-----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, V04E49aFgm/9ZOMoJarpSxd4UbfjIVjGC/Po8ZK6BDLg31xwCGCy7dGThro9gWRw zxmc/d880q3As98Mk1saIg== 0000318996-98-000012.txt : 19980518 0000318996-98-000012.hdr.sgml : 19980518 ACCESSION NUMBER: 0000318996-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE 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: 001-08038 FILM NUMBER: 98623366 BUSINESS ADDRESS: STREET 1: TWO TOWER CTR TWENIETH FL 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 MARCH 31, 1998 _______________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 [ ] 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, 20th 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 Common Shares outstanding at May 13, 1998 - 18,327,390 _______________________________________ KEY ENERGY GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1998 (unaudited) and June 30, 1997 3 Unaudited Consolidated Statements of Operations for the Three months and nine months ended March 31, 1998 and 1997 4 Unaudited Consolidated Statements of Cash Flows for the Three months and nine months ended March 31, 1998 and 1997 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 25 Item 2. Changes in Securities and Use of Proceeds 25 Item 3. Defaults Upon Senior Securities 25 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 KEY ENERGY GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) March 31, June 30, 1998 1997 ---------- --------- (Unaudited) ASSETS Current assets: Cash $26,874 $41,704 Accounts receivable, net 85,629 45,230 Inventories 14,781 5,171 Prepaid expenses and other 4,140 1,228 -------- ------- Total current assets 131,424 93,333 Property and equipment, at cost: Oilfield service equipment 376,666 186,895 Oilfield drilling equipment 47,591 6,319 Oil and gas properties, using the successful efforts accounting method 31,890 23,622 Other property and equipment 32,908 10,419 -------- -------- 489,055 227,255 Less accumulated depreciation and depletion 39,622 19,069 -------- -------- Property and equipment, net 449,433 208,186 -------- -------- Goodwill, net 43,024 16,387 Other assets 14,452 2,189 -------- -------- TOTAL ASSETS $638,333 $320,095 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $16,707 $15,339 Other accrued liabilities 23,583 12,507 Accrued interest 1,325 2,102 Accrued income taxes 326 1,664 Deferred taxes 98 126 Current portion of long-term debt 2,591 1,404 -------- -------- Total current liabilities 44,630 33,142 Long-term debt, net of current portion 356,043 172,763 Noncurrent accrued expenses 5,365 4,017 Deferred taxes 85,333 35,738 Minority interest - 1,256 Commitments and contingencies Stockholders' Equity: Common stock, $0.10 par value per share; 100,000,000 shares authorized, 18,724,056 and 12,297,752 shares issued at March 31, 1998 and June 30, 1997, respectively 1,872 1,230 Additional paid-in capital 118,489 55,031 Treasury stock, at cost; 416,666 shares and zero shares at March 31, 1998 and June June 30, 1997, respectivily (9,682) - Retained earnings 36,283 16,918 -------- -------- Total Stockholders' Equity 146,962 73,179 -------- -------- $638,333 $320,095 ======== ======== The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 KEY ENERGY GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts) Three months ended Nine months ended March 31, March 31, 1998 1997 1998 1997 Revenues: --------------------- -------------------- Oilfield services $104,014 $38,308 $271,505 $97,327 Oilfield drilling 14,078 2,414 25,590 7,097 Oil and gas 1,730 2,250 5,422 5,863 Other, net 902 78 3,201 422 -------- -------- -------- -------- Total revenues 120,724 43,050 305,718 110,709 -------- -------- -------- -------- Costs and expenses: Oilfield services 72,222 26,502 188,814 69,268 Oilfield drilling 10,434 2,061 19,287 5,905 Oil and gas 787 899 2,282 2,185 General and administrative 11,774 4,914 29,947 12,176 Depreciation, depletion and amortization 9,215 3,250 22,101 7,687 Interest expense 5,063 1,861 12,380 4,507 -------- -------- -------- -------- Total costs and expenses 109,495 39,487 274,811 101,728 -------- -------- -------- -------- Income before income taxes and minority interest 11,229 3,563 30,907 8,981 Income tax provision 4,147 1,207 11,542 3,020 Minority interest in income - (9) - (1) -------- -------- -------- -------- Net income $7,082 $2,365 $19,365 $5,962 ======== ======== ======== ======== Net income per share: Basic $0.39 $0.20 $1.15 $0.54 Diluted $0.35 $0.17 $0.97 $0.46 Weighted average shares outstanding: Basic 18,295 11,612 16,843 10,961 Diluted 25,449 18,162 23,725 17,251 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 KEY ENERGY GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three months ended Nine months ended March 31, March 31, 1998 1997 1998 1997 ------------------ ------------------ Cash flows from operating activities: Net income $7,082 $2,365 $19,365 $5,962 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 9,215 3,250 22,101 7,687 Deferred income taxes (261) 1,207 3,809 3,020 Minority interest in net income - (9) - (1) Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (2,062) (3,462) (6,396) (7,135) Other current assets (4,104) (1,253) (4,446) (1,350) Accounts payable and accrued liabilities (7,483) (1,541) (17,121) (4,610) Accrued interest (1,989) 1,158 (776) 875 Other assets and liabilities 1,317 699 (3,400) (107) ------- -------- -------- -------- Net cash provided by (used in) operating activities 1,715 2,414 13,136 4,341 ------- -------- -------- -------- Cash flows from investing activities: Property and equipment additions related to: Oilfield service operations (9,965) (3,108) (28,927) (9,057) Oilfield drilling operations (1,593) (485) (4,966) (1,076) Oil and gas operations (1,815) (1,623) (4,080) (2,639) Acquisitions of: Oilfield service operations, net of cash acquired (24,654) (8,494) (159,314) (21,722) Oilfield drilling operations, net of cash acquired (15,216) - (37,082) - Oil and gas operations, net of cash acquired - - (600) (281) Minority interest - - (3,426) - ------- ------- -------- -------- Net cash used in investing activities (53,243) (13,710) (238,395) (34,775) ------- ------- -------- -------- Cash flows from financing activities: Principal payments on debt (936) (200) (3,483) (1,253) Repayment of long-term debt - (1,675) (216,337) (37,088) Borrowings under line of credit 25,000 1,980 224,000 3,287 Purchase of treasury stock - - (9,682) - Proceeds from convertible subordinated debentures, net - - - 50,440 Proceeds from long-term commercial paper debt, net - - 208,500 - Procceds from other long-term debt 568 15,000 2,267 25,500 Proceeds from exercise of warrants - 375 4,222 375 Proceeds from exercise stock options - - 942 58 -------- -------- -------- -------- Net cash provided by financing activities 24,632 15,480 210,429 41,319 -------- -------- -------- --------- Net increase (decrease) in cash (26,896) 4,184 (14,830) 10,885 Cash, beginning of period 53,770 10,912 41,704 4,211 -------- -------- -------- -------- Cash, end of period $26,874 $15,096 $26,874 $15,096 ======== ======== ======== ======== The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 KEY ENERGY GROUP AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 1998 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of Key Energy Group, Inc. (collectively with its subsidiaries, the "Company" or "Key") and its wholly-owned subsidiaries for the interim period as of March 31, 1998 and 1997, and for the three and nine months ended March 31, 1998 and 1997 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods. The results of operations for the three and nine months ended March 31, 1998 are not necessarily indicative of the results of operations for the full fiscal year ended June 30, 1998. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements for the fiscal year ended June 30, 1997 included in the Company's 1997 Annual Report on Form 10-K. Earnings per Share The Company implemented Statement of Financial Accounting Standards No. 128 ("SFAS 128") - Earnings per Share, for the quarter ended December 31, 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 has been applied retro-actively for each period presented. In accordance with SFAS 128, the reconciliation of the numerators and denominators for diluted EPS is presented below: Three MonthsEnded Nine Months Ended March 31, March 31, 1998 1997 1998 1997 ----------------- ----------------- Diluted EPS Computation: Numerator- Net Income $ 7,082 $ 2,365 $19,365 $ 5,962 Effect of Dilutive Securities, Tax Effected: Convertible debt 1,752 634 3,599 1,901 ------ ------ ------ ------ $ 8,834 $ 2,999 $22,964 $7,863 ------ ------ ------ ------ Denominator- Weighted Average Common Shares Outstanding 18,295 11,612 16,843 10,961 Warrants 74 411 199 309 Stock Options 997 806 1,357 648 7% Convertible Subordinated Debentures 472 5,333 1,497 5,333 5% Convertible Subordinated Notes 5,610 - 3,829 - ------ ------ ------ ------ 25,449 18,162 23,725 17,251 ------ ------ ------ ------ Diluted EPS $ 0.35 $ 0.17 $ 0.97 $ 0.46 2. BUSINESS AND PROPERTY ACQUISITIONS The Company The Company conducts its domestic operations primarily through eight wholly-owned subsidiaries: Yale E. Key, Inc., WellTech Eastern, Inc., WellTech Mid-Continent, Inc., Brooks Well Servicing, Inc., Key Four Corners, Inc., Key Rocky Mountain, Inc., Odessa Exploration Incorporated, and Key Energy Drilling, Inc. The Company's Argentina operations are conducted through its wholly-owned subsidiaries Servicios WellTech S.A. and Kenting Drilling (Argentina) S. A. As of May 15, 1998, the Company owned a fleet of approximately 830 well service rigs, 700 oilfield fluid, haul and other trucks, and 63 land drilling rigs, including 16 well service rigs, 14 trucks and 6 drilling rigs in Argentina. Acquisitions Completed During the Nine Months Ended March 31, 1998 The following acquisitions were completed during the nine months ended March 31, 1998. Except as otherwise noted, the results of operations from these acquisitions are included in the Company's results of operations for the applicable three months and nine months ended March 31, 1998. Each of the acquisitions was accounted for using the purchase method of accounting. Unless otherwise noted, the purchase prices specified below are based on cash paid and the value of the Company's common stock, par value $0.10 (the "Common Stock"), issued at the closing of the acquisitions (with the Common Stock being valued at the closing price on the closing date), and do not include any post-closing adjustments, if any, paid or to be paid based upon a re-calculation of the working capital of the acquired company as of the closing date. Edwards Transport, Inc. On March 27, 1998, the Company completed the acquisition of Edwards Transport, Inc. ("Edwards") for approximately $3.0 million in cash. Edwards operates fifteen vacuum and pump trucks in West Texas. The operating results of Edwards will be included in the Company's results of operations effective April 1, 1998. Lundy Vacuum Service, Inc. On March 3, 1998, the Company completed the acquisition of Lundy Vacuum Service, Inc. ("Lundy") for approximately $1.4 million in cash. Lundy operates eight vacuum trucks, other oilfield fluid hauling trucks and an oilfield construction site buisiness in East Texas. The operating results of Lundy will be included in the Company's results of operations effective March 3, 1998. Lauffer Well Service, Inc. On March 2, 1998, the Company completed the acquisition of the assets of Lauffer Well Service, Inc. ("Lauffer") for approximately $400,000 in cash. Lauffer operates four well service rigs in Kentucky. The operating results of Lauffer will be included in the Company's results of operations effective March 2, 1998. Updike Brothers, Inc. On February 6, 1998, the Company completed the acquisition of Updike Brothers, Inc. ("Updike") for approximately for approximately $10.6 million in cash. Updike operates 25 well service rigs in Wyoming. The operating results of Updike are included in the Company's results of operations effective February 6, 1998. Four Corners Drilling Company On February 4, 1998, the Company completed the acquisition of Four Corners Drilling Company ("Four Corners") for approximately $10.0 million in cash. Four Corners owns 12 drilling rigs in the four corners region of the Southwestern United States. The operating results of Four Corners are included in the Company's results of operations effective February 4, 1998. Kingsley Enterprises, Inc. d/b/a Legacy Drilling Co. On January 30, 1998, the Company completed the acquisition of Legacy Drilling Co. ("Legacy") for approximately $3.6 million in cash. Legacy operates four drilling rigs in the Permian Basin region of West Texas. The operating results of Legacy are included in the Company's results of operations effective February 1, 1998 Circle M Vacuum Services, Inc. On January 30, 1998, the Company completed the acquisition of Circle M Vacuum Services, Inc. ("Circle M") for approximately $800,000 in cash. Circle M operates four vacuum trucks, trailers and a salt water disposal well in Southeast Texas. The operating results of Circle M are included in the Company's results of operations effective February 1, 1998 Hot Oil Plus, Inc. On January 29, 1998, the Company completed the acquisition of Hot Oil Plus, Inc. ("Hot Oil Plus") for approximately $1.8 million in cash. Hot Oil Plus operates eight hot oil trucks, a pump truck and a steam heater in Southeast Texas. The operating results of Hot Oil Plus are included in the Company's results of operations effective February 1, 1998. J.W. Gibson Well Service Company On January 8, 1998, the Company completed the acquisition of J.W. Gibson Well Service Company ("Gibson") for approximately $25.5 million, consisting of $23.9 million in cash, 100,000 shares of Common Stock and warrants to acquire 265,000 shares of Common Stock at an exercise price of $18.00 per share, subject to certain adjustments. Gibson operates 74 well service rigs and related equipment in eight states. From August 1, 1997 through the closing of the acquisition, the Company managed the operations of Gibson pursuant to an interim operating agreement. Under the operating agreement, the Company received a management fee equal to the operating income from Gibson's operations less $25,000 per month and received a one-time management fee of $300,000. The full operating results of Gibson are included in the Company's consolidated results of operations effective January 8, 1998. Sitton Drilling Co. On January 1, 1998, the Company completed the acquisition of Sitton Drilling Co. ("Sitton") for approximately $14.8 million, including $12.9 million in cash and 100,000 shares of Common Stock. Sitton operates five drilling rigs in the Permian Basin region of West Texas. The operating results of Sitton are included in the Company's results of operations effective January 1, 1998. Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc. On December 2, 1997, the Company completed the acquisition of the assets of Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc. (collectively the "Critchfield Assets") for approximately $8.5 million, consisting of $2.7 million in cash and 240,000 shares of Common Stock. The Critchfield Assets consist of five land drilling rigs, five well service rigs and other related equipment in Michigan. The operating results of Critchfield Assets are included in the Company's results of operations effective December 2, 1997. Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation On November 24, 1997, the Company completed the acquisition of Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation ("Win-Tex") for approximately $6.7 million in cash. Win-Tex operates six land drilling rigs, trucks, trailers and related equipment in West Texas. The operating results of Win-Tex are included in the Company's results of operations effective December 1, 1997. Jeter Service Co. On November 18, 1997, the Company completed the acquisition of Jeter Service Co. ("Jeter") for approximately $6.7 million in cash. Jeter operates 15 well service rigs, an oilfield supply store and an oilfield location construction/maintenance business with 15 trucks and other related equipment in Oklahoma. The operating results of Jeter are included in the Company's results of operations effective December 1, 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 and 5 equipment hauling trucks in Southeast Texas. The operating results of GSI, Kahlden and McCurdy are included in the Company's results of operations effective October 3, 1997. Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc. On 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 $32.1 million, consisting of $28 million in cash and 125,000 shares of Common Stock. Big A/Sunco operates 25 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 operating results of Big A/Sunco are included in the Company's results of operations effective October 1, 1997. Frontier Well Service, Inc. On 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. The operating results of Frontier are included in the Company's results of operations effective October 1, 1997. Dunbar Well Service, Inc. On 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. The operating results of Dunbar are included in the Company's results of operations effective October 1, 1997. BRW Drilling, Inc. On September 25, 1997, the Company completed the 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 region of West Texas and Eastern New Mexico. The operating results of BRW are included in the Company's results of operations effective October 1, 1997. Landmark Fishing & Rental, Inc. On 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. The operating results of Landmark are included in the Company's results of operations effective September 16, 1997. Waco Oil & Gas Co., Inc. On September 1, 1997, the Company completed the 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 in 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 the sale of these rigs. The operating results of Waco are included in the Company's results of operations effective September 23, 1997. Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc. On 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 the Permian Basin region of West Texas and Southeastern New Mexico. The operating results of Ram/Rowland are included in the Company's results of operations effective September 1, 1997. Mosley Well Service, Inc. On August 22, 1997, the Company completed the acquisition of Mosley Well Service, Inc., ("Mosley"), which operates 36 well service rigs and related equipment in East Texas, Northern Louisiana and Arkansas, for approximately $16.2 million in cash. The operating results of Mosley are included in the Company's results of operations effective August 22, 1997. Kenting Holdings (Argentina) S.A. On 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 Drilling (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. Patrick Well Service, Inc. On July 17, 1997, the Company completed the acquisition of Patrick Well Service, Inc. ("Patrick") for approximately $7.0 million in cash. Patrick operates 29 well service rigs and related equipment in Southwest Kansas, Oklahoma and Southeast Colorado. The operating results of Patrick are included in the Company's results of operations effective August 1, 1997. Servicios WellTech S.A. On July 1, 1997, the Company purchased the remaining 37% minority interest in Servicios WellTech S.A. ("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. The operating results of Servicios are included in the Company's results of operations effective July 17, 1997. Acquisition Completed After March 31, 1998 The following acquisition was completed after March 31, 1998. The results of operations from this acquisition are not included in the Company's results of operations for the three and nine months ended March 31, 1998. JPF Well Service, Inc. and JPF Lease Service, Inc. On April 20, 1998, the Company completed the acquisition of JPF Well Service, Inc. and JPF Lease Service, Inc. (collectively, "JPF") for approximately $6.2 million in cash. JPF operates nine well service rigs and oilfield construction equipment in Southeast Texas. 3. LONG-TERM DEBT At March 31, 1998, major components of the Company's long-term debt were as follows: PNC Credit Agreement On June 6, 1997, the Company entered into an agreement (the "Initial Credit Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a syndication of other lenders 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 LIBOR and the level of the Company's indebtedness. The Initial Credit Agreement contained certain restrictive covenants and required the Company to maintain certain financial ratios. On September 25, 1997, the Company repaid the term loan and a portion of the then outstanding amounts under the revolver by applying the proceeds from the initial and second closings of the Company's private placement of $216 million of 5% Convertible Subordinated Notes (discussed below). Effective November 6, 1997, the Company entered into an Amended and Restated Credit Agreement with PNC (the "Amended Credit Agreement"), as administrative agent and lender, pursuant to which PNC agreed to make revolving credit loans of up to a maximum loan commitment of $200 million. The maximum commitment decreases to $175 million on November 6, 2000 and to $125 million on November 6, 2001. The loan commitment terminates on November 6, 2002. Borrowings under the credit facility may be either (i) Eurodollar Loans with interest currently payable quarterly at LIBOR plus 1.25% subject to adjustment based on certain financial ratios, (ii) Base Rate Loans with interest payable quarterly at the greater of PNC Prime Rate or the Federal Funds Effective Rate plus 1/2%, or (iii) a combination thereof, at the Company's option. The Amended Credit Agreement contains certain restrictive covenants and requires the Company to maintain certain financial ratios. A change of control of the Company, as defined in the Amended Credit Agreement, is an event of default. Borrowings under the Amended Credit Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries. Effective December 3, 1997, PNC completed the syndication of the Amended Credit Agreement. In connection therewith, PNC, as administrative agent, a syndication of lenders and the Company entered into a First Amendment to the Amended and Restated Credit Agreement providing for, among other things, an increase in the maximum commitment to $250 million from $200 million. At March 31, 1998, the principal balance of the Amended Credit Agreement, as amended, was $132 million and the unused credit facility aggregated approximately $118 million, with approximately $3 million reserved for existing letters of credit. 7% Convertible Subordinated Debentures In July 1996, the Company completed a $52,000,000 private offering of 7% Convertible Subordinated Debentures due 2003 (the "Debentures") pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The Debentures are subordinate to the Company's senior indebtedness, which as defined in the indenture pursuant to which the Debentures were issued includes the borrowings under the Amended Credit Agreement, as amended. Interest on the Debentures is payable on January 1 and July 1 of each year. The Debentures are convertible, at any time prior to maturity, at the holders' option, into shares of Common Stock at a conversion price of $9.75 per share, subject to certain adjustments. In addition, Debenture holders who convert prior to July 1, 1999 will be entitled to receive a payment, in cash or Common Stock (at the Company's option), generally equal to 50% of the interest otherwise payable from the date of conversion through July 1, 1999. The Debentures are redeemable, at the option of the Company, on or after July 15, 1999, at a redemption price of 104%, decreasing 1% per year on each anniversary date thereafter. In the event of a change in control of the Company, as defined in the indenture under which the Debentures were issued, each holder of Debentures will have the right, at the holder's option, to require the Company to repurchase all or any part of the holder's Debentures within 60 days of such event at a price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon. As of March 31, 1998, $47,400,000 in principal amount of the Debentures had been converted into 5,062,369 shares of Common Stock at the option of the holders. The number of shares issued included 200,831 shares in excess of the number of shares issuable at the conversion price of $9.75 per share. These additional shares were issued by the Company to induce conversion. Such additional consideration was accounted for as an increase to the Company's equity. In addition, the proportional amount of debt issuance costs associated with the converted Debentures was accounted for as a decrease to the Company's equity. At March 31, 1998, $4,600,000 principal amount of the Debentures remained outstanding. 5% Convertible 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 "Notes"). On October 7, 1997, the Company completed a second closing of its private placement of an additional $16 million of Notes pursuant to the exercise of the remaining portion of the over-allotment option granted to the initial purchasers of the Notes. The placements were made as private offerings pursuant to Rule 144A and Regulation S under the Securities Act. The Notes are subordinate to the Company's senior indebtedness, which, as defined in the indenture under which the Notes were issued, includes the borrowings under the Amended Credit Agreement, as amended. Interest on the Notes is payable on March 15 and September 15 of each year. Interest of approximately $5.1 million was paid on March 15, 1998. The Notes are convertible, at the holder's option, into shares of Common Stock at a conversion price of $38.50 per share, subject to certain adjustments. The Notes are redeemable, at the Company's option, on or after September 15, 2000, in whole or part, together with accrued and unpaid interest. The initial redemption price is 102.86% for the year beginning September 15, 2000 and declines ratably thereafter on an annual basis. In the event of a change in control of the Company, as defined in the indenture under which the Notes were issued, each holder of Notes will have the right, at the holder's option, to require the Company to repurchase all or any part of the holder's Notes, within 60 days of such event, at a price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon. Proceeds from the placement of the Notes were used to repay balances under the Company's credit facilities (see above). At March 31, 1998, $216,000,000 principal amount of the Notes was outstanding. 4. RECENTLY ISSUED ACCOUNTING STANDARDS 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. 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. 6. CASH FLOW DISCLOSURES Supplemental cash flow disclosures (in thousands) for the three months and nine months ended March 31, 1998 and 1997 follows: Three months ended Nine months ended March 31, March 31, 1998 1997 1998 1997 ----- ----- ----- ----- Interest paid $ 5,402 $703 $11,507 $3,632 Taxes paid 5,036 - 8,604 - Supplemental non-cash investing and financing disclosures (in thousands) for the three and nine months ended March 31, 1998 and 1997 follows: Fair Value of Issued Assumption Assumption Acquisition of Common of of Property Stock Debt Working Capital* and Equipment Three months ended March 31, 1998 $4,025 $1,697 $ 10,625 $ 63,165 ====== ====== ======== ========= Nine months ended March 31, 1998 $17,366 $7,595 $ 11,500 $ 213,633 ======= ====== ======== ========= Three months ended March 31, 1997 $ 4,496 $ 695 $ (3,023) $ 34,229 ======= ====== ========= ========= Nine months ended March 31, 1997 $ 16,905 $ 3,049 $(15,243) $ 71,679 ======== ======= ========= ========= * - excluding current maturities of long-term debt. 7. TREASURY STOCK During the nine months ended March 31, 1998, the Company purchased 416,666 shares of Common Stock. All shares were purchased at the then prevailing market prices. The purchased shares are accounted for as treasury stock on the Company's balance sheet under the treasury stock method of accounting. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. Current and Subsequent Events During the nine months ended March 31, 1998, the Company purchased the remaining 37% minority interest in Servicios and completed the acquisition of the following well servicing, trucking, drilling and ancillary equipment companies: Patrick Well Service, Inc. Kenting Holdings (Argentina) S.A. Mosley Well Service, Inc. Ram Oil Well Service, Inc. and Rowland Trucking Co., Inc. Waco Oil & Gas Co., Inc. Landmark Fishing & Rental, Inc. BRW Drilling, Inc. Dunbar Well Service, Inc. Frontier Well Service, Inc. Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co., Inc. GSI Trucking Company, Inc. Kahlden Production Services, Inc. McCurdy Well Service, Inc. Jeter Service Co. Win-Tex Drilling Co., Inc. and Win-Tex Trucking Corporation Wellcorps, L.L.C., White Rhino Drilling, Inc. and S&R Cable, Inc. Sitton Drilling Co. J.W. Gibson Well Service Company Hot Oil Plus, Inc. Kingsley Enterprises, Inc. d/b/a Legacy Drilling Co. Circle M Vacuum Services, Inc. Four Corners Drilling Company Updike Brothers, Inc. Lauffer Well Service, Inc. Lundy Vacuum Service Inc. Edwards Transport, Inc. These acquisitions (which are more fully described in Note 2 to the unaudited consolidated financial statements) included 295 well service rigs (including six well service rigs in Argentina), 257 fluid hauling and other trucks and 49 drilling rigs (including three drilling rigs in Argentina). The total purchase price of these acquisitions totaled approximately $220 million, comprised of approximately $210 million in cash and 565,000 shares of Common Stock. Subsequent to March 31, 1998 and through May 13, 1998, the Company completed the acquisition of JPF Well Service, Inc. and JPF Lease Service, Inc., related companies that operate nine well service rigs and engages in oilfield construction. The purchase price of this subsequent acquisition was approximately $6.2 million. This acquisition was financed through long-term debt borrowings (see Note 3 to the unaudited consolidated financial statements). As of May 13, 1998, the Company owns approximately 830 oilfield servicing rigs, 700 oilfield fluid hauling and other trucks and 63 land drilling rigs. Management currently believes that the Company's active well servicing and fluid hauling fleet is the largest active onshore fleet in the continental United States and is the second largest active fleet in Argentina. The Company operates in most major onshore oil and gas producing regions of the continental United States, with the exception of California, and provides a full range of drilling, completion, maintenance, workover and plugging and abandonment services for the oil and gas industry. Impact of Lower Crude Oil Prices During the six months ended March 31, 1998, the posted price of West Texas intermediate crude oil (the "West Texas Crude Oil Price") fell from prices in excess of $20 per barrel to prices of less than $15 per barrel. From March 31, 1998 through May 13, 1998, the West Texas Crude Oil Price has remained in the range of $14.50 to $15.50 per barrel. This decline in prices is thought to be caused primarily by an oversupply of crude oil inventory created, in part, by an unusually warm winter in the United States and Europe, over production of crude oil from OPEC and non-OPEC countries and a decline in demand from Asian markets. As the result of lower crude oil prices, the Company has experienced a reduction in well completion, workover and drilling activities. This reduction adversely impacted the Company's revenues, net income and cash flows from operations for the quarter ended March 31, 1998 and is expected to similarly impact the Company's results of operations until crude oil prices increase to a level substantially above the current prices and remain at such a price for an extended period of time. Growth Strategy Historically, the domestic well servicing 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 not only on pricing, but also on the 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 twenty-one months, the Company has been the leading consolidator of this industry, completing 45 acquisitions of well servicing and drilling operations through March 31, 1998 and 46 such acquisitions through May 13, 1998. This consolidation has led to reduced fragmentation in the market and a more predictable demand for well services for the Company and its competitors. The Company'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: 1. Identify, negotiate and consummate additional acquisitions of complementary well servicing operations, including rigs, trucking and other ancillary services; 2. Fully integrate acquisitions into the Company's decentralized organizational structure and thereby attempt to maximize operating margins; 3. Expand business lines and services offered by the Company in existing areas of operations; and, 4. Extend the geographic scope and operating environments for the Company's operations. If the current decline in the West Texas Crude Oil Price worsens or persists for a protracted period, the Company may curtail or halt its growth strategy until such time as oil prices reach more favorable ranges. RESULTS OF OPERATIONS 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 consolidated financial statements and related notes thereto appearing elsewhere in this report. QUARTER ENDED MARCH 31, 1998 VERSUS QUARTER ENDED MARCH 31, 1997 Net Income For the quarter ended March 31, 1998, the Company reported net income of $7,082,000 ($.39 per share - basic) as compared to $2,365,000 ($.20 per share - basic) for the quarter ended March 31, 1997, representing an increase of $4,717,000, or 199% (95% increase in basic earnings per share). The increase in net income is primarily attributable to the Company's acquisitions completed between April 1, 1997 and March 31, 1998, increased service and drilling rig utilization rates and price increases. Revenues The Company's total revenues for the quarter ended March 31, 1998 increased by $77,674,000, or 180%, to $120,724,000 compared to $43,050,000 reported for the quarter ended March 31, 1997. The increase is primarily attributable to the Company's acquisitions of oilfield service and drilling rig companies (see Note 2 to the consolidated financial statements), increased demand for oilfield service equipment and price increases for oilfield services. From October 1, 1996 through March 31, 1998, the Company added 490 well servicing rigs, 460 fluid hauling trucks and 52 drilling rigs to its fleet. Oilfield service revenues for the current quarter increased by $65,706,000, or 172%, to $104,014,000 compared to $38,308,000 reported for the quarter ended March 31, 1997. The increase is primarily attributable to recent acquisitions, increased demand for oilfield service equipment and price increases for oilfield services. Drilling revenues for the quarter ended March 31, 1998 increased by $11,664,000, or 483%, to $14,078,000 compared to $2,414,000 reported for the quarter ended March 31, 1997. The increase is primarily attributable to recent contract drilling acquisitions, higher utilization and price increases. Oil and gas revenues for the quarter ended March 31, 1998 decreased by $520,000, or 23%, to $1,730,000 compared to $2,250,000 reported for the quarter ended March 31, 1997. The decrease is primarily attributable to lower crude oil prices. Costs and Expenses and Operating Margins The Company's total costs and expenses for the quarter ended March 31, 1998 increased by $70,008,000, or 177%, to $109,495,000 compared to $39,487,000 reported for the quarter ended March 31, 1997. The increase is directly attributable to increased operating costs and expenses associated with the Company's recent acquisitions. Oilfield service expenses for the quarter ended March 31, 1998 increased by $45,720,000, or 173%, to $72,222,000 compared to $26,502,000 reported for the quarter ended March 31, 1997. Oilfield service margins (revenues less direct costs and expenses) increased for the quarter ended March 31, 1998 by $19,986,000, or 169%, to $31,792,000 compared to $11,806,000 for the quarter ended March 31, 1997. Oilfield service margins as a percentage of oilfield service revenue for the quarters ended March 31, 1998 and 1997 was 31% and 31%, respectively. In addition, the Company has continued to expand its services, offering higher margin ancillary services and equipment such as well fishing tools, blow-out preventors and frac tanks. The Company's contract drilling costs and expenses for the quarter ended March 31, 1998 increased by $8,373,000, or 406%, to $10,434,000 compared to $2,061,000 for the quarter ended March 31, 1997. Oilfield drilling margins for the Company's drilling operations during the quarter ended March 31, 1998 increased by $3,291,000, or 932%, to $3,644,000 compared to $353,000 for the quarter ended March 31, 1997. Oilfield drilling margin as a percentage of oilfield drilling revenue for the quarters ended March 31, 1998 and 1997 was 26% and 15%, respectively. Such increases are attributable to the Company's recent acquisitions of contract drilling companies, increased activity and operating efficiencies. There was no significant change in oil and gas production costs and expenses for the quarter ended March 31, 1998. General and administrative expenses for the quarter ended March 31, 1998 increased by $6,860,000, or 140%, to $11,774,000 compared to $4,914,000 for the quarter ended March 31, 1997. The increase was primarily attributable to the Company's recent acquisitions and expanded services. General and administrative expenses as a percentage of total revenue decreased from 11% during the quarter ended March 31, 1997 to 10% for the quarter ended March 31, 1998. Depreciation, depletion and amortization expense for the quarter ended March 31, 1998 increased by $5,965,000, or 184%, to $9,215,000 compared to $3,250,000 for the quarter ended March 31, 1997. The increase is directly related to the increase in property and equipment, increased goodwill, and long-term debt issuance cost incurred by the Company over the past eighteen months in conjunction with its acquisitions. Interest expense for the quarter ended March 31, 1998 increased by $3,202,000, or 172%, to $5,063,000 compared to $1,861,000 for the quarter ended March 31, 1997. The increase was primarily the result of increased indebtedness as a result of the Company's acquisition program. Income tax expense for the quarter ended March 31, 1998 increased by $2,940,000, or 244%, to $4,147,000 compared to $1,207,000 for the quarter ended March 31, 1997. The Company does not expect to have to pay the full amount of the income tax provision because of the availability of accelerated tax depreciation, drilling tax credits, and tax loss carry-forwards. Cash Flows Net cash provided by operating activities for the quarter ended March 31, 1998 decreased by $699,000 or 29%, to $1,715,000 compared to the $2,414,000 used by operating activities for the quarter ended March 31, 1997. The decrease is primarily attributable to interest paid in the current quarter, an increase in accounts receivable and a decrease in accounts payable, net of current quarter acquisitions. Net cash used in investing activities for the quarter ended March 31, 1998 increased by $39,533,000, or 288%, to $53,243,000 compared to $13,710,000 used for the quarter ended March 31, 1997. This increase is primarily related to the Company's recent acquisitions. Net cash provided by financing activities for the quarter ended March 31, 1998 increased by $9,152,000 or 59%, to $24,632,000 compared to $15,480,000 provided during the quarter ended March 31, 1997. The increase is primarily the result of the proceeds from long-term debt (see Note 3 to consolidated financial statements. NINE MONTHS ENDED MARCH 31, 1998 VERSUS NINE MONTHS ENDED MARCH 31, 1997 Net Income For the nine months ended March 31, 1998, the Company reported net income of $19,365,000 ($1.15 per share - basic) as compared to $5,962,000 ($.54 per share - - basic) for the nine months ended March 31, 1997, an increase of $13,403,000, or 225%. The increase in net income is primarily attributable to the Company's acquisitions completed between April 1, 1997 and March 31, 1998, increased service and drilling rig utilization rates, increased operational efficiencies and price increases. Revenues The Company's total revenues for the nine months ended March 31, 1998 increased by $195,009,000 or 176%, to $305,718,000 compared to $110,709,000 for the nine months ended March 31, 1997. The increase is attributable to the Company's recent acquisitions of oilfield service and drilling rig companies, increased utilization and higher prices for oilfield services. Oilfield service revenues for the nine months ended March 31, 1998 increased by $174,178,000, or 179%, to $271,505,000 compared to $97,327,000 reported for the nine months ended March 31, 1997. The increase is primarily attributable to recent acquisitions, higher demand for oilfield service equipment and, to a lesser extent, from recent price increases for oilfield services. Drilling revenues for the nine months ended March 31, 1998 increased by $18,493,000, or 261%, to $25,590,000 compared to $7,097,000 reported for the nine months ended March 31, 1997. The revenue increase is primarily attributable to recent contract drilling acquisitions, higher rig utilization and price increases. Oil and gas revenues for the nine months ended March 31, 1998 decreased by $441,000, or 8%, to $5,422,000 compared to $5,863,000 for the nine months ended March 31, 1997. The decrease is primarily attributable to lower crude oil prices. Costs and Expenses and Operating Margins The Company's total costs and expenses for the nine months ended March 31, 1998 increased by $173,083,000, or 170%, to $274,811,000 compared to $101,728,000 reported for the nine months ended March 31, 1997. The increase is directly attributable to increased operating costs and expenses associated with the Company's recent acquisitions. Oilfield service expenses for the nine months ended March 31, 1998 increased by $119,546,000, or 173%, to $188,814,000 compared to $69,268,000 reported for the nine months ended March 31, 1997. Oilfield service margins (revenues less direct costs and expenses) for the nine months ended March 31, 1998 increased $54,632,000, or 195%, to $82,691,000 compared to $28,059,000 for the nine months ended March 31, 1997. Oilfield service margins as a percentage of oilfield service revenues for the nine months ended March 31, 1998 and 1997 was 30% and 29%, respectively. The increases in oilfield services expenses and margins are due primarily to acquisitions, increased demand for oilfield services, the Company's expansion of its ancillary oilfield services and equipment, such as well fishing tools, blowout preventers and frac tanks, and increased operating efficiencies. Drilling costs and expenses for the nine months ended March 31, 1998 increased by $13,382,000, or 227%, to $19,287,000 compared to $5,905,000 for the nine months ended March 31, 1997. Drilling margins during the nine months ended March 31, 1998 increased by $5,111,000, or 429%, to $6,303,000 compared to $1,192,000 for the nine months ended March 31, 1997. Oilfield drilling margin as a percentage of oilfield drilling revenue for the nine months ended March 31, 1998 and 1997 was 25% and 17%, respectively. These increases are attributable to the Company's recent acquisitions of contract drilling companies and increased activity and operating efficiencies. There was no significant change in oil and gas production costs and expenses for nine months ended March 31, 1998 as compared to the nine months ended March 31, 1997. General and administrative expenses for the nine months ended March 31, 1998 increased by $17,771,000, or 146%, to $29,947,000 compared to $12,176,000 for nine months ended March 31, 1997. The increase was primarily attributable to the Company's recent acquisitions and expanded services. General and administrative expenses as a percentage of total revenues for the nine months ended March 31, 1998 and 1997 were 10% and 11%, respectively. Depreciation, depletion and amortization expense for the nine months ended March 31, 1998 increased by $14,414,000, or 188%, to $22,101,000 compared to $7,687,000 for the nine months ended March 31, 1997. The increase is directly related to the increase in property and equipment, increased goodwill and long-term debt issuance costs incurred by the Company over the past two years in conjunction with its acquisitions. Interest expense for the nine months ended March 31, 1998 increased by $7,873,000, or 175%, to $12,380,000 compared to $4,507,000 for the nine months ended March 31, 1997. The increase was primarily the result of increased indebtedness as a result of the Company's acquisitions. Income tax expense for the nine months ended March 31, 1998 increased by $8,522,000, or 282%, to $11,542,000 compared to $3,020,000 for the nine months ended March 31, 1997. The Company does not expect to have to pay the full amount of the income tax provision because of the availability of accelerated tax depreciation, drilling tax credits, and tax loss carryforwards. Cash Flows Net cash provided by operating activities for the nine months ended March 31, 1998 increased by $8,795,000 or 203%, to $13,136,000 compared to $4,341,000 for the nine months ended March 31, 1997. The increase is primarily attributable to an increased service and drilling operating margin, increased service and drilling utilization rates, increased operating efficiencies created by the acquisitions and price increases for oilfield service and drilling. Net cash used in investing activities for the nine months ended March 31, 1998 increased by $203,620,000, or 586%, to $238,395,000 compared to $34,775,000 used for the nine months ended March 31, 1997. This increase is primarily related to the Company's recent acquisitions. Net cash provided by financing activities for the nine months ended March 31, 1998 increased by $169,110,000, or 409%, to $210,429,000 compared to $41,319,000 provided during the nine months ended March 31, 1997. The increase is primarily the result of the proceeds from long-term debt (see Note 3 to consolidated financial statements), partially offset by the repayment of debt. LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES At March 31, 1998, the Company had cash of $26.9 million compared to $41.7 million at June 30, 1997 and $11.5 million at March 31, 1997. At March 31, 1998, the Company had working capital of $86.8 million compared to $60.2 million at June 30, 1997 and $22.0 million at March 31, 1997. In addition to its on going acquisition program, for fiscal 1998, the Company has projected $40 million of capital expenditures for improvements of existing service and drilling rig machinery and equipment, an increase of $23.4 million over the $16.6 million expended during fiscal 1997. The Company expects to finance these capital expenditures through internally generated operating cash flows. Capital expenditures for service and drilling rig improvements for the nine months ended March 31, 1998 and 1997 were $11.6 million and $3.6 million, respectively. The Company has projected $10.2 million of capital expenditures for oil and gas development for fiscal 1998 as compared to $8.2 million expended for fiscal 1997. Financing of these costs is expected to come from operations and available credit facilities. For the nine months ended March 31, 1998 and 1997, the Company expended $4.1 million and $2.6 million, respectively. The Company's primary capital resources are net cash provided by operations and proceeds from certain long-term debt facilities. Long-Term Debt Facilities On June 6, 1997, the Company entered into an agreement (the "Initial Credit Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a syndication of other lenders 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 LIBOR and the level of the Company's indebtedness. The Initial Credit Agreement contained certain restrictive covenants and required the Company to maintain certain financial ratios. On September 25, 1997, the Company repaid the term loan and a portion of the then outstanding amounts under the revolver by applying the proceeds from the initial and second closings of the Company's private placement of $216 million of 5% Convertible Subordinated Notes (discussed below). Effective November 6, 1997, the Company entered into an Amended and Restated Credit Agreement with PNC (the "Amended Credit Agreement"), as administrative agent and lender, pursuant to which PNC agreed to make revolving credit loans of up to a maximum loan commitment of $200 million. The maximum commitment decreases to $175 million on November 6, 2000 and to $125 million on November 6, 2001. The loan commitment terminates on November 6, 2002 Effective December 3, 1997, PNC completed the syndication of the Amended Credit Agreement. In connection therewith, PNC, as administrative agent, a syndication of lenders and the Company entered into a First Amendment to the Amended and Restated Credit Agreement providing for, among other things, an increase in the maximum commitment from $200 million to $250 million. At March 31, 1998, the principal balance of the Amended Credit Agreement, as amended, was $132 million and the unused credit facility aggregated approximately $118 million, with approximately $3 million reserved for existing letters of credit. In July 1996, the Company completed a $52,000,000 private offering of 7% Convertible Subordinated Debentures due 2003 (the "Debentures"), pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The Debentures are subordinate to the Company's senior indebtedness, which, as defined under the indenture pursuant to which the Debentures were issued, includes the borrowings under the Amended Credit Agreement, as amended. Interest on the Debentures is payable on January 1 and July 1 of each year. As of March 31, 1998, $47,400,000 in principal amount of the Debentures had been converted into 5,062,369 shares of Common Stock at the option of the holders. The number of shares issued included 200,831 shares in excess of the number of shares issuable at the conversion price of $9.75 per share. These additional shares were issued by the Company to induce conversion. Such additional consideration was accounted for as an increase to the Company's equity. In addition, the proportional amount of debt issuance costs associated with the converted Debentures was accounted for as a decrease to the Company's equity. At March 31, 1998, $4,600,000 principal amount of the Debentures remained outstanding. 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 "Notes"). On October 7, 1997, the Company completed a second closing of its private placement of an additional $16 million of Notes pursuant to the exercise of the remaining portion of the over-allotment option granted to the initial purchasers of Notes. The placements were made as private offerings pursuant to Rule 144A and Regulation S under the Securities Act. The Notes are subordinate to the Company's senior indebtedness, which, as defined in the indenture under which the Notes were issued, includes the borrowings under the Amended Credit Agreement, as amended. Interest on the Notes is payable on March 15 and September 15, commencing March 15, 1998. The Notes are convertible, at the holder's option, into shares of Common Stock at a conversion price of $38.50 per share, subject to certain adjustments. Proceeds from the placement of the Notes were used to repay balances under the Company's credit facilities (see above). At March 31, 1998, $216,000,000 principal amount of the Notes was outstanding. Year 2000 Issue As a result of the acquisitions completed by the Company over the past twenty-one months, the Company currently utilizes several management information systems in connection with its business operations and financial reporting process. The Company has made an assessment of its Year 2000 issues, and has determined that many of these management information systems would be adversely impacted by the arrival of the Year 2000. For operational efficiency, the Company had previously determined to implement a new integrated management information system to replace the systems currently utilized by it. Since the new system will be designed to be year 2000 compliant, management expects that a collateral benefit of it will be to prevent adverse impacts that may result from the arrival of the year 2000. The implementation of the new management information system began in May 1998 and is expected to be completed by July 1999. The Company does not expect the amounts required to be expensed for the new integrated management information system over the next year to have a material effect on its financial position or results of operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (a) See the disclosure set forth in Item 4 below with respect to the amendment to the Company's Amended and Restated Articles of Incorporation below, which is incorporated herein by reference. (c) Recent Sales of Unregistered Securities: During the three months ended March 31, 1998, the Company effected the following sales of unregistered securities: Effective December 2, 1997, the Company agreed to issue 240,000 shares of Common Stock in connection with the purchase by WellTech Eastern, Inc., a wholly-owned subsidiary of the Company, of substantially all of the assets of White Rhino Drilling, Inc. ("White Rhino"), S&R Cable, Inc. ("S&R Cable") and Wellcorps, L.L.C. Of the 240,000 shares to be issued, 212,496 were issued to White Rhino and its designees, 72,240 of which were issued on December 2, 1997 and 140,256 of which were issued on January 2, 1998. The remaining 27,504 shares were issued to S&R Cable on January 2, 1998. The issuance of the Common Stock was exempt from registration under Section 4(2) of the Securities Act as a sale of securities not involving any public offering. Effective January 5, 1998, the Company issued 100,000 shares of Common Stock as partial consideration in connection with the purchase by Key Energy Drilling, a wholly-owned subsidiary of the Company, of substantially all the capital stock of Sitton Drilling Co. The issuance of the Common Stock was exempt from registration under Section 4(2) of the Securities Act as a sale of securities not involving any public offering. Effective January 8, 1998, the Company issued 100,000 shares of Common Stock as partial consideration in connection with the purchase by Key Rocky Mountain, a wholly-owned subsidiary of the Company, of substantially all the capital stock of J.W. Gibson Well Service Company. The issuance of the Common Stock was exempt from registration under Section 4(2) of the Securities Act as a sale of securities not involving any public offering. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. On January 13, 1998, a meeting of the holders of Common Stock was held to elect the Company's Board of Directors and to vote on certain other matters. Only the holders of record as of the close of business on November 14, 1997 (the "Record Date") were entitled to notice of and to vote at the meeting and at any adjournment thereof. On the Record Date, the outstanding number of shares entitled to vote consisted of 18,087,455 shares of Common Stock. The shareholders took the following actions at the meeting: 1. Elected the following six Directors, with the votes indicated opposite each director's name: For Against Abstain Francis D. John 17,265,527 397,505 0 Kevin P. Collins 17,253,927 409,105 0 William Manly 17,265,587 397,445 0 W. Phillip Marcum 17,253,927 409,105 0 David J. Breazzano 17,262,484 400,548 0 Morton Wolkowitz 17,265,593 397,439 0 2. Approved the amendment to the Company's Amended and Restated Articles of Incorporation to increase the authorized shares of capital stock, par value $0.10 per share, from 25,000,000 shares to 100,000,000 shares authorized to be issued. The vote was 16,582,418 for and 719,218 against, with 177,321 abstentions and 184,075 broker non-votes. 3. Approved the adoption of the Key Energy Group, Inc. 1997 Incentive Plan. The vote was 7,571,692 for and 6,086,129 against, with 175,142 abstentions and 3,830,069 broker non-votes. Item 5. Other Information. Pursuant to a Registration Statement on Form 8-A that became effective on March 31, 1998, shares of Common Stock were listed for trading on the New York Stock Exchange ("NYSE"). Trading in the Common Stock on the NYSE commenced at the opening of business on April 6, 1998. Concurrently therewith trading in the Common Stock was suspended on the American Stock Exchange ("ASE"). The Company has filed an application for withdrawal from listing of its Common Stock with the ASE, which is currently pending. This Quarterly Report on Form 10-Q may contain statements which constitute or contain "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange Commission in its rules, regulations or releases. All statements other than statements of historical facts included in this report including, without limitation, statements regarding the Company's business strategy, plans, objectives, capital expenditures and beliefs of management for future operations are forward-looking statements. Although the Company believes the expectations and beliefs reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company cautions investors that any such forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Important factors that could cause actual results to differ materially from the Company's expectations are discussed in the Company's Registration Statement on Form S-3 under the Securities Act of 1933, File No. 333-44677 (filed with the Commission on January 22, 1998), under the caption "Risk Factors." 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 3(a) Amendment to the Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 000-22665, and incorporated here in by reference). 10(a) Asset Purchase Agreement among Brooks Well Servicing, Inc., Lundy Vacuum Service, Inc. and Peyton E. Lundy effective March 3, 1998. 10(b) Asset Purchase Agreement among Yale E. Key, Inc., Edwards Transport, Inc. and Tom Nations effective March 26, 1998. 10(c) Asset Purchase Agreement among Brooks Well Servicing, Inc. and JPF Well Service Inc., effective April 20, 1998. 10(d) Asset Purchase Agreement among Brooks Well Servicing, Inc. and JPF Lease Service Inc., effective April 20, 1998. 10(e) Employment Agreement dated December 5, 1997 by and between Stephen E. McGregor and the Company. 27(a) Statement - Financial Data Schedule 99 Form 8-A of the Company for Registration of Certain Classes of Securities Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934, File No. 001-08038 incorporated by reference. (b) The following report on Form 8-K was filed during the quarter ended March 31, 1998: The Company's Current Report on Form 8-K dated February 2, 1998, File No. 001-08038. The Report on Form 8-K concerned the increase of authorized capital stock from 25,000,000 to 100,000,000 shares of Common Stock, par value $.10 per share. SIGNATURES 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: May 15, 1998 President and Chief Executive Officer By /s/ Stephen E. McGregor Dated: May 15, 1998 Chief Financial Officer By /s/ Danny R.Evatt Dated: May 15, 1998 Chief Accounting Officer EX-10.A 2 LUNDY PURCHASE AGREEMENT Asset Purchase Agreement among Brooks Well Servicing, Inc. Lundy Vacuum Service, Inc. and Peyton E. Lundy March 3, 1998 Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of March 3, 1998, among Brooks Well Servicing, Inc., a Delaware corporation ("Buyer"); Lundy Vacuum Service, Inc., a Texas corporation ("Seller") and Peyton E. Lundy ("Lundy"). Article 1 Purchase and Sale of Assets 1.1. 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 the operating Assets (defined below) of the Seller, whether real, personal, tangible or intangible, including, without limitation, the following assets of the Seller relating to or used or useful in the operation of the Seller's vacuum service business (the "Business"): (a) all of the Seller's tangible personal property (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles), including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (b) all of the Seller's inventory relating to or used in the Business, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (c) all of the Seller's intangible assets relating to or used in the Business, including without limitation, (i) all of the Seller's rights to the names under which it is incorporated or under which it currently conducts its Business, (ii) all of the Seller's rights to any patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, and copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used or held in connection with the Business, including without limitation, that which is more fully described on Schedule 1.1(c) hereto (the "Seller's Intellectual Property") and (iii) the Seller's phone numbers (other than 800-873-9175), 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 Business (collectively, the "Intangibles"); (d) those leases, subleases, contracts, contract rights, and agreements of the Seller relating to the Assets or the operation of the Business listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (e) to the extent assignable under applicable law, all of the permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, orders, licenses and other rights of every kind and character, other than the permits listed on Schedule 1.1(e), relating to the BMD Facility (defined below) and the HMD Facility (defined below) (collectively, the "Permits") of the Seller relating principally to all or any of the Assets or to the operation of the Business, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto (collectively, the "Seller's Permits"); (f) the goodwill and going concern values of the Seller relating to the 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 used in the Business or intended for use in the Business in connection with, or that are necessary for the continued conduct of, the Business. The assets purchased and sold pursuant to this Agreement are collectively referred to herein as the "Assets." 1.2. Payment of Purchase Price. As consideration for the sale of the Assets and for the other covenants and agreements of Seller contained herein, Buyer agrees to pay to Seller on the date hereof $1,500,000 (the "Purchase Price"). The Purchase Price shall be adjusted (i) upward to the extent that the Seller has purchased additional capital assets used in the Business since July 31, 1997; (ii)downward to the extent that the Seller no longer owns the assets it owned and used in the Business as of July 31, 1997; (iii) upward to the extent that the inventory listed on Schedule 1.1(b) hereto exceeds $40,000 in value; and (iv) downward to the extent that the inventory listed on Schedule 1.1(b) hereto has a value of less than $40,000. Payment of the Purchase Price shall be made by personal check of the Company or one of its affiliates to the persons and in the amounts set forth on Schedule 1.2. 1.3. No Assumption of Liabilities. Buyer shall not assume any liabilities and obligations of the Seller. 1.4. Time and Place of Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall be on the date hereof at the offices of Porter & Hedges, L.L.P. located at 700 Louisiana, Houston, Texas 77002 (the "Closing Date"). 1.5. Closing Deliveries. At the Closing, in addition to the conveyance of the Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and CBBP, L.L.C., a Texas limited liability company ("BBC") will enter into a lease in the form of Exhibit A hereto with respect to the Company's main yard, mud mixing plant and storage facilities (the "Primary Lease"); (ii) the Buyer and Seller shall enter into an assignment of leases in the form of Exhibit B hereto with respect to the land on which the Company's Beasley Mud Disposal facility (the "BMD Facility") and the Company's Humphrey Mud Disposal Facility (the "HMD Facility") are located (the "Lease Assignment"); (iii) the Buyer, Seller and D.B. Lundy, Jr., Rebecca Fitts and Peyton E. Lundy will enter into a Purchase and Sale Agreement in the form of Exhibit C hereto (the "Purchase Agreement"); (iv) the Company and each of its shareholders will enter into noncompetition agreements in the form of Exhibit D hereto (the "Noncompetition Agreements"); and (v) the Buyer and Seller will deliver to one another the opinions of counsel described below: 1.5.1. Opinion of Buyer's Counsel. The Seller shall have received a favorable opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P., counsel for Buyer, in form and substance satisfactory to the Seller, to the effect that (i) Buyer has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement, the Lease, the Assignment and the Purchase Agreement (collectively, the "Transaction Documents"), and the implementation of the transactions contemplated hereby and thereby, have been taken; and (iii) each of the Transaction Documents have been duly executed and delivered by, and are the legal, valid and binding obligations of Buyer and are enforceable against Buyer in accordance with their respective 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 Buyer 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. 1.5.2. Opinion of Seller's Counsel. The Buyer shall have received a favorable opinion, dated as of the Closing Date, from Wesley & Herzog, P.C., counsel to Seller, in form and substance satisfactory to Buyer, to the effect that (i) the Seller and CBBP have been duly organized and are validly existing in good standing under the laws of Texas; (ii) all corporate proceedings required to be taken by or on the part of Seller and CBBP to authorize the execution of the Transaction Documents to which they are a Party, and the implementation of the transactions contemplated thereby have been taken; (iii) to the best of such counsel's knowledge, the Company owns all of its Assets free and clear of any Encumbrances other than those Encumbrances listed on the Schedules to this Agreement; and (iv) each of the Transaction Documents have been duly executed and delivered by, and are the legal, valid and binding obligations of the parties thereto other than the Buyer, and are enforceable against the parties thereto other than the Buyer, in accordance with their respective 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 Seller and CBBP 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 Texas law. Article 2 Representations and Warranties 2.1. Representations and Warranties of the Seller. Except as disclosed on Schedule 2.1 (which shall identify the applicable Section reference of this Agreement to which such disclosure relates), each of the Seller and Lundy, represent and warrant to Buyer as follows: 2.1.1. Organization and Good Standing. Seller and CBBP are duly organized, validly existing and in good standing under the laws of Texas, have full requisite power and authority to carry on their respective businesses as currently conducted, and to own and operate their respective properties currently owned and operated by them, and are duly qualified or licensed to do business and are in good standing and authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by them would make such qualification or licensing necessary. 2.1.2. Agreements Authorized and their Effect on Other Obligations. The execution and delivery of the Transaction Documents have been authorized by all necessary corporate, shareholder and other action on the part of the parties thereto other than the Buyer, and the Transaction Documents are the valid and binding obligations of the parties thereto other than the Buyer, enforceable against each of such parties in accordance with its terms. The execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, 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 CBBP, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the parties thereto other than the Buyer or by which the parties thereto other than the Buyer or their respective properties are bound; or (iii) any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator, or other governmental authority to which the parties thereto other than the Buyer or any of their respective properties are subject. 2.1.3. Subsidiaries. The Seller does not have any subsidiary corporations or any interest in any other organization, incorporated or unincorporated, partnership or any other entity of any type. 2.1.4. Liabilities. The Seller does not have any liabilities or obligations, either accrued, absolute, contingent, or otherwise, and neither Seller nor Lundy have any knowledge of any potential liabilities or obligations that would materially and adversely affect the value and conduct of the Business by the Buyer or the Assets, other than those (i) reflected or reserved against in the July 31, 1997 unaudited balance sheet of the Seller or (ii) incurred in the ordinary course of business since July 31, 1997. 2.1.5. Contracts. Schedule 1.1(d) hereto sets forth a true, complete and accurate list of all Contracts of the Seller, including leases under which the Seller is lessor or lessee, which relate to the Assets or the Business and are to be performed in whole or in part after the date hereof. All of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller. The Seller is not, and no other party to any of the Contracts 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 that could reasonably be expected to have an adverse effect on the use of the Assets or the Business by Buyer. Neither the Seller or Lundy has received any information that would cause either 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. All of the Contracts set forth on Schedule 1.1(d), are assignable and have been validly assigned to Buyer pursuant to this Agreement without the consent of any other party thereto, other than consents that have been obtained and delivered to Buyer. 2.1.6. Title to and Condition of Assets. The Seller has good and indefeasible title to all of the Assets, free and clear of any Encumbrances (defined below). All of the Assets are in a state of good operating condition and repair, ordinary wear and tear excepted, and are free from any defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. All 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 Lundy, except such as have been disclosed in writing to Buyer and fully complied with. For purposes of this Agreement, the term "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights of way, limitations, reservations, restrictions, and other encumbrances of any kind or nature. 2.1.7. Licenses and Permits. Schedule 1.1(e) hereto sets forth a true, complete and accurate list of all Permits material to the Business and the operation, maintenance and use of the Assets in the manner in which they are now being operated, maintained and used. Each of the Seller's Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller subject to administrative powers of regulatory agencies having jurisdiction. The Seller is in compliance in all respects with the terms of each of the Seller's Permits. None of the Seller's Permits have been, or to the knowledge of the Seller or Lundy, are threatened to be, revoked, canceled, suspended or modified. All of the Seller's Permits, to the extent assignable under applicable law, have been assigned to the Buyer pursuant to this Agreement. 2.1.8. Intellectual Property. Schedule 1.1(c) hereto sets forth a true, complete and accurate list of all Intellectual Property material to the continued conduct of the Business. The Seller's Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances. The Seller has not granted to any other person any license to use any Seller's Intellectual Property. All of the Seller's Intellectual Property has been assigned to the Buyer pursuant to this Agreement. Neither the Seller nor Lundy has received any notice of infringement, misappropriation, or conflict with the intellectual property rights of others in connection with the use by the Seller of the Seller's Intellectual Property. 2.1.9. Financial Statements. The Seller has delivered to Buyer copies of certain unaudited financial statements of the Sellers, copies of which are attached hereto as Schedule 2.1.9 (collectively, the "Sellers' Financial Statements") as of and for the period ending July 31, 1997 (the "Balance Sheet Date"). The Seller's Financial Statements are true, correct and complete in all material respects and present fairly and fully the financial condition of the Seller as of the dates and for the periods indicated thereon. Each of the Seller's Financial Statements include all adjustments that are necessary for a fair presentation of the Seller's results for that period. The inventories of the Seller reflected in the Seller's Financial Statements, or which have thereafter been acquired by the Seller, consist of items of a quality and quantity salable in the normal course of the Business. The values at which such inventories are carried and are consistent with the normal inventory level and practices of the Seller with respect to the Business. 2.1.10. Additional Information. Attached as Schedule 2.1.10.1 through and including Schedule 2.1.10.7 are true, complete and correct lists of the following items: 2.1.10.1. Real Estate. All real property and structures thereon relating to or used in the Business currently owned or leased or subject to a contract of purchase and sale, or lease commitment, by the Seller, with a description of the nature and amount of any Encumbrance thereto; 2.1.10.2. Machinery and Equipment. All machinery, transportation equipment, tools, equipment, furnishings and fixtures (excluding such items as did not have a cost basis of $500 or more at their respective dates of acquisition by the Seller) owned, leased or subject to a contract of purchase and sale, or lease commitment, by the Seller, with a description of the nature and amount of any Encumbrances thereon; 2.1.10.3. Inventory. All Inventory items or groups of Inventory items owned by the Seller relating to or used in the Business, together with the amount of any Encumbrances thereon; 2.1.10.4. Insurance. All insurance policies or bonds, including title insurance policies, with respect to the Seller, including those covering its properties (real or personal), buildings, machinery, equipment, fixtures, employees and operations relating to or used in the Business; 2.1.10.5. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other fringe benefit plans, arrangements or trust agreements of the Seller (collectively, the "Employee Plans"); 2.1.10.6. Employee Agreements. Any collective bargaining agreements of the Seller with employees, including amendments, supplements, and written or oral understandings, and all employment, compensation or consulting agreements, whether written or oral, of the Seller with any person; 2.1.10.7. Trade Names. All trade names and fictitious names used or held by the Seller, whether and where such names are registered and where such names are used; 2.1.11. Assets; Necessary Consents. The Assets constitute all of the assets necessary to conduct the Business as historically conducted by the Seller. 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 to validly transfer the Assets hereunder, including, without limitation, any consents required to assign the Contracts and, to the extent assignable under applicable law, the Seller's Permits. 2.1.12. Environmental Matters. None of the current or past operations of the Business or any of the Assets is being or has been conducted or used in such a manner as to constitute a violation of any Environmental Law (defined below). Neither the Seller nor Lundy has received any notice (whether formal or informal, written or oral) from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Environmental Law or regarding any claims for remedial obligations or contribution for removal costs or damages under any Environmental Law. There are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Seller or Lundy, threatened, relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of the Seller or Lundy, is there any basis for any of the foregoing. Other than as set forth on Schedule 2.1.12, Buyer will not be required to obtain any permits, licenses or similar authorizations pursuant to any Environmental Law after the Closing Date to operate and use any of the Assets for their current or proposed purposes and uses. The Assets include all environmental and pollution control equipment necessary for material compliance with applicable Environmental Law. Except as disclosed on Schedule 2.1.12 (i) no Hazardous Materials (defined below) have been or are currently being used by any of the Seller in the operation of the Assets, (ii) except as set forth on Schedule 2.1.12, no Hazardous Materials are or have ever been situated on or under any of the Seller's properties, whether owned or leased, or incorporated into any of the Assets, (iii) there are no, and there have never been any, underground storage tanks (as defined under Environmental Law) located under any of the Sellers' properties, whether owned or leased, and (iv) there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned or leased by any of the Seller, or on any property on which Hazardous Materials generated by the Seller's operations or the use of the Assets were disposed of. The term "Environmental 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. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. 2.1.13. Employee Benefit Plans; Labor Issues. Schedule 2.1.13 hereto sets forth all of the Seller's Employee Plans and any other health, dental and life insurance plans, bonus, deferred compensation, pension, profit sharing and retirement plans and all other employee benefit plans, programs or arrangements providing benefits for employees of the Seller (the "Benefit Plans"). Each of the Benefit Plans has been administered and maintained in material compliance with the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and, if applicable, the Internal Revenue Code of 1986, as amended (the "Code"), and all other applicable laws. There is no "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA or Section 412 of the Code) with respect to a Benefit Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA), and there has been no application for waiver of the minimum funding standards imposed by Code Section 412 with respect to any such plan. There are no pending or, to the knowledge of any of the Seller or Lundy, threatened claims by or on behalf of the Benefit Plans, the United States Department of Labor, the Internal Revenue Service, or by any current or former employee of the Seller or beneficiary of such current or former employee alleging a breach of any fiduciary duties or a violation of applicable state or federal law which could result in a material liability on the part of any of the Sellers or a Benefit Plan under ERISA or any other law (other than benefit claims and funding obligations in the ordinary course of business). The Seller has not suffered or otherwise caused a "complete withdrawal" or "partial withdrawal," as such terms are respectively defined in Sections 4203 and 4205 of ERISA, from any Multiemployer Pension Plan, as such term is defined in Section 3(37) of ERISA. The Seller has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on the Business or the Assets. The Seller does not have any dispute with any of its existing or former employees, and there are no labor disputes or, to the knowledge of the Seller or Lundy, any disputes threatened by current or former employees of the Seller. 2.1.14. 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 Lundy, threatened, nor has any governmental entity indicated to the Seller or Lundy 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 Lundy is a party or, to the knowledge of the Seller or Lundy, might become a party. 2.1.15. Absence of Certain Businesses Practices. Neither the Seller nor Lundy, nor any officer, employee or agent of any of the Seller, nor any other person acting on behalf of any of the Seller or Lundy, 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 profitable conduct of the Business or the profitable use of the Assets (or to assist the Seller in connection with any actual or proposed transaction) that if not given in the past, may more likely than not have had an adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, may more likely than not adversely affect the profitable conduct of the Business or the profitable use of the Assets. 2.1.16. 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 "insolvent" means that the sum of the present fair and saleable value of the Seller's assets does not and will not exceed its debts and other probable liabilities, and the term "debts" includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.17. Untrue Statements. None of the Transaction Documents contains any untrue statement of a material fact or omits 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. 2.1.18. Compliance with Other Laws. The Seller 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 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. Taxes. The federal income tax returns of the Seller for the years 1995 and 1996 have been provided to the Buyer before the date hereof. Proper and accurate federal, state and local income, 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 Seller for each period for which any returns, reports, or estimates were due. All taxes shown by such returns to be payable have been paid. All sales taxes have been properly collected and accounted for through the date hereof by the Seller, and the Seller has made all required deposits of such taxes with all taxing authorities. The tax provision reflected in the Seller's financial statements as of July 31, 1997 is adequate to cover liabilities of the Seller at the date thereof for all taxes of any character whatsoever applicable to the Seller or its assets or business. No waiver of any statute of limitations executed by the Seller with respect to federal or state income or other tax is in effect for any period. No deficiencies for any taxes have been proposed, asserted or assessed against the Seller, and no requests or waivers of the time to assess any such tax are pending. The federal income tax returns of the Seller has not been audited by the Internal Revenue Service. No audit of any federal or state or other tax return of the Seller is presently in process nor has an appointment for or notice of any such audit been requested or given by any taxing authority. 2.1.20. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller and Lundy and their respective 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. 2.2. Representations and Warranties of Buyer. Buyer represents and warrants to each of the Seller and Lundy 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. 2.2.2. Agreements Authorized and its Effect on Other Obligations. The execution and delivery of the Transaction Documents have been authorized by all necessary corporate, shareholder and other action on the part of Buyer, and the Transaction Documents are the valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. The execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, 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 any of its properties are subject. Article 3 Additional Agreements 3.1. Employees. Schedule 6.1 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 Business (the "Employees"). The Seller and Lundy will use their best efforts to make all of the Employees available for hire by the Buyer or its affiliates, and the Buyer agrees to hire all of such Employees, subject to such Employees meeting Buyer's standard employment eligibility requirements and mutual agreement between such Employees and Buyer as to their compensation levels. 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 Lundy shall cooperate with Buyer in connection with any offer of employment from Buyer to the Employees and use their best efforts to cause the acceptance of any and all such offers. All Employees hired by Buyer shall be at-will employees of Buyer. All Employees hired by Buyer shall be entitled to participate in the Buyer's benefit plans, including the Buyer's medical plan, and shall receive full credit thereunder for all purposes for the years of service at Seller. Notwithstanding any other provisions of this Agreement, this Section 3.1 shall not be deemed to create any right or claim for the benefit of, and shall not be enforceable by, any person which is not a party to this Agreement. 3.2. Allocation of Purchase Price. The parties hereto agree to allocate the purchase price paid by Buyer for the Assets hereunder as set forth on Schedule 3.2 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.3. Use of Lundy Name; Name Change. Notwithstanding any other provision of this Agreement, the Buyer shall be entitled to use the name "Lundy Vacuum Service, Inc." and all of trade names, trademarks and logos used in the business for a period of six months from the date hereof, after which time the Buyer will cease using the "Lundy" name for any purpose in the operation of the Business. From and after the date hereof, Lundy shall not use the name "Lundy Vacuum Service, Inc." or any derivative thereof for any purpose with respect to any business or other enterprise. The Seller shall, within ten days of a request in writing from Buyer, cause to be filed (i) with the applicable agency of the Seller's state of organization an amendment to its charter (or other applicable organization documents) of the Seller changing the name of the Seller from its current name to a name that is not similar to such names, and (ii) with the appropriate authorities of the Seller's state of organization and any other states such documents as are required to effect such name change. The Seller shall, within five days from the date of its receipt of confirmation of such filings from the applicable state authorities, cause to be delivered to Buyer copies of all such confirmations. 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 effect the transactions contemplated hereby. In that regard, Buyer and Lundy agree to use their best efforts during the term of the Primary Lease, the BMD Facility Lease and the HMD Facility Lease to keep all of the Permits listed on Schedule 1.1(e) in full force and effect. Article 4 Indemnification 4.1. Indemnification by the Sellers and Lundy. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, each of the Seller and Lundy 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 "Damages") that such indemnitee shall incur or suffer, which arise, result from or relate to any breach of, or failure by the Seller or Lundy 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 under this Agreement. 4.2. Indemnification by Buyer. In addition to any other remedies available to the Seller and Lundy under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Seller and Lundy against and with respect to any and all Damages that such indemnitees 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 Seller Lundy by or on behalf of Buyer under this Agreement and (ii) the operation of the Assets and conducting of the Business that arise out of actions of the Buyer or any of its affiliates after the date hereof. 4.3. 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. Article 5 Miscellaneous 5.1. Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive until the second anniversary of 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 as provided as provided above 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: - -------------------------------------------------------------------------------- Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, 20th Floor 700 Louisiana East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attn: Samuel N. Allen Facsimile: (732) 247-5148 Facsimile: (713) - -------------------------------------------------------------------------------- If to any of the Seller or Lundy - -------------------------------------------------------------------------------- Addressed to: With a copy to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Peyton E. Lundy Wesley & Herzog, P.C. [ADDRESS TO COME] 25025 I-45 North, Suite 400 Facsimile: The Woodlands, Texas 77380 Attn: James Wesley Facsimile: (281) 367-9044 - -------------------------------------------------------------------------------- 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 businesses hours on any business day. 5.5. 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. 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 Texas. [SIGNATURE PAGE FOLLOWS] EX-10.B 3 EDWARDS TRANSPORT ACQUISITION Asset Purchase Agreement among Yale E. Key, Inc., Edwards Transport, Inc. and Tom Nations March 26, 1998 Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of March 26, 1998 among Yale E. Key, Inc., a Texas corporation (the "Buyer"), Edwards Transport, Inc., a Texas corporation (the "Seller") and Tom Nations (the "Shareholder"). RECITATIONS The Seller desires to sell substantially all of its assets, 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: ARTICLE 1 Purchase and Sale of Assets 1.1 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 effective as of 12:01 A.M. Texas time on the date of execution hereof (the "Closing Date"), all of the assets of the Seller existing on the Closing Date other than the Excluded Assets (defined below), whether real, personal, tangible or intangible, including, without limitation, the following assets owned by the Seller relating to or used or useful in the operation of the business as conducted by the Seller on and before the date hereof (the "Business") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property owned by Seller (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles), including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (b) all of the inventory owned by Seller, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (c) all of the Seller's intangible assets (the "Intangibles"), including without limitation, (i) all of the Seller's rights to any patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, and copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used or held in connection with the Business, (ii) the Seller's telephone numbers, and (iii) the sales and promotional literature, computer software, customer and supplier lists and all other records of the Seller relating to the Assets or the Business, excluding the corporate minute books, accounting records, files, tax returns and other financial data on whatever media, relating to the Seller or the Shareholder or the Excluded Assets (the "Retained Records"); (d) all leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Business, including, without limitation those listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (e) all of the 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 "Permits") relating principally to all or any of the Assets or to the operation of the Business, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto; (f) the goodwill and going concern value of the Business; and (h) all other or additional privileges, rights, interests, properties and assets of the Seller of every kind and description and wherever located that are used in the Business or intended for use in the Business in connection with, or that are necessary for the continued conduct of, the Business (other than the Excluded Assets). 1.2 Excluded Assets. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all real property and buildings owned by Seller (including, specifically, the land and building located on Highway 114, Levelland, Texas, (ii) all of the Seller's accounts receivable and all other rights of the Seller to payment for services rendered by the Seller before Closing, it being understood that all of Seller's customers shall be billed on the Closing Date for services or materials provided through that date and that Buyer will forward any payment on such accounts received by it to Seller within five (5) business day of receipt; (iii) all cash accounts of the Seller and all petty cash of the Seller kept on hand for use in the Business; (iv) all other receivables and prepaid expenses, including all right, title and interest of the Seller in and to any prepaid expenses, bonds, deposits and other current assets relating to any of the Assets or the Business; (v) the Retained Records; and (vi) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.3 hereof. 1.3 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 on the Closing Date, the sum of $2,700,000 by wire transfer of immediately available funds to an account designated by the Seller or by delivery of immediately available funds. In addition, within thirty (30) days following the Closing, Buyer will pay Seller an additional amount equal to (a) the amounts paid by Seller for equipment purchases made by Seller after March 5, 1998, and before the date hereof which expand the capabilities of the Business and which have been approved by Buyer, plus (b) such amounts, if any, actually paid by Seller after March 5, 1998 and before the date hereof as registration or license fees on vehicles owned and operated by Seller and which apply to the period from and after April 1, 1998. 1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and only those, liabilities and obligations of the Seller to perform the Contracts described on Schedule 1.1(d) hereto to the extent such Contracts have not been performed and are not in default on the date hereof (the "Assumed Liabilities"). On and after the date hereof, the Seller shall be responsible for any and all liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, (a) any obligations arising from the Seller's employment of those employees of the Seller listed on Schedule 3.2 hereto; (b) any liabilities arising from or relating to Seller's failure to be duly qualified or licensed to do business and 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 Seller would make such qualification or licensing necessary; (c) any failure to pay any taxes owed by Seller which are applicable to the period ending with the date hereof (including, specifically, all taxes applicable to any of the Assets); (d) any liabilities resulting from or related to Seller's violation of Environmental Laws (as hereinafter defined); and (e) any liabilities arising out of any matters listed on Schedule 2.1.10 hereto (collectively, the "Retained Liabilities"). 1.5 Closing. The closing of the purchase and sale provided for hereunder (the "Closing") shall take place on the date of execution hereof (the "Closing Date"), at the offices of Seller. 1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the Assets to the Buyer in exchange for the Purchase Price: (i) the Seller and the Shareholder shall each enter into an agreement not to compete (the "Noncompetition Agreements") in the form of Exhibit A hereto, and (iii) Buyer and Seller will deliver to one another the opinions of counsel described below: 1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C., counsel for Buyer, in form and substance satisfactory to the Seller, 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 Texas; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement, the Noncompetition Agreements and the implementation of the transactions contemplated hereby and thereby, have been taken; and (iii) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligations of Buyer and is enforceable against Buyer in accordance with its terms, except as enforceability may be limited by (a) equitable principals of general applicability of (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers or Buyer as to the matters of fact and (y) 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. 1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable opinion, dated as of the Closing Date, from Larry Glazner, Esq., counsel to Seller and the Shareholder, in form and substance satisfactory to Buyer, to the effect that (i) Seller has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Texas; (ii) all proceedings required to be taken by or on the part of the Seller and the Shareholder to authorize the execution of this Agreement, the Noncompetition Agreements and the Employment Agreement and the implementation of the transactions contemplated hereby and thereby have been taken; (iii) the Seller owns all of the Assets free and clear of any Encumbrances other than those Encumbrances specifically listed and described on the Schedules to this Agreement; and (iv) this Agreement, the Noncompetition Agreements and the Employment Agreement have been duly executed and delivered by, and are the legal, valid and binding obligations of the Seller and the Shareholder and are enforceable against the Seller and the Shareholder in accordance with their respective terms, in each case, 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 (x) certificates of public officials and of officers of the Seller as to the matters of fact and (y) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Texas law. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of Seller and Shareholder. The Seller and the Shareholder jointly and severally represent and warrant to Buyer as follows: 2.1.1 Organization and Good Standing. Seller 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 businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it and does not do business in any state other than the State of Texas. Shareholder owns all of the issued and outstanding capital stock of Seller and has the right to vote the same. 2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and delivery of this Agreement and all instruments to be executed by Seller hereunder have been authorized by all necessary corporate, shareholder and other action on the part of the Seller and the Shareholder, and this Agreement and all instruments to be executed by the Seller and the Shareholder hereunder are the valid and binding obligations of the Seller and Shareholder enforceable (subject to normal equitable principals) against each of such parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The Seller and the Shareholder represent and warrant that the execution, delivery and performance of this Agreement and all instruments to be executed by the Seller hereunder and the consummation of the transactions contemplated hereby and thereby, 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 (or other organizational documents) of the Seller, (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) to the best of their knowledge, 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. 2.1.3 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. In addition, (a) all of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller, (b) the Seller is not, and no other party to any of the Contracts 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, (c) no Contract has been entered into on terms which could reasonably be expected to have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller nor the Shareholder has received any information which would cause either 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. 2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). The Seller and the Shareholder represent and warrant that all of the Assets are (a) in a state of good repair, ordinary wear and tear excepted, (b) are free from any known defects except as may be repaired by routine maintenance and such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and (c) conform to all applicable laws governing their use. The Seller and Shareholder represent that 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 "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, taxes, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature. 2.1.5 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; each of the Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller; the Seller is in compliance in all material respects with the terms of each of the Permits; none of the Permits have been, or to the knowledge of the Seller or the Shareholder, are threatened to be, revoked, canceled, suspended or modified. 2.1.6 Intellectual Property. There is no Intellectual Property that is either material or necessary for the continued use of the Assets and, to the best of Seller's knowledge, the conduct of the Business by Seller 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. 2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's unaudited Statement of Income for the nine (9) month period ended December 31, 1997, copy of which is attached hereto as Schedule 2.1.7 (the "Seller's Statement of Income"); the Seller's Statement of Income is true, correct and complete in all material respects and presents fairly and fully the income and expenses of the Seller as at the date and for the period indicated thereon, and has been prepared in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants ("GAAP") applied on a consistent basis, except as noted therein; and the Seller's Statement of Income includes all adjustments which are necessary for a fair presentation of the Seller's income and expenses for the periods indicated. 2.1.8 Absence of Certain Changes and Events. Since December 31, 1997, there has not been: (g) Financial Change. Any adverse change in the Assets, the Business or the financial condition, operations, liabilities or prospects of the Seller; (h) Property Damage. Any damage, destruction, or loss to any of the Assets or the Business (whether or not covered by insurance); (i) Waiver. Any waiver or release of a material right of or claim held by the Seller; (j) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any asset of the Seller other than in the ordinary course of business; (k) Labor Disputes. Any labor disputes between the Seller and its employees; or (l) Other Changes. Any other event or condition known to the Seller or the Shareholder that particularly pertains to and has or might have an adverse effect on the Assets, the operations of the Business or the financial condition or prospects of the Seller. 2.1.9 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. 2.1.10 Environmental Matters. Except as described on Schedule 2.1.10 hereto, none of the current or past operations of the Business or any of the Assets are being or have been conducted or used in such a manner as to constitute a violation of any Environmental Law (defined below); neither the Seller nor the Shareholder has received any notice (whether formal or informal, written or oral) from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Environmental Law or regarding any claims for remedial obligations or contribution for removal costs or damages under any Environmental Law; there are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Seller or the Shareholder, threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of the Seller or the Shareholder, is there any basis for any of the foregoing; Buyer is not required to obtain any permits, licenses or similar authorizations pursuant to any Environmental Law in effect as of the date hereof to operate and use any of the Assets for their current or proposed purposes and uses; to the knowledge of the Seller or the Shareholder, the Assets include all environmental and pollution control equipment necessary for compliance with applicable Environmental Law; no Hazardous Materials (defined below) have been or are currently being used by the Seller in the operation of the Assets; no Hazardous Materials are or have ever been situated on or under any of the Seller's properties, whether owned or leased, or incorporated into any of the Assets; to the knowledge of the Seller or the Shareholder, there are no, there have never been any, underground storage tanks (as defined under Environmental Law) located under any of the Seller's properties, whether owned or leased; and there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned or leased by the Seller, or on any property on which Hazardous Materials generated by the Seller's operations or the use of the Assets were disposed of, which would result in an adverse change in the Business or business prospects of the Seller. The term "Environmental 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. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. 2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller, whether or not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended, will by its terms or applicable law, become binding upon or an obligation of Buyer; (b) the Seller has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on the Assets; (c) the Seller does not have any dispute with any of its existing or former employees, and (d) there are no labor disputes or, to the knowledge of the Seller or the Shareholder, any disputes threatened by current or former employees of the Seller. 2.1.12 Investigations; Litigation. Except as set forth on Schedule 2.1.10 hereto, 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 threatened, nor has any governmental entity indicated to the Seller or the Shareholder an intention to conduct the same; and 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 Business. 2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the Shareholder, nor any officer, employee or agent of the Seller, or any other person acting on behalf of the Seller or the Shareholder, 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 profitable conduct of the Business or the profitable use of the Assets (or to assist the Seller in connection with any actual or proposed transaction) which if not given in the past, might have had an adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, might adversely affect the profitable conduct of the Business or the profitable use of the Assets. 2.1.14 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 "insolvent" with respect to the Seller, means that the sum of the present fair and saleable value of the Seller's assets does not and will not exceed its debts and other probable liabilities, and the term "debts" includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.15. 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 a 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. 2.1.16 Taxes. All federal, state and local taxes assessed or assessable against the Assets for periods prior to January 1, 1998 have been paid by Seller and the Assets will be conveyed to Buyer free and clear of any such taxes or claims therefor. All taxes assessed against the Assets for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. 2.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller and 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 Texas, has full requisite corporate power and authority to carry on its businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it. 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 Articles 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 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. ARTICLE III Additional Agreements 3.1 Noncompetition. Except as set forth below or as otherwise consented to or approved in writing by Buyer, the Seller and the Shareholder each agree that for a period of 60 months following the date hereof, such party will not, 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 (a) engage in any business in competition with the business or business conducted by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof, or in any service business the services of which were provided and marketed by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof in any state of the United States, or any foreign country in which the Seller transacted business on or before the date hereof or in which Buyer (or Buyer's affiliates) transact business on or after the date hereof; (b) request any present customers or suppliers of the Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel their business with Buyer (or Buyer's affiliates); (c) 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 (d) 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 area 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 (i) the covenants of Buyer contained in this Agreement, (ii) additional consideration in the amount of $300,000 payable by Buyer on the date hereof by wire transfer of immediately available funds to the Seller and the Shareholder, in those amounts and to those accounts specified in Schedule 3.1 hereto and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller who devote their full time in the operation of the Assets and the conduct of the Business (the "Employees"). Effective as of the date of Closing, all of the Employees shall be offered employment by Buyer, subject to such Employees meeting Buyer's standard employment eligibility requirements. 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. 3.3 Allocation of Purchase Price. The parties hereto agree to allocate the Purchase Price payable by Buyer for the Assets hereunder as set forth on Schedule 3.3 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.4 Employment of Shareholder. The Shareholder agrees to be Buyer's employee for a period of at least one year at a total compensation of $61,000 per year, with the terms and conditions of such employment to be pursuant to an Employment Agreement to be executed by the Shareholder and the Buyer at Closing. ARTICLE IV Indemnification 4.1 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 "Damages") that such indemnitee shall incur or suffer, which arise, result from or relate to (a) any material 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 (b) the Retained Liabilities. 4.2 Indemnification by Buyer. In addition to any other remedies available to the Seller or 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 against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to (a) any material 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 and (b) the Assumed Liabilities. 4.3 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 IV, 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 V Miscellaneous 5.1 Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made on the part 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 without limitation, notwithstanding any investigations 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: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Yale E. Key, Inc. Lynch, Chappell & Alsup, P.C. Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700 East Brunswick, New Jersey 08816 Midland, Texas 79701 Attn: General Counsel Attn: James M. Alsup, Esq. Facsimile: (908) 247-5148 Facsimile: (915) 683-2587 - -------------------------------------------------------------------------------- If to the Seller or the Shareholder - -------------------------------------------------------------------------------- Addressed to: With a copy to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Mr. Tom Nations Larry Glazner, Esq. Edwards Transport, Inc. 516 Avenue H Route 3, Box 166 Levelland, Texas 79336 Levelland, Texas 79336 Facsimile: (806) 894-1543 - -------------------------------------------------------------------------------- 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 fifth (5th) businesses day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal businesses hours on any businesses day. 5.5 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. 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 Texas. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be executed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. BUYER: YALE E. KEY, INC. a Texas corporation By: C. Ron Laidley, President SELLER: EDWARDS TRANSPORT, INC. a Texas corporation By: Tom Nations, President SHAREHOLDER: __________________________________________ Tom Nations EX-10.C 4 JPF WELL SERVICE, INC. ACQUISITION Asset Purchase Agreement among Brooks Well Servicing, Inc., JPF Lease Service, Inc. and JPF Well Service, Inc., R. D. Nettle, Pete Schweikhardt and Rick Talbot April 20, 1998 TABLE OF CONTENTS ARTICLE 1 Purchase and Sale of Assets..........................................1 1.1 Purchase and Sale of the Assets.......................................1 1.2 Excluded Assets.......................................................2 1.3 Consideration for Assets..............................................2 1.4 Liabilities...........................................................3 1.5 Closing...............................................................3 1.6 Closing Deliveries....................................................3 1.6.1 Opinion of Buyer's Counsel............................................3 1.6.2 Opinion of Seller's Counsel...........................................4 ARTICLE II Representations and Warranties......................................4 2.1 Representations and Warranties of the Seller and the Shareholders.....4 2.1.1 Organization and Good Standing........................................4 2.1.2 Agreement Authorized and Effect on Other Obligations..................4 2.1.3 Contracts.............................................................5 2.1.4 Title to Assets.......................................................5 2.1.5 Licenses and Permits..................................................6 2.1.6 Intellectual Property.................................................6 2.1.7 Financial Statements..................................................6 2.1.8 Absence of Certain Changes and Events.................................6 (a) Financial Change.............................................6 (b) Property Damage..............................................6 (c) Waiver.......................................................6 (d) Change in Assets.............................................7 (e) Labor Disputes...............................................7 (f) Other Changes................................................7 2.1.9 Necessary Consents....................................................7 2.1.10 Environmental Matters.................................................7 2.1.11 No ERISA Plans or Labor Issues........................................8 2.1.12 Investigations; Litigation............................................8 2.1.13 Absence of Certain Businesses Practices...............................8 2.1.14 Solvency..............................................................8 2.1.15 Finder's Fee..........................................................9 2.1.16 Taxes.................................................................9 2.2 Representations and Warranties of Buyer...............................9 2.2.1 Organization and Good Standing........................................9 2.2.2 Agreement Authorized and its Effect on Other Obligations..............9 2.2.3 Consents and Approvals...............................................10 2.2.4 Finder's Fee.........................................................10 ARTICLE III Additional Agreements.............................................10 3.1 Noncompetition.......................................................10 3.2 Hiring Employees.....................................................11 3.3 Allocation of Purchase Price.........................................11 3.4 Name Change..........................................................11 3.5 Related Asset Purchase...............................................12 3.6 Real Estate Purchase.................................................12 ARTICLE IV Indemnification....................................................12 4.1 Indemnification by the Seller and the Shareholders...................12 4.2 Indemnification by Buyer.............................................12 4.3 Indemnification Procedure............................................13 ARTICLE V Miscellaneous.......................................................13 5.1 Survival of Representations, Warranties and Covenants................13 5.2 Entirety.............................................................14 5.3 Counterparts.........................................................14 5.4 Notices and Waivers..................................................14 5.5 Captions.............................................................15 5.6 Successors and Assigns...............................................15 5.7 Severability.........................................................15 5.8 Applicable Law.......................................................15 Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of April 20, 1998 among Brooks Well Servicing, Inc., a Delaware corporation (the "Buyer"), JPF Lease Service, Inc., a Texas corporation (the "Seller") and JPF Well Service, Inc. (and Joe P. Freeman, its sole shareholder, to evidence his agreement to be subject to the provisions of Section 3.1 hereof), R.D. Nettle, Pete Schweikhardt and Rick Talbot (collectively, the "Shareholders"). RECITATIONS The Seller desires to sell substantially all of its assets, 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: ARTICLE 1 Purchase and Sale of Assets 1.1 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 effective as of 12:01 A.M. Texas time on the date of execution hereof (the "Closing Date"), all of the assets of the Seller existing on the Closing Date other than the Excluded Assets (defined below), whether real, personal, tangible or intangible, including, without limitation, the following assets owned by the Seller relating to or used or useful in the operation of the business as conducted by the Seller on and before the date hereof (the "Business") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property owned by Seller (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles), including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (b) all of the inventory owned by Seller, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (c) all of the Seller's intangible assets (the "Intangibles"), including without limitation, (i) all of the Seller's rights to the names under which it is incorporated or under which they currently do business, (ii) all of the Seller's rights to any patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, and copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used or held in connection with the Business, including without limitation, that which is more fully described on Schedule 1.1(c) hereto, (iii) the Selle's telephone numbers, and (iv) the sales and promotional literature, computer software, customer and supplier lists and all other records of the Seller relating to the Assets or the Business, excluding the corporate minute books, accounting records, files, tax returns and other financial data on whatever media, relating to the Seller or the Shareholders or the Excluded Assets (the"Retained Records"); (d) all leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Business, including, without limitation those listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (e) all of the 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 "Permits") relating principally to all or any of the Assets or to the operation of the Business, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto; (f) the goodwill and going concern value of the 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 used in the Business or intended for use in the Business in connection with, or that are necessary for the continued conduct of, the Business. 1.2 Excluded Assets. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all of the Seller's accounts receivable and all other rights of the Seller to payment for services rendered by the Seller before Closing, it being understood that all of Seller's customers shall be billed on the Closing Date for services or materials provided through that date and that Buyer will forward any payment on such accounts received by it to Seller within five (5) business day of receipt; (ii) all cash accounts of the Seller and all petty cash of the Seller kept on hand for use in the Business; (iii) all other receivables and prepaid expenses, including all right, title and interest of the Seller in and to any prepaid expenses, bonds, deposits and other current assets relating to any of the Assets or the Businesses; (i) the Retained Records; (v) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.3 hereof; and (vi) any other assets described in Schedule 1.2 attached hereto. 1.3 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 Shareholders contained herein, Buyer agrees to pay on the date of Closing, the sum of $925,000.00 to Seller by wire transfer of immediately available funds to an account designated by the Seller or by delivery of immediately available funds. In addition, within thirty (30) days following the Closing, Buyer will pay Seller an additional amount equal to the amounts paid by Seller for equipment purchases made by Seller after January 1, 1998, and before the date hereof which expand the capabilities of the Business and which are described on Schedule 1.3 hereto. 1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and only those, liabilities and obligations of the Seller to perform the Contracts described on Schedule 1.1(d) hereto to the extent that such Contracts have not been performed and are not in default on the date hereof (the "Assumed Liabilities"). On and after the date hereof, the Seller shall be responsible for any and all liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, (a) any obligations arising from the Seller's employment of those employees of the Seller listed on Schedule 3.2 hereto; (b) any liabilities arising from or relating to Seller's failure to be duly qualified or licensed to do business and 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 Seller would make such qualification or licensing necessary; (c) any failure to pay any taxes owed by Seller which are applicable to the period ending with the date hereof; (d) any liabilities arising out of any matters listed on Schedule 2.1.12 hereto (collectively, the "Retained Liabilities"); and (e) any other liabilities resulting from Seller's operation of the Assets or conduct of its business before the date hereof. 1.5 Closing. The closing of the purchase and sale provided for hereunder (the "Closing") shall take place on the date hereof (the "Closing Date"), at the offices of Seller. 1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and Seller shall execute and deliver the Real Estate Purchase and Sale Agreement (the "Real Estate Agreement") required under section 3.6 hereof and (ii) Buyer and Seller will deliver to one another the opinions of counsel described below: 1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C., counsel for Buyer, in form and substance satisfactory to the Seller, 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 is qualified to do business in the State of Texas; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement, the Real Estate Agreement and the implementation of the transactions contemplated hereby and thereby, have been taken; and (iii) this Agreement and the Real Estate Agreement have been duly executed and delivered by, and are the legal, valid and binding obligations of Buyer and are enforceable against Buyer in accordance with their terms, except as enforceability may be limited by (a) equitable principals of general applicability of (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers or Buyer as to the matters of fact and (y) 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. 1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable opinion, dated as of the Closing Date, from Duckett, Bouligny & Collins, L.L.P., counsel to Seller and the Shareholders, in form and substance satisfactory to Buyer, to the effect that (i) Seller has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Texas; (ii) all proceedings required to be taken by or on the part of the Seller and the Shareholders to authorize the execution of this Agreement and the Real Estate Agreement and the implementation of the transactions contemplated hereby and thereby have been taken; (iii) the Seller owns all of the Assets free and clear of any Encumbrances other than those Encumbrances specifically listed and described on the Schedules to this Agreement; and (iv) this Agreement and the Real Estate Agreement have been duly executed and delivered by, and are the legal, valid and binding obligations of the Seller and the Shareholders and are enforceable against the Seller and the Shareholders in accordance with their respective terms, in each case, 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 (x) certificates of public officials and of officers of the Seller as to the matters of fact and (y) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Texas law. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of the Seller and the Shareholders. The Seller and the Shareholders jointly and severally represent and warrant to Buyer as follows: 2.1.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and each Seller has full requisite corporate power and authority to carry on its businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it. The nature and conduct of Seller's business does not require the Seller to be qualified to do business in any state other than Texas. The Shareholders own all of the issued and outstanding shares of the Seller's capital stock and have the sole right to vote the same. 2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and delivery of this Agreement and all instruments to be executed by Seller hereunder have been authorized by all necessary corporate, shareholder and other action on the part of the Seller and the Shareholders, and this Agreement and all instruments to be executed by the Seller and the Shareholders hereunder are the valid and binding obligations of the Seller and the Shareholders enforceable (subject to normal equitable principals) against each of such parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The Seller and the Shareholders represent and warrant that the execution, delivery and performance of this Agreement and all instruments to be executed by the Seller hereunder and the consummation of the transactions contemplated hereby and thereby, 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 (or other organizational documents) of the Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Seller or the Shareholders are a party or by which the Seller or the Shareholders or their respective properties are bound; or (iii) to the best of their knowledge, 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 Shareholders or any of their respective properties are subject. 2.1.3 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. In addition, (a) all of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller, (b) the Seller is not, and no other party to any of the Contracts 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, (c) no Contract has been entered into on terms which could reasonably be expected to have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller nor the Shareholders have 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. 2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). Except as set forth in Schedule 2.1.4 hereto, the Seller and the Shareholders represent and warrant that all of the Assets are (a) in a state of good repair, ordinary wear and tear excepted, (b) are free from any known defects except as may be repaired by routine maintenance and such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and (c) conform to all applicable laws governing their use. The Seller and Shareholders represent that 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 Shareholders, except such as have been fully complied with. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, taxes, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature. 2.1.5 Licenses and Permits. To the knowledge of the Seller or the Shareholders, 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; each of the Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller; the Seller is in compliance in all material respects with the terms of each of the Permits; none of the Permits have been, or to the knowledge of the Seller or the Shareholders, are threatened to be, revoked, canceled, suspended or modified. 2.1.6 Intellectual Property. To the knowledge of the Seller or the Shareholders, Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material or necessary for the continued use of the Assets; the Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances; the Seller has not granted to any other person any license to use any Intellectual Property and, to the best of Seller's knowledge, use of the Intellectual Property will not, and the conduct of the Business did not, infringe, misappropriate or conflict with the intellectual property rights of others. Neither the Seller nor any of the Shareholders has received any notice of infringement, misappropriation or conflict with the intellectual property rights of others in connection with the use by Seller of the Intellectual Property. 2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's unaudited statement of income for the eleven (11) month period ended November 30, 1997, a copy of which is attached hereto as Schedule 2.1.7 (the "Seller's Statement of Income"); the Seller's Statement of Income is true, correct and complete in all material respects and presents fairly and fully the income and expenses of the Seller as at the date and for the periods indicated thereon, and has been prepared in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants ("GAAP") applied on a consistent basis, except as described on Schedule 2.1.7 hereto; and the Seller's Statement of Income includes all adjustments which are necessary for a fair presentation of the Seller's income and expenses for the period indicated. 2.1.8 Absence of Certain Changes and Events. Since November 30, 1997, there has not been: (a) Financial Change. Any adverse change in the Assets, the Business or the financial condition, operations, liabilities or prospects of the Seller; (b) Property Damage. Any damage, destruction, or loss to any of the Assets or the Business (whether or not covered by insurance); (c) Waiver. Any waiver or release of a material right of or claim held by the Seller; (d) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any asset of the Seller other than in the ordinary course of business; (e) Labor Disputes. Any labor disputes between the Seller and its employees; or (f) Other Changes. Any other event or condition known to the Seller or the Shareholders that particularly pertains to and has or might have an adverse effect on the Assets, the operations of the Business or the financial condition or prospects of the Seller. 2.1.9 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. 2.1.10 Environmental Matters. None of the current or past operations of the Business or any of the Assets are being or have been conducted or used in such a manner as to constitute a violation of any Environmental Law (defined below); neither the Seller nor any of the Shareholders has received any notice (whether formal or informal, written or oral) from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Environmental Law or regarding any claims for remedial obligations or contribution for removal costs or damages under any Environmental Law; there are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Seller or the Shareholders, threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of the Seller or the Shareholders, is there any basis for any of the foregoing; Buyer is not required to obtain any permits, licenses or similar authorizations pursuant to any Environmental Law in effect as of the date hereof to operate and use any of the Assets for their current or proposed purposes and uses; to the knowledge of the Seller or the Shareholders, the Assets include all environmental and pollution control equipment necessary for compliance with applicable Environmental Law; except as described in Schedule 2.1.10 hereto, no Hazardous Materials (defined below) have been or are currently being used by the Seller in the operation of the Assets; no Hazardous Materials are or have ever been situated on or under any of the Seller's properties, whether owned or leased, or incorporated into any of the Assets; to the knowledge of the Seller or the Shareholders, there are no, and there have never been any, underground storage tanks (as defined under Environmental Law) located under any of the Seller's properties, whether owned or leased; and there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned or leased by the Seller, or on any property on which Hazardous Materials generated by the Seller's operations or the use of the Assets were disposed of, which would result in an adverse change in the Business or business prospects of the Seller. The term "Environmental 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. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. 2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller, whether or not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended, will by its terms or applicable law, become binding upon or an obligation of Buyer; (b) the Seller has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on the Assets; (c) the Seller does not have any dispute with any of its existing or former employees, and (d) there are no labor disputes or, to the knowledge of the Seller or the Shareholders, any disputes threatened by current or former employees of the Seller. 2.1.12 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 threatened, nor has any governmental entity indicated to the Seller or any of the Shareholders an intention to conduct the same; and there is no suit, action, or legal, administrative, arbitration or other proceeding or governmental investigation pending to which the Seller or any of the Shareholders is a party or, to the knowledge of the Seller or the Shareholders, might become a party or which would adversely affect the Assets or the Buyer's future conduct of the Business, except as set forth on the Schedule 2.1.12 hereto. 2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the Shareholders, nor any officer, employee or agent of the Seller, or any other person acting on behalf of the Seller or the Shareholders, 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 profitable conduct of the Business or the profitable use of the Assets (or to assist the Seller in connection with any actual or proposed transaction) which if not given in the past, might have had an adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, might adversely affect the profitable conduct of the Business or the profitable use of the Assets. 2.1.14 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 "insolvent," with respect to the Seller, means that the sum of the present fair and saleable value of the Seller's assets does not and will not exceed its debts and other probable liabilities, and the term "debts" includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.15 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller, 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 payment. 2.1.16 Taxes. All federal, state and local taxes assessed or assessable against the Assets for periods prior to January 1, 1998 have been paid by Seller and the Assets will be conveyed to Buyer free and clear of any such taxes or claims therefor. All taxes assessed against the Assets for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. Buyer shall be responsible for the payment of any sales taxes due as a result of the sale of the Assets by Seller to Buyer. 2.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller and 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 businesses 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 businesses and is in good standing as a foreign corporation authorized to do business in the State of Texas. 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 Seller 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. ARTICLE III Additional Agreements 3.1 Noncompetition. Except as set forth below or as otherwise consented to or approved in writing by Buyer, the Seller and each of the Shareholders (and Joe P. Freeman, the sole shareholder of JPF Well Service, Inc.) agree that for a period of 60 months following the date hereof, such party will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, a holder of, or investor in as much as 3% of any security of any class of any corporation or other business entity (a) engage in any business in competition with the business or businesses conducted by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof, or in any service business the services of which were provided and marketed by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof in the following counties in the state of Texas: Aransas, Austin, Bastrop, Bee Bell, Brazoria, Brazos, Burleson, Caldwell, Calhoun, Colorado, DeWitt, Falls, Fayette, Fort Bend, Goliad, Grimes, Guadalupe, Gonzales, Harris, Jackson, Karnes, Lavaca, Lee, Leon, Limestone, Matagora, Madison, McLennan, Milam, Montgomery, Nueces, Refugio, Robertson, San Patricio, Travis, Victoria, Walker, Waller, Washington, Wharton, and Williamson, ; (b) request any present customers or suppliers of the Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel their business with Buyer (or Buyer's affiliates); (c) 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 (d) induce or actively attempt to influence any employee of Buyer (or Buyer's affiliates) to terminate his or her employment. The Seller and each of the Shareholders agree that if either the length of time or geographical area 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 Shareholders 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 Shareholders 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 Shareholders 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 Shareholders 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 Shareholders acknowledge that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of (i) the covenants of Buyer contained in this Agreement, (ii) additional consideration in the amount of $375,000 payable by Buyer on the date hereof by wire transfer of immediately available funds to the Seller and the Shareholders, in those amounts and to those accounts specified in Schedule 3.1 hereto and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. Notwithstanding anything to the contrary stated in this Section 3.1, (i) the conduct by the business entities listed in Schedule 3.1 hereto of the activities set forth opposite such entities' names (the "Permitted Business") shall not be a violation by Joe P. Freeman and the individual Shareholders of clause (a) of this Section 3.1 and (ii) the solicitation by the business entities listed in Schedule 3.1 hereto of any present customer or supplier of the Seller or any customers of Buyer (or Buyer's Affiliates) in connection with the conduct of their Permitted Business, but only their Permitted Business and not the business sold hereunder, shall not be a violation by Joe P. Freeman and the individual Shareholders of clause (b) of this Section 3.1. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller who devote their full time in the operation of the Assets and the conduct of the Business (the "Employees"). Effective as of the date of Closing, substantially all of the Employees shall be offered employment by Buyer, subject to such Employees meeting Buyer's standard employment eligibility requirements. 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 Shareholders 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. 3.3 Allocation of Purchase Price. The parties hereto agree to allocate the Purchase Price payable by Buyer for the Assets hereunder as set forth on Schedule 3.3 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.4 Name Change. The Seller and the Shareholders shall, within ten (10) days from the date of Closing, cause to be filed with the Secretary of State of Texas an amendment to the Articles of Incorporation of the Seller changing the names of the Seller from its current name to a name that is not similar to such name. The Seller and the Shareholders shall, within five (5) days from the date of its receipt of confirmation of such filings from the Secretary of State of Texas, cause to be delivered to Buyer a copy of such confirmation. 3.5 Related Asset Purchase. Concurrent with the execution and delivery hereof, Buyer, JPF Well Service, Inc. and Joe P. Freeman shall have entered into (and consummated the transactions contemplated by) a binding agreement pursuant to which JPF Well Service, Inc. will have conveyed to Buyer substantially all of its assets (the "JPF Well Service Transaction"). The consummation of the transaction contemplated by this Agreement is expressly conditioned upon the consummation of the JPF Well Service Transaction. 3.6 Real Estate Purchase. Concurrent with the execution and delivery hereof, Seller shall have entered into (and consummated the transactions contemplated by) a binding agreement pursuant to which Seller will have conveyed to Buyer the real property described in Schedule 3.5 hereto (the "Real Estate Transaction"). The consummation of the transaction contemplated by this Agreement is expressly conditioned upon the consummation of the Real Estate Transaction. ARTICLE IV Indemnification 4.1 Indemnification by the Seller and the Shareholders. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Seller and each of the Shareholders 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 "Damages") that such indemnitee shall incur or suffer, which arise, result from or relate to (a) any material breach of, or failure by the Seller or 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 the Seller or the Shareholders under this Agreement; and (b) the Retained Liabilities. 4.2 Indemnification by Buyer. In addition to any other remedies available to the Seller or the Shareholders 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 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 (a) any material 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 Shareholders by or on behalf of Buyer under this Agreement and (b) the Assumed Liabilities. 4.3 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 IV, 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 V Miscellaneous 5.1 Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made on the part 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 without limitation, notwithstanding any investigations 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: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Brooks Well Servicing, Inc. Lynch, Chappell & Alsup, P.C. Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700 East Brunswick, New Jersey 08816 Midland, Texas 79701 Attn: General Counsel Attn: James M. Alsup, Esq. Facsimile: (908) 247-5148 Facsimile: (915) 683-2587 - -------------------------------------------------------------------------------- If to the Seller or the Shareholders - -------------------------------------------------------------------------------- Addressed to: With a copy to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Mr. Joe P. Freeman Duckett, Bouligny & Collins, L.L.P. JPF Lease Service, Inc. 207 West Jackson Highway 59 South P. O. Box 1567 El Campo, Texas 77435 El Campo, Texas 77437 Facsimile: (409) 543-8361 Attn: Randy M. Clapp, Esq. Facsimile: (409) 543-9516 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 fifth (5th) businesses day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal businesses hours on any businesses day. 5.5 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. 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 Texas. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other parties hereto have caused this Agreement to be executed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. BUYER: BROOKS WELL SERVICING, INC. a Delaware corporation By: Jimmy Chasteen, President SELLER: JPF LEASE SERVICE, INC. By: Joe P. Freeman, President SHAREHOLDERS: JPF WELL SERVICE, INC. By:__________________________________________ Joe P. Freeman, President ___________________________________________ R. D. Nettle __________________________________________ Pete Schweikhardt ___________________________________________ Rick Talbot ______________________________________________________________ Joe P. Freeman (to evidence his agreement to be bound by the provisions of Section 3.1 hereof) EX-10.D 5 JPF LEASE SERVICE, INC. ACQUISITION Asset Purchase Agreement among Brooks Well Servicing, Inc., JPF Lease Service, Inc. and JPF Well Service, Inc., R. D. Nettle, Pete Schweikhardt and Rick Talbot April 20, 1998 TABLE OF CONTENTS ARTICLE 1 Purchase and Sale of Assets..........................................1 1.1 Purchase and Sale of the Assets.......................................1 1.2 Excluded Assets.......................................................2 1.3 Consideration for Assets..............................................2 1.4 Liabilities...........................................................3 1.5 Closing...............................................................3 1.6 Closing Deliveries....................................................3 1.6.1 Opinion of Buyer's Counsel............................................3 1.6.2 Opinion of Seller's Counsel...........................................4 ARTICLE II Representations and Warranties......................................4 2.1 Representations and Warranties of the Seller and the Shareholders.....4 2.1.1 Organization and Good Standing........................................4 2.1.2 Agreement Authorized and Effect on Other Obligations..................4 2.1.3 Contracts.............................................................5 2.1.4 Title to Assets.......................................................5 2.1.5 Licenses and Permits..................................................6 2.1.6 Intellectual Property.................................................6 2.1.7 Financial Statements..................................................6 2.1.8 Absence of Certain Changes and Events.................................6 (a) Financial Change.............................................6 (b) Property Damage..............................................6 (c) Waiver.......................................................6 (d) Change in Assets.............................................7 (e) Labor Disputes...............................................7 (f) Other Changes................................................7 2.1.9 Necessary Consents....................................................7 2.1.10 Environmental Matters.................................................7 2.1.11 No ERISA Plans or Labor Issues........................................8 2.1.12 Investigations; Litigation............................................8 2.1.13 Absence of Certain Businesses Practices...............................8 2.1.14 Solvency..............................................................8 2.1.15 Finder's Fee..........................................................9 2.1.16 Taxes.................................................................9 2.2 Representations and Warranties of Buyer...............................9 2.2.1 Organization and Good Standing........................................9 2.2.2 Agreement Authorized and its Effect on Other Obligations..............9 2.2.3 Consents and Approvals...............................................10 2.2.4 Finder's Fee.........................................................10 ARTICLE III Additional Agreements.............................................10 3.1 Noncompetition.......................................................10 3.2 Hiring Employees.....................................................11 3.3 Allocation of Purchase Price.........................................11 3.4 Name Change..........................................................11 3.5 Related Asset Purchase...............................................12 3.6 Real Estate Purchase.................................................12 ARTICLE IV Indemnification....................................................12 4.1 Indemnification by the Seller and the Shareholders...................12 4.2 Indemnification by Buyer.............................................12 4.3 Indemnification Procedure............................................13 ARTICLE V Miscellaneous.......................................................13 5.1 Survival of Representations, Warranties and Covenants................13 5.2 Entirety.............................................................14 5.3 Counterparts.........................................................14 5.4 Notices and Waivers..................................................14 5.5 Captions.............................................................15 5.6 Successors and Assigns...............................................15 5.7 Severability.........................................................15 5.8 Applicable Law.......................................................15 Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of April 20, 1998 among Brooks Well Servicing, Inc., a Delaware corporation (the "Buyer"), JPF Lease Service, Inc., a Texas corporation (the "Seller") and JPF Well Service, Inc. (and Joe P. Freeman, its sole shareholder, to evidence his agreement to be subject to the provisions of Section 3.1 hereof), R.D. Nettle, Pete Schweikhardt and Rick Talbot (collectively, the "Shareholders"). RECITATIONS The Seller desires to sell substantially all of its assets, 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: ARTICLE 1 Purchase and Sale of Assets 1.1 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 effective as of 12:01 A.M. Texas time on the date of execution hereof (the "Closing Date"), all of the assets of the Seller existing on the Closing Date other than the Excluded Assets (defined below), whether real, personal, tangible or intangible, including, without limitation, the following assets owned by the Seller relating to or used or useful in the operation of the business as conducted by the Seller on and before the date hereof (the "Business") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property owned by Seller (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles), including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (b) all of the inventory owned by Seller, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (c) all of the Seller's intangible assets (the "Intangibles"), including without limitation, (i) all of the Seller's rights to the names under which it is incorporated or under which they currently do business, (ii) all of the Seller's rights to any patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, and copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used or held in connection with the Business, including without limitation, that which is more fully described on Schedule 1.1(c) hereto, (iii) the Seller's telephone numbers, and (iv) the sales and promotional literature, computer software, customer and supplier lists and all other records of the Seller relating to the Assets or the Business, excluding the corporate minute books, accounting records, files, tax returns and other financial data on whatever media, relating to the Seller or the Shareholders or the Excluded Assets (the "Retained Records"); (d) all leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Business, including, without limitation those listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (e) all of the 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 "Permits") relating principally to all or any of the Assets or to the operation of the Business, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto; (f) the goodwill and going concern value of the 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 used in the Business or intended for use in the Business in connection with, or that are necessary for the continued conduct of, the Business. 1.2 Excluded Assets. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all of the Seller's accounts receivable and all other rights of the Seller to payment for services rendered by the Seller before Closing, it being understood that all of Seller's customers shall be billed on the Closing Date for services or materials provided through that date and that Buyer will forward any payment on such accounts received by it to Seller within five (5) business day of receipt; (ii) all cash accounts of the Seller and all petty cash of the Seller kept on hand for use in the Business; (iii) all other receivables and prepaid expenses, including all right, title and interest of the Seller in and to any prepaid expenses, bonds, deposits and other current assets relating to any of the Assets or the Businesses; (i) the Retained Records; (v) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.3 hereof; and (vi) any other assets described in Schedule 1.2 attached hereto. 1.3 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 Shareholders contained herein, Buyer agrees to pay on the date of Closing, the sum of $925,000.00 to Seller by wire transfer of immediately available funds to an account designated by the Seller or by delivery of immediately available funds. In addition, within thirty (30) days following the Closing, Buyer will pay Seller an additional amount equal to the amounts paid by Seller for equipment purchases made by Seller after January 1, 1998, and before the date hereof which expand the capabilities of the Business and which are described on Schedule 1.3 hereto. 1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and only those, liabilities and obligations of the Seller to perform the Contracts described on Schedule 1.1(d) hereto to the extent that such Contracts have not been performed and are not in default on the date hereof (the "Assumed Liabilities"). On and after the date hereof, the Seller shall be responsible for any and all liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, (a) any obligations arising from the Seller's employment of those employees of the Seller listed on Schedule 3.2 hereto; (b) any liabilities arising from or relating to Seller's failure to be duly qualified or licensed to do business and 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 Seller would make such qualification or licensing necessary; (c) any failure to pay any taxes owed by Seller which are applicable to the period ending with the date hereof; (d) any liabilities arising out of any matters listed on Schedule 2.1.12 hereto (collectively, the "Retained Liabilities"); and (e) any other liabilities resulting from Seller's operation of the Assets or conduct of its business before the date hereof. 1.5 Closing. The closing of the purchase and sale provided for hereunder (the "Closing") shall take place on the date hereof (the "Closing Date"), at the offices of Seller. 1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the Assets to the Buyer in exchange for the Purchase Price: (i) the Buyer and Seller shall execute and deliver the Real Estate Purchase and Sale Agreement (the "Real Estate Agreement") required under section 3.6 hereof and (ii) Buyer and Seller will deliver to one another the opinions of counsel described below: 1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C., counsel for Buyer, in form and substance satisfactory to the Seller, 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 is qualified to do business in the State of Texas; (ii) all corporate proceedings required to be taken by or on the part of the Buyer to authorize the execution of this Agreement, the Real Estate Agreement and the implementation of the transactions contemplated hereby and thereby, have been taken; and (iii) this Agreement and the Real Estate Agreement have been duly executed and delivered by, and are the legal, valid and binding obligations of Buyer and are enforceable against Buyer in accordance with their terms, except as enforceability may be limited by (a) equitable principals of general applicability of (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers or Buyer as to the matters of fact and (y) 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. 1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable opinion, dated as of the Closing Date, from Duckett, Bouligny & Collins, L.L.P., counsel to Seller and the Shareholders, in form and substance satisfactory to Buyer, to the effect that (i) Seller has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Texas; (ii) all proceedings required to be taken by or on the part of the Seller and the Shareholders to authorize the execution of this Agreement and the Real Estate Agreement and the implementation of the transactions contemplated hereby and thereby have been taken; (iii) the Seller owns all of the Assets free and clear of any Encumbrances other than those Encumbrances specifically listed and described on the Schedules to this Agreement; and (iv) this Agreement and the Real Estate Agreement have been duly executed and delivered by, and are the legal, valid and binding obligations of the Seller and the Shareholders and are enforceable against the Seller and the Shareholders in accordance with their respective terms, in each case, 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 (x) certificates of public officials and of officers of the Seller as to the matters of fact and (y) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Texas law. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of the Seller and the Shareholders. The Seller and the Shareholders jointly and severally represent and warrant to Buyer as follows: 2.1.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and each Seller has full requisite corporate power and authority to carry on its businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it. The nature and conduct of Seller's business does not require the Seller to be qualified to do business in any state other than Texas. The Shareholders own all of the issued and outstanding shares of the Seller's capital stock and have the sole right to vote the same. 2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and delivery of this Agreement and all instruments to be executed by Seller hereunder have been authorized by all necessary corporate, shareholder and other action on the part of the Seller and the Shareholders, and this Agreement and all instruments to be executed by the Seller and the Shareholders hereunder are the valid and binding obligations of the Seller and the Shareholders enforceable (subject to normal equitable principals) against each of such parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The Seller and the Shareholders represent and warrant that the execution, delivery and performance of this Agreement and all instruments to be executed by the Seller hereunder and the consummation of the transactions contemplated hereby and thereby, 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 (or other organizational documents) of the Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Seller or the Shareholders are a party or by which the Seller or the Shareholders or their respective properties are bound; or (iii) to the best of their knowledge, 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 Shareholders or any of their respective properties are subject. 2.1.3 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. In addition, (a) all of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller, (b) the Seller is not, and no other party to any of the Contracts 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, (c) no Contract has been entered into on terms which could reasonably be expected to have an adverse effect on the use of the Assets by Buyer, (d) neither the Seller nor the Shareholders have 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. 2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). Except as set forth in Schedule 2.1.4 hereto, the Seller and the Shareholders represent and warrant that all of the Assets are (a) in a state of good repair, ordinary wear and tear excepted, (b) are free from any known defects except as may be repaired by routine maintenance and such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and (c) conform to all applicable laws governing their use. The Seller and Shareholders represent that 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 Shareholders, except such as have been fully complied with. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, taxes, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature. 2.1.5 Licenses and Permits. To the knowledge of the Seller or the Shareholders, 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; each of the Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller; the Seller is in compliance in all material respects with the terms of each of the Permits; none of the Permits have been, or to the knowledge of the Seller or the Shareholders, are threatened to be, revoked, canceled, suspended or modified. 2.1.6 Intellectual Property. To the knowledge of the Seller or the Shareholders, Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material or necessary for the continued use of the Assets; the Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances; the Seller has not granted to any other person any license to use any Intellectual Property and, to the best of Seller's knowledge, use of the Intellectual Property will not, and the conduct of the Business did not, infringe, misappropriate or conflict with the intellectual property rights of others. Neither the Seller nor any of the Shareholders has received any notice of infringement, misappropriation or conflict with the intellectual property rights of others in connection with the use by Seller of the Intellectual Property. 2.1.7 Financial Statements. The Seller has delivered to Buyer a copy of Seller's unaudited statement of income for the eleven (11) month period ended November 30, 1997, a copy of which is attached hereto as Schedule 2.1.7 (the "Seller's Statement of Income"); the Seller's Statement of Income is true, correct and complete in all material respects and presents fairly and fully the income and expenses of the Seller as at the date and for the periods indicated thereon, and has been prepared in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants ("GAAP") applied on a consistent basis, except as described on Schedule 2.1.7 hereto; and the Seller's Statement of Income includes all adjustments which are necessary for a fair presentation of the Seller's income and expenses for the period indicated. 2.1.8 Absence of Certain Changes and Events. Since November 30, 1997, there has not been: (a) Financial Change. Any adverse change in the Assets, the Business or the financial condition, operations, liabilities or prospects of the Seller; (b) Property Damage. Any damage, destruction, or loss to any of the Assets or the Business (whether or not covered by insurance); (c) Waiver. Any waiver or release of a material right of or claim held by the Seller; (d) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any asset of the Seller other than in the ordinary course of business; (e) Labor Disputes. Any labor disputes between the Seller and its employees; or (f) Other Changes. Any other event or condition known to the Seller or the Shareholders that particularly pertains to and has or might have an adverse effect on the Assets, the operations of the Business or the financial condition or prospects of the Seller. 2.1.9 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. 2.1.10 Environmental Matters. None of the current or past operations of the Business or any of the Assets are being or have been conducted or used in such a manner as to constitute a violation of any Environmental Law (defined below); neither the Seller nor any of the Shareholders has received any notice (whether formal or informal, written or oral) from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Environmental Law or regarding any claims for remedial obligations or contribution for removal costs or damages under any Environmental Law; there are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Seller or the Shareholders, threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of the Seller or the Shareholders, is there any basis for any of the foregoing; Buyer is not required to obtain any permits, licenses or similar authorizations pursuant to any Environmental Law in effect as of the date hereof to operate and use any of the Assets for their current or proposed purposes and uses; to the knowledge of the Seller or the Shareholders, the Assets include all environmental and pollution control equipment necessary for compliance with applicable Environmental Law; except as described in Schedule 2.1.10 hereto, no Hazardous Materials (defined below) have been or are currently being used by the Seller in the operation of the Assets; no Hazardous Materials are or have ever been situated on or under any of the Seller's properties, whether owned or leased, or incorporated into any of the Assets; to the knowledge of the Seller or the Shareholders, there are no, and there have never been any, underground storage tanks (as defined under Environmental Law) located under any of the Seller's properties, whether owned or leased; and there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned or leased by the Seller, or on any property on which Hazardous Materials generated by the Seller's operations or the use of the Assets were disposed of, which would result in an adverse change in the Business or business prospects of the Seller. The term "Environmental 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. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. 2.1.11 No ERISA Plans or Labor Issues. No employee benefit plan of the Seller, whether or not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended, will by its terms or applicable law, become binding upon or an obligation of Buyer; (b) the Seller has not engaged in any unfair labor practices which could reasonably be expected to result in an adverse effect on the Assets; (c) the Seller does not have any dispute with any of its existing or former employees, and (d) there are no labor disputes or, to the knowledge of the Seller or the Shareholders, any disputes threatened by current or former employees of the Seller. 2.1.12 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 threatened, nor has any governmental entity indicated to the Seller or any of the Shareholders an intention to conduct the same; and there is no suit, action, or legal, administrative, arbitration or other proceeding or governmental investigation pending to which the Seller or any of the Shareholders is a party or, to the knowledge of the Seller or the Shareholders, might become a party or which would adversely affect the Assets or the Buyer's future conduct of the Business, except as set forth on the Schedule 2.1.12 hereto. 2.1.13 Absence of Certain Businesses Practices. Neither the Seller, the Shareholders, nor any officer, employee or agent of the Seller, or any other person acting on behalf of the Seller or the Shareholders, 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 profitable conduct of the Business or the profitable use of the Assets (or to assist the Seller in connection with any actual or proposed transaction) which if not given in the past, might have had an adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, might adversely affect the profitable conduct of the Business or the profitable use of the Assets. 2.1.14 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 "insolvent," with respect to the Seller, means that the sum of the present fair and saleable value of the Seller's assets does not and will not exceed its debts and other probable liabilities, and the term "debts" includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.15 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller, 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 payment. 2.1.16 Taxes. All federal, state and local taxes assessed or assessable against the Assets for periods prior to January 1, 1998 have been paid by Seller and the Assets will be conveyed to Buyer free and clear of any such taxes or claims therefor. All taxes assessed against the Assets for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. Buyer shall be responsible for the payment of any sales taxes due as a result of the sale of the Assets by Seller to Buyer. 2.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller and 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 businesses 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 businesses and is in good standing as a foreign corporation authorized to do business in the State of Texas. 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 Seller 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. ARTICLE III Additional Agreements 3.1 Noncompetition. Except as set forth below or as otherwise consented to or approved in writing by Buyer, the Seller and each of the Shareholders (and Joe P. Freeman, the sole shareholder of JPF Well Service, Inc.) agree that for a period of 60 months following the date hereof, such party will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, a holder of, or investor in as much as 3% of any security of any class of any corporation or other business entity (a) engage in any business in competition with the business or businesses conducted by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof, or in any service business the services of which were provided and marketed by the Seller on or before the date hereof or by Buyer (or Buyer' s affiliates) on or after the date hereof in the following counties in the state of Texas: Aransas, Austin, Bastrop, Bee Bell, Brazoria, Brazos, Burleson, Caldwell, Calhoun, Colorado, DeWitt, Falls, Fayette, Fort Bend, Goliad, Grimes, Guadalupe, Gonzales, Harris, Jackson, Karnes, Lavaca, Lee, Leon, Limestone, Matagora, Madison, McLennan, Milam, Montgomery, Nueces, Refugio, Robertson, San Patricio, Travis, Victoria, Walker, Waller, Washington, Wharton, and Williamson, ; (b) request any present customers or suppliers of the Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel their business with Buyer (or Buyer's affiliates); (c) 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 (d) induce or actively attempt to influence any employee of Buyer (or Buyer's affiliates) to terminate his or her employment. The Seller and each of the Shareholders agree that if either the length of time or geographical area 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 Shareholders 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 Shareholders 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 Shareholders 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 Shareholders 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 Shareholders acknowledge that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of (i) the covenants of Buyer contained in this Agreement, (ii) additional consideration in the amount of $375,000 payable by Buyer on the date hereof by wire transfer of immediately available funds to the Seller and the Shareholders, in those amounts and to those accounts specified in Schedule 3.1 hereto and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. Notwithstanding anything to the contrary stated in this Section 3.1, (i) the conduct by the business entities listed in Schedule 3.1 hereto of the activities set forth opposite such entities' names (the "Permitted Business") shall not be a violation by Joe P. Freeman and the individual Shareholders of clause (a) of this Section 3.1 and (ii) the solicitation by the business entities listed in Schedule 3.1 hereto of any present customer or supplier of the Seller or any customers of Buyer (or Buyer's Affiliates) in connection with the conduct of their Permitted Business, but only their Permitted Business and not the business sold hereunder, shall not be a violation by Joe P. Freeman and the individual Shareholders of clause (b) of this Section 3.1. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller who devote their full time in the operation of the Assets and the conduct of the Business (the "Employees"). Effective as of the date of Closing, substantially all of the Employees shall be offered employment by Buyer, subject to such Employees meeting Buyer's standard employment eligibility requirements. 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 Shareholders 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. 3.3 Allocation of Purchase Price. The parties hereto agree to allocate the Purchase Price payable by Buyer for the Assets hereunder as set forth on Schedule 3.3 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.4 Name Change. The Seller and the Shareholders shall, within ten (10) days from the date of Closing, cause to be filed with the Secretary of State of Texas an amendment to the Articles of Incorporation of the Seller changing the names of the Seller from its current name to a name that is not similar to such name. The Seller and the Shareholders shall, within five (5) days from the date of its receipt of confirmation of such filings from the Secretary of State of Texas, cause to be delivered to Buyer a copy of such confirmation. 3.5 Related Asset Purchase. Concurrent with the execution and delivery hereof, Buyer, JPF Well Service, Inc. and Joe P. Freeman shall have entered into (and consummated the transactions contemplated by) a binding agreement pursuant to which JPF Well Service, Inc. will have conveyed to Buyer substantially all of its assets (the "JPF Well Service Transaction"). The consummation of the transaction contemplated by this Agreement is expressly conditioned upon the consummation of the JPF Well Service Transaction. 3.6 Real Estate Purchase. Concurrent with the execution and delivery hereof, Seller shall have entered into (and consummated the transactions contemplated by) a binding agreement pursuant to which Seller will have conveyed to Buyer the real property described in Schedule 3.5 hereto (the "Real Estate Transaction"). The consummation of the transaction contemplated by this Agreement is expressly conditioned upon the consummation of the Real Estate Transaction. ARTICLE IV Indemnification 4.1 Indemnification by the Seller and the Shareholders. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Seller and each of the Shareholders 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 "Damages") that such indemnitee shall incur or suffer, which arise, result from or relate to (a) any material breach of, or failure by the Seller or 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 the Seller or the Shareholders under this Agreement; and (b) the Retained Liabilities. 4.2 Indemnification by Buyer. In addition to any other remedies available to the Seller or the Shareholders 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 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 (a) any material 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 Shareholders by or on behalf of Buyer under this Agreement and (b) the Assumed Liabilities. 4.3 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 IV, 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 an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation 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 V Miscellaneous 5.1 Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made on the part 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 without limitation, notwithstanding any investigations 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: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Brooks Well Servicing, Inc. Lynch, Chappell & Alsup, P.C. Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700 East Brunswick, New Jersey 08816 Midland, Texas 79701 Attn: General Counsel Attn: James M. Alsup, Esq. Facsimile: (908) 247-5148 Facsimile: (915) 683-2587 - -------------------------------------------------------------------------------- If to the Seller or the Shareholders - -------------------------------------------------------------------------------- Addressed to: With a copy to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Mr. Joe P. Freeman Duckett, Bouligny & Collins, L.L.P. JPF Lease Service, Inc. 207 West Jackson Highway 59 South P. O. Box 1567 El Campo, Texas 77435 El Campo, Texas 77437 Facsimile: (409) 543-8361 Attn: Randy M. Clapp, Esq. Facsimile: (409) 543-9516 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 fifth (5th) businesses day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal businesses hours on any businesses day. 5.5 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. 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 Texas. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other parties hereto have caused this Agreement to be executed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. BUYER: BROOKS WELL SERVICING, INC. a Delaware corporation By: Jimmy Chasteen, President SELLER: JPF LEASE SERVICE, INC. By: Joe P. Freeman, President SHAREHOLDERS: JPF WELL SERVICE, INC. By:__________________________________________ Joe P. Freeman, President ___________________________________________ R. D. Nettle __________________________________________ Pete Schweikhardt ___________________________________________ Rick Talbot ______________________________________________________________ Joe P. Freeman (to evidence his agreement to be bound by the provisions of Section 3.1 hereof) EX-10.E 6 STEPHEN E. MCGREGOR EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (as from time to time amended in accordance with the provisions hereof, this "Agreement"), is entered into this 5th day of December 1997 by and between Stephen E. McGregor, 3029 Woodland Drive, N.W., Washington, D.C. (the "Executive"), and KEY ENERGY GROUP, INC., a Maryland corporation with its principal offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816 (the "Company"). Recitals A. The Company and the Executive have previously entered into that certain Consulting Agreement dated as of July 15, 1997 (the "Consulting Agreement") pursuant to which the Executive currently serves as an Executive Vice President and the Chief Financial Officer of the Company. B. The Company desires to terminate the Consulting Agreement and retain the services of the Executive as an Executive Vice President and the Chief Financial Officer of the Company pursuant to the terms and conditions hereinafter set forth effective as of January 1, 1998 (the "Commencement Date"). C. The Executive desires to terminate the Consulting Agreement and serve in such capacities pursuant to the terms and conditions hereinafter set forth effective as of the Commencement Date. Agreement NOW THEREFORE, in consideration of the covenants and agreements herein contained, the Company and the Executive hereby agree as follows: 1. Termination of Consulting Agreement; Employment; Term. (a) Effective as of the Commencement Date, the Consulting Agreement shall be terminated and of no further force or effect except for the Company's obligations to make any payments to the Executive under Section 2 thereof for services rendered and expenses incurred prior to the Commencement Date. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment by the Company, as the Company's Executive Vice President and Chief Financial Officer, such employment to commence as of the Commencement Date, and to continue until the close of business on June 30, 2000, subject to extension as provided in this Section 1(a), unless sooner terminated in accordance herewith (the "Initial Employment Period"). On each June 30, commencing with June 30, 2000, the term of the Executive's employment hereunder shall be automatically extended for twelve (12) months unless either he or the Company shall have given written notice to the other that such automatic extension shall not occur, which notice shall have been given no later than thirty (30) days prior to the relevant June 30th (the Initial Employment Period, together with any extensions, until termination in accordance herewith, is referred to hereby as the "Employment Period"). b) The Executive shall have the responsibilities, duties and authority commensurate with his positions as the Executive Vice President and Chief Financial Officer of the Company, including without limitation the general supervision and control over, and responsibility for, the overall financial and related activities and the international operations of the Company and its Subsidiaries, subject, however, to the supervision of the Chief Executive Officer and the Board insofar as such Board supervision is required by applicable laws, regulations, and the Company. Such responsibilities, duties and authority shall not be expanded or contracted without the express consent of the Executive. The Executive will report only to the Chief Executive Officer, and, as appropriate, the Board. (c) The Executive will devote his full time and his best efforts to the business and affairs of the Company; provided, however, that nothing contained in this Section 1 shall be deemed to prevent or limit the Executive's right to: (i) make investments in the securities of any publicly-owned corporation; or (ii) make any other investments with respect to which he is not obligated or required to, and to which he does not in fact, devote substantial managerial efforts which materially interfere with his fulfillment of his duties hereunder; or (iii) to serve on boards of directors and to serve in such other positions with non-profit and for-profit organizations as to which the Board may from time to time consent, which consent shall not be unreasonably withheld or delayed. (d) The principal location at which the Executive will substantially perform his duties will be the Company's principal offices. In the event the Company's principal offices are transferred, the Company will pay moving, temporary living and other reasonable expenses in connection with the Executive's relocation from his present primary residence to a location in proximity to the Company's principal offices. 2. Salary; Bonuses; Expenses. (a) During the Employment Period, the Company will pay base compensation to the Executive at the annual rate of Two Hundred Forty Thousand Dollars ($240,000) per year (the "Base Salary"), payable in substantially equal installments in accordance with the Company's existing payroll practices, but no less frequently than monthly. The Company will review the Executive's Base Salary on a yearly basis promptly following the end of each fiscal year of the Company to determine if an increase is advisable, and the Base Salary may be increased (but not decreased) at the discretion of the Chief Executive Officer and the Board, taking into account, among other factors, the Executive's performance and the performance of the Company. (b) The Executive shall be paid a cash bonus of $100,000 within 30 days of the Company's annual earnings release for the fiscal year ended June 30, 1998 indicating an earnings per share level of at least $.85 per share (on a fully diluted basis) for the 1998 fiscal year, and an additional cash bonus of $150,000 within 30 days of the Company's annual earnings release for the fiscal year ended June 30, 1998 indicating an earnings per share level of at least $.95 per share (on a fully diluted basis) for the 1998 fiscal year. Similar cash bonus arrangements of at least $250,000 for each of fiscal years 1999 and 2000 shall be agreed to by the Executive and the Chief Executive Officer and approved by the Board within the first 30 days of each such fiscal year. (c) In addition to the cash bonuses identified in Section 2(b), for each annual period commencing July 1, 1997, the Executive shall be eligible to participate in an incentive plan (the "Incentive Plan") for the Company's executives providing for the payment of cash bonuses, which plan will provide for the payment of bonuses based upon the achievement of goals set forth in the Company's strategic plan as developed by the Executive, the Chief Executive Officer, and the Board (the "Strategic Plan"), payable within ninety (90) days after the end of each fiscal year. The performance goals for the Incentive Plan will be based on objective criteria mutually negotiated and agreed upon in good faith in advance by the Executive and the Board. The Executive's aggregate annual bonus determined in accordance with this Section 2(c) is referred to herein as the "Annual Bonus." (d) The Executive shall be reimbursed by the Company for reasonable travel, lodging, meal and other expenses incurred by him in connection with performing his services hereunder in accordance with the Company's policies from time to time in effect. 3. Stock Options. (a) The Company has previously granted to the Executive pursuant to agreements in the form attached hereto, as Exhibit A: (i) Options (the "200 Options") to acquire two hundred thousand (200,000) shares of the Company's common stock at an exercise price of $ 20.4375 per share. One third (1/3) of the 200 Options shall vest on each of July 1, 1998, 1999 and 2000 and be exercisable at any time prior to July 1, 2008; and (ii) Options (the "50 Options") to acquire fifty thousand (50,000) shares of the Company's common stock at an exercise price $20.4375 per share. The 50 Options shall vest, if at all, on the date during the three-year period beginning on the date hereof on which the Closing Price (defined below) of the Company's common stock is equal to or greater than $30.00 per share for sixty (60) consecutive trading days and be exercisable for a period of ten (10) years thereafter. The term "Closing Price" shall mean the closing price as reported on the American Stock Exchange or such other national exchange on which the Company's common stock is trading at the time of determination. (b) In addition to Section 3(a), for each annual period commencing July 1, 1997, the Executive shall be eligible to participate in a stock option plan for the Company's executives providing for the granting of stock options under the Company's 1995 Stock Option Plan, as amended from time to time (the "1995 Stock Option Plan"). The performance goals for the grant of such option will be based on objective criteria mutually negotiated and agreed upon in good faith in advance by the Executive, the Chief Executive Officer, and the Board. The Executive's aggregate annual bonus determined in accordance with this Section 3(b) is referred to herein as the "Annual Stock Option Grant." (c) The Company agrees that it will use its best efforts to comply with the requirements of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), as such rule shall be in effect from time to time, or with any successor provision to said rule ("Rule 16b-3") such that in the event the Executive shall become subject to Section 16 (or a successor provision) of the 1934 Act with respect to shares of the Company's capital stock, the Executive shall be afforded the benefits of Rule 16b-3 with respect to such restricted stock or options, including without limitation providing for the grant of restricted stock or options pursuant to stock plans which comply with Rule 16b-3 and permit the terms of options contemplated by this Agreement. 4. Benefit Plans; Vacations. In connection with the Executive's employment hereunder, he shall be entitled during the Employment Period (and thereafter to the extent provided in Section 5(f) hereof) to the following additional benefits: (a) At the Company's expense, such fringe benefits, including without limitation group medical and dental, life, executive life, accident and disability insurance and retirement plans and supplemental and excess retirement benefits, as the Company may provide from time to time for its senior management, but in any case, at least the benefits described on Exhibit B hereto. (b) The Executive shall be entitled to no less than the number of vacation days in each calendar year determined in accordance with the Company's vacation policy as in effect from time to time, but not less than fifteen (15) days in any calendar year (prorated in any calendar year during which he is employed hereunder for less than the entire year in accordance with the number of days in such calendar year in which he is so employed). The Executive shall also be entitled to all paid holidays and personal days given by the Company to its executives. (c) The Executive shall be entitled to receive an allowance of $1,000 per month, to cover costs incurred by the Executive in connection with the use of his automobile during the Employment Period. (d) The Company shall pay the reasonable expenses not in excess of $2,500 of a home office for the Executive. (e) Nothing herein contained shall preclude the Executive, to the extent he is otherwise eligible, from participation in all group insurance programs or other fringe benefit plans which the Company may from time to time in its sole and absolute discretion make available generally to its personnel, or for personnel similarly situated, but the Company shall not be required to establish or maintain any such program or plan except as may be otherwise expressly provided herein. (f) The Company shall pay all membership costs, including without limitation all initiation and membership fees and expenses and all annual or other periodic fees, dues and costs, for the Executive to become and remain a member of one private country club, golf club, tennis club or similar club or association for business use selected by the Executive and approved by the Board, which approval shall not be unreasonably withheld or delayed. 5. Termination, Change of Control and Reassignment of Duties. (a) Termination By Company. The Company shall have the right to terminate the Executive's employment under this Agreement for Cause (as defined below) at any time without obligation to make any further payments to the Executive hereunder. The Company shall have the right to terminate the Executive's employment for any reason other than for Cause only upon at least ninety (90) days prior written notice to him, except as otherwise provided in Section 5(b), which Section shall apply in the event the Executive becomes unable to perform his obligations hereunder by reason of Disability (as defined below). In the event the Company terminates the Executive's employment hereunder for any reason other than for Cause or Disability, then for the purpose of effecting a transition during the ninety (90) day notice period of the Executive's management functions from the Executive to another person or persons, during such period the Company may reassign the Executive's duties hereunder to another person or other persons. Such reassignment shall not reduce the Company's obligations hereunder to make salary, bonus and other payments to the Executive and to provide other benefits to him during the remainder of his employment and following the termination of employment, including without limitation the use of his office and secretarial services during the remainder of his employment. As used in this Agreement, the term "Cause" shall mean (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than (A) any such willful or continued failure resulting from this incapacity due to physical or mental illness or physical injury or (B) any such actual or anticipated failure after the issuance of a notice of termination by the Executive for Good Reason (as defined below), after demand for substantial performance is delivered by the Company to the Executive that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties); or (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or (iii) the conviction of a felony by a court of competent jurisdiction. For purposes of this paragraph, no act, or failure to act on the part of the Executive shall be considered "willful" unless done or omitted to be done by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive's employment shall not be deemed to have been terminated for Cause unless (A) reasonable notice shall have been given to him setting forth in detail the reasons for the Company's intention to terminate for Cause, and if such termination is pursuant to clause (i) or (ii) above and any damage to the Company is curable, only if Executive has been provided a period of ten (10) business days from receipt of such notice to cease the actions or inactions, and he has not done so; (B) an opportunity shall have been provided for the Executive, together with his counsel, to be heard before the Board; and (C) if such termination is pursuant to clause (i) or (ii) above, delivery shall have been made to the Executive of a notice of termination from the Board finding that in the good faith opinion of a majority of the Board (excluding the Executive) he was guilty of conduct set forth in clause (i) or (ii) above, and specifying the particulars thereof in detail. (b) Termination upon Disability and Temporary Reassignment of Duties Due to Disability. (i) If the Executive becomes totally and permanently disabled during the Employment Period so that he is unable to perform his obligations hereunder by reasons involving physical or mental illness or physical injury (A) for a period of ninety (90) consecutive days, or (B) for an aggregate of ninety (90) days during any period of twelve (12) consecutive months ("Disability"), then the term of the Executive's employment hereunder may be terminated by the Company within sixty (60) days after the expiration of said ninety (90) day period (whether consecutive or in the aggregate, as the case may be), said termination to be effective ten (10) days after written notice to the Executive. In the event the Company shall give a notice of termination under this Section 5(b)(i), then the Company may reassign the Executive's duties hereunder to another person or other persons. Such reassignment shall not reduce the Company's obligations hereunder to make salary, bonus and other payments to the Executive and to provide other benefits to him, during the remainder of his employment and following the termination of employment. (ii) During any period that the Executive is totally disabled such that he is unable to perform his obligations hereunder by reason involving physical or mental illness or physical injury, as determined by a physician chosen by the Company and reasonably acceptable to the Executive (or his legal representative), the Company may reassign the Executive's duties hereunder to another person or other persons, provided if the Executive shall again be able to perform his obligations hereunder, all such duties shall again be the Executive's duties. The cost of any examination by such physician shall be borne by the Company. Notwithstanding the foregoing, if the Executive has been unable to perform his obligations hereunder by reasons involving physical or mental illness or physical injury for a period of ninety (90) consecutive days or an aggregate of ninety (90) days during any period of twelve (12) consecutive months, then a determination by a physician of disability will not be required prior to any such reassignment. Any such reassignment shall not be a termination of employment and in no event shall such reassignment reduce the Company's obligation to make salary, bonus and other payments to the Executive and to provide other benefits to him under this Agreement during his employment or, if applicable, following a termination of employment. (c) Termination by Executive. The Executive's employment may be terminated by him by giving written notice, to the Company as follows: (i) at any time by notice of at least thirty (30) days; (ii) at any time by notice for a Good Reason, effective upon giving such notice; (iii) at any time, if his health should become impaired, provided he has obtained a written statement from a qualified doctor to such effect, effective upon giving such notice; or (iv) at any time following but prior to the first anniversary of a Change of Control (as defined below), effective upon giving such notice. In the event of a termination by the Executive of his employment, the Company may reassign the Executive's duties hereunder to another person or other persons. As used herein, a "Good Reason" shall mean any of the following: (A) Failure of the Board to elect the Executive as Executive Vice President and Chief Financial Officer of the Company, or removal from the office of Executive Vice President and Chief Financial Officer of the Company provided that such failure or removal is not in connection with a termination of the Executive's employment hereunder for Cause in accordance with Section 5(a) and provided further that any notice of termination hereunder shall be given by the Executive within ninety (90) days of such failure or removal. (B) Material change by the Company in the Executive's authority, functions, duties or responsibilities as Executive Vice President and Chief Financial Officer of the Company (including without limitation material changes in the control or structure of the Company) which would cause his position with the Company to become of less responsibility, importance, scope or dignity than his position as of the Commencement Date, provided that (I) such material change is not in connection with a termination of Executive's employment hereunder for Cause in accordance with Section 5(a), (II) such material change is not made in accordance with Section 5(a) following a termination of Executive's employment by the Company other than for Cause or Disability, (III) such material change is not made in accordance with Section 5(b) pertaining to disability, including without limitation the time period restrictions applicable thereunder, and (IV) any notice of termination hereunder shall be given by him within ninety (90) days of when he becomes aware of such change; or (C) Failure by the Company to comply with any provision of Section 1, 2, 3, 4 or 8 of this Agreement, which has not been cured within fifteen (15) days after notice of such noncompliance has been given by the Executive to the Company, provided any notice of termination hereunder shall be given by the Executive within ninety (90) days after the end of such fifteen (15) day period; (D) Failure by the Company to obtain an assumption of this Agreement by a successor in accordance with Section 14 unless payment or provision for payment and provision for continuation of benefits under this Agreement have been made in a manner permitted by Section 5; and (E) Any purported termination by the Company of the Executive's employment which is not effected in accordance with the terms of this Agreement, including without limitation pursuant to a notice of termination not satisfying the requirements set forth herein (and for purposes of this Agreement no such purported termination by the Company shall be effective), which has not been cured within ten (10) days after notice of such non-conformance has been given by the Executive to the Company, provided any notice of termination hereunder shall be given by the Executive within thirty (30) days of receipt of notice of such purported termination. As used herein, a "Change of Control" means that any of the following events has occurred: (I) Any person (as defined in Section 3(a)(9) of the 1934 Act (or any successor provision), other than the Company, is the beneficial owner directly or indirectly of more than twenty-five percent (25%) of the outstanding Common Stock of the Company, determined in accordance with Rule 13d-3 under the 1934 Act (or any successor provision), or otherwise becomes entitled to vote more than twenty-five percent (25%) of the voting power entitled to be cast at elections for directors ("Voting Power") of the Company, or in any event such lower percentage as may at any time be provided for in any similar provision for any director or officer of the Company or of any Subsidiary approved by the Board; (II) If the Company is subject to the reporting requirements of Section 13 or 15(d) (or any successor provision) of the 1934 Act, any person (as defined in Section 3(a)(9) of the 1934 Act), other than the Company, shall purchase shares pursuant to a tender offer or exchange offer to acquire Common Stock of the Company (or securities convertible into or exchangeable for or exercisable for Common Stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner, directly or indirectly, of more than twenty-five percent (25%) of the outstanding Common Stock of the Company, determined in accordance with Rule 13d-3 under the 1934 Act (or any successor provision) or such lower percentage as may at any time be provided for in any similar provision for any director or officer of the Company or of any Subsidiary approved by the Board; (III)The stockholders or the Board shall have approved any consolidation or merger of the Company in which (1) the Company is not the continuing or surviving corporation unless such merger is with a Subsidiary at least eighty percent (80%) of the Voting Power of which is held by the Company or (2) pursuant to which the holders of the Company's shares of Common Stock immediately prior to such merger or consolidation would not be the holders immediately after such merger or consolidation of at least a majority of the Voting Power of the Company or such lower percentage as may at any time be provided for in any similar provision for any director or officer of the Company or of any Subsidiary approved by the Board. (IV) The stockholders or the Board shall have approved any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of the Company; or (V) Upon the election of one or more new directors of the Company, a majority of the directors holding office, including the newly elected directors, were not nominated as candidates by a majority of the directors in office immediately before such election. As used in this definition of Change of Control, "Common Stock" means the Common Stock, or if changed, the capital stock of the Company as it shall be constituted from time to time entitling the holders thereof to share generally in the distribution of all assets available for distribution to the Company's stockholders after the distribution to any holders of capital stock with preferential rights. (d) Severance Compensation. (i) Termination for Good Reason or Other than for Cause. In the event the Executive's employment hereunder is terminated (A) by the Executive for a Good Reason or (B) the Company other than for Cause (including without limitation in the event the Company elects at any time not to automatically extend the Executive's employment hereunder pursuant to the second sentence of Section 1(a) hereof), the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to severance compensation in an aggregate amount equal to the product of (I) two (2) times (II) his Base Salary at the rate in effect on the termination date, payable in twenty-four (24) substantially equal monthly installments commencing at the end of the calendar month in which the termination date occurs; provided, however, that if the Executive's employment is terminated following a Change of Control or is terminated by the Company other than for Cause in anticipation of a Change of Control, the severance compensation referred to above shall be three (3) times the Base Salary at the rate in effect on the termination date and shall be payable in one lump sum on the date of such termination. (ii) Termination following Disability. In the event the Executive's employment should be terminated by the Company as a result of Disability in accordance with Section 5(b) hereof, then the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to severance compensation in an aggregate amount equal to the product of (A) two (2) times (B) his Base Salary at the rate in effect on the termination date, payable in twenty-four (24) substantially equal monthly installments commencing at the end of the calendar month in which the termination date occurs, reduced by the amount of any disability insurance proceeds actually paid to the Executive or for his benefit during the said time period. (e) Effect of Termination or Change of Control upon Equity Compensation. (i) In the event the Executive's employment hereunder is terminated by the Company for any reason other than for Cause (including without limitation an election by the Company not to automatically extend the Executive's employment hereunder pursuant to the second sentence of Section 1(a) hereof), or in the event the Executive should terminate his employment for Good Reason, then, unless the provisions of Section 5(e)(iv) hereof shall apply, effective upon the date such termination is effective, any restricted stock or unexpired options (including without limitation the 200 Options and the 50 Options) held by the Executive entitling the Executive to purchase securities of the Company not previously vested shall be forfeited, unless there shall be a contrary provision in the agreement or plan pursuant to which such restricted stock or options were granted. (ii) In the event the Executive's employment hereunder is terminated by the Company for Cause, then effective upon the date such termination is effective, any restricted stock or options (including without limitation the 200 Options and 50 Options) not previously vested shall be forfeited, unless there shall be a contrary provision in the agreement or plan pursuant to which such restricted stock or options were granted. (iii)In the event of the Executive's death while employed or in the event that the Executive's employment should terminate as a result of Disability, then, unless the provisions of Section 5(e)(iv) hereof shall apply, any restricted stock or unexpired options (including without limitation the 200 Options and the 50 Options) held by the Executive entitling the Executive to purchase securities of the Company not previously vested shall vest and/or be exercisable for an exercise period of at least twelve (12) months following such termination date, unless there shall be a contrary provision in the agreement or plan pursuant to which such restricted stock or options were granted. (iv) In the event of a Change of Control while the Executive is employed, then as of the date immediately prior to the date such Change of Control shall occur, any restricted stock or options (including without limitation the 200 Options and 50 Options) held by the Executive entitling the Executive to purchase securities of the Company, which restricted stock or options are subject to vesting, shall, notwithstanding any contrary provision in the agreement or plan pursuant to which such restricted stock or options were granted, become fully vested and any such options shall become exercisable as of such date and shall remain exercisable during the respective terms of such options, unless his employment shall sooner terminate. In the event of any termination of his employment following the date an option becomes fully exercisable in accordance with the terms of this Section 5(e)(iv), then the applicable exercise period shall be at least twelve (12) months following the date of termination or such longer period as set forth in the pertinent option agreement. (f) Continuation of Benefits, etc. (i) Subject to Section 5(f)(ii) hereof, in the event that Executive's employment hereunder is terminated by the Executive for a Good Reason or by the Company other than for Cause (including without limitation in the event the Company elects not to automatically extend the Executive's employment hereunder pursuant to the second sentence of Section 1(a) hereof), the Executive shall continue to be entitled to the benefits that the Executive was receiving or to which the Executive was entitled as of the date immediately preceding the applicable termination date pursuant to Section 4 hereof at the Company's expense for a period of time following the termination date ending on the first to occur of (I) the second anniversary of the termination date or (II) the date on which the Executive commences full-time employment by another employer, but only if and to the extent the Executive is eligible to receive through such other employer benefits which are at least equivalent on an aggregate basis to those benefits the Executive was receiving or to which the Executive was entitled under Section 4 hereof as of immediately preceding the applicable termination date. If because of limitations required by third parties or imposed by law, the Executive cannot be provided such benefits through the Company's plans, then the Company will provide the Executive with substantially equivalent benefits, on an aggregate basis, at the Company's expense. For purposes of the determination of any benefits which require a particular period of employment by the Company and/or the attainment of a particular age while employed by the Company in order to be payable, the Executive shall be treated as having continued in the employment of the Company during such period of time as the Executive is entitled to receive benefits under this Section 5(f). At such time as the Company is no longer required to provide the Executive with life and/or disability insurance, as the case may be, the Executive shall be entitled at the Executive's expense to convert such life and disability insurance, as the case may be, except if and to the extent such conversion is not available from the provider of such insurance. (ii) In the event the Executive's employment is terminated following a Change of Control or is terminated by the Company other than for Cause in anticipation of a Change of Control, the Company shall pay to the Executive, in lieu of providing the benefits contemplated by Section 5(f)(i) above, an amount in cash equal to the aggregate reasonable expenses that the Company would incur if it were to provide such benefits for a period of time following the termination date ending on the third anniversary of the termination date, which amount shall be paid in one lump sum on the date of such termination. (g) Accrued Compensation. In the event of any termination of the Executive's employment for any reason, the Executive (or his estate) shall be paid such portion of his Base Salary by virtue of his employment during the period prior to termination and has not yet been paid, together with any amounts for expense reimbursement and similar items which have been properly incurred in accordance with the provisions hereof prior to termination and have not yet been paid. Such amounts shall be paid within ten (10) days of the termination date. (h) Resignation. If the Executive's employment hereunder shall be terminated by him or by the Company in accordance with the terms set forth herein, then effective upon the date such termination is effective, he will be deemed to have resigned from all positions as an officer and Director of the Company and of any of its Subsidiaries, except as the parties (or with respect to positions with a Subsidiary, the Executive and such Subsidiary) may otherwise agree. 6. Limitation on Competition. During the Employment Period, and for such period thereafter as the Executive is entitled to receive severance compensation under this Agreement, in the event of termination of the Executive's employment hereunder for any reason other than (a) following a Change of Control, or (b) by the Executive for a Good Reason or (c) by the Company other than for Cause (including without limitation in the event the Company elects at any time not to automatically extend the Executive's employment hereunder pursuant to the second sentence of Section 1(a) hereof), (i) the Executive shall not, directly or indirectly, without prior written consent of the Board, participate or engage in, whether as a director, officer, employee, advisor, consultant, stockholder, partner, joint venturer, owner or in any other capacity (other than as an outside attorney or investment banker), any business engaged in the business of furnishing oil field services or the drilling, production or sale of natural gas or crude oil (a "Competing Enterprise"), provided, however, that the Executive shall not be deemed to be participating or engaging in any such business solely by virtue of his ownership of not more than five percent of any class of stock or other securities which is publicly traded on a national securities exchange or in a recognized over-the-counter market; and (ii) the Executive shall not, directly or indirectly solicit, raid, entice or otherwise induce any employee of the Company or any of its Subsidiaries to be employed by a Competing Enterprise. 7. Enforceability. If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable and any limitation on the scope or duration of any such provision necessary to make it valid and enforceable shall be deemed to be a part thereof. No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement unless the provision deemed to be so invalid or unenforceable is a material element of this Agreement, taken as a whole. 8. Legal Expenses. The Company shall also pay the Executive's reasonable fees for legal and other related expenses associated with any disputes arising hereunder or under the stock option agreements referred to herein if either a court of competent jurisdiction shall render a final judgement in favor of the Executive on the issues in such dispute, from which there is no further right of appeal. If it shall be determined in such judicial adjudication or arbitration that the Executive is successful on some of the issues in such dispute, but not all, then the Executive shall be entitled to receive a portion of such legal fees and other expenses as shall be appropriately prorated. 9. Notices. All notices which the Company is required or permitted to give to the Executive shall be given by registered or certified mail or overnight courier, with a receipt obtained, addressed to the Executive at the address referred to above, or at such other place as the Executive may from time to time designate in writing, or by personal delivery, and to counsel for the Executive as may be requested in writing by the Executive from time to time. All notices which the Executive is required or permitted to give to the Company shall be given by registered or certified mail or overnight courier, with a receipt obtained, addressed to the Company at the address set forth above, or at such other address as the Company may from time to time designate in writing, or by personal delivery, and to counsel for the Company as may be requested in writing by the Company. A notice will be deemed given upon the mailing thereof or delivery to an overnight courier for delivery the next business day, except for a notice of change of address, which will not be effective until receipt, and except as otherwise provided in Section 5(a). 10. Waivers. No waiver by either party of any breach or nonperformance of any provision or obligation of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision of this Agreement. 11. Headings; Other Language. The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, as the context may require, the singular includes the plural and the singular, the masculine gender includes both male and female reference, the word "or" is used in the inclusive sense and the words "including", "includes", and "included" shall not be limiting. 12. Counterparts. This Agreement may be executed in duplicate counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one agreement. 13. Agreement Complete; Amendments. Effective as of the Commencement Date, this Agreement, together with the stock option agreements referred to herein and the 1995 Stock Option Plan, is the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. This Agreement may not be amended, supplemented, canceled or discharged except by a written instrument executed by both of the parties hereto, provided, however, that the immediately foregoing provision shall not prohibit the termination of rights and obligations under this Agreement which termination is made in accordance with the terms of this Agreement. 14. benefit of the successors and permitted assigns of the respective parties hereto. This Agreement and the rights and obligations hereunder are personal to the Company and the Executive and are not assignable or transferable to any other person, firm or corporation without the consent of the other party, except as contemplated hereby; provided, however, in the event of the merger or consolidation of the Company, whether or not the Company is the surviving or resulting corporation, the transfer of all or substantially all of the assets of the Company, or the voluntary or involuntary dissolution of the Company, then the surviving or resulting corporation or the transferee or transferees of the Company's assets shall be bound by this Agreement and the Company shall take all actions necessary to insure that such corporation, transferee or transferees are bound by the provision of this Agreement, and provided, further, this Agreement shall inure to the benefit of the Executive's estate, heirs, executors, administrators, personal and legal representatives, distributees, devisees, and legatees. Notwithstanding the foregoing provisions of this Section 15, the Company shall not be required to take all actions necessary to insure that a transferee or transferees of the Company's assets are bound by the provisions of this Agreement and such transferee or transferees of the Company's shall not be bound by the obligations of the Company under this Agreement if the Company shall have (a) paid to the Executive or made provision satisfactory to the Executive for payment to him of all amounts which are or may become payable to him hereunder in accordance with the terms hereof and (b) made provision satisfactory to the Executive for the continuance of all benefits required to be provided to him in accordance with the terms hereof. 15. Governing Law. This Agreement will be governed and construed in accordance with the law of Maryland applicable to agreements made and to be performed entirely within such state, without giving effect to the conflicts of laws principles thereof. 16. Survival. The provisions of Sections 3, 5(d), (e), (f), (g) and (h), 6, 7, and 8 hereof, and any restricted stock or stock option agreement entered into pursuant to Section 3 hereof or during the Executive's employment hereunder shall survive the termination of the Executive's employment as continuing and separate agreements between the parties. 17. Subsidiaries. As used herein, the term "Subsidiaries" shall mean all corporations a majority of the capital stock of which entitling the holder thereof to vote is owned by the Company or a Subsidiary. 18. Interpretation. The Company and the Executive each acknowledge and agree that this Agreement has been reviewed and negotiated by such party and its or his counsel, who have contributed to its revision, and the normal rule of construction, to the effect that any ambiguities are resolved against the drafting party, shall not be employed in the interpretation of it. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. KEY ENERGY GROUP, INC. By:________________________________ Francis D. John President and Chief Executive Officer ____________________________________ STEPHEN E. MCGREGOR EXHIBIT B Company Paid Coverages 1. Life Insurance 1,000,000 (with a physical exam), payable to beneficiary designated by the Executive. 2. Long Term Disability Insurance Salary continuation benefit for total disability. Benefit commences with ninetieth day of disability and continues to a maximum of age sixty-five. Annual maximum benefit shall be 60% of the Base Salary. 4. Medical and Dental Plan Comprehensive medical and dental plans available to the company's senior management 5. Director and Officer Liability Insurance EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1998 MAR-31-1998 26,874 0 85,629 0 14,781 131,424 489,055 (39,622) 638,333 44,630 0 1,872 0 0 118,489 638,333 5,422 305,718 2,282 274,811 0 0 12,380 30,907 11,542 19,365 0 0 0 19,365 1.15 0.97
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