-----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, Ce62+c4QSw87s+HCJtZ8PoEv/WvsDwdor0wKycSNzOAzsaJN+tZnaLgO7CzgohvK PntyqdErw9DmMtcF4a5/Hg== 0000318996-97-000005.txt : 19970222 0000318996-97-000005.hdr.sgml : 19970222 ACCESSION NUMBER: 0000318996-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEY ENERGY GROUP INC CENTRAL INDEX KEY: 0000318996 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 042648081 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08038 FILM NUMBER: 97535475 BUSINESS ADDRESS: STREET 1: 255 LIVINGSTON AVE CITY: NEW BRUNSWICK STATE: NJ ZIP: 08901 BUSINESS PHONE: 9155705721 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 DECEMBER 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8038 KEY ENERGY GROUP, INC. (Exact name of registrant as specified in its charter) Maryland 04-2648081 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Tower Center, Tenth Floor, East Brunswick, NJ 08816 (Address of Principal executive offices) (ZIP Code) Registrant's telephone number including area code: (908) 247-4822 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant has filed documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court since there was a distribution of securities under a plan confirmed by a court. Yes X No Common Shares outstanding at February 13, 1997: 11,658,131 2 KEY ENERGY GROUP, INC. AND SUBSIDIARIES INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 20 Item 2. Changes in Securities. 20 Item 3. Defaults Upon Senior Securities. 20 Item 4. Submission of Matters to a Vote of Security Holders. 20 Item 6. Exhibits and Reports on Form 8-K. 20 Signatures. 23 - 2 - 3 Key Energy Group, Inc. and Subsidiaries Consolidated Balance Sheet
December 31, June 30, (Thousands, except share and per share data) 1996 1996 - ---------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash ........................................................................ $ 9,283 $ 3,240 Restricted cash ............................................................. 1,629 971 Accounts receivable, net .................................................... 27,373 20,570 Inventories ................................................................. 1,942 1,957 Prepaid expenses and other current assets ................................... 928 743 -------- --------- Total Current Assets .......................................................... 41,155 27,481 -------- --------- Property and Equipment: Oilfield service equipment .................................................. 104,450 66,432 Oil and gas well drilling equipment ......................................... 5,455 4,862 Motor vehicles .............................................................. 1,260 1,159 Oil and gas properties and other related equipment, successful efforts method 18,960 17,663 Furniture and equipment ..................................................... 921 716 Buildings and land .......................................................... 5,339 5,295 --------- --------- 136,385 96,127 Accumulated depreciation & depletion ............................................ (12,983) (8,920) --------- --------- Net Property and Equipment ...................................................... 123,402 87,207 --------- --------- Other Assets .................................................................. 10,396 7,034 --------- --------- Total Assets .................................................................. $ 174,953 $ 121,722 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ............................................................ $ 13,318 $ 11,086 Other accrued liabilities ................................................... 8,830 11,002 Accrued interest ............................................................ 134 417 Accrued income taxes ........................................................ 118 53 Deferred tax liability ...................................................... 310 310 Current portion of long-term debt ........................................... 1,351 1,471 --------- --------- Total Current Liabilities ..................................................... 24,061 24,339 --------- --------- Long-term debt, less current portion .......................................... 75,452 45,354 Non-current accrued expenses .................................................. 4,909 4,909 Deferred income taxes ......................................................... 11,583 4,244 Minority interest ............................................................. 1,260 1,252 Stockholders' equity: Common stock, $.10 par value; 25,000,000 shares authorized, 11,483,131 and 10,413,513 shares issued and outstanding at December 31, 1996 and June 30, 1996, respectively ......... 1,148 1,041 Additional paid-in capital .................................................. 45,123 32,763 Retained earnings ........................................................... 11,417 7,820 -------- --------- Total Stockholders' Equity .................................................... 57,688 41,624 -------- --------- Total Liabilities and Stockholders' Equity .................................... $ 174,953 $ 121,722 ======= =========
See the accompanying notes which are an integral part of these consolidated financial statements. - 3 - 4 Key Energy Group, Inc. and Subsidiaries Consolidated Statements of Operations
Three Six Months Ended Months Ended December 31, December 31, (Thousands, except per share data) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------- Oilfield services ............................. $ 31,708 $ 9,381 $ 59,019 $ 19,148 Oil and gas ................................... 2,088 911 3,613 1,727 Oil and gas well drilling ..................... 2,359 2,057 4,683 3,659 Other revenues, net ........................... 42 45 344 258 -------- -------- -------- -------- 36,197 12,394 67,659 24,792 -------- -------- -------- -------- COSTS AND EXPENSES: Oilfield services ............................. 23,066 6,889 42,766 14,153 Oil and gas ................................... 773 354 1,286 619 Oil and gas well drilling ..................... 1,963 1,388 3,844 2,735 Depreciation, depletion and amortization ...... 2,342 971 4,437 1,794 General and administrative .................... 3,735 1,198 7,262 2,390 Interest ...................................... 1,296 439 2,646 877 -------- -------- -------- -------- 33,175 11,239 62,241 22,568 -------- -------- -------- -------- Income before income taxes and minority interest . 3,022 1,155 5,418 2,224 Income tax expense ............................... 1,029 387 1,813 730 Minority interest in net income .................. (50) - 8 - -------- -------- -------- -------- NET INCOME ....................................... $ 2,043 $ 768 $ 3,597 $ 1,494 ======== ======== ======== ======== EARNINGS PER SHARE: Primary: Income before income taxes and minority interest $ 0.26 $ 0.17 $ 0.48 $ 0.32 Net income ..................................... $ 0.18 $ 0.11 $ 0.32 $ 0.22 Assuming full dilution: Income before income taxes and minority interest $ 0.24 $ 0.17 $ 0.44 $ 0.32 Net income ..................................... $ 0.16 $ 0.11 $ 0.29 $ 0.22 WEIGHTED AVERAGE SHARES OUTSTANDING: Primary .......................................... 11,634 6,914 11,286 6,914 Assuming full dilution ........................... 17,027 6,914 16,813 6,914
See the accompanying notes which are an integral part of these consolidated financial statements. - 4 - 5 Key Energy Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Three Six Months Ended Months Ended December 31, December 31, (Thousands) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................ $ 2,043 $ 768 $ 3,597 $ 1,494 Adjustments to reconcile income from operations to net cash provided (used) by operations: Depreciation, depletion and amortization .................. 2,342 971 4,437 1,794 Deferred income taxes ..................................... 1,029 387 1,813 730 Minority interest in net income ........................... (50) - 8 - Change in assets and liabilities net of effects from acquisitions: (Increase) decrease in accounts receivable .............. (1,761) 279 (3,673) (219) (Increase) decrease in other current assets ............. 352 (21) (97) 90 Decrease in accounts payable and accrued expenses ....... (3,922) (533) (3,069) (807) Increase (decrease) in accrued interest ................. (947) 10 (283) 23 Other assets and liabilities ............................ (175) (50) (806) (59) --------- --------- --------- -------- Net cash provided (used) by operating activities ......... (1,089) 1,811 1,927 3,046 --------- --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - Oilwell service operations ......... (3,049) (841) (5,949) (1,727) Capital expenditures - Oil and gas operations ............. (975) - (1,016) (7) Capital expenditures - Oil and gas well drilling operations (268) (220) (591) (360) Cash received in acquisitions ............................. 50 - 50 - Acquisitions - oilwell service operations ................. (13,278) - (13,278) - Expenditures for oil and gas properties ................... - (1,236) (281) (2,150) --------- --------- --------- -------- Net cash used in investing activities ..................... (17,520) (2,297) (21,065) (4,244) --------- --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on debt ................................ (154) (514) (1,053) (1,418) Borrowings (payments) under line-of-credit ................ 368 38 1,307 (28) Proceeds from exercised stock options ..................... - - 58 - Proceeds from long-term debenture, net .................... - - 50,440 - Repayment of long-term debt ............................... - - (35,413) - Proceeds from long-term debt - other ...................... 10,500 1,019 10,500 2,324 --------- --------- --------- -------- Net cash provided by financing activities ................. 10,714 543 25,839 878 --------- --------- --------- -------- Net increase (decrease) in cash and restricted cash ....... (7,895) 57 6,701 (320) Cash and restricted cash at beginning of period ........... 18,807 898 4,211 1,275 --------- --------- --------- -------- Cash and restricted cash at end of period ................. $ 10,912 $ 955 $ 10,912 $ 955 ========= ========= ========= ======== Supplemental cash flow disclosures: Interest paid ............................................. $ 2,243 $ 429 $ 2,929 $ 854
See the accompanying notes which are an integral part of these consolidated financial statements. - 5 - 6 Key Energy Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company The consolidated financial information in this report includes the accounts of Key Energy Group, Inc. (the "Company") and its wholly-owned subsidiaries and was prepared in conformity with accounting policies used in the Annual Report on Form 10-K furnished for the preceding fiscal year. As of February 13, 1997, the Company operates 392 well service and workover rigs, which is the third largest fleet of well service and workover rigs in the United States. The Company operates in Texas, Oklahoma, New Mexico, Michigan, the Appalachian Basin and Argentina and is a leader in each of its domestic markets. The Company generally provides a full range of maintenance and workover rig services to oil and gas producers in each of its operating regions. These services include the completion of newly drilled wells, the recompletion of existing wells (including horizontal recompletions) and the plugging and abandonment of wells at the end of their useful lives. Other services include hot oiling, oil field liquid transportation, storage and disposal, and fishing tools and services. The Company also is engages in the production of oil and natural gas and contract drilling in the Permian Basin of West Texas. The Company conducts its operations primarily through four wholly-owned subsidiaries: Yale E. Key, Inc. ("Yale E. Key"); WellTech Eastern, Inc. ("WellTech Eastern"); Odessa Exploration Incorporated ("Odessa Exploration"); and Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt"). In addition, Key operates in Argentina through its 63% ownership in Servicios WellTech, S.A. ("Servicios"). WellTech Eastern operates through two divisions; WellTech Mid-Continent Division and WellTech Eastern Division. Yale E. Key, WellTech Eastern and Servicios provide oil and gas well services. Odessa Exploration is engaged in the production of oil and gas and Clint Hurt provides contract oil and gas well drilling services. In July 1996, the Company completed the offering of $52,000,000 of 7% convertible subordinated debentures due 2003 (the "Offering"). The Offering was a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). Proceeds from the Offering were used to substantially repay existing long-term debt (approximately $35.4 million). The remaining proceeds, together with proceeds from borrowings under existing credit arrangements, were used to fund the expansion of the Company's operations through acquisitions of businesses and assets and for working capital and general corporate purposes. See Note 3 for a more detailed description of the Offering. Odessa Exploration utilizes the successful efforts method of accounting for its oil and gas properties. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized, while nonproductive exploration costs and geological and geophysical costs (if any), are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method based on proved reserves expressed as net equivalent barrels as reviewed by independent petroleum engineers. The carrying amounts of properties sold or otherwise disposed of and the related allowance for depletion are eliminated from the accounts and any gain/loss is included in results of operations. - 6 - 7 Odessa Exploration's aggregate oil and gas properties are stated at cost, not in excess of total estimated future net revenues net of related income tax effects. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position as of December 31, 1996, the statement of cash flows for the three and six months ended December 31, 1996 and 1995, and the results of operations for the three and six month periods then ended. 2. BUSINESS AND PROPERTY ACQUISITIONS Since September 30, 1996, the Company has completed eight acquisitions of unrelated oil and gas well service businesses. Acquisitions Completed after December 31, 1996 Cobra Industries, Inc. Effective as of January 13, 1997, the Company completed the purchase of Cobra Industries, Inc. ("Cobra") for $5 million in cash and 175,000 shares of the Company's common stock. Cobra operates 26 oilwell service rigs in southeastern New Mexico. Oklahoma Trucking and Well Service Rigs. Effective as of January 7, 1997, the Company completed the acquisition of the assets of an Oklahoma trucking and well service company (the "Seller") for $2.7 million in cash. The Seller operated three oilwell service rigs, 21 trucks and related fluid transportation and disposal assets in Oklahoma, which assets are currently operated by the WellTech Mid-Continent Division of WellTech Eastern. Acquisitions Completed During the Three-Months Ended December 31, 1996 Woodward Well Service, Inc. Effective as of October 1, 1996, the Company completed the acquisition of Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's common stock and approxiately $100,000 in cash, most of which is payable over a four-year period. Woodward operated five oilwell service units and a fishing tool business in Oklahoma, which operations are currently conducted by the WellTech Mid-Continent Division of WellTech Eastern. The acquisition was accounted for using the purchase method. Hitwell Surveys, Inc. Effective as of December 2, 1996, the Company completed the purchase of Hitwell Surveys, Inc. ("Hitwell") for approximately $1.3 million in cash. Hitwell operates eight oilwell logging and perforating trucks in the Appalachian Basin and Michigan. The acquisition was accounted for using the purchase method. Brooks Well Servicing, Inc. Effective as of December 4, 1996, the Company completed the acquisition of Brooks Well Servicing, Inc. ("Brooks") for 917,500 shares of the Company's common stock. Brooks was a wholly-owned subsidiary of Hunt Oil Company and operated 32 oilwell service rigs and ancillary equipment in east Texas, which operations are currently conducted by the WellTech Mid-Continent Division of WellTech Eastern. The acquisition was accounted for using the purchase method. - 7 - 8 Brownlee Well Service Inc. Effective as of October 24, 1996, the Company completed the purchase of Brownlee Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools Inc. ("Integrity"). Consideration for the acquisition was $6.5 million in cash and 61,069 shares of the Company's common stock. Brownlee and Integrity operate 16 oilwell service rigs with ancillary equipment and a variety of oilfield fishing tools in west Texas. The acquisition was accounted for using the purchase method. B & L Hotshot, Inc. Effective as of December 13, 1996, the Company completed the acquisition of B&L Hotshot, Inc. and affiliated entities ("B&L") for $4.9 million in cash. B&L provides trucking and related services for oil and natural gas wells in Michigan, which operations are currently conducted by the WellTech Eastern Division of WellTech Eastern. The acquisition was accounted for using the purchase method. Energy Air Drilling Services Co. Effective as of November 1, 1996, the Company completed the acquisition of certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000 in cash and 4,386 shares of the Company's common stock. Energy Air operated four air drilling packages in west Texas, which operations are currently conducted by Yale E. Key. The acquisition was accounted for using the purchase method. Prior Acquisitions WellTech, Inc. On March 26, 1996, the Company completed the merger of WellTech, Inc. ("WellTech") into the Company. The net consideration for the merger was 3,500,000 shares of the Company's common stock and warrants to purchase 500,000 additional shares of Common Stock at an exercise price of $6.75 per share. WellTech conducted oil and gas well servicing operations in the Mid-Continent and Northeast areas of the United States and in Argentina. The acquisition was accounted for using the purchase method. Odessa Exploration Properties In April of 1996, Odessa Exploration purchased approximately $6.9 million in cash of oil and gas producing properties from an unrelated company proceeds from bank borrowings, which indebtedness was subsequently repaid (See Note 3). The acquisition was accounted for using the purchase method. 3. LONG-TERM DEBT 7% Convertible Subordinated Debentures In July 1996, the Company completed the offering of $52,000,000 of 7% convertible subordinated debentures due 2003 (the "Offering"). The Offering was a private offering pursuant to Rule 144A under the Securities Act. Gross proceeds from the Offering were $52,000,000 and were used to substantially repay existing long-term debt (approximately $35.4 million). The remaining proceeds were used to fund the expansion of the Company's operations through acquisitions of businesses and assets, for working capital and general corporate purposes. - 8 - 9 The long-term debt that was repaid with proceeds from the Offering consisted of (i) indebtedness under the term notes with CIT Group/Credit Finance, Inc. ("CIT") aggregating approximately $21.2 million and (ii) all indebtedness owed by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest") totaling approximately $14.2 million. The Debentures mature on July 1, 2003 and are convertible at any time after November 1, 1996 and before maturity, unless previously redeemed, into shares of the Company's common stock at a conversion price of $9 3/4 per share, subject to adjustment in certain events. In addition, holders of the Debentures who convert prior to July 1, 1999 will receive, in addition to the Company's common stock, a payment generally equal to 50% of the interest otherwise payable on the converted Debentures from the date of conversion through July 1, 1999, payable in cash or common stock, at the Company's option. Interest on the Debentures is payable semi-annually on January 1 and July 1 of each year, commencing January 1, 1997. The Debentures are not redeemable before July 15, 1999. Thereafter, the Debentures will be redeemable at the option of the Company in whole or part, at the declining redemption prices set forth in the original Debenture prospectus, together with accrued and unpaid interest thereon. The Debentures also may be redeemed at the option of the holder if there is a change in control (as defined in the original Debenture prospectus) at 100% of their principal amount, together with accrued and unpaid interest thereon. Pursuant to the terms of the Indenture governing the rights of the holders of the Offering, the Company was required to obtain Servicios' guarantee of the Company's indebtedness under the Offering and agreed to increase the interest rate payable on the Offering to 7 1/2% in the event such guarantee was not obtained. To date, such guaranty has not been obtained, and, therefore, the Offering is currently accruing interest at a rate of 7 1/2%. The Company made its first interest payment on December 31, 1996. Other Long-term Debt In November 1996, the Company completed the renegotiation of its credit facilities with CIT consisting of a line of credit and a term loan for each of WellTech Eastern, Yale E. Key and Clint Hurt. The renegotiated term and credit facilities include a maximum credit availability of the lesser of (i) $40 million, or (ii) an amount subject to certain asset valuations determined by CIT. Also, the renegoitiated term and credit facilities include an interest rate at one-half percent above the stated prime rate, which was 8.25% at December 31, 1996, an extension of the maturity dates and a decrease in prepayment penalties. The CIT line of credit, as amended, ($11,058,000 approximate balance at December 31, 1996) requires monthly payments of interest and is collateralized by the accounts receivable of Yale E. Key, Clint Hurt and WellTech Eastern. At December 31, 1996, there was no credit line availability. The CIT note, as amended, ($10,500,000 approximate balance at December 31, 1996) requires monthly payments of interest and is collateralized by all of the assets of Yale E. Key, Clint Hurt and WellTech Eastern. At December 31, 1996, there was approximately $8.9 million in unused term loan. In addition to the CIT credit facilities, Odessa Exploration has funded its operations and acquisitions in part through a credit facility with Norwest. All - 9 - 10 amounts previously owed by Odessa Exploration under the Norwest facility were paid using a portion of the proceeds from the Offering. Effective as of January 31, 1997, Odessa Exploration completed the renegotiation of the Norwest credit facility, which, among other things, increased its borrowing base to $18 million, none of which has been advanced as of February 13, 1997. 4. IMPAIRMENT OF LONG-LIVED ASSETS The Company adopted FAS 121 effective as of July 1, 1996. FAS 121 requires that long-lived assets held and used by an entity, including oil and gas properties accounted for under the successful efforts method of accounting, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets to be disposed of are to be accounted for at the lower of carrying amount or fair value less cost to sell when management has committed to a plan to dispose of the assets. All companies, including successful efforts oil and gas companies, are required to adopt FAS 121 for fiscal years beginning after December 15, 1995. In order to determine whether an impairment had occurred, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. Based on this process, no writedown in the carrying amount of the Company's proved properties was necessary at December 31, 1996. 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. - 10 - 11 KEY ENERGY GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following discussion and analysis should be read in conjunction with the Company's audited 10-K for the year ended June 30, 1996. Since 1993, the Company has made a number of acquisitions, or is in the process thereof, which have significantly expanded the Company's operations: Acquisitions Completed after December 31, 1996 * Cobra Industries, Inc. Effective as of January 13, 1997, the Company completed the purchase of Cobra Industries, Inc.("Cobra") for $5 million in cash and 175,000 shares of the Company's common stock. Cobra operates 26 oilwell service rigs in southeastern New Mexico. * Oklahoma Trucking and Well Service Rigs. Effective as of January 7, 1997, the Company completed the acquisition of the assets of an Oklahoma trucking and well service company (the "Seller") for $2.7 million in cash. The Seller operated three oilwell service rigs, 21 trucks and related fluid transportation and disposal assets in Oklahoma, which assets are currently operated by the WellTech Mid-Continent Division of WellTech Eastern. Acquisitions Completed During the Three-Months Ended December 31, 1996 * Woodward Well Service, Inc. Effective as of October 1, 1996, the Company completed the acquisition of Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's common stock and approxiately $100,000 in cash, most of which is payable over a four-year period. Woodward operated five oilwell service units and a fishing tool business in Oklahoma, which operations are currently conducted by the WellTech Mid-Continent Division of WellTech Eastern. The acquisition was accounted for using the purchase method. * Hitwell Surveys, Inc. Effective as of December 2, 1996, the Company completed the purchase of Hitwell Surveys, Inc. ("Hitwell") for approximately $1.3 million in cash. Hitwell operates eight oilwell logging and perforating trucks in the Appalachian Basin and Michigan. The acquisition was accounted for using the purchase method. * Brooks Well Servicing, Inc. Effective as of December 4, 1996, the Company completed the acquisition of Brooks Well Servicing, Inc. ("Brooks") for 917,500 shares of the Company's common stock. Brooks was a wholly-owned subsidiary of Hunt Oil Company and operated 32 oilwell service rigs and ancillary equipment in east Texas, which operations are currently conducted by the WellTech Mid-Continent Division of WellTech Eastern. The acquisition was accounted for using the purchase method. - 11 - 12 * Brownlee Well Service Inc. Effective as of October 24, 1996, the Company completed the purchase of Brownlee Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools Inc. ("Integrity"). Consideration for the acquisition was $6.5 million in cash and 61,069 shares of the Company's common stock. Brownlee and Integrity operate 16 oilwell service rigs with ancillary equipment and a variety of oilfield fishing tools in west Texas. The acquisition was accounted for using the purchase method. * B & L Hotshot, Inc. Effective as of December 13, 1996, the Company completed the acquisition of B&L Hotshot, Inc. and affiliated entities ("B&L") for $4.9 million in cash. B&L provides trucking and related services for oil and natural gas wells in Michigan, which operations are currently conducted by the WellTech Eastern Division of WellTech Eastern. The acquisition was accounted for using the purchase method. * Energy Air Drilling Services Co. Effective as of November 1, 1996, the Company completed the acquisition of certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000 in cash and 4,386 shares of the Company's common stock. Energy Air operated four air drilling packages in west Texas, which operations are currently conducted by Yale E. Key. The acquisition was accounted for using the purchase method. Prior Acquisitions * WellTech, Inc. On March 26, 1996, the Company completed the merger of WellTech, Inc. ("WellTech") into the Company. The net consideration for the merger was 3,500,000 shares of the Company's common stock and warrants to purchase 500,000 additional shares of Common Stock at an exercise price of $6.75 per share. WellTech conducted oil and gas well servicing operations in the Mid-Continent and Northeast areas of the United States and in Argentina. The acquisition was accounted for using the purchase method. * Odessa Exploration Properties In April of 1996, Odessa Exploration purchased approximately $6.9 million in cash of oil and gas producing properties from an unrelated company proceeds from bank borrowings, which indebtedness was subsequently repaid (See Note 3). The acquisition was accounted for using the purchase method. Other Recent Developments In July 1996, the Company completed the offering of $52,000,000 of 7% convertible subordinated debentures due 2003 (the "Offering"). The Offering was a private offering pursuant to Rule 144A under the Securities Act. Net proceeds from the Offering were used substantially to repay existing long-term debt (approximately $35.4 million). The remaining proceeds, together with proceeds from borrowings under existing credit arrangements, were used to fund the expansion of the Company's operations through acquisitions of businesses and assets and for working capital and general corporate purposes. See Note 3 to the Financial Statements for a more detailed description, (including an increase in the interest rate), of the Offering. - 12 - 13 RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 31, 1996 VERSUS QUARTER ENDED DECEMBER 31, 1995 The following discussion provides information to assist in the understanding of the Company's financial condition and results of operations. It should be read in conjunction with the financial statements and related notes appearing elsewhere in this report. Operating results for the quarter ended December 31, 1996 include the Company's oilfield well service operations conducted by its wholly-owned subsidiaries, Yale E. Key, Inc. ("Yale E. Key") and WellTech Eastern, Inc., ("WellTech Eastern"), its oil and natural gas exploration and production operations conducted by its wholly-owned subsidiary, Odessa Exploration, Inc. ("Odessa Exploration") and Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt Drilling") which is engaged in oil and natural gas well contract drilling. In addition, the Company conducts oilfield services in Argentina through its 63% ownership in Servicios WellTech, S.A. ("Servicios"), an Argentinean corporation. Historically, fluctuations in oilfield well service operations and oil and gas well contract drilling activity have been closely linked to fluctuations in crude oil and natural gas prices. However, the Company, through acquisitions, customer alliances and agreements, and diversification of services, seeks to minimize the effects of such fluctuations on the Company's results of operations and financial condition. The Company Revenues of the Company for the quarter ended December 31, 1996 increased $23,803,000 or 192% to $36,197,000 from $12,394,000 for the quarter ended December 31, 1995, while net income of $2,043,000 represented an increase $1,275,000, or 166%, from the 1995 quarter total of $768,000. The increase in revenues was primarily due to the increased oil and gas revenues from Odessa Exploration, increased oilwell service equipment utilization, the acquisition of the WellTech Eastern operations from the date of acquisition of March 26, 1996 and the additional oilfield service acquisitions acquired (see Note 2 ). The increase in quarterly 1996 net income over the quarterly 1995 net income is partially attributable to the acquisition of WellTech and the other recent acquisitions, but is also a result of an increase in oilwell service equipment utilization and a decrease in total consolidated Company costs and expenses as a percentage of total revenues. Oilfield Services The Company's oilfield services operations are performed primarily by Yale E. Key and WellTech Eastern. Yale E. Key conducts oilfield services in west Texas, while WellTech Eastern conducts oilfield services in the mid-continent region of the United States (primarily in Oklahoma and east Texas) through its WellTech Mid-Continent Division, and in the northeastern United States (primarily in Michigan, Pennsylvania and West Virginia) through its WellTech Eastern Division. The Company conducts oilfield services in Argentina through its indirect 63% ownership in Servicios. Oilfield service revenues increased $22,327,000, or 238%, from $9,381,000 for the 1995 quarter to $31,708,000 for the 1996 quarter. The increase in revenues is primarily attributable to higher equipment utilization as the result of an increase in demand for oilfield services and the acquisition of WellTech Eastern, and other smaller recent acquisitions, whose operating results are included for the current quarter but not for the comparable 1995 quarter. In addition, Yale E. Key diversified oilfield services into higher margin business segments such as oilfield frac tanks, oilfield fishing tools and trucking operations. - 13 - 14 Oilfield service expenses increased $16,177,000, or 234%, from $6,889,000 for the 1995 quarter to $23,066,000 for the current 1996 quarter. The increase was due primarily to the acquisition of WellTech on March 26, 1996, other smaller recent acquisitions and the increased demand for oilfield services. In addition, the Company has continued to expand its services, offering ancillary services and equipment such as oilwell fishing tools, blow-out preventers and oilwell frac tanks. Oil and Natural Gas Exploration and Production The Company's oil and natural gas exploration and production operations are conducted by Odessa Exploration. Revenues from oil and gas activities increased $1,177,000, or 129%, from $911,000 during the quarter ended December 31, 1995 to $2,088,000 for the current quarter. The increase in revenues was primarily the result of increased production of oil and natural gas as several oil and natural gas wells which were drilled began production during 1996, higher oil and natural gas prices for the current year, and the April 1996 purchase of $6.9 million of oil and gas properties from an unrelated third party, which almost doubled the number of oil and gas wells owned and/or operated by Odessa Exploration. Of the total $2,088,000 of revenues for the quarter ended December 31, 1996, approximately $1,773,000 was from the sale of oil and gas - 37,157 barrels of oil at an average price of $25.03 per barrel and 272,283 MCF of natural gas at an average price of $3.09 per MCF. The remaining $315,000 of revenues represented primarily administrative fee income and other miscellaneous income. Expenses related to oil and gas activities increased $419,000, or 118%, from $354,000 for the 1995 quarter to $773,000 for current 1996 quarter. The increase in expenses was primarily the result of increased production of oil and natural gas as several oil and natural gas wells which were drilled began production during 1996 and the April 1996 purchase of $6.9 million in oil and gas properties. Oil and Natural Gas Well Drilling The Company's oil and natural gas well drilling operations are conducted by Clint Hurt Drilling. Oil and natural gas well drilling revenues increased $302,000, or 15%, from $2,057,000 for the 1995 quarter to $2,359,000 for the 1996 quarter. The increase in revenues is primarily attributable to higher equipment utilization and an increase pricing structure. In addition, two drilling rigs were acquired in the March 1996 merger with WellTech. Expenses related to oil and natural gas well drilling activities increased $575,000, or 41%, from $1,388,000 for the 1995 quarter to $1,963,000 for current 1996 quarter. The increase in expenses is attributable to higher equipment utilization and the addition of two drilling rigs as the result of the WellTech merger. Interest Expense Interest expense increased $857,000, or 195%, to $1,296,000 for the current 1996 quarter from $439,000 for the 1995 comparable quarter. The increase was primarily the result of the issuance of $52 million in principal amount of 7 % Convertible Subordinated Debentures, (see Note 3). General and Administrative Expenses General and administrative expenses are comprised of the Company's and all subsidiaries general and administrative expenses. These expenses increased $2,537,000, or 212%, to $3,735,000 for the current 1996 quarter from $1,198,000 for the comparable 1995 quarter. The increase was primarily attributable to the Company's recent acquisitions and expanded services. - 14 - 15 Depreciation, Depletion and Amortization Expense Depreciation, depletion and amortization expense increased $1,371,000, or 141%, to $2,342,000 for the current 1996 quarter from $971,000 for the comparable 1995 quarter. The increase is primarily due to oilfield service depreciation expense, which is the result of increased oilfield service capital expenditures for the current period versus the prior period and the acquisition of WellTech. In addition, depletion expense increased for the period due to the increase in the production of oil and natural gas. Income Taxes Income tax expense of $1,029,000 for current 1996 quarter increased from $387,000 in income tax expense for the comparable 1995 quarter. The increase in income taxes is primarily due to the increases in operating income. However, the Company does not expect to be required to remit a significant amount of the $1,029,000 in total federal income taxes for fiscal year 1997, because of the availability of net operating loss carryforwards, accelerated depreciation and drilling tax credits. Cash Flow Net cash used by operating activities was $1,089,000 compared to $1,811,000 in net cash provided during the comparable 1995 quarter. The decrease is attributable primarily to increases in accounts receivable and a decrease in accounts payable and accrued expenses. Net cash used in investing activities increased from $2,297,000 for the comparable 1995 quarter to $17,520,000 for the current 1996 quarter. The increase is primarily the result of increased capital expenditures for oilwell service operations as well as the Company's recent acquisitions (see Note 2 to the Financial Statements). Net cash provided by financing activities was $10,714,000 for the current 1996 quarter as compared to $543,000 in net cash provided by financing activities for the comparable 1995 quarter. The increase is primarily the result of the proceeds from other long-term debt. - 15 - 16 SIX MONTHS ENDED DECEMBER 31, 1996 VERSUS SIX MONTHS ENDED DECEMBER 31, 1995 The Company Revenues of the Company for the six months ended December 31, 1996 increased $42,867,000, or 173%, to $67,659,000 from $24,792,000 for the six months ended December 31, 1995, while net income of $3,597,000 represented an increase of $2,103,000 or, 141%, from the 1995 total of $1,494,000. The increase in revenues was primarily due to the increased oil and gas revenues from Odessa Exploration, increased oilwell service equipment utilization, the acquisition of the WellTech Eastern operations from the date of acquisition of March 26, 1996 and the additional oilfield service acquisitions acquired (see Note 2 ). The increase in 1996 net income over the 1995 net income is partially attributable to the acquisition of WellTech and the other recent acquisitions, but is also a result of an increase in oilwell service equipment utilization and a decrease in total consolidated Company costs and expenses as a percentage of total revenues. Oilfield Services Oilfield service revenues increased $39,871,000, or 208%, from $19,148,000 for the 1995 period to $59,019,000 for the 1996 six month period. The increase in revenues is primarily attributable to higher equipment utilization as the result of an increase in demand for oilfield services and the acquisition of WellTech Eastern, and other smaller acquisitions, whose operating results are included for the current period but not for the comparable 1995 period. In addition, Yale E. Key diversified oilfield services into higher margin business segments such as oilfield frac tanks, oilfield fishing tools and trucking operations. Oilfield service expenses increased $28,613,000, or 202%, from $14,153,000 for the 1995 six month period to $42,766,000 for the current 1996 comparable period. The increase was due primarily to the acquisition of WellTech on March 26, 1996, other recent acquisitions and the increased demand for oilfield services. In addition, the Company has continued to expand its services, offering ancillary services and equipment such as oilwell fishing tools, blow-out preventers and oilwell frac tanks. Oil and Natural Gas Exploration and Production Revenues from oil and gas activities increased $1,886,000, or 109%, from $1,727,000 during the six months ended December 31, 1995 to $3,613,000 for the current period. The increase in revenues was primarily the result of increased production of oil and natural gas as several oil and natural gas wells which were drilled began production during 1996, higher oil and natural gas prices for the current year, and the April 1996 purchase of $6.9 million of oil and gas properties from an unrelated third party. Of the total $3,613,000 of revenues for the six months ended December 31, 1996, approximately $3,092,000 was from the sale of oil and gas - 66,980 barrels of oil at an average price of $23.34 per barrel and 609,613 MCF of natural gas at an average price of $2.51 per MCF. The remaining $521,000 of revenues represented primarily administrative fee income and other miscellaneous income. Expenses related to oil and gas activities increased $667,000 or 108% from $619,000 for the 1995 six month period to $1,286,000 for current 1996 period. The increase in expenses was primarily the result of increased production of oil and natural gas as several oil and natural gas wells which were drilled began production during 1996 and the April 1996 purchase of $6.9 million in oil and gas properties. - 16 - 17 Oil and Natural Gas Well Drilling Oil and natural gas well drilling revenues increased $1,024,000, or 28%, from $3,659,000 for the 1995 six month period to $4,683,000 for the 1996 period. The increase in revenues is primarily attributable to higher equipment utilization and an increase pricing structure. In addition, two drilling rigs were acquired in the March 1996 merger with WellTech. Expenses related to oil and natural gas well drilling activities increased $1,109,000, or 41%, from $2,735,000 for the 1995 six month period to $3,844,000 for current 1996 period. The increase in expenses is attributable to higher equipment utilization and the addition of two drilling rigs as the result of the WellTech merger. Interest Expense Interest expense increased $1,769,000, or 202%, to $2,646,000 for the current 1996 six months from $877,000 for the 1995 comparable period. The increase was primarily the result of the issuance of $52 million in principal amount of 7% Convertible Subordinated Debentures, (see Note 3). General and Administrative Expenses General and administrative expenses are comprised of the Company's and all subsidiaries general and administrative expenses. These expenses increased $4,872,000, or 204%, to $7,262,000 for the current 1996 six month period from $2,390,000 for the comparable 1995 period. The increase was primarily attributable to the Company's recent acquisitions and expanded services. Depreciation, Depletion and Amortization Expense Depreciation, depletion and amortization expense increased $2,643,000, or 147%, to $4,437,000 for the current 1996 six month period from $1,794,000 for the comparable 1995 period. The increase is primarily due to oilfield service depreciation expense, which is the result of increased oilfield service capital expenditures for the current period versus the prior period and the acquisition of WellTech. In addition, depletion expense increased for the period due to the increase in the production of oil and natural gas. Income Taxes Income tax expense of $1,813,000 for current 1996 six month period increased from $730,000 in income tax expense for the comparable 1995 period. The increase in income taxes is primarily due to the increases in operating income. However, the Company does not expect to be required to remit a significant amount of the $1,813,000 in total federal income taxes for fiscal year 1997, because of the availability of net operating loss carryforwards, accelerated depreciation and drilling tax credits. Cash Flow Net cash provided by operating activities decreased $1,119,000 from $3,046,000 during the comparable 1995 six month period to $1,927,000 for the current 1996 period. The decrease is attributable primarily to an increase in accounts receivable and a decrease in accounts payable and accrued expenses. Net cash used in investing activities increased from $4,244,000 for the comparable 1995 six month period to $21,065,000 for the current 1996 period. The - 17 - 18 increase is primarily the result of increased capital expenditures for oilwell service operations and cash paid for oilwell service acquisitions (see Note 2). These increases are partially offset by a decrease in expenditures for oil and gas properties. Net cash provided by financing activities was $25,839,000 for the current 1996 six month period as compared to $878,000 in net cash provided by financing activities for the comparable 1995 period. The increase is primarily the result of the proceeds from the issuance of the Company's 7% debenture and proceeds from other long-term debt. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company had $9,283,000 in cash as compared to $3,240,000 in cash at June 30, 1996. The Company has projected $6.5 million for oilfield service capital expenditures for fiscal 1997 as compared to $5.2 million for fiscal 1996. Oilfield service capital expenditures for the six months ended December 31, 1996 of $5.9 million are expected to significantly decrease through the remaining fiscal 1997 fiscal year. Capital expenditures are expected to be primarily capitalized improvement costs to existing equipment and machinery. The Company expects to finance these capital expenditures utilizing the operating cash flows of the Company. Odessa Exploration is forecasting outlays of approximately $6.0 million in development costs for fiscal 1997, as compared to $9.8 million during fiscal 1996. Financing is expected to come from borrowings under its Norwest credit facility. Clint Hurt Drilling has forecast approximately $500,000 for oil and gas drilling capital expenditures for fiscal 1997 primarily for improvements to existing equipment and machinery compared to $598,000 for fiscal 1996. Such outlays are treated as capital costs. Financing is expected to come from existing cash flow. Debt In July 1996, the Company completed the offering of $52,000,000 of 7% convertible subordinated debentures due 2003. The Offering was a private offering pursuant to Rule 144A under the Securities Act. Proceeds from the Offering were approximately $52,000,000 and were used to substantially repay existing long-term debt (approximately $35.4 million). The remaining proceeds were used to fund the expansion of the Company's operations through acquisitions of businesses and assets, for working capital and general corporate purposes. The Company's long-term debt that was repaid with proceeds from the Offering consisted of (i) indebtedness under the term notes with CIT Group/Credit Finance, Inc. ("CIT") aggregating approximately $21.2 million and (ii) all indebtedness owed by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest") totaling approximately $14.2 million. The Debentures mature on July 1, 2003 and are convertible at any time after November 1, 1996 and before maturity, unless previously redeemed, into shares of the Company's common stock at a conversion price of $9 3/4 per share, subject to adjustment in certain events. In addition, holders of the Debentures who convert prior to July 1, 1999 will receive, in addition to the Company's common stock, a payment generally equal to 50% of the interest otherwise payable on the converted Debentures from the date of conversion through July 1, 1999, payable in cash or common stock, at the Company's option. Interest on the Debentures is payable semi-annually on January 1 and July 1 of each year, commencing January 1, 1997. - 18 - 19 The Debentures are not redeemable before July 15, 1999. Thereafter, the Debentures will be redeemable at the option of the Company in whole or part, at the declining redemption prices set forth in the original Debenture prospectus, together with accrued and unpaid interest thereon. The Debentures also may be redeemed at the option of the holder if there is a change in control (as defined in the original Debenture prospectus) at 100% of their principal amount, together with accrued and unpaid interest thereon. Pursuant to the terms of the Indenture governing the rights of the holders of the Offering, the Company was required to obtain Servicios' guarantee of the Company's indebtedness under the Offering and agreed to increase the interest rate payable on the Offering to 7 1/2% in the event such guarantee was not obtained. To date, such guaranty has not been obtained, and, therefore, the Offering is currently accruing interest at a rate of 7 1/2%. The Company made its first interest payment on December 31, 1996. In November 1996, the Company completed the renegotiation of its credit facilities with CIT consisting of a line of credit and a term loan for each of WellTech Eastern, Yale E. Key and Clint Hurt. The renegotiated term and credit facilities include a maximum credit availability of the lesser of (i) $40 million, or (ii) an amount subject to certain asset valuations determined by CIT. Also, the renegoitiated term and credit facilities include an interest rate at one-half percent above the stated prime rate, which was 8.25% at December 31, 1996, an extension of the maturity dates and a decrease in prepayment penalties. In addition to the CIT credit facilities, Odessa Exploration has funded its operations and acquisitions in part through a credit facility with Norwest. All amounts previously owed by Odessa Exploration under the Norwest facility were paid using a portion of the proceeds from the Offering. Effective as of January 31, 1997, Odessa Exploration completed the renegotiation of the Norwest credit facility, which, among other things, increased its borrowing base to $18 million, none of which has been advanced as of February 13, 1997. Impact of SFAS 121 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 - Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121") regarding the impairment of long-lived assets, identifiable intangibles and goodwill related to those assets. The application of SFAS 121 requires periodic determination of whether the book value of long-lived assets exceeds the future cash flows expected to result from the use of such assets and, if so, will require reduction of the carrying amount of the "impaired" assets to their estimated fair values. The Company implemented SFAS 121 beginning July 1, 1996, (see Note 4). Impact of Inflation on Operations Although in our complex environment it is extremely difficult to make an accurate assessment of the impact of inflation on the Company's operations, management is of the opinion that inflation has not had a significant impact on its business. - 19 - 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities. (c) Recent Sales of Unregistered Securities: The Company effected the following unregistered sales of its securities during the three months ended December 31, 1996. Each of the following issuances by the Company of the securities sold in the transactions referred to below were not registered under the Securities Act of 1933, as amended, pursuant to the exemption provided under Section 4(2) thereof for transactions not involving a public offering: Effective as of October 1, 1996, the Company issued 75,000 shares of the Company's common stock to James McMurphy as partial consideration for the merger of Woodward Well Service, Inc., of which Mr. McMurphy was the sole shareholder, into WellTech Eastern, Inc., a wholly-owned subsidiary of the Company. Effective as of October 24, 1996, the Company issued an aggregate of 61,069 shares of the Company's common stock to Elvin Brownlee, Jr., Reo Brownlee and Elvin Brownlee III (collectively, the "Brownlees") as partial consideration for the Company's purchase of all of the capital stock of Brownlee Well Service, Inc. and Integrity Fishing & Rental Tools, Inc., of which the Brownlees were the sole shareholders. Effecitive as of November 1, 1996, the Company issued 4,386 shares of the Company's common stock to Energy Air Drilling Service Co. ("Energy Air") as partial consideration for the Company's purchase of certain assets of Energy Air. Effective as of November 15, 1996, the Company issued to Jack D. Loftis, Jr., pursuant to the Company's 1995 Employee Stock Option Plan, an option to purchase 25,000 shares of the Company's common stock (the "Loftis Option") as partial consideration for Mr. Loftis' entering into employment with the Company. The exercise price of the Loftis Option is $11.125 per share and is exercisable under the following vesting schedule: 6,250 share on each of November 15, 1996, 1997, 1998 and 1999. On November 22, 1996 (but effective as of September 15, 1996), the Company issued to The CIT Group/Credit Finance, Inc. ("CIT") as partial consideration for CIT entering into an amendment of the CIT's credit facilities for certain subsidiaries of the Company, a Warrant entitling CIT to purchase 125,000 shares of the Company's common stock at an exercise price of $7.625 per share (the "CIT Warrant"). The CIT Warrant is immediately exercisable. On November 22, 1996, the Company, as partial consideration for CIT entering into an amendment of the CIT's credit facilities for certain subsidiaries of the Company, entered into an amendment with CIT pursuant to which the expiration date of previously issued Warrant entitling CIT to purchase 75,000 shares of the Company's common stock at an exercise price of $5.00 per share was extended to September 5, 2003. - 20 - 21 Effective as of December 4, 1996, the Company issued 917,500 shares of the Company's common stock to Hunt Oil Company ("Hunt") as the sole consideration for the merger of Brooks Well Servicing, Inc., of which Hunt was the sole share- holder, into WellTech Eastern, Inc., a wholly-owned subsidiary of the Company. Effective as of August 3, 1996, the Company issued to Kenneth V. Huseman, pursuant to the Company's 1995 Employee Stock Option Plan, an option to purchase 50,000 shares of the Company's common stock (the "Huseman Option") as partial consideration for Mr. Huseman's entering into a new employ- ment agreement with the Company. The exercise price of the Huseman Option is $8.375 per share and is exercisable under the following vesting schedule: 16,667 shares on each of August 3, 1997, 1998, and 16,666 shares on August 3, 1999. Effective as of July 22, 1996, the Company issued to James W. Dean, pursuant to the Company's 1995 Employee Stock Option Plan, and option to purchase 25,000 shares of the Company's common stock (the "Dean Option") as partial consideration for Mr. Dean's entering into an employment with the Company. The exercise price of the Dean Option is $8.50 per share and is exercisable under the following vesting schedule: 10,000 shares on July 22, 1996 and 5,000 shares on each of July 22, 1997, 1998 and 1999. Item 4. Submission of Matters to a Vote of Security Holders. None Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of the Form 10-Q: Number Description 10(a) Plan and Agreement of Merger among Key Energy Group, Inc., WellTech Eastern, Inc. and Woodward Well Service, Inc. dated as of September 30, 1996 10(b) Stock Purchase Agreement among Key Energy Group, Inc., Reo Brownlee, Elvin Brownlee, Jr. and Elvin Brownlee III dated as of November 1, 1996 10(c) Asset Purchase Agreement among Yale E. Key, Inc., Key Energy Group, Inc., Energy Air Drilling Service Co. and Dale Rennels dated as of November 1, 1996 10(d) Stock Purchase Agreement among Key Energy Group, Inc., Ed Hitt, Helen Hitt, Michael E. Thompson and Edward Monroe, Jr. dated as of December 2, 1996. - 21 - 22 10(e) Plan and Agreement of Merger among Key Energy Group, Inc., WellTech Eastern, Inc., Hunt Oil Company and Brooks Well Servicing, Inc. dated as of November 22, 1996 10(f) Asset Purchase Agreement among WellTech Eastern, Inc., B&L Hotshot, Inc., McDowell & Sons, Inc., 4 Star Trucking, Inc., R.B.R., Inc., Royce D. Thomas, John F. McDowell and John R. McDowell dated as of December 13, 1996 10(g) Asset Purchase Agreement among WellTech Eastern, Inc., Talon Trucking Company and Lomak Petroleum, Inc. dated as of December 13, 1996 10(h) First Supplemental Indenture dated as of November 20, 1996 by and between Key Energy Group, Inc. and American Stock Transfer & Trust Company as Trustee. 10(h) First Amendment to Third Amended and Restated Loan and Security Agreement and Modification of Notes dated as of November 22, 1996 among The CIT Group/Credit Finance, Inc., Yale E. Key, Inc., Key Energy Drilling, Inc., and WellTech Eastern, Inc. 11(a) Statement - Computation of per share earnings. Filed herewith as part of the Condensed Consolidated Financial Statements). 27(a) Statement - Financial Data Schedule (Filed herewith as part of the Condensed Consolidated Financial Statements). (b) There were no reports filed on form 8-K during the quarter ended December 31, 1996. - 22 - 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEY ENERGY GROUP, INC. (Registrant) By /s/ Francis D. John President, Chief Executive Officer Dated: February 14, 1997 and Chief Financial Officer By /s/ Danny R. Evatt Dated: February 14, 1997 Vice President and Chief Accounting Officer - 23 - EX-10.(A) 2 WOODWARD WELL SERVICE PLAN & AGREEMENT OF MERGER PLAN AND AGREEMENT OF MERGER AMONG KEY ENERGY GROUP, INC. WELLTECH EASTERN, INC. AND WOODWARD WELL SERVICE, INC. Dated as of September 30, 1996 PLAN AND AGREEMENT OF MERGER THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as of September 30, 1996 by and among Key Energy Group, Inc., a Maryland corporation ("Key"), WellTech Eastern, Inc., a Delaware corporation and a wholly-owned subsidiary of Key ("WellTech" or the "Surviving Corporation"), Woodward Well Service, Inc., an Oklahoma corporation ("Woodward"), and James McMurphy (the "Shareholder"). WellTech and Woodward are sometimes collectively referred to herein as the "Merging Corporations." WITNESSETH : WHEREAS, Key is a corporation duly organized and validly existing under the laws of the State of Maryland, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and WHEREAS, WellTech is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and WHEREAS, Woodward is a corporation duly organized and validly existing under the laws of the State of Oklahoma, with its principal executive offices at 2824 34th Street, Woodward, Oklahoma 73801; and WHEREAS, Key owns 100 shares of common stock, par value $.01 per share, of WellTech ("WellTech Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of WellTech; and WHEREAS, the Shareholder owns 25,000 shares of common stock, par value $1.00 per share, of Woodward ("Woodward Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of Woodward; and WHEREAS, (i) the board of directors of Key, (ii) Key (in its capacity as WellTech's sole stockholder) and the board of directors of WellTech and (iii) the Shareholder (in his capacity as the sole shareholder of Woodward) and the board of directors of Woodward desire to merge Woodward with and into WellTech in accordance with the provisions of Section 252 of the Delaware General Corporation Law (the "DGCL") and Section 1082 of the Oklahoma General Corporation Law (the "OGCL") pursuant to the terms and provisions of this Agreement, and have approved such merger (the "Merger") and the other terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, and to prescribe the terms and conditions of the Merger contemplated hereby, the mode of carrying the same into effect, the manner and basis of converting the presently outstanding shares of Woodward Common Stock into the right to receive the Merger Consideration 1 described in Section 1.10.1 hereof, and such other details and provisions as are deemed necessary or proper, the parties hereto hereby agree as follows: ARTICLE 1 THE MERGER 1.1. Surviving Corporation. WellTech and Woodward shall be, upon the Effective Date, merged into a single surviving corporation, which shall be WellTech, which shall continue its corporate existence and remain a Delaware corporation governed by and subject to the laws of that State. 1.2. Effective Date. The Merger shall become effective upon (i) the filing of the Certificate of Merger with the Secretary of State of Delaware following its execution in accordance with Sections 252 and 103 of the DGCL and (ii) the Certificate of Merger with the Secretary of State of Oklahoma following its execution in accordance with Sections 1082 and 1007 of the OGCL. These filings shall be made concurrently on the date hereof or as soon as practicable thereafter, with the date on which such filings are made being referred to elsewhere herein as the "Effective Date." 1.3. Name and Continued Corporate Existence of Surviving Corporation. On the Effective Date, the identity, existence, purposes, powers, objects, franchises, rights, and immunities of WellTech, the surviving corporation of the Merger, shall continue unaffected and unimpaired by the Merger, and the corporate identity, existence, purposes, powers, objects, franchises, rights, and immunities of Woodward shall be wholly merged into WellTech, the surviving corporation, and WellTech shall be fully vested therewith. Accordingly, on the Effective Date, the separate existence of Woodward, except insofar as continued by statute, shall cease. 1.4. Governing Law and Articles of Incorporation of Surviving Corporation. The laws of Delaware shall continue to govern the Surviving Corporation. On and after the Effective Date, the Certificate of Incorporation of WellTech shall be the Certificate of Incorporation of the Surviving Corporation until further amended in the manner provided by law. 1.5. Bylaws of Surviving Corporation. On the Effective Date, the Bylaws of WellTech shall be the Bylaws of the Surviving Corporation until altered, amended, or repealed, or until new bylaws shall be adopted in accordance with the provisions of law, the Certificate of Incorporation of WellTech, and the Bylaws of WellTech. 1.6. Directors of Surviving Corporation. The incumbent directors of WellTech immediately prior to the Effective Date shall continue to constitute the board of directors of the Surviving Corporation from and after the Effective Date, and such persons shall remain directors of the Surviving Corporation until their successors are duly elected and qualify in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. 2 1.7. Officers of Surviving Corporation. The incumbent officers of WellTech immediately prior to the Effective Date shall continue to hold their respective offices of the Surviving Corporation from and after the Effective Date and until their successors are duly elected and qualify in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. 1.8. Vacancies. If on or after the Effective Date, a vacancy shall for any reason exist in the board of directors or in any of the offices of the Surviving Corporation, such vacancy shall be filled in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation. 1.9. Capital Stock of Surviving Corporation. The authorized number of shares of capital stock of the Surviving Corporation, and the par value, designations, preferences, rights, and limitations thereof, and the express terms thereof, shall be as set forth in the Certificate of Incorporation of the Surviving Corporation. 1.10. Conversion of Securities Upon Merger. 1.10.1. Conversion of Woodward Common Stock. On the Effective Date, the 25,000 shares of Woodward Common Stock issued and outstanding, on the date hereof, all of which is held by the Shareholder (the "Woodward Shares"), without any action on the part of the Shareholder, shall automatically become and be converted into the right to receive the following consideration from Key (collectively, the "Merger Consideration"): (i) 75,000 shares of common stock, par value $.10 per share, of Key ("Key Common Stock") to be issued to the Shareholder in accordance with Section 4.4 hereof (the "Key Shares"), (ii) $100,000 to be paid to the Shareholder in five annual installments of $20,000 on September 30 of each year beginning on the date hereof; (iii) $15,736.03 paid to the Shareholder on the date hereof (the "Excluded Bank Accounts Estimate"); (iv) cash payments in amounts equal to the payments received by WellTech (a) under that certain promissory note made payable by Slawson Exploration to Woodward (the "Slawson Receivable") and (b) pursuant to certain accounts receivable arising in connection with Woodward's provision of services involving burying permanent anchors (known as "deadman anchors") to secure rigs (the "Anchor Receivables"), to be paid to the Shareholder within 10 days from the date of WellTech's receipt of such payments; and (v) the Cash Adjustment Payment (as defined in Section 1.10.3 hereof), if any, to be paid to the Shareholder in accordance with Section 1.10.3 hereof. Notwithstanding the foregoing, the Merger Consideration to be paid to the Shareholder shall be reduced by the sum of $6,852.10 (the "Attorney Fee Estimate") and $6,825.10 as follows: (1) the number of Key Shares to be issued in accordance with Section 4.4 hereof shall be reduced by -0- shares (based on a price of $7.50 per share) and (2) the amount of cash equivalent payments to be received by the Shareholder on the date hereof shall be reduced by $18,825.10. 1.10.2. Surrender of Woodward Certificates. The Shareholder has surrendered(and Key acknowledges its receipt of) all the certificates representing the Woodward Shares (the 3 "Woodward Certificates") along with executed stock powers in a form satisfactory to Key. On the Effective Date, Key will cancel the Woodward Certificates, and the Shareholder will become entitled to receive the Merger Consideration. 1.10.3. Adjustment of Merger Consideration. The Shareholder shall cause to be prepared and delivered to WellTech a balance sheet of Woodward as of the date hereof (the "Final Balance Sheet") within fifteen (15) days after the date hereof. The parties hereto acknowledge and agree that the Final Balance Sheet will reflect (i) as receivables all amounts due to Woodward for services rendered through the date hereof and (ii) as payables all amounts owed by Woodward for obligations arising through the date hereof. WellTech and Woodward shall jointly review the Final Balance Sheet, endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination of the Final Balance Sheet. Within 10 days of reaching such final determination of the Final Balance Sheet, the following adjusting payments shall be made: (1) If the Working Capital Deficit (as defined in Schedule 1.10.3.1 hereto) is less than $239,083.31 by more than $5,000, Key shall pay to the Shareholder the amount by which such difference exceeds $5,000 (the "Cash Adjustment Payment"). (2) If the Working Capital Deficit exceeds $239,083.31 by more than $5,000, the Shareholder shall pay to Key the amount by which such excess exceeds $5,000. (3) If the Seller's attorney's fees specified on the Final Balance Sheet exceed the Attorney Fee Estimate, the Shareholder shall pay to Key the amount of such excess. If the Seller's attorney's fees specified on the Final Balance Sheet are less than the Attorney Fee Estimate, Key shall pay to the Shareholder the amount of such difference. (4) If the total amount of the Excluded Bank Accounts (defined below) specified on the Final Balance Sheet exceeds the Excluded Bank Accounts Estimate, Key shall pay to the Shareholder the amount of such excess. If the total amount of the Excluded Bank Accounts specified on the Final Balance Sheet is less than the Excluded Bank Accounts Estimate, the Shareholder shall pay to the Key the amount of such difference. The term "Excluded Bank Accounts" shall mean those bank accounts identified on the 8/31 Balance Sheet and the Final Balance Sheet under the line items "Cash on Hand", "Cash in Bank-Regular", "Cash in Bank-Payroll" and "Cash in Bank-Anchors." 1.11. Woodward's Transfer Books Closed. Upon the Effective Date, the stock transfer books of Woodward shall be deemed closed, and no transfer of any shares of capital stock of Woodward shall thereafter be made or consummated. 4 1.12. Assets and Liabilities of Merging Corporations Become Those of Surviving Corporation. On the Effective Date, all rights, privileges, powers, and franchises of each of the Merging Corporations, and all property, real, personal, and mixed, and all debts due on whatever account, as well as stock subscriptions and all other things in action of or belonging to any of the Merging Corporations, shall be taken by and deemed to be transferred to and shall be vested in the Surviving Corporation without further act or deed, and all such rights, privileges, powers, and franchises, property, debts, or things in action, and all and every other interest of each of the Merging Corporations shall be thereafter as effectually the property of the Surviving Corporation as they were of the respective Merging Corporations, and the title to any real property, whether vested by deed or otherwise, in either of the Merging Corporations, shall not revert or be in any way impaired by reason of the Merger; provided however, that all rights of creditors and all liens upon any properties of each of the Merging Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Merging Corporations shall thenceforth attach to the Surviving Corporation and may be enforced against and by it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. Any action or proceeding pending by or against either of the Merging Corporations may be prosecuted to judgment as if the Merger had not taken place, or the Surviving Corporation may be substituted in place of either of the Merging Corporations. 1.13. Conveyances to Surviving Corporation. The Merging Corporations hereby agree, respectively, that from time to time, as and when requested by the Surviving Corporation, or by its successors and assigns, they will execute and deliver or cause to be executed and delivered, all such deeds, conveyances, assignments, and other instruments, and will take or cause to be taken such further or other action as the Surviving Corporation, its successors or assigns, may deem necessary or desirable to vest or perfect in or confirm to the Surviving Corporation, its successors and assigns, title to and possession of all the property, rights, privileges, powers, immunities, franchises, and interests referred to in this Section 1.13 and otherwise carry out the intent and purposes of this Agreement. 1.14. Accounting Treatment. The assets and liabilities of the Merging Corporations shall be taken up on the books of the Surviving Corporation in accordance with generally accepted accounting principles, and the capital surplus and retained earnings accounts of the Surviving Corporation shall be determined, in accordance with generally accepted accounting principles, by the board of directors of the Surviving Corporation. Nothing herein shall prevent the board of directors of the Surviving Corporation from making any future changes in its accounts in accordance with law. 1.15. Federal Income Tax Treatment. The Merger is intended to qualify as a forward triangular merger transaction described in ss. 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). 5 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER 2.1. Representations and Warranties of the Shareholder. The Shareholder represents and warrants to Key and WellTech as follows: 2.1.1. Organization and Standing. Woodward is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement has been authorized by the board of directors and all of the holders of capital stock of Woodward, the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Woodward, and this Agreement is a valid and binding obligation of Woodward and the Shareholder enforceable against Woodward and the Shareholder (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the Merger contemplated by this Agreement will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of Woodward or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Woodward or the Shareholder is a party or by which Woodward or the Shareholder or their respective properties are bound. 2.1.3. Capitalization. The authorized capitalization of Woodward consists of 25,000 shares of Woodward Common Stock, of which, as of the date hereof, 25,000 shares were issued and outstanding and held beneficially and of record by the Shareholder. On the date hereof, Woodward does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Woodward Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Woodward Common Stock is subject to any voting trusts, voting agreement or other 6 agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of Woodward Shares. The Shareholder holds good and valid title to all of the Woodward Shares, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof). There are no claims pending or, to the Shareholder's knowledge, threatened, against Woodward or the Shareholder that concern or affect title to the Woodward Shares, or that seek to compel the issuance of capital stock or other securities of Woodward. 2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which Woodward, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. Woodward has delivered to Key and WellTech copies of Woodward's unaudited balance sheet attached hereto as Schedule 2.1.6 (the "8/31 Balance Sheet") and related statements of income (collectively, the "8/31 Financial Statements"), as at and for the six months ended August 31, 1996 (the "Balance Sheet Date") and will deliver the Final Balance Sheet in accordance with Section 1.10.3 hereof. The 8/31 Financial Statements are (and the Final Balance Sheet will be) complete in all material respects. The 8/31 Financial Statements present (and the Final Balance Sheet will present) fairly the financial condition of Woodward as at the dates and for the periods indicated. The 8/31 Financial Statements have been (and the Final Balance Sheet will be) prepared in accordance with generally accepted accounting principles applied on a consistent basis. The accounts receivable reflected in the 8/31 Balance Sheet, or which have been thereafter acquired by Woodward, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. The inventories of Woodward reflected in the 8/31 Balance Sheet, or which have thereafter been acquired by it, consist of items of a quality usable and salable in the normal course of Woodward's business, and the values at which inventories are carried are at the lower of cost or market. 2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, Woodward does not have any liabilities or obligations, either accrued, absolute or contingent, nor does the Shareholder have any knowledge of any potential liabilities or obligations, which would materially adversely affect the value and conduct of the business of Woodward, other than those (i) reflected or reserved against in the 8/31 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date. 2.1.8. Additional Woodward Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists of the following items: 7 2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by Woodward, with a description of the nature and amount of any Encumbrances thereon. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by Woodward with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3. Inventory. All inventory items or groups of inventory items owned by Woodward, excluding raw materials and work in process, which raw materials and work in process are valued on the 8/31 Balance Sheet, together with the amount of any Encumbrances thereon; 2.1.8.4. Receivables. All accounts and notes receivable of Woodward, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which Woodward holds a security interest to secure payment of the underlying indebtedness, and (iv) a description of the nature and amount of any Encumbrances on such accounts and notes receivable; 2.1.8.5. Payables. All accounts and notes payable of Woodward, together with an appropriate aging schedule; 2.1.8.6. Insurance. All insurance policies or bonds currently maintained by Woodward, including title insurance policies, with respect to Woodward, including those covering Woodward's properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.7. Contracts. All contracts, including leases under which Woodward is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other fringe benefit plans, arrangements or trust agreements of Woodward, together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all 8 Internal Revenue Service determination letters that have been received with respect to such plans (collectively, "Employee Plans"); 2.1.8.9. Certain Salaries. The names and salary rates of all present employees of Woodward, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.10. Bank Accounts. The name of each bank in which Woodward has an account and the names of all persons authorized to draw thereon; 2.1.8.11. Employee Agreements. Any collective bargaining agreements of Woodward with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of Woodward; 2.1.8.12. Intellectual Property. All patents, trademarks, copyrights and other intellectual property rights owned, licensed, or used by Woodward; 2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used or held by Woodward, whether and where such names are registered and where used; 2.1.8.14. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of Woodward relating thereto or with respect to collateral securing the same; 2.1.8.15. Guaranties. All indebtedness, liabilities and commitments of others and as to which Woodward is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.16. Reserves and Accruals. All accounting reserves and accruals maintained in the 8/31 Balance Sheet; 2.1.8.17. Leases. All leases to which Woodward is a party; and 2.1.8.18. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by Woodward and all environmental audits, assessments, investigations and reviews conducted by Woodward within the last five years on any property owned or used by Woodward. 9 Schedule 2.1.8 hereto shall be true, complete and correct as of the date hereof except for items contained in Section 2.1.8.3, 2.1.8.4, 2.1.8.5 and 2.1.8.16, which are true, complete and correct as of the Balance Sheet Date. 2.1.9. No Defaults. Except as is specified in Schedule 2.1.8 hereto, Woodward is not a party to, or bound by, any contract or arrangement of any kind to be performed after the Effective Date, nor is Woodward in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10. Absence of Certain Changes and Events. Except as set forth in Schedule 2.1.10 hereto, other than as a result of the trans- actions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.10.1. Financial Change. Any material adverse change in the financial condition, backlog, operations, assets, liabilities or business of Woodward; 2.1.10.2. Property Damage. Any material damage, destruction, or loss to the business or properties of Woodward (whether or not covered by insurance); 2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Woodward Common Stock, or any direct or indirect redemption, purchase or any other acquisition by Woodward of any such stock; 2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of Woodward's authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor dispute; or 2.1.10.6. Other Material Changes. Any other event or condition known to the Shareholder particularly pertaining to and adversely affecting the operations, assets or business of Woodward which would constitute a material adverse change. 2.1.11. Taxes. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by Woodward for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by Woodward; and the tax provision reflected in the 8/31 Balance Sheet is (and the tax provision reflected in the Final Balance Sheet will be) adequate, in accordance with generally accepted accounting 10 principles, to cover liabilities of Woodward at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to Woodward or its assets or business. No waiver of any statute of limitations executed by Woodward with respect to any income or other tax is in effect for any period. The income tax returns of Woodward have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of Woodward except for taxes not yet currently due. 2.1.12. Intellectual Property. Woodward owns or possesses licenses to use all patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") that are either material to the business of Woodward or that are necessary for the rendering of any services rendered by Woodward and the use or sale of any equipment or products used or sold by Woodward, including all such Intellectual Property listed in Schedule 2.1.8 hereto. The Intellectual Property is owned or licensed by Woodward free and clear of any Encumbrance. Woodward has not granted to any other person any license to use any Intellectual Property. Woodward has not received any notice of infringement, misappropriation, or conflict with, the intellectual property rights of others in connection with the use by Woodward of the Intellectual Property or otherwise in connection with Woodward's operation of its business. 2.1.13. Title to and Condition of Assets. Woodward has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 8/31 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 8/31 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. All leases pursuant to which Woodward leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by Woodward and in respect to which Woodward has not taken adequate steps to prevent a default from occurring. The buildings and premises of Woodward that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of Woodward are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To the best of the Shareholder's knowledge, all such assets conform to all applicable laws 11 governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by Woodward or the Shareholder, except such as have been fully complied with. 2.1.14. Contracts. All contracts, leases, plans or other arrangements to which Woodward is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of Woodward. Woodward is not, and to the knowledge of the Shareholder, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on Woodward. The Shareholder has not received any information which would cause the Shareholder to conclude that any customer of Woodward will (or is likely to) cease doing business with Woodward as a result of the consummation of the transactions contemplated hereby. 2.1.15. Licenses and Permits. Woodward possesses all permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") necessary under law or otherwise for Woodward to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used. Each of such Permits and Woodward's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by Woodward subject to administrative powers of regulatory agencies having jurisdiction. Woodward is in compliance in all material respects with the terms of such Permits. None of such Permits have been, or to the knowledge of the Shareholder, are threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which Woodward is a party or, to the knowledge of the Shareholder, might become a party or which particularly affects Woodward, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of Woodward, pending or, to the knowledge of the Shareholder, threatened. 2.1.17. Environmental Compliance. 2.1.17.1. Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any hazardous substance, on any property presently or previously owned by Woodward, or on any property to which hazardous substances or waste generated by Woodward's operations or use of its assets were disposed of, which would result in a material adverse change in the business or business prospects of Woodward; 12 2.1.17.2. Permits, etc. Woodward has in full force and effect all environmental permits, licenses, approvals and other authorizations required to conduct its operations, other than those that are not material to the business or operations of Woodward, and is operating in compliance thereunder; 2.1.17.3. Compliance. Woodward's operations and use of its assets do not violate in any material respect any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to (a) the condition or protection of air, groundwater, surface water, soil, or other environmental media,(b) the environment, including natural resources or any activity which affects the environment, or (c) the regulation of any pollutants, contaminants, waste, substances (whether or not hazardous or toxic), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transporta- tion Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.), the Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (17 U.S.C. ss. 2601 et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss. 401 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and analogous federal, interstate, state and local requirements, as any of the foregoing may have been amended or supplemented from time to time (collectively the "Applicable Environmental Laws"); 2.1.17.4. Past Compliance. None of the operations or assets of Woodward has ever been conducted or used in such a manner as to constitute violation of any of the Applicable Environmental Laws, other than violations that in the aggregate are not material to the business or operations of Woodward; 2.1.17.5. Environmental Claims. No notice has been served on Woodward or the Shareholder from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action or litigation related to alleged violations under any Applicable Environmental Laws, or regarding any claims for remedial obligations, response costs or contribution under any Applicable Environmental Laws; 2.1.17.6. Renewals. The Shareholder knows of no reason WellTech would not be able to renew any of the permits, licenses, or other authorizations required pursuant to any of the Applicable Environmental Laws to operate and use any of Woodward's assets for their current purposes and uses; and 2.1.17.7. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by Woodward, nor do 13 polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by Woodward in its operations or on its properties. 2.1.18. Compliance with Other Laws. Woodward is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ss.ss.651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.19. No ERISA Plans or Labor Issues. Woodward does not currently sponsor, maintain or contribute to and has not at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Woodward has not engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on its operations or assets. Woodward does not have any dispute with any of its existing or former employees. There are no labor disputes or, to the knowledge of the Shareholder, any disputes threatened by current or former employees of Woodward. 2.1.20. Terminated Employees. Woodward has terminated those employees listed on Schedule 2.1.20 hereof effective prior to the date hereof (the "Terminated Employees") and has paid the Terminated Employees all wages and other compensation owed them through the date of termination. 2.1.21. Investigations; Litigation. No investigation or review by any governmental entity with respect to Woodward or any of the transactions contemplated by this Agreement is pending or, to the best of the Shareholder's knowledge, threatened, nor has any governmental entity indicated to Woodward an intention to conduct the same, and there is no action, suit or proceeding pending or, to the best of the Shareholder's knowledge, threatened against or affecting Woodward at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of Woodward. 2.1.22. Absence of Certain Business Practices. Neither Woodward nor any officer, employee or agent of Woodward, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of Woodward (or to assist Woodward in connection with any actual or proposed transaction) which (i) might subject Woodward to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, 14 might have had a material adverse effect on the assets, business or operations of Woodward as reflected in the 8/31 Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of Woodward or which might subject Woodward to suit or penalty in a private or governmental litigation or proceeding. 2.1.23. Untrue Statements. Woodward and the Shareholder have made available to Key and WellTech true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to Woodward's assets and business, and such information covers all commitments and liabilities of Woodward relating principally to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.24. Investment Representations. The Shareholder acknowledges, represents and agrees that: (a) the Key Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or registered or qualified under any applicable state securities laws; (b) the Key Shares are being issued to the Shareholder in reliance upon exemptions from such registration or qualification requirements, and the availability of such exemptions depends in part upon the Shareholder's bona fide investment intent with respect to the Key Shares; (c) the Shareholder's acquisition of the Key Shares is solely for his own account for investment, and the Shareholder is not acquiring the Key Shares for the account of any other person or with a view toward resale, assignment, fractionalization, or distribution thereof; (d) the Shareholder shall not offer for sale, sell, transfer, pledge, hypothecate or otherwise dispose of any of the Key Shares except in accordance with the registration requirements of the Securities Act and applicable state securities laws or upon delivery to Key of an opinion of legal counsel reasonably satisfactory to Key that an exemption from registration is available; (e) the Shareholder has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Key Shares, and to make an informed investment decision; 15 (f) the Shareholder has received a copy of (i) Key's Private Offering Memorandum dated June 28, 1996 relating to Key's recent private placement of convertible debentures and (ii) Key's annual report on Form 10-K for the year ended June 30, 1996 as filed with the Securities and Exchange Commission. The Shareholder has had the opportunity to ask questions of, and receive answers from Key's officers and directors concerning the Shareholder's acquisition of the Key Shares and to obtain such other information concerning Key and the Key Shares, to the extent Key's officers and directors possessed the same or could acquire it without unreasonable effort or expense, as the Shareholder deemed necessary in connection with making an informed investment decision; (g) since the Key Shares have not been registered under the Securities Act or applicable state securities laws, the Shareholder must bear the economic risk of holding the Key Shares for an indefinite period of time, and is capable of bearing such risk; and (h) in addition to any other legends required by law or the other agreements entered into in connection herewith, each certificate evidencing the Key Shares will bear a conspicuous restrictive legend substantially as follows: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. 2.1.25. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than Woodward and the Shareholder, is required to be made or obtained by Woodward or the Shareholder in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.26. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Woodward and the Shareholder and their counsel directly with Key and WellTech and their counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payments. 16 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KEY AND WELLTECH 3.1. Representations and Warranties of Key. Key represents and warrants to the Shareholder as follows: 3.1.1. Organization and Standing. Key is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, 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. 3.1.2. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Key, and this Agreement is a valid and binding obligation of Key enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the Merger contemplated by this Agreement will not result in the breach of any term or provision of or constitute a default under any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Key or any of its subsidiaries is a party. 3.1.3. Capitalization. The capitalization of Key consists of 25,000,000 shares of Key Common Stock, of which, as of June 27, 1996, 10,413,513 shares were issued and outstanding; provided, however, that the board of directors of Key has the authority, without further shareholder action, to redesignate, all of the authorized and unissued shares of Key Common Stock into one or more series of preferred stock, of which, as of the date hereof, no shares have been so designated or issued. 3.1.4. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Key and its counsel directly with Woodward and the Shareholder and their counsel, without the intervention by any other person as the result of any act of Key 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. 3.2. Representations and Warranties of WellTech. WellTech represents and warrants to the Shareholder as follows: 17 3.2.1. Organization and Standing. WellTech is a corporation duly organized, validly existing, and in good standing under the laws 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. 3.2.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement has been authorized by the board of directors and all of the holders of capital stock of WellTech, the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of WellTech, and this Agreement is a valid and binding obligation of WellTech enforceable against WellTech (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 and the consummation of the Merger contemplated by this Agreement will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of WellTech or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which WellTech is a party or by which WellTech or its respective properties are bound. 3.2.3. Capitalization. The authorized capital stock of Well- Tech consists of 3,000 shares of WellTech Common Stock, of which at the date hereof, 1,000 shares were issued and outstanding and held beneficially and of record by Key. 3.2.4. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by WellTech and its counsel and Woodward and the Shareholder and their counsel, without the intervention of any other person as the result of any act of WellTech 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 4 ADDITIONAL AGREEMENTS 4.1. Noncompetition. Except as otherwise consented to or approved in writing by WellTech and Key, the Shareholder agrees that for a period of 60 months following the Effective Date, he will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in any business providing well services, anchoring services or swabbing services in those territories specified on Schedule 4.1 hereto; 18 (ii) request any present customers or suppliers of Woodward to curtail or cancel their business with WellTech or Key; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Woodward, WellTech or Key or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of WellTech or Key to terminate his employment. The Shareholder agrees that if either the length of time or geographical area set forth in this Section 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 4.1 are in addition to any other obligations that the Shareholder may have under the laws of the State of Oklahoma requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. The Shareholder further agrees and acknowledges that WellTech and Key do not have any adequate remedy at law for the breach or threatened breach by the Shareholder of this covenant, and agree that WellTech or Key may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin the Shareholder from such breach or threatened breach. If any provisions of this Section 4.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Shareholder acknowledges that the covenants set forth in this Section 4.1 are being executed and delivered by the Shareholder in consideration of the covenants of WellTech and Key contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 4.2. Registration Rights. Key has delivered to the Shareholder a copy of the Registration Right Agreement among Key, McMahan Securities Co. L.P. and Rauscher Pierce Refsnes, Inc. dated July 3, 1996 (the "Registration Rights Agreement") pursuant to which Key has agreed to register the resale of certain shares of Key Common Stock issuable upon conversion of certain outstanding convertible debentures of Key pursuant to the terms of the Registration Rights Agreement. Key hereby agrees to include in the registration statement filed pursuant to the Registration Rights Agreement (the "Shelf Registration Statement") the resale of the Key Shares; provided, that (i) the Shareholder shall have all duties and obligations of a "Holder" under the Registration Rights Agreement and (ii), notwithstanding the inclusion of the resale of the Key Shares in the Registration Statement, the Shareholder shall have no right to participate in an underwritten offering of Key Common Stock by those persons holding rights under the Registration Rights Agreement, if any, except to the extent that the underwriters of such an offering agree and pursuant to any underwriting arrangements in connection therewith. 4.3. Short Period Tax Reporting. WellTech shall cause to be filed for Woodward federal and state income tax returns the periods beginning on March 1, 1996 and ending on the date hereof. Such returns shall be prepared by Jerry Freck, certified public accountant, and reviewed and filed by WellTech or Key. The expenses incurred in connection with the preparation and filing of these returns shall be borne by WellTech. The Shareholder shall assist WellTech in the preparation and filing of such returns as reasonably requested. 19 4.4. Stock Certificate Issuance. On the Effective Date Key shall file an additional listing application with the American Stock Exchange requesting the listing of the Key Shares. On the date Key receives notice of approval of such request, Key shall send written instructions to its transfer agent and registrar to issue, countersign and register a certificate representing the Key Shares in the name of the Shareholder and deliver such certificate to the Shareholder at the address specified in Section 6.4 hereof. 4.5. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 5 INDEMNIFICATION 5.1. Indemnification by the Shareholder. In addition to any other remedies available to Key and WellTech under this Agreement (including, without limitation, those remedies specified in Section 5.5 hereof), or at law or in equity, the Shareholder shall indemnify, defend and hold harmless each of Key and WellTech, and their respective officers, directors, employees, agents and stockholders, against and with respect to any and all claims, costs, damages, losses, expenses, obliga tions, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys' fees and expenses (collectively, the "Damages") that such indemnitees shall incur or suffer, which arise, result from or relate to (i) any breach of, or failure by the Shareholder to perform, his respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to WellTech or Key by the Shareholder under this Agreement or (ii) Woodward's relationship with any Terminated Employee. 5.2. Indemnification by Key and WellTech. In addition to any other remedies available to the Shareholder under this Agreement, or at law or in equity, WellTech and Key shall jointly and severally indemnify, defend and hold harmless the Shareholder and his employees and agents against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by WellTech or Key to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Woodward or the Shareholder by or on behalf of Key or WellTech under this Agreement. 5.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 5.1 or Section 5.2 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; 20 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 5, 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. 5.4. Offset. The parties hereto agree that if WellTech or Key shall incur any Damages for which it is entitled to indemnification by the Shareholder pursuant to the terms of this Agreement, Key shall have the right to offset any payments due or to be due under the terms of this Agreement or any other agreement executed in connection herewith, by the amount of the Damages. Such right of offset shall not be considered an exclusive remedy, it being agreed that Key shall also be entitled to exercise any other remedies available to it at law or in equity, including, without limitation, the indemnification rights set forth in this Article 5. In the event of an offset by Key as a result of any account receivable of Woodward not being collected in breach of the representation of the Shareholder in Section 2.1.6 hereof, upon any such offset, Key shall assign to the Shareholder the account receivable subject to offset, and the Shareholder shall thereafter have the right to take any reasonable action to collect such account receivable. In the event of an offset by Key as a result of 21 any inventory of Woodward being unsalable in the normal course of business in breach of the representations of Woodward and the Shareholder in Section 2.1.6 hereof, upon any such offset, Key shall convey and transfer to the Shareholder title to such inventory subject to offset. 5.5. Self Insurance Agreement. Notwithstanding any provision of this Article 5 or elsewhere herein to the contrary, and notwithstanding the accuracy of the Shareholder's representation contained in Section 2.1.7, the Shareholder shall indemnify, defend and hold harmless each of Key and WellTech, and their respective officers, directors, employees, agents and stockholders against and with respect to any and all Damages arising during the one-year period beginning on the date hereof that such indemnitees shall incur or suffer, which arise or result from or relate to WellTech's assumption of Woodward's obligations under the self-insurance pooling agreement referred to in Schedule 2.1.7 hereto, but only to the extent that such Damages (the "Self Insurance Damages") exceed $25,000 in the aggregate during such one-year period. The Shareholder shall not be liable for any Self Insurance Damages arising on or after September 30, 1997. ARTICLE 6 MISCELLANEOUS 6.1. Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 14 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 14 months from the date hereof despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive indefinitely without limitation, except as otherwise provided herein. 6.2. 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. 6.3. 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. 6.4. 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. 22 If to Key or WellTech Addressed to: With a copy to: Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: Francis D. John Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to the Shareholder Addressed to: With a copy to: James McMurphy Henry A. Meyer 2824 34th Street One Leadership Square Woodward, Oklahoma 73801 211 North Robinson, Suite 1601 Facsimile: (405) 256-6220 Oklahoma City, Oklahoma 73102 Facsimile: (405) 236-0011 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 6.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 6.6. 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. 6.7. 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. 6.8. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Oklahoma. 23 IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. KEY ENERGY GROUP, INC. By: \s\ Kenneth V. Huseman Name: Kenneth V. Huseman Title: Vice President WELLTECH EASTERN, INC. By: \s\ Kenneth V. Huseman Name: Kenneth V. Huseman Title: Vice President WOODWARD WELL SERVICE, INC. By: \s\ James McMurphy Name: James McMurphy Title: President SHAREHOLDER \s\ James McMurphy James McMurphy 24 SCHEDULE 1.10.3 WORKING CAPITAL DEFICIT DEFINITIONS "Working Capital Deficit" means the dollar amount by which Eligible Liabilities exceed Eligible Assets. "Eligible Liabilities" means the dollar amount by which Total Liabilities exceeds Attorney Fees Payable "Eligible Assets" means the dollar amount of the sum of (a) Inventory, (b) Prepaid Taxes, (c) Eligible Accounts Receivable, (d) Workers' Compensation Receivable and (e) Insurance Claim Receivable "Total Liabilities" means the dollar amount specified for the "Total Current Liabilities" line item on the Final Balance Sheet. "Attorney Fees Payable" means the dollar amount specified for the "Attorney Fees Payable" line item on the Final Balance Sheet. "Inventory" means the dollar amount specified for the "Inventory" line item on the Final Balance Sheet. "Prepaid Taxes" means the dollar amount specified for the "Prepaid Taxes" line item on the Final Balance Sheet. "Eligible Accounts Receivable" means the dollar amount specified for the "Accounts Receivable - Reg" line item on the Final Balance Sheet "Workers' Compensation Receivable" means the dollar amount specified for the "Workers' Compensation Receivable" line item on the Final Balance Sheet. "Insurance Claim Receivable" means the dollar amount specified for the "Insurance Claim Receivable" line item on the Final Balance Sheet. EX-10.(B) 3 BROWNLEE STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT AMONG KEY ENERGY GROUP, INC., REO BROWNLEE, ELVIN BROWNLEE, JR. AND ELVIN BROWNLEE, III. Dated as of October 24, 1996 A:\91637V4.W61 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of October 24, 1996 by and among Key Energy Group, Inc., a Maryland corporation ("Key"), Reo Brownlee ("Reo"), Elvin Brownlee, Jr. ("Elvin Jr.") and Elvin Brownlee, III ("Elvin III"). Reo, Elvin Jr. and Elvin III are sometimes referred to herein individually as a "Shareholder" and collectively as the "Shareholders." WITNESSETH : WHEREAS, the Shareholders own 100,000 shares (the "Brownlee Shares") of common stock, par value $1.00 per share ("Brownlee Common Stock"), of Brownlee Well Service, Inc., a Texas corporation ("Brownlee"), which constitutes all of the issued and outstanding shares of capital stock of Brownlee; and WHEREAS, the Shareholders own 1,000 shares (the "Integrity Shares") of common stock, no par value ("Integrity Common Stock"), of Integrity Fishing and Rental Tools, Inc., a Texas corporation ("Integrity"), which constitutes all of the issued and outstanding shares of capital stock of Integrity; and WHEREAS, the Shareholders desire to sell to Key and Key desires to purchase from the Shareholders all of the issued and outstanding capital stock of Brownlee and Integrity. NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1. Purchase and Sale of Brownlee Shares and Integrity Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholders agree to sell and convey to Key, free and clear of all Encumbrances (as defined in Section 2.1.9.1 hereof), and Key agrees to purchase and accept from the Shareholders, all of the Brownlee Shares and all of the Integrity Shares. In consideration of the sale of the Brownlee Shares, Key shall pay to the Shareholders an aggregate of $6,908,106, and in consideration of the sale of the Integrity Shares, Key shall pay to the Shareholders an aggregate of $91,894, for a total purchase price of $7,000,000, payable as follows: (i) $6,500,000 to be paid to the Shareholders by means of a wire transfer of immediately available funds to the account(s) designated in writing by the Shareholders and (ii) 61,069 shares (the "Key Shares") of common stock, par value $.10 per share, of Key ("Key Common Stock") to be issued to the Shareholders in accordance with Section 4.2 hereof. A:\91637V4.W61 i 1.2. Delivery of Brownlee and Integrity Certificates. The Shareholders have delivered to Key (and Key acknowledges receipt of) duly and validly issued certificate(s) representing all of the Brownlee Shares and all of the Integrity Shares, each such certificate having been duly endorsed in blank and in good form for transfer or accompanied by stock powers duly executed in blank, sufficient and in good form to properly transfer such shares to Key. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 2.1. Representations and Warranties of the Shareholder. Each of the Shareholders jointly and severally represents and warrants to Key as follows: 2.1.1. Organization and Standing. Each of Brownlee and Integrity is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. Each of the Shareholders is a resident of Texas, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his obligations under this Agreement. This Agreement is a valid and binding obligation of each of the Shareholders enforceable against each of the Shareholders (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Shareholders will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Articles of Incorporation or Bylaws of either Brownlee or Integrity or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Brownlee, Integrity or any of the Shareholders is a party or by which Brownlee, Integrity or any of the Shareholders or their respective properties are bound. 2.1.3. Capitalization of Brownlee. The authorized capitalization of Brownlee consists of 100,000 shares of Brownlee Common Stock, of which, as of the date hereof, 100,000 shares were issued and outstanding and held beneficially and of record by the Shareholders (the "Brownlee Shares"). On the date hereof, Brownlee does not have any A:\91637V4.W61 2 outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Brownlee Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Brownlee Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Capitalization of Integrity. The authorized capitalization of Integrity consists of 1,000 shares of Integrity Common Stock, of which, as of the date hereof, 1,000 shares were issued and outstanding and held beneficially and of record by the Shareholders (the "Integrity Shares"). On the date hereof, Integrity does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Integrity Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Integrity Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.5. Ownership of Brownlee Shares and Integrity Shares. The Shareholders hold good and valid title to all of the Brownlee Shares and all of the Integrity Shares, free and clear of all Encumbrances. The Shareholders possess full authority and legal right to sell, transfer and assign to Key the Brownlee Shares and the Integrity Shares, free and clear of all Encumbrances. Upon transfer to Key by the Shareholders of the Brownlee Shares and the Integrity Shares, Key will own the Brownlee Shares and the Integrity Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of any of the Shareholders, threatened, against Brownlee, Integrity or any of the Shareholders that concern or affect title to either the Brownlee Shares or the Integrity Shares, or that seek to compel the issuance of capital stock or other securities of either Brownlee or Integrity. 2.1.6. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which either Brownlee or Integrity, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.7. Financial Statements. The Shareholders have delivered to Key copies of the unaudited balance sheets attached hereto as Schedule 2.1.7 (the "9/30 Balance Sheets") and related statements of income of each of Brownlee and Integrity (collectively, the "9/30 Financial Statements"), as at and for the three months ended September 30, 1996 (the "Balance Sheet Date") for Brownlee and the nine months ended September 30, 1996 for Integrity. The 9/30 Financial Statements are complete in all material respects. The 9/30 Financial Statements present fairly the financial condition of each of Brownlee and Integrity as at the dates and for the periods indicated. The 9/30 Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent A:\91637V4.W61 3 basis. The accounts receivable reflected in the 9/30 Balance Sheets, or which have been thereafter acquired by either Brownlee or Integrity, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. The inventories of each of Brownlee and Integrity reflected in the 9/30 Balance Sheets, or which have thereafter been acquired by either Brownlee or Integrity, consist of items of a quality usable and salable in the normal course of their business, and the values at which inventories are carried are at the lower of cost or market. 2.1.8. Liabilities. Except as disclosed on Schedule 2.1.8 hereto, neither Brownlee nor Integrity have any liabilities or obligations, either accrued, absolute or contingent, nor does any of the Shareholders have any knowledge of any potential liabilities or obligations, which would materially adversely affect the value and conduct of the business of either Brownlee or Integrity, other than those (i) reflected or reserved against in the 9/30 Balance Sheets or (ii) incurred in the ordinary course of business since the Balance Sheet Date. 2.1.9. Additional Information. Attached as Schedule 2.1.9 hereto are true, complete and correct lists of the following items: 2.1.9.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by each of Brownlee and Integrity, with a description of the nature and amount of any Encumbrances thereon. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.9.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by each of Brownlee and Integrity with a description of the nature and amount of any Encumbrances thereon; 2.1.9.3. Inventory. All inventory items or groups of inventory items owned by each of Brownlee and Integrity, excluding raw materials and work in process, which raw materials and work in process are valued on the 9/30 Balance Sheets, together with the amount of any Encumbrances thereon; 2.1.9.4. Intellectual Property. All patents, trademarks, copyrights and other intellectual property rights owned, licensed, or used by each of Brownlee and Integrity; A:\91637V4.W61 4 2.1.9.5. Trade Names. All trade names, assumed names and fictitious names used or held by each of Brownlee and Integrity, whether and where such names are registered and where used; 2.1.9.6. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of each of Brownlee and Integrity relating thereto or with respect to collateral securing the same; 2.1.9.7. Guaranties. All indebtedness, liabilities and commitments of others and as to which either Brownlee or Integrity are guarantors, endorsers, co-makers, sureties, or accommodation makers, or contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.9.8. Leases. All leases to which either Brownlee or Integrity are parties; and 2.1.9.9. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by each of Brownlee and Integrity and all environmental audits, assessments, investigations and reviews conducted by each of Brownlee and Integrity within the last five years on any property owned or used by it. 2.1.10. No Defaults. Except as is specified in Schedule 2.1.10 hereto, neither Brownlee nor Integrity are in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other agreement or arrangement. 2.1.11. Absence of Certain Changes and Events. Except as set forth in Schedule 2.1.11 hereto, other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.11.1. Financial Change. Any material adverse change in the financial condition, backlog, operations, assets, liabilities or business of either Brownlee or Integrity; 2.1.11.2. Property Damage. Any material damage, destruction, or loss to the business or properties of either Brownlee or Integrity (whether or not covered by insurance); 2.1.11.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of either the Brownlee Common Stock or the Integrity Common Stock, or any direct or indirect redemption, purchase or any other acquisition by either Brownlee or Integrity of any such stock; A:\91637V4.W61 5 2.1.11.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of the authorized or outstanding capital stock of either Brownlee or Integrity as described in Sections 2.1.3 and 2.1.4 hereof; 2.1.11.5. Labor Disputes. Any labor disputes involving either Brownlee or Integrity; or 2.1.11.6. Other Material Changes. Any other event or condition known to any of the Shareholders particularly pertaining to and adversely affecting the operations, assets or business of either Brownlee or Integrity which would constitute a material adverse change. 2.1.12. Taxes. 2.1.12.1. General Representations. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by Brownlee, Integrity, and each of the Shareholders (with respect to their distributive share of Integrity income) for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by Brownlee, Integrity or any of the Shareholders (to the extent of their distributive share of Integrity income); and the tax provisions reflected in the 9/30 Balance Sheets are adequate, in accordance with generally accepted accounting principles, to cover liabilities of each of Brownlee and Integrity at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to either Brownlee or Integrity or their assets or business. No waiver of any statute of limitations executed by Brownlee, Integrity or any of the Shareholders (to the extent of their distributive share of Integrity income) with respect to any income or other tax is in effect for any period. The income tax returns of Brownlee, Integrity or any of the Shareholders (with respect to their distributive share of Integrity income) have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of either Brownlee, Integrity or any of the Shareholders (to the extent of their distributive share of Integrity income) except for taxes not yet currently due. 2.1.12.2. S-Corp Representations. Integrity (i) made an effective, valid and binding S election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), effective January 25, 1995, (ii) has since then maintained its status as an S corporation pursuant to Section 1361 of the Code without lapse or interruption, and (iii) has made and continuously maintained elections similar to the A:\91637V4.W61 6 federal S election in each state or local jurisdiction where Integrity does business or is required to file a tax return to the extent such states or jurisdictions permit such elections. Integrity neither is nor will or can be subject to the built-in gains tax under Section 1374 of the Code or any similar corporate level tax imposed on Integrity by any taxing authority. Integrity (i) has not adopted or utilized LIFO as a method of accounting for inventory, and (ii) has no other tax item, election, agreement or adjustment which will accelerate or trigger income or defer deductions of Integrity as a result of termination of Integrity's status as an S corporation. 2.1.13. Intellectual Property. To the knowledge of the Shareholders, each of Brownlee and Integrity own or possess licenses to use all patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") that are either material to its business or that are necessary for the rendering of any services rendered by it and the use or sale of any equipment or products used or sold by it, including all such Intellectual Property listed in Schedule 2.1.9 hereto. The Intellectual Property so owned or possessed by each of Brownlee and Integrity is owned or licensed free and clear of any Encumbrance. Neither Brownlee nor Integrity have granted to any other person any license to use any Intellectual Property. Neither Brownlee nor Integrity have received any notice of infringement, misappropriation, or conflict with, the intellectual property rights of others in connection with the use by it of the Intellectual Property or otherwise in connection with the operation of its business. 2.1.14. Title to and Condition of Assets. Each of Brownlee and Integrity have good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 9/30 Balance Sheets (except for those assets transferred after the Balance Sheet Date as described in Schedule 2.1.11 hereto) or in Schedule 2.1.9 hereto, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 9/30 Balance Sheets or in Schedule 2.1.9 hereto, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. All leases pursuant to which either Brownlee or Integrity leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by either Brownlee or Integrity and in respect to which either Brownlee or Integrity have not taken adequate steps to prevent a default from occurring. The buildings and premises of each of Brownlee and Integrity that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of each of Brownlee and Integrity are in good operating condition and in a state of reasonable A:\91637V4.W61 7 maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To the knowledge of the Shareholders, all such assets conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by Brownlee, Integrity or any of the Shareholders, except such as have been fully complied with. 2.1.15. Contracts. To the knowledge of the Shareholders, all contracts, leases, plans or other arrangements to which either Brownlee or Integrity is a party, by which either is bound or to which either Brownlee or Integrity or the assets of either Brownlee or Integrity are subject are in full force and effect, and constitute valid and binding obligations of Brownlee or Integrity. Neither Brownlee, Integrity nor, to the knowledge of the Shareholders, any other party to any such contract, lease, plan or other arrangement, is in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on either Brownlee or Integrity. None of the Shareholders has received any information which would cause the Shareholder to conclude that any customer of either Brownlee or Integrity will (or is likely to) cease doing business with Brownlee or Integrity (or any successors thereto) as a result of the consummation of the transactions contemplated hereby. 2.1.16. Licenses and Permits. To the knowledge of the Shareholders, each of Brownlee and Integrity possess all permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") necessary under law or otherwise for it to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used. To the knowledge of the Shareholders, each of such Permits and the rights of each of Brownlee and Integrity with respect thereto is valid and subsisting, in full force and effect, and enforceable by either Brownlee or Integrity subject to administrative powers of regulatory agencies having jurisdiction. Each of Brownlee and Integrity are in compliance in all material respects with the terms of such Permits. None of such Permits have been, or to the knowledge of the Shareholders, are threatened to be, revoked, canceled, suspended or modified. 2.1.17. Litigation. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which either Brownlee or Integrity are a party or, to the knowledge of the Shareholders, might become a party or which particularly affect either Brownlee or Integrity, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of either Brownlee or Integrity, pending or, to the knowledge of the Shareholders, threatened. A:\91637V4.W61 8 2.1.18. Environmental Compliance. 2.1.18.1. Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any hazardous substance, on any property presently or previously owned by either Brownlee or Integrity, or on any property to which hazardous substances or waste generated by the operations of either Brownlee or Integrity or use of the assets of either Brownlee or Integrity were disposed of, which would result in a material adverse change in the business or business prospects of either Brownlee or Integrity; 2.1.18.2. Permits, etc. Each of Brownlee and Integrity has in full force and effect all environmental permits, licenses, approvals and other authorizations required to conduct its operations, other than those that are not material to its business or operations, and is operating in compliance thereunder; 2.1.18.3. Compliance. Neither the operations of each of Brownlee and Integrity nor the use of the assets of each of Brownlee and Integrity violate in any material respect any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to (a) the condition or protection of air, groundwater, surface water, soil, or other environmental media, (b) the environment, including natural resources or any activity which affects the environment, or (c) the regulation of any pollutants, contaminants, waste, substances (whether or not hazardous or toxic), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.), the Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (17 U.S.C. ss. 2601 et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss. 401 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and analogous federal, interstate, state and local requirements, as any of the foregoing may have been amended or supplemented from time to time (collectively the "Applicable Environmental Laws"); 2.1.18.4. Past Compliance. None of the operations or assets of either Brownlee or Integrity has ever been conducted or used in such a manner as to constitute a violation of any of the Applicable Environmental Laws, other than violations that in the aggregate are not material to the business or operations of either Brownlee or Integrity; 2.1.18.5. Environmental Claims. No notice has been served on Brownlee, Integrity or any of the Shareholders from any entity, governmental agency or A:\91637V4.W61 9 individual regarding any existing, pending or threatened investigation, inquiry, enforcement action or litigation related to alleged violations under any Applicable Environmental Laws, or regarding any claims for remedial obligations, response costs or contribution under any Applicable Environmental Laws; 2.1.18.6. Renewals. None of the Shareholders knows of any reason Brownlee, Integrity or their successors would not be able to renew any of the permits, licenses, or other authorizations required pursuant to any of the Applicable Environmental Laws to operate and use any of assets of either Brownlee or Integrity for their current purposes and uses; and 2.1.18.7. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by either Brownlee or Integrity, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by either Brownlee or Integrity in the operations or on the properties of either Brownlee or Integrity. 2.1.19. Compliance with Other Laws. To the knowledge of the Shareholders, neither Brownlee nor Integrity are in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ss.ss.651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.20. No ERISA Plans or Labor Issues. Neither Brownlee nor Integrity currently sponsor, maintain or contribute to and neither Brownlee nor Integrity has at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Neither Brownlee nor Integrity has engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on the operations or assets of either Brownlee or Integrity. Neither Brownlee nor Integrity has any dispute with any of the existing or former employees of either Brownlee or Integrity. There are no labor disputes or, to the knowledge of any of the Shareholders, any disputes threatened by current or former employees of either Brownlee or Integrity. 2.1.21. Investigations; Litigation. No investigation or review by any governmental entity with respect to either Brownlee or Integrity or any of the transactions contemplated by this Agreement is pending or, to the knowledge of any of the Shareholders, threatened, nor has any governmental entity indicated to either Brownlee or Integrity an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of any of the Shareholders, threatened against or affecting either Brownlee or Integrity at law or in equity, or before any federal, state, municipal or other governmental department, commission, A:\91637V4.W61 10 board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in an adverse change in the financial condition, properties or business of either Brownlee or Integrity. 2.1.22. Absence of Certain Business Practices. Neither Brownlee, Integrity nor any officer of either Brownlee or Integrity, nor, to the knowledge of any of the Shareholders, any employee or agent of either Brownlee or Integrity or any other person acting on behalf of either Brownlee or Integrity, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of either Brownlee or Integrity (or to assist either Brownlee or Integrity in connection with any actual or proposed transaction) which (i) might subject either Brownlee or Integrity to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had an adverse effect on the assets, business or operations of either Brownlee or Integrity as reflected in the 9/30 Financial Statements, or (iii) if not continued in the future, might adversely affect the assets, business operations or prospects of either Brownlee or Integrity or which might subject either Brownlee or Integrity to suit or penalty in a private or governmental litigation or proceeding. 2.1.23. Untrue Statements. Brownlee, Integrity and the Shareholders have made available to Key true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the assets and business of each of Brownlee and Integrity, and such information covers all commitments and liabilities of each of Brownlee and Integrity relating principally to its business or its assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.24. Investment Representations. Each of the Shareholders acknowledges, represents and agrees that: (a) the Key Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or registered or qualified under any applicable state securities laws; (b) the Key Shares are being issued to such Shareholder in reliance upon exemptions from such registration or qualification requirements, and the availability of such exemptions depends in part upon such Shareholder's bona fide investment intent with respect to the Key Shares; (c) such Shareholder's acquisition of the Key Shares is solely for his own account for investment, and such Shareholder is not acquiring the Key Shares for the account of any A:\91637V4.W61 11 other person or with a view toward resale, assignment, fractionalization, or distribution thereof; (d) such Shareholder shall not offer for sale, sell, transfer, pledge, hypothecate or otherwise dispose of any of the Key Shares except in accordance with the registration requirements of the Securities Act and applicable state securities laws or upon delivery to Key of an opinion of legal counsel reasonably satisfactory to Key that an exemption from registration is available; (e) such Shareholder has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Key Shares, and to make an informed investment decision; (f) such Shareholder has received a copy of Key's annual report on Form 10-K for the year ended June 30, 1996 as filed with the Securities and Exchange Commission (the "SEC"). Such Shareholder has had the opportunity to ask questions of, and receive answers from Key's officers and directors concerning such Shareholder's acquisition of the Key Shares and to obtain such other information concerning Key and the Key Shares, to the extent Key's officers and directors possessed the same or could acquire it without unreasonable effort or expense, as such Shareholder deemed necessary in connection with making an informed investment decision; (g) since the Key Shares have not been registered under the Securities Act or applicable state securities laws, such Shareholder must bear the economic risk of holding the Key Shares for an indefinite period of time, and is capable of bearing such risk; and (h) in addition to any other legends required by law or the other agreements entered into in connection herewith, each certificate evidencing the Key Shares will bear a conspicuous restrictive legend substantially as follows: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. 2.1.25. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity A:\91637V4.W61 12 other than the Shareholders, is required to be made or obtained by Brownlee, Integrity or the Shareholders in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.26. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Shareholders and their counsel directly with Key and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payments. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KEY Key represents and warrants to each of the Shareholders as follows: 3.1. Organization and Standing. Key is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, 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. 3.2. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Key, and this Agreement is a valid and binding obligation of Key enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement will not result in the breach of any term or provision of or constitute a default under any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Key or any of its subsidiaries is a party. 3.3. Capitalization. The capitalization of Key consists of 25,000,000 shares of Key Common Stock, of which, as of September 30, 1996, 10,488,513 shares were issued and outstanding; provided, however, that the board of directors of Key has the authority, without further shareholder action, to redesignate, all of the authorized and unissued shares of Key Common Stock into one or more series of preferred stock, of which, as of the date hereof, no shares have been so designated or issued. 3.4. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Key and its counsel directly with the Shareholders and A:\91637V4.W61 13 their counsel, without the intervention by any other person as the result of any act of Key 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 4 ADDITIONAL AGREEMENTS 4.1. Noncompetition. Except as otherwise consented to or approved in writing by Key, each of the Shareholders agrees that for a period of 60 months following the Effective Date, he will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in any business providing oil field pulling services, trucking services or fishing and rental tool services in those territories specified on Schedule 4.1 hereto; (ii) request any present customers or suppliers of either Brownlee or Integrity to curtail or cancel their business with either Brownlee or Integrity; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Brownlee, Integrity, or Key (or Key's affiliates) or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of Brownlee, Integrity or Key (or Key's affiliates) to terminate his employment. Each of the Shareholders agrees that if either the length of time or geographical area set forth in this Section 4.1 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 4.1 are in addition to any other obligations that the Shareholders may have under the laws of the State of Texas requiring an employee of a business or a shareholder who sells his stock in a corporation to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. Each of the Shareholders further agrees and acknowledges that Key does not have any adequate remedy at law for the breach or threatened breach by the Shareholders of this covenant, and agrees that Key may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin the Shareholders from such breach or threatened breach. If any provisions of this Section 4.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Shareholders acknowledges that the covenants set forth in this Section 4.1 are being executed and delivered by the Shareholders in consideration of the covenants of Key contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 4.2. Stock Certificate Issuance. On the date hereof Key shall file an additional listing application with the American Stock Exchange requesting the listing of the Key Shares. On the date Key receives notice of approval of such request, Key shall send written instructions to its transfer agent and registrar to issue, countersign and register one or more certificates representing the Key Shares in the names of the Shareholders in accordance with written instructions signed by each of the A:\91637V4.W61 14 Shareholders and deliver such certificate(s) to the Shareholders at the address specified in Section 6.4 hereof. 4.3. Payment of Certain Debts. On or before November 8, 1996, Key shall pay in full those liabilities listed on Schedule 4.3 hereto, whether by payment of cash or by issuance of promissory notes by Key. In the event that such debts are satisfied by the issuance of promissory notes by Key, the issuance of such notes shall cause the personal guaranties related to such debts by the Shareholders to be released. 4.4. Registration Rights. Key has delivered to the Shareholders a copy of the Registration Right Agreement among Key, McMahan Securities Co. L.P. and Rauscher Pierce Refsnes, Inc. dated July 3, 1996 (the "Registration Rights Agreement") pursuant to which Key has agreed to (i) file a registration statement (the "Shelf Registration Statement") with the SEC on or before April 3, 1997 registering the resale of certain shares of Key Common Stock issuable upon conversion of certain outstanding convertible debentures of Key and (ii) use its best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or before July 3, 1997. Key hereby agrees to include the resale of the Key Shares in the Shelf Registration Statement; provided, that (i) each of the Shareholders shall have all duties and obligations of a "Holder" under the Registration Rights Agreement and (ii), notwithstanding the inclusion of the resale of the Key Shares in the Shelf Registration Statement, the Shareholders shall have no right to participate in an underwritten offering of Key Common Stock by those debenture holders, if any, exercising their rights under the Registration Rights Agreement. In the event that the Shelf Registration Statement is not declared effective by the SEC by July 3, 1997, Key shall purchase the Key Shares from the Shareholders for an aggregate purchase price equal to the greater of (i) the aggregate market value of the Key Shares calculated using the per share closing price on July 3, 1997 as reported by the American Stock Exchange and (ii) $500,000. 4.5. Right of First Refusal. If the Shareholders desire to sell more than 12,000 Key Shares during any 30-day period, then the Shareholders, prior to making such sale, shall first offer such excess shares (the "Excess Shares") for sale to Key in accordance with the following provisions and on the terms and conditions set forth in this Section 4.5. The Shareholders shall offer the Excess Shares to Key by delivering a written notice (the "Offering Notice") to Key indicating the number of Excess Shares and wiring instructions for payment of the Purchase Price (defined below). If Key desires to accept such offer, Key shall, within five (5) days from the date of receipt of the Offering Notice, deliver a written notice (the "Acceptance Notice") to the Shareholders indicating the number of Excess Shares which Key intends to purchase. If within such 5-day period, Key shall have failed to deliver the Acceptance Notice, then Key shall be deemed to have rejected such offer and the Shareholders may sell the Excess Shares without restriction under this Section 4.5. The parties hereto shall consummate the sale, if any, of the Excess Shares hereunder within ten (10) days following the Shareholders' receipt of the Acceptance Notice, such consummation to consist of (i) delivery by the Shareholders of stock certificate(s) representing the Excess Shares accompanied by duly executed stock powers and (ii) payment by Key of the Purchase Price to the Shareholders by means of a wire transfer of immediately available funds in accordance with the instructions contained A:\91637V4.W61 15 in the Offering Notice. The term "Purchase Price" shall mean the aggregate market value of the Excess Shares calculated using the per share closing price on date of the Offering Notice as reported by the American Stock Exchange. 4.6. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 5 INDEMNIFICATION 5.1. Indemnification by the Shareholders. In addition to any other remedies available to Key under this Agreement, or at law or in equity, each of the Shareholders shall jointly and severally indemnify, defend and hold harmless Key, and its respective officers, directors, employees, agents and stockholders, against and with respect to any and all claims, costs, damages, losses, expenses, obliga tions, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys' fees and expenses (collectively, the "Damages") that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by, the Shareholders to perform, their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Key by the Shareholders under this Agreement. 5.2. Indemnification by Key. In addition to any other remedies available to the Shareholders under this Agreement, or at law or in equity, Key shall jointly and severally indemnify, defend and hold harmless each of the Shareholders and his employees and agents against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Key to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholders by or on behalf of Key under this Agreement. 5.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of a claim for Damages arising under this Article 5, 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 commence ment of any action or proceeding with respect to which a claim for Damages arising under this Article 5 may be made, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, A:\91637V4.W61 16 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 mate rially 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. 5.4. Limitation on Indemnification. Notwithstanding any provisions contained in this Article 5, neither Key nor any of the Shareholders (nor any of their affiliates) shall be required to pay an indemnified party any amount with respect to any claim for Damages arising under this Article 5 with respect to the breach of any warranty or the inaccuracy of any representation contained in this Agreement (the "Representation/Warranty Damages") until the Representation/Warranty Damages which the indemnified party suffered under this Agreement aggregate at least $50,000, at which time and in such event the indemnified party shall be entitled to receive payment for all of the aggregate Representation/Warranty Damages. 5.5. Indemnification Disputes. In the event a lawsuit is filed by an indemnified party against an indemnifying party asserting a claim for Representation/Warranty Damages and a court of competent jurisdiction renders a summary judgment against the indemnified party with respect to such claim, which judgment can no longer be appealed, the indemnified party shall be liable for all reasonable attorneys fees and expenses incurred by indemnifying party in the defense of such claim. A:\91637V4.W61 17 ARTICLE 6 MISCELLANEOUS 6.1. Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 12 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.12 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 12 months from the date hereof despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive as provided herein. 6.2. 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. 6.3. 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. 6.4. 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 Key: Addressed to: With a copy to: Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: Francis D. John Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to any Shareholder: Addressed to: With a copy to: Reo Brownlee Dan A. Sullivan 2 Chapparal Circle 119 N.W. Avenue "A" (or P.O. Box 1068) Andrews, Texas 79714 Andrews, Texas 79714 Facsimile: (915) 523-4496 Facsimile: (915) 523-6230 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 6.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 6.6. 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. 6.7. 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. 6.8. 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] A:\91637V4.W61 18 IN WITNESS WHEREOF, the Shareholders have executed this Agreement and Key has caused this Agreement to be signed in its corporate name by its duly authorized representative, all as of the day and year first above written. KEY ENERGY GROUP, INC. By: Name: Title: SHAREHOLDERS Reo Brownlee Elvin Brownlee, Jr. Elvin Brownlee, III A:\91637V4.W61 19 SCHEDULE 2.1.8 None A:\91637V4.W61 SCHEDULE 2.1.10 None A:\91637V4.W61 SCHEDULE 2.1.11 Since the Balance Sheet Date, Brownlee has transferred to third parties the following assets (with associated book values) which appear on the 9/30 Balance Sheet: Suburban vehicle (reflected in the Autos and Trucks line item) ................................ $ 33,990.00 1971 Oldsmobile (reflected in the Autos and Trucks line item)................................. 5,500.00 Boats/golf carts/shed................................. 69,646.00 Del Rio property...................................... 35,000.00 Lubbock property...................................... 45,000.00 Stocks................................................ 25,000.00 Accounts Receivable - Officers........................ 326,737.38 Since the Balance Sheet Date, Brownlee has paid off the following liabilites which appear on the 9/30 Balance Sheet: Note - Bennie's Transports............................ $36,230.82 Note - Treasury Stock................................. 164,261.96 Since the Balance Sheet Date, Brownlee has incurred the following liability which does not appear on the 9/30 Balance Sheet: NBA Note #8600 $200,000.0 A:\91637V4.W61 SCHEDULE 4.1 The noncompetition territories shall be comprised of the state of Texas and the state of New Mexico. A:\91637V4.W61 EX-10.(C) 4 ENERGY AIR DRILLING ASSET PURCHASE AGREE. Execution Copy ASSET PURCHASE AGREEMENT AMONG YALE E. KEY, INC., KEY ENERGY GROUP, INC., ENERGY AIR DRILLING SERVICE CO. AND DALE RENNELS November 1, 1996 C:\34ACTREP\EXFILES\EXHIBIT.2C ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into effective as of November 1, 1996 (the "Effective Date") among Key Energy Group, Inc., a Maryland corporation ("Key"), Yale E. Key, Inc., a Texas corporation and a wholly-owned subsidiary of Key ("Buyer"), Energy Air Drilling Service Co., a Colorado corporation ("Seller") and Dale Rennels, the sole shareholder of the Seller (the "Shareholder"). Article I PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set forth in this Agreement, Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer hereby agrees to purchase, the following assets (the "Assets"): (a) those items of tangible personal property listed on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (b) Sellers' intangible assets required by Buyer to own, operate, maintain and use the Tangible Personal Property, including (i) all of Seller's rights to any patents, copyrights, trademarks, service marks, licenses or sublicenses (collectively, the "Intellectual Property") used or held in connection with the ownership, operation, maintenance and use of the Tangible Personal Property, including those specifically listed on Schedule 1.1(b) hereto (collectively, the "Seller Intellectual Property"), and (iii) all applicable customer and supplier lists of Seller (collectively, the "Intangibles"); (c) those leases, subleases, contracts, contract rights, and agreements relating to the ownership, operation, maintenance or use of the Tangible Personal Property, including those specifically listed on Schedule 1.1(c) hereto (collectively, the "Contracts"); and (d) all of the Seller's permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") obtained from governments and governmental agencies relating to the ownership, operation, maintenance or use of the Tangible Personal Property, including that which is more fully described on Schedule 1.1(d) attached hereto (collectively, the "Seller Permits"). 1.2 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of Seller contained herein, Buyer agrees to pay to Seller, on the date of execution of this Agreement, the amount of $500,000 in the form of a cashier's check or bank check or wire transfer of immediately available funds to an account designated by Seller. As additional consideration for the sale of the Assets to Buyer and for the other covenants and agreements of Seller contained herein, Key, for the benefit of Buyer, agrees to issue, in accordance C:\34ACTREP\EXFILES\EXHIBIT.2C 1 with Section 4.2 hereof, 4,386 shares (the "Key Shares") of common stock, par value $.01 per share, of Key (the "Key Common Stock"). 1.3 Assumed Liabilities. Buyer shall assume only those liabilities of Seller associated with Buyer's assumption of the Contracts. Seller shall be responsible for all other liabilities of Seller (collectively, the "Retained Liabilities"), including, without limitation all obligations and liabilities owed by Seller to the Employees (as defined in Section 2.1.10 hereof). 1.4 Effective Date; Additional Payments. This Agreement shall be effective as of the Effective Date. All payments received by Seller for services using the Tangible Personal Property rendered by Seller on or after the Effective Date (including payments received by Seller prior to the date of execution of this Agreement) are being purchased hereunder and shall be the considered the property of Buyer. Promptly upon receipt by Seller of any such payments (the "November Payments"), Seller shall either endorse and deliver the check or draft representing the November Payment (with a copy of the applicable invoice) to Buyer or remit payment to Buyer in an amount equal to the amount of the November Payment. Buyer shall reimburse Seller for any payments made by Seller to an Employee for services rendered to Seller in connection with the operation or maintenance of the Tangible Personal Property on or after the Effective Date. Article II REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDER 2.1 Representations and Warranties of Seller. Each of Seller and the Shareholder jointly and severally represents and warrants to Buyer and Key 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 its organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.1.2. Agreements Authorized and their Effect on Other Obligations. The execution and delivery of this Agreement and all other agreements executed by Seller, the Shareholder or Jerry Tufly ("Tufly") and delivered to Buyer or Key in connection herewith (the "Seller Agreements") have been authorized by all necessary corporate action on the part of Seller, and this Agreement and the Seller Agreements are valid and binding obligations of Seller, the Shareholder and Tufly, as applicable, enforceable (subject to normal equitable principals) against such parties in accordance with their terms, except as enforceability may be limited C:\34ACTREP\EXFILES\EXHIBIT.2C 2 by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the Seller Agreements and the consummation of the transaction 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 of Seller, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Seller, the Shareholder or Tufly is a party or by which Seller, the Shareholder or Tufly or their respective properties are bound; or (iii) any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator, or other governmental authority to which Seller, the Shareholder or Tufly or any of their respective properties are subject. 2.1.3. Liabilities. Except as set forth on Schedule 2.1.3 hereto, Seller does not have any liabilities or obligations either accrued, absent, contingent or otherwise, and neither Seller nor the Shareholder has any knowledge of any potential liabilities or obligations, that would adversely affect the value of the Assets. 2.1.4. Contracts. Schedule 1.1(c) hereto sets forth a complete list of all contracts, agreements and other written arrangements relating to the ownership, operation, maintenance or use of the Tangible Personal Property. All of the Contracts are in full force and effect, and constitute valid and binding obligations of Seller. Seller is not, and no other party to any Contract is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No Contract has been entered into on terms which could reasonably be expected to have a material adverse effect on the use of the Assets by Buyer. Seller has not received any information which would cause Seller to conclude that any customer of Seller will (or is likely to) cease doing business with Seller as a result of the consummation of the transactions contemplated hereby. 2.1.5. Title to and Condition of Assets. Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). All of the Tangible Personal Property are in a state of good operating condition and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To Seller's or the Shareholder's knowledge, all of the Tangible Personal Property 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 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, privileges, equities, easements, rights of way, limitations, reservations, restrictions, and other encumbrances of any kind or nature. C:\34ACTREP\EXFILES\EXHIBIT.2C 3 2.1.6. Licenses and Permits. Schedule 1.1(d) hereto sets forth a complete list of all Permits necessary under law or otherwise for the ownership, operation, maintenance or use of the Tangible Personal Property in the manner in which they are now being owned, operated, maintained and used. Each of the Seller Permits and Sellers' rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by Seller subject to administrative powers of regulatory agencies having jurisdiction. Seller is in compliance in all material respects with the terms of each of the Seller Permits. None of the Seller Permits has been, or to the knowledge of Seller or the Shareholder, are threatened to be, revoked, canceled, suspended or modified. Upon consummation of the transactions contemplated hereby, each of the Seller Permits shall have been validly assigned to Buyer, will be valid and subsisting in full force and effect, and will be enforceable by Buyer subject to administrative powers of regulatory agencies having jurisdiction. 2.1.7. Intellectual Property. Schedule 1.1(b) hereto sets forth a complete list of all Intellectual Property used or held in connection with the ownership, operation, maintenance and use of the Tangible Personal Property. The Seller Intellectual Property is owned or licensed by Seller free and clear of any Encumbrances. Seller has not granted to any other person any license to use any Seller Intellectual Property. Use of the Seller Intellectual Property by Buyer will not, and the use of the Seller Intellectual Property by Seller did not, infringe, misappropriate or conflict with the intellectual property rights of others. Neither Seller nor the Shareholder 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 Seller Intellectual Property. 2.1.8. Necessary Consents. Except as provided in Schedule 2.1.8 hereto, Seller has obtained and delivered to Buyer all consents to assignment or waivers thereof required to be obtained from any governmental authority or from any other third party in order to validly transfer the Assets hereunder, including the assignment of the Seller Permits and the Contracts. To the extent any such consents have not been obtained by Seller as of the date of the execution of this Agreement, Seller covenants to use its best efforts to cause such consents to be obtained following the date of the execution of this Agreement. 2.1.9. Environmental Matters. None of the current or past operations of the business of Seller as such business relates or related to Seller's ownership, operation, maintenance or use of the Assets is being or has been conducted or used in such a manner as to constitute a violation of any Applicable Environmental Laws (defined below). Neither 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 Applicable Environmental Laws or regarding any claims for remedial obligations or contribution for removal costs or damages under any Applicable Environmental Laws. There are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to Seller's or the Shareholder's knowledge, threatened relating to the ownership, use, C:\34ACTREP\EXFILES\EXHIBIT.2C 4 maintenance or operation of the Assets or the conduct of the business of Seller, nor, to Seller's or Shareholder's knowledge, is there any basis for any of the foregoing. Buyer is not required to obtain any permits, licenses or similar authorizations pursuant to any Applicable Environmental Laws in effect as of the Effective Date to operate and use any of the Assets for their current or proposed purposes and uses. To Seller's or the Shareholder's knowledge, the Assets include all environmental and pollution control equipment necessary for compliance with all Applicable Environmental Laws. No Hazardous Materials (defined below) have been or are currently being used by Seller in the operation of the Assets. No Hazardous Materials are or have ever been situated on or under Seller's properties, whether owned or leased, or incorporated into any of the Assets. To Seller's or the Shareholder's knowledge, there are no, and there have never been any, underground storage tanks (as defined under Applicable Environmental Laws) located under Seller's properties, whether owned or leased. The term "Applicable Environmental Laws" means any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to human health, the environment, or to the storage, treatment, discharge, release or disposal of hazardous wastes or hazardous substances, including, without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et seq.), as amended from time to time, including, without limitation, as amended pursuant to the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and regulations promulgated thereunder, (ii) the Resources Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et seq.), as amended from time to time ("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water Pollution Control Act (U.S.C.A. ss.9601 et seq.), as amended, and regulations promulgated thereunder, and (iv) any applicable state laws or regulations relating to the environment. 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 Applicable Environmental Laws, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or comparable state and local statutes or in the regulations adopted and publications promulgated pursuant to said statutes. 2.1.10. Employees. Schedule 2.1.10 hereto is a complete and accurate listing of all employees of Seller that are involved in the ownership, operation, maintenance or use of the Tangible Personal Property (the "Employees"). Seller does not currently sponsor, maintain or contribute to, and has not at anytime sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended. No employee benefit plan of Seller will, by its terms or applicable law, become binding upon or an obligation of Buyer. Buyer has not engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on the Assets. Seller does not have any dispute with any of its existing C:\34ACTREP\EXFILES\EXHIBIT.2C 5 or former employees. There are no labor disputes or to the knowledge of Seller, any disputes threatened by current or former employees of Seller. 2.1.11. Investigations; Litigation. No investigation or review by any governmental entity with respect to Seller or any of the transactions contemplated by this Agreement or the Seller Agreements is pending or, to the best of Seller's knowledge, threatened, nor has any governmental entity indicated to Seller an intention to conduct the same. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which Seller is a party or, to the knowledge of Seller, might become a party or which particularly affects the Assets. 2.1.12. Absence of Certain Business Practices. Neither Seller, the Shareholder nor any officer, employee or agent of Seller, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the profitable use of the Assets (or to assist Seller in connection with any actual or proposed transaction) which if not given in the past, might have had a material adverse effect on the profitable use of the Assets, or if not continued in the future, might materially adversely effect the profitable use of the Assets. 2.1.13. Solvency. Seller is not now insolvent, nor will 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 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. 2.1.14. Untrue Statements. Seller has made available to Buyer and Key true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Assets, and such information covers all commitments and liabilities of Buyer relating principally to the Assets. This Agreement, the Seller Agreements and the other instruments executed by Seller, the Shareholder or Tufly and delivered to Buyer or Key in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.15. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Seller, the Shareholder and their counsel directly with Buyer, Key and their counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payment. C:\34ACTREP\EXFILES\EXHIBIT.2C 6 2.1.16. Investment Representations of Seller. Each of Seller and the Shareholder acknowledges, represents and agrees that : (a) Each of Seller and the Shareholder is an "accredited investor" as such term is defined in Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). (b) (i) Seller and the Shareholder, through their own operations, are knowledgeable in operations of the type conducted by Key, (ii) Key has made available to Seller and the Shareholder extensive legal, financial, accounting and other business records for examination by Seller and the Shareholder, (iii) Key has made its principal executive and operating personnel available for consultation with the designated representatives of Seller and the Shareholder, (iv) Seller and the Shareholder have made an extensive investigation of Key's assets and liabilities, business and financial affairs, and operations, (v) Seller and the Shareholder are aware of the risks associated with ownership of the Key Shares, (vi) Seller is capable of bearing the financial risks associated with such ownership, and (vii) while recognizing that it cannot effectively waive the protections afforded to it under the Securities Act, Seller regards itself as an entity of such financial capacity, sophistication, and prudence that it does not require the protections afforded to it by the Securities Act, and is relying upon its own investigation of Key in making its decision to enter into this Agreement. (c) The Key Shares have not been registered under the Securities Act, or registered or qualified under any applicable state securities laws; (d) The Key Shares are being issued to Seller in reliance upon exemptions from such registration or qualification requirements, and the availability of such exemptions depends in part upon Seller's bona fide investment intent with respect to the Key Shares; (e) Seller's acquisition of the Key Shares is solely for its own account for investment, and Seller is not acquiring the Key Shares for the account of any other person or with a view toward resale, assignment, fractionalization, or distribution thereof; (f) Seller shall not offer for sale, sell, transfer, pledge, hypothecate or otherwise dispose of any of the Key Shares except in accordance with the registration requirements of the Securities Act and applicable state securities laws or upon delivery to Key of an opinion of legal counsel reasonably satisfactory to Key that an exemption from registration is available; (g) Since the Key Shares have not been registered under the Securities Act or applicable state securities laws, Seller must bear the economic risk of holding the Key Shares for an indefinite period of time, and Seller is capable of bearing such risk; and C:\34ACTREP\EXFILES\EXHIBIT.2C 7 (h) In addition to any other legends required by law or the other agreements entered into in connection herewith, the certificate evidencing the Key Shares will bear a conspicuous restrictive legend substantially as follows: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. Article III REPRESENTATIONS AND WARRANTIES OF BUYER AND KEY 3.1 Representations and Warranties of Buyer. Buyer represents and warrants to Seller and the Shareholder as follows: 3.1.1. Organization and Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of Texas, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 3.1.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement and all other agreements executed by Buyer and delivered to Seller, the Shareholder or Tufly in connection herewith (the "Buyer Agreements") have been authorized by all necessary corporate action on the part of Buyer, and this Agreement and the Buyer Agreements are valid and binding obligations of Buyer, enforceable (subject to normal equitable principals) against Buyer 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 execution, delivery and performance of this Agreement and the Buyer Agreements 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 of Buyer; (ii) any C:\34ACTREP\EXFILES\EXHIBIT.2C 8 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 is subject. 3.1.3. 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 Seller, the Shareholder and their counsel, without the intervention of 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 payment. 3.2 Representations and Warranties of Key. Key represents and warrants to Seller and the Shareholder as follows: 3.2.1. Organization and Standing. Key is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, 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. 3.2.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement and all other agreements executed by Key and delivered to Seller, the Shareholder or Tufly in connection herewith (the "Key Agreements") have been authorized by all necessary corporate action on the part of Key, and this Agreement and the Key Agreements are valid and binding obligations of Key, enforceable (subject to normal equitable principals) against Key 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 execution, delivery and performance of this Agreement and the Key Agreements 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 of Key; (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Key is a party or by which Key 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 Key or any of its properties is subject. 3.2.3. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Key and its counsel directly with Seller, the Shareholder and their counsel, without the intervention by any other person as the result of C:\34ACTREP\EXFILES\EXHIBIT.2C 9 any act of Key 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 IV ADDITIONAL AGREEMENTS 4.1 Noncompetition. Except as otherwise consented to or approved in writing by Buyer and Key, Seller agrees that for a period of 60 months following the Effective Date, it will not, except as expressly provided in that certain Joint Alliance Agreement of even date herewith by and between Seller and Buyer, directly or indirectly, acting alone or as a member of a partnership or a holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in any business providing drilling, workover or well clean-out services utilizing air, foam, mist or aerated fluid circulating systems (but specifically excluding the teaching of courses offered by the University of Tulsa Continuing Education program) within (A) the entire state of State of Texas excluding Dallam, Sherman, Hansford, Ochiltree, Lipscomb, Hartley, Moore, Hutchinson, Roberts, Hemphill, Oldham, Potter, Carson, Gray and Wheeler counties; and (B) and that portion of the State of New Mexico located south of U.S. Interstate 40 (the "Territory"); (ii) request any present customers or suppliers of Seller to curtail or cancel their business with Buyer or Key; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Seller relating to Seller's ownership, operation, maintenance or use of the Assets, Buyer or Key or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of Buyer or Key to terminate his employment. Seller agrees that if either the length of time or geographical area of the Territory 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 4.1 are in addition to any other obligations that Seller may have under the laws of any state requiring a corporation who sells its assets to limit its activities so that the goodwill and business relations associated with the assets being sold (and any successor corporation) will not be materially impaired. Seller further agrees and acknowledge that Buyer and Key do not have any adequate remedy at law for the breach or threatened breach by Seller of this covenant, and agree that Buyer or Key may, in addition to the other remedies which may be available to them hereunder, file a suit in equity to enjoin Seller from such breach or threatened breach. If any provisions of this Section 4.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Seller acknowledges that the covenants set forth in this Section 4.1 are being executed and delivered by Seller in consideration of the covenants of Buyer and Key contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 4.2 Issuance of Key Shares. On the date of execution of this Agreement, Key shall file an additional listing application with the American Stock Exchange requesting the listing of the Key Shares. On the date Key receives notice of approval of such request, Key shall send written instructions to its transfer agent and registrar to issue, countersign and register one or more certificates representing the Key Shares in the name of Seller and deliver such certificate(s) to Seller C:\34ACTREP\EXFILES\EXHIBIT.2C 10 at the address specified in Section 6.4 hereof. In the event that the American Stock Exchange does not approve the listing application, the parties hereto shall negotiate in good faith the appropriate consideration to replace such shares. 4.3 Hiring Employees. Effective as of the Effective Date, all of the Employees shall be terminated by Seller. Buyer may, but shall be under no obligation to, hire any of the Employees effective as of the Effective Date. Except as provided in Section 1.4 hereof, Buyer shall have no liability or obligation with respect to any employee benefits of any Employee except those benefits that accrue pursuant to such Employees' employment with Buyer on or after the Effective Date. Seller and the Shareholder shall cooperate with Buyer in connection with any offer of employment from Buyer to the Employees and use its best efforts to cause the acceptance of any and all such offers. All Employees hired by Buyer shall be at-will employees of Buyer. 4.4 Registration Rights. Key has delivered to the Shareholders a copy of the Registration Right Agreement among Key, McMahan Securities Co. L.P. and Rauscher Pierce Refsnes, Inc. dated July 3, 1996 (the "Registration Rights Agreement") pursuant to which Key has agreed to (i) file a registration statement (the "Shelf Registration Statement") with the SEC on or before April 3, 1997 registering the resale of certain shares of Key Common Stock issuable upon conversion of certain outstanding convertible debentures of Key and (ii) use its best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or before July 3, 1997. Key hereby agrees to include the resale of the Key Shares in the Shelf Registration Statement; provided, that (i) each of the Shareholders shall have all duties and obligations of a "Holder" under the Registration Rights Agreement and (ii), notwithstanding the inclusion of the resale of the Key Shares in the Shelf Registration Statement, the Shareholders shall have no right to participate in an underwritten offering of Key Common Stock by those debenture holders, if any, exercising their rights under the Registration Rights Agreement. In the event that the Shelf Registration Statement is not declared effective by the SEC by July 3, 1997, Seller shall have the right (the "Put Right") require Key to purchase the Key Shares from Seller for an aggregate purchase price equal to ninety- percent (90%) of the aggregate market value of the Key Shares calculated using the per share closing price on July 3, 1997 as reported by the American Stock Exchange. The Put Right shall be exercised by delivery of written notice to Key on or before August 3, 1997, after which date the Put Right shall expire. 4.5 Possession of Tangible Personal Property. Possession of the Tangible Personal Property shall be deemed to have passed from Seller to Buyer on the Effective Date. All items of Tangible Personal Property located at the yard of E. L. Farmer Transportation, 300 South Grants, Odessa, Texas, 79760 (the "Farmer Facility") on the date of execution of this Agreement shall be moved by Buyer on or before December 31, 1996 (the "Removal Deadline") at Buyer's sole cost and expense. Until the Removal Deadline, Seller shall be responsible for the costs and expenses, if any, associated with the storage of any Tangible Personal Property at the Farmer Facility. All items of Tangible Personal Property in use and not located at the Farmer Facility on the date of execution of this Agreement shall, when such use is completed, be moved at the direction and expense of Buyer. Buyer shall be responsible for all cost and expense associated with the shipping of the "spare parts" C:\34ACTREP\EXFILES\EXHIBIT.2C 11 comprising the Tangible Personal Property to Buyer, which shall occur on or before December 31, 1996. 4.6 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. Article V INDEMNIFICATION 5.1 Indemnification by Seller and the Shareholder. In addition to any other remedies available to Buyer and Key under this Agreement, or at law or in equity, Seller and the Shareholder shall, jointly and severally, indemnify, defend and hold harmless each of Buyer and Key, and their respective 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 indemnitees shall incur or suffer, which arise, result from or relate to (i) any breach of, or failure by Seller or the Shareholder to perform, their respective re presentations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer and Key by Seller or the Shareholder under this Agreement and (ii) the Retained Liabilities. 5.2 Indemnification by Buyer and Key. In addition to any other remedies available to Seller under this Agreement, or at law or in equity, Buyer and Key shall, jointly and severally, indem nify, defend and hold harmless Seller and its officers, directors, employees and agents against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Buyer or Key to perform any of its representations, war ranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Seller by or on behalf of Buyer or Key under this Agreement. 5.3 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 5.1 or Section 5.2 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. 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 5, 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. 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 C:\34ACTREP\EXFILES\EXHIBIT.2C 12 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. Article VI MISCELLANEOUS 6.1 Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and agreements made by the parties hereto shall survive indefinitely without limitation, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive without limitation despite any investigation made by any party hereto or on its behalf. 6.2 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. 6.3 Counterparts. This Agreement may be executed by facsimile signature and in one or more counterparts, each of which shall deemed to be an original instrument, but all of which together shall constitute one and the same instrument. C:\34ACTREP\EXFILES\EXHIBIT.2C 13 6.4 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 or Key Addressed to: With a copy to: Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: Francis D. John Attn: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to Seller or the Shareholder Addressed to: With a copy to: Energy Air Drilling Service Co. Hoskin, Farina, Aldrich & Kampf, P.C. 2466 Industrial Boulevard 200 Grand Avenue, Suite 400 Grand Junction, Colorado 81505 Grand Junction, Colorado 81502 Attn: Dale Rennels Attn: Terry Farina Facsimile: (303) 241-6808 Facsimile: (970) 241-3760 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 6.5 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. 6.6 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. 6.7 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. 6.8 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas. C:\34ACTREP\EXFILES\EXHIBIT.2C 14 IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all on this 7th day of November, 1996 to be effective as of the Effective Date. YALE E. KEY, INC. By: \s\ C. Ron Laidley Name: C. Ron Laidley Title: President KEY ENERGY GROUP, INC. By: \s\ C. Ron Laidley Name: C. Ron Laidley Title: Vice President ENERGY AIR DRILLING SERVICE CO. By: \s\ Dale A. Rennels Name: Dale A. Rennels Title: President THE SHAREHOLDER: \s\ Dale A. Rennels Dale Rennels C:\34ACTREP\EXFILES\EXHIBIT.2C i EX-10.(D) 5 HITWELL STOCK PURCHASE AGREEMENT Execution Copy STOCK PURCHASE AGREEMENT AMONG KEY ENERGY GROUP, INC., ED HITT, HELEN HITT, MICHAEL E. THOMPSON AND EDWARD MONROE, JR. Dated as of December 2, 1996 C:\34ACTREP\EXFILES\EXHIBIT.2D STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of December 2, 1996 by and among Key Energy Group, Inc., a Maryland corporation ("Key"), Ed Hitt ("Ed"), Helen Hitt ("Helen"), Michael E. Thompson ("Michael") and Edward Monroe, Jr. ("Edward"). Ed, Helen, Michael and Edward are referred to individually herein as a "Shareholder" and collectively herein as the "Shareholders." WITNESSETH : WHEREAS, Key is a corporation duly organized and validly existing under the laws of the State of Maryland, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and WHEREAS, Hitwell Surveys, Inc. ("Hitwell") is a corporation duly organized and validly existing under the laws of the State of West Virginia, with its principal executive offices at Burnthouse Road, Parkersburg, West Virginia 26102; and WHEREAS, the Shareholders own 112 shares (the "Hitwell Shares") of common stock, par value $1.00 per share, of Hitwell ("Hitwell Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of Hitwell; and WHEREAS, the Shareholders desire to sell to Key and Key desires to purchase from the Shareholders all of the issued and outstanding capital stock of Hitwell. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1. Purchase and Sale of Hitwell Shares. Subject to the terms and conditions of this Agreement, on the date hereof, the Shareholders agree to sell and convey to Key, free and clear of all Encumbrances (as defined in Section 2.1.8.1 hereof), and Key agrees to purchase and accept from the Shareholders, all of the Hitwell Shares. In consideration of the sale of the Hitwell Shares, Key shall (i) execute and deliver to the Shareholders that certain promissory note of even date herewith in the original principal amount of $1,300,000 made by Key payable to the Shareholders (the "Key Note") and (ii) pay to the Shareholders the Cash Adjustment Payment (as defined in Section 1.3 hereof), if any, in accordance with Section 1.3 hereof. 1.2. Delivery of Hitwell Certificates. The Shareholders shall deliver to Key on the date hereof duly and validly issued certificate(s) representing all of the Hitwell Shares, each such certificate C:\34ACTREP\EXFILES\EXHIBIT.2D i having been duly endorsed in blank and in good form for transfer or accompanied by stock powers duly executed in blank, sufficient and in good form to properly transfer such shares to Key. 1.3 Adjustment of Purchase Price. The Shareholders shall cause to be prepared and delivered to Key (i) a balance sheet of Hitwell as of the date hereof (the "Final Balance Sheet") within thirty (30) days after the date hereof and (ii), to the extent requested by any party hereto, a supplemental written report of the appraiser referred to in items (3) and (4) below. Key and the Shareholders shall jointly review the Final Balance Sheet and such supplemental report, endeavor in good faith to resolve all disagreements regarding the entries thereon and reach a final determination thereof within 60 days from the date hereof. Within 10 days of reaching such final determination, the following adjusting payments shall be made: (1) If the Final Net Current Asset Valuation (defined below) exceeds $8,347, Key shall pay to the Shareholders the amount of such excess (the "Cash Adjustment Payment"). (2) If the Final Net Current Asset Valuation is less than $8,347, the Shareholders shall pay to Key the amount of such difference. (3) If Hitwell transfers any items of operational equipment (other than equipment sold to Key prior to the date hereof) listed in that certain Superior Auction Appraisal report dated August 6, 1996, a copy of which is attached hereto as Schedule 1.3 (the "Appraisal"), after the date thereof which have an aggregate value as reported in the Appraisal of at least $10,000, or if any items of operational equipment (other than equipment sold to Key prior to the date hereof) listed in the Appraisal in the aggregate suffer deterioration (other than ordinary wear and tear) after the date of the Appraisal which reduces the value of such items by at least $10,000 as determined and reported in writing by the appraiser that prepared the Appraisal, the Shareholders shall pay to Key the amount of such aggregate value. (4) If Hitwell acquires any items of operational equipment after the date of the Appraisal which have an aggregate value of at least $10,000 as determined and reported in writing by the appraiser that prepared the Appraisal, or if Hitwell makes improvements to any items of operational equipment (other than equipment sold to Key prior to the date hereof) listed in the Appraisal which increases the aggregate value of such items by at least $10,000 as determined and reported in writing by the appraiser that prepared the Appraisal, Key shall pay to the Shareholders the amount of such aggregate value. The term "Final Net Current Asset Valuation" means the dollar value of the amount by which the Current Assets (defined below) exceed the Total Liabilities (defined below) on the Final Balance C:\34ACTREP\EXFILES\EXHIBIT.2D 2 Sheet. The term "Current Assets" means the aggregate of the following line items shown on the Final Balance Sheet: "cash", "accounts receivable", "employees receivable", "prepaid insurance", "deposits-utilities" and "worker's comp" (where such line item shall be that amount reported by the West Virginia Worker's Compensation Commission as of September 30, 1996) and any other line item properly classified as a current asset. The term "Total Liabilities" means the following line items shown on the Final Balance Sheet: "total current liabilities" and "note payable (net of current portion)" and any other line item properly classified as a liability. In the event that an account receivable was not included in the calculation of the Current Assets but is later collected by Hitwell, Key shall pay to the Shareholders the amount so collected within 10 days of its receipt. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS 2.1. Representations and Warranties of the Shareholders. Each of the Shareholders jointly and severally represents and warrants to Key as follows: 2.1.1. Organization and Standing. Hitwell is a corporation duly organized, validly existing and in good standing under the laws of the State of West Virginia, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on its financial condition, properties or business. 2.1.2. Agreement Authorized and its Effect on Other Obligations. Each of the Shareholders is a resident of West Virginia, above the age of 18 years, and has the legal capacity and requisite power and authority to enter into, and perform his or her obligations under this Agreement. This Agreement is a valid and binding obligation of each of the Shareholders enforceable against each of the Shareholders (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally or the terms and conditions hereof. The execution, delivery and performance of this Agreement by the Shareholders will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of Hitwell or (ii) any obligation, indenture, mortgage, C:\34ACTREP\EXFILES\EXHIBIT.2D 3 deed of trust, lease, contract or other agreement to which Hitwell or any of the Shareholders is a party or by which Hitwell or any of the Shareholders or their respective properties are bound. 2.1.3. Capitalization. The authorized capitalization of Hitwell consists of 1,000 shares of Hitwell Common Stock, of which, as of the date hereof, 112 shares were issued and outstanding and held beneficially and of record by the Shareholders. On the date hereof, Hitwell does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Hitwell Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Hitwell Common Stock is subject to any voting trusts, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of Hitwell Shares. The Shareholders hold good and valid title to all of the Hitwell Shares, free and clear of all Encumbrances. The Shareholders possess full authority and legal right to sell, transfer and assign to Key the Hitwell Shares, free and clear of all Encumbrances. Upon transfer to Key by the Shareholders of the Hitwell Shares, Key will own the Hitwell Shares free and clear of all Encumbrances. There are no claims pending or, to the knowledge of any of the Shareholders, threatened, against Hitwell or any of the Shareholders that concern or affect title to either the Hitwell Shares, or that seek to compel the issuance of capital stock or other securities of either Hitwell. 2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which Hitwell, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. Hitwell has delivered to Key copies of Hitwell's unaudited balance sheet, a copy of which is attached hereto as Schedule 2.1.6 (the "6/30 Balance Sheet"), and related statements of income (collectively, the "6/30 Financial Statements"), as at and for the six months ended June 30, 1996 (the "Balance Sheet Date") and will deliver the Final Balance Sheet in accordance with Section 1.10.3 hereof. The 6/30 Financial Statements are (and the Final Balance Sheet will be) complete in all material respects. The 6/30 Financial Statements present (and the Final Balance Sheet will present) fairly the financial condition of Hitwell as at the dates and for the periods indicated. The 6/30 Financial Statements have been (and the Final Balance Sheet will be) prepared in accordance with generally accepted accounting principles applied on a consistent basis. The accounts receivable reflected in the 6/30 Balance Sheet, or which have been thereafter acquired by Hitwell, have been collected or are collectible at the aggregate recorded amounts thereof less applicable reserves, which reserves are adequate. The inventories of Hitwell reflected in the 6/30 Balance Sheet, or which have thereafter been acquired by it, consist of items of a quality C:\34ACTREP\EXFILES\EXHIBIT.2D 4 usable and salable in the normal course of Hitwell's business, and the values at which inventories are carried are at the lower of cost or market. 2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7 hereto, Hitwell does not have any liabilities or obligations, either accrued, absolute or contingent, nor does any of the Shareholders have any knowledge of any potential liabilities or obligations, which would materially adversely affect the value and conduct of the business of Hitwell, other than those (i) reflected or reserved against in the 6/30 Balance Sheet or (ii) incurred in the ordinary course of business since the Balance Sheet Date. 2.1.8. Additional Hitwell Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists of the following items: 2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by Hitwell, with a description of the nature and amount of any Encumbrances (defined below) thereon. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deed of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights-of-way, limitations, reservations, restrictions and other encumbrances of any kind or nature; 2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by Hitwell with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3. Inventory. All inventory items or groups of inventory items owned by Hitwell, excluding raw materials and work in process, which raw materials and work in process are valued on the 6/30 Balance Sheet, together with the amount of any Encumbrances thereon; 2.1.8.4. Receivables. All accounts and notes receivable of Hitwell, together with (i) aging schedules by invoice date and due date, (ii) the amounts provided for as an allowance for bad debts, (iii) the identity and location of any asset in which Hitwell holds a security interest to secure payment of the underlying indebtedness, and (iv) a description of the nature and amount of any Encumbrances on such accounts and notes receivable; 2.1.8.5. Payables. All accounts and notes payable of Hitwell, together with an appropriate aging schedule; C:\34ACTREP\EXFILES\EXHIBIT.2D 5 2.1.8.6. Insurance. All insurance policies or bonds currently maintained by Hitwell, including those covering Hitwell's properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.7. Contracts. All contracts, including leases under which Hitwell is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.8. Employee Compensation Plans. All bonus, incentive compensation, deferred compensation, profit-sharing, retirement, pension, welfare, group insurance, death benefit, or other fringe benefit plans, arrangements or trust agreements of Hitwell, together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency and all Internal Revenue Service determination letters that have been received with respect to such plans (collectively, "Employee Plans"); 2.1.8.9. Certain Salaries. The names and salary rates of all present employees of Hitwell, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.10. Bank Accounts. The name of each bank in which Hitwell has an account and the names of all persons authorized to draw thereon; 2.1.8.11. Employee Agreements. Any collective bargaining agreements of Hitwell with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of Hitwell; 2.1.8.12. Intellectual Property. All patents, trademarks, copyrights and other intellectual property rights owned, licensed, or used by Hitwell; 2.1.8.13. Trade Names. All trade names, assumed names and fictitious names used or held by Hitwell, whether and where such names are registered and where used; 2.1.8.14. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of Hitwell relating thereto or with respect to collateral securing the same; 2.1.8.15. Guaranties. All indebtedness, liabilities and commitments of others and as to which Hitwell is a guarantor, endorser, co-maker, surety, or accommodation C:\34ACTREP\EXFILES\EXHIBIT.2D 6 maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.16. Reserves and Accruals. All accounting reserves and accruals maintained in the 6/30 Balance Sheet; 2.1.8.17. Leases. All leases to which Hitwell is a party; and 2.1.8.18. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by Hitwell and all environmental audits, assessments, investigations and reviews conducted by Hitwell within the last five years on any property owned or used by Hitwell. 2.1.9. No Defaults. Except as is specified in Schedule 2.1.8 hereto, Hitwell is not a party to, or bound by, any contract or arrangement of any kind to be performed after the Effective Date, nor is Hitwell in default in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10. Absence of Certain Changes and Events. Except as set forth in Schedule 2.1.10 hereto, other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been: 2.1.10.1. Financial Change. Any material adverse change in the financial condition, backlog, operations, assets, liabilities or business of Hitwell; 2.1.10.2. Property Damage. Any material damage, destruction, or loss to the business or properties of Hitwell (whether or not covered by insurance); 2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Hitwell Common Stock, or any direct or indirect redemption, purchase or any other acquisition by Hitwell of any such stock; 2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of Hitwell's authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor dispute; or 2.1.10.6. Other Material Changes. Any other event or condition known to any of the Shareholders particularly pertaining to and adversely affecting the C:\34ACTREP\EXFILES\EXHIBIT.2D 7 operations, assets or business of Hitwell which would constitute a material adverse change. 2.1.11. Taxes. All federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates have been filed with appropriate governmental agencies, domestic and foreign, by Hitwell for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof); all taxes shown by such returns to be payable and any other taxes due and payable have been paid other than those being contested in good faith by Hitwell; and the tax provision reflected in the 6/30 Balance Sheet is (and the tax provision reflected in the Final Balance Sheet will be) adequate, in accordance with generally accepted accounting principles, to cover liabilities of Hitwell at the date thereof for all taxes, including any assessed interest, assessed penalties and additions to taxes of any character whatsoever applicable to Hitwell or its assets or business. No waiver of any statute of limitations executed by Hitwell with respect to any income or other tax is in effect for any period. The income tax returns of Hitwell have never been examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction. There are no tax liens on any assets of Hitwell except for taxes not yet currently due. 2.1.12. Intellectual Property. Hitwell owns or possesses licenses to use all patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") that are either material to the business of Hitwell or that are necessary for the rendering of any services rendered by Hitwell and the use or sale of any equipment or products used or sold by Hitwell, including all such Intellectual Property listed in Schedule 2.1.8 hereto. The Intellectual Property is owned or licensed by Hitwell free and clear of any Encumbrance. Hitwell has not granted to any other person any license to use any Intellectual Property. Hitwell has not received any notice of infringement, misappropriation, or conflict with, the intellectual property rights of others in connection with the use by Hitwell of the Intellectual Property or otherwise in connection with Hitwell's operation of its business. 2.1.13. Title to and Condition of Assets. Except as disclosed on Schedule 2.1.13 hereto, Hitwell has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the 6/30 Balance Sheet or in Schedule 2.1.8 hereto, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair business operations. All C:\34ACTREP\EXFILES\EXHIBIT.2D 8 leases pursuant to which Hitwell leases (whether as lessee or lessor) any substantial amount of real or personal property are in good standing, valid, and effective; and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by Hitwell and in respect to which Hitwell has not taken adequate steps to prevent a default from occurring. The buildings and premises of Hitwell that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. All rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of Hitwell are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. To the best of each Shareholder's knowledge, all such assets conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by Hitwell or any of the Shareholders, except such as have been fully complied with. 2.1.14. Contracts. All contracts, leases, plans or other arrangements to which Hitwell is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of Hitwell. Hitwell is not, and to the knowledge of any of the Shareholders, no other party to any such contract, lease, plan or other arrangement is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No contract has been entered into on terms which could reasonably be expected to have an adverse effect on Hitwell. None of the Shareholder has received any information which would cause such Shareholder to conclude that any customer of Hitwell will (or is likely to) cease doing business with Hitwell as a result of the consummation of the transactions contemplated hereby. 2.1.15. Licenses and Permits. Hitwell possesses all permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") necessary under law or otherwise for Hitwell to conduct its business as now being conducted and to construct, own, operate, maintain and use its assets in the manner in which they are now being constructed, operated, maintained and used. Each of such Permits and Hitwell's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by Hitwell subject to administrative powers of regulatory agencies having jurisdiction. Hitwell is in compliance in all material respects with the terms of such Permits. None of such Permits have been, or to the knowledge of any of the Shareholders, are threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which Hitwell is a party or, to the knowledge of any of the Shareholders, might become a party or which particularly C:\34ACTREP\EXFILES\EXHIBIT.2D 9 affects Hitwell, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of Hitwell, pending or, to the knowledge of any of the Shareholders, threatened. 2.1.17. Environmental Compliance. 2.1.17.1. Environmental Conditions. Except as specified in the Phase I Environmental Site Audit Summary Report prepared by Special Analytical Services, Inc. Included in Item 2.1.8.18 of Schedule 2.1.8 hereto, there are no environmental conditions or circumstances, including, without limitation, the presence or release of any hazardous substance, on any property presently or previously owned by Hitwell, or on any property to which hazardous substances or waste generated by Hitwell's operations or use of its assets were disposed of, which would result in a material adverse change in the business or business prospects of Hitwell; 2.1.17.2. Permits, etc. Hitwell has in full force and effect all environmental permits, licenses, approvals and other authorizations required to conduct its operations, other than those that are not material to the business or operations of Hitwell, and is operating in compliance thereunder; 2.1.17.3. Compliance. Hitwell's operations and use of its assets do not violate in any material respect any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to (a) the condition or protection of air, groundwater, surface water, soil, or other environmental media, (b) the environment, including natural resources or any activity which affects the environment, or (c) the regulation of any pollutants, contaminants, waste, substances (whether or not hazardous or toxic), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.), the Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (17 U.S.C. ss. 2601 et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss. 401 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and analogous federal, interstate, state and local requirements, as any of the foregoing may have been amended or supplemented from time to time (collectively the "Applicable Environmental Laws"); 2.1.17.4. Past Compliance. None of the operations or assets of Hitwell has ever been conducted or used in such a manner as to constitute violation of any of the Applicable Environmental Laws, other than violations that in the aggregate are not material to the business or operations of Hitwell; C:\34ACTREP\EXFILES\EXHIBIT.2D 10 2.1.17.5. Environmental Claims. No notice has been served on Hitwell or any of the Shareholders from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action or litigation related to alleged violations under any Applicable Environmental Laws, or regarding any claims for remedial obligations, response costs or contribution under any Applicable Environmental Laws; 2.1.17.6. Renewals. None of the Shareholders knows of any reason Key would not be able to renew any of the permits, licenses, or other authorizations required pursuant to any of the Applicable Environmental Laws to operate and use any of Hitwell's assets for their current purposes and uses; and 2.1.17.7. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by Hitwell, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by Hitwell in its operations or on its properties. 2.1.18. Compliance with Other Laws. Hitwell is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ss.ss.651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality. 2.1.19. No ERISA Plans or Labor Issues. Hitwell does not currently sponsor, maintain or contribute to and has not at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Hitwell has not engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on its operations or assets. Hitwell does not have any dispute with any of its existing or former employees. There are no labor disputes or, to the knowledge of any of the Shareholders, any disputes threatened by current or former employees of Hitwell. 2.1.20. Terminated Employees. Hitwell has terminated all of its employees listed effective as of the date hereof (the "Terminated Employees"), all of which will be hired by WellTech Eastern, Inc., a wholly-owned subsidiary of Key. Hitwell has paid the Terminated Employees all wages and other compensation owed them through the date of termination and Hitwell has no further obligations with respect to any of the Terminated Employees. 2.1.21. Investigations; Litigation. No investigation or review by any governmental entity with respect to Hitwell or any of the transactions contemplated by this Agreement is pending or, to the knowledge of any of the Shareholders, threatened, nor has any C:\34ACTREP\EXFILES\EXHIBIT.2D 11 governmental entity indicated to Hitwell an intention to conduct the same, and there is no action, suit or proceeding pending or, to the knowledge of any of the Shareholders, threatened against or affecting Hitwell at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of Hitwell. 2.1.22. Absence of Certain Business Practices. Neither Hitwell nor any officer, employee or agent of Hitwell, nor any other person acting on its behalf, has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the business of Hitwell (or to assist Hitwell in connection with any actual or proposed transaction) which (i) might subject Hitwell to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of Hitwell as reflected in the 6/30 Financial Statements, or (iii) if not continued in the future, might materially adversely effect the assets, business operations or prospects of Hitwell or which might subject Hitwell to suit or penalty in a private or governmental litigation or proceeding. 2.1.23. Untrue Statements. Hitwell and each of the Shareholders have made available to Key true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to Hitwell's assets and business, and such information covers all commitments and liabilities of Hitwell relating principally to its business or the assets. This Agreement and the agreements and instruments to be entered into in connection herewith do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.24. Consents and Approvals. No consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity other than Hitwell and the Shareholders, is required to be made or obtained by Hitwell or any of the Shareholders in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.25. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Hitwell and the Shareholders and their counsel directly with Key and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payments. C:\34ACTREP\EXFILES\EXHIBIT.2D 12 ARTICLE 3 ADDITIONAL AGREEMENTS 3.1. Noncompetition. Except as otherwise consented to or approved in writing by Key, each of the Shareholders agrees that for a period of 60 months the Effective Date, such Shareholder will not, directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, holder of, or investor in as much as 5% of any security of any class of any corporation or other business entity (i) engage in competition with the business or businesses conducted by Hitwell, Key or any affiliate of Key at the Effective Date, or in any service business the services of which are provided and marketed by Hitwell, Key or any affiliate of Key at the Effective Date in any state of the United States, or any foreign country in which Hitwell, Key or any affiliate of Key transacts business on the Effective Date; (ii) request any present customers or suppliers of Hitwell to curtail or cancel their business with Key or any affiliate of Key; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Hitwell, Key or any affiliate of Key or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of Key or any affiliate of Key to terminate his employment. Each of the Shareholders agrees that if either the length of time or geographical area set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Shareholders may have under the laws of the State of West Virginia requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor corporation) will not be materially impaired. Each of the Shareholders further agrees and acknowledges that Key and its affiliates do not have any adequate remedy at law for the breach or threatened breach by such Shareholder of this covenant, and agree that Key or Any affiliate of Key may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin such Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Shareholders acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such Shareholder in consideration of the covenants of Key contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 3.2. Payment of Certain Debts. On or before February 27, 1996, Key shall pay all amounts owed by Hitwell to Commercial Banking & Trust Company under that certain promissory note dated March 18, 1994 in the original principal amount of $310,000 (the "Hitwell Note"). Prior to such payoff, Key shall timely make all monthly payments due under the Hitwell Note. 3.3. Restrictions on Additional Shares. Until the Key Note is paid in full, Key shall not issue any additional shares of Hitwell Common Stock. C:\34ACTREP\EXFILES\EXHIBIT.2D 13 3.4. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 4 INDEMNIFICATION 4.1. Indemnification by Shareholders. In addition to any other remedies available to Key under this Agreement, or at law or in equity, each of the Shareholders shall indemnify, defend and hold harmless Key and its officers, directors, employees, agents and stockholders, against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys' fees and expenses (collectively, the "Damages") that such indemnitees shall incur or suffer, which arise, result from or relate to (i) any breach by any of the Shareholders of (or the failure of any of the Shareholders to perform) their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Key by any of the Shareholders under this Agreement or (ii) Hitwell's relationship with any Terminated Employees on or before the date hereof; provided, however, that the Shareholders shall not be required to so indemnify, defend and hold harmless Key and its officers, directors, employees, agent and stockholders, against and with respect to any Damages incurred as a result of a breach by any of the Shareholders of their respective representations and warranties in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Key by any of the Shareholders under this Agreement for which Key fails to provide written notice of a claim for such Damages to the Shareholders on or before the expiration of the survival period (as specified in Section 5.1 hereof) of the specific representation or warranty alleged to have been breached. 4.2. Indemnification by Key. In addition to any other remedies available to the Shareholders under this Agreement, or at law or in equity, Key shall indemnify, defend and hold harmless each of the Shareholders and his employees and agents against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise, result from or relate to any breach of, or failure by Key to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Hitwell or any of the Shareholders by or on behalf of Key under this Agreemen; provided, however, that Key shall not be required to so indemnify, defend and hold harmless the Shareholders and their employees and agents against and with respect to any Damages incurred as a result of a breach by Key of any of its representations and warranties in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Shareholders by Key under this Agreement for which the Shareholders fail to provide written notice of a claim for such Damages to Key on or before the expiration of the survival period (as specified in Section 5.1 hereof) of the specific representation or warranty alleged to have been breached. C:\34ACTREP\EXFILES\EXHIBIT.2D 14 4.3. Indemnification Procedure. In the event that any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or Section 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 5, 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. 4.4. Offset. The parties hereto agree that if Key shall incur any Damages for which it is entitled to indemnification by the Shareholders pursuant to the terms of this Agreement, Key shall have the right to offset any payments due or to be due under the terms of this Agreement or any other agreement executed in connection herewith, by the amount of the Damages. Such right of offset shall not be considered an exclusive remedy, it being agreed that Key shall also be entitled to exercise any other remedies available to it at law or in equity, including, without limitation, the indemnification rights set forth in this Article 4. In the event of an offset by Key as a result of any C:\34ACTREP\EXFILES\EXHIBIT.2D 15 account receivable of Hitwell not being collected in breach of the representation of any of the Shareholders in Section 2.1.6 hereof, upon any such offset, Key shall assign to the Shareholders the account receivable subject to offset, and the Shareholders shall thereafter have the right to take any reasonable action to collect such account receivable. In the event of an offset by Key as a result of any inventory of Hitwell being unsalable in the normal course of business in breach of the representations of Hitwell and the Shareholders in Section 2.1.6 hereof, upon any such offset, Key shall convey and transfer to the Shareholders title to such inventory subject to offset. ARTICLE 5 MISCELLANEOUS 5.1. Survival of Representations, Warranties and Covenants. All representations and, warranties, made by the parties hereto shall survive for a period of 24 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 24 months from the date hereof despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive indefinitely without limitation, except as otherwise 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. C:\34ACTREP\EXFILES\EXHIBIT.2D 16 If to Key Addressed to: With a copy to: Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to any Shareholder Addressed to: With a copy to: Ed Hitt Bowles Rice McDavid Graff & Love P.O. Box 43 601 Avery Street Parkersburg, West Virginia 26102 Parkersburg, West Virginia 26102 Facsimile: (304) 464-5207 Attention: John S. Bailey Facsimile: (304) 485-7973 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of West Virginia. [SIGNATURE PAGE FOLLOWS] C:\34ACTREP\EXFILES\EXHIBIT.2D 17 IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. KEY ENERGY GROUP, INC. By: \s\ Kenneth C. Hill Name: Kenneth C. Hill Title: Vice President SHAREHOLDERS \s\ Ed Hitt Ed Hitt \s\ Helen Hitt Helen Hitt \s\ Michael E. Thompson Michael E. Thompson \s\ Edward Monroe, Jr. Edward Monroe, Jr. C:\34ACTREP\EXFILES\EXHIBIT.2D i EX-10.(E) 6 BROOKS MERGER PLAN & AGREEMENT PLAN AND AGREEMENT OF MERGER AMONG KEY ENERGY GROUP, INC. WELLTECH EASTERN, INC. HUNT OIL COMPANY AND BROOKS WELL SERVICING, INC. Dated as of November 22, 1996 ::ODMA\PCDOCS\DOCS\97107\2 PLAN AND AGREEMENT OF MERGER THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as of November 22, 1996 among Key Energy Group, Inc., a Maryland corporation ("Key"), WellTech Eastern, Inc., a Delaware corporation and a wholly-owned subsidiary of Key ("WellTech" or the "Surviving Corporation"), Brooks Well Servicing, Inc., a Texas corporation ("Brooks"), and Hunt Oil Company, a Delaware corporation and the sole shareholder of Brooks (the "Shareholder"). WellTech and Brooks are sometimes collectively referred to herein as the "Merging Corporations." WITNESSETH : WHEREAS, Key is a corporation duly organized and validly existing under the laws of the State of Maryland, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and WHEREAS, the capitalization of Key consists of 25,000,000 shares of common stock, par value $.10 per share ("Key Common Stock"), of which as of the date hereof, 10,549,582 shares are issued and outstanding, 913,334 shares are reserved for issuance pursuant to stock options, 825,000 shares are reserved for issuance pursuant to outstanding warrants, and 5,333,333 shares are reserved for issuance upon conversion of Key's $52,000,000 7% Convertible Subordinated Debentures due 2003 (the "Convertible Debentures"); and WHEREAS, WellTech is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at Two Tower Center, Tenth Floor, East Brunswick, New Jersey 08816; and WHEREAS, Key owns 100 shares of common stock, par value $.01 per share, of WellTech (the "WellTech Common Stock"), which constitutes all of the issued and outstanding shares of capital stock of WellTech; and WHEREAS, Brooks is a corporation duly organized and validly existing under the laws of the State of Texas, with its principal executive offices at 2406 Highway 135 North, Kilgore, Texas 75662; and WHEREAS, the authorized capital stock of Brooks consists of 1,002 shares of common stock, par value $1.00 per share (the "Brooks Common Stock"), of which on the date hereof 167 shares are issued and outstanding, and 835 shares are held in treasury (the "Brooks Treasury Shares"); and WHEREAS, the Shareholder is a corporation duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices at 1445 Ross Avenue, Dallas, Texas 75202; and WHEREAS, the Shareholder owns all 167 issued and outstanding shares of Brooks Common Stock; and ::ODMA\PCDOCS\DOCS\97107\2 i WHEREAS, (i) the board of directors of Key, (ii) Key (in its capacity as WellTech's sole shareholder) and the board of directors of WellTech and (iii) the Shareholder (in its capacity as the sole shareholder of Brooks) and the board of directors of Brooks desire to merge Brooks with and into WellTech in accordance with the provisions of Section 252 of the Delaware General Corporation Law (the "DGCL") and Article 5.01 of the Texas Business Corporation Act (the "TBCA") pursuant to the terms and provisions of this Agreement, and have approved such merger (the "Merger") and the other terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, and to prescribe the terms and conditions of the Merger contemplated hereby, the mode of carrying the same into effect, the manner and basis of converting the presently outstanding shares of Brooks Common Stock into the right to receive the Merger Consideration described in Section 1.11 hereof, and such other details and provisions as are deemed necessary or proper, the parties hereto hereby agree as follows: ARTICLE 1 THE MERGER 1.1. Surviving Corporation. Brooks shall be, upon the Effective Date (defined below), merged with and into WellTech, with WellTech being the surviving corporation (the "Surviving Corporation"), which shall continue its corporate existence and remain a Delaware corporation governed by and subject to the laws of that State. 1.2. Effective Date. The Merger shall become effective upon the last to occur of (i) the filing of the Certificate of Merger with the Secretary of State of Delaware following its execution in accordance with Sections 252 and 103 of the DGCL and (ii) the filing of the Articles of Merger with the Secretary of State of Texas following its execution in accordance with Article 5.04 of the TBCA. The Merger, subject to the satisfaction of all of the terms and conditions of this Agreement, shall take place on December 3, 1996, or as soon as practicable thereafter. The date upon which the Merger becomes effective is referred to in this Agreement as the "Effective Date." 1.3. Name and Continued Corporate Existence of Surviving Corporation. On the Effective Date, the identity, existence, purposes, powers, objects, franchises, rights, and immunities of WellTech shall continue unaffected and unimpaired by the Merger, and the corporate identity, existence, purposes, powers, objects, franchises, rights, and immunities of Brooks shall be wholly merged into WellTech and WellTech shall be fully vested therewith. Accordingly, on the Effective Date, the separate existence of Brooks, except insofar as continued by statute, shall cease. 1.4. Governing Law and Articles of Incorporation of Surviving Corporation. The laws of Delaware shall continue to govern the Surviving Corporation. On and after the Effective Date, the Certificate of Incorporation of WellTech shall be the Certificate of Incorporation of the Surviving Corporation until further amended in the manner provided by law. ::ODMA\PCDOCS\DOCS\97107\2 2 1.5. Bylaws of Surviving Corporation. On the Effective Date, the Bylaws of WellTech shall be the Bylaws of the Surviving Corporation until altered, amended, or repealed, or until new bylaws shall be adopted in accordance with the provisions of law, the Certificate of Incorporation of WellTech, and the Bylaws of WellTech. 1.6. Directors of Surviving Corporation. The incumbent directors of WellTech immediately before the Effective Date shall continue to constitute the board of directors of the Surviving Corporation from and after the Effective Date, and such persons shall remain directors of the Surviving Corporation until their successors are duly elected and qualify in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. 1.7. Officers of Surviving Corporation. The incumbent officers of WellTech immediately before the Effective Date shall continue to hold their respective offices of the Surviving Corporation from and after the Effective Date and until their successors are duly elected and qualify in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. 1.8. Vacancies. If on or after the Effective Date, a vacancy shall for any reason exist in the board of directors or in any of the offices of the Surviving Corporation, such vacancy shall be filled in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation. 1.9. Capital Stock of Surviving Corporation. The authorized number of shares of capital stock of the Surviving Corporation, and the par value, designations, preferences, rights, limitations thereof, and the express terms, shall be as set forth in the Certificate of Incorporation of the Surviving Corporation. 1.10. Distributions. Before the Effective Date, the Shareholder shall cause Brooks to apply or distribute all of its cash and cash equivalents held as of the Allocation Date (as defined in Section 7.3) as follows: (i) first, to the payment and discharge of the leases described in Schedule 1.10, (ii) second, to the payment of any intercompany accounts or indebtedness owed by Brooks to the Shareholder, and (iii) third, to the payment of a dividend to the Shareholder. The amount of any intercompany accounts or indebtedness owed by Brooks to the Shareholder not discharged pursuant to clause (ii) above (the "Excess Account") shall be deemed paid and discharged in consideration of the amounts, if any, to be received by the Shareholder pursuant to Section 7.3. In addition, before the Effective Date, the Shareholder shall cause Brooks to declare a dividend payable to the Shareholder (as the record holder of the Brooks Shares before the Effective Date) in an amount equal to the Excess Receivables (as defined in Section 7.3) remaining, if any, after the discharge of the Excess Account pursuant to clause (ii) of this Section 1.10 and Section 7.3. 1.11. Conversion of Securities Upon Merger. 1.11.1. Conversion of Brooks Common Stock. On the Effective Date, the 167 issued and outstanding shares of Brooks Common Stock, all of which are held by the Shareholder (the "Brooks Shares"), without any action on the part of the Shareholder, shall automatically ::ODMA\PCDOCS\DOCS\97107\2 3 become and be converted into the right to receive from Key 1,000,000 shares of Key Common Stock, or such greater or lesser number of shares of Key Common Stock determined as provided in Section 1.11.2 (the "Merger Consideration"). The Brooks Treasury Shares shall be canceled. 1.11.2. 1.11.2.1. Key Common Stock Closing Price Adjustments. If the average closing price of the Key Common Stock on the American Stock Exchange for the 10 trading days immediately preceding the day before the Effective Date (the "Average Closing Price") is less than $8.00, then the number of shares of Key Common Stock to be issued in the Merger will be adjusted to equal an amount determined by taking the product of 100,000 shares multiplied times the percentage by which the Average Closing Price is less than $8.00 but greater than or equal to $6.00, and adding such product to 1,000,000 shares. If the Average Closing Price is greater than $10.00, then the number of shares of Key Common Stock to be issued in the Merger will be adjusted to equal an amount determined by taking the product of 100,000 shares multiplied times the percentage by which the Average Closing Price is greater than $10.00 but less than or equal to $12.00, and subtracting such product from 1,000,000 shares. In any event, however, the maximum adjustment to the purchase price shall not be greater than 100,000 shares. A list showing the range of possible adjustments is attached as Schedule 1.11.2.1. 1.11.2.2. Adjustments for Environmental Liabilities. If as a result of the environmental assessments conducted by Brooks pursuant to Section 5.2.7 Key reasonably determines that restoration activities on any real property owned by Brooks is required, then Brooks may, at its option, either conduct appropriate restoration activities on such property at its own expense or remove such property from those being acquired by Key in the Merger. If any real property is removed from the properties that otherwise would be acquired by Key in the Merger, then the Merger Consideration will be adjusted by an amount of Key Shares with a fair market value, based on the Average Closing Price, as is equal to the fair market value of such property, with such fair market value to be determined by an independent appraiser mutually satisfactory to the Shareholder and Key. The fees and expenses of such appraiser shall be borne by the Shareholder. 1.11.2.3. No Fractional Shares. If any adjustment to the number of Key Shares issuable pursuant to this Section 1.11.2. results in a fractional share, then the number of Key Shares issuable as the Merger Consideration shall be rounded up to the next whole share. 1.12. Surrender of Brooks Certificates. On the Effective Date, the Shareholder will surrender all the certificates representing the Brooks Shares (the "Brooks Certificates"). On the ::ODMA\PCDOCS\DOCS\97107\2 4 Effective Date, Key will cancel the Brooks Certificates, and the Shareholder will receive the Merger Consideration. 1.13. Brooks' Transfer Books Closed. Upon the Effective Date, the stock transfer books of Brooks shall be closed, and no transfer of any shares of capital stock of Brooks shall thereafter be made or consummated. 1.14. Assets and Liabilities of Merging Corporations Become Those of Surviving Corporation. On the Effective Date, all rights, privileges, powers, and franchises of each of the Merging Corporations, and all property, real, personal, and mixed, and all debts due on whatever account, as well as stock subscriptions and all other things in action of or belonging to either of the Merging Corporations, shall be taken by and deemed to be transferred to and shall be vested in the Surviving Corporation without further act or deed, and all such rights, privileges, powers, and franchises, property, debts, or things in action, and all and every other interest of each of the Merging Corporations shall be thereafter as effectively the property of the Surviving Corporation as they were of the respective Merging Corporations, and the title to any real property, whether vested by deed or otherwise, in either of the Merging Corporations, shall not revert or be in any way impaired by reason of the Merger; provided however, that all rights of creditors and all liens upon any properties of each of the Merging Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Merging Corporations shall thenceforth attach to the Surviving Corporation and may be enforced against and by it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. Any action or proceeding pending by or against either of the Merging Corporations may be prosecuted to judgment as if the Merger had not taken place, or the Surviving Corporation may be substituted in place of either of the Merging Corporations. 1.15. Federal Income Tax Treatment. The Merger is intended to qualify as a tax-free reorganization described in ss.368(a)(1)(a) by virtue of ss. 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto acknowledge that this Agreement constitutes a "plan of reorganization" among the Shareholder, Brooks, Key and WellTech within the meaning of Treas.Reg. ss. 1.368-2(g). ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND BROOKS 2.1. Representations and Warranties of the Shareholder and Brooks. The Shareholder and Brooks each represent and warrant to Key and WellTech as follows: 2.1.1. Organization and Good Standing. Each of the Shareholder and Brooks is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a ::ODMA\PCDOCS\DOCS\97107\2 5 foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on the respective businesses or operations of the Shareholder or Brooks. 2.1.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement has been authorized by the board of directors of Brooks and by the Shareholder in its capacity as the sole shareholder of Brooks, and has been authorized by the board of directors of the Shareholder in its individual capacity. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Brooks and the Shareholder, and this Agreement is a valid and binding obligation of Brooks and the Shareholder enforceable against Brooks and the Shareholder in accordance with its terms. The execution, delivery and performance of this Agreement and the consummation of the Merger contemplated by this Agreement will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate or Articles of Incorporation, as applicable, or Bylaws of Brooks or the Shareholder, or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Brooks or the Shareholder is a party or by which Brooks or the Shareholder or their respective properties are bound, which in the case of either (i) or (ii), would have a material adverse effect on the business or operations of the Shareholder or Brooks. 2.1.3. Capitalization. The authorized capitalization of Brooks consists of 1,002 shares of Brooks Common Stock, of which, as of the date hereof 167 shares were issued and outstanding and held beneficially and of record by the Shareholder and 835 of which are Brooks Treasury Shares. On the date hereof, Brooks does not have any outstanding options, warrants, calls or commitments of any character relating to any of its authorized but unissued shares of capital stock. All issued and outstanding shares of Brooks Common Stock are validly issued, fully paid and non-assessable and are not subject to preemptive rights. None of the outstanding shares of Brooks Common Stock is subject to any voting trust, voting agreement or other agreement or understanding with respect to the voting thereof, nor is any proxy in existence with respect thereto. 2.1.4. Ownership of Brooks Shares. The Shareholder holds good and valid title to all of the Brooks Shares, free and clear of all Encumbrances. 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. There are no claims pending or, to the Shareholder's knowledge, threatened, against Brooks or the Shareholder that concern or affect title to the Brooks Shares, or that seek to compel the issuance of capital stock or other securities of Brooks. ::ODMA\PCDOCS\DOCS\97107\2 6 2.1.5. No Subsidiaries. There is no corporation, partnership, joint venture, business trust or other legal entity in which Brooks, either directly or indirectly through one or more intermediaries, owns or holds beneficial or record ownership of at least a majority of the outstanding voting securities. 2.1.6. Financial Statements. Brooks has delivered to Key and WellTech its unaudited balance sheet and related statements of income, retained earnings and cash flows as of and for Brooks' fiscal year ended December 31, 1995, and also has delivered to Key and WellTech copies of its unaudited balance sheet (the "Unaudited Balance Sheet") and related statements of income, retained earnings and cash flows as of and for the nine months ended September 30, 1996. Such financial statements are complete in all material respects (except for the omission of notes and schedules), present fairly the financial condition of Brooks as at the dates indicated, and the results of operations for the respective periods indicated, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as noted therein and subject, in the case of interim financial statements, to normal year-end adjustments and other adjustments described therein; in addition, such financial statements as of and for the nine months ended September 30, 1996, though unaudited, include all adjustments which Brooks considers necessary for a fair presentation, in all material respects, of its results for that period. 2.1.7. Liabilities. Except as disclosed on Schedule 2.1.7, Brooks does not have any liabilities or obligations, either accrued, absolute or contingent, nor does the Shareholder have any knowledge of any potential liabilities or obligations, which would be required to be reflected on the Unaudited Balance Sheet prepared under generally accepted accounting principles and that would materially adversely affect the value and conduct of the business of Brooks, other than those (i) reflected or reserved against in the Unaudited Balance Sheet or (ii) incurred in the ordinary course of business since September 30, 1996. 2.1.8. Additional Information. Attached as Schedule 2.1.8 hereto are true, complete and correct lists, as of October 28, 1996, of the following items: 2.1.8.1. Real Estate. All real property and structures thereon owned, leased or subject to a contract of purchase and sale, or lease commitment, by Brooks, with a description of the nature and amount of any Encumbrances thereon. 2.1.8.2. Machinery and Equipment. All rigs, carriers, rig equipment, machinery, transportation equipment, tools, equipment, furnishings, and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment, by Brooks, with a description of the nature and amount of any Encumbrances thereon; 2.1.8.3. Inventory. All inventory items or groups of inventory items owned by Brooks that are valued on the Unaudited Balance Sheet, together with the amount of any Encumbrances thereon; ::ODMA\PCDOCS\DOCS\97107\2 7 2.1.8.4. Insurance. All insurance policies or bonds currently maintained by Brooks, including title insurance policies, with respect to Brooks, including those covering Brooks's properties, rigs, machinery, equipment, fixtures, employees and operations, as well as a listing of any premiums, audit adjustments or retroactive adjustments due or pending on such policies or any predecessor policies; 2.1.8.5. Contracts. All well service contracts (limited to contracts pursuant to which services currently are being provided by Brooks and any "master agreements" to which they relate), and all other contracts to which Brooks is a party, including leases under which Brooks is lessor or lessee, which are to be performed in whole or in part after the date hereof; 2.1.8.6. 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 Brooks, together with copies of the most recent reports with respect to such plans, arrangements, or trust agreements filed with any governmental agency, and all Internal Revenue Service determination letters that have been received with respect to such plans; 2.1.8.7. Certain Salaries. The names and salary rates of all present employees of Brooks who have salaries in excess of $50,000, and, to the extent existing on the date of this Agreement, all arrangements with respect to any bonuses to be paid to them from and after the date of this Agreement; 2.1.8.8. Bank Accounts. The name of each bank in which Brooks has an account, the account numbers of each account and the names of all persons authorized to draw thereon; 2.1.8.9. Employee Agreements. Any collective bargaining agreements of Brooks with any labor union or other representative of employees, including amendments, supplements, and written or oral understandings, and all employment and consulting and severance agreements of Brooks; 2.1.8.10. Intellectual Property. All patents, trademarks, copyrights and other intellectual property rights owned, licensed, or used by Brooks; 2.1.8.11. Trade Names. All trade names, assumed names and fictitious names used or held by Brooks, whether and where such names are registered and where used; 2.1.8.12. Promissory Notes. All long-term and short-term promissory notes, installment contracts, loan agreements, credit agreements, and any other agreements of Brooks relating thereto or with respect to collateral securing the same; ::ODMA\PCDOCS\DOCS\97107\2 8 2.1.8.13. Guaranties. All indebtedness, liabilities and commitments of others as to which Brooks is a guarantor, endorser, co-maker, surety, or accommodation maker, or is contingently liable therefor and all letters of credit, whether stand-by or documentary, issued by any third party; 2.1.8.14. Leases. All leases to which Brooks is a party; and 2.1.8.15. Environment. All environmental permits, approvals, certifications, licenses, registrations, orders and decrees applicable to current operations conducted by Brooks and all environmental audits, assessments, investigations and reviews conducted by Brooks within the last five years on any property owned or used by Brooks. 2.1.9. No Defaults. Except as is specified in Schedule 2.1.8 (as such Schedule has been limited pursuant to Section 2.1.8.5), Brooks is not a party to, or bound by, any contract or arrangement of any kind to be performed after the Effective Date, nor is Brooks in default in any material respect in any obligation or covenant on its part to be performed under any obligation, lease, contract, order, plan or other arrangement. 2.1.10. Absence of Certain Changes and Events. Except as set forth in Schedule 2.1.10, other than as a result of the transactions contemplated by this Agreement, since September 30, 1996, there has not been: 2.1.10.1. Financial Change. Any material adverse change in the financial condition, backlog, operations, assets, liabilities or business of Brooks; 2.1.10.2. Property Damage. Any material damage, destruction, or loss to the business or properties of Brooks (whether or not covered by insurance); 2.1.10.3. Dividends. Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Brooks Common Stock; 2.1.10.4. Capitalization Change. Any change in the capital stock or in the number of shares or classes of Brooks's authorized or outstanding capital stock as described in Section 2.1.3 hereof; 2.1.10.5. Labor Disputes. Any labor dispute; or 2.1.10.6. Other Material Changes. Any other event or condition known to Brooks or the Shareholder particularly pertaining to and adversely affecting the operations, assets or business of Brooks which would constitute a material adverse change, as such term is defined in Section 4.1.6. ::ODMA\PCDOCS\DOCS\97107\2 9 2.1.11. Taxes. 2.1.11.1. Tax Returns. Except as provided on Schedule 2.1.11, all federal, state and local income, value added, sales, use, franchise, gross revenue, turnover, excise, payroll, property, employment, customs, duties and any and all other tax returns, reports, and estimates required to be filed on or before the Effective Date have been filed with appropriate governmental agencies, domestic and foreign, by Brooks for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof) or extensions to the filing of such returns have been timely requested by Brooks to the filing thereof and all taxes shown by such returns to be payable have been paid other than those being contested in good faith by Brooks, except for tax return filings or tax payments the failure to file or pay, as the case may be, do not have a material adverse effect on Brooks. 2.1.11.2. Statutes of Limitation. Except as provided on Schedule 2.1.11, no waiver of any statute of limitations executed by Brooks with respect to any income or other tax is in effect for any period or extensions to the filing of such returns have been timely requested by Brooks to the filing thereof. 2.1.11.3. Audits. Except as provided on Schedule 2.1.11, the income tax returns of Brooks are not being examined by the Internal Revenue Service or the taxing authorities of any other jurisdiction and no proposed assessments of tax are pending. 2.1.11.4. Tax Liens. There are no tax liens on any assets of Brooks except for taxes not yet currently due. 2.1.11.5. Tax-Sharing Agreements. Except as provided on Schedule 2.1.11, Brooks does not owe any amount under any tax-sharing or allocation agreement. 2.1.11.6. Distributions. Except for regular normal dividends and as provided in Section 1.10 and Section 7.3, Brooks has not made any payments to dissenters or payments to the Shareholder other than for expenses or repayment of liability in the ordinary course of business, or other redemptions or distributions to the Shareholder other than in the ordinary course of business within the 12 months before the Effective Date. ::ODMA\PCDOCS\DOCS\97107\2 10 representation, the Brooks Shares exchanged for cash or other property, surrendered by dissenters or exchanged for cash in lieu of fractional shares of Key Common Stock will be treated as outstanding shares of Brooks on the date of the Merger. Moreover, shares of Brooks and Key Common Stock held by the Shareholder and otherwise sold, redeemed or disposed of before or after the Merger will be considered in making this representation. 2.1.11.8. Liabilities. The liabilities of Brooks assumed by WellTech and the liabilities to which the transferred assets of Brooks are subject were incurred by Brooks in the ordinary course of business. 2.1.11.9. Expenses. Except as provided in Section 7.3, Brooks and the Shareholder will pay their respective expenses, if any, incurred in connection with the Merger. 2.1.11.10. Bankruptcy. Brooks is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal Revenue Code. 2.1.11.11. Investment Companies. Brooks is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code. 2.1.12. Intellectual Property. Brooks owns or possesses licenses to use all patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, copyrights and written know-how, trade secrets and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") that are either material to the business of Brooks or that are necessary for the rendering of any services rendered by Brooks and the use or sale of any equipment or products used or sold by Brooks, including all such Intellectual Property listed in Schedule 2.1.8. The Intellectual Property is owned or licensed by Brooks free and clear of any Encumbrance. Brooks has not granted to any other person any license to use any Intellectual Property. Brooks has not received any notice of infringement, misappropriation, or conflict with the intellectual property rights of others in connection with the use by Brooks of the Intellectual Property or otherwise in connection with Brooks' operation of its business. 2.1.13. Title to and Condition of Assets. Brooks has good, indefeasible and marketable title to all its properties, interests in properties and assets, real and personal, reflected in the Unaudited Balance Sheet or in Schedule 2.1.8, free and clear of any Encumbrance of any nature whatsoever, except (i) Encumbrances reflected in the Unaudited Balance Sheet or in Schedule 2.1.8, (ii) liens for current taxes not yet due and payable, and (iii) such imperfections of title, easements and Encumbrances, if any, as are not substantial in character, amount, or extent and do not and will not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair Brooks' business operations. All leases pursuant to which Brooks leases (whether as lessee or lessor) any substantial amount of real or personal property are in good ::ODMA\PCDOCS\DOCS\97107\2 11 standing, valid, and effective, and there is not, under any such leases, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by Brooks. The buildings and premises of Brooks that are used in its business are in good operating condition and repair, subject only to ordinary wear and tear. Except as otherwise provided on Schedule 2.1.8, all rigs, rig equipment, machinery, transportation equipment, tools and other major items of equipment of Brooks are in a state of good operating condition and repair, ordinary wear and tear excepted, and are free from any known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of Brooks' normal operations. All such assets conform, in all material respects, to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance, or regulation relating to any such assets has been received by Brooks or the Shareholder, except such as have been fully complied with. 2.1.14. Contracts. All material contracts, leases, plans or other arrangements to which Brooks is a party, by which it is bound or to which it or its assets are subject are in full force and effect, and constitute valid and binding obligations of Brooks. Brooks is not, and no other party to any such contract, lease, plan or other arrangement is, in material default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a material default thereunder. 2.1.15. Licenses and Permits. Brooks possesses all permits, authorizations, certificates, approvals, registrations, variances, waivers, exemptions, rights-of-way, franchises, ordinances, licenses and other rights of every kind and character (collectively, the "Permits") necessary under law or otherwise for Brooks to conduct its business as now being conducted and to own, operate, maintain and use its assets in the manner in which they are now being operated, maintained and used. Each of such Permits and Brooks' rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by Brooks subject to administrative powers of regulatory agencies having jurisdiction. Brooks is in compliance in all material respects with the terms of such Permits. None of such Permits have been, or to the knowledge of Brooks or the Shareholder, are threatened to be, revoked, canceled, suspended or modified. 2.1.16. Litigation. Except as set forth on Schedule 2.1.16, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which Brooks is a party or, to the knowledge of the Shareholder, might become a party or which particularly affects Brooks, nor is any change in the zoning or building ordinances directly affecting the real property or leasehold interests of Brooks pending or, to the knowledge of Brooks or the Shareholder, threatened. 2.1.17. Environmental Compliance. The provisions of this Section 2.1.17 shall not be applicable to any environmental condition or issue which is shown on Schedule 2.1.17.1. Notwithstanding anything contained herein to the contrary, this Section 2.1.17 contains the ::ODMA\PCDOCS\DOCS\97107\2 12 exclusive representations and warranties of the Shareholder and Brooks regarding environmental matters. 2.1.17.1. Environmental Conditions. There are no environmental conditions or circumstances, including, without limitation, the presence or release of any hazardous substance, on any property presently or previously owned by Brooks, or on any property to which hazardous substances or waste generated by Brooks' operations or use of its assets were disposed of, which would result in a material adverse change in the business or business prospects of Brooks; 2.1.17.2. Permits, etc. Brooks has in full force and effect all environmental permits, licenses, approvals and other authorizations required to conduct its operations, other than those that are not material to the business or operations of Brooks, and is operating in compliance thereunder; 2.1.17.3. Compliance. Brooks's operations and use of its assets do not, in any material respect, violate any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to (a) the condition or protection of air, groundwater, surface water, soil, or other environmental media, (b) the environment, including natural resources or any activity which affects the environment, or (c) the regulation of any pollutants, contaminants, waste or substances (whether or not hazardous or toxic), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609 et seq.), the Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (17 U.S.C. ss. 2601 et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss. 401 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and analogous federal, interstate, state and local requirements, as any of the foregoing may have been amended or supplemented from time to time (collectively the "Applicable Environmental Laws"); 2.1.17.4. Past Compliance. None of the operations or assets of Brooks has ever been conducted or used in such a manner as to constitute a violation of any of the Applicable Environmental Laws, other than violations which have been remedied or cured and which will not in the aggregate have a material adverse effect on the future business or operations of Brooks; 2.1.17.5. Environmental Claims. Except as set forth on Schedule 2.1.17.5, during the five year period ended on the date hereof, no notice has been served on Brooks or the Shareholder from any entity, governmental agency or individual regarding any existing, pending or threatened investigation, inquiry, enforcement action or litigation related to alleged violations under any Applicable Environmental ::ODMA\PCDOCS\DOCS\97107\2 13 Laws, or regarding any claims for remedial obligations, response costs or contribution under any Applicable Environmental Laws; 2.1.17.6. Renewals. The Shareholder and Brooks know of no reason WellTech would not be able to renew any of the permits, licenses, or other authorizations required pursuant to any of the Applicable Environmental Laws to operate and use any of Brooks' assets for their current purposes and uses; and 2.1.17.7. Asbestos and PCBs. No material amounts of friable asbestos currently exist on any property owned or operated by Brooks, nor do polychlorinated biphenyls exist in concentrations of 50 parts per million or more in electrical equipment owned or being used by Brooks in its operations or on its properties. 2.1.18. Compliance with Other Laws. Except as provided in Sections 2.1.17 and 2.1.19, Brooks is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, the Occupational Safety and Health Act (29 U.S.C. ss.ss.651 et seq.) as amended, or any other applicable law or any applicable rule, regulation, or any writ or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality which would have a material adverse effect upon its financial condition, properties or business. 2.1.19. No ERISA Plans or Labor Issues. 2.1.19.1. Exclusive Representation. The provisions of this Section 2.1.19 shall not be applicable to any issue relating to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") which is shown on Schedule 2.1.19. Notwithstanding anything contained herein to the contrary, this Section 2.1.19 contains the exclusive representations and warranties of the Shareholder and Brooks regarding ERISA matters. 2.1.19.2. Status of ERISA Plans and Labor Relations. Except as set forth on Schedule 2.1.16, Brooks does not currently sponsor, maintain or contribute to and has not at any time sponsored, maintained or contributed to any employee benefit plan which is or was subject to any provisions of ERISA. Brooks has not engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on its operations or assets. Except as set forth on Schedule 2.1.16, Brooks does not have any dispute with any of its existing or former employees. There are no labor disputes or, to the knowledge of Brooks or the Shareholder, any disputes threatened by current or former employees of Brooks. 2.1.20. Investigations; Litigation. Except as set forth on Schedule 2.1.20, no investigation or review by any governmental entity with respect to Brooks or any of the transactions contemplated by this Agreement is pending or, to the best of Brooks' or the Shareholder's knowledge, threatened, nor has any governmental entity indicated to Brooks ::ODMA\PCDOCS\DOCS\97107\2 14 or the Shareholder an intention to conduct the same, and there is no action, suit or proceeding pending or, to the best of Brooks or the Shareholder's knowledge, threatened against or affecting Brooks at law or in equity, or before any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, that either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or business of Brooks. 2.1.21. Absence of Certain Business Practices. Neither Brooks nor any officer, employee or agent of Brooks, nor any other person acting on its behalf (including the Shareholder or any officer, employee or agent of 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 business of Brooks (or to assist Brooks in connection with any actual or proposed transaction) which might subject Brooks to any material damage or penalty in any civil, criminal or governmental litigation or proceeding. 2.1.22. Consents and Approvals. Other than the filing of Articles of Merger with the Secretary of State of the State of Texas, no consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Brooks or the Shareholder in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.1.23. Finder's Fee. The Shareholder has engaged Howard, Weil, Labouisse, Friedrichs Incorporated ("Howard Weil") as its financial advisor in connection with the sale of Brooks. The fees and expenses payable to Howard Weil will be paid by the Shareholder and not out of the assets of Brooks. Other than engaging Howard Weil as its financial advisor, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Brooks and the Shareholder and their counsel directly with Key and WellTech and their counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or any similar payment. 2.2. Investment Representations of the Shareholder. The Shareholder acknowledges, represents and agrees that: 2.2.1. Shareholder Investment Suitability and Related Matters. (i) Key has made available to the Shareholder the information and documents described in Section 3.1.4., (ii) the Shareholder is aware of the risks associated with ownership of Key Common Stock, and (iii) the Shareholder is capable of bearing the financial risks associated with such ownership. 2.2.2. Key Shares Not Registered. The issuance of the Key Shares has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or registered or qualified under any applicable state securities laws; ::ODMA\PCDOCS\DOCS\97107\2 15 2.2.3. Reliance on Representations. The Key Shares are being issued to the Shareholder in reliance upon exemptions from such registration or qualification requirements, and the availability of such exemptions depends in part upon the Shareholder's bona fide investment intent with respect to the Key Shares; 2.2.4. Investment Intent. The Shareholder's acquisition of the Key Shares is solely for its own account for investment, and the Shareholder is not acquiring the Key Shares for the account of any other person or with a view toward resale, assignment, fractionalization, or distribution thereof. 2.2.5. Permitted Resale. The Shareholder shall not offer for sale, sell, transfer, pledge, hypothecate or otherwise dispose of any of the Key Shares except in accordance with the registration requirements of the Securities Act and applicable state securities laws or upon delivery to Key of an opinion of legal counsel reasonably satisfactory to Key that an exemption from registration is available; 2.2.6. Restrictive Legend. In addition to any other legends required by law or the other agreements entered into in connection herewith, the certificate evidencing the Key Shares will bear a conspicuous restrictive legend substantially as follows: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KEY AND WELLTECH 3.1. Representations and Warranties of Key. Key represents and warrants to Brooks and the Shareholder as follows: 3.1.1. Organization and Standing. Key is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, 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 ::ODMA\PCDOCS\DOCS\97107\2 16 business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on the business or operations of Key. Copies of the Certificate of Incorporation and Bylaws of Key have heretofore been delivered to Shareholder, and such copies are accurate and complete as of the date hereof. 3.1.2. Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Key, and this Agreement is a valid and binding obligation of Key enforceable against Key in accordance with its terms. The execution and delivery of this Agreement has been authorized by the board of directors of WellTech and Key in its capacity as the sole shareholder of WellTech, and has been authorized by the board of directors of Key in its individual capacity. The execution, delivery and performance of this Agreement and the consummation of the Merger contemplated by this Agreement will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of Key or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Key or any of its subsidiaries is a party or by which Key or its subsidiaries, or their respective parties are bound, which in the case of either (i) or (ii), would have a material adverse effect on the business or operations of Key. 3.1.3. Capitalization. The capitalization of Key consists of 25,000,000 shares of Key Common Stock, of which as of the date hereof, 10,549,582 shares are issued and outstanding, 913,334 shares are reserved for issuance pursuant to stock options, 825,000 shares are reserved for issuance pursuant to outstanding warrants and 5,333,333 shares are reserved for issuance upon conversion of Key's Convertible Debentures. Pursuant to Key's Certificate of Incorporation, Key's board of directors has the authority, without further shareholder action, to redesignate all of the authorized and unissued shares of Key Common Stock into one or more series of preferred stock. As of the date hereof, no shares have been so designated or issued. Except as set forth in this Section 3.1.3., there are outstanding as of the date hereof (i) no securities of Key or any other person convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of Key, and (ii) except as set forth on Schedule 3.1.3, no subscriptions, options, warrants, calls, rights obligating Key to issue, deliver, sell, purchase, redeem or acquire shares of capital stock or other voting securities of Key. All of the outstanding Key Common Stock is, and (when issued) the Key Shares will be, validly issued, fully paid and nonassessable and not subject to any preemptive right. As of the date hereof there is no, and at the Effective Date there will not be any, stockholder agreement, voting trust, or other agreement or understanding to which Key is a party or by which it is bound relating to the voting of any shares of capital stock of Key. 3.1.4. Reports and Financial Statements. Key has previously furnished to the Shareholder true and complete copies of (i) Key's annual report filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities and Exchange Act of 1934 (the "Exchange Act") for Key's fiscal year ended June 30, 1996; (ii) Key's quarterly ::ODMA\PCDOCS\DOCS\97107\2 17 and other reports filed with the Commission since Key's fiscal year ended June 30, 1996; (iii) all definitive proxy solicitation materials filed with the Commission since December 31, 1995; (iv) any registration statements (other than those relating to employee benefit plans) declared effective by the Commission since December 30, 1995; and (v) Key's Private Offering Memorandum dated June 28, 1996, relating to the Convertible Debentures. All of the foregoing items are listed on Schedule 3.1.4 (collectively, the "Key SEC Documents"). The consolidated financial statements of Key and its consolidated subsidiaries included in Key's most recent report on Form 10-K and most recent report on Form 10-Q were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved and fairly present the consolidated financial position of Key and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and changes in financial position for the periods then ended; and the Key SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were, made not misleading. Since June 30, 1994, Key has filed with the Commission all material reports, registration statements and other material filings required to be filed with the Commission under the rules and regulations of the Commission. 3.1.5.1. Financial Change. Any adverse change in the financial condition, backlog, operations, assets, liabilities or business of Key, or 3.1.5.2. Other Material Changes. Any other event or condition known to Key particularly pertaining to and adversely affecting the operations, assets or business of Key, other than events or conditions which are of a general or industry-wide nature and of general public knowledge, or which have been disclosed in writing to the Shareholder. 3.1.6. Key's Compliance with Other Laws. Key is not in violation of or in default with respect to, or in alleged violation of or alleged default with respect to, 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 which would have a material adverse affect upon its financial condition, properties or business. 3.1.7. Consents and Approvals. Except as set forth on Schedule 3.1.7, no consent, approval or authorization of, or filing a registration with any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Key in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. ::ODMA\PCDOCS\DOCS\97107\2 18 3.1.8. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Key and its counsel directly with Brooks and the Shareholder and their counsel, without the intervention by any other person as the result of any act of Key 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. 3.1.9. Investigations; Litigation. No investigation or review by any governmental entity with respect to Key in connection with any of the transactions contemplated by this Agreement is pending or, to the best of Key's knowledge, threatened, nor has any governmental entity indicated to Key an intention to conduct the same. There is no action, suit or proceeding pending or, to the best of Key's knowledge, threatened against or affecting Key by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, which either individually or in the aggregate, does or is likely to result in any material adverse change in the financial condition, properties or businesses of Key. 3.1.10. Retention of Brooks' Employees. On the Effective Date, the Surviving Corporation will continue the employment of the Brooks employees except for the Brooks employees listed on Schedule 3.1.10. All such employees hired by the Surviving Corporation shall become participants in Key's employee benefit plans, including Key's medical plan, and shall receive full credit thereunder for all purposes for their years of service at Brooks. With respect to any preexisting condition, limitations or similar provisions contained in Key's medical plan, service with Brooks shall be treated as service with Key, and for the purpose of determining deductibles, copayments and out-of-pocket maximums under Key's plans for 1996, such former Brooks employees shall be given credit under Key's medical plan for any deductibles or copayments made by a former Brooks employee or his or her dependents with respect to coverage under the medical plan sponsored by Shareholder during 1996. 3.2. Representations and Warranties of WellTech. WellTech represents and warrants to Brooks and the Shareholder as follows: 3.2.1. Organization and Standing. WellTech is a corporation duly organized, validly existing, and in good standing under the laws of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except when the failure to be so qualified or licensed would not have a material adverse effect on the business or operations of WellTech. 3.2.2. Agreement Authorized and its Effect on Other Obligations. The execution and delivery of this Agreement has been authorized by the board of directors and the holder of all of the capital stock of WellTech, the consummation of the transactions contemplated ::ODMA\PCDOCS\DOCS\97107\2 19 hereby have been duly and validly authorized by all necessary corporate action on the part of WellTech, and this Agreement is a valid and binding obligation of WellTech enforceable against WellTech in accordance with its terms. The execution, delivery and performance of this Agreement and the consummation of the Merger contemplated by this Agreement will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Certificate of Incorporation or Bylaws of WellTech or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which WellTech is a party or by which WellTech or its respective properties are bound, which in the case of either (i) or (ii), would have a material adverse effect on the business or operations of WellTech. 3.2.3. Capitalization. The authorized capital stock of WellTech consists of 3,000 shares of WellTech Common Stock, of which at the date hereof, 100 shares were issued and outstanding and held beneficially and of record by Key. 3.2.4. Consents and Approvals. Except for the filing of a Certificate of Merger with the Secretary of State of Delaware, no consent, approval or authorization of, or filing a registration with any governmental or regulatory authority, or any person or entity is required to be made or obtained by WellTech in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. 3.2.5. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by WellTech and its counsel and Brooks and the Shareholder and their counsel, without the intervention of any other person as the result of any act of WellTech 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. 3.3. Other Representations and Warranties of Key and WellTech. 3.3.1. Control Prior to Merger. Prior to the Merger, Key will be in control of WellTech within the meaning of Section 368(c) of the Internal Revenue Code. 3.3.2. Control Following Merger. Following the Merger, WellTech will not issue additional shares of its stock that would result in Key losing control of WellTech within the meaning of Section 368(c) of the Internal Revenue Code. 3.3.3. No Plan to Reacquire. Key has no plan or intention to reacquire any of its stock issued in the Merger. 3.3.4. No Plan to Dispose. Key has no plan or intention to liquidate WellTech; to merge WellTech with and into another corporation; to sell or otherwise dispose of the stock of WellTech; or to cause WellTech to sell or otherwise dispose of any of the assets of Brooks acquired in the Merger, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Internal Revenue Code. ::ODMA\PCDOCS\DOCS\97107\2 20 3.3.5. Expenses. Key and WellTech will pay their respective expenses, if any, incurred in connection with the Merger. 3.3.6. Intercorporate Indebtedness. There is no intercorporate indebtedness existing between Key and Brooks or between WellTech and Brooks that was issued, acquired, or will be settled at a discount. 3.3.7. Investment Companies. Key and WellTech are not investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code. 3.3.8. WellTech Stock. No stock of WellTech will be issued in the Merger. ARTICLE 4 OBLIGATIONS PENDING EFFECTIVE DATE 4.1. Agreements of Key and Brooks. Except as contemplated by Section 1.10, each of Key and Brooks agrees that from the date hereof until the Effective Date, it will (and unless otherwise indicated by the context, since September 30, 1996, it has): 4.1.1. Maintenance of Present Business. Other than as contemplated by this Agreement, operate its business only in the usual, regular, and ordinary manner so as to maintain the goodwill it now enjoys and, to the extent consistent with such operation, use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees, and preserve its relationships with customers, suppliers, jobbers, distributors, and others having business dealings with it; 4.1.2. Maintenance of Properties. At its expense, maintain all of its property and assets in customary repair, order, and condition, reasonable wear and tear excepted; 4.1.3. Maintenance of Books and Records. Maintain its books of account and records in the usual, regular, and ordinary manner, in accordance with generally accepted accounting principles applied on a consistent basis; 4.1.4. Compliance with Law. Duly comply in all material respects with all laws applicable to it and to the conduct of its business; and 4.1.5. Inspection of Each Merging Corporation. Permit the other party hereto, and their officers and authorized representatives, during normal business hours, to inspect its records and to consult with its officers, employees, attorneys, and agents for the purpose of determining the accuracy of the representations and warranties hereinabove made and the compliance with covenants contained in this Agreement. Key, Brooks and the Shareholder each agrees that it and its officers and representatives shall hold all data and information obtained with respect to the other party hereto in confidence and each further agrees that it ::ODMA\PCDOCS\DOCS\97107\2 21 will not use such data or information or disclose the same to others, except to the extent such data or information either are, or become, published or a matter of public knowledge through no fault of such party. 4.1.6. Notice of Material Developments. Each of Key and Brooks will promptly notify the other party in writing of any "material adverse change" in, or any changes which, in the aggregate, could result in a "material adverse change" in, the consolidated financial condition, business or affairs of such party, whether or not occurring in the ordinary course of business. As used in this Agreement, the term "material adverse change" means any change, event, circumstance or condition (collectively, a "Change") which when considered with all other Changes would reasonably be expected to result in a "loss" having the effect of so fundamentally adversely affecting the business or financial prospects of Key or Brooks, as the case may be, that the benefits reasonably expected to be obtained by such party as a result of the Merger contemplated by this Agreement would be jeopardized with relative certainty. In no event shall a change in the trading price of the Key Common Stock on the American Stock Exchange between the date hereof and the Effective Date, in and of itself, constitute a material adverse change. The term "loss" shall mean any and all direct or indirect payments, obligations, assessments, losses, loss of income, liabilities, fines, penalties, costs and expenses paid or incurred or more likely than not to be paid or incurred, or diminutions in value of any kind or character (whether known or unknown, conditional or unconditional, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise) that are more likely than not to occur, including without limitation penalties, interest on any amount payable to a third party as a result of the foregoing and any legal or other expenses reasonably incurred or more likely than not to be incurred in connection with investigating or defending any demands, claims, actions or causes of action that, if adversely determined, would likely result in losses, and all amounts paid in settlement of claims or actions; provided, that losses shall be net of any insurance proceeds entitled to be received from a nonaffiliated insurance company on account of such losses (after taking into account any costs incurred in obtaining such proceeds and any increase in insurance premiums as a result of a claim with respect to such proceeds); 4.2. Additional Agreements of Brooks. Except as contemplated by Section 1.10, Brooks agrees that from September 30, 1996 it has not, and from the date hereof to the Effective Date, it will: 4.2.1. Prohibition of Certain Employment Contracts. Not enter into any contracts of employment which cannot be terminated on notice of 30 days or less or which provide for any severance payments or benefits covering a period beyond the earlier of the termination date or notice thereof; 4.2.2. Prohibition of Certain Loans. Not incur any borrowings which would exceed $50,000, in the aggregate, for any purpose except (i) the refunding of indebtedness now outstanding, (ii) the prepayment by customers of amounts due or to become due for services rendered or to be rendered in the future, or (iii) as is otherwise agreed to in writing by Key; ::ODMA\PCDOCS\DOCS\97107\2 22 4.2.3. Prohibition of Certain Commitments. Not enter into commitments of a capital expenditure nature or incur any contingent liability which would exceed $10,000 in the aggregate except (i) as may be necessary for the maintenance of existing facilities, machinery and equipment in good operating condition and repair in the ordinary course of business, or (ii) as is otherwise agreed to in writing by Key; 4.2.4. Disposal of Assets. Not sell, dispose of, or encumber, any property or assets, except (i) in the usual and ordinary course of business or (ii) as may be approved in writing by Key; 4.2.5. Maintenance of Insurance. Maintain the insurance set forth on Schedule 2.1.8; provided, that if during the period from the date hereof to and including the Effective Date any of its property or assets are damaged or destroyed by fire or other casualty, the obligations of Key, Brooks and the Shareholder under this Agreement shall not be effected thereby, and upon the Effective Date all proceeds of insurance and claims of every kind arising as a result of any such damage or destruction shall remain the property of the Surviving Corporation. 4.2.6. Acquisition Proposals. Not directly or indirectly (i) solicit, initiate or encourage any inquiries or Acquisition Proposals at any time before termination of this Agreement pursuant to Article 6 hereof from any person or (ii) participate in any discussions or negotiations regarding, or furnish to any person other than Key or its representatives any information with respect to, or otherwise, facilitate or encourage any Acquisition Proposal by any other person. As used herein "Acquisition Proposal" means any proposal for a merger, consolidation or other business combination involving Brooks or for the acquisition or purchase of any equity interest in, or a material portion of the assets of, Brooks, other than the transactions with Key and WellTech contemplated by this Agreement. Brooks shall promptly communicate to Key the terms of any such written Acquisition Proposals which it may receive or any written inquiries made to it or any of its directors, officers, representatives or agents. 4.2.7. No Amendment to Articles of Incorporation. Except as contemplated by this Agreement, not amend its Articles of Incorporation or merge or consolidate with or into any other corporation or change in any manner the rights of its common stock or the character of its business. 4.2.8. No Issuance, Sale, or Purchase of Securities. Not issue or sell, or issue options or rights to subscribe to, or enter into any contract or commitment to issue or sell (upon conversion or otherwise), any shares of Brooks Common Stock, or subdivide or in any way reclassify any shares of Brooks Common Stock, or acquire, or agree to acquire, any shares of Brooks Common Stock; 4.2.9. Prohibition on Dividends. Except as set forth in Section 1.10, not declare or pay any dividend on shares of Brooks Common Stock or make any other distribution of assets to the holders thereof; ::ODMA\PCDOCS\DOCS\97107\2 23 4.2.10. Brooks' Employees. Brooks will use its reasonable best efforts to make all of its employees, other than those listed on Schedule 3.1.10, available for hire by Key as of the Effective Date. 4.3. Additional Agreements of Key. Key agrees it will: 4.3.1. Issuance of Key Common Stock. Take all action it deems reasonably necessary to insure that the issuance of Key Common Stock to the Shareholder in connection with the Merger will be made pursuant to an exemption from registration under the Securities Act. Key also shall take any action reasonably required to be taken under state blue sky or securities laws in connection with the issuance of the Key Common Stock pursuant to the Merger; 4.3.2. Listing of Key Stock. Take such steps as are required to accomplish, as of the Effective Date, the listing on the American Stock Exchange of the shares of Key Common Stock to be issued pursuant to this Agreement; 4.3.3. No Amendment to Articles of Incorporation. Not amend its Articles of Incorporation or merge into any other corporation or change in any manner the rights of the Key Common Stock; and 4.3.4. Notice of Material Developments. Promptly furnish to the Shareholder copies of all Key communications to its stockholders and all reports filed by it with the Commission and the American Stock Exchange, and relating to periodic or other material developments concerning Key's financial condition, business, or affairs. 4.3.5. Employee Benefits Plans. Key understands that on or before the Effective Date, the Shareholder will cause Brooks to withdraw from any and all employee benefit plans sponsored by the Shareholder in which Brooks participates. Key will cause the Surviving Corporation to pay to the Fidelity Thrift Plan, within three business days following receipt of notice from the Shareholder of the amount due, all contributions to the Fidelity Thrift Plan due but not yet paid as of the Effective Date with respect to Brooks employees and former employees for employment with Brooks before the Effective Date. Key also will cause the Surviving Corporation to satisfy all continuation coverage obligations imposed pursuant to Sections 601 through 608 of ERISA, and Section 4980B of the Internal Revenue Code of 1986, as amended, with respect to any person in the employ of Brooks (and his or her dependents) on or after the Effective Date. 4.3.6. Continuation of Historic Business of Brooks. WellTech will continue the historic business of Brooks or use a significant portion of Brook's business assets in a business for at least a period of 12 months after the Effective Date of the Merger. ::ODMA\PCDOCS\DOCS\97107\2 24 ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS 5.1. Conditions Precedent to Obligations of Brooks. The obligations of Brooks to consummate and effect the Merger hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by Brooks before the Effective Date: 5.1.1. Representations and Warranties of Key and WellTech True at Effective Date. The representations and warranties of Key and WellTech herein contained shall be, in all material respects, true as of and at the Effective Date with the same effect as though made at such date, except as affected by transactions permitted or contemplated by this Agreement; Key and WellTech shall have performed and complied, in all material respects, with all covenants required by this Agreement to be performed or complied with by Key and WellTech before the Effective Date; and Key and WellTech shall have delivered to Brooks certificates, dated the Effective Date and signed by their respective presidents, and by their chief financial or accounting officers, and their secretaries, to both such effects. 5.1.2. No Material Litigation. No suit, action, or other proceeding shall be pending, or to Key's or WellTech's knowledge, threatened, before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the Merger contemplated hereby or which might result in a material adverse change in the value of the consolidated assets and business of Key. 5.1.3. Opinion of Key Counsel. Brooks shall have received a favorable opinion, dated as of the Effective Date, from Porter & Hedges, L.L.P., counsel for Key and WellTech, in form and substance satisfactory to Brooks, to the effect that (i) Key and WellTech have been duly incorporated and are validly existing as corporations in good standing under the laws of their states of organization; (ii) all corporate proceedings required to be taken by or on the part of Key and WellTech to authorize the execution of this Agreement and the implementation of the Merger contemplated hereby have been taken; (iii) the shares of Key Common Stock which are to be delivered in accordance with this Agreement will, when issued, be validly issued, fully paid and nonassessable outstanding securities of Key; and (iv) this Agreement has duly executed and delivered by, and is the legal, valid and binding obligation of Key and WellTech and is enforceable against Key and WellTech in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. No opinion need be expressed as to the enforceability of any indemnification provisions of this Agreement or on the provisions of Section 7.1. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of Key and WellTech as to matters of fact and (ii) the opinion or opinions of other counsel, ::ODMA\PCDOCS\DOCS\97107\2 25 which opinions shall be reasonably satisfactory to Brooks, as to matters other than federal or Texas law. 5.1.4. Listing of Key Common Stock. The American Stock Exchange shall have agreed that on the Effective Date it will list the shares of Key Common Stock issuable at the Effective Date of this Agreement. 5.1.5. Consent of Certain Parties in Privity With Key and WellTech. The holders of any material indebtedness of Key or WellTech, the lessors of any material property leased by Key or WellTech, and the other parties to any other material agreements to which Key or WellTech are a party shall, when and to the extent necessary in the reasonable opinion of Brooks, have consented to the Merger contemplated hereby. 5.2. Conditions Precedent to Obligations of Key and WellTech. The obligations of Key and WellTech to consummate and effect the Merger hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by Key and WellTech before the Effective Date. 5.2.1. Representations and Warranties of Brooks True at Effective Date. The representations and warranties of Brooks and the Shareholder herein contained shall be, in all material respects, true as of and at the Effective Date with the same effect as though made at such date, except as affected by transactions permitted or contemplated by this Agreement; Brooks and the Shareholder shall have performed and complied in all material respects, with all covenants required by this Agreement to be performed or complied with by them before the Effective Date; and Brooks and the Shareholder shall have delivered to Key and WellTech a certificate, dated the Effective Date and signed by their respective chairman of the board or presidents, and by their respective chief financial or accounting officers, and by their respective secretaries, to both such effects. 5.2.2. No Material Litigation. No suit, action, or other proceeding shall be pending, or to Brooks' or the Shareholder's knowledge, threatened, before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the merger contemplated hereby or which might result in a material adverse change in the value of the assets and business of Brooks. 5.2.3. Opinion of Counsel. Key shall have received a favorable opinion, dated the Effective Date, from John R. Scott, General Counsel to the Shareholder, in form and substance satisfactory to Key, to the effect that (i) Brooks and the Shareholder each have been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of incorporation; (ii) all outstanding shares of the Brooks Common Stock have been validly issued and are fully paid and nonassessable; (iii) all corporate or other proceedings required to be taken by or on the part of Brooks and the Shareholder to ::ODMA\PCDOCS\DOCS\97107\2 26 authorize the execution of this Agreement and the implementation of the Merger contemplated hereby have been taken; and (iv) this Agreement has been duly executed and delivered by, and is the legal, valid and binding obligation of Brooks and the Shareholder and is enforceable against Brooks and the Shareholder in accordance with its terms, except as the enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. No opinion need be expressed as to the enforceability of any indemnification provisions of this Agreement or on the provisions of Section 7.1. In rendering such opinion, such counsel may rely upon (i) certificates of public officials and of officers of Brooks or the Shareholder as to matters of fact and (ii) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Key, as to matters other than federal or Texas law. 5.2.4. Consent of Certain Parties in Privity with Brooks or the Shareholder. The holders of any material indebtedness of Brooks or the Shareholder, the lessors of any material property leased by Brooks or the Shareholder, and the other parties to any other material agreements to which Brooks or the Shareholder is a party shall, when and to the extent necessary in the reasonable opinion of Key, have consented to the Merger contemplated hereby. 5.2.5. Termination of Certain Employees. Brooks shall have terminated the employees listed on Schedule 3.1.10 (the "Terminated Employees") effective before the Effective Date and shall have paid the Terminated Employees all wages and other compensation owed them through the date of termination. 5.2.6. Environmental Assessments. The Shareholder shall have completed, Phase I environmental assessments with respect to the real property listed on Schedule 2.1.8. In addition, at Key's request, no later than 10 days before the Effective Date, the Shareholder also shall have completed Phase II environmental assessments with respect to any of such real property where Phase II assessments are reasonably determined by Key to be appropriate. All of such Phase I and Phase II environmental assessments shall be at the Shareholder's expense and not out of the assets of Brooks. To the extent that such environmental assessments indicate that liabilities exist for environmental cleanup on a particular property, the Shareholder shall, no later than five days before the Effective Date, indicate to Key whether the Shareholder will conduct appropriate restoration activities at its expense on such property or whether such property shall be removed from those being acquired by Key pursuant to the Merger. To the extent the Shareholder has determined to remove a property from those being acquired by Key, then the Shareholder and Key shall have agreed to the adjustment to the Merger Consideration to be delivered pursuant to Section 1.11.2 to reflect the removal of such property from the assets of Brooks as of the Effective Date. ARTICLE 6 ::ODMA\PCDOCS\DOCS\97107\2 27 TERMINATION AND ABANDONMENT 6.1. Termination. Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated and the Merger contemplated hereby abandoned at any time before the Effective Date: 6.1.1. By Mutual Consent. By mutual consent of Key, WellTech, the Shareholder and Brooks. 6.1.2. By Key or WellTech Because of Failure to Perform Agreements or Conditions Precedent. By Key or WellTech, if Brooks or the Shareholder has failed to perform any material agreement set forth in Sections 4.1 or 4.2, or if any material condition set forth in Section 5.2 hereof has not been met, and such condition has not been waived. 6.1.3. By Brooks or the Shareholder Because of Failure to Perform Agreements or Conditions Precedent. By Brooks or the Shareholder, if Key or WellTech has failed to perform any material agreement set forth in Sections 4.1 or 4.3 hereof, or if any material condition set forth in Section 5.1 hereof has not been met, and such condition has not been waived. 6.1.4. By Key or WellTech or by the Shareholder or Brooks, Because of Legal Proceedings. By either Key or WellTech, or by the Shareholder or Brooks, if any suit, action, or other proceeding shall be pending or threatened by the federal or a state government before any court or governmental agency, in which it is sought to restrain, prohibit, or otherwise affect the consummation of the Merger contemplated hereby. 6.1.5. By Key or WellTech Because of a Material Adverse Change. By Key or WellTech if there has been a material adverse change in the financial condition or business of Brooks since the date of the most recent financial statements referred to in Section 2.1.6. 6.1.6. By the Shareholder or Brooks Because of a Material Adverse Change. By the Shareholder or Brooks if there has been a material adverse change in the financial condition or business of Key since September 30, 1996. 6.1.7. By Key or WellTech, or by the Shareholder or Brooks, if Merger not Effective by December 31, 1996. By either Key or WellTech, or by the Shareholder or Brooks, if the Merger shall not have become effective on or before December 31, 1996; provided, however, that this Agreement may not be terminated by any party hereto if the Merger has not become effective on or before December 31, 1996, due to the breach of any provision of this Agreement by the party desiring to terminate the Agreement. 6.2. Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to and in accordance with the provisions of Section 6.1 hereof, this Agreement shall become void and have no effect, without any liability on the part of any party hereto (or its ::ODMA\PCDOCS\DOCS\97107\2 28 stockholders or controlling persons or directors or officers), except as otherwise provided in this Agreement; provided, however, that a termination of this Agreement shall not relieve any party hereto from any liability for damages incurred as a result of a breach by such party of its representations, warranties, covenants, agreements, or other obligations hereunder, occurring before such termination. 6.3. Waiver of Conditions. Subject to the requirements of any applicable law, any of the terms or conditions of this Agreement may be waived at any time by the party which is entitled to the benefit thereof. 6.4. Expense on Termination. If the Merger contemplated hereby is abandoned pursuant to and in accordance with the provisions of Section 6.1 hereof, all expenses will be paid by the party incurring them. ARTICLE 7 ADDITIONAL AGREEMENTS 7.1. Noncompetition. Except as otherwise consented to or approved in writing by WellTech and Key, the Shareholder agrees that for a period of 60 months following the Effective Date, it will not, directly or indirectly, acting alone or as a member of a partnership or a holder of, or investor of any security of any class of any corporation or other business entity (i) engage in any business providing well services, anchoring services or swabbing services in those territories specified on Schedule 7.1 hereto; (ii) request any present customers or suppliers of Brooks to curtail or cancel their business with WellTech or Key; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Brooks, WellTech or Key or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of WellTech or Key to terminate his employment; provided, however, that the provisions of this Section 7.1 shall not apply to (a) any investment in any security of any class of a corporation or other business entity where such investment is passive in nature, (b) the acquisition of well service assets where such acquisition is ancillary to and not a material part of the acquisition by the Shareholder (or any affiliate thereof) of another business entity that is not primarily engaged in this well service business or (c) the Shareholder's (or any affiliate thereof) investment in Nabors Industries, Inc., provided that such investment shall not exceed ownership of more than 10% of the voting stock of Nabors Industries, Inc. nor shall more than one person associated with the Shareholder (or any affiliate thereof) serve on the board of directors of Nabors Industries, Inc., and, provided further that nothing in this Section 7.1 shall prohibit the Shareholder from altering its current business relationship with Brooks. The Shareholder agrees that if either the length of time or geographical area set forth in this Section 7.1 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 7.1 are in addition to any other obligations that the Shareholder may have under the laws of the State of Texas requiring an employee of a business or a shareholder who sells his stock in a corporation (including a disposition in a merger) to limit his activities so that the goodwill and business relations of his employer and of the corporation whose stock he has sold (and any successor ::ODMA\PCDOCS\DOCS\97107\2 29 corporation) will not be materially impaired. The Shareholder further agrees and acknowledges that WellTech and Key do not have any adequate remedy at law for the breach or threatened breach by the Shareholder of this covenant, and agree that WellTech or Key may, in addition to the other remedies which may be available to them hereunder, file a suit in equity to enjoin the Shareholder from such breach or threatened breach. If any provisions of this Section 7.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Shareholder acknowledges that the covenants set forth in this Section 7.1 are being executed and delivered by the Shareholder in consideration of the covenants of WellTech and Key contained in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged. 7.2. Registration Rights. 7.2.1. Agreement to Register Resales. Key agrees that no later than April 3, 1997, it will file with the Commission on Form S-3, or if Form S-3 is not available to Key, on Form S-1, a shelf registration statement pursuant to Rule 415 of the Securities Act (the "Shelf Registration Statement") covering the offer and resale by the Shareholder of all the Key Shares and will use its best efforts to cause the Shelf Registration Statement to be declared effective promptly by the Commission. Key will not file a registration statement with the Commission (other than on Form S-8) before Key files the Shelf Registration Statement. The Shelf Registration Statement will not relate to any shares of Key Common Stock other than the Key Shares. 7.2.2. Effectiveness of Shelf Registration Statement. Key agrees to maintain the Shelf Registration Statement in effect for the maximum period allowable under the regulations promulgated by the Commission; provided that if such maximum period is less than three years from the Effective Date and if as of the end of such maximum period not all of the Key Shares registered under the Shelf Registration Statement have been sold, then within 10 days after the end of such maximum period Key shall file either a post-effective amendment to the existing Shelf Registration Statement or a new Shelf Registration Statement covering the offer and resale by the Shareholder of all Key Shares not previously sold, and Key will use its best efforts to cause the same to be declared effective promptly by the Commission and will maintain such Shelf Registration Statement in effect until the third anniversary of the Effective Date. In addition, Key shall amend the Shelf Registration Statement and supplement the prospectus included therein as and when required by Form S-3 or Form S-1, as applicable, or by the Securities Act. 7.2.3. Blue Sky Qualification. In any offering pursuant to this Section, Key will use its best efforts to effect any such registration and use its best efforts to effect such qualification and compliance as may be required and as would permit or facilitate the resale of such Shares, including, without limitation, registration under the Securities Act, appropriate qualifications under applicable blue-sky or other state securities laws and, appropriate compliance with any other governmental requirements. 7.2.4. Registration Expenses. All expenses (except for any legal fees for the Shareholder's counsel) relating to the registration of the Key Shares pursuant to this ::ODMA\PCDOCS\DOCS\97107\2 30 Agreement (including, but not limited to, the expenses of any qualifications under the blue- sky or other state securities laws and compliance with governmental requirements of preparing and filing any post-effective amendments or prospectus supplements required for the lawful distribution of the Key Shares to the public in connection with such registration) will be paid by Key. 7.2.5. Preparation; Reasonable Investigation. In connection with the preparation and filing of any Shelf Registration Statement under the Securities Act pursuant to this Agreement, Key will give the Shareholder the opportunity to participate in the preparation of such Shelf Registration Statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give the Shareholder such access to its books and records and such opportunities to discuss the business of Key with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 7.2.6. Rights Non-Transferable. The registration rights provided by this Section 7.2 are for the sole benefit of the Shareholder, are personal in nature, and shall not be available to any subsequent holder of the Key Shares; provided, however, that such registration rights are transferable to any affiliate of the Shareholder to which the Key Shares may be transferred. 7.2.7. Undertaking to File Reports and Cooperate in Rule 144 and Rule 145 Transactions. For as long as the Shareholder is subject to Rule 144 or Rule 145 of the Securities Act with respect to the Key Shares, Key will use reasonable commercial efforts to timely file all annual, quarterly and other reports required to be filed by it under Section 13 or 15(d) of the Exchange Act and the rules and regulations of the Commission thereunder, as amended from time to time. If the Shareholder proposes to sell any Key Shares pursuant to Rule 144 and 145, Key shall cooperate with the Shareholder so as to enable such sales to be made in accordance with applicable laws, rules and regulations, the requirements of Key's transfer agent, and the reasonable requirements of the broker through which the sales are proposed to be executed. Without limiting the generality of the foregoing, Key shall, upon request, furnish with respect to each such sale (i) a written statement certifying that Key has complied with the public information requirements of Rule 144 and 145 and (ii) an opinion of Key's counsel regarding such matters as Key's transfer agent or such stockholder's broker may reasonably desire to confirm. 7.2.8. Additional Undertakings with Respect to Registration Rights. In connection with its registration obligations under this Section 7.2, Key shall: 7.2.8.1. Delivery of Shelf Registration Statement and Prospectus. Furnish to the Shareholder such number of copies of the Shelf Registration Statement, each amendment and supplement thereto, the prospectus included in such Shelf Registration Statement (including each preliminary prospectus), any documents ::ODMA\PCDOCS\DOCS\97107\2 31 incorporated by reference therein and such other documents as the Shareholder may reasonably request in order to facilitate the disposition of the Key Shares. 7.2.8.2. Notice to the Shareholder. Promptly notify the Shareholder and (if requested by any such person) confirm such notice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a Shelf Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Key Shares under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (iii) of the happening of any event which makes any statement made in a Shelf Registration Statement or related prospectus untrue or which requires the making of any changes in such Shelf Registration Statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Key Shares, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. 7.2.8.3. Incorporation of Information. If requested by the Shareholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the Shareholder reasonably requests to be included therein, including, without limitation, with respect to the Key Shares being sold by the Shareholder, and promptly make all required filings of such prospectus supplement or post-effective amendment. 7.2.8.4. Delivery of Documents Incorporated by Reference. As promptly as practicable after filing with the Commission of any document which is incorporated by reference into a Shelf Registration Statement (in the form in which it was incorporated), deliver a copy of each such document to the Shareholder. 7.2.8.5. Listing. Cause the Key Shares included in any Shelf Registration Statement to be (i) listed on each securities exchange, if any, on which similar securities issued by Key are then listed, or (ii) authorized to be quoted and/or listed (to the extent applicable) on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or the NASDAQ National Market System if the Key Shares so qualify. 7.2.8.6. Filing of Exchange Act Reports. During the period when a prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. ::ODMA\PCDOCS\DOCS\97107\2 32 7.2.8.7. Requests for Information by the Commission. Notify the Shareholder promptly of any request by the Commission for the amending or supplementing of such Shelf Registration Statement or prospectus or for additional information. 7.2.8.8. Notes of Stop Orders. Advise the Shareholder of such Key Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. For purposes of this Section 7.2.8, the Shareholder shall include any affiliate to which the Key Shares are transferred. Also for purposes of this Section 7.2.8., Key Shares shall refer to any capital stock of Key or its successors into which Key shares may be exchanged or converted. 7.3. Settling of Accounts. 7.3.1. Allocation of Accounts. To the extent not otherwise applied or distributed pursuant to Section 1.10, Key shall cause the Surviving Corporation to pay to the Shareholder an amount equal to the amount by which (i) Brooks' accounts receivable collected by the Surviving Corporation that are attributable to work performed by Brooks before the close of business as of the end of the month immediately before the month in which the Effective Date occurs (the "Allocation Date") exceed (ii) the amount of Brooks' trade payables accrued as of the Allocation Date plus amounts paid by the Surviving Corporation pursuant to the second sentence of Section 4.3.5 (the "Excess Receivables"). Key shall cause the Surviving Corporation to use all commercially reasonable efforts to collect such accounts receivable within 90 days of the Effective Date. The amount of Excess Receivables shall be applied (a) first, to the payment of the Excess Amount and (b) second, as a dividend in respect of the Excess Dividend Amount. The payment of any Excess Receivables under this Section 7.3 shall be made 90 days following the Effective Date. Before such payment date, Key shall keep the Shareholder timely informed as to the amounts of all accounts receivable collected by the Surviving Corporation and the amounts of all trade payables. Within 30 days after such 90 day period, Key shall cause the Surviving Corporation to have its controller present to the Shareholder and Key an audit of the amounts payable to the Shareholder under this Section 7.3. If there is disagreement among the parties as to the correctness of such audit, an independent auditor reasonably satisfactory to both Key and the Shareholder shall conduct a separate audit, the fees and expenses of which shall be paid by the Shareholder unless the amounts payable determined by the controller is more than 5% greater than the amount determined by the independent auditor, in which case such fees and expenses shall be paid by Key. Any accounts receivable attributable to work performed before the Allocation Date which remain outstanding after the audit performed by the comptroller shall be assigned by the Surviving Corporation to the Shareholder. ::ODMA\PCDOCS\DOCS\97107\2 33 7.3.2. Welfare Benefits; Long-Term Disability. The Shareholder agrees that any claims for welfare benefits arising on or before the Allocation Date with respect to any employees or former employees of Brooks (or their covered dependents or beneficiaries) shall be the responsibility of the Shareholder or insurers of the Shareholder's welfare plans, and Key and WellTech agree that any claims for welfare benefits and worker's compensation arising after the Allocation Date with respect to any employees (or their covered dependents or beneficiaries) shall be the responsibility of the Surviving Corporation and the companies or the insurers of Key or WellTech's Welfare Plans. Except as otherwise provided below, a claim is deemed to have arisen when services relating to the condition that is the subject of the claim were performed. In the case of an individual who is hospitalized or on long-term disability on the Allocation Date, all claims relating to such hospitalization (including, without limitation, hospital charges and physician fees) shall be deemed to be claims arising on or before the Allocation Date. With respect to worker's compensation claims which are single - accident specific, a claim is deemed to have arisen on the date of occurrence. With respect to all other worker's compensation claims, a claim is deemed to have arisen on the date the worker's compensation award is made. With respect to life insurance or other death- related benefits, a claim is deemed to have arisen when the death of the employee or covered dependent occurred. 7.4. Future Tax Returns. 7.4.1. Filing of Tax Returns. The Shareholder shall prepare and file in a timely fashion the federal income tax return for the consolidated group, including Brooks, for the period ending on the Effective Date. The Shareholder shall prepare and file in a timely fashion, any state, local, foreign or other tax returns of Brooks due for any period that includes the Effective Date. The Shareholder shall directly pay or discharge any and all income taxes, assessments, interest, penalties or deficiencies reflected on such return, including the tax liability of any member or former member of a consolidated group of which Brooks was a member, however measured, for which Brooks may be held liable. Such payment shall be made on or before the date any such payment finally determined to be due and payable (including any applicable extensions or tolling of such payment obligation pending the final determination of any contested tax issue ; provided, however, that any such payment shall not be due and payable until the later to occur of (i) the last date for payment, including any applicable extensions, or (ii) in the case of a potential payment with respect to a contested issue, the date such payment is finally determined to be due and payable by the administrative agency or highest court of competent jurisdiction before which the Shareholder has contested the matter following a final non-appealable determination that such payment is due or the expiration of the time for prosecution or appeal of the issue to the next highest level of administrative or judicial review with respect to such matter. 7.4.2. Tax Controversies. Each of Key and the Shareholder shall provide to the other on a timely basis information concerning the commencement and status of any and all tax controversies involving Brooks or its business, as the case may be as hereinafter provided. Except as otherwise provided in the last sentence hereof, the Shareholder shall control the ::ODMA\PCDOCS\DOCS\97107\2 34 handling of all pre-Effective Date tax matters involving Brooks or its business for which Key may be directly or indirectly liable by operation of law or by the terms of this Agreement, subject to providing Key with any relevant information concerning these matters; provided, however, that the Shareholder shall not be required to provide to Key any details (beyond the overall status) concerning any administrative or judicial proceedings involving the consolidated group (or other members thereof) if Brooks or its business is only involved in and potentially liable for taxes, penalties and interest solely by virtue of being a member of the consolidated group. Except as otherwise provided in the last sentence hereof, Key shall control the handling of all tax matters arising on or after the Effective Date involving the business of Brooks, subject to providing the Shareholder with any and all information regarding tax controversies or matters for which the Shareholder may be or become directly or indirectly liable by operation of law or by the terms of this Agreement. Notwithstanding, the foregoing sentences of this Section 7.4.2, if any tax matter or controversy arises with respect to any federal or state tax authority that challenges the non-taxable status of the Merger or the other transactions contemplated by this Agreement, Key or the Shareholder, as the case may be, shall contest any challenge to the non-taxable status of these transactions, shall keep each other informed as to the status of any such matter or controversy, shall mutually agree upon outside counsel to handle such matter or controversy on behalf of both Key and the Shareholder (or failing such agreement, cause their respective outside counsels to choose a third outside counsel to handle the matter of controversy on behalf of Key and the Shareholder), and shall coordinate the handling, settlement and resolution with one another of such tax matter or controversy in a reasonable manner. 7.5. Continuation of Employment of Certain Brooks Personnel. The Shareholder and Brooks shall use their reasonable best efforts to encourage the employees of Brooks listed on Schedule 7.6 to have entered into employment agreements with the Surviving Corporation in form and substance satisfactory to Key. 7.6. Further Assurances. From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effectuate the transactions contemplated hereby. ARTICLE 8 INDEMNIFICATION 8.1. Indemnification by the Shareholder. The Shareholder shall indemnify, defend and hold harmless each of Key and WellTech, and their respective officers, directors, employees, agents and stockholders, against and with respect to any and all claims, costs, damages, losses, expenses, obliga tions, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys' fees and expenses (collectively, the "Damages") that such indemnitees shall incur or suffer, which arise, result from or relate to (i) any breach of, or failure by the Shareholder to perform, its representations, warranties, covenants or agreements in this Agreement or in any ::ODMA\PCDOCS\DOCS\97107\2 35 schedule, certificate, exhibit or other instrument furnished or delivered to WellTech or Key by the Shareholder under this Agreement, (ii) Brooks's relationship with any Terminated Employee, (iii) any obligation of Key or Brooks to contribute to the payment of any taxes determined on a consolidated, combined or unitary basis with respect to a group of corporations that includes or included Brooks allocable to any period before the Effective Date; and (iv) the Shareholder agrees to indemnify and hold harmless WellTech and Key from any and all federal income tax liability (including penalties and interest) that WellTech may incur or succeed to by virtue of WellTech's receipt of the Brooks' business pursuant to the Merger solely as a result of a final adjudicated determination that the Merger failed to qualify as a tax-free reorganization under Section 368(a) of the Code by virtue of a determination that the Shareholder failed to maintain the requisite post- Merger continuity of shareholder interest; provided, however, that this indemnity shall be ineffective if and of no further force and effect if the Shareholder continues to hold 50% or more the Key Shares received in the Merger for a period of time equal to 365 days from the Effective Date, irrespective whether the tax-free nature of the Merger is challenged on the grounds that the Merger failed the continuity of interest requirement. For purposes of this provision, a "final adjudicated determination" shall mean a determination by the highest court of competent jurisdiction to which the Shareholder could appeal, or the determination of a lower court or the Internal Revenue Service, as the case may be, if the Shareholder has not filed a suit in a court of appropriate jurisdiction before the expiration of the applicable statute of limitations or the date for filing an appeal of an adverse decision has expired. 8.2. Indemnification by Key. Key shall indemnify, defend and hold harmless the Shareholder and its officers, directors, employees and agents 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 WellTech or Key to perform any of their representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Brooks or the Shareholder by or on behalf of Key or WellTech under this Agreement and (ii) any obligation of the Shareholder or its consolidated group of corporations to contribute to the payment of any taxes determined on a consolidated, combined or unitary basis with respect to a group of corporations that includes or included the Surviving Corporation or the business of Brooks allocable to any period on or after the Effective Date. In addition, Key will indemnify, defend and hold harmless the Shareholder and its officers, directors, employees and agents against any claims to which the Shareholder may become subject under the Securities Act or otherwise, insofar as such claims (or actions or proceedings whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and Key will reimburse the Shareholder and each such controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such claim (or action or proceeding in respect thereof); provided that Key shall not be liable in any such case to the extent that a claim (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity ::ODMA\PCDOCS\DOCS\97107\2 36 with written information furnished to Key, in an instrument duly executed by the President or Senior Vice President of Finance of Shareholder specifically stating that it is for use in the preparation thereof. 8.3. Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 8.1 or Section 8.2 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; , 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 8, 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, 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 fees and 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. Notwith standing 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. 8.4. Limitation on Damages. Notwithstanding anything in this Agreement to the contrary, the Shareholder shall not be liable to Key and the Surviving Corporation or any of their respective officers, directors, employees, agents or stockholders, their successors or assigns, for any Damages suffered or incurred by Key or the Surviving Corporation in excess of the Liability Exception (hereinafter defined); provided, however, that to the extent there are Damages suffered or incurred ::ODMA\PCDOCS\DOCS\97107\2 37 by Key or the Surviving Corporation arising out of, or attributable to, a single occurrence or event that are equal to the Liability Exception, then, in such event, Key or WellTech shall be entitled to indemnification by the Shareholder for the total amount of such Damages. The aggregate amount of any Damages owed by the Shareholder to Key or WellTech shall not exceed the value of the shares received by Shareholder under Section 1.11.2.1, which for this purpose shall be the number of Key Shares received multiplied by the Average Closing Price. 8.5. Liability Exception. For purposes of this Section, the term "Liability Exception" shall mean $250,000; provided however, that the Liability Exception shall not include Damages pursuant to Section 2.1.11 relating to Taxes. 8.6. Exclusive Remedy. From and after the Effective Date, the indemnification provided in Sections 8.1 and 8.2 shall be the exclusive remedy that may be asserted under this Agreement or in connection with the transactions contemplated herein. Notwithstanding any provision to the contrary contained herein, each of the parties to this Agreement hereby waives any right to recover special, punitive or exemplary damages for any claim asserted against the other. ARTICLE 9 MISCELLANEOUS 9.1. Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 24 months from the Effective Date, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11, 3.3 and 4.3.6 hereof shall survive until the expiration of the applicable statute of limitations associated with the taxes at issue. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 24 months from the Effective Date despite any investigation made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive indefinitely without limitation, except as otherwise provided herein. 9.2. 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. 9.3. 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. 9.4. 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. ::ODMA\PCDOCS\DOCS\97107\2 38 If to Key or WellTech Addressed to: With a copy to: Key Energy Group, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana, 35th Floor East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: Francis D. John Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to the Shareholder Addressed to: With a copy to: Hunt Oil Company Hunt Oil Company 1445 Ross Avenue 1445 Ross Avenue Dallas, Texas 75202 Dallas, Texas 75202 Attn: Gary T. Hurford Attn: Donald F. Robillard, Jr. Facsimile: (214) 978-8671 Senior Vice President-Finance Facsimile: (214) 978-8671 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 9.5. Table of Contents and Captions. The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 9.6. 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. 9.7. 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. 9.8. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas. ::ODMA\PCDOCS\DOCS\97107\2 39 9.9. Public Announcements. The parties agree that before the Effective Date they shall consult with each other before the making of any public announcement regarding the existence of this Agreement, the contents hereof and the transactions contemplated hereby, and to obtain the prior approval of the other party as to the content of such announcement which approval shall not be unreasonably withheld. However, the foregoing shall not apply to any announcement or written statement which, upon written advice of counsel, is required by law to be made. 9.10. Knowledge. As used in this Agreement, the words "to the knowledge of " or other words of similar import shall mean (i) in the case of Key or WellTech, to the actual knowledge of the directors and executive officers of Key or WellTech, as the case may be, without regard to any investigation; (ii) in the case of Brooks, to the actual knowledge of the directors and executive officers of Brooks without regard to any investigation; and (iii) with respect to the Shareholder, to the actual knowledge of the officers of the Shareholder who serve as officers and directors of Brooks or have substantial responsibility over the business operations of Brooks. [SIGNATURE PAGE FOLLOWS] ::ODMA\PCDOCS\DOCS\97107\2 40 IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. KEY ENERGY GROUP, INC. By: /s/ FRANCIS D. JOHN Francis D. John, President WELLTECH EASTERN, INC. By: /s/ FRANCIS D. JOHN Francis D. John, President BROOKS WELL SERVICING, INC. By: /s/ J.B. MCCRACKEN J. B. McCracken, President HUNT OIL COMPANY By: /s/ GARY T. HURFORD Gary T. Hurford, President ::ODMA\PCDOCS\DOCS\97107\2 41 TABLE OF CONTENTS ARTICLE 1 THE MERGER....................................................................2 1.1. Surviving Corporation................................................2 1.2. Effective Date.......................................................2 1.3. Name and Continued Corporate Existence of Surviving Corporation......2 1.4. Governing Law and Articles of Incorporation of Surviving Corporation.2 1.5. Bylaws of Surviving Corporation..................................... 3 1.6. Directors of Surviving Corporation...................................3 1.7. Officers of Surviving Corporation....................................3 1.8. Vacancies............................................................3 1.9. Capital Stock of Surviving Corporation...............................3 1.10. Distributions........................................................3 1.11. Conversion of Securities Upon Merger.................................4 1.11.1. Conversion of Brooks Common Stock..................4 1.11.2. Adjustments to Merger Consideration................4 1.11.2.1. Key Common Stock Closing Price Adjustments4 1.11.2.2. Adjustments for Environmental Liabilities.4 1.12. Surrender of Brooks Certificates.....................................5 1.13. Brooks' Transfer Books Closed........................................5 1.14. Assets and Liabilities of Merging Corporations Become Those of Surviving Corporation.......................................5 1.15. Federal Income Tax Treatment.........................................5 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND BROOKS..................6 2.1. Representations and Warranties of the Shareholder and Brooks.........6 2.1.1. Organization and Good Standing..............................6 2.1.2. Agreement Authorized and its Effect on Other Obligations....6 2.1.3. Capitalization..............................................6 2.1.4. Ownership of Brooks Shares..................................7 2.1.5. No Subsidiaries.............................................7 2.1.6. Financial Statements........................................7 2.1.7. Liabilities.................................................7 2.1.8. Additional Information......................................8 2.1.8.1. Real Estate...............................8 2.1.8.2. Machinery and Equipment...................8 2.1.8.3. Inventory.................................8 2.1.8.4. Insurance.................................8 ::ODMA\PCDOCS\DOCS\97107\2 i 2.1.8.5. Contracts.................................8 2.1.8.6. Employee Compensation Plans...............8 2.1.8.7. Certain Salaries..........................8 2.1.8.8. Bank Accounts.............................9 2.1.8.9. Employee Agreements.......................9 2.1.8.10. Intellectual Property.....................9 2.1.8.11. Trade Names...............................9 2.1.8.12. Promissory Notes..........................9 2.1.8.13. Guaranties................................9 2.1.8.14. Leases....................................9 2.1.8.15. Environment...............................9 2.1.9. No Defaults.................................................9 2.1.10. Absence of Certain Changes and Events.......................9 2.1.10.1. Financial Change.........................10 2.1.10.2. Property Damage..........................10 2.1.10.3. Dividends................................10 2.1.10.4. Capitalization Change....................10 2.1.10.5. Labor Disputes...........................10 2.1.10.6. Other Material Changes...................10 2.1.11. Taxes......................................................10 2.1.11.1. Tax Returns..............................10 2.1.11.2. Statutes of Limitation...................10 2.1.11.3. Audits...................................10 2.1.11.4. Tax Liens................................11 2.1.11.5. Tax-Sharing Agreements...................11 2.1.11.6. Distributions. ..........................11 2.1.11.7. No Plan To Dispose.......................11 2.1.11.8. Liabilities..............................11 2.1.11.9. Expenses.................................11 2.1.11.10. Bankruptcy...............................11 2.1.11.11. Investment Companies.....................12 2.1.12. Intellectual Property......................................12 2.1.13. Title to and Condition of Assets...........................12 2.1.14. Contracts..................................................12 2.1.15. Licenses and Permits.......................................13 2.1.16. Litigation.................................................13 2.1.17. Environmental Compliance...................................13 2.1.17.1. Environmental Conditions........................13 2.1.17.2. Permits, etc....................................13 2.1.17.3. Compliance......................................13 2.1.17.4. Past Compliance.................................14 2.1.17.5. Environmental Claims............................14 2.1.17.6. Renewals........................................14 2.1.17.7. Asbestos and PCBs...............................14 2.1.18. Compliance with Other Laws.................................14 ::ODMA\PCDOCS\DOCS\97107\2 ii 2.1.19. No ERISA Plans or Labor Issues.............................15 2.1.19.1. Exclusive Representation........................15 2.1.19.2. Status of ERISA Plans and Labor Relations.......15 2.1.20. Investigations; Litigation.................................15 2.1.21. Absence of Certain Business Practices......................15 2.1.22. Consents and Approvals.....................................16 2.1.23. Finder's Fee...............................................16 2.2. Investment Representations of the Shareholder..........................16 2.2.1. Shareholder Investment Suitability and Related Matters......16 2.2.2. Key Shares Not Registered...................................16 2.2.3. Reliance on Representations.................................16 2.2.4. Investment Intent...........................................16 2.2.5. Permitted Resale............................................17 2.2.6. Restrictive Legend..........................................17 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KEY AND WELLTECH...........................17 3.1. Representations and Warranties of Key..................................17 3.1.1. Organization and Standing...................................17 3.1.2. Agreement Authorized and its Effect on Other Obligations....18 3.1.3. Capitalization..............................................18 3.1.4. Reports and Financial Statements............................18 3.1.5. Absence of Certain Changes and Events in Key................19 3.1.5.1. Financial Change.................................19 3.1.5.2. Other Material Changes...........................19 3.1.6. Key's Compliance with Other Laws............................19 3.1.7. Consents and Approvals......................................19 3.1.8. Finder's Fee................................................19 3.1.9. Investigations; Litigation..................................20 3.1.10. Retention of Brooks' Employees.............................20 3.2. Representations and Warranties of WellTech.............................20 3.2.1. Organization and Standing...................................20 3.2.2. Agreement Authorized and its Effect on Other Obligations....20 3.2.3. Capitalization..............................................21 3.2.4. Consents and Approvals......................................21 3.2.5. Finder's Fee................................................21 3.3. Other Representations and Warranties of Key and WellTech...............21 3.3.1. Control Prior to Merger.....................................21 3.3.2. Control Following Merger....................................21 3.3.3. No Plan to Reacquire........................................21 3.3.4. No Plan to Dispose..........................................21 3.3.5. Expenses....................................................22 3.3.6. Intercorporate Indebtedness.................................22 3.3.7. Investment Companies........................................22 ::ODMA\PCDOCS\DOCS\97107\2 iii 3.3.8. WellTech Stock..............................................22 ARTICLE 4 OBLIGATIONS PENDING EFFECTIVE DATE...........................................22 4.1. Agreements of Key and Brooks...........................................22 4.1.1. Maintenance of Present Business.............................22 4.1.2. Maintenance of Properties...................................22 4.1.3. Maintenance of Books and Records............................22 4.1.4. Compliance with Law.........................................22 4.1.5. Inspection of Each Merging Corporation......................22 4.1.6. Notice of Material Developments.............................23 4.2. Additional Agreements of Brooks........................................23 4.2.1. Prohibition of Certain Employment Contracts.................23 4.2.2. Prohibition of Certain Loans................................24 4.2.3. Prohibition of Certain Commitments..........................24 4.2.4. Disposal of Assets..........................................24 4.2.5. Maintenance of Insurance....................................24 4.2.6. Acquisition Proposals.......................................24 4.2.7. No Amendment to Articles of Incorporation...................24 4.2.8. No Issuance, Sale, or Purchase of Securities................24 4.2.9. Prohibition on Dividends....................................25 4.2.10. Brooks' Employees..........................................25 4.3. Additional Agreements of Key...........................................25 4.3.1. Issuance of Key Common Stock................................25 4.3.2. Listing of Key Stock........................................25 4.3.3. No Amendment to Articles of Incorporation...................25 4.3.4. Notice of Material Developments.............................25 4.3.5. Employee Benefits Plans.....................................25 4.3.6. Continuation of Historic Business of Brooks.................26 ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS..........................................26 5.1. Conditions Precedent to Obligations of Brooks...........................26 5.1.1. Representations and Warranties of Key and WellTech True at Effective Date..............................................26 5.1.2. No Material Litigation......................................26 5.1.3. Opinion of Key Counsel......................................26 5.1.4. Listing of Key Common Stock.................................27 5.1.5. Consent of Certain Parties in Privity With Key and WellTech.27 5.2. Conditions Precedent to Obligations of Key and WellTech................27 5.2.1. Representations and Warranties of Brooks True at Effective Date........................................................27 5.2.2. No Material Litigation......................................27 5.2.3. Opinion of Counsel..........................................28 5.2.4. Consent of Certain Parties in Privity with Brooks or the Shareholder.................................................28 ::ODMA\PCDOCS\DOCS\97107\2 iv 5.2.5. Termination of Certain Employees............................28 5.2.6. Environmental Assessments...................................28 ARTICLE 6 TERMINATION AND ABANDONMENT..................................................29 6.1. Termination............................................................29 6.1.1. By Mutual Consent...........................................29 6.1.2. By Key or WellTech Because of Failure to Perform Agreements or Conditions Precedent........................................29 6.1.3. By Brooks or the Shareholder Because of Failure to Perform Agreements or Conditions Precedent..........................29 6.1.4. By Key or WellTech or by the Shareholder or Brooks, Because of Legal Proceedings.................................29 6.1.5. By Key or WellTech Because of a Material Adverse Change.....29 6.1.6. By the Shareholder or Brooks Because of a Material Adverse Change......................................................29 6.1.7. By Key or WellTech, or by the Shareholder or Brooks, if Merger not Effective December 31, 1996.............................30 6.2. Effect of Termination..................................................30 6.3. Waiver of Conditions...................................................30 6.4. Expense on Termination.................................................30 ARTICLE 7 ADDITIONAL AGREEMENTS .......................................................30 7.1. Noncompetition.........................................................30 7.2. Registration Rights....................................................31 7.2.1. Agreement to Register Resales...............................31 7.2.2. Effectiveness of Shelf Registration Statement...............31 7.2.3. Blue Sky Qualification......................................32 7.2.4. Registration Expenses.......................................32 7.2.5. Preparation; Reasonable Investigation.......................32 7.2.6. Rights Non-Transferable.....................................32 7.2.7. Undertaking to File Reports and Cooperate in Rule 144 and Rule 145 Transactions............................................32 7.2.8. Additional Undertakings with Respect to Registration Rights..........33 7.2.8.1. Delivery of Shelf Registration Statement and Prospectus.....................................33 7.2.8.2. Notice to the Shareholder........................33 7.2.8.3. Incorporation of Information.....................33 7.2.8.4. Delivery of Documents Incorporated by Reference..34 7.2.8.5. Listing..........................................34 7.2.8.6. Filing of Exchange Act Reports...................34 7.2.8.7. Requests for Information by the Commission.......34 7.2.8.8. Notes of Stop Orders.............................34 7.3. Settling of Accounts................................................34 ::ODMA\PCDOCS\DOCS\97107\2 v 7.3.1. Allocation of Accounts......................................34 7.3.2. Welfare Benefits; Long-Term Disability......................35 7.4. Future Tax Returns.....................................................35 7.4.1. Filing of Tax Returns.......................................35 7.4.2. Tax Controversies...........................................36 7.5. Continuation of Employment of Certain Brooks Personnel.................37 7.6. Further Assurances.....................................................37 ARTICLE 8 INDEMNIFICATION..............................................................37 8.1. Indemnification by the Shareholder.....................................37 8.2. Indemnification by Key.................................................38 8.3. Indemnification Procedure..............................................38 8.4. Limitation on Damages..................................................39 8.5. Liability Exception....................................................39 8.6. Exclusive Remedy.......................................................39 ARTICLE 9 MISCELLANEOUS................................................................40 9.1. Survival of Representations, Warranties and Covenants..................40 9.2. Entirety...............................................................40 9.3. Counterparts...........................................................40 9.4. Notices and Waivers....................................................40 9.5. Table of Contents and Captions.........................................41 9.6. Successors and Assigns.................................................41 9.7. Severability...........................................................41 9.8. Applicable Law.........................................................41 9.9. Public Announcements...................................................41 9.10. Knowledge...........................................................39 ::ODMA\PCDOCS\DOCS\97107\2 vi EX-10.(F) 7 B & L HOTSHOT ASSET PURCHASE AGREEMENT Execution Copy ASSET PURCHASE AGREEMENT AMONG WELLTECH EASTERN, INC., B&L HOTSHOT, INC., MCDOWELL & SONS, INC., 4 STAR TRUCKING, INC., R.B.R., INC., ROYCE D. THOMAS, JOHN F. MCDOWELL AND JOHN R. MCDOWELL December 13, 1996 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of December 13, 1996 among WellTech Eastern, Inc., a Delaware corporation ("Buyer"), B&L Hotshot, Inc., a Michigan corporation ("B&L"), McDowell & Sons, Inc., a Michigan corporation ("McDowell"), 4Star Trucking, Inc., a Michigan corporation ("4Star"), R.B.R., Inc., a Michigan corporation ("RBR"), Royce D. Thomas ("Royce"), John F. McDowell ("John F.") and John R. McDowell ("John R."). B&L, McDowell, 4Star and RBR are referred to collectively herein as the "Sellers" and individually as a "Seller." Royce, John F. and John R. are referred to collectively herein as the "Shareholders" and individually as a "Shareholder." W I T N E S S E T H: WHEREAS, the Sellers desire to sell substantially all of their 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 I 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 Sellers hereby agree to sell, convey, transfer, assign and deliver to Buyer all of the assets of the Sellers existing on the date hereof other than the Excluded Assets (defined below), whether real, personal, tangible or intangible, including, without limitation, the following assets of the Sellers relating to or used or useful in the operation of the businesses as conducted by the Sellers on and before the date hereof (the "Businesses") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property of the Sellers (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 Sellers' inventory, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventories"), subject to changes in the ordinary course of business since the Balance Sheet Date (as defined in Section 2.1.4 hereof); (c) all of the Sellers' intangible assets, including without limitation, (i) all of the Sellers' rights to the names under which they are incorporated or under which they currently do business, (ii) all of the Sellers' 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 Businesses, including without limitation, that which is more fully described on Schedule 1.1(c) hereto (the "Seller Intellectual Property") and (iii) the Sellers' phone numbers and all of their account ledgers, sales and promotional literature, computer software, books, records, files and data (including customer and supplier lists), and all other records of the Sellers relating to the Assets or the Businesses, excluding the corporate minute books of the Sellers (collectively, the "Intangibles"); (d) those leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Businesses, specifically 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 Businesses, including, but not limited to, that which is more fully described on Schedule 1.1(e) hereto (collectively, the "Seller Permits"); (f) the goodwill and going concern value of the Businesses; and (g) all other or additional privileges, rights, interests, properties and assets of the Sellers of every kind and description and wherever located that are used in the Businesses or intended for use in the Businesses in connection with, or that are necessary for the continued conduct of, the Businesses. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all of the Sellers' accounts receivable and all other rights of the Sellers to payment for services rendered by the Sellers before the date hereof; (ii) all cash accounts of the Sellers and all petty cash of the Sellers kept on hand for use in the Businesses; (iii) all right, title and interest of the Sellers in and to all prepaid rentals, other prepaid expenses, bonds, deposits and financial assurance requirements, and other current assets relating to any of the Assets or the Businesses; (iv) all assets in possession of the Sellers but owned by third parties; (v) the corporate charter, related organizational documents and minute books of the Sellers; (vi) the capital stock of 4Star, all of which is held by B&L; and (vii) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.2 hereof. 1.2 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of the Sellers and the Shareholders contained herein, Buyer agrees to pay to the Sellers, on the date hereof, the amount of $4,643,400 in the form of a cashier's check or bank check or wire transfer of immediately available funds to an account designated by the Sellers. 1.3 Liabilities. Effective on the date hereof, Buyer shall assume those, and only those, liabilities and obligations of the Sellers to perform the Contracts to the extent that the Contracts have not been performed and are not in default on the date hereof (the "Assumed Liabilities"). On and after the date hereof, the Sellers shall be responsible for all other liabilities and obligations of the Sellers other than the Assumed Liabilities, including, without limitation, any obligations arising from (i) the labor dispute described in Schedule 2.1.9 hereto, (ii) the litigation described in Schedule 2.1.13 hereto and (iii) the Sellers' employment of those employees of the Sellers listed on Schedule 3.2 hereto before the date hereof (collectively, the "Retained Liabilities"). Article II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE SHAREHOLDER 2.1 Representations and Warranties of the Sellers and the Shareholders. Each of the Sellers and the Shareholders jointly and severally represents and warrants to Buyer as follows: 2.1.1. Organization and Good Standing. Each of the Sellers is a corporation duly organized, validly existing and in good standing under the laws of its state of organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary. 2.1.2. Agreements Authorized and their Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all necessary corporate and shareholder action on the part of each of the Sellers, and this Agreement is the valid and binding obligation of each of the Sellers and the Shareholders enforceable (subject to normal equitable principals) against each of such parties in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the transaction contemplated hereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws (or other organizational documents) of any of the Sellers, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which any of the Sellers or the Shareholders is a party or by which any of the Sellers or the Shareholders or their respective properties are bound; or (iii) any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator, or other governmental authority to which any of the Sellers 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 any of the Sellers is lessor or lessee, which relate to the Assets 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 Sellers. All of the Sellers' duties, obligations and rights under each of the Contracts are assignable (and are hereby assigned) to Buyer without the consent of any of parties thereto other than the Sellers. None of the Sellers are, 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 which could reasonably be expected to have a material adverse effect on the use of the Assets by Buyer. None of the Sellers or the Shareholders have received any information which would cause any of such parties to conclude that any customer of the Sellers will (or is likely to) cease doing business with the Sellers or Buyer as a result of the consummation of the transactions contemplated hereby. 2.1.4. Title to and Condition of Assets. The Sellers have good, indefeasible and marketable 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 known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. All of the Assets conform to all applicable laws governing their use. Except as set forth on Schedule 2.1.4 hereto, no notice of any violation of any law, statute, ordinance, or regulation relating to any of the Assets has been received by any of the Sellers 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, privileges, equities, easements, rights of way, limitations, reservations, restrictions, and other encumbrances of any kind or nature. 2.1.5. Bulk Sales Act Not Applicable. None of the Sellers are in the business of selling merchandise from stock or manufacturing what it sells. 2.1.6. 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 Seller Permits and the Sellers' rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Sellers subject to administrative powers of regulatory agencies having jurisdiction. Each of the Sellers is in compliance in all material respects with the terms of each of the Seller Permits. None of the Seller Permits have been, or to the knowledge of any of the Sellers or the Shareholders, are threatened to be, revoked, canceled, suspended or modified. Except for the Common Motor Carrier Certificate issued by the Michigan Public Service Commission held by 4Star, all of the Seller Permits are assignable (and are hereby assigned) to Buyer without the consent of any regulatory agency. On and after the date hereof, each of the Seller Permits and Buyer's rights with respect thereto will be valid and subsisting in full force and effect, and enforceable by Buyer subject only to the administrative powers of regulatory agencies having jurisdiction over the assigned Permit. 2.1.7. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material to or necessary for the continued conduct of the Businesses. The Seller Intellectual Property is owned or licensed by the Sellers free and clear of any Encumbrances. None of the Sellers have granted to any other person any license to use any Seller Intellectual Property. Use of the Seller Intellectual Property will not, and the conduct of the Businesses did not, infringe, misappropriate or conflict with the Intellectual Property rights of others. None of the Sellers or the Shareholders have received any notice of infringement, misappropriation, or conflict with the intellectual property rights of others in connection with the use by any Seller of the Seller Intellectual Property. 2.1.8. Financial Statements. Each of the Sellers have delivered to Buyer copies of such Seller's unaudited balance sheet (collectively, the "10/31 Balance Sheets") and related statements of income, retained earnings and cash flows (collectively, the "10/31 Financial Statements") as at and for the ten months (seven months for B&L) ended October 31, 1996 (the "Balance Sheet Date"). The 10/31 Financial Statements, copies of which are attached hereto as Schedule 2.1.8, are true, correct and complete in all material respects and present fairly and fully the financial condition of the applicable Seller as at the dates indicated, and have been prepared in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants ("GAAP") applied on a consistent basis, except as noted therein. Each of the 10/31 Financial Statements include all adjustments which are necessary for a fair presentation of the applicable Seller's results for that period. The inventories of the each of the Sellers reflected in the applicable 10/31 Balance Sheet, or which have thereafter been acquired by such Seller, consist of items of a quality and quantity salable in the normal course of the applicable Business. The values at which such inventories are carried are in accordance with GAAP applied on a consistent basis, and are consistent with the normal inventory level and practices of Seller with respect to the applicable Business. 2.1.9. Absence of Certain Changes and Events. Other than as a result of the transactions contemplated by this Agreement and except as set forth in Schedule 2.1.9 hereto, since the Balance Sheet Date, there has not been: (a) Financial Change. Any adverse change in the Assets, the Businesses or the financial condition, operations, liabilities or prospects of any of the Sellers; (b) Property Damage. Any damage, destruction, or loss to any of the Assets or the Businesses (whether or not covered by insurance); (c) Waiver. Any waiver or release of a material right of or claim held by any of the Sellers; (d) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any asset of any of the Sellers other than in the ordinary course of business; (e) Labor Disputes. Any labor disputes between any of the Sellers and its employees; or (f) Other Changes. Any other event or condition known to any of the Sellers or the Shareholders that particularly pertains to and has or might have an adverse effect on the Assets, the operations of the Businesses or the financial condition or prospects of any of the Sellers. 2.1.10. Necessary Consents. The Sellers have obtained and delivered to Buyer all consents to assignment or waivers thereof required to be obtained from any governmental authority or from any other third party in order to validly transfer the Assets hereunder, including any consents required to assign the Contracts and transfer the Permits. 2.1.11. Environmental Matters. None of the current or past operations of the Businesses of any of the Sellers or any of the Assets is being or has been conducted or used in such a manner as to constitute a violation of any Applicable Environmental Laws (defined below). None of the Sellers or the Shareholders have 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 Applicable Environmental Laws or regarding any claims for remedial obligations or contribution for removal costs or damages under any Applicable Environmental Laws. There are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of any of the Sellers or the Shareholders, threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Businesses of the Sellers, nor, to the knowledge of any of the Sellers 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 Applicable Environmental Laws 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 any of the Sellers or the Shareholders, the Assets include all environmental and pollution control equipment necessary for compliance with all Applicable Environmental Laws. There are no environmental conditions or circumstances, including without limitation, the presence or release of any Hazardous Materials, on any property presently or previously owned by the Sellers, or on any property to which Hazardous Materials generated by the Sellers' operations or the use of the Assets were disposed of, which would result in a material adverse change in the business or business prospects of the Sellers. The term "Applicable Environmental Laws" means any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to human health, the environment, or to the storage, treatment, discharge, release or disposal of hazardous wastes or hazardous substances, including, without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. **9601 et seq.), as amended from time to time, including, without limitation, as amended pursuant to the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and regulations promulgated thereunder, (ii) the Resources Conservation and Recovery Act of 1976 (42 U.S.C. **6901 et seq.), as amended from time to time ("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water Pollution Control Act (U.S.C.A. *9601 et seq.), as amended, and regulations promulgated thereunder, and (iv) any applicable state laws or regulations relating to the environment. 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 Applicable Environmental Laws, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous Materials Transportation Act (49 U.S.C. * 1801, et seq.), or comparable state and local statutes or in the regulations adopted and publications promulgated pursuant to said statutes. 2.1.12. No ERISA Plans or Labor Issues. No employee benefit plan of any of the Sellers, 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. None of the Sellers have engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on the Assets. Except as set forth in Schedule 2.1.9 hereto, none of the Sellers have any dispute with any of its existing or former employees and there are no labor disputes or, to the knowledge of any of the Sellers or the Shareholders, any disputes threatened by current or former employees of any of the Sellers. 2.1.13. Investigations; Litigation. No investigation or review by any governmental entity with respect to any of the Sellers or any of the transactions contemplated by this Agreement is pending or, to the knowledge of any of the Sellers or the Shareholders, threatened, nor has any governmental entity indicated to any of the Sellers or the Shareholders an intention to conduct the same. Except as set forth in Schedule 2.1.13 hereto, there is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which any of the Sellers or the Shareholders is a party or, to the knowledge of any of the Sellers or the Shareholders, might become a party or which particularly affects the Assets. 2.1.14. Absence of Certain Business Practices. None of the Sellers, or any officer, employee or agent of any of the Sellers, or any other person acting on behalf of any of the Sellers, have, 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 Businesses or the profitable use of the Assets, (or to assist the Sellers in connection with any actual or proposed transaction) which if not given in the past, might have had a material adverse effect on the profitable conduct of the Businesses or the profitable use of the Assets, or if not continued in the future, might materially adversely effect the profitable conduct of the Businesses or the profitable use of the Assets. 2.1.15. Solvency. None of the Sellers is now insolvent, nor will the Sellers be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. The term "insolvent", with respect to a particular Seller, means that the sum of the present fair and saleable value of such Sellers'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. 2.1.16. Untrue Statements. The Sellers have made available to Buyer true, complete and correct copies of all contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Businesses and the Assets, and such information covers all commitments and liabilities of Buyer relating principally to the Businesses and the Assets. This Agreement does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made herein and therein not misleading in any material respect. 2.1.17. Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Sellers, 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. Article III ADDITIONAL AGREEMENTS AND ACKNOWLEDGMENTS 3.1 Noncompetition. Except as otherwise consented to or approved in writing by Buyer, and subject to Section 3.6 and Section 3.7 hereof, each of the Sellers and the Shareholders 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 (i) engage in any business in competition with the business or businesses conducted by Buyer (or Buyer's affiliates) or any of the Sellers at the Effective Date, or in any service business the services of which are provided and marketed by Buyer (or Buyer's affiliates) or any of the Sellers at the Effective Date in any state of the United States, or any foreign country in which by Buyer (or Buyer's affiliates) or any of the Sellers transact business on the Effective Date; (ii) request any present customers or suppliers of any of the Sellers to curtail or cancel their business with Buyer; (iii) disclose to any person, firm or corporation any trade, technical or technological secrets of Buyer (or Buyer's affiliates) or any of the Sellers or any details of their organization or business affairs or (iv) induce or actively attempt to influence any employee of Buyer (or Buyer's affiliates) to terminate his employment. Each of the Sellers and the Shareholders agree that if either the length of time or geographical as set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Sellers and the Shareholders may have under the laws of any state requiring an employee of a business or a shareholder who sells its assets in a corporation to limit its activities so that the goodwill and business relations of employer and of the corporation whose assets it has sold (and any successor corporation) will not be materially impaired. Each of the Sellers and the Shareholders further agree and acknowledge that Buyer does not have any adequate remedy at law for the breach or threatened breach by any of the Sellers or the Shareholders of this covenant, 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 such Seller or Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Sellers and the Shareholders acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of each of the Sellers that are involved in the operation of the Assets (the "Employees"). Effective as of the date hereof, all of the Employees shall be terminated by the applicable Seller and hired by Buyer. 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. Each of the Sellers 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. All Employees hired by Buyer shall be at-will employees of Buyer. 3.3 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 3.3 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. Each of the Sellers and the Shareholders shall, within thirty (30) days from the date hereof, caused to be filed (i) with the secretary of state of such Seller's state of organization an amendment to the charter (or other applicable organization document) of such Seller changing the name of such Seller from its current name to a name that is not similar to such name, and (ii) with the appropriate authorities of such Seller's state of organization and any other states such documents as are required to effect such name change, including without limitation, amendments or withdrawals of certificates of authority to do business and assumed name filings. Each of the Sellers and the Shareholders shall, within five (5) days from the date of receipt of confirmation of such filings from the applicable state authorities, cause to be delivered to Buyer copies of all such confirmations. 3.5 Environmental Reports. The parties hereto acknowledge that as a condition of sale, a Phase I and Phase II Environmental Site Assessment was conducted on the real property owned and operated by the Sellers, which real property is being sold to Buyer in connection with the execution and delivery of this Agreement. The parties hereto further acknowledge that the Phase I and Phase II Environmental Assessment Report dated November 24, 1996 prepared by Gosling Czubak Engineering Sciences, Inc. at the direction of the Sellers and the Shareholders to validate their representations and warranties contained in Section 2.1.11 hereof (the "Environmental Report") has been made available to Buyer for inspection. 3.6 Limitation on Noncompetitioon. Irrespective of whether or not the following entities compete with Buyer on the date hereof, the Shareholders may remain employees of and retain their investment and ownership interest in the following entities: (A) S&R Cable, Inc., a Michigan corporation, (B) Midwest Bit Service, Inc., a Michigan corporation, and (C) Sindeco, L.L.C., an Indiana limited liability company (referred to herein collectively with their successors and assigns as the "Shareholder Companies") subject to the following terms and conditions: 1. In the event that any of the Shareholder Companies expand their business such that such Shareholder Company competes with the business of Buyer or (Buyer's affiliates) as conducted on the date hereof, the covenants of the Shareholders contained in clauses (i) and (ii) of the first sentence of Section 3.1 hereof shall not apply with respect to such new business of such Shareholder Company if and only if (i) none of the Shareholders are employees or consultants of such Sharehoolders Company or otherwise provide any services to such Shareholder Company; (ii) the ownership interests of each of the Shareholders in such Shareholder Company is not greater than their current ownership interest in such Shareholder Company on the date hereof; and (iii) the Sale Condition (as defined in Section 3.7 hereof) is met in accordance with the provisions of Section 3.7 hereof. Notwithstanding the foregoing, clauses (iii) and (iv) of the first sentence of Section 3.1 hereof shall apply without exception. 2. In the event that Buyer expands its business such that Buyer competes with the business of any of the Shareholder Companies as conducted on the date hereof, the covenants of the Shareholders contained in clauses (i) and (ii) of the first sentence of Section 3.1 hereof shall not apply with respect to such new business of Buyer (and clauses (iii) and (iv) of the first sentence of Section 3.1 hereof will apply without exception). 3.7 Sale Condition . The Sale Condition shall be considered met if the following conditions are met: 1. The Shareholder(s) owning an interest in the applicable Shareholder Company (the "Offering Shareholder(s)") shall promptly notify Buyer upon the occurrence of the business expansion of such Shareholder Company and as to whether any shareholder, redemption, buy/sell or similar agreements (the "Other Agreements") exist which affect the offer and sale by the Offering Shareholder(s) pursuant to this Section 3.7. 2. If no Other Agreements exist, the Offering Shareholder(s) shall cause an appraisal of the fair market value of the Offering Shareholder(s)' entire ownership interest in such Shareholder Company to be performed by Plant and Moran, certified public accountants, using the asset appraisal prepared by Superior Auction. The Offering Shareholder(s) shall promptly submit a written offer to sell such ownership interest to Buyer at the fair market value determined by the aforementioned appraisal process. Buyer shall have thirty (30) days to accept such offer in writing. If such offer is accepted, the sale shall be consummated within twenty (20) days following the Offering Shareholder(s)' receipt of the written acceptance. If such offer is not accepted within such 30-day period, the offer shall expire and the Sale Condition shall be considered met. 3. If any Other Agreements exist, the offer and sale hereunder shall be made in compliance with such Other Agreements; provided, however, that if compliance with such Other Agreements does not result in a sale of all of the Offering Shareholder(s)' ownership interest in such Shareholder Company to one or more third parties, the entire unsold ownership interest shall be offered (in accordance with the procedures set forth in paragraph 2 above) to Buyer at a price equal to the lesser of (i) the price at which the Offering Shareholder(s)' ownership interest was offered or sold to such third parties and (ii) the fair market value of the unsold ownership interest as determined by the appraisal process described in paragraph 2 above (if such appraisal is ordered by Buyer). If the entire ownership interest of the Offering Shareholder(s) is sold to one or more third parties and/or Buyer, or if Buyer does not accept the Offering Shareholder(s)' offer to sell the unsold ownership interest in accordance with the procedures set forth in paragraph 2 above, the Sale Condition shall be considered met. 3.8 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, including one or more of the Sellers entering into any sublease, subcontract or other agreement with Buyer as is required to enable Buyer to enjoy the benefits of any Contract, Permit or other Asset ineffectively transferred or assigned hereby. Article IV INDEMNIFICATION 4.1 Indemnification by the Sellers and the Shareholder. Subject to Section 4.3 hereof, in addition to any other remedies available to Buyer under this Agreement, or at law or in equity, each of the Sellers and 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 (i) any breach of, or failure by any of the Sellers or 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 Sellers or the Shareholders under this Agreement; and (ii) the Retained Liabilities. 4.2 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article 5, 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. 4.3 Limitation on Indemnification. To the extent that Buyer suffers Damages as result of the breach by any of the Sellers or the Shareholders of their representations and warranties contained in Section 2.1.11 hereof, the Sellers and the Shareholders shall be responsible for such Damages only to the extent that such Damages in the aggregate exceed $25,000. Article V MISCELLANEOUS 5.1 Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 36 months from the date hereof, notwithstanding any investigation made by or on behalf of any of the parties hereto; provided, however, that the representations and warranties contained in Section 2.1.11 hereof shall survive for a period of 12 months from the date hereof notwithstanding any review by Buyer of the Environmental Report. 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, except as provided therein, survive for a period of 36 months from the date hereof notwithstanding any investigation made by any of the parties hereto. All covenants and agreements contained herein shall survive indefinitely without limitation, except as otherwise provided herein. 5.2 Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3 Counterparts. Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested. If to Buyer Addressed to: With a copy to: WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to a Seller or a Shareholder Addressed to: With a copy to: B&L Hotshot, Inc. ger, Cotant, Menkes & Aardema, P.C. 415 Seeley Road 308 W. Main Kalkaska, Michigan 49646 Gaylord, Michigan 49735 Attn: Royce Thomas Attn: Michael Menkes Facsimile: (616) 258-8957 Facsimile: (517) 732-4922 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 5.5 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 Michigan. [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the Shareholders have executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. WELLTECH EASTERN, INC. By: Name: Title: B&L HOTSHOT, INC. By: Name: Title: MCDOWELL & SONS, INC. By: Name: Title: 4STAR TRUCKING, INC. By: Name: Title: R.B.R., INC. By: Name: Title: THE SHAREHOLDERS: ---------------------------------- Royce D. Thomas --------------------------------- John F. McDowell ---------------------------------- John R. McDowell EX-10.(G) 8 TALON & LOMACK ASSET PURCHASE AGREEMENT Execution Copy ASSET PURCHASE AGREEMENT AMONG WELLTECH EASTERN, INC., TALON TRUCKING COMPANY, AND LOMAK PETROLEUM, INC. December 31, 1996 C:\34ACTREP\EXFILES\EXHIBIT.2G ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this 31st day of December, 1996 among WellTech Eastern, Inc., a Delaware corporation ("Buyer"), Talon Trucking Company, an Oklahoma corporation (the "Seller"), and Lomak Petroleum, Inc., a Delaware corporation and the sole shareholder of the Seller (the "Shareholder"). W I T N E S S E T H: WHEREAS, 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 I PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set forth in this Agreement, at the Closing (as defined in Section 1.4 hereof), the Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer and Buyer agrees to purchase from the Seller all of the assets of the Seller existing on the Closing Date (as defined in Section 1.4 hereof) other than the Excluded Assets (defined below), 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 business as conducted by the Seller on and before the Closing Date (the "Business") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property of the 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 of Seller, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventories"), subject to changes in the ordinary course of business since the Balance Sheet Date (as defined in Section 2.1.7 hereof); (c) all of the Seller's intangible assets, including without limitation, (i) all of the Seller's rights to the names under which it is incorporated or under which it currently does 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 C:\34ACTREP\EXFILES\EXHIBIT.2G 1 held in connection with the Business, including without limitation, that which is more fully described on Schedule 1.1(c) hereto (the "Seller Intellectual Property") and (iii) all of the Seller's rights in its phone numbers and all of its account ledgers, sales and promotional literature, computer software, books, records, files and data (including customer and supplier lists), and all other records of the Seller relating to the Assets or the Business, excluding the corporate minute books of the Seller (collectively, the "Intangibles"); (d) those leases, subleases, contracts, contract rights, and agreements relating to the Assets or the operation of the Business specifically listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (e) to the extent assignable, 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, that which is more fully described on Schedule 1.1(e) hereto (collectively, the "Seller Permits"); (f) the goodwill 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, intended for use in the Business, or necessary for the continued conduct of the Business other than the 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 the Closing Date (the "Seller Receivables"); (ii) all cash accounts, cash equivalents or similar investments of the Seller and all petty cash of the Seller kept on hand for use in the Business; (iii) all right, title and interest of the Seller in and to all prepaid rentals, other prepaid expenses, prepaid taxes, bonds, deposits and financial assurance requirements, and other current assets relating to any of the Assets or the Business; (iv) all assets in possession of the Seller but owned by third parties; (v) the corporate charter, corporate seal, organizational documents and minute books of the Seller and all records necessary for the preparation of returns and other reports by the Seller, the Shareholder and their affiliates; (vi) the cash consideration paid or payable by Buyer to Seller pursuant to Section 1.2 hereof; (vii) all Seller Permits specified as not assignable in Schedule 1.1(e) hereto; and (viii) the Seller's right, title and interest in and to this Agreement. 1.2 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of the Seller and the Shareholder contained herein, Buyer agrees to pay to the Seller at the Closing the amount of $1,860,000 in the form of a cashier's check or bank check or wire transfer of immediately available funds to an account designated by the Seller. C:\34ACTREP\EXFILES\EXHIBIT.2G 2 1.3 Liabilities. Effective as of the Closing, Buyer shall assume, pay, perform, and discharge those, and only those, liabilities and obligations of the Seller to perform under the Contracts and the Permits to the extent that the Contracts and the Permits have been validly assigned to Buyer (the "Assumed Liabilities"). On and after the Closing Date, the Seller shall be responsible for any and all other liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, those liabilities and obligations specified in Section 6.3 hereof arising from the Seller's employment of its former employees (collectively, the "Retained Liabilities"). 1.4 Time and Place of Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall be at 10:00 a.m. on January 10, 1997 at such location as is mutually agreed to by the parties, or such other time, place or date as is agreed to among the parties hereto. The date on which the Closing occurs is referred to elsewhere herein as the "Closing Date." Article II REPRESENTATIONS AND WARRANTIES OF THE SELLER, THE SHAREHOLDER AND BUYER 2.1 Representations and Warranties of the Seller and the Shareholder. Each of the Seller and the Shareholder jointly and severally represents and warrants to Buyer as follows: 2.1.1. Organization and Good Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it. The Seller is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a material adverse effect on the Assets or the Business. 2.1.2. Agreements Authorized and their Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all necessary corporate and shareholder action on the part of the Seller and the Shareholder, and this Agreement is the valid and binding obligation of the Seller and the Shareholder enforceable (subject to normal equitable principals) against each of such parties in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. Except as provided in Schedule 2.1.2 hereto, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws (or other organizational documents) of either the Seller or the Shareholder, (ii) any obligation, C:\34ACTREP\EXFILES\EXHIBIT.2G 3 indenture, mortgage, deed of trust, lease, contract or other agreement to which either the Seller or the Shareholder is a party or by which either the Seller or the Shareholder or their respective properties are bound, except where such conflicts, violations and/or breaches, in the aggregate, would not have a material adverse effect on the Assets or the Business; 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 either the Seller or the Shareholder or any of their respective properties are subject, except where such conflicts, violations and/or breaches, in the aggregate, would not have a material adverse effect on the Assets or the Business. 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. All of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller. The Seller is not, and, to the knowledge of either the Seller or the Shareholder, no other party to any of the Contracts is, in default thereunder, and, to the knowledge of either the Seller or the Shareholder, no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder. No Contract has been entered into on terms which could reasonably be expected to have a material adverse effect on the use of the Assets by Buyer. None of the members of the management of either the Seller or the Shareholder has received any information which would cause such persons to conclude that any customer of the Seller will (or is likely to) cease doing business with the Seller or Buyer as a result of the consummation of the transactions contemplated hereby. All of the Contracts are assignable to Buyer without the consent of any other party thereto. 2.1.4. Title to and Condition of Assets. The Seller has good, indefeasible, defensible and marketable title to all of the Assets (other than the goodwill of the Business), free and clear of any Encumbrances (defined below) other than Permitted 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 known defects except as may be repaired by routine maintenance and such minor defects as to not substantially interfere with the continued use thereof in the conduct of normal operations. All of the Assets conform in all material respects to all applicable laws governing their use. No written notice of any violation of any law, statute, ordinance, or regulation relating to any of the Assets has been received by either 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, privileges, equities, easements, rights of way, limitations, reservations, restrictions, and other encumbrances of any kind or nature. The term "Permitted Encumbrances" means Encumbrances for current taxes and assessments not yet due and payable, including nondelinquent ad valorem taxes or nondelinquent statutory Encumbrances arising other than by reason of any default on the part of the Seller. C:\34ACTREP\EXFILES\EXHIBIT.2G 4 2.1.5. Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under law 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 Seller Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect. The Seller is in compliance in all material respects with the terms of each of the Seller Permits. None of the Seller Permits has been, or to the knowledge of either the Seller or the Shareholder, is threatened to be, revoked, canceled, suspended or modified. Except as shown on Schedule 1.1(e) hereto, upon consummation of the transactions contemplated hereby, all of the Seller Permits shall be assignable to Buyer without the consent of any regulatory agency and without undue delay as to their transfer. 2.1.6. Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material to or necessary for the continued conduct of the Business. The Seller Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances other than Permitted Encumbrances. The Seller has not granted to any other person any license to use any Seller Intellectual Property. To the knowledge of either the Seller or the Shareholder, Buyer's use of the Seller Intellectual Property as used by the Seller on or before the date hereof 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 the Shareholder 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 Seller Intellectual Property. 2.1.7. Financial Statements. The Seller has delivered to Buyer copies of certain unaudited financial statements of Seller. Such financial statements (collectively, the "Seller Financial Statements") were included in the Descriptive Offering Memorandum (as defined in Section 2.1.14 hereof) under the heading "Financial Review" and include Seller's balance sheet (the "9/30 Balance Sheet") as at September 30, 1996 (the "Balance Sheet Date"). Other than the financial projections covering periods beyond the Balance Sheet Date, the Seller Financial Statements present fairly and fully the financial condition of the Seller as at the dates and for the periods indicated thereon, subject, in the case of interim financial statements, to normal year end adjustments. 2.1.8. Absence of Certain Changes and Events. Other than as a result of the transactions contemplated by this Agreement, since the Balance Sheet Date, there has not been (whether as a result of a single event or in the aggregate): (a) Financial Change. Any material adverse change in the Assets, the Business or the financial condition, operations, liabilities or prospects of the Seller; (b) Property Damage. Any material damage, destruction, or loss to any of the Assets or the Business (whether or not covered by insurance); C:\34ACTREP\EXFILES\EXHIBIT.2G 5 (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 material 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 either the Seller or the Shareholder that particularly pertains to and has or is likely to have a material adverse effect on the Assets, the operations of the Business or the financial condition or prospects of the Seller. 2.1.9. Necessary Consents. Except as provided in Schedule 2.1.9 hereto, The Seller has obtained and delivered to Buyer all consents to assignment or waivers thereof required to be obtained from any governmental authority or from any other third party in order to validly transfer the Assets hereunder, including, without limitation, any consents required to assign the Contracts or the Seller Permits, to the extent assignable. 2.1.10. Environmental Matters. For so long as the Seller has owned the Assets, neither the Seller nor the Shareholder has received any citation or formal notice from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Applicable Environmental Laws or regarding any claims for remedial obligations or contribution for removal costs or damages under any Applicable Environmental Laws. To the knowledge of either the Seller or the Shareholder, there are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of either the Seller or the Shareholder, is there any reasonable basis for any of the foregoing. To the knowledge of either the Seller or the Shareholder, there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently 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 a material adverse change in the Business or business prospects of the Seller. The term "Applicable Environmental Laws" means any applicable federal, state or local law, statute, ordinance, rule, regulation, order or notice requirement pertaining to human health, the environment, or to the storage, treatment, discharge, release or disposal of hazardous wastes or hazardous substances, including, without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et seq.), as amended from time to time, including, without limitation, as amended pursuant to the Superfund Amendments and Reauthorization C:\34ACTREP\EXFILES\EXHIBIT.2G 6 Act of 1986 ("CERCLA"), and regulations promulgated thereunder, (ii) the Resources Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et seq.), as amended from time to time ("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water Pollution Control Act (U.S.C.A. ss.9601 et seq.), as amended, and regulations promulgated thereunder, and (iv) any applicable state laws or regulations relating to the environment. 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 Applicable Environmental Laws, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), or comparable state and local statutes or in the regulations adopted and publications promulgated pursuant to said statutes. 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. The Seller has not engaged in any unfair labor practices which could reasonably be expected to result in a material adverse effect on the Assets. The Seller does not have any dispute with any of its existing or former employees, and there are no labor disputes pending or, to the knowledge of either the Seller or the Shareholder, threatened by current or former employees of any 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, to the knowledge of either the Seller or the Shareholder, threatened, nor has any governmental entity indicated in writing to either the Seller or the Shareholder an intention to conduct the same. There is no suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending to which either the Seller or the Shareholder is a party or, to the knowledge of either the Seller or the Shareholder, might become a party or which particularly affects the Assets. 2.1.13. Absence of Certain Business Practices. Neither the Seller, nor any officer, employee or agent of the Seller, or any other person acting on behalf of the Seller, have, directly or indirectly, within the past two years, given or agreed to give any gift or similar benefit (other than normal sales promotions or similar practices) 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, would likely have had a material adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, would likely materially adversely affect the profitable conduct of the Business or the profitable use of the Assets. C:\34ACTREP\EXFILES\EXHIBIT.2G 7 2.1.14. Descriptive Offering Memorandum; Untrue Statements. The Shareholder has delivered to Buyer the Confidential Talon Trucking Company Descriptive Offering Memorandum dated November 1996, a copy of which is attached hereto as Schedule 2.1.14 (the "Descriptive Offering Memorandum"). Except as disclosed to Buyer in writing, the Descriptive Offering Memorandum does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has also provided Buyer with access to all of its books and records, including copies of all material contracts, documents concerning all litigation and administrative proceedings, licenses, permits, insurance policies, lists of suppliers and customers, and records relating principally to the Business and the Assets. 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 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 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 its state of organization, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it. Buyer is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a material adverse effect on the business of Buyer. 2.2.2. Agreements Authorized and their Effect on Other Obligations. The execution and delivery of this Agreement have been authorized by all necessary corporate and shareholder action on the part of Buyer, and this Agreement is the valid and binding obligation of Buyer enforceable (subject to normal equitable principals) against Buyer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the charter or bylaws (or other organizational documents) of Buyer, (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer is a party or by which Buyer or any of its properties are bound, except where such conflicts, violations and/or breaches, in the C:\34ACTREP\EXFILES\EXHIBIT.2G 8 aggregate, would not have a material adverse effect on the business of Buyer; 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, except where such conflicts, violations and/or breaches, in the aggregate, would not have a material adverse effect on the business of Buyer. 2.2.3. Investigations; Litigation. No investigation or review by any governmental entity with respect to Buyer or any of the transactions contemplated by this Agreement is pending or, to the knowledge of Buyer, threatened, nor has any governmental entity indicated to either the Seller or the Shareholder an intention to conduct the same. 2.2.4. Inspections; Limitations of the Seller's Warranties. Buyer is an informed sophisticated participant in the transactions contemplated by this Agreement and has undertaken such investigation, and has been provided with and has evaluated documents and information, as Buyer and its advisors have deemed necessary to enable them to make an informed and intelligent decision with respect to the execution and delivery of this Agreement. Notwithstanding any contrary provision herein, Buyer acknowledges that it is acquiring the Assets and the Business without any representation or warranty, express or implied, by either the Seller or the Shareholder other than representations and warranties contained herein. Buyer further acknowledges that any information regarding financial projections of the Business, whether or not conatined in the Descriptive Offering Memorandum, were not relied upon by Buyer in any way. 2.2.5. Financing. Buyer has available on hand, from its working capital or currently available credit facilities, all of the cash that Buyer will need to consummate the purchase of the Assets. 2.2.6. 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 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. Article III OBLIGATIONS PENDING CLOSING DATE 3.1 Agreements of the Seller and the Shareholder. Except as expressly contemplated elsewhere in this Agreement, from the date hereof until the Closing Date, the Seller shall, and the Shareholder shall cause the Seller to: C:\34ACTREP\EXFILES\EXHIBIT.2G 9 3.1.1. Maintenance of Present Business. Operate the Business and the Assets only in the ordinary course so as to maintain the goodwill it now enjoys and, to the extent consistent with such operation, use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees, and preserve its relationships with customers, suppliers, jobbers, distributors, and others having business dealings with it; 3.1.2. Maintenance of Properties. At its expense, maintain the Assets in customary repair, order, and condition, reasonable wear and tear excepted; 3.1.3. Maintenance of Books and Records. Maintain its books of account and records in the usual, regular, and ordinary manner, in accordance with its current accounting policies applied on a consistent basis; 3.1.4. Compliance with Law. Duly comply in all material respects with all laws applicable to it and to the conduct of the Business; 3.1.5. Disposal of Assets. Not sell, dispose of, or encumber, any of the Assets, except (i) in the usual and ordinary course of business or (iii) as may be approved in writing by Buyer; 3.1.6. Maintenance of Insurance. Maintain the insurance coverage set forth on Schedule 3.1.6 hereto with respect to the Assets and the Business; 3.1.7. Acquisition Proposals. Not directly or indirectly (i) solicit, initiate or encourage any inquiry or Acquisition Proposal (defined below) from any person or (ii) participate in any discussions or negotiations regarding, or furnish to any person other than Buyer or its representatives any information with respect to, or otherwise facilitate or encourage any Acquisition Proposal by any other person. As used herein "Acquisition Proposal" means any proposal for a merger, consolidation or other business combination involving the Seller or for the acquisition or purchase of any equity interest in, or a material portion of the assets of, the Seller, other than the transactions with Buyer and the Shareholder contemplated by this Agreement. Each of the Seller and the Shareholder shall promptly communicate to Buyer the terms of any such written Acquisition Proposals which it may receive or any written inquiries made to it or any of its directors, officers, representatives or agents; and 3.1.8. No Amendment to Articles of Incorporation. Not amend its Articles of Incorporation or merge or consolidate with or into any other corporation or change in any manner the rights of its common stock or the character of its business. C:\34ACTREP\EXFILES\EXHIBIT.2G 10 3.2 Agreements of Buyer, the Seller and the Shareholder. Except as expressly contemplated elsewhere in this Agreement, from the date hereof until the Closing Date, each of the parties hereto shall: 3.2.1. Inspection. Permit the other parties and their authorized representatives, during normal business hours, to inspect their records and to consult with their officers, employees, attorneys, and agents for the purpose of determining the accuracy of the representations and warranties herein made and the compliance with covenants contained in this Agreement. Each of the parties hereto further agrees that, except as required by law, it will and will cause its representatives to hold all data and information obtained with respect to the other parties, in confidence and further agrees that it will not use such data or information or disclose the same to others, except to the extent such data or information either are, or become, published or a matter of public knowledge through no fault of its own; 3.2.2. Notice of Material Developments. Promptly notify the other parties in writing of any condition or circumstance, known to such party, occurring from the date hereof through the Closing Date, that would cause the respective representations and warranties of such party contained herein to become untrue in any material respect; and 3.2.3. Reasonable Efforts to Satisfy Closing Conditions. Use its reasonable efforts to cause the conditions precedent to the obligations of the other parties hereto contained in Article IV hereof to be satisfied to the extent that the satisfaction of such condition is reasonably in control of such party. Article IV CONDITIONS PRECEDENT TO OBLIGATIONS 4.1 Conditions Precedent to Obligations of Buyer. The obligation of Buyer to consummate and effect the transactions contemplated hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by Buyer before the Closing Date: 4.1.1. Representations and Warranties of the Seller and the Shareholder True at Closing Date. The representations and warranties of the Seller and the Shareholder herein contained shall be, in all material respects, true as of and at the Closing Date with the same effect as though made at such date, except as affected by transactions permitted or contemplated by this Agreement; the Seller and the Shareholder shall have performed and complied in all material respects, with all covenants required by this Agreement to be performed or complied with by them on or before the Closing Date; and each of the Seller and the Shareholder shall have delivered to Buyer a certificate, dated the Closing Date and signed by a duly authorized officer of such party, to such effects. C:\34ACTREP\EXFILES\EXHIBIT.2G 11 4.1.2. No Material Litigation. No suit, action, or other proceeding shall be pending, or to the knowledge of either the Seller or the Shareholders, threatened, before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby or which would likely result in a material adverse change in the value of the Assets or Business of the Seller. 4.1.3. Opinion of Counsel. Buyer shall have received a favorable opinion, dated the Closing Date, from Rubin, Baum, Levin Constant & Friedman, counsel to the Seller and the Shareholder, in form and substance reasonably satisfactory to Buyer, that the representations and warranties made by the Seller and the Shareholder in Sections 2.1.1 and 2.1.2 hereof are true as of the Closing Date. In rendering such opinion, such counsel may rely upon certificates of public officials and of officers of the Seller and the Shareholder as to matters of fact; provided that such certificates are delivered to Buyer with such opinion. 4.1.4. Consents Received. Buyer shall have received all consents specified in Schedule 2.1.9 hereto. 4.1.5. Real Estate Purchases. Buyer shall have purchased from the Shareholder and the Shareholder shall have sold to Buyer those two parcels of real estate described in Schedule 4.1.5 hereto (collectively, the "Shareholder Real Property") and under such terms and conditions as are reasonably acceptable to Buyer, which conditions shall include (i) a total purchase price of $840,000; (ii) the completion of Phase I environmental assessments of the Shareholder Real Property; (iii) at Buyer's request, the completion of Phase II environmental assessments of the Shareholder Real Property where Phase II assessments are reasonably determined by Buyer to be appropriate; and (iv) either a conclusion, pursuant to such environmental assessments, that no liabilities exist for environmental cleanup on the Shareholder Real Property or, to the extent that such environmental assessments indicate that liabilities do exist for environmental cleanup on the Shareholder Real Property, an agreement by the Shareholder that it will conduct and bear all of the expenses in connection with appropriate remediation and restoration activities on such Shareholder Real Property and fully indemnify Buyer from all liabilities and costs associated with such environmental condition. 4.1.6. Conveyance Documents. Buyer shall have received from the Seller such assignment documents and other instruments of transfer reasonably determined by Buyer as being required to effect and record the transfer of the Assets hereunder, including the properly endorsed certificates of title and an executed bill of sale in a form reasonably satisfactory to Buyer. 4.2 Conditions Precedent to Obligations of the Seller and the Shareholder. The obligations of the Seller and the Shareholder to consummate and effect the transactions contemplated hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by the Seller and the Shareholder before the Closing Date: C:\34ACTREP\EXFILES\EXHIBIT.2G 12 4.2.1. Representations and Warranties of Buyer True at Closing Date. The representations and warranties of Buyer herein contained shall be, in all material respects, true as of and at the Closing Date with the same effect as though made at such date, except as affected by transactions permitted or contemplated by this Agreement; Buyer shall have performed and complied in all material respects, with all covenants required by this Agreement to be performed or complied with by it before the Closing Date; and Buyer shall have delivered to the Seller and the Shareholder a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, to such effects. 4.2.2. No Material Litigation. No suit, action, or other proceeding shall be pending, or to the knowledge of Buyer, threatened, before any court or governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby. 4.2.3. Opinion of Counsel. The Seller and the Shareholder shall have received a favorable opinion, dated the Closing Date, from Buyer's in-house counsel, in form and substance reasonably satisfactory to the Seller and the Shareholder, that the representations and warranties made by Buyer in Sections 2.2.1 and 2.2.2 hereof are true as of the Closing Date. In rendering such opinion, such counsel may rely upon certificates of public officials and of officers of Buyer as to matters of fact; provided that such certificates are delivered to the Seller and the Shareholder with such opinion. 4.2.4. Real Estate Purchases. Buyer shall have purchased from the Shareholder and the Shareholder shall have sold to Buyer the Shareholder Real Property and under such terms and conditions as are reasonably acceptable to the Shareholder, which conditions shall include a total purchase price of $840,000. 4.2.5. Assumption Documents. The Seller shall have received from Buyer such assumption agreements and other instruments reasonably determined by the Seller as being required to effect Buyer's assumption of the Assumed Liabilities. Article V TERMINATION AND ABANDONMENT 5.1 Termination. Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated and the purchase and sale contemplated hereby abandoned at any time before the Closing Date: 5.1.1. By Mutual Consent. By mutual consent of Buyer, the Seller and the Shareholder. C:\34ACTREP\EXFILES\EXHIBIT.2G 13 5.1.2. By Buyer Because of Failure to Perform Agreements. By Buyer, if either the Seller or the Shareholder has failed to perform any of its covenants set forth in Sections 3.1 or 3.2 hereof, including, without limitation, the provisions of Section 3.2.3 hereof. 5.1.3. By the Seller or the Shareholder Because of Failure to Perform Agreements. By either the Seller or the Shareholder, if Buyer has failed to perform any agreement set forth in Section 3.2 hereof, including, without limitation, the provisions of Section 3.2.3 hereof. 5.1.4. By Buyer, the Seller or the Shareholders if No Closing by January 15, 1997. By Buyer, the Seller or the Shareholder, if the Closing shall not have been consummated on or before January 15, 1997 (the "Closing Deadline"); provided, however, that this Agreement may not be terminated by any party hereto pursuant to this Section 5.1.5 if the Closing has not occurred prior to the Closing Deadline due to the breach of any provision of this Agreement by the party seeking such termination, including the provisions of Section 3.2.3 hereof. 5.2 Effect of Termination. In the event of the termination of this Agreement pursuant to and in accordance with the provisions of Section 5.1 hereof, this Agreement shall become void and have no effect, without any liability on the part of any party hereto (or its stockholders or controlling persons or directors or officers), except as otherwise provided in this Agreement; provided, however, that a termination of this Agreement shall not relieve any party hereto from any liability for damages incurred as a result of a breach by such party of its covenants under Section 3.2.3 hereof and the second sentence of Section 3.2.1 hereof. 5.3 Waiver of Conditions. Subject to the requirements of any applicable law, any of the terms or conditions of this Agreement may be waived at any time by the party which is entitled to the benefit thereof. 5.4 Expenses on Termination. If this Agreement is terminated and the transactions contemplated hereby abandoned pursuant to and in accordance with the provisions of Section 5.1 hereof, all expenses will be paid by the party incurring them. Article VI ADDITIONAL AGREEMENTS 6.1 Noncompetition. Except as otherwise consented to or approved in writing by Buyer and subject to Section 6.2 hereof, each of the Seller and the Shareholder agree that for a period of 36 months following the Closing Date, such party will not, directly or indirectly, acting alone or as a member of a partnership or a holder of, or investor in 5% or more of any class of voting equity security of any corporation or other business entity (i) engage, in Oklahoma, in any business conducted by the Seller on or before the Closing Date (a "Competing Business"); (ii) request any C:\34ACTREP\EXFILES\EXHIBIT.2G 14 current customer or supplier of the Seller to curtail or cancel their business with Buyer; (iii) except as is required by law, disclose to any person, firm or corporation any trade, technical or technological secrets of Buyer (or Buyer's affiliates) or of the Seller or any details of their organization or business affairs or (iv) induce or actively attempt to induce any employee of Buyer (or Buyer's affiliates) to terminate his employment with Buyer (or such affiliate). Each of the Seller and the Shareholder agree that if either the length of time or geographical as set forth in this Section 6.1 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 6.1 are in addition to any other obligations that the Seller and the Shareholder may have under the applicable laws of any state requiring a corporation selling its assets (and the shareholders of such corporation) to limit its activities so that the goodwill and business relations being transferred with such assets will not be materially impaired. Each of 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 either the Seller or the Shareholder of the covenants contained in this Section 6.1, 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 6.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. Each of the Seller and the Shareholder acknowledges that the covenants set forth in this Section 6.1 are being executed and delivered by such party in consideration of the covenants of Buyer contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged. 6.2 Limitation on Noncompetition. Notwithstanding the covenants of the Seller and the Shareholder contained in clause (i) of the first sentence of Section 6.1 hereof, the Shareholder and its affiliates may perform any services for themselves or for any of their affiliates. Notwithstanding the covenants of the Seller and the Shareholder contained in clause (i) of the first sentence of Section 6.1 hereof, the Shareholder may acquire all of the businesses and assets of a third party (the "Acquired Company") that, as of the date such acquisition is consummated, engages in a Competing Business in Oklahoma and operate such businesses and assets following the consummation of such acquisition if and only if the following conditions are met: (1) The Shareholder (whether directly or through the Acquired Company) ceases engaging in the Competing Business, whether by sale or otherwise, within six (6) months after the date the acquisition is consummated; and (2) Prior to consummating any sale of the acquired Competing Business to any third party, the Shareholder offers to sell such Competing Business on the same terms and conditions as those offered by such third party, which offer shall remain open for 15 days; provided, that if such offer is not accepted in writing by Buyer within such time period, the Shareholder may consummate the sale to such third party, but only on substantially the same terms and conditions originally offered by such third party. Notwithstanding the foregoing, in the event the Shareholder is unsuccessful in obtaining a reasonably acceptable offer from a third party within such six-month period, the Shareholder may make an offer (the "Put Offer") to sell to Buyer the Competing Business on those same general terms and conditions under which the Shareholder originally purchased the Competing Business except that the purchase price shall be the fair market value of the Competing Business as determined by an independent appraiser mutually agreed to by the Shareholder and Buyer. If Buyer accepts the Put Offer within C:\34ACTREP\EXFILES\EXHIBIT.2G 15 15 days after receiving written notice from the Shareholder specifying the appraiser's determination of the purchase price and the general terms and conditions of the sale, Buyer and the Shareholder shall endeavor in good faith to consummate the purchase and sale on those terms and conditions within 30 days of the Shareholder's receipt of Buyer's acceptance. If Buyer does not accept the Put Offer within 15 days after receiving written notice from the Shareholder specifying the appraiser's determination of the purchase price and the general terms and conditions of the sale, the Shareholder shall be free to operate the Competing Business and to sell such Competing Business to third parties without restriction under this Section 6.2 and without being deemed to violate the covenants of the Shareholder contained in clause (i) of the first sentence of Section 6.1 hereof. 6.3 Hiring Employees. Schedule 6.3 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") along with their current wages or salary. Except as provided in Schedule 6.3 hereto, effective as of the Closing Date, each of the Employees shall be terminated by the Seller and offered a position of employment with Buyer, subject to passing Buyer's standard drug test for its new employees, with the same job duties and at the same wages as such Employee had with the Seller on the date hereof and with such other benefits as are consistent with the current policies and practices of Buyer (which benefits are substantially equal to those benefits currently provided by the Seller); provided, however, that with respect to each Employee who accepts employment with Buyer as of the Closing Date (the "Hired Employees"), the benefits to which such Employee shall be entitled to receive from Buyer as its employee shall be determined as if such Employee was hired by Buyer as of the date on which such Employee began his current period of employment with the Seller, except that the exclusivity period for coverage of pre-existing conditions under Buyer's current medical insurance plan shall be applicable to such Employee. Neither the Seller nor the Shareholder makes any representations or warranties to Buyer as to whether any of the Employees will accept employment with Buyer; provided, however, that each of the Seller and the Shareholder shall cooperate with Buyer in connection with any offer of employment from Buyer to the Employees. The Employee noted in Schedule 6.3 hereto as being currently disabled (the "Disabled Employee") will remain an employee of the Seller after the Closing Date until the Disabled Employee is able to return to work at which time the Disabled Employee shall be terminated by the Seller and offered a position of employment with Buyer, subject to passing Buyer's standard drug test for its new employees, with the same job duties and at the same wages as the Disabled Employee had with the Seller immediately prior to being disabled and will be otherwise treated as a Hired Employee hereunder. Buyer shall be responsible for any and all obligations arising as a result of the termination of any Hired Employees by Buyer after the Closing Date, including, without limitation, any severance, accrued vacation pay, COBRA obligations, notices or compensation required under the Worker Adjustment and Restraining Act, employment discrimination complaints, unfair labor practices, charges, grievances under any collective bargaining agreements, breach of contract claims, and wrongful termination and related tort claims, but only to the extent that such claims arise as a result of or in connection with the Hired Employees' employment with Buyer and not as a result of or in connection with the Hired Employees' employment with the Seller or their termination by the Seller hereunder. The Seller shall be responsible and retain liability for (and Buyer shall have no liability or obligation with respect to) any employee benefits of any Employee that accrued pursuant to such C:\34ACTREP\EXFILES\EXHIBIT.2G 16 Employee's employment with Buyer on or before the Closing Date. After the Closing Date, the parties hereto shall, except as prohibited by law, each provide the other parties with such information regarding the Employees as reasonably requested by such other parties, such information to be provided on a continuing basis and at no cost to the requesting party. 6.4 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 6.4 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 Closing Date. 6.5 Name Change. The Seller and the Shareholder shall, within thirty (30) days from the Closing Date, caused to be filed (i) with the secretary of state of the Seller's state of organization an amendment to the charter (or other applicable organization document) of the Seller changing the name of the Seller from its current name to a name that is not similar to such name or such merger documents required to effect the merger of the Seller with and into another entity so that the separate corporate existence of the Seller is terminated, 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, including without limitation, amendments or withdrawals of certificates of authority to do business and assumed name filings. The Seller and the Shareholder shall, within five (5) business 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. 6.6 First Call. Subject to the provisions contained in the last three sentences of this Section 6.6, for a period of one year from the Closing Date, in the event that the Shareholder intends to retain the services of a third party (that is not an affiliate of the Shareholder) to perform services anywhere in the United States, which services are performed for third parties by Buyer (or Buyer's affiliates), the Shareholder shall, prior to retaining such third party, give Buyer (or Buyer's affiliate) the opportunity (the "Buyer First Call") to offer to perform such services to the Shareholder. Should Buyer (or Buyer's affiliate) offer to perform such services, which in the reasonable opinion of Shareholder is of equal or better quality as those offered by such third party based on the past performances of Buyer and such third party, on terms and conditions (including, without limitation, price and timing) no less advantageous, individually or in the aggregate, to the Shareholder than those available from such third party, Buyer (or Buyer's affiliate) and the Shareholder shall mutually agree on the specific terms, conditions and services to be performed by Buyer. If Buyer (or Buyer's affiliate) cannot, promptly upon the Shareholder's request, offer in good faith the services on the terms set forth in the immediately preceding sentence, the Shareholder shall be free to retain such third party to perform such services as it shall see fit. In the event of a breach by the Shareholder of its obligations under this Section 6.6, Buyer shall be entitled to recover any profits lost as a result of such breach (in addition to all other available remedies). Notwithstanding the foregoing, Buyer acknowledges that the Shareholder is currently obligated, pursuant to a binding written contract with C:\34ACTREP\EXFILES\EXHIBIT.2G 17 The Canton Oil & Gas Company ("Canton"), a copy of which is attached hereto as Schedule 6.6 (the "Canton Agreement"), to engage Canton to provide services for the Shareholder in certain territories within the United States and under certain circumstances as specified in the Canton Agreement. Buyer agrees that during the term of the Canton Agreement, the Buyer First Call shall be subject to the rights of Canton under the Canton Agreement and that the Shareholder's compliance with the terms and provisions of the Canton Agreement shall not be deemed to be a breach of the provisions of this Section 6.6. The Shareholder agrees not to consent to any amendment to the Canton Agreement that would further adversely affect the Buyer First Call. 6.7 Collection of Receivables. Buyer shall cooperate with and assist the Seller in collecting the Seller Receivables, which cooperation and assistance shall include promptly forwarding to the Seller all payments received by Buyer that are made in respect of the Seller Receivables. The Seller shall cooperate with and assist Buyer in collecting receivables of Buyer, which cooperation and assistance shall include promptly forwarding to Buyer all payments received by the Seller that are made in respect of Buyer's receivables. 6.8 Expenses, Fees and Taxes. Each of the parties hereto shall pay its own fees and expenses incident to the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby. Buyer shall be responsible for the costs of all fees for the recording of transfer documents. Notwithstanding anything to the contrary herein, it is acknowledged by the parties hereto that the purchase price being paid hereunder excludes any sales taxes or other taxes in connection with the sale of the Assets. If a determination is ever made that a sales taxes or other transfer taxes applies to the transaction contemplated hereby, Buyer shall be liable for the entire amount of such taxes. 6.9 Access to Records. Each of the parties hereto shall allow the other parties reasonable access to those (but only those) business and corporate records of such party reasonably required by the other parties in the preparation and filing of their federal and state tax returns and reports to be filed with the Securities and Exchange Commission or similar state agencies 6.10 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. Article VII INDEMNIFICATION 7.1 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, each of the Seller and the Shareholder shall, jointly and severally, indemnify, defend and hold harmless Buyer and its officers, directors, C:\34ACTREP\EXFILES\EXHIBIT.2G 18 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 (i) any breach of, or failure by either the Seller or the Shareholder to perform, their respective representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Seller or the Shareholder under this Agreement; and (ii) the Retained Liabilities; provided, however, that such indemnification is subject to the following conditions: (A) the aggregate obligations of the Seller and the Shareholder to indemnify Buyer and the other parties identified above pursuant to Sections 7.1 and 7.2 hereof and the applicable provisions of any other agreement or document executed and delivered in connection herewith, including, without limitation, the purchase and sale agreement(s) pursuant to which the Shareholder Real Property will be sold by the Shareholder to Buyer in connection herewith, shall not exceed $2,700,000; and (B) with respect to the Damages caused by the events specified in this Section 7.1, enforcement of the indemnification obligations of the Seller and the Shareholder under this Section 7.1 shall be Buyer's sole and exclusive remedy. 7.2 Environmental Indemnification. Notwithstanding the limitations of the representations and warranties of the Seller and the Shareholder contained in Section 2. 1.10 hereof, each of 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 Damages that such indemnitee shall incur or suffer, which arise, result from or relate to (i) any violation of any Applicable Environmental Laws by the Seller, or (ii) the occurrence of any materially adverse environmental condition or circumstance (including the presence or release of hazardous materials) on (A) the Shareholder Real Property, whether or not such circumstance or condition was caused by or known to the Seller or the Shareholder, or (B) any property, whether or not owned or leased by the Seller, on which Hazardous Materials were generated by the Seller's operation of the Assets or conduct of the Business; provided, however, that such indemnification is subject to the following conditions: (1) the foregoing indemnification applies only if the event from which such Damages arose shall have occurred before the Closing Date; (2) the aggregate obligations of the Seller and the Shareholder to indemnify Buyer and the other parties identified above pursuant to Sections 7.1 and 7.2 hereof and the applicable provisions of any other agreement or document executed and delivered in connection herewith, including, without limitation, the purchase and sale agreement(s) pursuant to which the Shareholder Real Property will be sold by the Shareholder to Buyer in connection herewith, shall not exceed $2,700,000; and (3) with respect to the Damages caused by the events specified in this Section 7.2, enforcement of the indemnification obligations of the Seller and the Shareholder under this Section 7.2 shall be Buyer's sole and exclusive remedy. 7.3 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 each of the Seller and the Shareholder and their officers, directors, employees, agents and stockholders, against and with respect to any and all Damages that such indemnitee shall incur or suffer, which arise, result from or relate to (i) any breach of, or failure by Buyer to perform, its re presentations, 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 Buyer under this Agreement; and (ii) the Assumed Liabilities; provided, however, that such indemnification is subject to the following conditions: (A) the aggregate obligations of Buyer to indemnify the Seller, the Shareholder and the other parties identified above pursuant to this Section 7.3 and 7.2 and the applicable provisions of any other agreement or document executed and delivered in connection herewith, including, without limitation, the purchase and sale agreement(s) pursuant to which the Shareholder Real Property will be sold by the Shareholder to Buyer in connection herewith, shall not exceed $2,700,000; and (B) with respect to the Damages caused by the events specified in this Section 7.3, enforcement of the indemnification obligations of Buyer under this Section 7. shall be the sole and exclusive remedy of the Seller and the Shareholder. 7.4 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an event giving rise to indemnification claim under this Article VII, such indemnified party shall promptly give written notice to the indemnifying party, specifying such claim; provided, however, that the failure of any indemnified party to give prompt written notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not mate rially 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 VII, 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 (or an indemnification claim under Section 7.2 hereof is made involving remediation of the environmental condition in question), the indemnifying party shall be entitled to participate in and to assume the defense thereof (or, in the case of a claim for remediation, to participate in and assume responsibility for such remediation), jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel (or, in the case of a claim for remediation, any personnel or contractor) reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election to so assume the defense (or, in the case of a claim for remediation, to assume the responsibility for the remediation) 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 (or, in the case of a claim for remediation, the remediation) thereof unless the indemnifying party has failed to assume the defense of such claim (or, in the case of a claim for remediation, failed to assume the responsibility for the remediation) and to employ counsel (or, in the case of a claim for remediation, personnel or contractors) reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim (or, in the case of a claim for remediation, to assume the responsibility for the remediation) shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction (or, in the case of a claim for remediation, more than one contractor) 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 C:\34ACTREP\EXFILES\EXHIBIT.2G 19 allegations. Notwithstanding any of the foregoing to the contrary, in the case of an action or proceeding, 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 and involves no equitable relief affecting the indemnified party. 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. Article VIII MISCELLANEOUS 8.1 Survival of Representations, Warranties and Covenants. All representations and warranties made by the parties hereto shall survive for a period of 12 months from the Closing Date, notwithstanding any investigation made by or on behalf of any of the parties hereto. All statements contained in any certificate, schedule, exhibit or other instrument delivered pursuant to this Agreement shall be deemed to have been representations and warranties by the respective party or parties, as the case may be, and shall also survive for a period of 12 months from the Closing Date despite any investigation made by any party hereto or on its behalf. All covenants and agreements of the parties hereto contained herein shall survive as provided herein. 8.2 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. 8.3 Counterparts. This Agreement may be executed by facsimile signature and in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 8.4 Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested. C:\34ACTREP\EXFILES\EXHIBIT.2G 20 If to Buyer Addressed to: With a copy to: WellTech Eastern, Inc. Porter & Hedges, L.L.P. Two Tower Center, Tenth Floor 700 Louisiana East Brunswick, New Jersey 08816 Houston, Texas 77210-4744 Attn: General Counsel Attention: Samuel N. Allen Facsimile: (908) 247-5148 Facsimile: (713) 228-1331 If to the Seller or the Shareholder Addressed to: With a copy to: Lomak Petroleum, Inc. Rubin, Baum, Levin, Constant & Friedman 500 Thockmorton Street 30 Rockefeller Plaza Fort Worth, Texas 76102 New York, New York 10112 Attn: Hardy Murchison Attn: Walter M. Epstein Facsimile: (817) 870-2914 Facsimile: (212) 698-7825 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day. 8.5 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. 8.6 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and permitted assigns of the parties hereto. 8.7 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. 8.8 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas. C:\34ACTREP\EXFILES\EXHIBIT.2G 21 IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the other parties hereto have caused this Agreement to be signed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. WELLTECH EASTERN, INC. By: \s\ Kenneth V. Huseman Name: Kenneth V. Huseman Title: Vice President TALON TRUCKING COMPANY By: \s\ Chad L. Stephens Name: Chad L. Stephens Title: Vice President LOMAK PETROLEUM, INC. By: \s\ Chad L. Stephens Name: Chad L. Stephens Title: Vice President C:\34ACTREP\EXFILES\EXHIBIT.2G 22 EX-10.(H) 9 CIT AGREEMENT AMENDMENT FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND MODIFICATION OF NOTES THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND MODIFICATION OF NOTES (the "Amendment") is dated as of November 22, 1996, and entered into by and between THE CIT GROUP/CREDIT FINANCE, INC. ("Lender") with its office at 10 South LaSalle Street, Chicago, Illinois 60603, and YALE E. KEY, INC. ("Yale"), KEY ENERGY DRILLING, INC. (d/b/a Clint Hurt Drilling) ("Hurt") and WELLTECH EASTERN, INC. ("WellTech") (individually each a "Borrower" and collectively the "Borrowers"). WHEREAS, Lender and Borrowers have entered into that certain Third Amended and Restated Loan and Security Agreement dated as of May 21, 1996 ("Agreement"); WHEREAS, in connection with the execution of the Agreement, Borrowers executed and delivered to Lender the following promissory notes (collectively the "Notes"): (i) Amended and Restated Promissory Note dated May 21, 1996 executed by WellTech payable to Lender in the original principal amount of $11,822,186.00 (the "WellTech Note"); (ii) Amended and Restated Promissory Note dated May 21, 1996 executed by Yale payable to Lender in the original principal amount of $10,004,082.00 (the "Yale Note"); and (iii) Amended and Restated Promissory Note dated May 21, 1996 executed by Hurt payable to Lender in the original principal amount of $1,230,000.00 (the "Hurt Note"); and WHEREAS, on or about July 3, 1996 Key Energy Group, Inc. ("Key") issued and sold $52,000,000 in the aggregate principal amount of its convertible subordinated debentures due 2003 (the "Debentures") pursuant to a Private Offering Memorandum dated June 28, 1996; and on August 29, 1996, Key, the Borrowers, and American Stock Transfer and Trust Company, as Trustee, entered into that certain Indenture (the "Indenture"); and WHEREAS, part of the proceeds of the Debentures were used to repay the Notes; and WHEREAS, Borrowers have requested certain amendments to the Agreement, including the ability to reborrow part of the amounts repaid under the Notes, all as more fully set forth herein; and WHEREAS, Lender has agreed to the amendments set forth herein subject to the terms and conditions provided for in this Amendment; and FINS2DAL:40474.4 18739-00020 -1- WHEREAS, Lender and Borrowers desire to amend the Agreement and to modify the Notes as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I Definitions Section 1.01. Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. Section 1.02. New Definitions. The following new definitions are hereby added to the Agreement: "Hurt Note" means the Amended and Restated Promissory Note dated May 21, 1996 executed by Hurt payable to Lender in the original principal amount of $1,230,000 as amended and modified from time to time. "Indenture" means the Indenture entered into by Key Energy Group, Inc., the Borrowers, and American Stock Transfer and Trust Company, as Trustee, dated August 29, 1996. "Parent" means Key Energy Group, Inc., a Delaware corporation, and owner and holder of 100% of the common stock of each Borrower. "Parent Guaranty" means the Guaranty dated as of May 21, 1996 made by Parent in favor of Lender. "WellTech Note" means the Amended and Restated Promissory Note dated May 21, 1996 executed by WellTech payable to Lender in the original principal amount of $11,822,186 as amended and modified from time to time. "Yale Note" means the Amended and Restated Promissory Note dated May 21, 1996 executed by Yale payable to Lender in the original principal amount of $10,004,082 as amended and modified from time to time. FINS2DAL:40474.4 18739-00020 -2- ARTICLE II Amendments Section 2.01. Amendment to Section 6.4 of the Agreement. Section 6.4 of the Agreement is hereby amended in its entirety to read as follows: "6.4 (a) Each Borrower's books and records concerning accounts and its chief executive officer are and shall be maintained only at the address set forth in Section 10.6(d). Each Borrower's only other places of business and the only other locations of Collateral, if any, are and shall be the addresses set forth in Section 10.6(e) hereof, except any Borrower may change such locations in the ordinary course of business or open a new place of business after thirty (30) days prior written notice to Lender; provided, however, if such new place of business is the result of an acquisition of the business or assets of another entity and is located in a state other than a state where Lender has a currently filed financing statement reflecting the acquiring Borrower as "Debtor", then such notice period will be reduced to fifteen (15) days. Prior to any change in location or opening of any new place of business, each Borrower shall execute and deliver or cause to be executed and delivered to Lender such financing statements, financing documents, mortgages, and security and other agreements as Lender may reasonably require, including, without limitation, those described in Section 6.14. Without otherwise limiting the effect of the foregoing, Borrower may change the location of its well servicing rigs and drilling rigs without prior approval of Lender; provided, however, such well servicing rigs and drilling rigs may not be removed from the state where they are located as of the date hereof without notice to Lender if such removal would cause Lender's security interest therein to lapse, and Borrowers shall within five (5) days of Lender's request, provide Lender with a listing of the current locations of all well servicing rigs and drilling rigs. (b) Notwithstanding the foregoing provisions of Section 6.4(a) hereof, any Borrower may open a new place of business in connection with the acquisition of the business and assets of another entity without such prior notice and document execution and delivery if such new place of business is located in a state where Lender has a currently filed financing statement reflecting the acquiring Borrower as "Debtor". Borrower shall, within five (5) days following the consummation of such acquisition, give Lender notice thereof and shall promptly thereafter execute and deliver such additional financing statements, financing documents, mortgages, and security and other agreements as Lender may reasonably require, including, without limitation, those described in Section 6.14." Sectioon 2.02. Amendment to Section 6.6 of the Agreement. Section 6.6 of the Agreement is hereby amended in its entirety to read as follows: "6.6 No Borrower shall directly or indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of any part of the Collateral or any material FINS2DAL:40474.4 18739-00020 -3- portion of its other assets (other than sales of inventory to buyers in the ordinary course of business) or (b) consolidate with or merge into any other entity." Section 2.03. Amendment to Section 6.12 of the Agreement. The last sentence of Section 6.12 of the Agreement is hereby amended to read as follows: "In addition, WellTech may make intercompany loans to WellTech's 63% owned subsidiary, Servicios WellTech, S.A. ("Servicios") as long as (a) all such intercompany loans are properly documented on WellTech's books and records, (b) all such intercompany loans are memorialized by one or more Intercompany Note and Security Agreements (the "Servicios Chattel Paper"), (c) no such additional intercompany loans to Servicios after January 19, 1996 would exceed the amount of $2,000,000 which is part of the principal amount as set forth in the related Amended and Restated Intercompany Note and Security Agreement executed by Servicios dated November 22, 1996, and (d) Lender retains a properly perfected security interest in the Servicios Chattel Paper at the time of such intercompany loan." The remaining provisions of Section 6.12 are unchanged. Section 2.04. Amendment to Section 6.20 of the Agreement. Section 6.20 of the Agreement is hereby amended in its entirety to read as follows: "6.20 RESERVED." Section 2.05. Amendment to Section 7.1 of the Agreement. Section 7.1 of the Agreement is hereby amended by the addition of a new "Event of Default" subsection (m) which reads as follows: "(m) The occurrence and continuance of an event of default under the Indenture." All remaining provisions of Section 7.1 are unchanged. Section 2.06. Amendment to Section 9.1 of the Agreement. Section 9.1 of the Agreement is hereby amended in its entirety to read as follows: "9.1 Term. This Agreement shall only become effective upon the execution and delivery of this Agreement by each Borrower and Lender and shall continue in full force and effect until either December 31, 2001, or January 5, 2002, at Lender's option, and shall be deemed automatically renewed for successive terms of two (2) years thereafter unless terminated as of the end of the initial or any renewal term (each a "Term") by the Lender or any Borrower giving the other parties hereto written notice at least sixty (60) days prior to the end of the then-current Term." Section 2.07. Amendment to Section 9.2 of the Agreement. Section 9.2 of the Agreement is hereby amended in its entirety to read as follows: FINS2DAL:40474.4 18739-00020 -4- "9.2 In consideration of the issuance of a warrant to purchase 125,000 shares of the common stock of Parent, Lender agrees that any of the Borrowers may also terminate this Agreement by giving Lender at least thirty (30) days prior written notice at any time upon payment in full of all of the Obligations as provided herein, including the applicable early termination fee provided below. Lender shall also have the right to terminate this Agreement at any time upon or after the occurrence of an Event of Default. If Lender terminates this Agreement upon or after the occurrence of an Event of Default, or if any of the Borrowers shall terminate this Agreement as permitted herein effective prior to the end of the then-current Term, in addition to all other Obligations, the Borrowers collectively shall pay to Lender, upon the effective date of termination, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits, an early termination fee equal to: (a) $400,000 if the effective date of such termination occurs on or before November 22, 1997; (b) $300,000 if the effective date of such termination occurs after November 22, 1997 but on or before November 22, 1998; (c) $200,000 if the effective date of such termination occurs after November 22, 1998 but on or before the end of the then current Term. If Borrowers terminate this Agreement and repay the Obligations without having provided Lender with at least thirty (30) days' prior written notice thereof, Borrowers will pay to Lender an additional amount equal to thirty (30) days of interest at the applicable Interest Rate, based on the average outstanding amount of the Obligations for the six (6) month period preceding the date of termination." Section 2.08. Amendment to Section 9.3 of the Agreement. Section 9.3 of the Agreement is hereby amended in its entirety to read as follows: "9.3. Borrower may prepay, in whole or in part, the Term Loans prior to the end of the then current Term without any premium or penalty." Section 2.09. Amendment to Section 10.1 of the Agreement. Section 10.1 of the Agreement is hereby amended in its entirety to read as follows: "10.1 (a) Maximum Credit: $40,000,000 (b) Eligible Accounts Percentage: Eighty-Five Percent (85%) so long as the dilution percentage of such accounts does not exceed Four Percent (4%) whereupon the Eligible Accounts Percentage shall be reduced to an amount deemed reasonable by Lender. FINS2DAL:40474.4 18739-00020 -5- (c) Maximum days after Invoice Date for Eligible Accounts: 90 days; provided, however, that Lender may make advances up to $250,000.00 in the aggregate at any given time against Eligible Accounts which are between 91 days and 120 days past invoice date. (d) Minimum Borrowing: $12,000,000. (e) Sublimits: (i) For Yale, $40,000,000 less all Obligations of Hurt and WellTech; (ii) For Hurt, the lesser of (i) $2,000,000, and (ii) $40,000,000 less all Obligations of Yale and WellTech; and (iii) For WellTech, $40,000,000 less all Obligations of Hurt and Yale." Section 2.10. Amendment to Section 10.2(a) of the Agreement. Section 10.2(a) of the Agreement is hereby amended in its entirety to read as follows: "(a) Term Loan: (i) For Yale, up to but not to exceed $8,932,231.21 (the "Maximum Amount"); (ii) For Hurt, up to but not to exceed $1,091,239.41 (the "Maximum Amount"); and (iii) For WellTech, up to but not to exceed $9,666,309.60 (the "Maximum Amount")." Section 2.11. Amendment to Section 10.4 of the Agreement. Section 10.4 of the Agreement is hereby amended in its entirety to read as follows: "10.4 Fees: (a) Interest Rate: Prime Rate plus .50% per annum (b) Closing Fees: None (c) Unused Line Fee Rate: .25% per annum payable on the first day of the following month." Section 2.12. Amendment to Section 10.5 of the Agreement. Section 10.5 of the Agreement is hereby amended in its entirety to read as follows: FINS2DAL:40474.4 18739-00020 -6- "10.5 Financial Covenants: Unless indicated otherwise, all amounts below shall be determined in accordance with generally accepted accounting principles, in effect on the date hereof, consistently applied: (a) "Consolidated Debt Service (Fixed Charge) Coverage Ratio" means the ratio of (a) the sum of net income plus (i) depreciation and amortization expenses plus (ii) increases in deferred taxes less (iii) decreases in deferred taxes resulting from tax payments actually made; divided by (b) the sum of payments on long term indebtedness plus (i) capital lease payments plus (ii) any unfunded capital expenditures; (c) determined on a consolidated basis. Testing of the following ratio will begin on March 31, 1996. Parent and its Subsidiaries will maintain a Consolidated Debt Service (Fixed Charge) Coverage Ratio of not less than 1.50 to 1.00, such ratio to be tested at the end of each calendar quarter (i.e. as of March 31, June 30, September 30 and December 31) based on the prior 12- month period. (b) "Consolidated Tangible Net Worth" means the amount by which the - ------------------------------- sum of (a) Shareholders' Equity plus Subordinated Debt (non-current balance) exceeds (b) Intangible Assets, determined on a consolidated basis for Parent and its Subsidiaries. For this purpose: "Shareholders Equity" means shareholders' equity determined according to GAAP; and "Intangible Assets" means (i) assets which are treated as intangible pursuant to GAAP; (ii) obligations owing by any persons that are officers, directors, shareholders, employees, subsidiaries or affiliates, or any entity in which any such person owns any interest; and (iii) any asset which is intangible or lacks intrinsic and marketable value or collectibility, including without limitation goodwill, noncompetition agreements, patents, copyrights, trademarks, franchises or organization or research and development costs, prepaid expenses or investments in subsidiaries/affiliates; and (iv) any other assets determined to be intangible by Lender in its reasonable credit judgment. Parent and its Subsidiaries will maintain a Consolidated Tangible Net Worth of not less than $35,000,000, such net worth to be tested as of the end of each calendar quarter (i.e. as of March 31, June 30, September 30 and December 31). (c) Total Senior Secured Liabilities (as defined by GAAP) to Consolidated Tangible Net Worth: FINS2DAL:40474.4 18739-00020 -7- Parent and its Subsidiaries will not allow the ratio of Total Senior Secured Liabilities to Consolidated Tangible Net Worth to be greater than .90 to 1.00, such ratio to be tested as of the end of any calendar quarter (i.e. as of March 31, June 30, September 30 and December 31). (d) Total Current Assets (as defined by GAAP) to Total Current Liabilities (as defined by GAAP). Parent and its Subsidiaries will maintain a ratio of Total Current Assets to Total Current Liabilities of not less than 1.15 to 1.0, such ratio to be tested as of the end of any calendar quarter (i.e. as of March 31, June 30, September 30 and December 31)." Section 2.13. Amendment to Schedule 6.12. Schedule 6.12 is hereby amended in its entirety and replaced with "Amended Schedule 6.12" attached to the First Amendment and incorporated and made a part of the Agreement by this reference. ARTICLE III Modifications to Notes Section 3.01. Amendments to Hurt Note. The first three (3) paragraphs of the Hurt Note are hereby amended in their entirety to read as follows: "FOR VALUE RECEIVED, KEY ENERGY DRILLING, INC., D/B/A CLINT HURT DRILLING, a Delaware corporation, promises to pay to the order of THE CIT GROUP/CREDIT FINANCE, INC. ("CIT"), at its offices at 10 South LaSalle Street, Chicago, Illinois 60603 or such other place as the holder hereof may from time to time designate in writing, in legal tender of the United States of America, the principal sum of One Million Ninety One Thousand Two Hundred Thirty Nine and 41/100 Dollars ($1,091,239.41) or so much thereof as may be borrowed hereunder and reflected on Schedule "A" attached hereto and made a part hereof, plus interest from the date hereof on the unpaid principal balance as follows: The principal amount available to be borrowed under this Note (the "Maximum Amount") shall be automatically reduced by $14,642.86 each month, and at no time shall the outstanding principal exceed the Maximum Amount. The principal sum hereof outstanding shall be due and payable on the end of the "Term" as defined in the Loan Agreement described herein. Interest shall be earned at the rate (the "Annual Rate") of one-half percent (.50%) per annum plus the "Prime Rate". The "Prime Rate" is the per annum rate of interest publicly announced by Chase Manhattan Bank, New York, New York, or the applicable rate of its successors or assigns, from time to time as its prime rate (the prime rate is not intended to be the lowest rate of interest charged by Chase FINS2DAL:40474.4 18739-00020 -8- Manhattan Bank, New York, New York, or its successors or assigns, to its borrowers). Such interest shall be payable monthly in arrears on the first day of each and every month, commencing on the first day of the month after an advance is made hereunder. Interest shall be computed on the unpaid principal balance and shall be calculated on a year of 360 days for actual days elapsed. Interest and principal not paid when due shall bear interest at a rate equal to two percent (2%) per annum in excess of the Annual Rate." The remaining provisions of the Hurt Note are unchanged. Section 3.02. Amendments to WellTech Note. The first three (3) paragraphs of the WellTech Note are hereby amended in their entirety to read as follows: "FOR VALUE RECEIVED, WELLTECH EASTERN, INC., a Delaware corporation, promises to pay to the order of THE CIT GROUP/CREDIT FINANCE, INC. ("CIT"), at its offices at 10 South LaSalle Street, Chicago, Illinois 60603 or such other place as the holder hereof may from time to time designate in writing, in legal tender of the United States of America, the principal sum of Nine Million Six Hundred Sixty-Six Thousand Three Hundred Nine and 60/100 Dollars ($9,666,309.60) or so much thereof as may be borrowed hereunder and reflected on Schedule "A" attached hereto and made a part hereof, plus interest from the date hereof on the unpaid principal balance as follows: The principal amount available to be borrowed under this Note (the "Maximum Amount") shall be automatically reduced by $140,740.31 each month, and at no time shall the outstanding principal exceed the Maximum Amount. The principal sum hereof outstanding shall be due and payable on the end of the "Term" as defined in the Loan Agreement described herein. Interest shall be earned at the rate (the "Annual Rate") of one-half percent (.50%) per annum plus the "Prime Rate". The "Prime Rate" is the per annum rate of interest publicly announced by Chase Manhattan Bank, New York, New York, or the applicable rate of its successors or assigns, from time to time as its prime rate (the prime rate is not intended to be the lowest rate of interest charged by Chase Manhattan Bank, New York, New York, or its successors or assigns, to its borrowers). Such interest shall be payable monthly in arrears on the first day of each and every month, commencing on the first day of the month after an advance is made hereunder. Interest shall be computed on the unpaid principal balance and shall be calculated on a year of 360 days for actual days elapsed. Interest and principal not paid when due shall bear interest at a rate equal to two percent (2%) per annum in excess of the Annual Rate." The remaining provisions of the WellTech Note are unchanged. Section 3.03. Amendments to Yale Note. The first three (3) paragraphs of the Yale Note are hereby amended in their entirety to read as follows: FINS2DAL:40474.4 18739-00020 -9- "FOR VALUE RECEIVED, YALE E. KEY, INC., a Texas corporation, promises to pay to the order of THE CIT GROUP/CREDIT FINANCE, INC. ("CIT"), at its offices at 10 South LaSalle Street, Chicago, Illinois 60603 or such other place as the holder hereof may from time to time designate in writing, in legal tender of the United States of America, the principal sum of Eight Million Nine Hundred Thirty-Two Thousand Two Hundred Thirty-One and 21/100 Dollars ($8,932,231.21) or so much thereof as may be borrowed hereunder and reflected on Schedule "A" attached hereto and made a part hereof, plus interest from the date hereof on the unpaid principal balance as follows: The principal amount available to be borrowed under this Note (the "Maximum Amount") shall be automatically reduced by $119,096.21 each month, and at no time shall the outstanding principal exceed the Maximum Amount. The principal sum hereof outstanding shall be due and payable on the end of the "Term" as defined in the Loan Agreement described herein. Interest shall be earned at the rate (the "Annual Rate") of one-half percent (.50%) per annum plus the "Prime Rate". The "Prime Rate" is the per annum rate of interest publicly announced by Chase Manhattan Bank, New York, New York, or the applicable rate of its successors or assigns, from time to time as its prime rate (the prime rate is not intended to be the lowest rate of interest charged by Chase Manhattan Bank, New York, New York, or its successors or assigns, to its borrowers). Such interest shall be payable monthly in arrears on the first day of each and every month, commencing on the first day of the month after an advance is made hereunder. Interest shall be computed on the unpaid principal balance and shall be calculated on a year of 360 days for actual days elapsed. Interest and principal not paid when due shall bear interest at a rate equal to two percent (2%) per annum in excess of the Annual Rate." The remaining provisions of the Yale Note are unchanged. ARTICLE IV Ratifications, Representations and Warranties Section 4.01. Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement, including, without limitation, all financial covenants contained therein, are ratified and confirmed and shall continue in full force and effect. Lender and each Borrower agree that the Agreement as amended hereby shall continue to be legal, valid, binding and enforceable in accordance with its terms. Section 4.02. Representations and Warranties. Each Borrower hereby represents and warrants to Lender that the execution, delivery and performance of this Amendment and all other loan, amendment or security documents to which such Borrower is or is to be a party hereunder (hereinafter referred to collectively as the "Loan Documents") executed and/or delivered in FINS2DAL:40474.4 18739-00020 -10- connection herewith, have been authorized by all requisite corporate action on the part of such Borrower and will not violate the Articles of Incorporation or Bylaws of such Borrower. ARTICLE V Conditions Precedent Section 5.01. Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent (unless specifically waived in writing by the Lender): (a) Lender shall have received, in addition to this Amendment, all of the following, each dated (unless otherwise indicated) as of the date of this Amendment, in form and substance satisfactory to Lender in its sole discretion: (i) Company Certificate. A certificate executed by the Secretary or Assistant Secretary of each Borrower certifying (A) that Borrower's Board of Directors has met and adopted, approved, consented to and ratified the resolutions attached thereto which authorize the execution, delivery and performance by Borrower of the Amendment and the Loan Documents, (B) the names of the officers of Borrower authorized to sign this Amendment and each of the Loan Documents to which Borrower is to be a party hereunder, (C) the specimen signatures of such officers, and (D) that neither the Articles of Incorporation nor Bylaws of Borrower have been amended since the date of the Agreement; (ii) Evidence of Existence and Good Standing. Evidence of the existence and good standing of each Borrower in such jurisdictions as Lender may require; (iii) No Material Adverse Change. Since May 21, 1996, there shall have occurred no material adverse change in the business, operations, financial condition, profits or prospects of any Borrower, or in the Collateral, and the Lender shall have received a certificate of each Borrower's chief executive officer to such effect; (iv) Amendment Documents. a. The Amended and Restated Intercompany Note and Security Agreement executed by Servicios payable to WellTech in the original principal amount of up to $5,400,000 dated November 22, 1996. b. The Deed of Trust executed by WellTech dated November 22, 1996 for the benefit of Lender covering certain property located in Woodward County, Oklahoma. c. The Amendment to Common Stock Purchase Warrant. FINS2DAL:40474.4 18739-00020 -11- d. Warrant No. 2 - Common Stock Purchase Warrant executed by Parent in favor of Lender for 125,000 shares of Parent's stock dated November 22, 1996.. e. Amended and Restated Registration Rights Agreement. f. Certificates of title for certain motor vehicles with documentation acceptable to Lender for recording Lender's liens thereon. g. UCC-1 Financing Statements for each of Borrower's locations reflecting Lender's security interest. (v) Other Documents. Each Borrower shall have executed and delivered such other documents and instruments as well as required record searches as Lender may require. (b) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel, Jenkens & Gilchrist, a Professional Corporation. (c) The Indenture shall have been amended to Lender's satisfaction to reflect that Parent's obligations under the Parent Guaranty constitute "Senior Indebtedness" under the Indenture. ARTICLE VI Miscellaneous Section 6.01. Survival of Representations and Warranties. All representations and warranties made in the Agreement or any other document or documents relating thereto, including, without limitation, any Loan Document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely thereon. Section 6.02. Reference to Agreement. The Agreement, each of the Loan Documents, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference therein to the Agreement shall mean a reference to the Agreement as amended hereby. Section 6.03. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this FINS2DAL:40474.4 18739-00020 -12- Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 6.04. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. Section 6.05. Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Lender and each Borrower and their respective successors and assigns; provided, however, that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. Lender may assign any or all of its rights or obligations hereunder without the prior consent of any Borrower. Section 6.06. Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Section 6.07. Effect of Waiver. No consent or waiver, express or implied, by Lender to or of any breach of or deviation from any covenant or condition of the Agreement or duty shall be deemed a consent or waiver to or of any other breach of or deviation from the same or any other covenant, condition or duty. No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Amendment, the Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Amendment, the Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in the Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law. Section 6.08. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 6.09. Releases. As a material inducement to Lender to enter into this Amendment, each Borrower hereby represents and warrants that there are no claims or offsets against, or defenses or counterclaims to, the terms and provisions of and the other obligations created or evidenced by the Agreement or the other Loan Documents. Each Borrower hereby releases, acquits, and forever discharges Lender, and its successors, assigns, and predecessors in interest, their parents, subsidiaries and affiliated organizations, and the officers, employees, attorneys, and agents of each of the foregoing (all of whom are herein jointly and severally referred to as the "Released Parties") from any and all liability, damages, losses, obligations, costs, expenses, suits, claims, demands, causes of action for damages or any other relief, whether or not now known or suspected, of any kind, nature, or character, at law or in equity, which such Borrower now has or may have ever had against any of the Released Parties, including, but not limited to, those relating to (a) usury or penalties or damages therefor, (b) allegations that a partnership existed between Borrower and the Released Parties, (c) allegations of unconscionable acts, deceptive trade practices, lack of good faith or fair dealing, lack FINS2DAL:40474.4 18739-00020 -13- of commercial reasonableness or special relationships, such as fiduciary, trust or confidential relationships, (d) allegations of dominion, control, alter ego, instrumentality, fraud, misrepresentation, duress, coercion, undue influence, interference or negligence, (e) allegations of tortious interference with present or prospective business relationships or of antitrust, or (f) slander, libel or damage to reputation, (hereinafter being collectively referred to as the "Claims"), all of which Claims are hereby waived. Section 6.10. Expenses of Lender. Borrowers agree to pay on demand (i) all costs and expenses reasonably incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all subsequent amendments, modifications, and supplements hereto or thereto, including, without limitation, the costs and fees of Lender's legal counsel and the allocated cost of staff counsel and (ii) all costs and expenses reasonably incurred by Lender in connection with the enforcement or preservation of any rights under the Agreement, this Amendment and/or other Loan Documents, including, without limitation, the costs and fees of Lender's legal counsel and the allocated cost of staff counsel. Section 6.11. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN LENDER AND BORROWERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN LENDER AND BORROWERS. FINS2DAL:40474.4 18739-00020 -14- IN WITNESS WHEREOF, the parties have executed this First Amendment to Third Amended and Restated Loan and Security Agreement on the date first above written. "BORROWERS" YALE E. KEY, INC. By: Name: Francis D. John Title: Executive Vice President KEY ENERGY DRILLING, INC. (d/b/a Clint Hurt Drilling) By: Name: Francis D. John Title: Executive Vice President WELLTECH EASTERN, INC. By: Name: Francis D. John Title: President "LENDER" THE CIT GROUP/CREDIT FINANCE, INC. By: Name: Morris Horstmann Title: Vice President FINS2DAL:40474.4 18739-00020 S - 1 CONSENTS AND REAFFIRMATIONS Key Energy Group, Inc. hereby acknowledges the execution of, and consents to, the terms and conditions of that First Amendment to Third Amended and Restated Loan and Security Agreement dated as of November 22, 1996, between Yale E. Key, Inc., Key Energy Drilling, Inc. (d/b/a Clint Hurt Drilling), WellTech Eastern, Inc. and The CIT Group/Credit Finance, Inc., ("Creditor") and reaffirms its obligations under (i) that certain Guaranty (the "Guaranty") dated as of May 21, 1996 made by the undersigned in favor of the Creditor, and (ii) that certain Amended and Restated Stock Pledge Agreement (the "Pledge") dated as of May 21, 1996 made by the undersigned in favor of the Creditor, and acknowledges and agrees that the Guaranty and the Pledge and all other documents executed in connection therewith remain in full force and effect and the Guaranty and the Pledge and all such other documents are hereby ratified and confirmed. Dated as of November 22, 1996. KEY ENERGY GROUP, INC. By: Name: Francis D. John Title: FINS2DAL:40474.4 18739-00020 AMENDED SCHEDULE 6.12 1.Key has guaranteed the obligations of Odessa to Norwest Bank Texas, Midland. 2.Key will pay the bonuses due to Francis D. John under Mr. John's Employment Agreement with Key. 3. Key will guarantee WellTech's obligations relating to the Nub's acquisition and note balance: $200,000 - $250,000 4. WellTech leases from Hidco Development Corporation, which is owned by Kenneth C. Hill and his spouse, real property used for well servicing yards in Mt. Pleasant, Michigan and Ripley, West Virginia. Lease terms, including rental rates, are deemed by management to be competitive. 5. WellTech leases from Talon Development Corporation real property used for its servicing yard in Indiana, Pennsylvania. Kenneth C. Hill owns a 33 1/3 interest in Talon Development Corporation. Lease terms including rental rates are deemed by management to be competitive. 6. WellTech initiated a management incentive compensation plan which requires the payment of sums of money to various parties contingent upon the attainment of a stipulated level of profitability. No payments have been made pursuant to this plan since its adoption. 7. Provided no Event of Default has occurred or would result from the making of such distributions, each Borrower may distribute funds to Key in an amount sufficient in the aggregate to make regularly scheduled payments of interest under the Indenture. 8. Each of the Borrowers may guarantee the obligations of Parent under the Indenture and the Debentures and may guarantee obligations of subsidiaries of Parent incurred in the ordinary course of business. FINS2DAL:40474.4 18739-00020 EX-10.(I) 10 AMERICAN STOCK TRANSFER & TRUST AGREEMENT FIRST SUPPLEMENTAL INDENTURE KEY ENERGY GROUP, INC. ISSUER TO AMERICAN STOCK TRANSFER & TRUST COMPANY TRUSTEE Dated as of November 20, 1996 (First Amendment to the Indenture Dated as of July 3, 1996) -3- C:\34ACTREP\EXFILES\EXHIBIT.10I This SUPPLEMENTAL INDENTURE (this ASupplemental Indenture@) is entered into as of the 20th day of November 1996 by and between Key Energy Group, Inc., a Maryland corporation having its principal offices in East Brunswick, New Jersey (hereinafter called the ACompany@), and American Stock Transfer & Trust Company, as trustee (hereinafter called the ATrustee@). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee that certain Indenture dated as of July 3, 1996 (hereinafter referred to as the AOriginal Indenture@) pursuant to which 7% (presently 7.5%) Convertible Subordinated Debentures Due 2003 (the ADebentures@) of the Company were issued; and WHEREAS, the Company desires to cure an ambiguity in the Original Indenture by amending the Original Indenture (the AProposed Amendment@) in a way that does not adversely affect the legal rights of the holders of the Debentures (the AHolders@) by clarifying that the term ASenior Indebtedness@ as used in the Original Indenture includes, among other things, any guaranty by the Company of the indebtedness or obligations of any Subsidiary Guarantor (as defined in the Original Indenture); and WHEREAS, Section 9.1 of the Original Indenture provides that the Company and the Trustee may amend the Original Indenture and the Debentures without the consent of any Holder to, among other things, (i) cure any ambiguity, defect or inconsistency and (ii) make any change that does not adversely affect the rights of the Holders under the Original Indenture; and WHEREAS, the Company desires and has requested the Trustee to join with it in the execution and delivery of this Supplemental Indenture for the purpose of amending the Original Indenture and the Indentures to effect the Proposed Amendment; and WHEREAS, the Company desires and has requested the Trustee to join with it in the execution and delivery of this Supplemental Indenture; and WHEREAS, the execution and delivery of this Supplemental Indenture have been duly authorized and approved by a resolution of the Company=s Board of Directors. NOW, THEREFORE, in consideration of the foregoing premises, and for the equal and proportionate benefit of all Holders of the Debentures, the Original Indenture is hereby amended, effective upon execution hereof by the Trustee as follows: ARTICLE I AMENDMENT The term ASenior Indebtedness@ contained in Section 12.2 of the Original Indenture is hereby amended in its entirety to read as follows: A "Senior Indebtedness" means: (a) the principal of, interest (including, to the extent permitted by applicable law, interest on or after the commencement of a proceeding referred to in clauses (g) or (h) of Section 6.1 whether or not representing an allowed claim in such proceeding) and premium, if any, on and any other amounts owing with respect to (i) any indebtedness of the Company, now or hereafter outstanding, in respect of borrowed money (other than the Securities), whether incurred by the Company directly or by virtue of any guaranty by the Company of any indebtedness or obligation of a Subsidiary Guarantor, (ii) any indebtedness of the Company, now or hereafter outstanding, evidenced by a bond, note, debenture, capitalized lease, letter of credit or other similar instrument, (iii) any other written obligation of the Company, now or hereafter outstanding, to pay money issued or assumed as all or part of the consideration for the acquisition of property, assets or securities, including without limitation, hedging obligations with respect to the purchase and sale of oil and gas, and (iv) any guaranty or endorsement (other than for collection or deposit in the ordinary course of business) or discount with recourse of, or other agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire, to supply or advance funds or to become liable with respect to (directly or indirectly), any indebtedness or obligation of any person of the type referred to in the preceding subclauses (i), (ii) and (iii) now or hereafter outstanding; and (b)any refunds, refinancings, renewals or extensions of any indebtedness or other obligation described in clause (a) of this Section 12.2. Notwithstanding the foregoing, if, by the terms of the instrument creating or evidencing any indebtedness or obligation referred to in clauses (a) and (b) above, it is expressly provided that such indebtedness or obligation is not senior in right of payment to the Securities, such indebtedness or obligation shall not be included as Senior Indebtedness. @ ARTICLE II MISCELLANEOUS PROVISIONS Section 2.1. For all purposes of this Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, capitalized terms used in this Supplemental Indenture and defined in the Original Indenture have the meaning specified in the Original Indenture. Section 2.2. Except as specifically amended and supplemented by this Supplemental Indenture, the Original Indenture shall remain in full force and effect and is hereby ratified and confirmed. Section 2.3. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflicts of law. Section 2.4. All agreements of the Company in this Supplemental Indenture shall bind its successors. All agreements of the Trustee in this Supplemental Indenture shall bind its successors. Section 2.5. The Trustee accepts the modification of the Indenture as hereby effected but only upon the terms and conditions set forth in the Original Indenture as amended and supplemented by this Supplemental Indenture. Section 2.6. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. KEY ENERGY GROUP, INC. By: \s\ Francis D. John Francis D. John, President Attest: \s\ Diane P. Mack Secretary or Assistant Secretary AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: \s\ Herbert J. Lemmer Name: Herbert J. Lemmer Title: Vice President Attest: \s\ Susan Silber Secretary or Assistant Secretary EX-11 11 COMPUTATION OF EARNINGS PER SHARE 1 KEY ENERGY GROUP, INC. COMPUTATION OF PER SHARE EARNINGS THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Three Months Ended Three Months Ended December 31, 1996 December 31, 1995 --------------------------------------------- Fully- Fully- (Thousands, except per share amounts) Primary Diluted Primary Diluted - ---------------------------------------------------------------------------------------------------- Net Income and Adjusted Earnings: Net Income before income taxes and minority interest ................................... $ 3,022 $ 3,022 $ 1,155 $ 1,155 Effect of interest on debentures ......................... - 975 - - ------- ------- ------- ------- Adjusted net income before income taxes and minority interest ............................... 3,022 3,997 1,155 1,155 ======= ======= ======= ======= Net Income ............................................... $ 2,043 $ 2,043 $ 768 $ 768 Effect of interest on convertible debentures, net of tax effect ....................... - 649 - - ------- ------- ------- ------- Adjusted net income ...................................... 2,043 2,692 768 768 ======= ======= ======= ======= Weighted Average Shares and Share Equivalents Outstanding: Weighted average shares outstanding (as reported) ........ 10,850 10,850 6,914 6,914 Common Share equivalents issuable under stock option plans .................................. 497 525 - - Common share equivalents issuable on assumed conversion of WellTech warrants ..................... 287 319 - - Common share equivalents issuable on assumed conversion of convertible debentures ................ - 5,333 - - Weighted average shares and share equivalents outstanding ............................. 11,634 17,027 6,914 6,914 Earning per Share: Net income before income taxes and minority interest ............................... $ 0.26 $ 0.24 $ 0.17 $ 0.17 Net income ............................................... $ 0.18 $ 0.16 $ 0.11 $ 0.11
2 KEY ENERGY GROUP, INC COMPUTATION OF PER SHARE EARNINGS SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
Six Months Ended Six Months Ended December 31, 1996 December 31, 1995 ---------------------------------------------- Fully- Fully- (Thousands, except per share amounts) Primary Diluted Primary Diluted - ----------------------------------------------------------------------------------------------------- Net Income and Adjusted Earnings: Net Income before income taxes and minority interest ................................... $ 5,418 $ 5,418 $ 2,224 $ 2,224 Effect of interest on debentures ......................... - 1,950 - - ------- ------- ------- ------- Adjusted net income before income taxes and minority interest ............................... 5,418 7,368 2,224 2,224 ======= ======= ======= ======= Net Income ............................................... $ 3,597 $ 3,597 $ 1,494 $ 1,494 Effect of interest on convertible debentures, net of tax effect ....................... - 1,297 - - ------- ------- ------- ------- Adjusted net income ...................................... 3,597 4,894 1,494 1,494 ======= ======= ======= ======= Weighted Average Shares and Share Equivalents Outstanding: Weighted average shares outstanding (as reported) ........ 10,635 10,635 6,914 6,914 Common Share equivalents issuable under stock option plans .................................. 433 525 - - Common share equivalents issuable on assumed conversion of WellTech warrants ..................... 218 320 - - Common share equivalents issuable on assumed conversion of convertible debentures ................ - 5,333 - - Weighted average shares and share equivalents outstanding ............................. 11,286 16,813 6,914 6,914 Earning per Share: Net income before income taxes and minority interest ............................... $ 0.48 $ 0.44 $ 0.32 $ 0.32 Net income ............................................... $ 0.32 $ 0.29 $ 0.22 $ 0.22
EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JUN-30-1996 DEC-31-1996 10,912 0 27,373 0 1,942 41,155 136,385 (12,983) 174,953 24,061 0 0 0 1,148 45,123 174,953 3,613 67,659 1,286 62,241 0 0 2,646 5,418 1,813 3,597 0 0 0 3,597 0.32 0.29
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