4)) shall include: (a) a statement that the person making such certificate has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based; (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and 053113\1008\02764\979QGT85.OTH 61 (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 12.6 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.7 Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided to Holders of Securities under this Indenture, Holders of Transferred Restricted Securities shall have all the rights set forth in the Registration Rights Agreement and certain other agreements executed and delivered in connection herewith. Section 12.8 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in New York, New York, or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.9 No Recourse Against Others. No past, present or future director, officer, employee, agent, manager, stockholder or other Affiliate of the Company shall have any liability for any obligations of the Company under the Securities, the Indenture, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. Section 12.10 Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. Section 12.11 Governing Law. This indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of law rules thereof. 053113\1008\02764\979QGT85.OTH 62 Section 12.12 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.13 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 12.14 Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.15 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.16 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. [SIGNATURE PAGES FOLLOW] 053113\1008\02764\979QGT85.OTH 63 IN WITNESS WHEREOF, the parties hereto have causes this Indenture to be executed as of the day and year first above written. Dated as of September 25, 1997 KEY ENERGY GROUP, INC. By: Its: Attest: (SEAL) Dated as of September 25, 1997 AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: Its: Attest: (SEAL) 053113\1008\02764\979QGT85.OTH Exhibit A-1 (Face of Security) 5% CONVERTIBLE SUBORDINATED NOTE DUE 2004 No. $______ KEY ENERGY GROUP, INC. promises to pay to or its registered assigns, the principal sum of Dollars on September 25, 2004. Interest Payment Dates: September 15 and March 15, commencing March 15, 1998. Record Dates: September 1 and March 1 (whether or not a Business Day). KEY ENERGY GROUP, INC. By: Officer of the Company (SEAL) Attest: This is one of the 5% Convertible Subordinated Notes due 2004 referred to in the By: within-mentioned Indenture: Officer of the Company American Stock Transfer & Trust Company, as Trustee By Authorized Signature Dated: , A1-1 053113\1008\02764\979QGT85.OTH (Back of Security) 5% CONVERTIBLE SUBORDINATED NOTE DUE 2004 [Unless and until it is exchanged in whole or in part for Securities in definitive form, this Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company, 55 Water Street, New York, New York ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]1 THE NOTE EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO KEY ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, BEFORE SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM -------- 1/ This paragraph is to be included only if the Security is in global form. A1-2 053113\1008\02764\979QGT85.OTH REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE, (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(E) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(F) ABOVE, THE HOLDER MUST, BEFORE SUCH TRANSFER, FURNISH TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Section 1. Interest. Key Energy Group, Inc., a Maryland corporation (the "Company"), promises to pay interest on the principal amount of this 5% Convertible Subordinated Note due 2004 (the "Note") at the rate and in the manner specified below. The Company will pay interest semi-annually on September 15 and March 15 of each year commencing March 15, 1998, or if any such day is not a Business Day, on the next Business Day (each an "Interest Payment Date") to record holders of Notes ("Holders") at the close of business on September 1 or March 1 immediately preceding the applicable Interest Payment Date. A copy of the Indenture (defined below), the Registration Rights Agreement and all other agreements affecting this Note or the Holders may be obtained from the Company upon request. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the then applicable interest rate on this Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. A1-3 053113\1008\02764\979QGT85.OTH Section 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to Holders at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Note to a Paying Agent (as defined in the Indenture) to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. Section 3. Paying Agent and Registrar. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co- Registrar without notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. Section 4. Indenture. The Company issued the Notes under an Indenture, dated as of September 25, 1997 (the "Indenture"), among the Company and American Stock Transfer & Trust Company, as Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code SS 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, and as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. Capitalized terms used herein that are not specifically defined herein shall have the meanings set forth in the Indenture. The Notes are unsecured general obligations of the Company limited to $216,000,000 in aggregate principal amount. Section 5. Optional Redemption. The Company may redeem at any time on or after September 15, 2000, all or any portion of the Securities outstanding at the following redemption prices expressed as a percentage of the principal amount thereof, if the Securities are redeemed during the 12-month period beginning September 15, of the following years: Year Percentage 2000................................................ 102.86% 2001................................................ 102.14% 2002................................................ 101.43% 2003................................................ 100.71% 2004................................................ 100% Section 6. Redemption or Repurchase at Option of Holder. If there is a Change in Control (as defined in the Indenture), the Company will be required to offer to A1-4 053113\1008\02764\979QGT85.OTH purchase on the Change in Control Payment Date (as defined in the Indenture) all outstanding Notes at 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. Holders whose Notes are subject to an offer to purchase will receive an offer to purchase from the Company prior to any related Change in Control Payment Date and may elect to have their Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. Section 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 45 days before the redemption date to each Holder to be redeemed at its registered address. Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Section 8. Conversion. Subject to the provisions of the Indenture, the Holder hereof has the right, at its option, at any time on or after 270 days after the Issue Date and on or before the maturity, to convert the principal hereof or any portion of such principal that is $1,000 or a multiple thereof, into, at the Company's option, (a) cash in an amount equal to the Current Market Price, as of the conversion date, of the Common Stock to which the principal would otherwise be converted, or (b) that number of shares of the Company's Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $38.50, or such conversion price as adjusted from time to time as provided in the Indenture or (c) a combination of cash and Common Stock in proportions determined by the Company in its sole discretion; provided, however, that the Company's option to convert the principal into cash or into a combination of cash and Common Stock, shall terminate at the close of business on the date the Company's charter is amended to increase the number of shares of authorized Common Stock to at least that number of shares sufficient to reserve for the conversion of all the Notes. The right to convert with respect to any Security or portion of a Security that shall be called for redemption or delivered for repurchase, shall terminate at the close of business on the date fixed for redemption of such Security or portion of a Security or the second trading day preceding a Change in Control Payment Date, as the case may be, unless the Company shall default in payment due upon redemption or repurchase thereof. No adjustments in respect of interest or dividends will be made upon any conversion; provided, however, that if the Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the opening of business on the following interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash shall be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common A1-5 053113\1008\02764\979QGT85.OTH Stock, and only to the extent such Notes are to have been converted to Common Stock under the Indenture. The conversion price is subject to adjustment in accordance with Section 10.5 of the Indenture. Section 9. Subordination. The Securities are subordinated to Senior Indebtedness (as defined in the Indenture). To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid either by the Company or any guarantor of Obligations under this Indenture and the Note. The Company agrees, and each Holder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give effect to such provisions, and each Holder appoints the Trustee his attorney-in-fact for any and all such purposes. This Note shall be pari passu, in all respects, with the Existing Debentures (as defined in the Indenture), except that the Existing Debentures have the benefit of guarantees by the Company's Subsidiaries. Section 10. Denominations, Transfer, Exchange. The Notes are initially issued in global form. The global Note represents such of the outstanding Securities as shall be specified therein or endorsed thereon in accordance with the Indenture. The definitive Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of an Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed. Section 11. Persons Deemed Owners. Before due presentment to the Trustee for registration of the transfer of this Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Note is registered as its absolute owner for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered holder of an Note shall be treated as its owner for all purposes. Section 12. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing default (except a payment default) may be waived with the consent of the holders of a majority in principal amount of the then outstanding Securities. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of Company obligations to Holders, to make any change that does not adversely affect the rights of any Holder, to provide for any uncertificated Notes in addition to certificated Notes, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. A1-6 053113\1008\02764\979QGT85.OTH Section 13. Defaults and Remedies. Events of default include: default in payment of interest on the Securities for 30 days; default in payment of principal of or premium on the Securities when due; failure by the Company for 60 days after notice to it to comply with its agreements in the Indenture or the Securities; defaults under and acceleration before express maturity of certain other Indebtedness that aggregates $25,000,000 or more; certain final judgments which remain undischarged if the aggregate of all such judgments exceeds $25,000,000 or more; certain final judgments which remain undischarged if the aggregate of all such judgments exceeds $25,000,000; and certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare all the Securities to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Securities become due and payable immediately without further action or notice and all outstanding Securities, and all Obligations and Claims with respect thereto, become immediately due and payable. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. Section 14. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee; provided, however, that if the Trustee acquires any conflicting interest as described in the Trust Indenture Act, it must eliminate such conflict or resign. Section 15. No Recourse Against Others. No director, officer, employee, agent, manager, stockholder or other Affiliates of the Company shall have any liability for any obligations of the Company under the Securities, the Indenture, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Section 16. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. Section 17. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST = Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Section 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP A1-7 053113\1008\02764\979QGT85.OTH numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification number placed thereon. Section 19. Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided to Holders of Securities under the Indenture, Holders of Transferred Restricted Securities shall have all the rights set forth in the Registration Rights Agreement referred to in the Indenture and certain other agreements executed and delivered in connection therewith. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Key Energy Group, Inc. Two Tower Center, Tenth Floor East Brunswick, New Jersey 08816 Attn: Francis D. John A1-8 053113\1008\02764\979QGT85.OTH ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guaranteed: By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.) A1-9 053113\1008\02764\979QGT85.OTH OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.10 of the Indenture (Change in Control), state the amount you elect to have purchased (if all, write "ALL"): $__________________________ Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guaranteed: By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.) A1-10 053113\1008\02764\979QGT85.OTH SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITIES 2 The following exchanges of a part of this Global Security for Definitive Securities have been made: Amount of Principal Signature of decrease in Amount of Amount of authorized Date of Principal Increase in this Global officer of Exchange Amount of Principal Security Trustee or this Global Amount of this following such Securities Security Global Security decrease (or Custodian increase) ------------------- ----------------------- -------------------------- - ------------------------- --------------------------- - -------- 2 This is to be included only if the Security is in global form A1-11 053113\1008\02764\979QGT85.OTH Exhibit A-2 (Face of Security) 5% CONVERTIBLE SUBORDINATED NOTE DUE 2004 No. $______ KEY ENERGY GROUP, INC. promises to pay to or its registered assigns, the principal sum of Dollars on September 25, 2004. Interest Payment Dates: September 15 and March 15, commencing March 15, 1998. Record Dates: September 1 and March 1 (whether or not a Business Day). KEY ENERGY GROUP, INC. By: Officer of the Company (SEAL) Attest: This is one of the 5% Convertible Subordinated Notes due 2004 referred to in the By: within-mentioned Indenture: Officer of the Company American Stock Transfer & Trust Company, as Trustee By Authorized Signature Dated: , 053113\1008\02764\979QGT85.OTH A2-1 (Back of Security) 5% CONVERTIBLE SUBORDINATED NOTE DUE 2004 [THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).] [THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6 OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.] [Unless and until it is exchanged in whole or in part for Securities in definitive form, this Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company, 55 Water Street, New York, New York ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]1 THE NOTE EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), -------- 1 This paragraph is to be included only if the Security is in global form. 053113\1008\02764\979QGT85.OTH A2-2 (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO KEY ENERGY GROUP, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, BEFORE SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE, (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(E) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(F) ABOVE, THE HOLDER MUST, BEFORE SUCH TRANSFER, FURNISH TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE (OR SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 053113\1008\02764\979QGT85.OTH A2-3 Section 20. Interest. Key Energy Group, Inc., a Maryland corporation (the "Company"), promises to pay interest on the principal amount of this 5% Convertible Subordinated Note due 2004 (the "Note") at the rate and in the manner specified below. The Company will pay interest semi-annually on September 15 and March 15 of each year commencing March 15, 1998, or if any such day is not a Business Day, on the next Business Day (each an "Interest Payment Date") to record holders of Notes ("Holders") at the close of business on September 1 or March 1 immediately preceding the applicable Interest Payment Date. A copy of the Indenture (defined below), the Registration Rights Agreement and all other agreements affecting this Note or the Holders may be obtained from the Company upon request. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the then applicable interest rate on this Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. Section 1. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to Holders at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Note to a Paying Agent (as defined in the Indenture) to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. Section 2. Paying Agent and Registrar. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co- Registrar without notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. Section 3. Indenture. The Company issued the Notes under an Indenture, dated as of September 25, 1997 (the "Indenture"), among the Company and American Stock Transfer & Trust Company, as Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code SS 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, and as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. Capitalized terms used herein that are not specifically defined herein shall have the meanings set forth in the Indenture. The Notes are unsecured general obligations of the Company limited to $216,000,000 in aggregate principal amount. 053113\1008\02764\979QGT85.OTH A2-4 Section 4. Optional Redemption. The Company may redeem at any time on or after September 15, 2000, all or any portion of the Securities outstanding at the following redemption prices expressed as a percentage of the principal amount thereof, if the Securities are redeemed during the 12-month period beginning September 15, of the following years: Year Percentage 2000..................................................... 102.86% 2001..................................................... 102.14% 2002..................................................... 101.43% 2003..................................................... 100.71% 2004..................................................... 100% Section 5. Redemption or Repurchase at Option of Holder. If there is a Change in Control (as defined in the Indenture), the Company will be required to offer to purchase on the Change in Control Payment Date (as defined in the Indenture) all outstanding Notes at 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. Holders whose Notes are subject to an offer to purchase will receive an offer to purchase from the Company prior to any related Change in Control Payment Date and may elect to have their Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. Section 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 45 days before the redemption date to each Holder to be redeemed at its registered address. Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Section 7. Conversion. Subject to the provisions of the Indenture, the Holder hereof has the right, at its option, at any time on or after 270 days after the Issue Date and on or before the maturity, to convert the principal hereof or any portion of such principal that is $1,000 or a multiple thereof, into, at the Company's option, (a) cash in an amount equal to the Current Market Price, as of the conversion date, of the Common Stock to which the principal would otherwise be converted, or (b) that number of shares of the Company's Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $38.50, or such conversion price as adjusted from time to time as provided in the Indenture or (c) a combination of cash and Common Stock in proportions determined by the Company in its sole discretion; provided, however, that the Company's option to convert the principal into cash or into a combination of cash and Common Stock, shall terminate at the close of business on the date the Company's charter is amended to increase the number of shares of 053113\1008\02764\979QGT85.OTH A2-5 authorized Common Stock to at least that number of shares sufficient to reserve for the conversion of all the Notes. The right to convert with respect to any Security or portion of a Security that shall be called for redemption or delivered for repurchase, shall terminate at the close of business on the date fixed for redemption of such Security or portion of a Security or the second trading day preceding a Change in Control Payment Date, as the case may be, unless the Company shall default in payment due upon redemption or repurchase thereof. No adjustments in respect of interest or dividends will be made upon any conversion; provided, however, that if the Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the opening of business on the following interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash shall be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are to have been converted to Common Stock under the Indenture. The conversion price is subject to adjustment in accordance with Section 10.5 of the Indenture. Section 8. Subordination. The Securities are subordinated to Senior Indebtedness (as defined in the Indenture). To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid either by the Company or any guarantor of Obligations under this Indenture and the Note. The Company agrees, and each Holder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give effect to such provisions, and each Holder appoints the Trustee his attorney-in-fact for any and all such purposes. This Note shall be pari passu, in all respects, with the Existing Debentures (as defined in the Indenture), except that the Existing Debentures have the benefit of guarantees by the Company's Subsidiaries. Section 9. Denominations, Transfer, Exchange. The Notes are initially issued in global form. The global Note represents such of the outstanding Securities as shall be specified therein or endorsed thereon in accordance with the Indenture. The definitive Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of an Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed. 053113\1008\02764\979QGT85.OTH A2-6 Section 10. Persons Deemed Owners. Before due presentment to the Trustee for registration of the transfer of this Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Note is registered as its absolute owner for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered holder of an Note shall be treated as its owner for all purposes. Section 11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing default (except a payment default) may be waived with the consent of the holders of a majority in principal amount of the then outstanding Securities. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of Company obligations to Holders, to make any change that does not adversely affect the rights of any Holder, to provide for any uncertificated Notes in addition to certificated Notes, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. Section 12. Defaults and Remedies. Events of default include: default in payment of interest on the Securities for 30 days; default in payment of principal of or premium on the Securities when due; failure by the Company for 60 days after notice to it to comply with its agreements in the Indenture or the Securities; defaults under and acceleration before express maturity of certain other Indebtedness that aggregates $25,000,000 or more; certain final judgments which remain undischarged if the aggregate of all such judgments exceeds $25,000,000 or more; certain final judgments which remain undischarged if the aggregate of all such judgments exceeds $25,000,000; and certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare all the Securities to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Securities become due and payable immediately without further action or notice and all outstanding Securities, and all Obligations and Claims with respect thereto, become immediately due and payable. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. Section 13. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee; provided, however, that if the Trustee acquires any conflicting interest as described in the Trust Indenture Act, it must eliminate such conflict or resign. 053113\1008\02764\979QGT85.OTH A2-7 Section 14. No Recourse Against Others. No director, officer, employee, agent, manager, stockholder or other Affiliates of the Company shall have any liability for any obligations of the Company under the Securities, the Indenture, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Section 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. Section 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST = Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). Section 17. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification number placed thereon. Section 18. Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided to Holders of Securities under the Indenture, Holders of Transferred Restricted Securities shall have all the rights set forth in the Registration Rights Agreement referred to in the Indenture and certain other agreements executed and delivered in connection therewith. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Key Energy Group, Inc. Two Tower Center, Tenth Floor East Brunswick, New Jersey 08816 Attn: Francis D. John 053113\1008\02764\979QGT85.OTH A2-8 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guaranteed: By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.) 053113\1008\02764\979QGT85.OTH A2-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.10 of the Indenture (Change in Control), state the amount you elect to have purchased (if all, write "ALL"): $__________________________ Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guaranteed: By: (THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.) 053113\1008\02764\979QGT85.OTH A2-10 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITIES 2 The following exchanges of a part of this Global Security for Definitive Securities have been made: Amount of Principal Signature of decrease in Amount of Amount of authorized Date of Principal Increase in this Global officer of Exchange Amount of Principal Security Trustee or this Global Amount of this following such Securities Security Global Security decrease (or Custodian increase) ------------------- ----------------------- -------------------------- - ------------------------- --------------------------- -------- 2 This is to be included only if the Security is in global form 053113\1008\02764\979QGT85.OTH A2-11 EX-10.(M) 11 DUNBAR STOCK PURCHASE AGREEMENT ::ODMA\PCDOCS\DOCS\139922\6 Stock Purchase Agreement among Key Rocky Mountain, Inc., Joseph R. Dunbar and Janice N. Dunbar Dated as of September 29, 1997 ::ODMA\PCDOCS\DOCS\139922\6 TABLE OF CONTENTS Page ARTICLE 1PURCHASE AND SALE 1.1 Purchase and Sale of the Company Shares...........................iii 1.2 Cash Adjustment Payment...........................................iii 1.3 Closing.............................................................2 1.4 Resignations; Consulting Agreement..................................2 1.5 Closing Deliveries..................................................2 1.5.1 Opinion of Buyer=s Counsel...................................2 1.5.2 Opinion of Shareholders= Counsel.............................3 ARTICLE 2REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Shareholders..................3 2.1.1 Organization and Standing..................................3 2.1.2 Agreement Authorized and its Effect on Other Obligations...4 2.1.3 Capitalization.............................................4 2.1.4 Ownership of the Company Shares............................4 2.1.5 No Subsidiaries............................................4 2.1.6 Financial Statements.......................................4 2.1.7 Liabilities................................................5 2.1.8. Additional Company Information.............................5 2.1.9 No Defaults................................................7 2.1.10 Absence of Certain Changes and Events......................7 2.1.11 Taxes......................................................8 2.1.12 Columbine Farms, Inc........................................9 2.1.13 Intellectual Property.......................................9 2.1.14 Title to and Condition of Assets............................9 2.1.15 Contracts...................................................9 2.1.16 Licenses and Permits........................................10 2.1.17 Litigation..................................................10 2.1.18 Environmental Compliance....................................10 2.1.19 Compliance with Other Laws..................................11 2.1.20 ERISA Plans or Labor Issues................................12 2.1.21 Investigations; Litigation..................................12 2.1.22 Absence of Certain Business Practices.......................13 2.1.23 No Untrue Statements........................................13 2.1.24 Consents and Approvals......................................13 2.1.25 Finder=s Fee................................................13 2.2 Representations and Warranties of Buyer.................................13 2.2.1 Organization and Good Standing...............................13 2.2.2 Agreement Authorized and its Effect on Other Obligations.....14 2.2.3 Consents and Approvals.......................................14 2.2.4 Investigations; Litigation...................................14 ARTICLE 3ADDITIONAL AGREEMENTS 3.1 Further Assurances..................................................14 3.2 Public Announcements................................................14 3.3 338(h)(10) Election.................................................14 ARTICLE 4INDEMNIFICATION 4.1 Indemnification by the Shareholders.................................15 4.2 Indemnification by Buyer............................................15 4.3. Indemnification Procedure...........................................15 ARTICLE 5MISCELLANEOUS 5.1 Survival of Representations, Warranties and Covenants...............16 5.2 Entirety............................................................16 5.3 Counterparts........................................................16 5.4 Notices and Waivers.................................................16 5.5 Table of Contents and Captions......................................17 5.6 Successors and Assigns..............................................17 5.7 Severability........................................................17 5.8 Applicable Law......................................................17 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this AAgreement@) is entered into as of September 29, 1997, by and among Key Rocky Mountain, Inc., a Delaware corporation (ABuyer@), and Joseph R. Dunbar and Janice N. Dunbar (collectively, the AShareholders@). W I T N E S S E T H: WHEREAS, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; WHEREAS, Dunbar Well Service, Inc. (the ACompany@) is a corporation duly organized and validly existing under the laws of the State of Colorado, with its principal executive offices at 1305 W. First Street, Gillette, Wyoming 82716; WHEREAS, the Shareholders own 7,500 shares (the ACompany Shares@) of common stock, par value $10 per share, of the Company (the ACompany Common Stock@), which constitutes all of the issued and outstanding shares of capital stock of the Company; and WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires to purchase from the Shareholders, all of the issued and outstanding capital stock of the Company. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE ARTICLE 1 PURCHASE AND SALE.1.1 Purchase and Sale of the Company Shares.1.1 Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholders agree to sell and convey to Buyer, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholders, all of the Company Shares. In consideration of the sale of the Company Shares, Buyer shall pay to the Shareholders a purchase price of Eleven Million Eight Hundred Thirty Nine Thousand Dollars ($11,839,000) (the APurchase Price@) in cash, and the Cash Adjustment Payment (as defined in Section 1.2 hereof), if any, in accordance with Section 1.2 hereof. 20 ::ODMA\PCDOCS\DOCS\139922\6 1.2 Cash Adjustment Payment1.2Cash Adjustment Payment. Buyer shall cause to be prepared and delivered to the Shareholders a consolidated balance sheet of the Company as of the date hereof (the AFinal Balance Sheet@) within 60 days after the date hereof, which balance sheet will be prepared in accordance with generally accepted accounting principles, consistently applied in all respects. Buyer and the Shareholders shall jointly review the Final Balance Sheet, and endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days from the date hereof. If the parties cannot agree on the entries to be placed on the Final Balance Sheet, the dispute will be resolved by an independent accounting firm mutually agreed to by the Shareholders and Buyer (such agreement not to be unreasonably withheld or delayed) whose resolution shall be binding on and enforceable against the parties hereto. Within 10 days of reaching such final determination, the following adjusting payments shall be made: 1.2.1 If the Final Net Current Value of the Company (defined below) exceeds $1,839,000, Buyer shall pay to the Shareholders the amount of such difference (the ACash Adjustment Payment@), or 1.2.2 If the Final Net Current Value of the Company (defined below) is less than $1,839,000, Shareholders shall pay to Buyer the amount of such difference. 1.2.3 In addition, any capital expenditures made by Company since the HADCO appraisal dated May 25, 1997, subject to Buyer=s approval, will be added to the Final Net Current Value of the Company as set out in paragraph (1) or (2) above. Buyer hereby acknowledges approval of the capital expenditures listed on Schedule 1.2. The term AFinal Net Current Value of the Company@ means the dollar value of the amount by which the ATotal Current Assets@ as recorded on the Final Balance Sheet exceed the ATotal Current Liabilities@ as recorded on the Final Balance Sheet. 1.3 Closing1.3........Closing. Consummation of the transactions contemplated by this Agreement (the AClosing@) shall take place at the offices of Nicholas H. Carter, 310 South Gillette Avenue, Gillette, WY 82716, contemporaneously with the execution of this Agreement by all of the parties hereto (the AClosing Date@) unless another time, place or date is agreed to by the Shareholders and the Buyer. 1.4 Resignations; Consulting Agreement1.4 Resignations; Consulting Agreement. At the Closing, each of the officers and directors of the Company will resign, and Buyer will enter into an consulting agreement (the AConsulting Agreement@) with Joseph R. Dunbar. The performance of Joseph R. Dunbar as a consultant to Buyer is separate and divisible from this Agreement and his manner of performance of such consulting agreement shall not effect the binding obligations of this Agreement. 1.5 Closing Deliveries1.5 Closing Deliveries. At the Closing, (a) the Shareholders shall deliver to Buyer duly and validly issued certificate(s) representing all of the Company Shares owned beneficially or of record by them, each such certificate to be duly endorsed in blank and in good form for transfer, or accompanied by stock powers duly executed in blank sufficient and in good form to properly transfer such Company Shares to Buyer, (b) the Shareholders shall deliver Buyer an agreement not to compete dated the date hereof (the ANon-Compete Agreement@), (c) the Shareholders and Buyer shall have delivered to one another all other documents, instruments and agreements as required under this Agreement, (d) Buyer shall deliver to the Shareholders the cash purchase price payable at Closing as provided in Section 1.1 by a check drawn on an account of Buyer or one of Buyer=s affiliates, and (e) the Buyer and Shareholders will deliver to one another the opinions of counsel as described below: 1.5.1 Opinion of Buyer=s Counsel1.5.1 Opinion of Buyer=s Counsel. The Buyer shall deliver a favorable opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P., counsel for the Buyer, in form and substance satisfactory to the Shareholders, to the effect that (i) the Buyer has been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of organization; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement and the implementation of the transactions contemplated hereby have been taken; and (iii) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of the Buyer and is enforceable against Buyer in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of the Buyer as to matters of fact and (ii) the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to the Shareholders, as to matters other than federal or Texas law. 1.5.2 Opinion of Shareholders= Counsel1.5.2 Opinion of Shareholders= Counsel. The Shareholders shall deliver a favorable opinion, dated the Closing Date, from Nicholas H. Carter, Gillette, Wyoming, counsel to the Shareholders, in form and substance satisfactory to Buyer, to the effect that (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Colorado and is qualified to transact business in every jurisdiction in which the nature of the Company=s contacts require such qualification, (ii) all outstanding shares of the Company Common Stock have been validly issued and are fully paid and nonassessable and are free of preemptive rights; (iii) all of the Company Shares are owned beneficially and of record by the Shareholders free of any Encumbrances; (iv) the Company owns all of its assets free and clear of any Encumbrances other than those Encumbrances listed on the Balance Sheet or Schedules hereto, and (v) this Agreement, the Non-Competition Agreement and the Consulting Agreement have been duly executed and delivered by, and this Agreement and the Consulting Agreement are the legal valid and binding obligations of the Shareholders that are parties thereto and are enforceable against the Shareholders that are parties thereto in accordance with their terms, except as the enforceability of this Agreement may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of the Company or the Shareholders as to matters of fact and (ii) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Wyoming law. ARTICLE 2 REPRESENTATIONS AND WARRANTIES REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Shareholders2.1 Representations and Warranties of the Shareholders. Each of the Shareholders jointly and severally represents and warrants to Buyer as follows: 2.1.1 Organization and Standing2.1.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.1.2 Agreement Authorized and its Effect on Other Obligations2.1.2Agreement Authorized and its Effect on Other Obligations. Each of the Shareholders is a resident of Wyoming, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his obligations under this Agreement, the Non-Competition Agreement and the Consulting Agreement. This Agreement, the Non-Competition Agreement and the Consulting Agreement are valid and binding obligations of each of the Shareholders that are a party thereto enforceable against each of the Shareholders that are a party thereto in accordance with their terms. The execution, delivery and performance of this Agreement, the Non-Competition Agreement and the Consulting Agreement by each of the Shareholders that are a party thereto will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of the Company or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company or either of the Shareholders is a party or by which the Company or either of the Shareholders or their respective properties are bound. 2.1.3 Capitalization2.1.3 Capitalization. The authorized capitalization of the Company consists of 15,000 shares of Company Common Stock, of which, as of the date hereof, 7,500 shares are issued and outstanding and held beneficially and of record by the Shareholders. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4 Ownership of the Company Shares.2.1.4 Ownership of the Company Shares. The Shareholders hold good and valid title to all of the Company Shares, free and clear of all Encumbrances. The Shareholders possess full authority and legal right to sell, transfer and assign the Company Shares to Buyer, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholders of the Company Shares, Buyer will own the Company Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of either of the Shareholders, threatened, against the Company or either of the Shareholders that concern or affect title to the Company Shares, or that seek to compel the issuance of capital stock or other securities of the Company. 2.1.5 No Subsidiaries2.1.5 No Subsidiaries. Except as specified in Schedule 2.1.5 hereto, there is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of the outstanding voting securities. 2.1.6 Financial Statements2.1.6 Financial Statements. The Company has delivered to Buyer copies of the Company=s unaudited balance sheet as of June 30, 1997, a copy of which is attached hereto as Schedule 2.1.6 (the A6/30 Balance Sheet@), and related statements of income (collectively, the AFinancial Statements@), as at and for the six months ended as of June 30, 1997 (the ABalance Sheet Date@). The financial Statements are complete in all material respects. The Financial Statements present fairly the financial condition of the Company as of the dates and for the periods indicated. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. The accounts receivable reflected in the 6/30 Balance Sheet, or which have been thereafter acquired by the Company, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. 2.1.7 Liabilities2.1.7 Liabilities. Except as disclosed on Schedule 2.1.7. hereto, the Company does not have any liabilities or obligations, either accrued, absolute or contingent, nor do either of the Shareholders have any knowledge of any potential liabilities or obligations, other than those (i) reflected or reserved against in the 6/30 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date that would not materially adversely affect the value and conduct of the business of the Company. 2.1.8. Additional Company Information2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists of the following items: 2.1.8.1 Real Estate2.1.8.1 Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company, with a description of the nature and amount of any Encumbrances thereon. The term AEncumbrances@ means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2 Machinery and Equipment2.1.8.2 Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3 Inventory2.1.8.3 Inventory. All Inventory items or groups of inventory items owned by the Company, excluding raw materials and work in process, which raw materials and work in process are valued on the 6/30 Balance Sheet, together with the amount of any Encumbrances thereon; 2.1.8.4 Receivables2.1.8.4 Receivables. All accounts and notes receivable of the Company, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which the Company holds a security interest to secure payment of the underlying indebtedness, and (iv) a description of the nature and amount of any Encumbrances on such accounts and notes receivable. Buyer agrees to pay Shareholders any proceeds received from the case captioned Schneider Oil Corporation vs. Dunbar Well Service Inc. vs. Centron, less any costs or attorneys fees incurred by Buyer. Such proceeds will include the amount deposited by Schneider Oil Corporation in the Park County District Court which is an offer of judgment. 2.1.8.5 Payables2.1.8.5 Payables. All notes payable of the Company, together with an appropriate aging schedule; 2.1.8.6 Insurance2.1.8.6 Insurance. All insurance policies or bonds currently maintained by the Company, including title insurance policies, with respect to the Company, including those covering the Company=s properties, rigs, machinery, equipment, fixtures, employees and operations, as well as listing of any premiums, deductibles, audit adjustments or retroactive adjustments dues or pending on such policies or any predecessor policies; 2.1.8.7 Contracts2.1.8.7 Contracts. All contracts, including leases under which the Company is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.8 Employee Compensation Plans2.1.8.8 Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other employee benefit or fringe benefit plans, arrangements or trust agreements of the Company or any employee benefit plan maintained by the Company, together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters and other correspondence from governmental entities that have been received with respect to such plans, arrangements or agreements (collectively, AEmployee Plans@); 2.1.8.9 Salaries2.1.8.9 Salaries. The names and salary rates of all present employees of the Company, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.10 Bank Accounts2.1.8.10 Bank Accounts. The name of each bank in which the Company has an account, the account balances as of the Closing Date and the names of all persons authorized to draw thereon; 2.1.8.11 Employee Agreements2.1.8.11 Employee Agreements. Any collective bargaining agreements of the Company with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of the Company; 2.1.8.12 Intellectual Property2.1.8.12 Intellectual Property. All patents, patent applications, trademarks and service marks (including registrations and applications therefore), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the AIntellectual Property@) used by the Company; 2.1.8.13 Trade Names2.1.8.13 Trade Names. All trade names, assumed and fictitious names used or held by the Company, whether and where such names are registered and where used; 2.1.8.14 Licenses and Permits2.1.8.14 Licenses and Permits. All permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the APermits@) of the Company under which it conducts its business; 2.1.8.15 Promissory Notes2.1.8.15 Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit-agreements, and any other agreements of the Company relating thereto or with respect to collateral securing the same; 2.1.8.16 Guaranties2.1.8.16 Guaranties. All indebtedness, liabilities and commitments of others and as to which the Company is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.17 Reserves and Accruals2.1.8.17 Reserves and Accruals. All accounting reserves and accruals maintained in the 6/30 Balance Sheet; 2.1.8.18 Leases2.1.8.18 Leases. All leases to which the Company is a party; and 2.1.8.19 Environment2.1.8.19 Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by the Company and all environmental audits, assessments, investigations and reviews conducted by the Company within the last five years or otherwise in the Company=s possession on any property owned, leased or used by the Company. 2.1.9 No Defaults2.1.9 No Defaults. The Company is not in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10 Absence of Certain Changes and Events2.1.10 Absence of Certain Changes and Events. Except as disclosed on Schedule 2.1.10 hereto and other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.10.1 Financial Change2.1.10.1 Financial Change. Any adverse change in the financial condition, backlog, operations, assets, liabilities or business of the Company; 2.1.10.2 Property Damage2.1.10.2 Property Damage. Any material damage, destruction, or loss to the business or properties of the Company (whether or not covered by insurance); 2.1.10.3 Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Company Common Stock, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; 2.1.10.4 Capitalization Change. Any change in the capital stock or in the number of shares or classes of the Company=s authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5 Labor Disputes. Any labor or employment dispute of whatever nature; or 2.1.10.6 Other Material Changes. Any other event or condition known to either of the Shareholders particularly pertaining to and adversely affecting the operations, assets or business of the Company. 2.1.11 Taxes2.1.11 Taxes. 2.1.11.1 General2.1.11.1 General. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by the Company for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all such returns are true and correct; the Company has only done business in Wyoming, Montana, South Dakota and Utah; all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by the Company; and the tax provision reflected in the 6/30 Balance Sheet is adequate, in accordance with generally acceptable accounting principles, to cover liabilities of the Company at the date thereof for all taxes, including, but not limited to, interest and penalties, and additions to taxes of any character whatsoever applicable to the Company or its assets or business. No waiver of any statute of limitations executed by the Company with respect to any income or other tax is in effect for any period. The income tax returns of the Company have not been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of the Company except for taxes not yet currently due. The Company is not a member of a consolidated group subject to Treasury Regulation 1.1502-6 or any similar provision. 2.1.11.2 Subchapter S MattersSubchapter S Matters. The Company (i) made an effective, valid and binding S election pursuant to Section 1362 of the Code effective August 1, 1983, (ii) has since maintained its status as an Corporation pursuant to Section 1361 of the Code without lapse or interruption, and (iii) has made and continuously maintained elections similar to the federal S election in each state or local jurisdiction where the Company does business or is required to file a tax return to the extent such states or jurisdictions permit such elections. The Company neither is nor will or can be subject to the built-in gains tax under Section 1374 of the Code or any similar corporate level tax imposed on the Company by any taxing authority. The Company (i) has not adopted or utilized LIFO as a method of accounting for inventory, and (ii) has no other tax item, election, agreement or adjustment which will accelerate or trigger income or deferred deductions of the Company as a result of termination of the Company=s status as an S Corporation. 2.1.12 Columbine Farms, Inc2.1.12 Columbine Farms, Inc. The spin-off of Columbine Farms, Inc. described in Section 5.10 qualified as a valid Code Section 355 spin-off and the ownership of Columbine Farms, Inc. did not terminate the Company=s status as an S-Corporation under Code Section 1361. 2.1.13 Intellectual Property2.1.13 Intellectual Property. The Company owns or possesses licenses to use all Intellectual Property that is either material to the business of the Company or that is necessary for the rendering of any services rendered by the Company and the use or sale of any equipment or products used or sold by the Company, including all such Intellectual Property listed in Schedule 2.1.8 hereto (the ARequired Intellectual Property@). The Required Intellectual Property is owned or licensed by the Company free and clear of any Encumbrance. The Company has not granted to any other person any license to use any Required Intellectual Property. The Company has not infringed, misappropriated, or conflicted with, the Intellectual Property rights of others in connection with the use by the Company of the Required Intellectual Property or otherwise in connection with the Company=s operation of its business, nor has the Company received any notice of such infringement, misappropriation, or conflict such Intellectual Property rights of others. 2.1.14 Title to and Condition of Assets2.1.14 Title to and Condition of Assets. Except as disclosed on Schedule 2.1.14 hereto, the Company has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except Encumbrances reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto. All leases pursuant to which the Company leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company and in respect to which the Company has not taken adequate steps to prevent a default from occurring. The buildings and premises of the Company that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of the Company are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance. All such assets conform to all applicable laws governing their use. The Company has not violated any law, statute, ordinance, or regulation relating to any such assets, nor has any notice of such violation been received by the Company or either of the Shareholders, except such as have been fully complied with. 2.1.15 Contracts2.1.15 Contracts. All contracts, leases, plans or other arrangements to which the Company is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of the Company. The Company is not, and to the knowledge of any of the Shareholders, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on the Company. Neither the Company nor either of the Shareholders has received any information which would cause the Company or such Shareholders to conclude that any customer of the Company will (or is likely to) cease doing business with the Company (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.16 Licenses and Permits2.1.16 Licenses and Permits. The Company possesses all Permits necessary under law or otherwise for the Company to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used, including all such Permits listed in Schedule 2.1.8 hereto (collectively, the ARequired Permits@). Each of the Required Permits and the Company=s rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Company subject to administrative powers of regulatory agencies having jurisdiction, and will continue in full force and effect after the Closing Date. The Company is in compliance in all respects with the terms of each of the Required Permits. None of the Required Permits have been, or to the knowledge either of the Shareholders, is threatened to be, revoked, canceled, suspended or modified. 2.1.17 Litigation2.1.17 Litigation. Except as set forth in Schedule 2.1.17 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which the Company is a party or, to the knowledge of the Shareholders, might become a party which particularly affects the Company or its assets, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of the Company pending or, to the knowledge of any of the either of the Shareholders, threatened. 2.1.18 Environmental Compliance2.1.18 Environmental Compliance. 2.1.18.1 Environmental Conditions2.1.18.1 Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any Substance of Environmental Concern, on any property presently or previously owned, leased or operated by the Company, or on any property to which any Substance of Environmental Concern or waste generated by the Company=s operations or use of its assets were disposed of, which would have a result a material adverse effect on the business or business prospects of the Company. The term ASubstance of Environmental Concern@ means (a) any gasoline, petroleum (including crude oil or any fraction thereof), petroleum product, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos, pollutant, contaminant, radiation and any other substance of any kind, whether or not any such substance is defined as toxic or hazardous under any Environmental Law ( as defined in Section 2.1.18.3 hereof), that is regulated pursuant to or could give rise to liability under any Environmental Law; 2.1.18.2 Permits, etc.2.1.18.2 Permits, etc. The Company has, and within the period of all applicable statutes of limitations has had, in full force and effect all environmental Permits required to conduct its operations, and is, and within the period of all applicable statutes of limitations has been, operating in compliance thereunder. 2.1.18.3 Compliance2.1.18.3 Compliance. The Company=s operations and use of its assets are, and within the period of all applicable statutes of limitations, have been in compliance with applicable Environmental Law. AEnvironmental Law@ as used herein means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any state, local, municipal or other governmental authority, or quasi-governmental authority, regulating, relating to, or imposing liability or standards of conduct concerning protection of the environmental or of human health, or employee health and safety as from time to time has been or is now in effect; 2.1.18.4 Environmental Claims2.1.18.4 Environmental Claims. No notice has been received by the Company or either of the Shareholders from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action, litigation, or liability, including, without limitation any claim for remedial obligations, response costs or contribution, relating to any Environmental Law; 2.1.18.5 Enforcement2.1.18.5 Enforcement. The Company, and to the knowledge of either of the Shareholders, no predecessor of the Company or other party acting on behalf of the Company, has entered into or agreed to any consent, decree, order, settlement or other agreement, nor is subject to any judgment, decree, order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law; 2.1.18.6 Liabilities2.1.18.6 Liabilities. The Company has not assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law. 2.1.18.7 Renewals2.1.18.7 Renewals. Neither of the Shareholders knows of any reason the Company (or its successors) would not be able to renew without material expense any of the permits, licenses, or other authorizations required pursuant to any of the Environmental Law to conduct and use any of the Company=s current or planned operations; and 2.1.18.8 Asbestos and PCBs2.1.18.8 Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by the Company, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by the Company in its operations or on its properties. 2.1.19 Compliance with Other Laws2.1.19 Compliance with Other Laws. The Company is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.20 ERISA Plans or Labor Issues2.1.20 ERISA Plans or Labor Issues. Except as identified in Schedule 2.1.8.8, the Company does not currently sponsor, maintain or contribute to, and has not at any time sponsored, maintained or contributed to, any Employee Plan (as defined in Section 2.1.8.8 hereof) or any employee benefit plan which is subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended (AERISA@), in which any of its employees are or were participants (whether on an active or frozen basis). Each Employee Plan set forth in Schedule 2.1.8.8 complies currently, and has complied in the past, in form and operation, with the applicable provisions of ERISA, the Internal Revenue Code of 1986, as amended (the ACode@) and other applicable laws including, without limitation, all qualification and reporting and disclosure requirements. Also, with respect to each Employee Plan, the Company and any other party in interest has not engaged in any prohibited transaction or any violation of its fiduciary duties to such plan. All contributions required to be made to each Employee Plan under the terms of such Employee Plan, ERISA or other applicable law have been timely made and there are no delinquent contributions as of the Closing Date. None of the Employee Plans (i) is a Amultiemployer plan@ (as defined in Section 3(37) of ERISA), (ii) is a defined benefit pension plan subject to Title IV of ERISA, (iii) is a Avoluntary employees= beneficiary association@ within the meaning of Code Section 501(c)(9), (iv provides for medical or other insurance benefits to current or future retired employees or former employees of the Company (other than as required for group health plan continuation coverage under Code Section 4980B (ACOBRA@) or applicable state law), or (v) obligates the Company to pay any benefits solely as a result of a change in control of the Company. During the six years preceding the Closing Date, (i no under-funded pension plan subject to Section 412 of the Code has been transferred out of the Company, (ii) the Company has not participated in or contributed to, or had an obligation to contribute to, any multiemployer plan (as defined in ERISA Section 3(37)) and has no withdrawal liability with respect to any multiemployer plan, and (iii) the Company has not maintained any pension plan subject to Title IV of ERISA. There are no claims, lawsuits or regulatory actions which have been asserted, instituted or threatened against any Employee Plan by any fiduciary or participant of such plan, except routine claims for benefits thereunder, or by any governmental entity. The Company has no collective bargaining agreements with any labor union or other representative of employees. The Company has not engaged in any unfair labor practices. The Company is not aware of any pending or threatened dispute with any of its existing or former employees. 2.1.21 Investigations; Litigation2.1.21 Investigations; Litigation. No investigation or review by any governmental entity with respect to the Company or any of the transactions contemplated by this Agreement is pending or, to the knowledge of either of the Shareholders, threatened, nor has any governmental entity indicated to the Company or either of the Shareholders an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of either of the Shareholders, threatened against or affecting the Company at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of the Company. 2.1.22 Absence of Certain Business Practices2.1.22 Absence of Certain Business Practices. Neither the Company nor any officer, employee or agent of the Company, nor any other person acting on its behalf, has directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of the Company (or to assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in the Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of the Company or which might subject the Company to suit or penalty in a private or governmental litigation or proceeding. 2.1.23 No Untrue Statements2.1.23 No Untrue Statements. The Company and each of the Shareholders have made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, list of suppliers and customers, and records relating principally to the Company=s assets and business, and such information covers all commitments and liabilities of the Company relating to its business or its assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact of omit to state any material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.24 Consents and Approvals2.1.24 Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than the Shareholders, is required to be made or obtained by the Company or either of Shareholders in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.25 Finder=s Fee2.1.25 Finder=s Fee. All negotiations relative to this Agreement, the Non-Competition Agreement and the Consulting Agreement, and the transactions contemplated hereby and thereby, have been carried on by the Shareholders and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payments. 2.2 Representations and Warranties of Buyer2.2 Representations and Warranties of Buyer. Buyer represents and warrants to each of the Shareholders as follows: 2.2.1 Organization and Good Standing2.2.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.2.2 Agreement Authorized and its Effect on Other Obligations2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation of breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3 Consents and Approvals2.2.3 Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4 Investigations; Litigation2.2.4 Investigations; Litigation. No investigation or review by any governmental entity with respect to Buyer in connection with any of the transactions contemplated by this Agreement is pending or, to the best of Buyer=s knowledge, threatened, nor has any governmental entity indicated to Buyer an intention to conduct the same. There is no action, suit or proceeding pending or, to the Buyer=s knowledge, threatened against or affecting Buyer by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, which either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or businesses of Buyer. ARTICLE 3 ADDITIONAL AGREEMENTS ARTICLE 3.........ADDITIONAL AGREEMENTS3.1 Further Assurances3.1 Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. 3.2 Public Announcements3.2 Public Announcements. Except as mutually agreed, neither Buyer, the Shareholders nor any of their respective Affiliates or agents shall issue any press release or public announcement regarding the execution of this Agreement or the transactions contemplated thereby. The Shareholders hereby consent to Buyer=s issuance of a press release announcing the completion of the transactions contemplated by this Agreement. 3.3 338(h)(10) Election3.3 338(h)(10) Election. If the Buyer elects to file an election to treat the acquisition of the Company Shares as an asset purchase under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, Shareholders agree to execute and deliver to Buyer any documents required to be executed by Shareholders in connection with such election, and Buyer will compensate and indemnify the Shareholders for any increased tax liability resulting therefrom. In addition, Buyer will indemnify and reimburse Shareholders for any additional tax that may be deemed to be paid by Shareholders on income created by Buyer compensating Shareholders for taxes paid on a Section 338(h)(10) election increase in asset values. ARTICLE 4 INDEMNIFICATION ARTICLE 4 INDEMNIFICATION 4.1 Indemnification by the Shareholders4.1 Indemnification by the Shareholders. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, each of the Shareholders shall jointly and severally indemnify, defend and hold harmless the Company, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the ABuyer Indemnified Parties@), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the ADamages@) that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to any breach by either of the Shareholders of (or the failure of either of the Shareholders to perform) their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument delivered to Buyer by either of the Shareholders under this Agreement. 4.2 Indemnification by Buyer4.2 Indemnification by Buyer. In addition to any other remedies available to the Shareholders under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless each of the Shareholders against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to either of the Shareholders by or on behalf of Buyer under this Agreement. 4.3. Indemnification Procedure4.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Section 4.1 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. As indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. ARTICLE 5 MISCELLANEOUS ARTICLE 5 MISCELLANEOUS 5.1 Survival of Representations, Warranties and Covenants5.1 Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive indefinitely despite any investigation made by any party hereto or on its behalf. 5.2 Entirety5.2.......Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3 Counterparts5.3...Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4 Notices and Waivers5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer: Addressed to:.............. With a copy to: Key Rocky Mountain, Inc.... Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel..... Attn: Samuel N. Allen Facsimile: (908) 247-5148.. Facsimile: (713) 228-1331 If to either Shareholder: Addressed to:.............. With a copy to: Joseph R. Dunbar........... Nicholas H. Carter P.O. Box 1209.............. P. O. Box 909 Gillette, Wyoming 82717-1209 Gillette, WY 82717-0909 Facsimile: (307) 687-0029. Facsimile: (307) 687-7690 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5 Table of Contents and Captions5.5 Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6 Successors and Assigns5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7 Severability5.7...Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8 Applicable Law5.8.Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Wyoming. 5.9 Sale of Certain Properties. Company currently owns several oil and gas properties which are included in the 6/30 Balance Sheet. The Company is attempting to sell the properties and it is agreed that if the properties have not been sold before the Closing Date, the properties will be assigned by the Company to the Shareholders and all proceeds from the sale of the properties and any oil or gas production following the Closing Date will belong to the Shareholders. IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the Buyer has caused this Agreement to be signed in its corporate name by its duly authorized representative, all as of the day and year first above written. BUYER: KEY ROCKY MOUNTAIN, INC. By: Kenneth V. Huseman, Vice President SHAREHOLDERS: Joseph R. Dunbar Janice N. Dunbar EX-10.(N) 12 FRONTIER STOCK PURCHASE AGREEMENT ::ODMA\PCDOCS\DOCS\141015\3 Stock Purchase Agreement among Key Rocky Mountain, Inc., Bruce L. Bummer, Jack Hartnett, Diane Hartnett and Bruce Bummer 7/14/82 Family Trust Dated as of September 30, 1997 ::ODMA\PCDOCS\DOCS\141015\3 TABLE OF CONTENTS Page ARTICLE 1Purchase and Sale 1.1. Purchase and Sale of the Company Shares.............................1 1.2. Adjustment of Purchase Price........................................1 1.3. Closing.............................................................2 1.4. Closing Deliveries..................................................2 1.4.1. Opinion of Buyer=s Counsel..................................2 1.4.2. Opinion of Shareholders= Counsel............................3 1.5. Resignations; Consulting Agreement..................................3 ARTICLE 2Representations and Warranties 2.1. Representations and Warranties of the Shareholders..................3 2.1.1. Organization and Standing..................................3 2.1.2. Agreement Authorized and its Effect on Other Obligations...4 2.1.3. Capitalization.............................................4 2.1.4. Ownership of the Company Shares............................4 2.1.5. No Subsidiaries............................................4 2.1.6. Financial Statements.......................................4 2.1.7. Liabilities................................................5 2.1.8. Additional Company Information.............................5 2.1.9. No Defaults................................................7 2.1.10. Absence of Certain Changes and Events......................7 2.1.11. Taxes......................................................8 2.1.12. Intellectual Property......................................8 2.1.13. Title to and Condition of Assets...........................9 2.1.14. Contracts..................................................9 2.1.15. Licenses and Permits.......................................9 2.1.16. Litigation.................................................10 2.1.17. Environmental Compliance...................................10 2.1.18. Compliance with Other Laws.................................11 2.1.19. No ERISA Plans or Labor Issues.............................11 2.1.20. Investigations; Litigation.................................12 2.1.21. Absence of Certain Business Practices......................12 2.1.22. No Untrue Statements.......................................12 2.1.23. Consents and Approvals.....................................12 2.1.24. Finder=s Fee...............................................13 2.2. Representations and Warranties of Buyer.............................13 2.2.1. Organization and Good Standing..............................13 2.2.2. Agreement Authorized and its Effect on Other Obligations....13 2.2.3. Consents and Approvals......................................13 2.2.4. Finder=s Fee................................................13 ARTICLE 3Additional Agreements 3.1. Noncompetition......................................................13 3.2. Further Assurances..................................................14 3.3. Public Announcements................................................14 3.4. 338(h)(10) Election.................................................14 3.5. Waste Disposal......................................................14 ARTICLE 4Indemnification 4.1. Indemnification by the Shareholders................................15 4.2. Indemnification by Buyer............................................15 4.3. Indemnification Procedure...........................................15 ARTICLE 5Miscellaneous 5.1. Survival of Representations, Warranties and Covenants...............16 5.2. Entirety............................................................16 5.3. Counterparts........................................................16 5.4. Notices and Waivers.................................................16 5.5. Table of Contents and Captions......................................17 5.6. Successors and Assigns..............................................17 5.7. Severability........................................................17 5.8. Applicable Law......................................................18 ::ODMA\PCDOCS\DOCS\141015\3 Stock Purchase Agreement This Stock Purchase Agreement (this AAgreement@) is entered into as of September 30, 1997, by and among Key Rocky Mountain, Inc., a Delaware corporation (ABuyer@), and Bruce L. Bummer (ABummer@), Jack Hartnett, Bruce Bummer 7/14/82 Family Trust (AFamily Trust@) and Diane Hartnett (Bummer, Hartnett, Diane Hartnett and the Family Trust, collectively the AShareholders@). - ------------------------------------------------------------------------------ WITNESSETH : - ------------------------------------------------------------------------------ Whereas, Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; Whereas, Frontier Well Service, Inc. (the ACompany@) is a corporation duly organized and validly existing under the laws of the State of Wyoming, with its principal executive offices at 2377 Melody Lane, Casper, Wyoming 82601; Whereas, the Shareholders own 2,000 shares (the ACompany Shares@) of common stock, no par value, of the Company (the ACompany Common Stock@), which constitutes all of the issued and outstanding shares of capital stock of the Company; and Whereas, the Shareholders desire to sell to Buyer, and Buyer desires to purchase from the Shareholders, all of the issued and outstanding capital stock of the Company. Now, Therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Purchase and Sale ARTICLE 1 Purchase and Sale 1.1. Purchase and Sale of the Company Shares.Purchase and Sale of the Company Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholders agree to sell and convey to Buyer, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Buyer agrees to purchase and accept from the Shareholders, all of the Company Shares. In consideration of the sale of the Company Shares, Buyer shall pay to the Shareholders a purchase price of $3,500,000 (the APurchase Price@), and the Cash Adjustment Payment (as defined in Section 1.2 hereof), if any, in accordance with Section 1.2 hereof. - ------------------------------------------------------------------------------- TABLE OF CONTENTS - ------------------------------------------------------------------------------- (continued) Page 21 ::ODMA\PCDOCS\DOCS\141015\3 1.2. Adjustment of Purchase Price1.2. Adjustment of Purchase Price. Buyer shall cause to be prepared and delivered to the Shareholders a consolidated balance sheet of the Company as of the date hereof (the AFinal Balance Sheet@) within 60 days after the date hereof, which balance sheet will be prepared in accordance with generally accepted accounting principles, consistently applied in all respects (which shall not include any reserve or accruals for employee termination costs). Buyer and the Shareholders shall jointly review the Final Balance Sheet, and endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 90 days from the date hereof. In the event that the parties cannot agree on the entries to be placed on the Final Balance Sheet, the dispute will be resolved by an independent accounting firm mutually agreed to by the Shareholders and Buyer (such agreement not to be unreasonably withheld or delayed) whose resolution shall be binding on and enforceable against the parties hereto. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If the sum of (A) the Final Net Current Value of the Company (defined below) plus (B) any amounts spent by the Company as capital expenditures used to expand the Company=s business (the ACapital Expenditure Amount@) exceeds $0.00, Buyer shall pay to the Shareholders the amount of such excess (the ACash Adjustment Payment@); or (2) If the sum of (A) the Final Net Current Value of the Company plus the Capital Expenditure Amount is less than $0.00, the Shareholder shall pay to Buyer the amount of such difference. The term AFinal Net Current Value of the Company@ means the dollar value of the amount by which the ATotal Current Assets@ (excluding ACash Value-Life Insurance@) as recorded on the Final Balance Sheet exceeds the ATotal Current Liabilities@ as recorded on the Final Balance Sheet. In determining the Final Net Current Value of the Company, the Buyer shall have the option to either acquire and pay for the uncollected receivables listed on Schedule 2.1.6 or assign such uncollected receivables to Sellers and, to the extent so assigned, the amount of such assigned uncollected receivables shall be deducted from the Net Current Value of the Company. 1.3. Closing.Closing. Consummation of the transactions contemplated by this Agreement (the AClosing@) shall take place at the offices or the Company located at 2377 Melody Lane, Casper, Wyoming 82601 at 9:00 a.m. on September 30, 1997 (the AClosing Date@), unless another time, place or date is agreed to by the Shareholders and the Buyer. 1.4. Closing Deliveries.Closing Deliveries. At the Closing, (a) the Shareholders shall deliver to Buyer duly and validly issued certificate(s) representing all shares of Company Shares owned beneficially or of record by them, each such certificate to be duly endorsed in blank and in good form for transfer, or accompanied by stock powers duly executed in blank sufficient and in good form to properly transfer such shares to Buyer, (b) the Shareholders and Buyer shall have delivered to one another all other documents, instruments and agreements as required under this Agreement, (c) Buyer shall deliver to the Shareholders the cash purchase price payable at Closing as provided in Section 1.1 by a check drawn on the account of Buyer or one of Buyer=s affiliates, and (d) the Buyer and Shareholders will deliver to one another the opinions of counsel as described below: 1.4.1. Opinion of Buyer=s Counsel.Opinion of Buyer=s Counsel. The Buyer shall deliver a favorable opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P., counsel for the Buyer, in form and substance satisfactory to the Shareholders, to the effect that (i) the Buyer has been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of organization; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement and the implementation of the transactions contemplated hereby have been taken; and (iii) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of the Buyer and is enforceable against Buyer in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of the Buyer as to matters of fact and (ii) the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to the Shareholders, as to matters other than federal or Texas law. 1.4.2. Opinion of Shareholders= Counsel.Opinion of Shareholders= Counsel. The Shareholders shall deliver a favorable opinion, dated the Closing Date, from Jeffrey C. Gosman, counsel to the Shareholders, in form and substance satisfactory to Buyer, to the effect that (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Wyoming and is qualified to transact business in every jurisdiction in which the nature of the Company=s contacts require such qualification, (ii) all outstanding shares of the Company Common Stock have been validly issued and are fully paid and nonassessable; (iii) all of the Company Shares are owned beneficially and of record by the Shareholders free of any Encumbrances; (iv) the Company owns all of its assets free and clear of any Encumbrances other than those Encumbrances listed on the Balance Sheet or Schedules hereto, and (v) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of the Shareholders and is enforceable against the Company and the Shareholders in accordance with its terms, except as the enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of the Company or the Shareholders as to matters of fact and (ii) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Wyoming law. 1.5. Resignations; Consulting Agreement.Resignations; Consulting Agreement. At the Closing, each of the officers and directors of the Company will resign, and Buyer will enter into a Consulting Agreement with Bummer and an Employment Agreement with Hartnett (the AEmployment Agreement@) in form and substance satisfactory to the parties thereto. ARTICLE 2 Representations and Warranties ARTICLE 2 Representations and Warranties 2.1. Representations and Warranties of the Shareholders.Representations and Warranties of the Shareholders. Each of the Shareholders jointly and severally represents and warrants to Buyer as follows: 2.1.1. Organization and Standing.Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Wyoming, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.1.2. Agreement Authorized and its Effect on Other Obligations.Agreement Authorized and its Effect on Other Obligations. Each of the Shareholders is a resident of Wyoming, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his obligations under this Agreement. This Agreement is a valid and binding obligation of each of the Shareholders enforceable against each of the Shareholders in accordance with its terms. The execution, delivery and performance of this Agreement by the Company and each of the Shareholders will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of the Company or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Company or either of the Shareholders is a party or by which the Company or either of the Shareholders or their respective properties are bound. 2.1.3. Capitalization.Capitalization. The authorized capitalization of the Company consists of 50,000 shares of Company Common Stock, of which, as of the date hereof, 2,000 shares are issued and outstanding and held beneficially and of record by the Shareholders. On the date hereof, the Company does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Company Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Company Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of the Company Shares.Ownership of the Company Shares. The Shareholders hold good and valid title to all of the Company Shares, free and clear of all Encumbrances. The Shareholders possess full authority and legal right to sell, transfer and assign the Company Shares to Buyer, free and clear of all Encumbrances. Upon transfer to Buyer by the Shareholders of the Company Shares, Buyer will own the Company Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of either of the Shareholders, threatened, against the Company or either of the Shareholders that concern or affect title to the Company Shares, or that seek to compel the issuance of capital stock or other securities of the Company. 2.1.5. No Subsidiaries2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which the Company, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of the outstanding voting securities. 2.1.6. Financial Statements2.1.6.Financial Statements. The Company has delivered to Buyer copies of the Company=s unaudited balance sheet as of June 30, 1997, a copy of which is attached hereto as Schedule 2.1.6 (the A6/30 Balance Sheet@), and related statements of income (collectively, the AFinancial Statements@), as at and for the six months ended as of June 30, 1997 (the ABalance Sheet Date@). The Financial Statements are complete in all material respects. The Financial Statements present fairly the financial condition of the Company as at the dates and for the periods indicated. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. Except as set forth on Schedule 2.1.6, the accounts receivable reflected in the 6/30 Balance Sheet, or which have been thereafter acquired by the Company, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. The inventories of the Company reflected in the 6/30 Balance Sheet, or which have thereafter been acquired by it, consist of items of a quality usable and salable in the normal course of the Company=s business, and the values at which inventories are carried are at the lower of cost or market. 2.1.7. Liabilities2.1.7.Liabilities. The Company does not have any liabilities or obligations, either accrued, absolute or contingent, nor do either of the Shareholders have any knowledge of any potential liabilities or obligations, other than those (i) reflected or reserved against in the 6/30 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date that would not materially adversely affect the value and conduct of the business of the Company 2.1.8. Additional Company Information2.1.8. Additional Company Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists of the following items: 2.1.8.1. Real Estate2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company, with a description of the nature and amount of any Encumbrances thereon. The term AEncumbrances@ means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2. Machinery and Equipment2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Company with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3. Inventory2.1.8.3. Inventory. All inventory items or groups of inventory items owned by the Company, excluding raw materials and work in process, which raw materials and work in process are valued on the 6/30 Balance Sheet, together with the amount of any Encumbrances thereon; 2.1.8.4. Receivables2.1.8.4. Receivables. All accounts and notes receivable of the Company, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which the Company holds a security interest to secure payment of the underlying indebtedness, and (iv) a description of the nature and amount of any Encumbrances on such accounts and notes receivable; 2.1.8.5. Payables2.1.8.5. Payables. All accounts and notes payable of the Company, together with an appropriate aging schedule. The amounts owed represented by the line items ACurrent MaturitiesCNotes Payable@ and ANotes PayableCDue After One Year@ on the 6/30 Balance Sheet still owed and outstanding (including accrued and unpaid interest) as of the date hereof is $0.00 (the ANotes Payable Amount@); 2.1.8.6. Insurance2.1.8.6. Insurance. All insurance policies or bonds currently maintained by the Company, including title insurance policies, with respect to the Company, including those covering the Company=s properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, deductibles, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.7. Contracts2.1.8.7. Contracts. All contracts, including leases under which the Company is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.8. Employee Compensation Plans2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other employee benefit or fringe benefit plans, arrangements or trust agreements of the Company or any employee benefit plan maintained by the Company, together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters and other correspondence from governmental entities that have been received with respect to such plans, arrangements or agreements (collectively, AEmployee Plans@); 2.1.8.9. Salaries2.1.8.9. Salaries. The names and salary rates of all present employees of the Company, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.10. Bank Accounts2.1.8.10. Bank Accounts. The name of each bank in which the Company has an account and the names of all persons authorized to draw thereon; 2.1.8.11. Employee Agreements2.1.8.11. Employee Agreements. Any collective bargaining agreements of the Company with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of the Company; 2.1.8.12. Intellectual Property2.1.8.12. Intellectual Property. All patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the AIntellectual Property@) used by the Company; 2.1.8.13. Trade Names2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used or held by the Company, whether and where such names are registered and where used; 2.1.8.14. Licenses and Permits2.1.8.14. Licenses and Permits. All permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the APermits@) of the Company under which it conducts its business; 2.1.8.15. Promissory Notes2.1.8.15. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of the Company relating thereto or with respect to collateral securing the same; 2.1.8.16. Guaranties2.1.8.16. Guaranties. All indebtedness, liabilities and commitments of others and as to which the Company is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.17. Reserves and Accruals.2.1.8.17. Reserves and Accruals. All accounting reserves and accruals maintained in the 6/30 Balance Sheet; 2.1.8.18. Leases.2.1.8.18. Leases. All leases to which the Company is a party; and 2.1.8.19. Environment.2.1.8.19. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by the Company and all environmental audits, assessments, investigations and reviews conducted by the Company within the last five years or otherwise in the Company=s possession on any property owned, leased or used by the Company. 2.1.9. No Defaults.2.1.9. No Defaults. The Company is not a party to, or bound by, any contract or arrangement of any kind to be performed after the date hereof, nor is the Company in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10. Absence of Certain Changes and Events2.1.10. Absence of Certain Changes and Events. Except as disclosed on Schedule 2.1.10 hereto and other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.10.1. Financial Change2.1.10.1. Financial Change. Any adverse change in the financial condition, backlog, operations, assets, liabilities or business of the Company; 2.1.10.2. Property Damage2.1.10.2. Property Damage. Any material damage, destruction, or loss to the business or properties of the Company (whether or not covered by insurance); 2.1.10.3. Dividends2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Company Common Stock, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; 2.1.10.4. Capitalization Change2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of the Company=s authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes2.1.10.5. Labor Disputes. Any labor or employment dispute of whatever nature; or 2.1.10.6. Other Material Changes2.1.10.6. Other Material Changes. Any other event or condition known to either of the Shareholders particularly pertaining to and adversely affecting the operations, assets or business of the Company. 2.1.11. Taxes2.1.11. Taxes. 2.1.11.1. GeneralGeneral. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by the Company for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all such returns are true and correct; the Company has only done business in Wyoming, Colorado, Nevada, North Dakota, Montana and New Mexico; all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by the Company; and the tax provision reflected in the 6/30 Balance Sheet is adequate, in accordance with generally accepted accounting principles, to cover liabilities of the Company at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to the Company or its assets or business. No waiver of any statute of limitations executed by the Company with respect to any income or other tax is in effect for any period. The income tax returns of the Company have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of the Company except for taxes not yet currently due. The Company is not subject to any tax-sharing or allocation agreement. The Company is not and never has been, a member of a consolidated group subject to Treasury Regulation 1.1502-6 or any similar provision. The Company has not received any notice and has no knowledge of any proposal for increasing the assessed value of any of the Company=s properties for tax purposes, or of any pending proceedings or public improvements which would result in the levy of any special tax or assessment against any of the Company=s properties. 2.1.11.2. Subchapter S MattersSubchapter S Matters. The Company (i) made an effective, valid and binding S election pursuant to Section 1362 of the Code effective August 6, 1975, (ii) has since maintained its status as an S Corporation pursuant to Section 1361 of the Code without lapse or interruption, and (iii) has made and continuously maintained elections similar to the federal S election in each state or local jurisdiction where the Company does business or is required to file a tax return to the extent such states or jurisdictions permit such elections. The Company neither is nor will or can be subject to the built-in gains tax under Section 1374 of the Code or any similar corporate level tax imposed on the Company by any taxing authority. The Company (i) has not adopted or utilized LIFO as a method of accounting for inventory, and (ii) has no other tax item, election, agreement or adjustment which will accelerate or trigger income or deferred deductions of the Company as a result of termination of the Company=s status as an S Corporation. 2.1.12. Intellectual Property2.1.12. Intellectual Property. The Company owns or possesses licenses to use all Intellectual Property that is either material to the business of the Company or that is necessary for the rendering of any services rendered by the Company and the use or sale of any equipment or products used or sold by the Company, including all such Intellectual Property listed in Schedule 2.1.8 hereto (the ARequired Intellectual Property@). The Required Intellectual Property is owned or licensed by the Company free and clear of any Encumbrance. The Company has not granted to any other person any license to use any Required Intellectual Property. The Company has not infringed, misappropriated, or conflicted with, the Intellectual Property rights of others in connection with the use by the Company of the Required Intellectual Property or otherwise in connection with the Company=s operation of its business, nor has the Company has received any notice of such infringement, misappropriation, or conflict such Intellectual Property rights of others. 2.1.13. Title to and Condition of Assets2.1.13. Title to and Condition of Assets. The Company has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except Encumbrances reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto. All leases pursuant to which the Company leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company and in respect to which the Company has not taken adequate steps to prevent a default from occurring. The buildings and premises of the Company that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of the Company are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance. All such assets conform to all applicable laws governing their use. The Company has not violated any law, statute, ordinance, or regulation relating to any such assets, nor has any notice of such violation been received by the Company or either of the Shareholders, except such as have been fully complied with. 2.1.14. Contracts.Contracts. All contracts, leases, plans or other arrangements to which the Company is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of the Company. The Company is not, and to the knowledge of the Company or any of the Shareholders, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on the Company. Neither the Company nor either of the Shareholders has received any information which would cause such the Company or such Shareholders to conclude that any customer of the Company will (or is likely to) cease doing business with the Company (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.15. Licenses and Permits.Licenses and Permits. The Company possesses all Permits necessary under law or otherwise for the Company to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used, including all such Permits listed in Schedule 2.1.8 hereto (collectively, the ARequired Permits@). Each of the Required Permits and the Company=s rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Company subject to administrative powers of regulatory agencies having jurisdiction, and will continue will continue in full force and effect after the Closing Date. The Company is in compliance in all respects with the terms of each of the Required Permits. None of the Required Permits have been, or to the knowledge of the Company or either of the Shareholders, is threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation2.1.16. Litigation. Except as set forth in Schedule 2.1.16 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which the Company is a party or, to the knowledge of any of the Company or the Shareholders, might become a party or which particularly affects the Company or its assets, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of the Company, pending or, to the knowledge of any of the either of the Shareholders, threatened. 2.1.17. Environmental Compliance.Environmental Compliance. 2.1.17.1. Environmental Conditions2.1.17.1. Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any Substance of Environmental Concern, on any property presently or previously owned, leased or operated by the Company, or on any property to which any Substance of Environmental Concern or waste generated by the Company=s operations or use of its assets were disposed of, which could have or result in a material adverse effect on the business or business prospects of the Company. The term ASubstance of Environmental Concern@ means (a) any gasoline, petroleum (including crude oil or any fraction thereof), petroleum product, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant, contaminant, radiation, and (b) any other substance of any kind, whether or not any such substance is defined as toxic or hazardous under any Environmental Law (as defined in Section 2.1.17.3 hereof), that is regulated pursuant to or could give rise to liability under any existing Environmental Law; 2.1.17.2. Permits, etc2.1.17.2. Permits, etc. The Company has, and within the period of all applicable statutes of limitations has had, in full force and effect all environmental Permits required to conduct its operations, and is, within the period of all applicable statutes of limitations has been, operating in compliance thereunder; 2.1.17.3. Compliance2.1.17.3. Compliance. The Company=s operations and use of its assets are, and within the period of all applicable statutes of limitations, have been in compliance with applicable Environmental Law. AEnvironmental Law@ as used herein means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any state, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing liability or standards of conduct concerning protection of the environmental or of human health, or employee health and safety as from time to time has been or is now in effect; 2.1.17.4. Environmental Claims2.1.17.4. Environmental Claims. No notice has been received by the Company or either of the Shareholders from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action. litigation, or liability, including, without limitation any claim for remedial obligations, response costs or contribution, relating to any Environmental Law; 2.1.17.5. Enforcement.Enforcement. Neither the Company, and to the knowledge of either of the Shareholders, nor any predecessor of the Company or any other party acting on behalf of the Company, has entered into or agreed to any consent, decree, order, settlement or other agreement, nor is subject to any judgment, decree, order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law; 2.1.17.6. Liabilities.Liabilities. The Company has not assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law; 2.1.17.7. Renewals2.1.17.7. Renewals. Neither the Company nor either of the Shareholders knows of any reason the Company (or its successors) would not be able to renew without material expense any of the permits, licenses, or other authorizations required pursuant to any Environmental Law to use any of the Company=s assets or to conduct current or planned operations; and 2.1.17.8. Asbestos and PCBs2.1.17.8. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by the Company, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by the Company in its operations or on its properties. 2.1.18. Compliance with Other Laws2.1.18. Compliance with Other Laws. The Company is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ''651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.19. No ERISA Plans or Labor Issues2.1.19. No ERISA Plans or Labor Issues. Except as set forth on Schedule 2.1.19, the Company does not currently sponsor, maintain or contribute to and has not at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended (AERISA@). Except as set forth on Schedule 2.1.19, the Company does not maintain any plan, program, policy, contract or other arrangement that provides retirement, medical, dental, disability, life insurance or other benefits to any current or former employees of the Company, including any retired employees, or their beneficiaries or dependents. The Company is not obligated to pay any severance or benefits to any employee or former employee of the Company as the result of any change in the ownership or control of the Company. The Company has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on its operations or assets. The Company does not have any existing dispute with any of its existing or former employees. There are no existing labor disputes or, to the knowledge of either of the Shareholders, any disputes threatened by current or former employees of the Company. 2.1.20. Investigations; Litigation2.1.20. Investigations; Litigation. No investigation or review by any governmental entity with respect to the Company or any of the transactions contemplated by this Agreement is pending or, to the knowledge of the Company or either of the Shareholders, threatened, nor has any governmental entity indicated to the Company or either of the Shareholders an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of either of the Shareholders, threatened against or affecting the Company at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of the Company. 2.1.21. Absence of Certain Business Practices2.1.21. Absence of Certain Business Practices. Neither the Company nor any officer, employee or agent of the Company, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of the Company (or to assist the Company in connection with any actual or proposed transaction) which (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in the Financial Statements, or (iii if not continued in the future, might materially adversely effect the assets, business operations or prospects of the Company or which might subject the Company to suit or penalty in a private or governmental litigation or proceeding. 2.1.22. No Untrue Statements.No Untrue Statements. The Company and each of the Shareholders have made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Company=s assets and business, and such information covers all commitments and liabilities of the Company relating to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.23. Consents and Approvals.Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than the Shareholders, is required to be made or obtained by the Company or either of the Shareholders in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.24. Finder=s Fee2.1.24. Finder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholders and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payments. 2.2. Representations and Warranties of Buyer2.2. Representations and Warranties of Buyer. Buyer represents and warrants to each of the Shareholders as follows 2.2.1. Organization and Good Standing.Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.2.2. Agreement Authorized and its Effect on Other Obligations.Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3. Consents and Approvals.Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4. Finder=s FeeFinder=s Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Buyer and their counsel directly with the Shareholders and their counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder=s fee or any similar payments. ARTICLE 3 Additional Agreements ARTICLE 3 Additional Agreements 3.1. NoncompetitionNoncompetition. Except as otherwise consented to or approved in writing by Buyer, each of the Shareholders agrees that for a period of 60 months from the date hereof, such Shareholder will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in competition with the well service rig and associated equipment business conducted by the Company, Buyer or any affiliate of Buyer on the date hereof in the states of Wyoming, Montana, South Dakota, Colorado, Nebraska and Utah; (ii) request any present customers or suppliers of the Company to curtail or cancel their business with Buyer or any affiliate of Buyer; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of the Company, Buyer or any affiliate of Buyer or any details of their organization or business affairs; or (iv) induce or actively attempt to influence any employee of the Company, Buyer or any affiliate of Buyer to terminate his employment. Each of the Shareholders agrees that if either the length of time or geographical area set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Shareholders may have under the laws of the states in which they do business requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. Each of the Shareholders further agrees and acknowledges that the Company, Buyer and its affiliates do not have any adequate remedy at law for the breach or threatened breach by such Shareholder of this covenant, and agree that the Company, Buyer or any affiliate of Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin such Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Shareholders acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such Shareholder in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 3.2. Further Assurances.Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. 3.3. Public Announcements.Public Announcements. Except as mutually agreed, neither Buyer, the Shareholders nor any of their respective Affiliates or agents shall issue any press release or public announcement regarding the execution of this Agreement or the transactions contemplated thereby. The Shareholders hereby consent to Buyer=s issuance of a press release announcing the completion of the transactions contemplated by this Agreement. 3.4. 338(h)(10) Election.338(h)(10) Election. If the Buyer elects to file an election to treat the acquisition of the Company Shares as an asset purchase under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, Shareholders agree to execute and deliver to Buyer any documents required to be executed by Shareholders in connection with such election, and Buyer will compensate and indemnify the Shareholders for any increased tax liability resulting therefrom. In addition, Buyer will indemnify and reimburse Shareholders for any additional tax that may be deemed to be paid by Shareholders on income created by Buyer compensating Shareholders for taxes paid on a Section 338(h)(10) election increase in asset values. 3.5. Waste Disposal.Waste Disposal. At Casper, Riverton and Douglas, there are unidentified drums and containers as specified in the Phase I Environmental Site Assessment Report dated September 15, 1997 prepared by Carpenter Environmental Services, L.L.C. (the APhase I Report@). The Phase I Report also documents unknown material on a flatbed trailer at Casper in Photograph Number 4. Seller agrees to identify material contained in all such unidentified drums and containers and the material on the flatbed trailer at Casper and advise Buyer of the identity of such material within 14 days of the Closing. Seller further agrees, at Buyer=s request, to properly characterize and dispose of all materials specified by Buyer and all empty containers within 30 days of such request. ARTICLE 4 Indemnification ARTICLE 4 Indemnification 4.1. Indemnification by the Shareholders4.1. Indemnification by the Shareholders. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, each of the Shareholders shall jointly and severally indemnify, defend and hold harmless the Company, Buyer and their affiliates and their respective officers, directors, employees, agents and stockholders (collectively, the ABuyer Indemnified Parties@), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the ADamages@) that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to any breach by either of the Shareholders of (or the failure of either of the Shareholders to perform) their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by either of the Shareholders under this Agreement. 4.2. Indemnification by Buyer4.2. Indemnification by Buyer. In addition to any other remedies available to the Shareholders under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless each of the Shareholders against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to either of the Shareholders by or on behalf of Buyer under this Agreement. 4.3. Indemnification Procedure4.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under this Article ?, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article ?, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed. ARTICLE 5 Miscellaneous ARTICLE 5 Miscellaneous 5.1. Survival of Representations, Warranties and Covenants5.1. Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive indefinitely despite any investigation made by any party hereto or on its behalf. 5.2. Entirety5.2. Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3. Counterparts.Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4. Notices and Waivers.Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: - ------------------------------------------------------------------------------ If to Buyer: - ------------------------------------------------------------------------------- - ------------------------------- ----------------------------------------------- Addressed to: With a copy to: - --------------------------- ----------------------------------------------- - ------------------------------ ----------------------------------------------- Key Rocky Mountain, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 - ------------------------------ ----------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ If to Bruce L. Bummer or the Family Trust: - ------------------------------------------------------------------------------ - ------------------------------ ----------------------------------------------- Addressed to: With a copy to: - ------------------------------ ----------------------------------------------- - ------------------------------ ----------------------------------------------- Bruce L. Bummer Jeffrey C. Gosman 150 Riverbend Road 123 West 1st Street Casper, Wyoming 82604 Casper, Wyoming 82601 Facsimile: (307) 472-4010 - ------------------------------ ----------------------------------------------- - ------------------------------------------------------------------------------ If to Jack Hartnett or Diane Hartnett: - ----------------------------------------------------------------------------- - ----------------------------- ----------------------------------------------- Addressed to: With a copy to: - ------------------------------ ----------------------------------------------- - ------------------------------ ----------------------------------------------- Jack Hartnett Jeffrey C. Gosman 6220 S. Walnut 123 West 1st Street Casper, Wyoming 82601 Casper, Wyoming 82601 Facsimile: (307) 472-4010 - ------------------------------ ----------------------------------------------- Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5. Table of Contents and Captions.Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6. Successors and Assigns.Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7. Severability.Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8. Applicable Law.Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Wyoming. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the Buyer has caused this Agreement to be signed in its corporate name by its duly authorized representative, all as of the day and year first above written. BUYER: KEY ROCKY MOUNTAIN, INC. By: Kenneth V. Huseman, Vice President SHAREHOLDERS: Bruce Bummer, 7/14/82 Family Trust Bruce Bummer, Trustee Jack Hartnett Diane Hartnett Bruce L. Bummer EX-11 13 COMPUTATION OF PER SHARE EARNINGS KEY ENERGY GROUP, INC. COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11(a) THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996 Three Months Ended Three Months Ended November 30, 1997 November 30, 1996 ---------------------- --------------------- (Thousands, except per share Fully- Fully- amounts) Primary Diluted Primary Diluted Net Income and Adjusted Earnings: Net Income before income taxes and minority interest $7,831 $7,831 $2,396 $2,396 Effect of interest on debentures - 219 - 975 ----------------------- -------------------- Adjusted net income before income taxes and minority interest $7,831 $8,050 $2,396 $3,371 ====================== =================== Net Income $4,938 $4,938 $1,554 $1,554 Effect of interest on convertible debentures, net of tax effect - 138 - 649 ---------------------- ------------------- Adjusted net income $4,938 $5,076 $1,554 $2,203 Weighted Average Shares and Share Equivalents Outstanding: Weighted average shares outstanding (as reported) 14,126 14,126 10,425 10,425 Common Share equivalents issuable under stock option plans 1,453 1,682 347 373 Common share equivalents issuable on assumed conversion of WellTech warrants 86 94 122 150 Common share equivalents issuable on assumed conversion of convertible debentures - 4,259 - 5,333 Common share equivalents issuable on assumed conversion of CIT warrants - - - 693 Weighted average shares and share equivalents outstanding 15,665 20,161 10,894 16,974 Earnings per Share: Net income before income taxes and minority interest $0.50 $0.40 $0.22 $0.20 Net income $0.32 $0.25 $0.14 $0.13 EX-27 14 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1998 SEP-30-1997 49,276 0 64,909 0 6,421 121,601 354,538 (23,890) 501,228 43,708 0 0 0 1,795 104,185 501,228 75,556 75,556 51,439 51,439 0 0 3,438 7,831 2,893 4,938 0 0 0 4,938 0.32 0.25
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