-----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, AYKGl17I9xetzs26FDCRPeVAC1SJ9E563dchJqbYxCJSWrSbFD4WCBpLzi1KulWl h2wu6k8Wk5cQBxtM7kYGNg== 0000318996-98-000027.txt : 19981118 0000318996-98-000027.hdr.sgml : 19981118 ACCESSION NUMBER: 0000318996-98-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEY ENERGY GROUP INC CENTRAL INDEX KEY: 0000318996 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 042648081 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08038 FILM NUMBER: 98751019 BUSINESS ADDRESS: STREET 1: TWO TOWER CTR TWENIETH FL CITY: EAST BRUNSWICK STATE: NJ ZIP: 08816 BUSINESS PHONE: 9082474822 MAIL ADDRESS: STREET 1: P O BOX 10627 CITY: MIDLAND STATE: TX ZIP: 79702 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE COMPANIES INC DATE OF NAME CHANGE: 19891012 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE OIL & GAS INC DATE OF NAME CHANGE: 19841122 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ________ Commission file number 1-8038 KEY ENERGY GROUP, INC. (Exact name of registrant as specified in its charter) Maryland 04-2648081 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Tower Center, 20th Floor, East Brunswick, NJ 08816 Address of Principal executive offices) (ZIP Code) Registrant's telephone number including area code: (732) 247-4822 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Shares outstanding at November 11, 1998 - 18,293,060 Key Energy Group, Inc. and Subsidiaries INDEX PART I. Financial Information Item 1. Unaudited Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. Other Information Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 26 Key Energy Group, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except per share amounts)
September 30, June 30, 1998 1998 (Unaudited) - --------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $39,917 $25,265 Accounts receivable, net of allowance for doubtful accounts ($6,370 and $2,843 at September 30 and June 30, 1998, respectively) 102,894 82,406 Inventories 14,021 13,315 Deferred tax asset 1,203 1,203 Prepaid income taxes 456 537 Prepaid expenses and other current assets 5,135 4,831 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Total Current Assets 163,626 127,557 - --------------------------------------------------------------------------------------------------------------------------- Property and Equipment: Oilfield service equipment 641,699 400,731 Oil and gas well drilling equipment 62,579 61,629 Motor vehicles 49,975 19,748 Oil and gas properties and other related equipment, successful efforts 42,638 method 44,101 Furniture and equipment 5,753 5,333 Buildings and land 31,722 17,458 - --------------------------------------------------------------------------------------------------------------------------- 835,829 547,537 Accumulated depreciation and depletion (58,036) (48,385) - --------------------------------------------------------------------------------------------------------------------------- Net Property and Equipment 777,793 499,152 - --------------------------------------------------------------------------------------------------------------------------- Goodwill, net of accumulated amortization ($4,051 and $2,264 at September 30 and June 30, 1998, respectively) 228,810 44,936 Other assets 35,819 26,995 - --------------------------------------------------------------------------------------------------------------------------- Total Assets $1,206,048 $698,640 =========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $27,573 $20,124 Other accrued liabilities 56,214 22,239 Accrued interest 2,896 3,818 Current portion of long-term debt 3,048 1,848 - --------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 89,731 48,029 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current portion 825,747 397,931 Non-current accrued expenses 4,337 4,812 Deferred tax liability 131,814 92,940 Stockholders' equity: Common stock, $.10 par value; 100,000,000 shares authorized, 18,684,479 shares issued at September 30 and June 30, 1998, respectively 1,868 1,868 Additional paid-in capital 119,303 119,303 Treasury stock, at cost; 416,666 shares at September 30 and June 30, 1998 (9,682) (9,682) Unrealized gain on available-for-sale securities - 2,346 Retained earnings 42,930 41,093 - --------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 154,419 154,928 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,206,048 $698,640 =========================================================================================================================== See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
Key Energy Group, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations (in thousands, except per share amounts)
Three Months Ended September 30, 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- REVENUES: Oilfield services $105,799 $69,498 Oil and gas well drilling 7,610 2,823 Oil and gas 1,770 1,852 Other, net 408 1,226 - --------------------------------------------------------------------------------------------------------------------------------- 115,587 75,399 - --------------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Oilfield services 73,698 48,239 Oil and gas well drilling 7,327 2,263 Oil and gas 759 803 Depreciation, depletion and amortization 10,703 4,812 General and administrative 11,438 7,678 Interest 8,505 5,086 - --------------------------------------------------------------------------------------------------------------------------------- 112,430 68,881 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 3,157 6,518 Income tax expense 1,320 2,407 - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $1,837 $4,111 ================================================================================================================================= EARNINGS PER SHARE : Basic $0.10 $0.29 Diluted $0.10 $0.23 ================================================================================================================================= WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 18,268 14,126 Diluted 18,976 19,764 ================================================================================================================================= See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
Key Energy Group, Inc. and Subsidiaries Unaudited Consolidated Statements of Cash Flows (in thousands)
Three Months Ended September 30, 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,837 $4,111 Adjustments to reconcile income from operations to net cash provided by operations: Depreciation, depletion and amortization 10,703 4,812 Amortization of deferred debt costs 767 335 Deferred income taxes 1,320 2,407 Gain on sale of assets 47 - Other non-cash items 202 1,313 Change in assets and liabilities net of effects from the acquisitions: (Increase) decrease in accounts receivable 4,477 (6,224) (Increase) decrease in other current assets 537 1,400 Increase (decrease) in accounts payable and accrued expenses (4,291) (972) Increase (decrease) in accrued interest (922) (1,829) Other assets and liabilities (2,269) (1,293) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12,408 4,060 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures - Oilfield service operations (6,587) (6,694) Capital expenditures - Oil and gas well drilling operations (1,019) (339) Capital expenditures - Oil and gas operations (1,608) (2,058) Proceeds from sale of fixed assets 91 - Cash received in acquisitions 27,008 2,903 Acquisitions - Oilfield service operations (272,292) (107,630) Acquisitions - Oil and gas well drilling - (14,610) Acquisitions - Minority interest - (3,426) - ----------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (254,407) (131,854) - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt (1,713) (318) Repayment of long-term debt - (197,000) Borrowings under line-of-credit 278,000 134,000 Proceeds from warrants exercised - 4,123 Proceeds from long-term commercial paper - 194,500 Proceeds paid for debt issuance costs (19,636) - Proceeds from other long-term debt - 61 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 256,651 135,366 - ----------------------------------------------------------------------------------------------------------------------- Net increase in cash 14,652 7,572 Cash at beginning of period 25,265 41,704 - ----------------------------------------------------------------------------------------------------------------------- Cash at end of period $39,917 $49,276 ======================================================================================================================= See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
Key Energy Group, Inc. and Subsidiaries Unaudited Consolidated Statements of Comprehensive Income (in thousands)
Three Months Ended September 30, 1998 1997 ---------------------- --------------------- Net Income $ 1,837 $ 4,111 Other comprehensive income, net of tax: Unrealized gains on available-for-sale securities 1,200 - ---------------------- --------------------- Comprehensive income, net of tax $ 3,037 $ 4,111 ====================== ===================== See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements September 30, 1998 and 1997 1. BASIS OF PRESENTATION The consolidated financial statements of Key Energy Group, Inc. (the "Company" or "Key") and its wholly-owned subsidiaries for the three months ended September 30, 1998 and 1997 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998. The results of operations for the three months ended September 30, 1998 are not necessarily indicative of the results of operations for the full fiscal year ending June 30, 1999. Accounting Changes Effective July 1, 1998 the Company made certain changes in the estimated useful lives of its workover rigs, increasing the lives from 17 years to 25 years. This change increased first quarter fiscal year 1999 net income by $499,000 ($.03 per share-basic). Had this change been made effective July 1, 1997, the effect on the first quarter fiscal year 1998 would have been to increase net income by $306,000 ($.02 per share-basic). This change was made to better reflect how the assets are expected to be used over time and to better provide matching of revenues and expenses and to better reflect the industry standard in regards to estimated useful lives of workover rigs. Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130") Reporting Comprehensive Income, at the beginning of fiscal year 1999. SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In accordance with the provisions of SFAS 130, the Company has presented the components of comprehensive income in its Unaudited Consolidated Statements of Comprehensive Income. Reclassifications and Adjustments Certain reclassifications have been made to the fiscal year 1998 results to conform to the fiscal year 1999 presentations. Amounts reported for the first quarter of fiscal 1998 differ from the amounts previously reported on the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1997, due to non-cash adjustments associated with the conversion of the Company's 7% debentures converted in the first quarter of fiscal year 1998. See footnote 4 for further discussion on conversion of the 7% debentures. KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted net income per common share: Three Months Ended September 30, (in thousands) 1998 1997 Diluted EPS Computation: Numerator- Net Income $ 1,837 $ 4,111 Effect of Dilutive Securities, Tax Effected: Interest on Convertible Debt* - 427 ------------------------- $ 1,837 $ 4,538 ------------------------- Denominator- Weighted Average Common Shares Outstanding 18,268 14,126 Warrants 39 86 Stock Options ** 669 1,453 7% Convertible Subordinated Debentures * - 4,102 5% Convertible Subordinated Notes * - - ------------------------- 18,976 19,764 ------------------------- Diluted EPS $ 0.10 $ 0.23 * Net income effect and share effect related to the 7% Convertible Subordinated Debentures are omitted as they produce anti-dilution during the three months ended September 30, 1998. The 5% Convertible Subordinated Notes are omitted as they produce anti-dilution during the three months ended September 30, 1998 and 1997. ** Reflects an additional grant of employee and director stock options effective as of September 3, 1998, including some stock options to be issued upon cancellation of previously issued options. 3. BUSINESS AND PROPERTY ACQUISITIONS The Company The Company conducts its oil and gas well service operations through wholly-owned subsidiaries in all major onshore oil and gas producing regions of the continental United States and in Argentina. The Company conducts contract drilling operations through wholly-owned subsidiaries in several oil and gas producing regions of the continental United States and in Argentina and Canada. The Company also owns and produces oil an natural gas in the Permian Basin and the Texas Panhandle. As of November 11, 1998, the Company owned a fleet of approximately 1,424 well service rigs, 1,121 oilfield trucks, and 74 drilling rigs, including 21 service rigs, 28 trucks and six drilling rigs in Argentina and three drilling rigs in Canada. KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued Acquisitions Completed During the Three Months Ended September 30, 1998 The following acquisitions were completed during the three months ended September 30, 1998. Except as otherwise noted, the results of operations from these acquisitions are included in the Company's results of operations for the applicable three months ended September 30, 1998 (effective as of the date of completion of the acquisition unless otherwise noted). Each of the acquisitions was accounted for using the purchase method of accounting. The purchase prices specified below are based on cash paid and do not include any post-closing adjustments, if any, paid or to be paid based upon a re-calculation of the working capital of acquired companies as of the closing dates. Colorado Well Service Inc. On July 15, 1998, the Company completed the acquisition of the assets of Colorado Well Service, Inc. ("Colorado") for approximately $6.5 million in cash. These assets included seventeen well service rigs and one drilling rig in Utah and Colorado. TransTexas Oilfield Service Assets On August 19, 1998, the Company completed the acquisition of certain oilfield service assets of TransTexas Gas Corporation ("TransTexas") for approximately $20.5 million in cash. The TransTexas assets are based in Laredo, Texas and included nine well service rigs, approximately 80 oilfield trucks, 173 frac and other tanks, and various pieces of equipment, parts and supplies. Flint Well Servicing Assets On September 16, 1998, the Company completed the acquisition of substantially all of the well servicing assets of Flint Engineering & Construction Co., a subsidiary of Flint Industries, Inc. ("Flint") for approximately $11.9 million in cash. These assets included 55 well service rigs and 25 oilfield trucks in Texas, Oklahoma, Kansas, Montana and Utah. Iceberg S.A. On September 24, 1998, the Company completed the acquisition of the assets of Iceberg, S.A. ("Iceberg") for approximately $4.3 million in cash. The Iceberg assets included four well service rigs in Comodoro Rivadavia, Argentina. KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued HSI Group On September 24, 1998, the Company completed the acquisition of substantially all of the operating assets of Hellums Services II, Inc., Superior Completion Services, Inc., South Texas Disposal, Inc. and Elsik II, Inc. ("HSI Group") for $47.9 million in cash. These assets included approximately 80 oilfield trucks and eight well service rigs in South Texas. Dawson Production Services, Inc. On September 15, 1998, Midland Acquisition Corp. ("Midland"), a New Jersey corporation and a wholly-owned subsidiary of the Company, completed its cash tender offer (the "Tender Offer") for all outstanding shares of common stock, par value $0.01 per share (the "Dawson Shares"), including the associated common stock purchase rights, of Dawson Production Services, Inc. ("Dawson") at a price of $17.50 per share. Midland accepted for payment 10,021,601 Dawson Shares for a total purchase price of approximately $175.4 million. The acceptance of tendered Dawson Shares, together with Dawson Shares previously owned by Midland and the Company prior to the commencement of the Tender Offer resulted in Midland and the Company acquiring approximately 97.0% of the outstanding Dawson Shares. The purchase price for Dawson Shares pursuant to the Tender Offer was determined pursuant to arms-length negotiations between the parties and was based on a variety of factors, including, without limitation, the anticipated earnings and cash flows of Dawson. The Tender Offer was made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 11, 1998, by and among Midland, the Company and Dawson. On September 18, 1998, pursuant to the terms of the Merger Agreement, Midland was merged with and into Dawson (the "First Merger") under the laws of the States of New Jersey and Texas and all Dawson Shares not owned by Midland were cancelled and retired and converted into the right to receive $17.50 in cash. On September 21, 1998, Dawson was merged with and into the Company (the "Second Merger") pursuant to the laws of the States of Maryland and Texas. The total consideration paid for the Dawson Shares pursuant to the Tender Offer and the First Merger was approximately $181.7 million. At the time of the closing, Dawson owned approximately 527 well service rigs, 200 oilfield trucks, and 21 production testing units in South Texas and the Gulf Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico, the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters of the Gulf of Mexico. Pro Forma Results of Operations - (unaudited) The following unaudited pro forma results of operations have been prepared as though Dawson had been acquired on July 1, 1997 with adjustments to record specifically identifiable decreases in direct costs and general and administrative expenses related to the termination of individual employees. These adjustments only reflect efficiencies gained through September 30, 1998 and do not necessarily reflect all efficiences expected to be achieved in accordance with managements future plans. Three Months Ended September 30, (Thousands, except per share data) 1998 1997 - ------------------------------------------------------------------------------ Revenues $ 159,198 $135,943 Net income 605 2,550 ----------------------- Basic earnings per share $ .03 $ .18 KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued 4. LONG-TERM DEBT At September 30, 1998, major components of the Company's long-term debt were as follows: (i) PNC Credit Facility On June 6, 1997, the Company entered into an agreement (the "Initial Credit Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a syndication of other lenders pursuant to which the lenders provided a $255 million credit facility, consisting of a $120 million seven-year term loan and a $135 million five-year revolver. The interest rate on the term loan was LIBOR plus 2.75 percent. The interest rate on the revolver varied based on LIBOR and the level of the Company's indebtedness. The Initial Credit Agreement contained certain restrictive covenants and required the Company to maintain certain financial ratios. On September 25, 1997, the Company repaid the term loan and a portion of the then outstanding amounts under the revolver by applying the proceeds from the initial and second closings of the Company's private placement of $216 million of 5% Convertible Subordinated Notes (discussed below). Effective November 6, 1997, the Company entered into an Amended and Restated Credit Agreement with PNC (the "Amended PNC Credit Agreement"), as administrative agent and lender, pursuant to which PNC agreed to make revolving credit loans of up to a maximum loan commitment of $200 million. The maximum commitment under the Amended PNC Credit Agreement decreased to $175 million on November 6, 2000 and to $125 million on November 6, 2001. The loan commitment terminated on November 6, 2002. Borrowings under the credit facility consisted of (i) Eurodollar Loans with interest currently payable quarterly at LIBOR plus 1.25% subject to adjustment based on certain financial ratios, (ii) Base Rate Loans with interest payable quarterly at the greater of PNC Prime Rate or the Federal Funds Effective Rate plus 1/2 %, or (iii) a combination thereof, at the Company's option. The Amended PNC Credit Agreement contained certain restrictive covenants and required the Company to maintain certain financial ratios. A change of control of the Company, as defined in the Amended PNC Credit Agreement, was an event of default. Borrowings under the Amended PNC Credit Agreement were secured by substantially all of the assets of the Company and its domestic subsidiaries. Effective December 3, 1997, PNC completed the syndication of the Amended PNC Credit Agreement. In connection therewith, PNC, as administrative agent, a syndication of lenders and the Company entered into a First Amendment to the Amended PNC Credit Agreement providing for, among other things, an increase in the maximum commitment to $250 million from $200 million. In connection with the acquisition of Dawson, the total consideration paid for the Dawson Shares pursuant to the Tender Offer and the First Merger was approximately $181.7 million. The Company's source of funds to pay such amount, certain outstanding debt of Dawson and the Company and related fees and expenses was (i) a bridge loan agreement in the amount of $150,000,000, dated as of September 14, 1998, among the Company, Lehman Brothers Inc., as Arranger, and Lehman Commercial Paper Inc., as Administrative Agent, and the other lenders party thereto (the "Bridge Loan Agreement"). and (ii) a $550,000,000 Second Amended and Restated Credit Agreement, dated as of June 6, 1997, as amended and restated through September 14, 1998, among the Company, PNC Bank, National Association, as Administrative Agent, Norwest Bank Texas, N.A., as Collateral Agent, PNC Capital Markets, Inc., as Arranger, and the other lenders named from time to time parties thereto (the "Second Amended and Restated Credit Agreement"). KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued At September 30, 1998, $150,000,000 in principal amount under the Bridge Loan Agreement was outstanding. Interest under the Bridge Loan Agreement is payable on the 16th day of each month beginning October 16, 1998 and is currently payable at LIBOR plus 6.5%. In connection with the Bridge Loan Agreement, the Company entered into a Registration Rights Agreements (the "Registration Rights Agreements") with Lehman Brothers Inc. and Lehman Commercial Paper Inc. pursuant to which the Company agreed to file with the Securities and Exchange Commission (the "Commission") within a certain time period a registration statement with respect to (i) an offer to exchange borrowings under the Bridge Loan Agreement for a new issue of debt securities of the Company, and (ii) the resale of warrants (and the shares of common stock of the Company to be issued upon the exercise of such warrants) to purchase shares of common stock of the Company issued to Lehman Brothers Inc. in connection with the Bridge Loan Agreement. The value of such warrants do not have a recorded value due to the fact that such warrants are currently held in escrow and will only be released if certain conditions are met and/or certain events occur and that the basic terms of the warrants, including the number of shares subject to the warrants and the exercise price for such shares, will not be determined until the release date, if such release occurs. Loans outstanding after one year pursuant to the Bridge Loan Agreement will convert into term loans which may be exchanged by the holders thereof for exchange notes issued pursuant to an Indenture dated as of September 14, 1998 (the "Indenture"), between the Company and The Bank of New York, trustee. At September 30, 1998, $300,000,000 in principal amount ($150,000,000 classified as tranche term loan A, "Tranche A Term Loan" and $150,000,000 classified as tranche term loan B, "Tranche B Term Loan") was outstanding under the Second Amended and Restated Credit Agreement. In addition, at September 30, 1998, there was $250,000,000 available in revolving commitments under the Second Amended and Restated Credit Agreement. The Tranche A Term Loan requires interest payable monthly at LIBOR plus 2.75% and matures in sixteen consecutive quarterly installments commencing December 14, 1999. Quarterly installment amounts are equal to the applicable percentage for a particular quarter multiplied by the outstanding principal amount: 4% for installments 1 - 4, 6% for installments 5 - 8, 7% for installments 9 - 12 and 8% for installments 13 - 16. Tranche B Term Loan requires interest payable monthly at LIBOR plus 3.25% and matures in nineteen consecutive quarterly installments commencing December 14, 1999. Quarterly installment amounts are equal to the applicable percentage for a particular quarter multiplied by the outstanding principal amount: 0.25% for installments 1 - 16, 24% for installments 17 - 18 and 48% for the final 19th installment. In connection with the Bridge Loan Agreement and the Second Amended and Restated Credit Agreement referred to above, the Company incurred approximately $19.6 million in various fees and associated financing charges. In addition, the Company, its subsidiaries and U.S. Trust Company of Texas, N.A., trustee ("U.S. Trust"), entered into a Supplemental Indenture dated September 21, 1998 (the "Supplemental Indenture"), pursuant to which the Company assumed the obligations of Dawson under the Indenture dated February 20, 1997 (the "Dawson Indenture") between Dawson and U.S. Trust. Most of the Company's subsidiaries guaranteed those obligations and the notes issued pursuant to the KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued Dawson Indenture were equally and ratably secured with the obligations under the Second Amended and Restated Credit Agreement. At September 30, 1998 there was $140 million in principal amount of notes outstanding under the Dawson Indenture. The notes bear interest at 9 3/8% with interest payments due on February 1 and August 1 of each year. Approximately $5.9 million of interest was paid by Dawson on August 1, 1998, prior to completion of the Tender Offer. As a result of the completion of the Tender Offer, the Company is required and has commenced a cash tender offer to purchase all of the outstanding notes at 101% all of the aggregate principal amount of the outstanding notes (which outstanding amount is $140 million), the source of funds for which will be borrowings under the Second Amended and Restated Credit Agreement. Additionally, the Company had outstanding letters of credit of $2,612,000 as of September 30 and June 30, 1998 related to its workers compensation insurance. The Company is contractually restricted from paying dividends under the terms of the Bridge Loan Agreement and the Second Amended and Restated Credit Agreement. (ii) 5% Convertible Subordinated Notes On September 25, 1997, the Company completed an initial closing of its private placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the "Notes"). On October 7, 1997, the Company completed a second closing of its private placement of an additional $16 million of Notes pursuant to the exercise of the remaining portion of the over-allotment option granted to the initial purchasers of Notes. The placements were made as private offerings pursuant to Rule 144A and Regulation S under the Securities Act of 1933. The Notes are subordinate to the Company's senior indebtedness, which, as defined in the indenture under which the Notes were issued, includes the borrowings under the Second Amended and Restated Credit Agreement. The Notes are convertible, at the holder's option, into shares of Common Stock at a conversion price of $38.50 per share, subject to certain adjustments. The Notes are redeemable, at the Company's option, on or after September 15, 2000, in whole or part, together with accrued and unpaid interest. The initial redemption price is 102.86% for the year beginning September 15, 2000 and declines ratably thereafter on an annual basis. In the event of a change in control of the Company, as defined in the indenture under which the Notes were issued, each holder of Notes will have the right, at the holder's option, to require the Company to repurchase all or any part of the holder's Notes, within 60 days of such event, at a price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon. Proceeds from the placement of the Notes were used to repay then outstanding balances under the Company's credit facilities (see above). At September 30, 1998, $216,000,000 principal amount of the Notes remain outstanding. Interest on the Notes is payable on March 15 and September 15. Interest of approximately $5.4 million was paid on September 15, 1998. KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued (iii) 7% Convertible Subordinated Debentures In July 1996, the Company completed a $52,000,000 private offering of 7% Convertible Subordinated Debentures due 2003 (the "Debentures") pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The Debentures are subordinate to the Company's senior indebtedness, which as defined in the indenture pursuant to which the Debentures were issued includes the borrowings under the Second Amended and Restated Credit Agreement. The Debentures are convertible, at any time prior to maturity, at the holders' option, into shares of Common Stock at a conversion price of $9.75 per share, subject to certain adjustments. In addition, Debenture holders who convert prior to July 1, 1999 will be entitled to receive a payment, in cash or Common Stock (at the Company's option), generally equal to 50% of the interest otherwise payable from the date of conversion through July 1, 1999. The Debentures are redeemable, at the option of the Company, on or after July 15, 1999, at a redemption price of 104%, decreasing 1% per year on each anniversary date thereafter. In the event of a change in control of the Company, as defined in the indenture under which the Debentures were issued, each holder of Debentures will have the right, at the holder's option, to require the Company to repurchase all or any part of the holder's Debentures within 60 days of such event at a price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon. As of September 30, 1998, $47,400,000 in principal amount of the Debentures had been converted into 4,861,538 shares of common stock at the option of the holders. An additional 165,423 shares of common stock were issued representing 50% of the interest otherwise payable from the date of conversion through July 1, 1999 and an additional 35,408 shares of common stock were issued as an inducement to convert. The additional 165,423 shares of common stock, representing 50% of the interest otherwise payable from the date of conversion through July 1, 1999, are included in equity. The fair value of the additional 35,408 shares of common stock issued as inducement to convert was $710,186 and is recorded as interest expense in the unaudited consolidated statement of operations for the three months ended September 30, 1997. In addition, the proportional amount of unamortized debt issuance costs associated with the converted Debentures was charged to additional paid-in capital at the time of conversion. At September 30, 1998, $4,600,000 principal amount of the Debentures remained outstanding. Interest on the Debentures is payable on January 1 and July 1 of each year. Interest of approximately $172,500 was paid on July 1, 1998 (iv) Other Notes Payable At September 30, 1998, other notes payable consisted primarily of capital leases for automotive equipment and equipment leases with varying interest rates and principal and interest payments. KEY ENERGY GROUP AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements - Continued 5. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 131 - Disclosures about Segments of an Enterprise and Related Information Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures about Segments of an Enterprise and Related Information, which establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 also establishes standards for related disclosure about products and services, geographic areas and major customers. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS 131 need not be applied to interim financial statements in the initial year of its application. However, comparative information for interim periods in the initial year of application is to be reported in the financial statements for interim periods in the second year of application. The Company will adopt SFAS 131 for the fiscal year ended June 30, 1999. The Company does not expect SFAS 131 to materially affect the Company's reporting practices. 6. 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. Current and Subsequent Events During the three months ended September 30, 1998, the Company completed the acquisition of the following well servicing, trucking, drilling and ancillary equipment companies and businesses: Colorado Well Service, Inc. Oilfield service assets of TransTexas Gas Corporation Well servicing assets of Flint Engineering & Construcion Co. Dawson Production Services, Inc. Iceberg, S.A. HSI Group These acquisitions (which are more fully described in Note 3 to the unaudited consolidated financial statements) involve approximately 620 well service rigs (including four well service rigs in Argentina), 388 trucks and one drilling rig. The total purchase price of these acquisitions totaled approximately $288.9 million in cash, excluding any assumed net liabilities. As of November 11, 1998, the Company owned a fleet of approximately 1,424 well service rigs, 1,121 oilfield trucks, and 74 drilling rigs, including 21 service rigs, 28 trucks and six drilling rigs in Argentina and three drilling rigs in Canada. Management currently believes that the Company's well servicing rig and oilfield truck fleet are the largest onshore fleets in the world. The Company operates in all major onshore oil and gas producing regions of the continental United States and provides a full range of drilling, completion, maintenance, workover and plugging and abandonment services for the oil and gas industry. Impact of Lower Crude Oil Prices As the result of the prolonged lower oil prices, the Company's drilling, completion and workover activity have been adversely affected. Equipment utilization for drilling, completion and workover activity has continued to decline throughout the last three months of fiscal year 1998 and the first three months of fiscal 1999. The demand for these services, which generate higher margins, will continue to be adversely affected until oil prices substantially increase from their current depressed levels. Growth Strategy Historically, the domestic well servicing industry has been highly fragmented, characterized by a large number of smaller companies which have competed effectively on a local basis in terms of pricing and the quality of services offered. In recent years, however, many major and independent oil and gas companies have placed increasing emphasis not only on pricing, but also on the safety records and quality management systems of, and the breadth of services offered by, their vendors, including well servicing contractors. This market environment, which requires significant expenditures by smaller companies to meet these increasingly rigorous standards, has forced many smaller well servicing companies to sell their operations to larger competitors. As a result, the industry has seen high levels of consolidation among the competing contractors. Over the past two and one-half years, the Company has been the leading consolidator of this industry, completing in excess of 50 acquisitions of well servicing and drilling operations through September 30, 1998. This consolidation has led to reduced fragmentation in the market and a more predictable demand for well services for the Company and its competitors. The Company's management structure is decentralized, which allows for rapid integration of acquisitions and the retention of strong local identities of many of the acquired businesses. As a result of the Company's recent growth through acquisition, the Company has developed a strategy to: 1. Maximize operating efficiences by focusing on reducing costs; 2. Fully integrate acquisitions into the Company's decentralized organizational structure and thereby attempt to maximize operating margins; 3. Expand business lines and services offered by the Company in existing areas of operations; and 4. Extend the geographic scope and operating environments for the Company's operations. If the current decline in the oil prices persists for a protracted period or a recovery in such prices remains uncertain, the Company may curtail or halt its growth strategy until such time as prices reach more favorable ranges. RESULTS OF OPERATIONS The following discussion provides information to assist in the understanding of the Company's financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial statements and related notes thereto appearing elsewhere in this report. QUARTER ENDED SEPTEMBER 30, 1998 VERSUS THE QUARTER ENDED SEPTEMBER 30, 1997 Net Income For the quarter ended September 30, 1998, the Company reported net income of $1,837,000 ($.10 per share - basic) as compared to $4,111,000 ($.29 per share - basic) for the quarter ended September 30, 1997, representing a decrease of $2,274,000, or 55% (66% decrease in basic earnings per share). The decrease in net income is primarily attributable to the Company's decrease in service and drilling rig utilization rates. Revenues The Company's total revenues for the quarter ended September 30, 1998 increased by $40,188,000, or 53%, to $115,587,000 compared to $75,399,000 reported for the quarter ended September 30, 1997. The increase is primarily attributable to the Company's acquisitions of oilfield service and drilling rig companies over the past twelve months, offset by the Company's decrease in service and drilling rig utilization rates. Oilfield service revenues for the quarter ended September 30, 1998 increased by $36,301,000, or 52%, to $105,799,000 compared to $69,498,000 reported for the quarter ended September 30, 1997. The increase is primarily attributable to the Company's acquisitions of oilfield service companies over the past twelve months, offset by the Company's decrease in oilfield service rig utilization rates. Drilling revenues for the quarter ended September 30, 1998 increased by $4,787,000, or 170%, to $7,610,000 compared to $2,823,000 reported for the quarter ended September 30, 1997. The increase is primarily attributable to the Company's drilling rig acquisitions over the past twelve months, offset by the Company's decrease in drilling rig utilization rates. Costs and Expenses and Operating Margins The Company's total costs and expenses for the quarter ended September 30, 1998 increased by $43,549,000, or 63%, to $112,430,000 compared to $68,881,000 reported for the quarter ended September 30, 1997. The increase is directly attributable to increased operating costs and expenses associated with the Company's acquisitions over the past twelve months. Oilfield service expenses for the quarter ended September 30, 1998 increased by $25,459,000, or 53%, to $73,698,000 compared to $48,239,000 reported for the quarter ended September 30, 1997. Oilfield service margins (revenues less direct costs and expenses) increased for the quarter ended September 30, 1998 by $10,842,000, or 51%, to $32,101,000 compared to $21,259,000 for the quarter ended September 30, 1997. Oilfield service margins as a percentage of oilfield service revenue for the quarters ended September 30, 1998 and 1997 was 30% and 31%, respectively. In addition, the Company has continued to expand its services, offering higher margin ancillary services and equipment such as well fishing tools, blow-out preventers and frac tanks. The Company's contract drilling costs and expenses for the quarter ended September 30, 1998 increased by $5,064,000, or 224%, to $7,327,000 compared to $2,263,000 for the quarter ended September 30, 1997. Oilfield drilling margins for the Company's drilling operations during the quarter ended September 30, 1998 decreased by $277,000, or 49%, to $283,000 compared to $560,000 for the quarter ended September 30, 1997. Oilfield drilling margin as a percentage of oilfield drilling revenue for the quarters ended September 30, 1998 and 1997 was 4% and 20%, respectively. Such decreases are attributable to the decreases in onshore drilling due to the lower crude oil and natural gas prices. General and administrative expenses for the quarter ended September 30, 1998 increased by $3,760,000, or 49%, to $11,438,000 compared to $7,678,000 for the quarter ended September 30, 1997. The increase was primarily attributable to the Company's recent acquisitions and expanded services. General and administrative expenses as a percentage of total revenue for the quarters ended September 30, 1997 and 1998 was 10% for each period. Depreciation, depletion and amortization expense for the quarter ended September 30, 1998 increased by $5,891,000, or 122%, to $10,703,000 compared to $4,812,000 for the quarter ended September 30, 1997. The increase is directly related to the increase in property and equipment and intangible assets of the Company over the past twelve months as a result of its acquisitions. Interest expense for the quarter ended September 30, 1998 increased by $3,419,000, or 67%, to $8,505,000 compared to $5,086,000 for the quarter ended September 30, 1997. The increase was primarily the result of increased indebtedness used to finance the Company's acquisition program. Income tax expense for the quarter ended September 30, 1998 decreased by $1,087,000, or 45%, to $1,320,000 compared to $2,407,000 for the quarter ended September 30, 1997. The effective tax rate for the quarter ended September 30, 1998 as compared to the quarter ended September 30, 1997 has increased due to amortization of intangible assets (which is generally non-deductible for tax purposes). The Company does not expect to have to pay the full amount of the income tax provision because of the availability of accelerated tax depreciation, drilling tax credits, and tax loss carry-forwards. Cash Flows Net cash provided by operating activities for the quarter ended September 30, 1998 increased by $8,348,000 or 206%, to $12,408,000 compared to $4,060,000 provided for the quarter ended September 30, 1997. This increase is primarily related to the Company's acquisitions over the past twelve months. Net cash used in investing activities for the quarter ended September 30, 1998 increased by $122,553,000, or 93%, to $254,407,000 compared to $131,854,000 used for the quarter ended September 30, 1997. This increase is primarily related to the Company's acquisitions over the past twelve months. Net cash provided by financing activities for the quarter ended September 30, 1998 increased by $121,285,000 or 90%, to $256,651,000 compared to $135,366,000 provided during the quarter ended September 30, 1997. The increase is primarily the result of borrowings of long-term debt used to finance the Company's acquisition program. LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES At September 30, 1998, the Company had cash of $39.9 million compared to $25.3 million at June 30, 1998 and $49.3 million at September 30, 1997. At September 30, 1998, the Company had working capital of $73.9 million compared to $79.5 million at June 30, 1998 and $77.9 million at September 30, 1997. In addition to its ongoing acquisition program, for fiscal 1999, the Company has projected approximately $40 million of capital expenditures for improvements of existing service and drilling rig machinery and equipment, a decrease of $12.1 million over the $52.1 million expended during fiscal 1998. The Company expects to finance these capital expenditures through internally generated operating cash flows. Capital expenditures for service and drilling rig improvements for the three months ended September 30, 1998 and 1997 were $7.6 million and $7.0 million, respectively. The Company has projected approzimately $2.0 million of capital expenditures for oil and gas exploration for fiscal 1999 as compared to $7.8 million expended for fiscal 1998. Financing of these costs is expected to come from operations and available credit facilities. For the three months ended September 30, 1998 and 1997, the Company expended $1.6 million and $2.1 million, respectively. The Company's primary capital resources are net cash provided by operations and proceeds from certain long-term debt facilities. Year 2000 Issue The Company is currently implementing a new integrated management information system along with updated hardware that will replace most of the systems currently utilized. The implementation of the new management information system, which is Year 2000 compliant, began in July 1998 and is scheduled to be substantially completed by June 1999. The Company has not yet developed a plan to formally communicate with its significant suppliers and customers to determine if those parties have appropriate plans to remedy year 2000 issues when their systems interface with the Company's systems or may otherwise impact the operations of the Company. The Company does not anticipate that this will have a material impact on operations. However, there can be no assurance that the systems of other companies on which the Company's processes rely will be timely converted, or that failure to successfully convert by another company, or conversion that is incompatible with the Company's systems, would not have an impact on the Company's operations. A potential source of risk includes, but is not limited to, the inability of principal suppliers and major customers to be year 2000 compliant, which could result in delays in product deliveries from such suppliers and collection of accounts receivables. The Company currently does not have a contingency plan in place to cover any unforeseen problems encountered that relate to the year 2000, but intends to produce one before the end of the fiscal year. The cost of the new management information system, (a large part of which management expects will be capitalized) is not expected to have a material impact on the Company's business, operations or results thereof, financial condition, liquidity or capital resources. Although the Company is not aware of any material operational issues or costs associated with preparing its internal systems for the year 2000, there can be no assurance that there will not be a delay in, or increased costs associated with, the implementation of the necessary systems and changes to address the year 2000. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (c) Recent Sales of Unregistered Securities: During the three months ended September 30, 1998, the Company effected the following sales of unregistered securities: Effective September 14, 1998, in connection with the Bridge Loan Agreement, the Company issued to Lehman Brothers, Inc. warrants to purchase a number of shares of Common Stock at a per share exercise price to be determined on the date, if any, such warrants are released from escrow, such release to occur if certain conditions are met and/or certain events occur. The issuance of the warrants was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as a sale of securities not invovling any public offering. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of the Form 10-Q Number Description 10(a)Asset Purchase Agreement among Key Four Corners, Inc., Colorado Well Service, Inc. and Keith Poole effective July 10, 1998. 10(b)Asset Purchase Agreement among Key Energy Services - South Texas, Inc. and TransTexas Gas Corporation effective August 17, 1998. 10(c)Asset Purchase Agreement among Key Energy Group, Inc., Flint Engineering & Construction Co. and Flint Industries, Inc. effective September 9, 1998. 10(d)Asset Purchase Agreement among Dawson Production Partners, L.P., Dawson Production Services, Inc., and Hellums Services II, Inc., Superior Completion Services, Inc., South Texas Disposal, Inc., Elsik II, Inc., Roger D. Hellums, Charles C. Forbes, Jr., Robert W. Randle, Jr., Ronald D. Brieden, John E. Crisp, Charles Talley, and James J. Acker effective August 14, 1998. 10(e)Commitment Letter between Key Energy Group, Inc. and PNC Bank, N.A., dated as of August 17, 1998 (filed as Exhibit (b)(1) to Schedule 14D-1 and Schedule 13D filed by Midland Acquisition Corp. and the Company on August 12, 1998, File No. 005-47031, and incorporated herein by reference). 10(f)Engagement Letter between Key Energy Group, Inc. and Bear, Stearns & Co, Inc., dated as of May 8, 1998. (filed as Exhibit (b)(2) to Schedule 14D-1 and Schedule 13D filed by Midland Acquisition Corp. and the Company on August 12, 1998, File No. 005-47031, and incorporated herein by reference). 10(g)Engagement Letter between Key Energy Group, Inc. and Dain Rauscher Wessels, dated as of July 2, 1998. (filed as Exhibit (b)(3) to Schedule 14D-1 and Schedule 13D filed by Midland Acquisition Corp. and the Company on August 12, 1998, File No. 005-47031, and incorporated herein by reference). 10(h)Confidentiality Agreement, dated as of August 8, 1998 by and among Key Energy Group, Inc., Midland Acquisition Corp. and Dawson Production Services, Inc. (filed as Exhibit (c)(2) to Schedule 14D-1 and Schedule 13D filed by Midland Acquisition Corp. and the Company on August 12, 1998, File No. 005-47031, and incorporated herein by reference). 10(i)Agreement and Plan of Merger, dated as of August 11, 1998, by and among Key Energy Group, Inc., Midland Acquisition Corp. and Dawson Production Services, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(j)$150,000,000 Bridge Loan Agreement, dated as of September 14, 1998 among Key Energy Group, Inc., Lehman Brothers Inc., Lehman Commercial Paper Inc., and certain lenders and guarantors. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(k)Indenture for the Key Energy Group, Inc. Exchange Notes due 2008, dated as of September 14, 1998 (filed as Exhibit 99.2 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(l)Warrant Agreement among Key Energy Group, Inc. and The Bank of New York as Trustee, dated as of September 14, 1998. (filed as Exhibit 99.3 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(m)Debt Registration Rights Agreement, among Key Energy Group, Inc., Lehman Commercial Paper Inc. and the guarantors set forth therein, dated as of September 14, 1998 (filed as Exhibit 99.4 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(n)Equity Registration Rights Agreement, between Key Energy Group, Inc. and Lehman Brothers Inc., dates as of September 14 1998 (filed as Exhibit 99.5 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(o)Escrow Agreement among Key Energy Group, Inc., Lehman Brothers Inc., Lehman Commercial Paper Inc. and The Bank of New York, dated as of September 14, 1998 (filed as Exhibit 99.6 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(p)$550,000,000 Second Amended and Restated Credit Agreement, among Key Energy Group, Inc., PNC Bank, National Association, Norwest Bank Texas, N.A., PNC Capital Markets, Inc. and the several lenders from time to time parties thereto, dated as of June 6, 1997, as amended and restated through September 14, 1998 (filed as Exhibit 99.7 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(q)Amended and Restated Master Guarantee and Collateral Agreement made by Key Energy Group, Inc. and certain of its subsidiaries in favor of Norwest Bank Texas, N.A., dated as of June 6, 1998, as amended and restated through September 14, 1998 (filed as Exhibit 99.8 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(r)Intercreditor and Collateral Agency Agreement, dated as of September 14, 1998 (filed as Exhibit 99.9 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(s)Indenture dated February 20, 1997 between Dawson Production Services, Inc. and U.S. Trust Company of Texas, N.A. (filed as Exhibit 99.10 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(t)Supplemental Indenture dated September 21, 1998, among Key Energy Group, Inc., its Subsidiaries and U.S. Trust Company of Texas, N.A. (filed as Exhibit 99.11 to the Company's Current Report on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated herein by reference). 10(u)Form of Indemnification Agreement and provisions regarding indemnification of directors and officers from the Company's Articles of Incorporation and Bylaws (filed as Exhibit 3 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, and incorporated herein by reference). 10(v)Employment Agreement effective as of April 1, 1996 between the Company and Michael E. Little (filed as Exhibit 4 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(w)Amendment No. 1 to Employment Agreement between the Company and Michael E. Little (filed as Exhibit 5 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(x)Amendment No. 2 to Employment Agreement between the Company and Michael E. Little (filed as Exhibit 6 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(y)Employment Agreement effective as of April 1, 1996 between the Company and Joseph Eustace (filed as Exhibit 7 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(z)Amendment No. 1 to Employment Agreement between the Company and Joseph Eustace (filed as Exhibit 8 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(aa) Employment Agreement effective as of July 1, 1998 between the Company and Jim Byerlotzer (filed as Exhibit 9 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(bb) Amendment No. 1 to Employment Agreement between the Company and Jim Byerlotzer (filed as Exhibit 10 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(cc) Employment Agreement effective April 1, 1996 between the Company and P. Mark Stark (filed as Exhibit 11 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(dd) Amendment No. 1 to Employment Agreement between the Company and P. Mark Stark (filed as Exhibit 12 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(ee) Employee Severance Pay Plan of Dawson Production Services, Inc. (filed as Exhibit 13 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(ff) Consulting Agreement Term Sheet dated August 11, 1998 between the Company and Midland Acquisition Corp. and Michael E. Little (filed as Exhibit 14 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(gg) Consulting Agreement Term Sheet dated August 11, 1998 between the Company and Midland Acquisition Corp. and James J. Byerlotzer (filed as Exhibit 15 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 10(hh) Consulting Agreement Term Sheet dated August 11, 1998 between the Company and Midland Acquisition Corp. and Joseph E. Eustace (filed as Exhibit 16 to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated herein by reference). 27(a) Statement - Financial Data Schedule (b) The following report on Form 8-K was filed during the quarter ended September 30, 1998: The Company's Current Report on Form 8-K was filed on September 28, 1998 to report the Company's acquisition of Dawson Production Services, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEY ENERGY GROUP, INC. (Registrant) By /s/ Francis D. John Dated: November 16, 1998 President and Chief Executive Officer By /s/ Stephen E. McGregor Dated: November 16, 1998 Executive Vice President, Chief Financial Officer and Treasurer By /s/ Danny R. Evatt Dated: November 16, 1998 Vice President Financial Operations and Principal Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE 9/30/98
5 1,000 3-MOS JUN-30-1999 SEP-30-1998 39,917 0 102,894 0 14,021 163,626 835,829 (58,036) 1,206,048 89,731 0 1,868 0 0 152,551 1,206,048 115,179 115,587 81,784 103,925 0 0 8,505 3,157 1,320 1,837 0 0 0 1,837 0.10 0.10
EX-10 3 COLORADO WELL SERVICE, INC. Asset Purchase Agreement among Key Four Corners, Inc., Colorado Well Service, Inc. and Keith Poole July 10, 1998 TABLE OF CONTENTS ARTICLE 1 Purchase and Sale of Assets 1 1.1 Purchase and Sale of the Assets 1 1.2 Excluded Assets 2 1.3 Consideration for Assets 3 1.4 Liabilities 3 1.5 Closing 3 1.6 Closing Deliveries 3 1.6.1 Opinion of Buyer's Counsel 3 1.6.2 Opinion of Seller's Counsel. 4 ARTICLE IIRepresentations and Warranties 4 2.1 Representations and Warranties of the Seller and the Shareholders 4 2.1.1 Organization and Good Standing 4 2.1.2 Agreement Authorized and Effect on Other Obligations. 4 2.1.3 Contracts 5 2.1.4 Title to Assets 5 2.1.5 Licenses and Permits 5 2.1.6 Intellectual Property 6 2.1.7 Financial Statements 6 2.1.8 Absence of Certain Changes and Events 6 (a) Financial Change 6 (b) Property Damage 6 (c) Waiver 6 (d) Change in Assets 6 (e) Labor Disputes 7 (f) Other Changes 7 2.1.9 Necessary Consents 7 2.1.10 Environmental Matters 7 2.1.11 Termination of the Colorado Well Service, Inc. Profit Sharing Plan and Trust 8 2.1.12 Investigations; Litigation8 2.1.13 Absence of Certain Businesses Practices 9 2.1.14 Solvency 9 2.1.15 Finder's Fee 9 2.1.16 Taxes 9 2.2 Representations and Warranties of Buyer 9 2.2.1 Organization and Good Standing 10 2.2.2 Agreement Authorized and its Effect on Other Obligations 10 2.2.3 Consents and Approvals 10 2.2.4 Finder's Fee 10 2.2.5 Non-Forecasts 10 ARTICLE III Additional Agreements 11 3.1 Noncompetition. 11 3.2 Hiring Employees 11 3.3 Allocation of Purchase Price 12 3.4 Name Change 12 3.5 Budget Agreement 12 3.6 Acknowledgment of Adequate Considerations 12 3.7 Lease Agreement 12 3.8 Further Assurances 13 ARTICLE IV Indemnification 13 4.1 Indemnification by the Seller and the Shareholder 13 4.2 Indemnification by Buyer 13 4.3 Indemnification Procedure 13 ARTICLE V Miscellaneous 14 5.1 Survival of Representations, Warranties and Covenants 14 5.2 Entirety 15 5.3 Counterparts. 15 5.4 Notices and Waivers. 15 5.5 Captions. 15 5.6 Successors and Assigns. 16 5.7 Severability. 16 5.8 Applicable Law. 16 5.9 Non Disclosure of Purchase Price 16 Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of July 10, 1998 among Key Four Corners, Inc., a Delaware corporation (the "Buyer"), Colorado Well Service, Inc., a Colorado corporation (the "Seller") and Keith Poole (the "Shareholder"). RECITATIONS The Seller desires to sell substantially all of its assets, and Buyer desires to acquire such assets. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements, and subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Purchase and Sale of Assets 1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set forth in this Agreement, the Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer effective as of 11:59 P.M. Colorado time (the "Effective Time") on the date of delivery and payment of the cash consideration set forth in Section 1.3 hereof, but in no event later than July 15, 1998 (the "Closing Date"), all of the assets of the Seller existing as of the Effective Time other than the Excluded Assets (defined below), whether real, personal, tangible or intangible, including, without limitation, the following assets owned by the Seller relating to or used or useful in the operation of the business as conducted by the Seller on and before the Effective Time (the "Business") (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property owned by Seller (such as machinery, equipment, leasehold improvements, furniture and fixtures, and vehicles), including, without limitation, that which is more fully described on Schedule 1.1(a) hereto (collectively, the "Tangible Personal Property"); (a) all of the inventory owned by Seller, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (a) all of the Seller's intangible assets (the "Intangibles"), including without limitation, (i) all of the Seller's rights to the name 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 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"), (iii) the Seller's telephone numbers, and (iv) the sales and promotional literature, computer software, customer and supplier lists and all other records of the Seller relating to the Assets or the Business, excluding the corporate minute books, accounting records, files, tax returns and other financial data on whatever media, relating to the Seller or the Shareholder or the Excluded Assets (the "Retained Records"); (a) those leases, subleases, contracts, contract rights and agreements relating to the Assets or the operation of the Business listed on Schedule 1.1(d) hereto (collectively, the "Contracts"); (a) all of the permits, exemptions from permit requirements, 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 to all or any of the Assets or to the operation of the Business, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto; (a) the goodwill and going concern value of the Business; and (g) all other or additional privileges, rights, interests, properties and assets of the Seller of every kind and description and wherever located that are used in the Business or intended for use in the Business in connection with, or that are necessary for the continued conduct of, the Business. 1.2 Excluded Assets. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all of the Seller's accounts receivable and all other rights of the Seller to receive payment for services rendered by the Seller before the Effective Time; (ii) all cash accounts of the Seller, all petty cash of the Seller kept on hand for use in the Business and all investments, investment accounts, notes receivable and other accounts maintained by the Seller at financial institutions; (iii) all other receivables and prepaid expenses, including all right, title and interest of the Seller in and to any prepaid expenses, bonds, deposits and other current assets relating to any of the Assets or the Businesses; (iv) the Retained Records; (v) the cash consideration paid or payable by Buyer to Seller pursuant to Sections 1.3 and 3.1 hereof; and (vi) the other assets described in Schedule 1.2 attached hereto. 1.3 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of the Seller and the Shareholder contained herein, Buyer agrees to pay on the Closing Date, the sum of Six Million, Four Hundred Eighty Thousand Dollars ($6,480,000) to Seller by wire transfer of immediately available funds to an account designated by the Seller or by delivery of immediately available funds. 1.4 Liabilities. Effective as of the Effective Time, Buyer shall assume those, and only those, (a) liabilities and obligations of the Seller to perform the Contracts to the extent that the Contracts (i) are not in default on the Effective Time (other than by reason of defaults caused by not having required consents to assignment) and (ii) have either been duly assigned to Buyer or, if not so assigned, Buyer has performed or rendered services under such Contracts after the Effective Time, and (b) the obligations of Seller expressly assumed by Buyer as described and set forth in Section 3.2 hereof (the "Assumed Liabilities"). On and after the Effective Date, the Seller shall be responsible for any and all liabilities and obligations of the Seller other than the Assumed Liabilities, including, without limitation, (a) any obligations arising from the Seller's employment of those employees of the Seller listed on Schedule 3.2 hereto (other than those expressly assumed by Buyer as set forth on Schedule 3.2 hereto); (b) any liabilities arising from or relating to Seller's failure to be duly qualified or licensed to do business and in good standing as a foreign corporation in all jurisdictions in which the character of the properties owned or the nature of the business conducted by Seller would make such qualification or licensing necessary; (c) any failure to pay any taxes owed by Seller which are applicable to the period ending with the Effective Time; (d) any liabilities arising out of any matters listed on Schedules 2.1.10 and 2.1.12 hereto; (e) any liability incurred by the Seller or the Shareholder for commission or other fees payable to brokers, attorneys or others; and (f) any other liabilities resulting from Seller's operation of the Assets or conduct of its business before the Effective Time (collectively, the "Retained Liabilities"). 1.5 Closing. The closing of the purchase and sale provided for hereunder (the "Closing") shall take place on the Closing Date, at the offices of Williams, Turner & Holmes, P.C., 200 N. 6th Street, Grand Junction, Colorado. 1.6 Closing Deliveries. At the Closing, in addition to the conveyances of the Assets to the Buyer in exchange for the Purchase Price, Buyer and Seller will deliver to one another the following: 1.6.1 Opinion of Buyer's Counsel. The Seller shall have received a favorable opinion, dated as of the Closing Date, from Lynch, Chappell & Alsup, P.C., counsel for Buyer, in the form attached hereto as Schedule 1.6.1. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers or Buyer as to the matters of fact and (y) the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to the Seller, as to matters other than federal or Colorado law. 1.6.2 Opinion of Seller's Counsel. The Buyer shall have received a favorable opinion, dated as of the Closing Date, from Williams, Turner & Holmes, P.C., counsel to Seller and the Shareholder, in the form of that attached hereto as Schedule 1.6.2. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers of the Seller as to the matters of fact and (y) on the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Colorado law. 1.6.3 Consent to Sublease. The Buyer shall have received a consent, in form and substance satisfactory to the Buyer, consenting to the execution and delivery of the Sublease Agreement described in Section 3.7 hereof. 1.7 Post-Closing Adjustments. With respect to accounts receivable and all other rights of the Seller to receive payment for services rendered by the Seller before the Effective Time which have not been invoiced by Seller prior to the Effective Time, Buyer shall invoice all such receivables and services as an accomodation to Seller, and Buyer will account to Seller for all amounts paid to Buyer thereon (less any expenses authorized by Seller to be paid on Seller's behalf by Buyer) upon the expiration of thirty (30) days (the "First Settlement Date") and sixty (60) days (the "Second Settlement Date") following the Effective Time (with any such accounts as are unpaid as of the Second Settlement Date to be surrendered by Buyer to Seller upon request by Seller). In addition, on the First Settlement Date, Buyer will pay Seller an additional amount equal to the amounts paid by Seller for equipment purchases made by Seller after May 12, 1998, and before the date hereof which expand the capabilities of the Business and which are described on Schedule 1.7 hereto, less any amounts representing Seller's obligations to its employees which have been expressly assumed by Buyer as set forth on Schedule 3.2 hereto. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of the Seller and the Shareholder. As of the Closing and the Effective Time, the Seller and the Shareholder jointly and severally represent and warrant to Buyer as follows: 2.1.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado, is qualified to do business in Wyoming, Utah and Nevada and in each other state in which the nature and conduct of its business requires it to be qualified to do business and has full requisite corporate power and authority to carry on its businesses as it is currently conducted and to own and operate the properties currently owned and operated by it. The Shareholder owns all of the issued and outstanding shares of the Seller's capital stock and has the sole right to vote the same. 2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and delivery of this Agreement and all instruments to be executed by Seller and the Shareholder hereunder have been authorized by all necessary corporate, shareholder and other action on the part of the Seller and the Shareholder and this Agreement and all instruments to be executed by the Seller and the Shareholder hereunder are the valid and binding obligations of the Seller and the Shareholder enforceable (subject to normal equitable principals) against each of such parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement and all instruments to be executed by the Seller and the Shareholder hereunder and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the Articles of Incorporation or Bylaws (or other organizational documents) of the Seller, (ii) except as set forth on Schedule 2.1.9 hereto, any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Seller or the Shareholder is a party or by which the Seller or the Shareholder or their respective properties are bound; or (iii) to the their knowledge, any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator or other governmental authority to which the Seller or the Shareholder, or any of their respective properties are subject. 2.1.3 Contracts. Schedule 1.1(d) hereto sets forth a complete list of all contracts, including leases under which the Seller is lessor or lessee, which relate to the Assets. In addition, except as set forth on Schedule 1.1(d) hereto (a) all of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller, (b) except as set forth on Schedule 2.1.9 hereto, the Seller is not, and to the knowledge of the Seller and the Shareholder, no other party to any of the Contracts is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder, (c) no Contract has been entered into on terms which could reasonably be expected to have an adverse effect on the use of the Assets by Buyer for the same purpose as they were used by the Seller prior to the Closing Date, (d) neither the Seller nor the Shareholder has received any information which would cause any of such parties to conclude that any customer of the Seller will (or is likely to) cease doing business with Buyer (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.4 Title to Assets. The Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below) except as set forth in Schedule 2.1.4 hereto. Except as set forth in Schedule 1.1(a) and Schedule 2.1.4 hereto, all of the Assets are (a) in a state of good repair, ordinary wear and tear excepted, (b) are free from any known defects except as may be repaired by routine maintenance and such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and (c) to the knowledge of the Seller and the Shareholder, conform to all applicable laws governing their use. No notice of any violation of any law, statute, ordinance or regulation relating to any of the Assets has been received by the Seller or the Shareholder, except such as have been fully complied with. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, taxes, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature. 2.1.5 Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under law or otherwise for the operation, maintenance and use of the Assets in the manner in which they are now being operated, maintained and used; each of the Permits and the Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller; the Seller is in compliance in all material respects with the terms of each of the Permits; none of the Permits have been, or to the knowledge of the Seller or the Shareholder, are threatened to be, revoked, canceled, suspended or modified (although certain of the Permits (as identified on Schedule 1.1(e) hereto) shall expire as of June 30, 1998). 2.1.6 Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list of all Seller Intellectual Property material or necessary for the continued use of the Assets; the Seller Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances; the Seller has not granted to any other person any license to use any Seller Intellectual Property and use of the Seller Intellectual Property will not, and the conduct of the Business did not, to the knowledge of the Seller and the Shareholder, infringe, misappropriate or conflict with the Intellectual Property rights of others. Neither the Seller or 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 a copy of Seller's unaudited statement of income for the four (4) month period ended April 30, 1998, a copy of which is attached hereto as Schedule 2.1.7 (the "Seller's Statement of Income"); the Seller's Statement of Income is true, correct and complete in all material respects and presents fairly and fully the income and expenses of the Seller as at the date and for the periods indicated thereon, and except as set forth on Schedule 2.1.7 hereto has been prepared in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants ("GAAP") applied on a consistent basis and the Seller's Statement of Income includes all adjustments which are necessary for a fair presentation of the Seller's income and expenses for the period indicated. 2.1.8 Absence of Certain Changes and Events. Since April 30, 1998, there has not been: (a) Financial Change. Any adverse change in the Assets, the Business or the financial condition, operations, liabilities or prospects of the Seller, except as set forth on Schedule 2.1.8(d); (b) Property Damage. Any damage, destruction, or loss to any of the Assets or the Business (whether or not covered by insurance); (c) Waiver. Any waiver or release of a material right of or claim held by the Seller; (d) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any asset of the Seller except as set forth on Schedule 2.1.8(d) hereto or as otherwise made in the ordinary course of business; (e) Labor Disputes. Any labor disputes between the Seller and its employees; or (f) Other Changes. Any other event or condition known to the Seller or the Shareholder that particularly pertains to and has or might have an adverse effect on the Assets, the operations of the Business or the financial condition or prospects of the Seller, except as expressly noted on Schedule 2.1.8(d) hereto. 2.1.9 Necessary Consents. The Seller has obtained and delivered to Buyer all consents to assignment or waivers thereof required to be obtained from any governmental authority or from any other third party in order to validly transfer the Assets hereunder, including, without limitation, the Contracts and the Seller Permits, except as expressly noted on Schedule 2.1.9 hereto. 2.1.10 Environmental Matters. (a) Except as described in a letter dated July 6, 1998 from Mesa Environmental, Inc. to Donna Stoner of the Colorado Department of Health and Environment, Grand Junction, Colorado (the "Mesa Environmental Letter"), none of the current or past operations of the Business or any of the Assets are being or have been conducted or used in such a manner as to constitute a violation of any Environmental Law (defined below); except as described in the Mesa Environmental Letter, neither the Seller or the Shareholder has received any notice (whether formal or informal, written or oral) from any entity, governmental agency or individual regarding any existing, pending or threatened investigation or inquiry related to violations of any Environmental Law or regarding any claims for remedial obligations or contribution for removal costs or damages under any Environmental Law; there are no writs, injunction decrees, orders or judgments outstanding, or lawsuits, claims, proceedings or investigations pending or, to the knowledge of the Seller or the Shareholder, threatened relating to the ownership, use, maintenance or operation of the Assets or the conduct of the Business, nor, to the knowledge of the Seller or the Shareholder, is there any basis for any of the foregoing; Buyer is not required to obtain any permits, licenses or similar authorizations pursuant to any Environmental Law in effect as of the date hereof to operate and use any of the Assets for their current purposes and uses; to the knowledge of the Seller or the Shareholder, the Assets include all environmental and pollution control equipment necessary for compliance with applicable Environmental Law; except as disclosed on Schedule 2.1.10, no Hazardous Materials (defined below) have been or are currently being used by the Seller in the operation of the Assets; except as disclosed on Schedule 2.1.10 hereto, no Hazardous Materials are or have ever been situated on or under any of the Seller's properties, whether owned or leased, or incorporated into any of the Assets; except as disclosed on Schedule 2.1.10 hereto, there are no, and there have never been any, underground storage tanks (as defined under Environmental Law) located under any of the Seller's properties, whether owned or leased; and, except as disclosed on Schedule 2.1.10 hereto, there are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned or leased by the Seller, or on any property on which Hazardous Materials generated by the Seller's operations or the use of the Assets were disposed of, which would result in an adverse change in the Assets, Business or business prospects of the Seller. The term "Environmental Law" means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United states, or any state, regional, city, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing environmental standards of conduct concerning protection of the environment or human health, or employee health and safety as from time to time has been or is now in effect. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. (b) With respect to the matters identified in the Mesa Environmental Letter in Schedule 2.1.10 hereto, Seller and Shareholder shall undertake at their cost and expense all appropriate remediation and clean-up procedures in accordance with the requirements of each applicable regulatory authority (the "Remedial Work"), and Seller and Shareholder shall jointly indemnify and hold harmless Buyer from all such costs, expenses and fees incurred by Seller and Shareholder in performing the Remedial Work pertaining to the matters set forth in the Mesa Environmental Letter. 2.1.11 Termination of the Colorado Well Service, Inc. Profit Sharing Plan and Trust. Seller hereby agrees to amend and terminate the Colorado Well Service, Inc. Profit Sharing Plan (the "Plan") prior to the Effective Time by adopting board resolutions and an agreement for amendment and termination of the Plan. After the effective date of termination of the Plan, the Plan shall be "frozen" pending distribution of its assets to Participants and their beneficiaries. No persons who are not Participants as of the termination date shall be eligible to participate in the Plan or receive benefits thereunder, and no distributions shall be made by the Plan except normal distributions in the ordinary course of business to or on behalf of employees who have separated from service with the Seller or, after the Closing Date, with Buyer and its parent and subsidiaries ("Key"). Within 90 days after the Closing Date, Seller agrees to file a submission to formally request a determination letter from the Internal Revenue Service ("IRS") to the effect that the Plan is a qualified plan under Section 401(a) of the Code upon its termination and that the trust used to fund the Plan (the "Trust") is tax exempt under Section 501(a) of the Code. As soon as administratively practicable following receipt of a favorable IRS determination letter, the trustee of the Trust shall effectuate distributions of all remaining assets from the Trust and, thereafter, it shall be liquidated. After liquidation of the Trust, Seller agrees to file a final IRS form 5500 for the Plan with the IRS. Key assumes no liability or obligation with respect to or arising out of the Plan or Trust at any time, before, on or after the Closing Date, and all costs, damages, liabilities, penalties, taxes and expenses, of any nature, relating to, or arising out of, the Plan and Trust, including termination of the Plan and Trust, shall be paid by Seller and its shareholders and not by Key. 2.1.12 Investigations; Litigation. No investigation or review by any governmental entity with respect to the Seller or any of the transactions contemplated by this Agreement is pending or threatened, nor has any governmental entity indicated to the Seller or the Shareholder, an intention to conduct the same; and there is no suit, action, or legal, administrative, arbitration or other proceeding or governmental investigation pending, , to which the Seller or the Shareholder, is a party or any other unasserted claims against the Seller or the Shareholder which would have an adverse effect on any of the Assets or the Business, except as set forth on the Schedule 2.1.12 hereto. 2.1.13 Absence of Certain Businesses Practices. Neither the Seller or the Shareholder, nor to the knowledge of the Seller or the Shareholder, any officer, employee or agent of the Seller, or any other person acting on behalf of the Seller or the Shareholder has, directly or indirectly, within the past five years, given or agreed to give any gift or similar benefit to any customer, supplier, government employee or other person who is or may be in a position to help or hinder the profitable conduct of the Business or the profitable use of the Assets (or to assist the Seller in connection with any actual or proposed transaction) which if not given in the past, might have had an adverse effect on the profitable conduct of the Business or the profitable use of the Assets, or if not continued in the future, might adversely affect the profitable conduct of the Business or the profitable use of the Assets. 2.1.14 Solvency. The Seller is not presently insolvent, nor will the Seller be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. The term "insolvent," with respect to the Seller, means that the sum of the present fair and saleable value of the Seller's assets does not and will not exceed its debts and other probable liabilities, and the term "debts" includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.15 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller and 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 Buyer for a brokerage commission, finder's fee or any similar payment. 2.1.16 Taxes. All federal, state and local taxes assessed or assessable against the Assets for periods prior to January 1, 1998 have been paid by Seller and the Assets will be conveyed to Buyer free and clear of any such taxes or claims therefor. All taxes assessed against the Assets for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. Buyer shall be responsible for the payment of any sales taxes due as a result of the sale of the Assets by Seller to Buyer. 2.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller and the Shareholder as follows: 2.2.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do businesses and is in good standing as a foreign corporation authorized to do business in the State of Colorado. 2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3 Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Seller and the Shareholder and their counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against the Seller or the Shareholder for any brokerage commission, finder's fee or any similar payments. 2.2.5 Non-Forecasts. Seller and the Shareholder make no other representations and warranties except as expressly set forth in this Agreement and the Schedules hereto, including any general representations, warranties, guaranties or other assurances as to the future profitability of the Business or the Assets following the Closing of the transactions contemplated by this Agreement. ARTICLE III Additional Agreements 3.1 Noncompetition. Except as set forth below or as otherwise consented to or approved in writing by Buyer, the Seller and the Shareholder each agree that for a period of 60 months following the date hereof, such party will not (and will cause its affiliates and successors not to) directly or indirectly, acting alone or as a member of a partnership or as an officer, director, employee, consultant, representative, advisor, lender (including gifts used for capitalization or collateral), a holder of, or investor in as much as 3% of any security of any class of any corporation or other business entity (a) engage in any business in competition with the business or businesses conducted by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof, or in any service business the services of which were provided and marketed by the Seller on or before the date hereof or by Buyer (or Buyer's affiliates) on or after the date hereof in the states of Colorado, Nevada, Utah and Wyoming; (b) request any present customers or suppliers of the Seller or any customers of Buyer (or Buyer's affiliates) to curtail or cancel their business with Buyer (or Buyer's affiliates); (c) disclose to any person, firm or corporation any trade, technical or technological secrets of Buyer (or Buyer's affiliates) or of the Seller or any details of their organization or business affairs or (d) induce or actively attempt to influence any employee of Buyer (or Buyer's affiliates) to terminate his or her employment. The Seller and the Shareholder agree that if either the length of time or geographical area as set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. The obligations expressed in this Section 3.1 are in addition to any other obligations that the Seller or the Shareholder may have under the laws of any state requiring a corporation selling its assets (or a shareholder of such corporation) to limit its activities so that the goodwill and business relations being transferred with such assets will not be materially impaired. The Seller and the Shareholder further agree and acknowledge that Buyer does not have any adequate remedy at law for the breach or threatened breach by the Seller or the Shareholder of the covenants contained in this Section 3.1, and agree that Buyer may, in addition to the other remedies which may be available to it hereunder, file a suit in equity to enjoin the Seller or the Shareholder from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Seller and the Shareholder acknowledge that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of (i) the covenants of Buyer contained in this Agreement, (ii) additional consideration in the amount of $10,000 payable by Buyer to Seller and $10,000 payable by Buyer to Shareholder on the date hereof by wire transfer of immediately available funds and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller who devote their full or part time in the operation of the Assets and the conduct of the Business and their job titles (the "Employees"). Effective as of 12:01 A.M. next following the Effective Time, all of the Employees actively engaged in the conduct of Seller's business shall be offered full or part-time employment by Buyer, subject to such Employees meeting Buyer's standard employment eligibility requirements. Except as specifically set forth as being assumed by Buyer on Schedule 3.2 hereto for those Employees actually 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 Effective Time. The Seller and the Shareholder shall cooperate with Buyer in connection with any offer of employment from Buyer to the Employees and use their best efforts to cause the acceptance of any and all such offers. 3.3 Allocation of Purchase Price. The parties hereto agree to allocate the Purchase Price payable by Buyer for the Assets hereunder as set forth on Schedule 3.3 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.4 Name Change. The Seller and the Shareholder shall, within twenty (20) days from the date of Closing, cause to be filed with the Secretary of State of Colorado an amendment to the Articles of Incorporation of the Seller changing the names of the Seller from its current name to a name that is not similar to such name. The Seller and the Shareholder shall, within five (5) days from the date of its receipt of confirmation of such filings from the Secretary of State of Colorado, cause the same to be filed with the appropriate office of each state in which the Seller is qualified to do business and deliver to Buyer a copy of such filings. 3.5 Employment Agreement. Concurrently herewith, the Shareholder and Buyer shall have executed an Employment Agreement (the "Employment Agreement") in a form acceptable to them. 3.6 Acknowledgment of Adequate Considerations. The Shareholder acknowledges and agrees that Buyer is relying upon the accuracy of the representation and warranties made herein by the Shareholder and the enforceability of the covenants and agreements of the Shareholder contained herein and that Buyer would not be willing to complete the transactions contemplated hereby without such representations, warranties, covenants and agreements. The Shareholder acknowledges and agrees that he will personally benefit from the consideration being paid by Buyer to Seller hereunder and that such consideration, together with the other benefits and consideration resulting to them hereunder, is adequate to support the enforcement of their representation, warranties, covenants and agreements contained herein. 3.7 Sublease Agreement. Concurrently herewith, the Buyer shall have executed a Sublease Agreement with Seller and Shareholder, pursuant to which Buyer shall have subleased the property currently leased by Seller in Rangely, Colorado, for the remaining term of the primary lease and on terms and conditions otherwise acceptable to Buyer. 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 and other actions as may be reasonably necessary to effect the transactions contemplated hereby. ARTICLE IV Indemnification 4.1 Indemnification by the Seller and the Shareholder. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Seller and the Shareholder shall, jointly and severally, indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and stockholders (collectively, the "Buyer Indemnified Parties"), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys' fees and expenses (collectively, the "Damages") which exceed the sum of $10,000 in the aggregate that a Buyer Indemnified Party shall incur or suffer (whether the damages are suffered or incurred by such Buyer Indemnified Party directly or as a result of a third party claim against such Buyer Indemnified Party), which arise, result from or relate to (a) any breach of, or failure by the Seller and 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; or (b) the Retained Liabilities. 4.2 Indemnification by Buyer. In addition to any other remedies available to the Seller or the Shareholder under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Seller and its officers, directors, employees, agents and stockholders and the Shareholder against and with respect to any and all Damages which exceed the sum of $10,000 in the aggregate that such indemnitees shall incur or suffer, which arise, result from or relate to (a) any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Seller or the Shareholder by or on behalf of Buyer under this Agreement or (b) the Assumed Liabilities. 4.3 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation hereunder to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any third party action or proceeding against such indemnified party with respect to which a claim for indemnification may be made pursuant to this Article IV, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such third party action; provided, however, that the failure of an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation hereunder to the extent the indemnifying party is not materially prejudiced thereby. In case any such third party 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 third party claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a third party 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 third party claim or with respect to third party 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 third party 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 third party 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 third party claimant or plaintiff to such indemnified party of a release from all liability with respect to such third party claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such third party 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, delayed or continued. 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 three (3) years from the date hereof, notwithstanding any investigation made on the part of the parties hereto; provided, however, that the representation and warranties contained in Section 2.1.16 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 three (3) years from the date being, notwithstanding any investigations made by any party hereto or on its behalf. All covenants and agreements contained herein shall survive as provided herein. 5.2 Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.3 Counterparts. Any number of counterparts (including facsimile counterparts) of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 5.4 Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer Addressed to: With a copy to: Key Four Corners, Inc. Lynch, Chappell & Alsup, P.C. Two Tower Center, 20th Floor 300 N. Marienfeld, Suite 700 East Brunswick, New Jersey 08816 Midland, Texas 79701 Attn: General Counsel Attn: James M. Alsup, Esq. Facsimile: (908) 247-5148 Facsimile: (915) 683-2587 If to the Seller or the Shareholder Addressed to: With a copy to: Colorado Well Service, Inc. Williams, Turner & Holmes 2603 E. Main 200 N. 6th Street Rangely, Colorado 81648 Grand Junction, Colorado 81501 Attn: Mr. Keith Poole Attn: J. D. Snodgrass, Esq. Facsimile: (970) 675-2014 Facsimile: (970) 241-3026 Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the fifth (5th) businesses day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal businesses hours on any businesses day. 5.5 Captions. The captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof. 5.6 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 5.7 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 5.8 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Colorado. 5.9 Non Disclosure of Purchase Price. Buyer agrees that it will not issue a press release, public announcement or otherwise provide information to employees or former employees of Seller, following the Closing of the transaction contemplated by this Agreement which discloses the purchase price being paid hereunder for the Assets (except as a portion of the aggregate purchase price paid by Buyer to Seller and others for the Assets purchased hereunder and assets being purchased from others) unless deemed to be necessary or appropriate by Buyer to do so in order to comply with applicable securities, tax or other laws or regulations and except as required by court order or subpoena. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Shareholder has executed this Agreement and the Buyer has caused this Agreement to be executed in its corporate name by its duly authorized representative, all as of the day and year first above written. BUYER: KEY FOUR CORNERS, INC. By: Ron Fellabaum, Vice President SELLER: COLORADO WELL SERVICE, INC. By: Keith Poole, President SHAREHOLDER: ___________________________________________ Keith Poole EX-10 4 TRANSTEXAS ASSET PURCHASE AGREEMENT Asset Purchase Agreement by and BETWEEN Key Energy Services South Texas, Inc. and TransTexas Gas Corporation August 17, 1998 1. Asset Purchase Agreement This Asset Purchase Agreement (this "Agreement") is entered into as of August 17, 1998 between Key Energy Services South Texas, Inc., a Delaware corporation ("Buyer"), and TransTexas Gas Corporation, a Delaware corporation (the "Seller"). RECITATIONS WHEREAS, the Seller is currently engaged in the business of providing onshore oilfield services through its Integrated Services Division and its Fluids Services Division (such business being collectively referred to herein as the "Services Divisions"); and WHEREAS, the Seller desires to sell substantially all the assets of the Services Divisions, and Buyer desires to acquire such assets. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements, and subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: ARTICLE 1 Purchase and Sale of Assets 1.1 Purchase and Sale of the Assets. Subject to the terms and conditions set forth in this Agreement, the Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer effective as of 12:01 A.M. Texas time on the date of the execution hereof (the "Closing Date"), all of the assets, rights and interests of the Seller used, primarily or exclusively, in the conduct of the Services Divisions as the Services Divisions were conducted by the Seller before the Closing Date other than the Excluded Assets (as defined in Section 1.2 hereof), whether real, personal, tangible or intangible, including, without limitation, the following assets (all such assets being sold hereunder are referred to collectively herein as the "Assets"): (a) all tangible personal property owned by the Seller and used, primarily or exclusively, in the conduct of the Service Divisions or the operation of the Assets (such as rigs, 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, including parts supplies and spare parts inventory, owned by the Seller and used, primarily or exclusively, in the conduct of the Services Divisions or the operation of the Assets, including without limitation, that which is more fully described on Schedule 1.1(b) hereto (collectively, the "Inventory"); (c) all of the Seller's intangible assets used, primarily or exclusively, in the conduct of the Services Divisions or the operation of the Assets, including without limitation, (i) the Seller's rights to the name "PetroAmerican Services Corporation" (or any name similar thereto or which incorporates the term "PetroAmerican") which the Seller used, primarily or exclusively, in connection with the Services Divisions, (ii) all of the Seller's rights to any patents, patent applications, trademarks and service marks (including registrations and applications therefor), trade names, and copyrights and written know-how, trade secrets, licenses and sublicenses and all other similar proprietary data and the goodwill associated therewith (collectively, the "Intellectual Property") used or held, primarily or exclusively, in the conduct of the Services Divisions (the "Seller Intellectual Property"), and (iii) the sales and promotional literature, computer software, customer and supplier lists and all other records of the Seller relating, primarily or exclusively, to the Assets or the Services Divisions (collectively, the "Intangibles"); (d) all of Seller's rights under those leases, subleases, contracts, contract rights and agreements relating to the operation of the Assets or the conduct of the Services Divisions 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, primarily or exclusively, to all or any of the Assets or to the conduct of the Services Divisions to the extent they are assignable, including, but not limited to, those that are more fully described on Schedule 1.1(e) hereto (collectively, the "Seller Permits"); (f) the goodwill associated with the Assets or the Services Divisions; 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, primarily or exclusively, in the conduct of the Services Divisions or the operation of the Assets. 1.2 Excluded Assets. The Assets shall not include the following (collectively, the "Excluded Assets"): (i) all of the Seller's accounts receivable and all other rights of the Seller to payment for services rendered by the Seller in its conduct of the Services Divisions before the Closing Date ("Pre-Closing Accounts Receivable"), it being understood that Seller shall bill all of its customers on the Closing Date for services or materials provided up to that date and that (A) Buyer will forward any payment on Pre-Closing Accounts Receivable received by it to the Seller within ten (10) business days of receipt thereof; (B) the Seller will forward to Buyer any payment received by it in respect of revenues and accounts receivable relating to the Assets, which relate to services or materials provided on or after the Closing Date, and any such amounts shall not be deemed Excluded Assets; and (C) the Seller will coordinate all collection efforts in respect of Pre-Closing Accounts Receivable through Buyer and will not directly or indirectly contact the customers of the business regarding Pre-Closing Accounts Receivable (or any other matters) without the consent of Buyer (which consent will not be unreasonably withheld or delayed); (ii) all cash accounts of the Seller and all petty cash of the Seller kept on hand; (iii) all other receivables and prepaid expenses relating to the Services Divisions, including all right, title and interest of the Seller in and to any prepaid expenses, bonds, deposits and other current assets; (iv) the real estate and other assets described in Schedule 1.2 attached hereto relating to the Services Divisions; (v) the corporate minute books, accounting records, files, tax returns and other financial data on whatever media, relating to the Seller or the Excluded Assets; (vi) the cash consideration paid or payable by Buyer to the Seller pursuant to Section 1.3 hereof; (vii) all other rights of Seller under this Agreement; (viii) all rights to refunds, rebates or credits of any taxes for all periods prior to the Closing; (ix) all insurance policies and (x) all of the assets and rights of Seller under all employee benefit plans and programs of Seller. 1.3 Consideration for Assets. As consideration for the sale of the Assets to Buyer and for the other covenants and agreements of the Seller contained herein, Buyer agrees to pay to the Seller by wire transfer of immediately available funds to an account designated by the Seller or by delivery of immediately available funds. (a) on or within 3 business days of the Closing Date, the sum of Sixteen Million Seventy-Seven thousand and No/100 dollars ($16,077,000); and (b) an amount up to Four Hundred Twenty-Three thousand and No/100 Dollars ($423,000), upon satisfaction of the terms and conditions set forth in the Letter Agreement dated of even date herewith between the Seller and Buyer. The aggregate amounts paid by Buyer to the Seller pursuant to this Section 1.3 shall be referred to herein as the "Purchase Price". 1.4 Liabilities. Effective on the Closing Date, Buyer shall assume those, and only those, liabilities and obligations of the Seller to perform the Contracts to the extent that the Contracts have not been performed and are not in default on the Closing Date (the "Assumed Liabilities"). On and after the Closing Date, the Seller shall be responsible for any and all liabilities and obligations of the Seller other than the Assumed Liabilities (collectively, the "Retained Liabilities"), including, without limitation, (a) any obligations arising from the Seller's employment of the Employees (as defined in Section 3.2 hereof), including those employees of the Seller listed on Schedule 3.2 hereto; (b) any liabilities arising from or relating to the Seller's failure to be duly qualified or licensed to do business and in good standing as a foreign corporation in all jurisdictions in which the character of the properties owned or the nature of the business conducted by the Seller would make such qualification or licensing necessary; (c) any failure to pay any taxes owed by the Seller which are applicable to the period ending with the Closing Date; (d) any liability for commissions or other fees payable to brokers, attorneys or others; (e) all liabilities and obligations relating to, resulting from or arising out of any and all businesses, assets, properties, rights and interests that are not being acquired by Buyer hereunder, including without limitation the Excluded Assets, whether such liabilities or obligations arose before or after the Closing Date; and (f) any other liabilities resulting from the Seller's operation of the Assets or conduct of the Services Divisions or any of its businesses before the Closing Date, including all liabilities and obligations of the Seller in connection with accounts payable as of the Closing Date. 1.5 Closing. The closing of the purchase and sale provided for hereunder (the "Closing") shall take place on the Closing Date at the offices of TransTexas Gas Corporation, 1300 N. Sam Houston Parkway East, Suite 310, Houston, Texas 77032-2949. 1.6 Closing Deliveries. At the Closing, Buyer and the Seller will deliver to one another the documents described below: 1.6.1. Certificate of Secretary of the Seller. The Seller shall deliver an originally executed Certificate of its Secretary certifying that (i) the Company has been duly incorporated, and is validly existing and in good standing in the State of Delaware, as evidenced by a good standing certificate issued by the Secretary of State of the State of Delaware attached thereto; (ii) the Articles of Incorporation (as certified as by the Secretary of State of the State of Delaware) and By-laws of the Company, copies of each of which shall be attached thereto, are true and complete copies of each as of the Closing Date; (iii) an annex of the board resolutions authorizing the transactions contemplated by this Agreement and attached thereto were duly adopted and have not been amended or rescinded; and (iv) the officers of the Company whose signatures are set forth on such Certificate, one or more of whom will execute the Agreement and such other documents contemplated thereby on behalf of the Company, are duly elected, qualified and incumbent as of the Closing Date, and that the signatures of each are genuine. 1.6.2. Bill of Sale. Buyer and the Seller shall execute a Bill of Sale transferring the Assets to Buyer and such other instruments of transfer as are necessary to transfer the Assets to Buyer, all of which shall be in a form mutually acceptable to the Seller and Buyer. 1.6.3. Instrument of Assumption. Buyer and the Seller shall execute an Instrument of Assumption, which shall be in a form mutually acceptable to the Seller and Buyer, pursuant to which Buyer will assume the Assumed Liabilities. 1.6.4. Opinion of Seller's Counsel. Buyer shall have received a favorable opinion, dated as of the Closing Date, from Gardere & Wynne, L.L.P., counsel to the Seller, in a form and substance satisfactory to Buyer, to the effect that (i) the Seller has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and is qualified to do business in the State of Texas; (ii) all proceedings required to be taken by or on the part of the Seller to authorize the execution of this Agreement, the other agreements and instruments to be entered into between the Seller and Buyer contemplated hereby (collectively, the "Other Agreements"), and the consummation of the transactions contemplated hereby and thereby have been taken; (iii) the compliance by the Seller with all of the provisions of this Agreement and the Other Agreements and the transactions contemplated hereby and thereby will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument to which the Seller is a party or by which the Seller is bound or to which any of the Assets of the Seller are subject; and (iv) this Agreement and the Other Agreements have been duly executed and delivered by, and are the legal, valid and binding obligation of the Seller, and are enforceable against the Seller in accordance with their respective terms, except as the enforceability may be limited by (a) equitable principles of general applicability or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. In rendering such opinion, such counsel may rely upon (x) certificates of public officials and of officers of the Seller as to the matters of fact and (y) the opinion or opinions of other counsel, which opinions shall be reasonably satisfactory to Buyer, as to matters other than federal or Texas law. 1.6.5 Officer's Certificate. Seller shall deliver an originally executed Certificate of one of its Vice Presidents or its President to the effect that (i) this Agreement and all other agreements to be entered into by Buyer and the Seller do not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Seller or its affiliates is a party or by which the Seller or its affiliates or the Assets are bound; and (ii) the Seller is qualified to do business in each jurisdiction in which the operations of the Services Divisions requires it to be qualified to do business. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of the Seller. The Seller 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 the State of Delaware, is qualified to do business in the State of Texas and in each other state in which the nature and conduct of its business requires it to be qualified to do business, 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. 2.1.2 Agreement Authorized and Effect on Other Obligations. The execution and delivery of this Agreement and all instruments to be executed by the Seller hereunder and all transactions contemplated to be entered into by the Seller hereby have been authorized by all necessary corporate, shareholder and other action on the part of the Seller, and this Agreement and all instruments to be executed by the Seller hereunder are the valid and binding obligations of the Seller enforceable (subject to normal equitable principles) 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 all instruments to be executed by the Seller hereunder and the consummation of the transactions contemplated hereby and thereby, will not (i) conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (A) the Certificate of Incorporation or Bylaws (or other organizational documents) of the Seller, (B) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which the Seller is a party or by which the Seller or its respective properties are bound, or (C) any provision of any law, rule, regulation, order, permits, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, arbitrator or other governmental authority to which the Seller or its properties are subject; (ii) result in the creation or imposition of any Encumbrance (as defined in Section 2.1.4 hereof) on any of the Assets; or (iii) constitute a breach of, default under, result in the termination, right of termination or cancellation of, or accelerate the performance required by, any of the Contracts. 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 or the conduct of the Services Divisions and which are to be performed in whole or in part on or after the date hereof. In addition, (a) all of the Contracts are in full force and effect, and constitute valid and binding obligations of the Seller, (b) the Seller is not, and to the knowledge of the Seller no other party to any of the Contracts is, in default thereunder, and no event has occurred which (with or without notice, lapse of time, or the happening of any other event) would constitute a default thereunder, (c) no Contract has been entered into on terms which could reasonably be expected to have an adverse effect on the use of the Assets by Buyer, (d) the Seller has not received any information which would cause any of such parties to conclude that any customer of the Seller will (or is likely to) cease doing business with Buyer (or its successors) as a result of the consummation of the transactions contemplated hereby. 2.1.4 Title to Assets. Except as set forth in Schedule 2.1.4 hereto, the Seller has good, indefeasible and marketable title to all of the Assets, free and clear of any Encumbrances (defined below). All of the Assets conform to all applicable laws governing their use, and no notice of any violation of any law, statute, ordinance or regulation relating to any of the Assets has been received by the Seller, except such as have been fully complied with. The term "Encumbrances" means all liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, taxes, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature except for statutory liens for taxes, assessments, governmental charges or levies, or claims of materialmen, carriers, landlords and like persons, all of which are not yet due and payable and have not attached. 2.1.5 Licenses and Permits. Schedule 1.1(e) hereto sets forth a complete list of all Permits necessary under law or otherwise for the operation, maintenance and use of the Assets in the manner in which the Assets were operated, maintained and used before the date hereof; each of the Seller Permits and the Seller=s rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by the Seller; the Seller is in compliance in all material respects with the terms of each of the Seller Permits; none of the Seller Permits have been, or are threatened to be, revoked, canceled, suspended or modified. 2.1.6 Intellectual Property. Schedule 1.1(c) hereto sets forth a complete list of all Intellectual Property material or necessary for the continued use of the Assets; the Seller Intellectual Property is owned or licensed by the Seller free and clear of any Encumbrances; the Seller has not granted to any other person any license to use any the Seller Intellectual Property and use of the Seller Intellectual Property by Buyer in the manner used by Seller before the Closing will not infringe, misappropriate or conflict with the Intellectual Property rights of others. The Seller has not received any notice of infringement, misappropriation or conflict with the Intellectual Property rights of others in connection with the use by the Seller of the Seller Intellectual Property. 2.1.7 Absence of Certain Changes and Events. Since May 28, 1998, there has not been: (a) Financial Change. Any adverse change in the Assets, the Services Divisions or the financial condition, operations or liabilities of the Seller relating to the Services Divisions; (b) Property Damage. Any damage, destruction, or loss to any of the Assets or the Services Divisions (whether or not covered by insurance); (c) Waiver. Any waiver or release of a material right of or claim held by the Seller not purported to be transferred hereunder; (d) Change in Assets. Any acquisition, disposition, transfer, encumbrance, mortgage, pledge or other encumbrance of any of the Asset other than in the ordinary course of business; (e) Labor Disputes. Any labor disputes between the Seller and its employees who work in the Services Divisions; or (f) Other Changes. Any other event or condition known to the Seller that particularly pertains to and has or might have an adverse effect on the Assets or the operations of Services Divisions. 2.1.8 Necessary Consents. Except for the Seller Permits, 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, the Contracts. 2.1.9 Environmental Matters. (a) The Seller is and has been in compliance in all respects with all applicable Environmental Laws (as defined below) relating to the Assets, or any operations conducted by the Seller utilizing the Assets, the violation of which would create any liabilities or obligations for Buyer. The Seller has obtained and is and has been in compliance with all permits relating to any operations conducted by the Seller utilizing the Assets required under applicable Environmental Laws. There is no past or present event, condition or circumstance that will interfere with the use of the Assets or the operations of Buyer utilizing the Assets (as such Assets were operated by the Services Divisions) or which would interfere in any respect with the Buyer's compliance with Environmental Laws in connection with the Assets or the operations utilizing the Assets or constitute a violation thereof. (b) The Assets are not subject to any actual or, to the knowledge of the Seller, potential action, claim, investigation, review or other proceeding by any third party or before any governmental entity or authority (or subdivision thereof) under or based upon any Environmental Law. (c) The facilities and property included in the Assets and the operations of the Services Division have been operated in substantial compliance with all applicable Environmental Laws and are not (and would not be, if all relevant facts were known to any applicable governmental entity or authority (or subdivision thereof)) subject to any removal, clean-up, remediation, restoration, reporting, notification, closure, recordation obligations under such laws. There are not, and there have not been, any underground or above-ground storage tanks or pits on the real property included in the Assets that require (and would require if all relevant facts were known to any applicable any governmental entity or authority (or subdivision thereof)) removal, clean-up, remediation, restoration, reporting, notification, closure, recordation, or any other action. (d) There are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials (as defined below), on any property presently or previously owned or leased by the Seller, or on any property on which Hazardous Materials generated by the Seller=s operations or the use of the Assets were disposed of, which would result in an adverse change in the Assets or which would result in a claim against Buyer. (e) The Seller has provided to Buyer true and correct copies of all environmental audits, assessments or other reports relating to (i) the Assets or operations conducted by the Seller utilizing the Assets, and (ii) compliance by the Seller with, or liability of the Seller under, Environmental Laws in connection with the Assets or the operations conducted by the Seller utilizing the Assets. (f) The term "Environmental Law" means any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and other legally enforceable requirements (including, without limitation, common law) of the United States, or any state, regional, city, local, municipal or other governmental authority or quasi-governmental authority, regulating, relating to, or imposing environmental standards of conduct concerning protection of the environment or human health, or employee health and safety as from time to time has been or is now in effect. The term "Hazardous Materials" means (x) asbestos, polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals, materials, wastes or substances that are defined, regulated, determined or identified as toxic or hazardous in any Environmental Law. 2.1.10 No ERISA Plans or Labor Issues. No employee benefit plan, program or pay practice 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, liability or responsibility of Buyer, financial or otherwise; the Seller has not engaged in any unfair labor practices which will result in an adverse effect on the Assets or a claim against Buyer; and there are no labor disputes, pending or threatened by any employee of the Seller listed on Schedule 3.2 or any former employee of the Services Divisions. The Seller has no knowledge of any organizational effort presently being made or threatened on behalf of any labor union with respect to the employees listed on Schedule 3.2 hereto or any former employee of the Services Divisions. 2.1.11 Investigations; Litigation. No investigation or review by any governmental entity with respect to any of the transactions contemplated by this Agreement is pending or threatened, nor has any governmental entity indicated to the Seller an intention to conduct the same; and, there is no civil or criminal suit, action, or legal, administrative, arbitration or other proceeding or governmental investigation pending, threatened or unasserted to which the Seller is or would be a party or any other unasserted claims against the Seller which would have an adverse effect on any of the Assets or result in a claim against Buyer. 2.1.12 Solvency. The Seller is not presently insolvent, nor will the Seller be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. The term Ainsolvent,@ with respect to the Seller, means that the sum of the present fair and saleable value of the Seller=s assets does not and will not exceed its debts and other probable liabilities, and the term Adebts@ includes any legal liability whether matured or unmatured, liquidated or unliquidated, absolute fixed or contingent, disputed or undisputed or secured or unsecured. 2.1.13 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller, Jefferies & Co., 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 Buyer for a brokerage commission, finder=s fee, financial advisory fee or any similar payment. The Seller shall pay all fees associated with Jefferies & Co. and Buyer shall have no liabilities or obligations therefor. 2.1.14 Taxes. All federal, state and local taxes assessed or assessable against the Assets for periods prior to January 1, 1998 have been paid by the Seller and the Assets will be conveyed to Buyer free and clear of any such taxes or claims therefor. All taxes assessed against the Assets for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with the Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. 2.1.15 Equipment and Inventory. Buyer acknowledges that, as to condition and quality of the equipment and inventory, it will take the equipment and Inventory to be sold, transferred and conveyed to it hereunder "as is" and "where is" and that the Seller makes no representation or warranty, expressed or implied, as to freedom from defects or as to the merchantibility or fitness for any particular purpose of the equipment or the Inventory. 2.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller as follows: 2.2.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its businesses as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do businesses and is in good standing as a foreign corporation authorized to do business in the State of Texas. 2.2.2 Agreement Authorized and its Effect on Other Obligations. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and this Agreement is a valid and binding obligation of Buyer enforceable (subject to normal equitable principles) in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by Buyer will not conflict with or result in a violation or breach of any term or provision of, or constitute a default under (a) the Certificate of Incorporation or Bylaws of Buyer or (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which Buyer or any of its property is bound. 2.2.3 Consents and Approvals. No consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 2.2.4 Finder's Fee. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Buyer and its counsel directly with the Seller, Jefferies & Co. and their counsel, without the intervention by any other person as the result of any act of Buyer in such a manner as to give rise to any valid claim against the Seller for any brokerage commission, finder's fee, financial advisory fee or any similar payments. 2.3 Survival of Representations and Warranties. Notwithstanding any investigation made on the part of the parties hereto, the respective representations and warranties of the parties contained herein shall survive for a period of one year following the Closing Date, except for the representations and warranties set forth in Sections 2.1.4, 2.1.10, 2.1.11 and 2.1.14 hereof, which shall survive for the applicable statute of limitations period therefor, and except for the representations and warranties set forth in Section 2.1.9 hereof which shall survive for a period of two years following the Closing Date, provided that there shall be no expiration of any such representation or warranty with respect to any bona fide claim that has been asserted by written notice of such claim delivered to the party or parties making such representation or warranty during the applicable survival period. 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 notwithstanding any investigation made on the part of the parties hereto shall also survive for a period of one year following the Closing Date except for the representations and warranties set forth in any certificate, schedule, exhibit or other instrument relating to the subject matter of Sections 2.1.4, 2.1.10, 2.1.11 and 2.1.14 hereof, which shall survive for the applicable statute of limitations period therefor, and except for the representations and warranties set forth in any certificate, schedule, exhibit or other instrument relating to the subject matter of Section 2.1.9 hereof which shall survive for a period of two years following the Closing Date. This Section 2.3 shall not, at any time, relieve any party hereto from the performance of such party's covenants, agreements and undertakings set forth in this Agreement, which shall survive as provided herein. 2.4 Remedy for Breach of Representations and Warranties. The exclusive remedy for any breach by a party of the representations and warranties contained in Section 2.1 and 2.2 hereof shall be as set forth in Article IV hereof. ARTICLE III Additional Agreements 3.1 Noncompetition. Except as set forth below or as otherwise consented to or approved in writing by Buyer, the Seller agrees that for a period of 48 months following the Closing Date, it will not, directly or indirectly, acting alone or as a member of a partnership or as a consultant, representative, advisor, lender (including gifts used for capitalization or collateral), a holder of, or investor in as much as 3% of any security of any class of any corporation or other business entity (a) engage in any business in competition with the operations engaged in by the Seller through the Services Divisions within a territory defined as the Texas Railroad Commission Districts 1 through 6, but excluding the area east of Highway 288 and south of Interstate 10, (b) request any present customers or suppliers of the Seller or any customers of Buyer or any affiliate of Buyer to curtail or cancel their business with Buyer (or Buyer=s affiliates); (c) disclose to any person, firm or corporation any trade, technical or technological secrets of the operations of the Services Divisions, Buyer or any affiliate of Buyer or any non-public details of their business affairs; or (d) seek out and actively attempt to influence any employee of Buyer or any affiliate of Buyer to terminate his or her employment. The Seller agrees that if either the length of time or geographical area as set forth in this Section 3.1 is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances (and any monetary damages for a violation of such restrictions and breach of the court-altered provisions hereof shall run from the date such violation began). The obligations expressed in this Section 3.1 are in addition to any other obligations that the Seller may have under the laws of any state requiring a corporation selling its assets (or a shareholder of such corporation) to limit its activities so that the goodwill and business relations being transferred with such assets will not be materially impaired. The Seller further agrees and acknowledges that Buyer and affiliates of Buyer do not have any adequate remedy at law for the breach or threatened breach by the Seller of the covenants contained in this Section 3.1, and agree that Buyer and/or affiliates of Buyer may, in addition to the other remedies which may be available to them hereunder, file a suit in equity to enjoin the Seller from such breach or threatened breach. If any provisions of this Section 3.1 are held to be invalid or against public policy, the remaining provisions shall not be affected thereby. The Seller acknowledges that the covenants set forth in this Section 3.1 are being executed and delivered by such party in consideration of (i) the covenants of Buyer contained in this Agreement, (ii) additional consideration in the amount of $500,000 payable by Buyer on the date hereof by wire transfer of immediately available funds to the Seller, on the Closing Date or within 3 business days of the Closing Date, and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. 3.2 Hiring Employees. Schedule 3.2 hereto is a complete and accurate listing of all employees of the Seller who devote their full time in the operation of the Assets (the "Employees"), together with each Employee's pay rate and job description. Effective as of the Closing Date, those Employees which Buyer, in its sole discretion, determines to be necessary to continue to operate the Assets as Buyer deems appropriate, will be offered employment by Buyer, subject to such Employees meeting Buyer=s standard employment eligibility requirements. Buyer shall have no liability or obligation with respect to any employee benefits of any Employees except those benefits that accrue pursuant to such Employees= employment with Buyer on or after the Closing Date. The Seller shall cooperate with Buyer in connection with any offer of employment from Buyer to the Employees and use reasonable efforts to cause the acceptance of any and all such offers. 3.3 Allocation of Purchase Price. The parties hereto agree to allocate the Purchase Price payable by Buyer for the Assets hereunder as set forth on Schedule 3.3 hereto, and shall report this transaction for federal income tax purposes in accordance with the allocation so agreed upon. The parties hereto for themselves and for their respective successors and assigns covenant and agree that they will file coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, with their respective income tax returns for the taxable year that includes the date hereof. 3.4 Publicity; Non-disclosure. The Seller and Buyer agree that each of Buyer and the Seller will be authorized to issue a press release announcing the consummation of the transactions contemplated by this Agreement, subject to prior review and approval of the other party. Except as provided in the preceding sentence, Buyer and the Seller will not issue any publication or press release, or disclose to any third party (except for their respective advisors, counsel and other agents, provided that Buyer and the Seller will remain liable for any disclosures in violation of the provisions of this Section by such persons) the existence or provisions of this Agreement, the transactions contemplated hereby or the negotiations preceding the execution hereof, except as may be required by (i) applicable law, including disclosures required by the securities laws, (ii) an order of a court or governmental or administrative body, or (iii) obligations pursuant to any listing agreement with any securities exchange or securities exchange regulation. 3.5 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 reasonable necessary to effect the transactions contemplated hereby. ARTICLE IV Indemnification 4.1 Indemnification by the Seller. In addition to any other remedies available to Buyer under this Agreement, or at law or in equity, the Seller shall indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and stockholders (collectively, the ABuyer Indemnified Parties@), against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, penalties and reasonable attorneys= fees and expenses (collectively, the ADamages@) a Buyer Indemnified Party shall incur or suffer (whether the damages are suffered or incurred by such Buyer Indemnified Party directly or as a result of a third party claim against such Buyer Indemnified Party), which arise or result from (a) any breach of, or failure by the Seller to perform, its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Seller under this Agreement or (b) the Seller's failure to satisfy the Retained Liabilities. 4.2 Indemnification by Buyer. In addition to any other remedies available to the Seller under this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold harmless the Seller and its officers, directors, employees, agents and stockholders against and with respect to any and all Damages that such indemnitees shall incur or suffer, which arise or result from (a) any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to the Seller by or on behalf of Buyer under this Agreement, (b) Buyer's failure to satisfy the Assumed Liabilities, or (c) all liabilities and obligations resulting from Buyer's operation of the Assets or the conduct of the Services Divisions after the Closing Date except to the extent such Damages result from or relate to (x) any breach of, or failure by the Seller to perform its representations, warranties, covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or delivered to Buyer by the Seller under this Agreement or (y) the Seller's failure to satisfy the Retained Liabilities. 4.3 Limitations on Indemnification. With respect to Damages that arise or result from or relate to the matters referred to in Section 4.1(a) and 4.2(a) hereof (collectively, the "Capped Damages"), neither the Seller nor Buyer shall be obligated to pay any amounts for indemnification under Article IV of this Agreement for any Capped Damages until the aggregate of all Capped Damages actually incurred by the indemnified party equals $50,000, whereupon the indemnifying party shall be obligated to pay any Capped Damages actually incurred by the indemnified party in excess of $50,000, but in no event shall the indemnifying party be liable for an aggregate amount of Capped Damages in excess of the Maximum Amount (as defined here). With respect to the matters referred to in Sections 4.1(b), 4.2(b) and 4.2(c) hereof, the indemnifying party shall be obligated to pay any and all Damages actually incurred by an indemnified party up to the full amount thereof. As used herein, the "Maximum Amount" shall mean, with respect to an indemnifying party, an amount equal to $20,500,000 less any damages actually paid by such indemnifying party as of the date such indemnification is sought pursuant to the indemnification provisions of the Purchase and Sale Agreement relating to certain real property to be purchased by Buyer, dated an even date herewith, by and between the Seller and Buyer. 4.4 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Section 4.1 or 4.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation hereunder to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any third party action or proceeding against such indemnified party with respect to which a claim for indemnification may be made pursuant to this Article IV, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such third party action; provided, however, that the failure of an indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligation hereunder to the extent the indemnifying party is not materially prejudiced thereby. In case any such third party 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 third party claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a third party 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 third party claim or with respect to third party 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 third party 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 third party 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 third party claimant or plaintiff to such indemnified party of a release from all liability with respect to such third party claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such third party 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, delayed or continued. ARTICLE V Miscellaneous 5.1 Entirety. This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety. 5.2 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. 5.3 Notices and Waivers. Any notice or waiver to be given to any party hereto shall be in writing and shall be delivered by courier, sent by facsimile transmission or first class registered or certified mail, postage prepaid, return receipt requested: If to Buyer - -------------------------------------------------------------------------------- Addressed to: With a copy to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Key Energy Services South Texas, Inc. Key Energy Group, Inc. C/o Key Energy Group, Inc. Two Tower Center, 20th Floor Two Tower Center, 20th Floor East Brunswick, New Jersey 08816 East Brunswick, New Jersey 08816 Attn: General Counsel Facsimile: (732) 247-5148 Facsimile: (732) 247-5148 Attention: President - -------------------------------------------------------------------------------- If to the Seller - -------------------------------------------------------------------------------- Addressed to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Trans Texas Gas Corporation 1300 N. Sam Houston Pkwy. East, Suite 310 Houston, Texas 77032-2949 Attn: Arnold Brackenridge, President Facsimile: (281) 986-8877 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the fifth (5th) businesses day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal businesses hours on any businesses day. 5.4 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. 5.5 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. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Seller or Buyer (by operation of law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that Seller or Buyer may assign this Agreement and any or all rights and obligations hereunder, in whole or in part, to any of its affiliates. Upon such permitted assignment, the references in this Agreement to Seller or Buyer shall also apply to any such assignee unless the context otherwise requires. 5.6 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. 4.7 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas (regardless of the laws that might be otherwise be applicable under its conflicts of law principles). IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in their respective corporate names by their respective duly authorized representatives, all as of the day and year first above written. BUYER: KEY ENERGY SERVICES SOUTH TEXAS, INC. By: Name: Title: SELLER: TRANSTEXAS GAS CORPORATION By: Name: Title: EX-10 5 FLINT ASSET PURCHASE AGREEMENT Asset Purchase Agreement dated September 9, 1998 By and Among KEY ENERGY GROUP, INC., FLINT ENGINEERING & CONSTRUCTION CO. and FLINT INDUSTRIES, INC. TABLE OF CONTENTS Page ARTICLE I AGREEMENT FOR SALE AND PURCHASE OF ASSETS Section 1.01. Purchase and Sale of Assets 1 Section 1.02. Identification of Assets 1 Section 1.03. Instruments of Conveyance and Transfer 3 Section 1.04. Further Assurances 3 Section 1.05. Record Retention 3 ARTICLE II CONSIDERATION FOR SALE OF ASSETS Section 2.01. Consideration Paid 4 Section 2.02. Value Assigned to the Assets 4 Section 2.03. Non-Assumption of Liabilities 4 Section 2.04. Other Funds Received 4 Section 2.05. Assumption of Obligations; Excluded Liabilities; Excluded Assets 4 ARTICLE II CLOSING Section 3.01. Closing 7 Section 3.02. Closing Obligations 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT Section 4.01. Organization and Qualification 8 Section 4.02. Authority, Approval and Enforceability 9 Section 4.03. No Violation or Consent 9 Section 4.04. Material Contracts, Agreements, Plans and Commitments 9 Section 4.05. Compliance with Law 10 Section 4.06. Litigation 10 Section 4.07. Environmental Matters 10 Section 4.08. Taxes 11 Section 4.09. Insurance 12 Section 4.10. Labor and Employee Benefits 12 Section 4.11. Brokerage Agreements 12 Section 4.12. Title to Property 13 Section 4.13. Absence of Certain Changes 13 Section 4.14. Permits 13 Section 4.15. Employees 13 Section 4.16. Customers 14 Section 4.17. No Arrangements with Respect to Assets 14 Section 4.18. Limitation of Representations and Warranties 14 Section 4.19. Absence of Certain Businesses Practices 14 Section 4.20. Solvency 15 Section 4.21. Real Property 15 Section 4.22. Intellectual Property 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Section 5.01. Formation and Existence 16 Section 5.02. Authorization of Agreement; No Violation; No Consents 16 Section 5.03. Litigation 17 Section 5.04. Brokerage Agreements 17 ARTICLE VI COVENANTS OF SELLER Section 6.01. Conduct of Seller Pending the Closing and the Vacuum Truck Closing 17 Section 6.02. Employees 19 Section 6.03. Access 19 Section 6.04. Consents 19 Section 6.05. Additional Action to Assure Transfers 19 ARTICLE VII COVENANTS OF BUYER Section 7.01. Cooperation 20 Section 7.02. Post-Closing Employment 20 Section 7.03. Performance of Obligations 21 Section 7.04. Consents. 21 ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS Section 8.01. Representations and Warranties 21 Section 8.02. Performance 21 Section 8.03. Officer's Certificate 21 Section 8.04. Conveyance of Documents 22 Section 8.05. Litigation 22 Section 8.06. Third-Party Consents 22 Section 8.07. Opinion of Counsel 22 Section 8.08. Environmental Matters 22 Section 8.09. Real Estate Matters 23 ARTICLE IX CONDITIONS TO SELLER'S OBLIGATIONS Section 9.01. Representations and Warranties 24 Section 9.02. Performance 24 Section 9.03. Payment of Purchase Price 24 Section 9.04. Officer's Certificate 24 Section 9.05. Opinion of Counsel 24 ARTICLE X SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS Section 10.01. Survival of Representations 24 Section 10.02. Agreement to Indemnify Buyer 25 Section 10.03. Agreement to Indemnify Seller 25 Section 10.04. Additional Agreements Concerning Indemnification 26 Section 10.05. Minimum and Maximum Amounts 26 Section 10.06. Exclusive Remedy 26 ARTICLE XI ADDITIONAL AGREEMENTS OF THE PARTIES Section 11.01. Public Announcements 27 Section 11.02. Employees 27 Section 11.03. Non-Solicitation 28 Section 11.04. Covenant Not to Compete 28 ARTICLE XII TERMINATION OF AGREEMENT Section 12.01. Termination 30 Section 12.02. Effect of Termination 30 ARTICLE XIIIMISCELLANEOUS Section 13.01. Interpretive Provisions 31 Section 13.02. Expenses 31 Section 13.03. Reliance 31 Section 13.04. Notices 31 Section 13.05. Headings; References 32 Section 13.06. Entire Agreement 32 Section 13.07. Waiver 32 Section 13.08. Severability 32 Section 13.09. Amendment 33 Section 13.10. Further Actions 33 Section 13.11. Assignment; Parties in Interest 33 Section 13.12. Governing Law 33 Section 13.13. Specific Performance 33 Section 13.14. Counterparts 33 SCHEDULES 1.02(a) Rigs 1.02(b) Equipment & Rolling Stock 1.02(c) Real Property 1.02(d) Leased Vehicles 1.02(f) Contracts and Work Orders 1.02(g) Permits 1.02(i) Computers 1.02(k) Construction Equipment 1.02(l) Vacuum Trucks 3.02(a)(1) Form of Conveyance, Assignment and Bill of Sale 3.02(a)(2) Form of General Warranty Deed 3.02(b)(1) Form of Conveyance and Bill of Sale 4.03 No Violation or Consent 4.04 Contracts in Default 4.05 Compliance with Law 4.06 Litigation 4.07 Environmental Matters 4.09 Insurance 4.12 Permitted Liens 4.13 Absence of Certain Changes 4.15 Employees 4.16 Customers 8.07 Opinion of Seller's Counsel 9.05 Opinion of Buyer's Counsel 11.02 Excluded Employees ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into this 9th day of September, 1998 by and among Key Energy Group, Inc., a Maryland corporation ("Buyer"), Flint Engineering & Construction Co., an Oklahoma corporation ("Seller"), and Flint Industries, Inc., a Delaware corporation ("Parent"). RECITALS WHEREAS, Seller owns and operates 55 workover rigs, related well servicing equipment and rolling stock and five yards located in Chickasha, Oklahoma, Liberty, Texas, Sidney, Montana, Ulysses, Kansas and Roosevelt, Utah through which Seller conducts its well servicing business (the "WSB") and desires to sell to Buyer the assets and to transfer certain liabilities of the WSB, in each case upon the terms and subject to the conditions contained herein. WHEREAS, Buyer desires to purchase the assets and to assume certain liabilities of the WSB upon such terms and conditions. WHEREAS, Parent owns all of the issued and outstanding capital stock of Seller. NOW, THEREFORE, in consideration of the premises and representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I AGREEMENT FOR SALE AND PURCHASE OF ASSETS Section 1.01. Purchase and Sale of Assets. Seller agrees to sell, transfer, convey and assign to Buyer, and Buyer agrees to purchase and acquire from Seller at the Closing or the Vacuum Truck Closing (as such terms are hereinafter defined in Article III hereof), as the case may be, all of Seller's right, title and interest in and to the assets, properties and rights of the WSB existing on the date hereof, including without limitation, those assets, properties and rights of the WSB set forth in Section 1.02 hereof, (such assets, properties and rights being collectively referred to herein as the "Assets"), but excluding those assets referred to in Section 2.05(b) hereof (the "Excluded Assets"), for and in consideration of the payment by Buyer to Seller of the amounts hereinafter specified. Section 1.02. Identification of Assets. The Assets to be acquired by Buyer hereunder shall include the following: (a) Rigs. The 55 workover rigs which are described on Schedule 1.02(a) (the "Rigs") and all spare parts related to the Rigs. (b) Equipment and Rolling Stock. The utility/dog house trailers, mud pumps, frac tanks, power swivels, blowout preventers and other miscellaneous equipment and the vacuum trucks (other than those described on Schedule 1.02(l) which will be conveyed at the Vacuum Truck Closing), utility vehicles, crew cabs, pick-up trucks and winch trucks which are described on Schedule 1.02(b) (the "Equipment and Rolling Stock"). (c) Real Property. All of the right, title and interest of Seller in and to the real property and buildings located at Chickasha, Oklahoma, Liberty, Texas, Sidney, Montana, Ulysses, Kansas and Roosevelt, Utah which are described on Schedule 1.02(c), together with all fixtures, improvements, betterments, installments and additions constructed, erected or located on or attached to such property (the "Fixtures and Improvements") and all reversionary interests, privileges and appurtenances belonging, pertaining or relating to such property including but not limited to all easements, mineral rights, rights of way and utility facilities (collectively, the "Real Property"). (d) Leased Vehicles. All right, title and interest in and to the rolling stock leased by Seller prior to the Closing in connection with the operations of the WSB and which are listed on Schedule 1.02(d) (the "Leased Vehicles"). (e) Inventory. The fuel stock inventory of Seller owned by Seller in connection with the WSB located on the Real Property (the "Inventory"). (f) Contracts and Work Orders. The contracts and agreements (the "Contracts") of Seller that were entered into in connection with the operation of the WSB and which, with respect to any Contract for consideration in excess of $10,000 (the "Material Contracts"), are described on Schedule 1.02(f), together with any open work orders (the "Work Orders") of Seller that are entered into by Seller in connection with the WSB prior to the Closing, which provide for the delivery of services by the WSB following the Closing and which, with respect to any Work Order for consideration in excess of $10,000 (the "Material Work Orders") and any "rate sheets" pursuant to which such work orders are written, are described on Schedule 1.02(f). (g) Permits. All certificates, authorizations and similar rights granted by any accrediting or governmental entity to Seller, or its predecessors in interest, and used or held by Seller for use solely in connection with the operation of the WSB (as distinct from general corporate and other similar authorizations not specific to the WSB, such as qualifications to transact business), including, without limitation, those listed on Schedule 1.02(g) (the "Permits") that may be transferred without the payment of other than a de minimis fee. (h) Records. All books, files, documents, sales literature, customer lists and records, instructions, advertising and marketing and sales materials (other than central filing and legal records) used solely in the operation of the WSB (the "Records"). (i) Computers. All right, title and interest of Seller in computer hardware located on the Real Property which are described on Schedule 1.02(i). (j) Other Intangibles. All of Seller's intangible assets (the "Intangibles"), including (i) all right, title and interest of Seller in, to and under all privileges, claims, causes of action and options relating or pertaining to the WSB or the foregoing Assets and (ii) the WSB's telephone numbers other than the telephone numbers related to the WSB's property at Farmington, New Mexico. (k) Construction Equipment. The engineering and construction equipment located at Sydney, Montana which is described on Schedule 1.02(k) (the "Purchased Construction Equipment"). (l) Vacuum Trucks. The vacuum trucks which are described on Schedule 1.02(l) (the "Vacuum Trucks"). (m) Goodwill. All of Seller's goodwill in the WSB. Section 1.03. Instruments of Conveyance and Transfer. Seller agrees that it will execute, acknowledge and deliver to Buyer, or its designee or designees, at the Closing such good and sufficient instruments of sale, conveyance, transfer and assignment as shall be effective to vest in Buyer all right, title and interest of Seller in and to the Assets (other than the Vacuum Trucks, which will be conveyed at the Vacuum Truck Closing), in each case, free and clear of all claims, liens, security interests, mortgages, encumbrances and restrictions of any kind or nature. Seller will take such steps as may be necessary to put Buyer in actual possession and operating control of (i) the Assets as of the Closing and (ii) the Vacuum Trucks as of the Vacuum Truck Closing. Such instruments of sale, conveyance, transfer and assignment shall include, without limitation: (a) general warranty deeds for the Real Property, (b) a bill of sale, (c) an assignment of the Contracts (together with any written consents required for such assignments) and (d) title transfers to vehicles and any other certificated personal property. Section 1.04. Further Assurances. Seller agrees that from time to time after the Closing it will, at the request of Buyer and without further consideration, execute and deliver such supplemental and additional instruments of sale, conveyance, transfer and assignment and take such other action as may be reasonably necessary to effectively sell, convey, transfer and assign to Buyer, and to put it in the possession of, the Assets. Section 1.05. Record Retention. For a period of three years after the Closing, Buyer and Seller each agree that prior to the destruction or disposition of any Records, Contracts or any commitments that relate directly to the WSB, each party shall provide not less than 30 nor more than 60 days prior written notice to the other of any such proposed destruction or disposal. If the recipient of such notice desires to obtain any of such documents, it may do so by notifying the other party in writing at any time prior to the scheduled date for such destruction or disposal. Such notice must specify the documents which the requesting party wishes to obtain. The parties shall then promptly arrange for the delivery of such documents. All out-of-pocket costs associated with the delivery of the requested documents shall be paid by the requesting party. ARTICLE II CONSIDERATION FOR SALE OF ASSETS Section 2.01. Consideration Paid. The purchase price (the "Purchase Price") for the Assets shall consist of cash in the amount of $12,350,000. In addition, Buyer shall pay $500,000 in cash (the "Non-Compete Payment") at the Closing in consideration of the non-compete agreement set forth in Section 11.04. Buyer shall pay Seller the Purchase Price and the Non-Compete Payment, by wire transfer of immediately available funds into an account or accounts designated by Seller or as otherwise agreed to by Buyer and Seller, as follows: (a) $11,875,000 at the Closing; (b) $950,000 at the Vacuum Truck Closing; and (c) $25,000 as provided in Section 8.08(b). Section 2.02. Value Assigned to the Assets. As soon as practicable after the Closing, the proportion of the consideration allocable to the Assets purchased pursuant to the terms of this Agreement shall be determined by Buyer and Seller, and Buyer and Seller agree that they will take no action inconsistent with such allocation subsequent to such date in the filing of any federal income tax returns, including for purposes of filing Form 8594. Section 2.03. Non-Assumption of Liabilities. Buyer shall not be deemed in any manner to have assumed or agreed to perform or pay any debts, liabilities, obligations or contracts of Seller of any nature, whether or not known, presently existing, absolute, accrued, contingent or otherwise, except with respect to any obligations expressly assumed by Buyer as set forth in Section 2.05(a) of this Agreement. Section 2.04. Other Funds Received. If any party to this Agreement receives or otherwise acquires funds (including, but not limited to, rebates, warranty proceeds, incentives, accounts receivables, deposits and asset dispositions, in any form whatsoever), which are properly due and payable to any other party to this Agreement, the recipient of such funds shall immediately (and within three business days following the receipt thereof) forward such funds to the other party at the address provided in Section 13.04 hereof. Section 2.05. Assumption of Obligations; Excluded Liabilities; Excluded Assets. (a) As additional consideration to Seller in exchange for the performance by Seller of its obligations hereunder, at the Closing Date or, in the case of the Vacuum Trucks and the Vacuum Truck Transferred Employees (as defined in Section 11.02(a)), at the Vacuum Truck Closing Date (as defined in Section 3.01(b)), Buyer hereby assumes and agrees to pay, discharge and perform as and when due, each of the following obligations of Seller (the "Assumed Obligations"): (1) all obligations and liabilities of Seller under the Contracts and Work Orders, to the extent that such obligations are attributable to the period of time following the Closing, except to the extent that such obligations arise solely from a breach or default by Seller under the Contracts or Work Orders prior to the Closing Date; (2) all liabilities and obligations arising from activities of the WSB (other than those arising from the activities of the Vacuum Trucks) on and after the Closing Date, and all liabilities and obligations arising from activities of the Vacuum Trucks on and after the Vacuum Truck Closing Date; and (3) accrued vacation liabilities attributable to the Transferred Employees and the Vacuum Truck Transferred Employees (each as defined in Section 11.02(a)) as set forth on Schedule 4.15. (b) It is agreed that Buyer shall not assume or be liable for, directly or indirectly, any liabilities or obligations of Seller that are not specifically identified as Assumed Obligations in Section 2.05(a) hereof, including, without limitation, the following debts, liabilities and obligations of Seller in respect of the Assets or the WSB (collectively, the "Unassumed Obligations"), as to which Seller shall be liable: (1) any payable balances as of the Closing Date for intercompany advances; (2) any accruals as of the Closing Date for professional fees (legal and accounting), broker's fees or commissions, printing costs, severance and relocation; (3) any insurance reserves accruing prior to the Closing Date; (4) all liabilities and obligations attributable to the WSB, including accounts payable and accrued payrolls attributable to the WSB; (5) any obligations arising from Seller's employment of (i) the Transferred Employees prior to the Closing Date, and the Vacuum Truck Transferred Employees prior to the Vacuum Truck Closing Date, other than as specified in Section 2.05(a)(3) hereof and (ii) all other employees of Seller whether before or after the Closing Date; (6) any failure to pay any taxes owed by Seller which are applicable to the period ending with the Closing Date, or, for taxes owed with respect to the operations of the Vacuum Trucks, if any, the Vacuum Truck Closing Date; and (7) any other liabilities resulting from Seller's operation of the Assets (other than the Vacuum Trucks) or conduct of the WSB before the Closing Date or, with respect to the Vacuum Trucks, any other liabilities resulting from Seller's operation of the Vacuum Trucks before the Vacuum Truck Closing Date. (c) Notwithstanding anything in this Agreement to the contrary, Seller shall not, and is not hereby agreeing to, sell, assign, convey, transfer or deliver to Buyer any of Seller's right, title and interest in, to or under any of the assets listed below (the "Excluded Assets"): (1) cash or cash equivalents, whether on hand at the premises, in banks or in transit between accounts of Seller and whether or not relating to the WSB; (2) the bank accounts, deposit accounts or similar accounts of the WSB; (3) any and all policies of insurance or surety bonds of the WSB; (4) any and all notes receivable of the WSB, except those notes receivable related to the Contracts or Work Orders; (5) all receivables of Seller relating to the WSB outstanding as of the Closing Date; (6) all interest of Seller in and to all advance payments, prepayments, prepaid expenses, deposits and the like, that are recorded on the books and records of Seller as of the Closing Date and which were incurred by Seller solely with respect to the operation of the WSB; (7) any and all accruals as of the Closing Date for income taxes and deferred income taxes relating to the WSB; (8) any choses in action, claims or causes of action or rights of Seller to recovery or offset of any kind or character relating to the operation of the WSB prior to the Closing Date, except as such may arise with respect to the Contracts and the Work Orders; and (9) any of the assets of Seller relating to Seller's engineering and construction business other than the Purchased Construction Equipment, which assets are being conveyed to a third party in a separate transaction. ARTICLE III CLOSING Section 3.01. Closing. (a) Subject to the terms and conditions of this Agreement, the Closing with respect to all of the Assets except for the Vacuum Trucks (the "Closing") shall occur on September 15, 1998 (the "Closing Date") at 9:00 a.m.; provided, however, that if all of the conditions to Closing set forth in Articles VIII and IX have not been satisfied or waived by such date or any extended date for Closing, either party shall have the right to extend the date of Closing for successive periods of up to seven days each, or for such longer period as the parties may agree upon in writing, in either case until such conditions have been satisfied or waived or until this Agreement shall have been terminated pursuant to Section 12.01(a). (b) The Closing with respect to the Vacuum Trucks (the "Vacuum Truck Closing") shall occur within three (3) business days after notice from Buyer (which notice shall be delivered in a timely manner) of the receipt by Buyer of permits authorizing the operation of the Vacuum Trucks in the State of Colorado and states contiguous thereto; provided, however, that the Vacuum Truck Closing is expressly conditioned upon (i) the occurrence of the Closing, (ii) Seller's compliance with the covenants set forth in Article VI hereof with respect to the Vacuum Trucks and (iii) satisfaction or waiver of the conditions to the Vacuum Truck Closing set forth in Articles VIII and IX hereof. The date on which the Vacuum Truck Closing occurs is referred to herein as the "Vacuum Truck Closing Date". (c) The Closing and the Vacuum Truck Closing shall be held at the Tulsa office of Parent, or at such other location as may be mutually agreed upon by Seller and Buyer. Section 3.02. Closing Obligations. (a) At the Closing, the following events shall occur: (1) Seller and Buyer shall each execute, acknowledge and deliver to one another a Conveyance, Assignment and Bill of Sale in the form of Schedule 3.02(a)(1) whereby Seller shall convey the Assets (other than the Vacuum Trucks, which will be conveyed at the Vacuum Truck Closing) to Buyer; (2) Seller shall execute and deliver general warranty deeds in the form of Schedule 3.02(a)(2) whereby Seller shall convey the Real Property to Buyer; (3) Seller shall deliver to Buyer evidence of the amount owed to U.S. Fleet Leasing with respect to the Leased Vehicles, proof (in the form of a wire transfer confirmation) of the payment of such amount, and a payoff letter from U.S. Fleet Leasing confirming that upon payment of such amount it will endorse and convey certificates of title to the Leased Vehicles in the name of Buyer. Seller shall cause U.S. Fleet Leasing to deliver to Buyer certificates of title free of all Liens (as defined in Section 4.12) with respect to each of the Leased Vehicles within 10 business days of the Closing Date; (4) Seller, Parent and Buyer shall exchange the certificates described in Sections 8.03 and 9.04; (5) Seller, Parent and Buyer shall provide each other with a certified copy of the resolutions of their respective Boards of Directors (and, in the case of Seller, shareholder resolutions) authorizing the execution of this Agreement and the consummation of the transactions contemplated hereby in a form reasonably acceptable to the other party; (6) each of Seller, Parent and Buyer shall execute such other instruments and take such other action as may be necessary to carry out their respective obligations under this Agreement; and (7) Seller and Buyer shall provide each other with the legal opinion of their respective counsel in the form attached hereto as Schedule 8.07 and Schedule 9.05, respectively. (b) At the Vacuum Truck Closing, the following events shall occur: (1) Seller and Buyer shall each execute, acknowledge and deliver to one another a Conveyance and Bill of Sale in the form of Schedule 3.02(b)(1) whereby Seller shall convey the Vacuum Trucks to Buyer; and (2) Seller, Parent and Buyer shall exchange the certificates described in Sections 8.03 and 9.04. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT Each of Parent and Seller jointly and severally hereby represents and warrants to Buyer as of the date hereof as follows: Section 4.01. Organization and Qualification. Each of Parent and Seller is a corporation duly organized, validly existing and in good standing under the laws of Delaware and Oklahoma, respectively, and has the requisite corporate power to own, lease and operate its properties and, in the case of Seller, to carry on its business as now being conducted. Seller is qualified to do business and is in good standing in each jurisdiction in which the nature and conduct of its business requires it to be qualified to do business. Parent owns beneficially and of record all of the issued and outstanding shares of Seller's capital stock. Section 4.02. Authority, Approval and Enforceability. Each of Parent and Seller has all requisite corporate power and authority to execute and deliver this Agreement and all other instruments, agreements and other documents to be executed and delivered by Parent or Seller in connection herewith (the "Collateral Documents") and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Collateral Documents by Seller and Parent and the performance of the transactions contemplated hereby and thereby have been duly and validly authorized by all corporate action on the part of Seller and Parent. This Agreement constitutes the legal, valid and binding obligation of Seller and Parent, enforceable against Seller and Parent in accordance with its terms, except as enforceability may be affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and general principles of equity, whether in a proceeding in equity or at law. Section 4.03. No Violation or Consent. Except as set forth in Schedule 4.03, neither the execution and delivery of this Agreement, nor the effectuation by Seller or Parent of the transactions contemplated hereby (a) will violate any applicable statute or law, or any rule, regulation, order, writ, injunction or decree of any court or governmental authority, or (b) will violate or conflict with or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or will result in the termination of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the Assets under, any term or provision of (i) the Certificate of Incorporation or Bylaws of Seller or Parent or (ii) any lease, contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which Seller or Parent is a party or by which Seller, Parent or any of the Assets may be bound or affected. No filing with, or consent, approval, authorization or action by, any governmental authority is required in connection with the execution and delivery by Seller or Parent of this Agreement or the effectuation by Seller of the transactions contemplated hereby or thereby other than (A) those which if not made, obtained or taken would have no material adverse effect on the WSB or the Assets and (B) those that have been made, obtained or taken. Section 4.04. Material Contracts, Agreements, Plans and Commitments. Schedules 1.02(d) and 1.02(f) set forth a complete list of all Material Contracts and agreements and all open Material Work Orders to which Seller is a party or by which any of the Assets are bound that are in existence as of the date hereof and have been entered into by Seller in connection with the WSB. True and complete copies of the Material Contracts and Material Work Orders have been furnished by Seller to Buyer prior to the date hereof. Except as set forth on Schedule 4.04, Seller is not in default, nor but for the requirement that notice be given or that a period of time elapse or both, would be in default, under any of the Contracts or Work Orders, nor to the knowledge of Seller or Parent, is any other party to such Contracts or Work Orders in default thereunder. Section 4.05. Compliance with Law. Except as set forth in Schedule 4.05, Seller is in compliance with all legal requirements applicable to the ownership, use or operation of the Assets or the conduct of the WSB, including, without limitation, the Occupational Health and Safety Act and the Americans with Disabilities Act, other than environmental legal requirements (the compliance with which is governed by Section 4.07). Section 4.06. Litigation. Except as described in Schedule 4.06, there are no civil, criminal, administrative, arbitration, or other proceedings or governmental investigations pending or, to the knowledge of Seller or Parent, threatened, against Seller or its Affiliates that could materially adversely affect (a) any of the transactions contemplated by this Agreement or (b) the ownership, use, operation or value of the Assets or (c) the conduct of the WSB. Section 4.07. Environmental Matters. Except as set forth in Schedule 4.07: (a) The land and premises comprising the Real Property and all operations conducted thereon by Seller are in compliance in all material respects with all applicable Environmental Legal Requirements (defined below) and there are no Hazardous Materials (defined below) present on the Real Property, except for those Hazardous Materials that are used in the ordinary course of operating the Assets and the WSB or that do not require remedial action under applicable Environmental Legal Requirements. The term "Hazardous Materials" means any substance that is defined as hazardous or toxic under Environmental Legal Requirements or that is known, as of the date of this Agreement, to pose a threat or endangerment to human health, safety or the environment (including, without limitation, any asbestos, formaldehyde, radioactive substance, hydrocarbons, polychlorinated biphenyls, industrial solvents, flammables, explosives and any other hazardous substance, solid waste or toxic material). The term "Environmental Legal Requirements" means any and all laws, statutes, ordinances, rules, regulations, orders or legally enforceable requirements of any governmental authority pertaining to health or the environment in effect as of the date of this Agreement, including the Clean Air Act, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), the Federal Water Pollution Control Act, the Occupational Safety and Health Act of 1970, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Toxic Substances Control Act, the Hazardous Materials Transportation Act, and the Oil Pollution Act of 1990, all as amended through the date of this Agreement, and any state or local laws implementing the foregoing federal laws. (b) No Hazardous Materials have been disposed or otherwise released onto or under the Real Property by Seller or in connection with the ownership, use or operation of the Assets of the conduct of the WSB by Seller at any on-site or off-site location in quantities, concentrations or locations that require remedial action under any such Environmental Legal Requirements. (c) All permits, licenses or similar authorizations, if any, required to be obtained or filed by Seller under any Environmental Legal Requirements in connection with the Real Property, the operation of the Assets or the conduct of the WSB have been duly obtained, applied for or filed, and Seller is in compliance in all material respects with the terms and conditions of such permits, licenses and similar authorizations. (d) Neither Seller nor Parent has received any notice or other communication of any claims, notices, actions, suits, citations, summons, investigations or other demands or proceedings ("Claims") regarding the environmental condition of the Real Property or the Assets, and there exists no writ, injunction, decree, order or judgment outstanding, nor any pending or threatened claim, relating to any alleged or suspected violation of Environmental Legal Requirements arising out of the ownership, use or operation of the Assets, whether or not corrected to the satisfaction of the appropriate governmental entity. (e) To the knowledge of Seller or Parent, there has been no exposure of any person or property to Hazardous Materials on the Real Property or in connection with the Assets or the WSB that could reasonably be expected to result in a Claim for damages or compensation. (f) There are no underground storage tanks (as defined under Environmental Legal Requirements) located under any of the Real Property except for underground storage tanks that are in compliance with Environmental Legal Requirements and except for such underground storage tanks the presence of which would not have a material adverse effect on the WSB. Each underground storage tank previously located under the Real Property was removed in accordance with Environmental Legal Requirements in effect at the time of such removal. (g) There are no environmental conditions or circumstances, including the presence or release of any Hazardous Materials, on any property presently or previously owned, used or leased by Seller, which would result in a material adverse change in the Assets or the WSB or a Claim against Buyer following the Closing. Section 4.08. Taxes. With respect solely to the operation of the WSB: (a) all contributions due from Seller pursuant to any unemployment insurance or workers compensation laws and all sales or use taxes which are due or payable by Seller have been paid in full and will be so paid through the Closing Date; (b) Seller has withheld and paid to, or will cause to be paid to, the appropriate taxing authorities all amounts required to be withheld from the wages of the employees of the WSB under state law and the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code") (and Seller will continue to do so with respect to all wages paid by them prior to the Closing); and (c) Seller has timely paid, or will pay prior to the due date therefor, all taxes which, if not paid, could result in the imposition of a lien or encumbrance on the Assets (except for liens for taxes not yet due) or otherwise interfere with Buyer's ability to own and operate the Assets after the Closing. All taxes assessed against the Real Property for the period commencing January 1, 1998 will be prorated through the Closing Date (based on 1997 assessed values) with Seller paying to Buyer at Closing an amount equal to the portion of such taxes applicable to the period between January 1, 1998 and the Closing Date. Section 4.09. Insurance. Schedule 4.09 sets forth a list of all insurance policies, by which the Assets or the WSB, and any operations relating thereto, are covered against present losses or claims and which insurance provides coverage consistent with the past conduct of the WSB. Section 4.10. Labor and Employee Benefits. (a) Seller has not at any time had or been threatened with any work stoppages or other material labor disputes. (b) As to any "employee benefit plan," as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") sponsored or maintained by Seller within six years prior to the Closing Date ("Plan"), including without limitation (i) a multiemployer plan within the meaning of Section 3(37) of ERISA and (ii) a Plan subject to Title IV of ERISA, there has been no event or condition which presents the material risk of Plan termination, no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the Code has been incurred, no reportable event within the meaning of Section 4043 of ERISA (for which the disclosure requirements of Regulation ss2615.3 promulgated by the Pension Benefit Guaranty Corporation ("PBGC") have not been waived) has occurred, no notice of intent to terminate the Plan has been given under Section 4041 of ERISA, no proceeding has been instituted under Section 4042 of ERISA to terminate the Plan, no liability to the PBGC has been incurred, and the assets of the Plan equal or exceed the actuarial present value of the benefit liabilities, within the meaning of Section 4041 of ERISA, under the Plan, based upon reasonable actuarial assumptions and the asset valuation principles established by the PBGC. For purposes of this Section 4.10, the term "Seller" shall collectively refer to Seller and each other entity which is treated as a single employer with Seller under Section 414 of the Code. No employee benefit plan, program or arrangement of whatever nature, whether or not subject to any provisions of ERISA, bonus or other employee pay practice or leave policy maintained by Seller (a "Plan"), will by its terms or applicable law, become binding upon or an obligation, liability or responsibility of Buyer, financial or otherwise. Seller warrants that no Plan provides for payments of retiree benefits in any manner such that Buyer would become liable to make such payments. There have been no failures to offer or provide health care continuation coverage ("COBRA Coverage") under any employee welfare benefit plan sponsored or maintained by Seller which is required under Sections 601 through 608 of ERISA or applicable state law. (c) Seller does not maintain or contribute to any multiemployer plan within the meaning of Section 3(37) of ERISA. Section 4.11. Brokerage Agreements. Seller has not entered (directly or indirectly) into any agreement with any Person that provides for the payment of any commission, brokerage or "finder's fee" arising out of the transaction contemplated by this Agreement for which Buyer might have any liability or obligation. Section 4.12. Title to Property. Seller has good and marketable title to the personal and tangible property included in the Assets being acquired by Buyer under this Agreement, including, without limitation, the assets described in Sections 1.02(a), 1.02(b), 1.02(e), 1.02(i), 1.02(k) and 1.02(l), free and clear of all mortgages, pledges, liens, security interests, encumbrances or claims of any kind or nature (collectively, "Liens"), except (i) Liens for current taxes and assessments not yet due and payable, (ii) Liens in existence that do not materially detract from the value thereof or interfere with the present use of the property subject thereto and (iii) Liens set forth on Schedule 4.12 (collectively, "Permitted Liens"). Section 4.13. Absence of Certain Changes. Except as disclosed in Schedule 4.13 and except for changes, events or occurrences permitted by Section 6.01, since May 31, 1998, there has not been: (a) any material adverse change in the WSB, taken as a whole; (b) any damage, destruction or loss, whether covered by insurance or not, to the Assets that could have a material adverse effect on the WSB, taken as a whole; (c) any waiver by Seller of any rights under the Contracts or Leases that, singularly or in the aggregate, are material to the WSB, taken as a whole; or (d) any intention, contract, agreement or commitment on the part of Seller or any of its Affiliates to do any of the foregoing. Section 4.14. Permits. To Seller's and Parent's knowledge, there are no other permits not listed on Schedule 1.02(g) that are material to the operation and use of the Assets or the conduct of the WSB as currently conducted. Each of the Permits and Seller's rights with respect thereto is valid and subsisting, in full force and effect, and enforceable by Seller and Seller is in compliance in all material respects with the terms of each of the Permits. To Seller's and Parent's knowledge, no proceeding is pending or threatened which seeks to repeal or limit any of the Permits, and to Seller's and Parent's knowledge, no suspension or cancellation of any Permit is threatened. Section 4.15. Employees. Set forth in Schedule 4.15 is an accurate list of the employees of the WSB, which list shall include their duties and/or job titles, current salaries and other compensation, date of employment, date of last salary increase, the number of accrued but unused vacation days to which such employees will be entitled as of the Closing Date and an indication by the name of any employee employed in connection with the operation of the Vacuum Trucks (such employees being referred to herein as the "Vacuum Truck Employees"). Except as set forth on Schedule 4.15, no employee of Seller has an employment agreement or understanding with Seller which is not terminable on notice by Seller without cost or other liability to Seller. Section 4.16. Customers. Set forth in Schedule 4.16 is an accurate list of all customers of the WSB that constituted 5% or more of the revenues of the WSB for the fiscal year ended May 31, 1998, including the amount of billings made by the WSB to such customers during such periods. Seller has not received written notice that any customer of the WSB intends to cease doing business with Buyer (or its successors) as a result of the consummation of the transactions contemplated hereby. Section 4.17. No Arrangements with Respect to Assets. There are no existing agreements, options, commitments or rights that have been provided to any person or entity to acquire any of the Assets to be acquired by Buyer, except for those contracts entered into in the normal course of business consistent with past practices with respect to the sale of inventory of the business. Section 4.18. Limitation of Representations and Warranties. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE SCHEDULES AND EXHIBITS HERETO AND ALL OTHER DOCUMENTS EXECUTED BY PARENT OR SELLER IN CONNECTION HEREWITH, SELLER MAKES NO REPRESENTATION OR WARRANTY, AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WHICH RELATES TO THE RIGS, THE EQUIPMENT AND ROLLING STOCK, THE VACUUM TRUCKS, THE INVENTORY OR THE FIXTURES AND IMPROVEMENTS, INCLUDING ANY WARRANTY OF MERCHANTABILITY, VALUE, REPAIR, SUITABILITY OR FITNESS FOR A PARTICULAR USE, OR QUALITY, OR AS TO THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT THE RIGS, THE EQUIPMENT AND ROLLING STOCK, THE VACUUM TRUCKS, THE INVENTORY AND THE FIXTURES AND IMPROVEMENTS ARE BEING TRANSFERRED HEREUNDER "AS IS AND WHERE IS" WITH ALL FAULTS AND IN THEIR PRESENT STATE AND CONDITION. BUYER ACKNOWLEDGES THAT IT HAS EXAMINED AND MADE ITS OWN INDEPENDENT INVESTIGATION AS IT RELATES TO THE RIGS, THE EQUIPMENT AND ROLLING STOCK, THE VACUUM TRUCKS, THE INVENTORY AND THE FIXTURES AND IMPROVEMENTS AND, AS IT RELATES TO SUCH ASSETS, HAS NOT RELIED ON ANY STATEMENTS OF ANY SELLER, OFFICER OR REPRESENTATIVE AS TO VALUES, OR CONDITION OR APPRAISALS OF, OR REPRESENTATIONS OR WARRANTIES (OTHER THAN AS SET FORTH IN THIS AGREEMENT, THE SCHEDULES AND EXHIBITS HERETO AND ALL OTHER DOCUMENTS EXECUTED BY PARENT OR SELLER IN CONNECTION HEREWITH). NOTHING IN THIS SECTION 4.18 SHALL BE CONSTRUED TO IN ANY WAY DETRACT FROM THE REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT IN SECTION 4.12, 4.13 OR 4.17. Section 4.19. Absence of Certain Businesses Practices. Neither Seller, nor any officer, employee or agent of Seller, or any other person acting on behalf of Seller, has, within the past five years, given or agreed to give any gift or similar benefit (the fair market value of which exceeded $10,000) to any customer, supplier, government employee or other person, for purposes of influencing such person's judgment or decision, who is in a position to help or hinder the profitable conduct of the WSB or 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, would have had a material adverse effect on the profitable conduct of the WSB or the profitable use of the Assets, or if not continued in the future, would have a material adverse effect on the profitable conduct of the WSB or the profitable use of the Assets. Section 4.20. Solvency. Seller is not presently insolvent, nor will Seller be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. The term "insolvent," with respect to Seller, 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. Section 4.21. Real Property. (a) All of the real property owned by Seller in connection with the WSB is described on Schedule 1.02(c). Seller has and will convey to Buyer good and indefeasible title to the Real Property free and clear of any and all Liens. (b) The Real Property does not violate any material provisions of any applicable building code, fire, health or safety regulations, or other governmental ordinances, orders or regulations. No condition exists with respect to the Real Property which would prevent, or require repair or modification thereof as a prerequisite to Buyer using the Real Property in the conduct of the WSB. (c) The zoning classification of the Real Property is such that the Real Property may be used as currently used in the WSB. (d) There are no parties in possession of any portion of the Real Property as lessees, tenants, at sufferance or trespassers. (e) There is no pending or threatened condemnation or similar proceeding or assessment affecting the Real Property, or any part thereof, nor is any such proceeding or assessment contemplated by any governmental body or entity. (f) Seller has complied in all material respects with all applicable laws, ordinances, regulations, statutes, rules and restrictions relating to the Real Property, or any part thereof. (g) There are water, sewer, and electricity lines to the Real Property presently sufficient for the conduct of the WSB in the ordinary course of business. (h) The Real Property has full and free access to and from public highways, streets or roads and, to the best of Seller's knowledge, there is no pending or threatened proceeding by any governmental entity which would impair or result in the termination of such access. Section 4.22. Intellectual Property. No intellectual property is necessary to the conduct of the WSB as presently conducted. Neither Seller nor Parent has received notice of any claim for infringement or interference or other conflict by Seller with the asserted rights of others with respect with any intellectual property. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as of the date hereof as follows: Section 5.01. Formation and Existence. Buyer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power to own, lease and operate its properties and to carry on its business as now being conducted. Section 5.02. Authorization of Agreement; No Violation; No Consents. (a) Buyer has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. The execution and delivery of this Agreement by Buyer and the performance of the transactions contemplated hereby by Buyer have been duly and validly authorized by all corporate action on the part of Buyer. This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforceability may be affected by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general principles of equity, whether in a proceeding in equity or at law. (b) Neither the execution and delivery of this Agreement nor the effectuation by Buyer of the transactions contemplated hereby (a) will violate any statute or law, or any rule, regulation, order, writ, injunction or decree of any court or governmental authority, or (b) will violate or conflict with or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or will result in the termination of, or accelerate the performance required by, any term or provision of (i) the Amended and Restated Articles of Incorporation, Bylaws or other constituent documents of Buyer or (ii) any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which Buyer is a party or by which Buyer or any of its assets or properties may be bound or affected. No filing with, or consent, approval, authorization or action by, any governmental authority is required in connection with the execution and delivery by Buyer of this Agreement or the effectuation by Buyer of the transactions contemplated hereby or thereby other than (A) those which if not made, obtained or taken would have no material adverse effect and (B) those that have been made, obtained or taken. Section 5.03. Litigation. There are no civil, criminal, administrative, arbitration or other proceedings or governmental investigations pending, or, to the knowledge of Buyer, threatened against Buyer that could jeopardize or adversely affect any of the transactions contemplated by this Agreement. Section 5.04. Brokerage Agreements. Buyer has not entered (directly or indirectly) into any agreement with any person that provides for the payment of any commission, brokerage or "finder's fee" arising out of the transactions contemplated by this Agreement for which Seller might have any liability or obligation. ARTICLE VI COVENANTS OF SELLER Section 6.01. Conduct of Seller Pending the Closing and the Vacuum Truck Closing. Except as otherwise required by, or agreed in, this Agreement, from and after the execution of this Agreement and until the Closing, or, in the case of the Vacuum Trucks, until the Vacuum Truck Closing, Seller agrees to: (a) maintain all Assets in such manner that at the Closing, or, in the case of the Vacuum Trucks, at the Vacuum Truck Closing, they will be in substantially the same condition and repair as on the date of the execution of the Agreement, subject only to ordinary wear and tear; (b) except in the ordinary course of business, not (i) enter into any (A) Contracts, Work Orders or other agreements relating to the WSB or (B) other agreements relating to the WSB for consideration in excess of $25,000, or (ii) make any sales, assignments, trades or transfers of or encumber all or any part of the Assets; (c) use reasonable efforts to continue to employ the present employees engaged in the operation of the WSB and preserve the present business organization and customer relations of the WSB; provided, however, that Seller (i) may hire or fire employees in the ordinary course of business, consistent with past practices, (ii) may terminate any contract which is not included in the Assets and (iii) shall not be required to make any expenditures out of the ordinary course of business in order to comply with the covenants set forth in this Section 6.01(c); provided, further, that this paragraph shall not apply to the WSB employees not being retained by Buyer as contemplated by this Agreement; (d) in a timely manner make all payments due under and otherwise perform in all material respects all its other obligations under the Contracts, the Work Orders and other agreements relating to the WSB in accordance with their respective terms and not cancel, amend, modify, abandon, extend or renew any of the same, or permit any of the same to lapse (except in accordance with their terms); (e) maintain in full force and effect all of the insurance set forth on Schedule 4.09; (f) comply in all material respects with and fulfill its obligations and responsibilities under all legal requirements applicable to the Assets or their ownership, use or operation, including, but not limited to, preparation and submittal of any and all reports required by any governmental entities in connection therewith; (g) promptly notify Buyer of any actions, claims or proceedings commenced or, to the knowledge of Seller, threatened against Seller or Parent that affects the WSB or any of the Assets after the date of this Agreement; (h) 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, preserve intact its present business organization, keep available the services of its present officers and employees, and preserve its relationship with customer, suppliers, jobbers, distributors and others having business dealing with it; (i) maintain its books of account and records in the usual, regular, and ordinary manner, in accordance with its customary accounting principles applied on a consistent basis; (j) not amend its charter documents, or merge or consolidate with or into any person, change in any manner the rights of its capital stock or the character of its business; (k) 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 its capital stock, or subdivide or in any way reclassify any shares of its capital stock, or acquire, or agree to acquire, any shares of its capital stock; (l) not declare any dividend on shares of its capital stock or make any other non-cash distribution of assets to the holders thereof; (m) promptly notify Buyer in writing of any event or condition which could reasonably be expected to have a material adverse effect on the Assets or the WSB (a "Material Adverse Event"); and (n) 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 "Acquired Proposal" means any proposal for a merger, consolidation or other business combination involving Seller or for the acquisition or purchase of any equity interest in, or a material portion of the assets of, Seller, other than the transactions with Buyer contemplated by this Agreement. Seller shall promptly communicate to Buyer the terms of any such written Acquisition Proposals which they may receive or any written inquiries made to them or any of their respective directors, officers, representatives or agents. Section 6.02. Employees. As soon as reasonably administratively practicable after the Closing, Seller agrees to pay or otherwise provide for payment of all amounts due and payable to the Transferred Employees (as defined in Section 11.02(a)) as of such date and through the Closing, including salaries, wages, commissions and bonuses due and arising out of their employment with Seller, except with respect to any obligations expressly assumed by Buyer as set forth in Section 2.05(a)(3) hereof. As soon as reasonably administratively practicable after the Vacuum Truck Closing, Seller agrees to pay or otherwise provide for payment of all amounts due and payable to the Vacuum Truck Transferred Employees (as defined in Section 11.02(a)) as of such date and through the Closing, including salaries, wages, commissions and bonuses due and arising out of their employment with Seller, except with respect to any obligations expressly assumed by Buyer as set forth in Section 2.05(a)(3) hereof. Section 6.03. Access. Seller will give to Buyer and its representatives and agents, after reasonable advance notice to Seller, and as often as Buyer may reasonably request, full and complete access to the Assets and the WSB, including, without limitation, such of Seller's assets, books, agreements, papers and records, employees and financial statements pertaining to the Assets or the WSB, and Seller will cause its officers, employees, agents, advisors and other representatives to cooperate fully with Buyer's officers, employees and other representatives in the course of such obligation. Section 6.04. Consents. Seller will use all commercially reasonable efforts to satisfy or cause to be satisfied all of the conditions to Closing set forth in Article VIII hereof, including obtaining, prior to the Closing, all consents necessary to the effectuation of the transactions contemplated hereby. All such consents will be in writing and executed counterparts thereof will be delivered to Buyer promptly after receipt by Seller thereof, but in no event later than immediately prior to the Closing. Section 6.05. Additional Action to Assure Transfers. Nothing in this Agreement shall be construed to assign any Contract that is by its terms or by law nonassignable without the consent of the other party or parties thereto, unless such consent shall have been given, or as to which all the remedies for the enforcement thereof enjoyed by Seller would not, as a matter of law pass to Buyer as an incident of the assignments provided for by this Agreement. In order, however, to provide Buyer the full realization and value of the Contracts, Seller, at and after the Closing, will, at the request and under the direction of Buyer and in the name of Seller or otherwise as Buyer shall specify, take or cause to be taken all such action and do or cause to be done all such things as shall be necessary or proper to (a) assure that the rights of Seller under the Contracts shall be preserved for the benefit of Buyer, and (b) facilitate receipt by Buyer of the consideration to which Seller would otherwise be entitled in and under the Contracts which consideration shall be held for the benefit of, and shall be delivered to, Buyer. In order to accomplish the foregoing, Seller may designate Buyer as subcontractor (under mutually agreeable terms and conditions) to perform obligations of Seller under the Contracts if so requested by Buyer. ARTICLE VII COVENANTS OF BUYER Section 7.01. Cooperation. Buyer acknowledges that Seller may have continuing obligations on certain matters relating to the WSB after the Closing. Accordingly, Buyer agrees to grant to Seller and its representatives access during normal business hours to such books and records as may be necessary for the defense and/or disposition of such other matters that Seller may be obligated to perform relating to the WSB, and to furnish such additional information as Seller or its representatives may reasonably request. Section 7.02. Post-Closing Employment. After the Closing Date, Buyer agrees to provide employee benefits to the Transferred Employees through one of its wholly owned subsidiaries that are, in all material respects, no less favorable to such transferred employees than the employee benefits provided to similarly situated employees of Buyer located in the same geographic region under employee benefit plans sponsored by Buyer; provided that such Transferred Employees will be subject to the terms and conditions of the applicable employee benefit plan, subject, in all cases, to the provisions of this Section 7.02. After the Vacuum Truck Closing Date, Buyer agrees to provide employee benefits to the Vacuum Truck Transferred Employees that are, in all material respects, no less favorable to such transferred employees than the employee benefits provided to similarly situated employees of Buyer located in the same geographic region under employee benefit plans sponsored by Buyer; provided that such Vacuum Truck Transferred Employees will be subject to the terms and conditions of the applicable employee benefit plan, subject, in all cases, to the provisions of this Section 7.02. Further, Buyer shall (i) provide the Transferred Employees and the Vacuum Truck Transferred Employees and their eligible dependents as of the Closing Date or the Vacuum Truck Closing Date, as the case may be, with coverage in a group medical and dental plan maintained by Buyer, (ii) waive any preexisting condition limitations applicable to the Transferred Employees or the Vacuum Truck Transferred Employees under Buyer's group medical plan to the extent that a Transferred Employee's or a Vacuum Truck Transferred Employee's condition would not have operated as a preexisting condition limitation under Seller's group medical plan, (iii) cause any employee pension benefit plan (as such term is defined in Section 3(2) of ERISA) which is intended to be qualified under Section 401 of the Code to be amended to provide that the Transferred Employees and the Vacuum Truck Transferred Employees shall receive credit for participation and vesting purposes under such plan for their period of continuous employment with Seller and its predecessors to the extent such predecessor employment was recognized by Seller, and (iv) credit the Transferred Employees and the Vacuum Truck Transferred Employees under each other employee benefit plan or policy of Buyer for their period of continuous employment with Seller or its predecessors to the extent such predecessor employment was recognized by Seller. Section 7.03. Performance of Obligations. Buyer agrees to perform all obligations under the Contracts and Work Orders for all periods following the Closing Date as such obligations become due, except to the extent that such obligations arise solely from a breach or default by Seller under the Contracts or Work Orders prior to the Closing Date. Section 7.04. Consents. Buyer will use all commercially reasonable efforts to satisfy or cause to be satisfied all of the conditions to Closing set forth in Article IX hereof, including obtaining, prior to the Closing, all consents necessary to the effectuation of the transactions contemplated hereby. All such consents will be in writing and executed counterparts thereof will be delivered to Seller promptly after receipt by Buyer thereof, but in no event later than immediately prior to the Closing. ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS Except as may be waived by Buyer, the obligations of Buyer are subject to the fulfillment, prior to or at the Closing, or, where specifically identified, the Vacuum Truck Closing, of each of the following conditions: Section 8.01. Representations and Warranties. The representations and warranties made by Seller and Parent in this Agreement shall have been true, correct and accurate, in all material respects, when made and shall be true, correct and accurate, in all material respects, at and as of the Closing, with the same force and effect as if such representations and warranties were made at and as of the Closing, and the representations and warranties made by Seller and Parent in Sections 4.01, 4.02, 4.03, 4.05, 4.10, 4.12, 4.17, 4.18 and 4.19 of this Agreement, insofar as, and only to the extent that, they relate to the ownership or operation of the Vacuum Trucks, shall be true, correct and accurate, in all material respects, at and as of the Vacuum Truck Closing, with the same force and effect as if such representations and warranties were made at and as of the Vacuum Truck Closing. Section 8.02. Performance. Seller and Parent shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with prior to or at the Closing, and Seller and Parent shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with prior to or at the Vacuum Truck Closing. Section 8.03. Officer's Certificate. Seller and Parent shall deliver to Buyer at the Closing certificates, attesting to the truth, accuracy and correctness of such representations and warranties and to Seller's and Parent's compliance and conformity with such covenants and conditions in a form reasonably satisfactory to Buyer, and Seller and Parent shall deliver to Buyer at the Vacuum Truck Closing certificates, attesting to the truth, accuracy and correctness of the representations and warranties contained in Sections 4.01, 4.02, 4.03, 4.05, 4.10, 4.12, 4.17, 4.18 and 4.19 of this Agreement to the extent they relate to the ownership or operation of the Vacuum Trucks and to Seller's and Parent's compliance and conformity with such covenants and conditions in a form reasonably satisfactory to Buyer. Section 8.04. Conveyance of Documents. At the Closing, Seller shall have executed and delivered to Buyer the necessary instruments and documents to vest in Buyer all right, title and interest to the Assets (other than the Vacuum Trucks), including those documents described in Section 3.02(a) hereof. At the Vacuum Truck Closing, Seller shall have executed and delivered to Buyer the necessary instruments and documents to vest in Buyer all right, title and interest to the Vacuum Trucks, including those documents described in Section 3.02(b) hereof. Section 8.05. Litigation. (a) With respect to the Closing or the Vacuum Truck Closing, as the case may be, there shall be no litigation, inquiry or proceeding pending or imminent in or by any court, tribunal or any governmental agency or authority including, without limitation, the entry of a preliminary or permanent injunction that (i) prevents or delays the performance by Seller or Buyer of its obligations hereunder, or (ii) would impose any material limitation on the ability of Seller effectively to convey full rights of ownership to (A) the Assets (other than the Vacuum Trucks) to Buyer as of the Closing or (B) the Vacuum Trucks to Buyer as of the Vacuum Truck Closing Date. (b) With respect to the Closing and the Vacuum Truck Closing, no action, suit or proceeding before any court, tribunal or any governmental agency or authority shall be pending against Seller or Buyer challenging the validity or legality of the transactions contemplated by this Agreement. Section 8.06. Third-Party Consents. All consents required to be obtained in connection with the assignment by Seller to Buyer of the Assets (other than the Vacuum Trucks) at the Closing, or the Vacuum Trucks at the Vacuum Truck Closing, shall have been received and delivered to Buyer. Section 8.07. Opinion of Counsel. Buyer shall have received an opinion, dated the Closing Date, from Doerner, Saunders, Daniel & Anderson, L.L.P., counsel to Seller and Parent, in the form attached hereto as Schedule 8.07. Section 8.08. Environmental Matters. (a) Seller will have caused to be conducted a Phase I Environmental Site Assessment (a "Phase I") (including any updates as are, in the judgment of Buyer, necessary; provided that such updates shall be at Buyer's sole expense), and if deemed necessary by Buyer, at Buyer's sole expense, a Phase II Environmental Site Assessment (a "Phase II"), on all of the Real Property, both of which shall be conducted in conformance with the scope and limitations of ASTM Standard Practice E1527 (except for the survey requirements included therein) by an environmental surveyor approved by Buyer. Buyer will be satisfied, in its reasonable judgment, that either (x) the results of such Phase I's and, if necessary, such Phase II's have revealed no environmental condition except for Permitted Conditions (as defined below) that would result in any liability or obligation on the part of Buyer or would, except for any Permitted Conditions, adversely affect or reduce the value of the Real Property, or (y) any such conditions have been cured or appropriate agreements shall be in place to provide for such a cure. As used herein, the term "Permitted Conditions" means any environmental conditions on the Real Property that would (i) result in liabilities or obligations routinely incurred in connection with the ordinary operation of the business or (ii) adversely affect or reduce the value of the Real Property, in the case of clauses (i) and (ii) above, by no more that $10,000 in the aggregate. If neither of the conditions set forth in clauses (x) and (y) above can be met with respect to any tract of Real Property, Seller shall have the option to exclude such tract of Real Property from the Assets and the Purchase Price shall be reduced by the value of such excluded tract or tracts (as agreed to in good faith by Seller and Buyer). (b) If all environmental conditions on the Liberty, Texas tract of Real Property (the "Liberty Property") have not been Remediated (as defined below) as of the Closing, Buyer shall have the right to withhold $25,000 from the Purchase Price. Buyer shall have no obligation to pay such amount to Seller until all environmental conditions on the Liberty Property are Remediated. Once the Liberty Property has been Remediated, Buyer will deliver to Seller the entire amount withheld by Buyer at the Closing without interest thereon. As used herein, the term "Remediated" means the receipt by Buyer of a Phase I on the Liberty Property which, in Buyer's reasonable judgment, demonstrates that, except for Permitted Conditions, no environmental conditions exist that would (i) result in any liability or obligation on the part of Buyer or (ii) materially adversely affect or reduce the value of the Liberty Property. Section 8.09. Real Estate Matters. Buyer shall have obtained, at its sole expense, a commitment to issue an owner's title policy insuring that Buyer will own, upon the Closing, fee simple title to the Real Property subject to no exceptions other than those encumbrances reasonably acceptable to Buyer. ARTICLE IX CONDITIONS TO SELLER'S OBLIGATIONS Except as may be waived by Seller, the obligations of Seller under this Agreement are subject to the fulfillment, prior to or at the Closing, or, where specifically identified, the Vacuum Truck Closing, of each of the following conditions: Section 9.01. Representations and Warranties. The representations and warranties made by Buyer in this Agreement shall have been true, correct and accurate in all material respects when made and shall be true, correct and accurate in all material respects at and as of the Closing, and the representations and warranties made by Buyer in Sections 5.01 and 5.02 of this Agreement shall be true, correct and accurate in all material respects at and as of the Vacuum Truck Closing. Section 9.02. Performance. Buyer shall have performed and complied with in all material respects all covenants and conditions required by this Agreement to be performed or complied with prior to or at the Closing, and Buyer shall have performed and complied with in all material respects all covenants and conditions required by this Agreement to be performed or complied with prior to or at the Vacuum Truck Closing. Section 9.03. Payment of Purchase Price. At the Closing, or in the case of the Vacuum Trucks, the Vacuum Truck Closing, Buyer shall have delivered to the parties referred to therein the amounts payable pursuant to and in the manner set forth in Article II of this Agreement. Section 9.04. Officer's Certificate. Buyer shall deliver to Seller at the Closing a certificate, attesting to the truth, accuracy and correctness of such representations and warranties and to Buyer's compliance and conformity with such covenants and conditions, and Buyer shall deliver to Seller at the Vacuum Truck Closing a certificate, attesting to the truth, accuracy and correctness of the representations and warranties contained in Section 5.01 and 5.02 of this Agreement and to Buyer's compliance and conformity with such covenants and conditions. Section 9.05. Opinion of Counsel. Seller shall have received an opinion, dated the Closing Date, from Jack D. Loftis, Jr., General Counsel of Buyer, in the form attached hereto as Schedule 9.05. ARTICLE X SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS Section 10.01. Survival of Representations. The representations and warranties in this Agreement and in any certificate delivered pursuant hereto shall, notwithstanding any investigation made by or on behalf of the parties hereto, survive the Closing solely for purposes of this Article X and shall terminate at the close of business one year after the Closing Date; provided, however, that (i) the representations and warranties contained in Section 4.07 shall survive the Closing and shall terminate at the close of business two years after the Closing Date, (ii) the representations and warranties contained in Sections 4.02, 4.12, 4.17 and 4.20 shall survive the Closing and shall terminate at the close of business four years after the Closing Date and (iii) the representations and warranties contained in Section 4.08 shall survive the Closing and shall terminate upon the expiration of the applicable statute of limitations period therefor. Section 10.02. Agreement to Indemnify Buyer. Seller and Parent shall, jointly and severally indemnify, defend and hold harmless Buyer and any of its officers, directors, shareholders, affiliates, representatives or agents (the "Buyer Group") from and against all losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred by Buyer, the Buyer Group or any member thereof, directly or indirectly, by reason of or resulting from (a) a breach or inaccuracy of any representation or warranty of Seller or Parent contained in or made pursuant to this Agreement; (b) any failure to perform any covenant or obligation required to be performed by Seller or Parent under this Agreement; or (c) the Unassumed Obligations. Buyer agrees to give Seller prompt notice of any action or proceedings to which they or any of the Buyer Group believe they have a right of indemnification hereunder, and failure to give such notice shall be a breach of this Section 10.02; provided, however, that the failure to provide notice promptly to Seller shall not release Seller from any liability that they may have to Buyer or the Buyer Group, except to the extent that the failure to give prompt notice materially prejudices Seller's ability to defend any such actions or proceedings. If any action or proceeding shall be brought against Buyer or the Buyer Group, and Seller shall be notified or otherwise learn of the commencement thereof, then Seller shall have the right to participate in, and, to the extent that it may wish, to assume the defense thereof, and after notice of its election to assume the defense thereof, Seller will not be liable to Buyer or the Buyer Group for any further legal or other expenses incurred by Buyer or the Buyer Group in connection with any such action or proceeding. Buyer may participate actively, at its expense, after notice of assumption of defense has been given by Seller, in any negotiations, lawsuit or other resolution of such claim. Buyer shall have the right to approve any out-of-court settlement if it would divest Buyer of any Asset or otherwise materially affect the WSB acquired by Buyer; provided that such approval shall not be unreasonably withheld. Section 10.03. Agreement to Indemnify Seller. Buyer hereby agrees to indemnify, defend and hold harmless Seller and any of its respective officers, directors, shareholders or Affiliates (the "Seller Group") from and against all losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred by Seller, the Seller Group or any member thereof, directly or indirectly, by reason of or resulting from (a) a breach or inaccuracy of any material representation or warranty of Buyer contained in or made pursuant to this Agreement; (b) any failure to perform any covenant or obligation required to be performed by Buyer under this Agreement; or (c) any claims or damages relating to the Assumed Obligations set forth in Section 2.05. Seller agrees to give Buyer prompt notice of any action or proceeding to which it or any of the Seller Group believes they have a right of indemnification hereunder, and failure to give such notice shall be a breach of this Section 10.03; provided, however, that the failure to provide notice promptly to Buyer shall not release Buyer from any liability that Buyer may have to Seller or the Seller Group, except to the extent that the failure to give prompt notice materially prejudices Buyer's ability to defend any such actions or proceedings. If any action or proceeding shall be brought against Seller or the Seller Group, and Buyer shall be notified or otherwise learn of the commencement thereof, then Buyer shall have the right to participate in, and, to the extent that they may wish, to assume the defense thereof, and after notice of its election to assume the defense thereof, Buyer will not be liable to Seller or the Seller Group for any further legal or other expenses incurred by Seller or the Seller Group in connection with any such action or proceeding. Seller may participate actively, at its expense, after notice of assumption of defense has been given by Buyer, in any negotiations, lawsuit or other resolution of such claim. Section 10.04. Additional Agreements Concerning Indemnification. Buyer and Seller and Parent agree that if either of them or the Buyer Group or the Seller Group, respectively, becomes entitled to indemnification under this Agreement (the "Indemnified Party"), they shall cooperate with the party obligated to provide such indemnification (the "Indemnifying Party") and permit the Indemnifying Party reasonable access to the Indemnified Party's books, records, facilities and employees for the purpose of permitting the Indemnifying Party to perform its obligations under this Article X. Section 10.05. Minimum and Maximum Amounts. Notwithstanding anything to the contrary in Article X hereof, (i) the Indemnifying Party shall not be required to make any payment pursuant to the terms hereof or otherwise in connection with any claims, demands, actions, losses, expenses or other liability incurred by the Indemnifying Party in connection with or arising out of this Agreement ("Liabilities") until the aggregate amount of all Liabilities exceeds on a cumulative basis Three Hundred Thousand Dollars ($300,000) (and then only to the extent of the excess), and (ii) except as provided, in the following sentence, the maximum amount that an Indemnifying Party shall be required to pay to the Indemnified Party or anyone claiming by, through or under them, with respect to Liabilities, shall be One Million Five Hundred Thousand Dollars ($1,500,000) (the "Maximum Amount"). The limitations set forth in this Section 10.05 with respect to the Maximum Amount shall not apply (i) to Liabilities arising out of the breach of representations and warranties contained in Sections 4.02, 4.11, 4.12, 4.17, 4.20, 5.02 and 5.04, (ii) to Liabilities arising out of any matter subject to indemnification pursuant to clause (c) of Section 10.02 or clause (c) of Section 10.03 or (iii) to Liabilities arising out of the breach of the covenant contained in Section 11.04. For purposes of the indemnification obligations set forth in this Section 10.05, all representations, warranties and covenants set forth in this Agreement shall be assumed to be free of qualifications with respect to materiality. Section 10.06. Exclusive Remedy. Subsequent to Closing, the provisions of this Article X shall provide the exclusive monetary, but not injunctive, remedy of the parties for any breach of this Agreement. ARTICLE XI ADDITIONAL AGREEMENTS OF THE PARTIES Section 11.01. Public Announcements. Buyer and Seller shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation. Section 11.02. Employees. (a) Buyer shall through one of its wholly owned subsidiaries employ (i) all employees of Seller who (A) have been engaged directly in the WSB (except for the operations relating to the Vacuum Trucks), including rig crews and supervisors and certain administrative personnel, (B) are listed on Schedule 4.15, (C) are in active service on the Closing Date and not on leave of absence for any health or non-health related reason or confined in any health care facility, and (D) pass a drug test and/or the physical exam, which, to the extent applicable, will be administered by Buyer or its subsidiaries prior to the Closing, other than those listed on Schedule 11.02 (the"Transferred Employees") and (ii) all Vacuum Truck Employees who pass the drug test and/or the physical exam, which, to the extent applicable, will be administered by Buyer or its subsidiaries prior to the Closing, other than those listed on Schedule 11.02 (the "Vacuum Truck Transferred Employees"). Seller shall remain solely responsible for those employees that are listed on Schedule 11.02 and Buyer shall have no responsibility therefor, including responsibility for severance or other benefits for such employees. Seller shall provide eligible employees (and dependants thereof) with COBRA Coverage upon their termination of employment with Seller according to the applicable requirements of ERISA and the Code and any applicable state law. Seller will retain liability for all workers' compensation claims for work-related injuries occurring prior to the Closing Date, or, with respect to the Vacuum Truck Transferred Employees, the Vacuum Truck Closing Date. (b) As soon as administratively practicable following the Closing Date, or, with respect to the Vacuum Truck Transferred Employees, the Vacuum Truck Closing Date, Seller shall cause to be transferred from the trustee of the Flint Companies Hourly Savings Plus Plan and from the trustee of the Flint Engineering & Construction Co. Savings Plus Plan (collectively, the "Seller Plan") to the trustee of the Key Energy Group, Inc. 401(k) Savings and Retirement Plan ("Buyer's 401(k) Plan") an amount in cash equal to the aggregate account balances of the Transferred Employees and the Vacuum Truck Transferred Employees who transfer to employment with Buyer under the Seller Plan determined as of the transfer date (which shall be a valuation date) in accordance with the methods of valuation as set forth in the Seller Plan; provided, however, that to the extent any Transferred Employee or any Vacuum Truck Transferred Employee owes any amount to the Seller Plan pursuant to the terms of a loan from such plan to such Transferred Employee or Vacuum Truck Transferred Employee, as the case may be, an in-kind transfer of such loan shall be made in lieu of the transfer of cash. From and after the date of such transfer, Buyer shall cause Buyer's 401(k) Plan to assume the obligations of the Seller Plan with respect to benefits accrued by the Transferred Employees and the Vacuum Truck Transferred Employees under the Seller Plan, and the Seller Plan shall cease to be responsible therefor. Buyer and Seller shall cooperate in making all appropriate arrangements and filings, if any, in connection with the transfer described above. Further, Buyer and Seller shall cooperate and take such actions as are necessary to permit the continuation of loan repayments by Transferred Employees and Vacuum Truck Transferred Employees to the Seller Plan by payroll deductions during the period beginning on the Closing Date, or in the case of the Vacuum Truck Transferred Employees, the Vacuum Truck Closing Date, and ending on the date of the transfer described in this Subsection. Seller represents, covenants and agrees with respect to the Seller Plan, and Buyer represents, covenants and agrees with respect to Buyer's 401(k) Plan, that, as of the date of the transfer described in this paragraph, such plan will satisfy the requirements of Sections 401(a), (k), and (m) of the Code. Buyer and Seller agree to enter into a "spin-off agreement" to record and effectuate the transfer of plan assets from the Seller Plan trust to Buyer's 401(k) Plan trust for the benefit of the Transferred Employees, the Vacuum Truck Transferred Employees and their respective beneficiaries. (c) Effective as of the Closing, Buyer assumes, and Seller shall have no further responsibility for, any accrued but unused vacation liabilities that are set forth on Schedule 4.15 as of the Closing Date. Buyer agrees that employees of the WSB shall be entitled to use such vacation in accordance with the vacation policy currently in effect as of the Closing Date. Section 11.03. Non-Solicitation. For a period of one year from the date of Closing, neither Seller nor any of its directors will directly or indirectly solicit, or attempt to solicit, for employment any Transferred Employee or any Vacuum Truck Transferred Employee. Section 11.04. Covenant Not to Compete. Seller and Parent covenant and agree that, for a period of three years from the date of Closing (the "Noncompete Term"), neither they nor any of their subsidiaries will, directly or indirectly, (i) engage in the WSB acquired by Buyer within the states of Utah, Texas, Oklahoma, Colorado, Kansas, North Dakota, New Mexico or Montana (the "Restricted Territory") or (ii) own any interest in any person, corporation, partnership, proprietorship or other business organization or association (whether as stockholder, agent, independent contractor, consultant, representative, partner, lender (other than through a passive, non-control investment in an entity that acts as a lender) or otherwise) which derives a substantial portion of its revenues from business operations which compete with the WSB acquired by Buyer. Notwithstanding anything to the contrary in this Agreement, Seller may (A) make passive investments of five percent (5%) or less in any outstanding equity securities of corporations whose equity securities are publicly traded and which compete with the WSB, (B) acquire outstanding equity securities of a corporation that competes in the WSB in the Restricted Territory whose equity securities are publicly traded in connection with the sale of the capital stock or substantially all of the assets of Servicios Petroleros Flint C.A., a Venezuelan corporation, the capital stock of which is owned by Flint Construction Company of South America, Inc., a majority shareholder of Parent; provided that such acquisition will not result in Seller (or a successor thereof) being a majority or controlling shareholder of such entity, or (C) maintain a passive, minority investment in an entity to be formed with SCF Partners, Inc. (the "SCF Entity") in conjunction with the sale of the remaining assets of Seller even in the case that the SCF Entity invests in an entity that competes in the WSB in the Restricted Territory; provided that no employee, officer or director of Seller or Parent (or successors thereof) may work for, render assistance or advice to, or participate in the management of the well servicing business of such entity, except for any work, assistance, advice or participation that may be rendered indirectly and solely as a result of such employee's, officer's or director's obligations or duties as a director of such entity. In addition, Seller and Parent agree that for a period of three years from the Closing Date, they will not: (a) request any present customers or suppliers of the WSB or any customers of Buyer or any affiliates of Buyer ("Buyer's Affiliates") to curtail or cancel their business with Buyer (or Buyer's Affiliates); (b) disclose to any person, firm or corporation any trade, technical or technological secrets of or any details of the organization or business affairs of the WSB; or (c) induce or actively attempt to influence any employee of Buyer (or Buyer's Affiliates) to terminate his or her employment. Seller and Parent agree that if either the length of time or geographical area as set forth in this Section 11.04 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 11.04 are in addition to any other obligations that Seller and Parent may have under the laws of any state requiring a corporation selling its assets (or a shareholder of such corporation) to limit its activities so that the goodwill and business relations being transferred with such assets will not be materially impaired. Seller and Parent further acknowledge that Buyer and Buyer's Affiliates do not have any adequate remedy at law for the breach or threatened breach by Seller or Parent of the covenants contained in this Section 11.04, 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 Seller or Parent from such breach or threatened breach. If any provisions of this Section 11.04 are held to be invalid or against public policy, the remaining provisions of this Section 11.04 and the Agreement shall not be affected thereby. Seller and Parent acknowledge that the covenants set forth in this Section 11.04 are being executed and delivered by such party in consideration of (i) the covenants of Buyer contained in this Agreement, (ii) the Non-Compete Payment, and (iii) for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged. ARTICLE XII TERMINATION OF AGREEMENT Section 12.01. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual agreement of Seller and Buyer; (b) by Buyer, if notice has been given to Seller of the occurrence of a material violation or breach by Seller of any of its agreements, representations or warranties contained in this Agreement that has not been waived in writing; provided, however, that Seller shall, after receipt of such notice, have a period of twenty (20) business days in which to cure such default, and, if it is so cured, Buyer shall, for that reason, have no right to terminate this Agreement; (c) by Seller, if notice has been given to Buyer of the occurrence of a material violation or breach by Buyer of any of its agreements, representations or warranties contained in this Agreement which has not been waived in writing; provided, however, that Buyer shall, after receipt of such notice, have a period of twenty (20) business days in which to cure such default, and, if it is so cured, Seller shall, for that reason, have no right to terminate this Agreement; or (d) by any party hereto if the Closing shall not have occurred on or before November 1, 1998; provided, however, that any termination by a defaulting party shall not affect any rights that a non-defaulting party may have against such defaulting party. Section 12.02. Effect of Termination. In the event of the termination of this Agreement by either party in accordance with the provisions of Section 12.01 hereof, this Agreement shall become void and have no force or effect, without any liability on the part of any party hereto (or its stockholders or controlling persons or directors or officers) and with each party bearing its own expenses as incurred; provided, however, that if such termination is the result of the non-terminating party having breached (i) its obligations under Section 6.04 or 7.05 hereof, as applicable, or (ii) any of its other material representations, warranties, covenants or agreement contained herein, the terminating party shall have the right to issue all remedies available to it at law or in equity as a result of such breach (including reasonable attorney's fees and expenses incurred in connection with enforcing such remedies). ARTICLE XIII MISCELLANEOUS Section 13.01. Interpretive Provisions. For purposes of this Agreement, the phrase "to the knowledge" and any other phrases generally referring to the knowledge of a party hereto, shall mean the actual knowledge of such party's officers or of such party's managerial and supervisory personnel having responsibility for the matters in question. Section 13.02. Expenses. Except as otherwise expressly provided in this Agreement, each party hereto shall bear all of its legal, accounting and other costs and expenses incident to the negotiation of this Agreement and the performance of the transactions contemplated herein, including any fees paid to any governmental entity in connection with the obtaining of any consent required or contemplated by this Agreement. Section 13.03. Reliance. The parties hereto agree that, notwithstanding the right of any party to this Agreement to investigate the affairs of any other party to this Agreement, the party having such right shall have the right to rely fully upon the representations and warranties of the other party expressly contained in the Agreement and on the accuracy of any exhibit or other document attached hereto or referred to herein or delivered by such other party or pursuant to this Agreement. Section 13.04. Notices. All notices, consents, requests or other documents required or expressly provided to be furnished hereunder shall be in writing and delivered by hand, or sent by facsimile transmission, prepaid air courier or prepaid U.S. registered mail, return receipt requested, as follows: If to Seller: Flint Industries, Inc. P.O. Box 490 Tulsa, Oklahoma 74101-0490 Attn: John R. Bates Fax: 918/584-6957 with a copy to: Vinson & Elkins L.L.P. 1001 Fannin Street, Suite 2300 Houston, Texas 77002-6760 Attn: T. Mark Kelly Fax: 713/615-5531 and to: Doerner, Saunders, Daniel & Anderson, L.L.P. 320 South Boston, Suite 500 Tulsa, Oklahoma 74103 Attn: Lawrence T. Chambers, Jr. Fax: 918/591-5360 If to Buyer: Key Energy Group, Inc. Two Tower Center, 20th Floor East Brunswick, New Jersey 08816 Attn: General Counsel Fax: 732/247-5148 provided that any notice furnished by facsimile shall be followed immediately with notice by delivery using one of the other means of notice provide for above. The addresses and facsimile numbers for notices to a party given pursuant to this Agreement may be changed by means of a written notice given to the other party in the manner stated above at least two business days prior to the effective date of such change. Any notice delivered by any of the means provided for above shall be considered effective upon receipt by or on behalf of the intended recipient; provided, however, that any notice sent by prepaid U.S. registered mail, return receipt requested, to the address provided for above shall be considered effective on the fifth day after mailing, if not previously received. Section 13.05. Headings; References. The descriptive headings of the Articles and Sections of this Agreement are inserted for convenience only and do not constitute a part of the Agreement. All references to "Section" shall refer to a section of this Agreement and all references to a "Schedule" shall refer to a Schedule attached hereto unless otherwise stated. Section 13.06. Entire Agreement. This Agreement (including the documents, schedules, attachments, exhibits, annexes and instruments referred to herein) constitutes the entire agreement between the parties and supersedes all prior agreements, documents or other instruments with respect to the matters covered hereby. The parties will make, and have made, no oral agreements or undertakings pertaining to the subject matter of this Agreement, except for any that are no longer in effect. Section 13.07. Waiver. At any time prior to the Closing, either party may (a) extend the time for the performance of any of the obligations or other acts of the other party or (b) waive compliance with any of the agreements of the other party or with any conditions to its own obligations. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Section 13.08. Severability. If any provision of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable, such declaration shall not affect the validity or enforceability of the remaining provisions of this Agreement, which shall continue in full force and effect. In such event, however, the parties shall negotiate in good faith to replace such invalid or unenforceable provision with a valid and enforceable provision that places each party in substantially the same position it would have been in had such original provision been valid and enforceable. Section 13.09. Amendment. This Agreement (including the documents, schedules, attachments, exhibits, annexes and instruments referred to herein) may not be amended except by an instrument in writing signed by each of the parties. Section 13.10. Further Actions. Each party shall execute and deliver such other certificates, agreements and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated by this Agreement. Section 13.11. Assignment; Parties in Interest. The rights under this Agreement shall not be assignable nor the duties delegable by any party without the written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that Buyer may assign the rights to a subsidiary; provided, further, that such assignment shall not affect Buyer's obligations hereunder. This Agreement shall be binding upon and inure solely to the benefit of each of the parties hereto and their permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. Section 13.12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT REGARD TO CONFLICT OF LAW RULES THAT WOULD DIRECT APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE EXTENT THAT IT IS MANDATORY THAT THE LAW OF SOME OTHER JURISDICTION, WHEREIN THE ASSETS ARE LOCATED, SHALL APPLY, EXCLUDING THE CONFLICT OF LAWS RULES OF SUCH STATE. Section 13.13. Specific Performance. Buyer and Seller each agree that, in addition to the other legal remedies provided by the terms of this Agreement, they shall be entitled to a decree of specific performance to enforce this Agreement. Section 13.14. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all of which together shall constitute one and the same instrument. [remainder of page intentionally left blank] IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by Buyer and Seller as of the date first above written. BUYER: KEY ENERGY GROUP, INC. By Name: Kenneth V. Huseman Title: Executive Vice President and Chief Operating Officer SELLER: FLINT ENGINEERING & CONSTRUCTION CO. By Name: Gary E. Whipple Title: President PARENT: FLINT INDUSTRIES, INC. By Name: John R. Bates Title: President EX-10 6 HELLUMS SERVICES PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT BY AND BETWEEN DAWSON PRODUCTION PARTNERS, L.P., a Delaware limited partnership ("PURCHASER") DAWSON PRODUCTION SERVICES, INC. a Texas corporation ("DPS") AND HELLUMS SERVICES II, INC. SUPERIOR COMPLETION SERVICES, INC. SOUTH TEXAS DISPOSAL, INC. ELSIK II, INC., all Texas corporations ("SELLERS"), AND ROGER D. HELLUMS CHARLES C. FORBES, JR. ROBERT W. RADLE, JR. RONALD D. BRIEDEN JOHN E. CRISP CHARLES TALLEY and JAMES J. ACKER (the "SELLER SHAREHOLDERS") August 14, 1998 ================================================================================ This Agreement contains important indemnity provisions. See particularly Article VI. ================================================================================ TABLE OF CONTENTS ARTICLE I - PURCHASE AND SALE 1 1.1 Agreement to Sell 1 (a) Included Assets 2 (b) Excluded Assets 3 1.2 Agreement to Purchase 3 1.3 The Purchase Price; Tax Basis 3 1.4 Assumption of Liabilities 4 1.5 Prorations 4 1.6 Transfer Taxes; Recording Fees 5 ARTICLE II - CLOSING, ITEMS TO BE DELIVERED, THIRD PARTY CONSENTS AND FURTHER ASSURANCES 5 2.1 Closing 5 2.2 Items to be Delivered at Closing 6 2.3 Release of Liens 7 2.4 Third Party Consents 7 2.5 Further Assurances 7 2.6 No Equitable Conversion 8 ARTICLE III - REPRESENTATIONS AND WARRANTIES 8 3.1 Representations and Warranties of Seller 8 (a) Corporate Existence 8 (b) Corporate Power; Authorization; Enforceable Obligations 8 (c) Validity of Contemplated Transactions, Etc 8 (d) No Third Party Options 9 (e) Financial Statements 9 (f) Taxes; Tax and Other Returns and Reports 10 (g) Books of Account 10 (h) Existing Condition. 10 (i) Title to Properties 11 (j) Compliance with Laws; Authorizations 11 (k) Transactions With Affiliates 11 (l) Litigation 12 (m) Equipment 12 (n) Contracts and Commitments 12 (o) Environmental Matters 13 (p) Availability of Documents 15 (q) Assets 16 (r) Restrictions 16 (s) Conditions Affecting Seller 16 (t) Employee Benefit Plans 16 (u) Personnel. 17 (v) Legal Compliance; Undisclosed Liabilities. 18 (w) Inventory. 18 (x) Warranty. 18 (y) Investment 18 (z) Disclosure. 19 3.2 Representations and Warranties of Purchaser 19 (a) Partnership 19 (b) Power and Authorization 19 (c) Noncontravention. 19 3.3 Survival 19 ARTICLE IV - AGREEMENTS PENDING CLOSING 20 4.1 Agreements of Seller Pending the Closing 20 (a) Business in the Ordinary Course 20 (b) Conduct of Business 20 (c) Exclusive Dealing 20 (d) Access 20 (e) Press Release 21 (f) Actions of Directors and Shareholders 21 (g) Employee Matters. 21 (h) Actions of Seller 21 4.2 Agreements of Purchaser Pending the Closing 21 (a) Press Release 21 (b) Actions of Directors of Purchaser. 22 (c) Actions of Purchaser 22 ARTICLE V - CONDITIONS PRECEDENT TO THE CLOSING 22 5.1 Conditions Precedent to Purchaser's Obligations 22 (a) Representations and Warranties True as of the Closing Date 22 (b) Compliance with this Agreement 22 (c) Closing Certificate 22 (d) Opinion of Counsel for Seller 22 (e) No Threatened or Pending Litigation 22 (f) Consents and Approvals 23 (g) Material Adverse Changes 23 (h) Approval of Counsel; Corporate Matters 23 (i) Physical Inventory 23 (j) Employment Contracts 23 (k) SWD Lease 23 (l) Frac Tanks 23 5.2 Conditions Precedent to the Obligations of Seller 23 (a) Representations and Warranties True as of the Closing Date 23 (b) Compliance with this Agreement 24 (c) Closing Certificates 24 (d) No Threatened or Pending Litigation 24 (e) Consent of Shareholders. 24 ARTICLE VI - INDEMNIFICATION 24 6.1 Definitions 24 6.2 Indemnification by Seller and the Seller Shareholders 24 6.3 Indemnification by Purchaser 25 6.4 Procedure 26 6.5 Payment and Offset 26 6.6 Failure to Pay Indemnification 27 6.7 Express Negligence 27 6.8 Other Rights and Remedies Not Affected 27 ARTICLE VII - POST CLOSING MATTERS 27 7.1 Arbitration. 27 (a) Negotiation Period. 27 (b) Commencement of Arbitration. 27 (c) Consolidation of Hearings. 28 (d) Discovery. 28 (e) Conclusion of Arbitration. 28 (f) Expenses of Arbitrators. 28 7.2 Discharge of Business Obligations. 28 7.3 Maintenance of Books and Records 28 7.4 Payments Received 29 7.5 Inquiries 29 7.6 Covenant Not to Compete 29 7.7 Transition Period 30 (a) Collections 30 (b) Accounting 30 (c) Licenses and Permits 30 7.8 Accounting Records 30 7.9 Nondisclosure of Proprietary Information 30 7.10 Contact with Former Employees 31 7.11 Registration of Buyer Common Stock. 31 (a) Registration Obligation. 31 (b) Blue Sky. 31 (c) Suspension Period. 31 (d) Registration Expenses. 31 7.12 Health Insurance. 31 ARTICLE VIII - TERMINATION 32 8.1 Events of Termination 32 8.2 Liability Upon Termination 32 8.3 Notice of Termination 32 ARTICLE IX - MISCELLANEOUS 32 9.1 Finders' Fees 32 9.2 Expenses 33 9.3 Assignment and Binding Effect 33 9.4 Notices 33 9.5 Governing Law 34 9.6 No Benefit to Others 34 9.7 Entire Agreement 34 9.8 Headings 34 9.9 Severability 34 9.10 Counterparts 34 9.11 Construction 35 9.12 Waiver 35 9.13 Specific Performance 35 9.14 Submission to Jurisdiction 35 9.15 Good Faith 35 9.16 Attorneys' Fees 35 DEFINITIONS: The definition of "Affected Employees" can be found in Section 3.1(t). The definition of "Agreement" can be found on page 1. The definition of "Assets" can be found in Section 1.1. The definition of "Assigned Contracts" can be found in Section 1.1(a)(i). The definition of "Assumed Liabilities" can be found in Section 1.4(a). The definition of "Authorizations" can be found in Section 3.1(j). The definition of "Business" can be found on page 1. The definition of "Closing" can be found in Section 2.1. The definition of "Closing Date" can be found in Section 2.1. The definition of "Contamination" can be found in Section 3.1(o)(i)(A). The definition of "Contracts" can be found in Section 3.1(c)(iv). The definition of "Damages" can be found in Section 6.2. The definition of "Dispute Notice" can be found in Section 7.1(a). The definition of "Effective Date" can be found on page 1. The definition of "Employee Benefit Plan" can be found in Section 3.1(t)(i). The definition of "Environmental, Health and Safety Laws" can be found in Section 3.1(o)(i)(B). The definition of "Environmental Loss" can be found in Section 3.1(o)(i)(C). The definition of "Equipment" can be found in Section 1.1(a)(v). The definition of "Equipment Leases" can be found in Section 1.1(a)(ii). The definition of "ERISA" can be found in Section 3.1(t). The definition of "Excluded Assets" can be found in Section 1.1(b). The definition of "Fuel and Inventory" can be found in Section 1.1(a)(ix). The definition of "Governmental Entity" can be found in Section 6.1(a). The definition of "Hazardous Substance" can be found in Section 3.1(o)(i)(D). The definition of "Indemnitee" can be found in Section 6.1(b). The definition of "Indemnitor" can be found in Section 6.1(c). The definition of "Negotiation Period" can be found in Section 7.1(a). The definition of "Operating Assets" can be found in Section 1.1(a)(iii). The definition of "Permits" can be found in Section 1.1(a)(viii). The definition of "Permitted Liens" can be found in Section 3.1(i). The definition of "person" can be found in Section 9.11. The definition of "Personal Property" can be found in Section 1.1(a)(vii). The definition of "Property Taxes" can be found in Section 1.5. The definition of "Proprietary Information" can be found in Section 7.9. The definition of "Purchase Price" can be found in Section 1.3(a). The definition of "Purchaser" can be found on page 1. The definition of "Purchaser Losses" can be found in Section 6.2. The definition of "Records" can be found in Section 1.1(a)(vi). The definition of "Regulations" can be found in Section 3.1(j). The definition of "Release" can be found in Section 3.1(o)(i)(E). The definition of "Remediation" can be found in Section 3.1(o)(i)(F). The definition of "Seller" can be found on page 1. The definition of "Seller Losses" can be found in Section 6.3. The definition of "Seller Shareholders" can be found on page 1. The definition of "Tax Returns" can be found in Section 3.1(f). The definition of "Taxes" can be found in Section 3.1(f). The definition of "Third Party Claims" can be found in Section 6.4(b). The definition of "Transition Period" can be found in Section 7.7. ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of August 14, 1998 (the "Effective Date"), is entered into by and among Hellums Services II, Inc. ("Hellums"), Superior Completion Services, Inc. ("Superior"), South Texas Disposal, Inc. ("South Texas"), and Elsik II, Inc. ("Elsik"), each of which is a Texas corporation (together, the "Sellers"), and Roger D. Hellums, Charles C. Forbes, Jr., Robert W. Radle, Jr., Ronald D. Brieden, John E. Crisp, Charles Talley and James J. Acker (together, the "Seller Shareholders"), Dawson Production Services, Inc., a Texas corporation ("DPS"), and Dawson Production Partners, L.P., a Delaware limited partnership (the "Purchaser"). RECITALS: (1) The Sellers are engaged in the following aspects of the oil field servicing business (collectively, the "Business"): Hellums is engaged in the business of supplying vacuum truck, frac tank, open top tank and related services; Superior is in workover rig business; South Texas is in the business of operating salt water disposal wells; and Elsik is in the business of supplying camp rental equipment, including trailer houses and satellite antennas. B. The Seller Shareholders own 79.4% of the outstanding stock of Hellums and South Texas; the Seller Shareholders own 84.5% of the outstanding stock of Elsik; and Hellums owns 100% of the outstanding stock of Superior; C. DPS owns all of the issued and outstanding stock of Dawson Production Management, Inc., a Delaware corporation ("Management"), Dawson Production Acquisition Corp., a Delaware corporation ("Acquisition Corp."), and Dawson Production Taylor, Inc., a Delaware corporation ("Taylor"); Management is the sole general partner of Purchaser, and Acquisition Corp. and Taylor own all of the limited partnership interests of Purchaser. D. Each of the Boards of Directors of the Sellers and DPS, and the General Partner of Purchaser has approved this Agreement and the transactions contemplated by this Agreement; E. Subject to the limitations and exclusions contained in this Agreement and on the terms and conditions hereinafter set forth, the Sellers desire to sell and Purchaser desires to purchase, and DPS desires to cause Purchaser to purchase the Business including all of the oil field servicing operations and substantially all of the oil field servicing assets of the Sellers. F. It is the intention of the Purchaser and the Sellers that, unless otherwise specified in this Agreement, all damages, liabilities and losses not in the ordinary course of business that result from events or conditions that occur or exist prior to the Closing (whether or not reported prior to the Closing) shall be the financial responsibility of the Sellers and subject to the indemnification provisions provided in Section 6.2 of this Agreement, and that all such damages, liabilities and losses that result from events or conditions that occur or first exist after the Closing shall be the financial responsibility of the Purchaser and subject to the indemnification provisions provided in Section 6.3 of this Agreement. NOW, THEREFORE, in consideration of the recitals and of the respective covenants, representations, warranties and agreements contained in this Agreement, and intending to be legally bound by this Agreement, the parties agree as follows: I. ARTICLE - PURCHASE AND SALE A. Agreement to Sell. At the Closing (as defined in Section 2.1), and except as otherwise specifically provided in this Section 1.1, the Sellers shall grant, sell, convey, assign, transfer and deliver to Purchaser, upon and subject to the terms and conditions of this Agreement, all right, title and interest of the Sellers in and to (a) the Business as a going concern, and (b) all of the assets, properties and rights of the Sellers constituting the Business or used therein, of every kind and description, real, personal and mixed, tangible and intangible, wherever situated (which Business, assets, properties and rights, together with the Vehicle Sub Stock as hereinafter defined, are herein sometimes collectively referred to as the "Assets"), free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever, except Permitted Liens (as defined in Section 3.1(i)). (a) Included Assets. The Assets shall include, without limitation, the following assets, properties and rights of the Sellers used directly or indirectly in the conduct of, or generated by or constituting the Business: (i) all Contracts (as hereinafter defined) to which any one or more of the Sellers is a party all of which are described in Schedule 1.1(a)(i) (collectively, the "Assigned Contracts"); (i) all of the Sellers' rights in and to operating leases of personal property including vehicles, all of which are described in Schedule 1.1(a)(ii) (the "Equipment Leases"), subject to the consents of lessors, if required; (i) all of Sellers' interest in equipment material to the operation of the Business, all of which is described on Schedule 1.1(a)(iii) (the "Operating Assets"); (i) all of the issued and outstanding stock of Hellums Vehicle Corporation, a Texas corporation (the "Vehicle Sub Stock"), which, as of the Closing Date, will own all of the vehicles of the Sellers (the "Vehicles") all of which are listed in Schedule 1.1(a)(iv); (i) all office furniture, fixtures and equipment owned by the Sellers and all other equipment, parts, materials, supplies, furniture and fixtures owned by the Sellers including, without limitation, the equipment, furniture, fixtures, computers, servers, local area network systems, intranet systems, financial accounting equipment, and systems described on Schedule 1.1(a)(v) (collectively, the "Equipment"); (i) all books, records, correspondence, files, plans and other documents and instruments of the Sellers, including but not limited to customer and supplier information and sales information relating to the Business or to the Assets (collectively, the "Records") subject to a continuing right of the Sellers and the Seller Shareholders to access and copy the Records for tax reporting purposes; (i) all other intangible and tangible personal property, all technologies, methods, formulations, data bases, trade secrets, customer lists, know-how, inventions and other intellectual property used in the Business or under development, and owned, leased or licensed by the Sellers, all of which is described on Schedule 1.1(a)(vii) (collectively, the "Personal Property"); (i) all permits, authorizations, certificates, approvals, registrations, or other approvals and licenses granted by any federal, state, local or foreign court, arbitrator or administrative or Governmental Entity (as hereinafter defined) in connection with the Business, which are described on Schedule 1.1(a)(viii) (collectively, the "Permits") to the extent that they may be legally assigned by the Sellers; and (i) all motor fuel and inventory on hand on the Closing Date, including without limitation, all motor fuel, oil, lubricants, drilling mud and other items of tangible personal property of similar character (collectively, the "Fuel and Inventory"); (i) all other personal property not listed in this Section 1.1(a) or excluded by Section 1.1(b), which is owned by any of the Seller or the Seller Shareholders and is reasonably necessary to operate the Business. (a) Excluded Assets. The Assets shall not include the corporate seals, certificates of incorporation, minute books, stock books, or other records having to do with the corporate organization of the Sellers, cash, the Sellers' prepaid items and the deposits not subject to proration under Section 1.5; the Assets additionally shall not include the rights which accrue or will accrue to the Sellers under this Agreement, the Sellers' customers' accounts receivable and un-invoiced work relating to the Business in existence on the Closing Date (whether billed or unbilled as of the Closing), the rights to any of the Sellers' claims for any federal, state, local, or foreign tax refunds, the Sellers' financial and accounting records not relating to the Business, Sellers' tax returns, or any items listed on Schedule 1.1(b) all of which are referred to in this Agreement as the "Excluded Assets." A. Agreement to Purchase. At the Closing, Purchaser shall purchase the Assets from the Sellers upon and subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants of the Sellers contained herein, in exchange for the Purchase Price (as defined in Section 1.3). In addition, Purchaser shall assume, and DPS shall cause Purchaser to assume, at the Closing and agree to pay, discharge or perform, as appropriate, certain liabilities and obligations of the Sellers, but only to the extent expressly provided in Section 1.4. Except as expressly provided in Section 1.4, Purchaser shall not assume or be responsible for any liabilities or obligations based on events occurring prior to Closing relative to the Assets, the Business or the Sellers. A. The Purchase Price; Tax Basis. (a) The Purchase Price. In consideration of the transfer to Purchaser of the Assets and the undertakings of the Seller Shareholders, and subject to adjustment as provided below, Purchaser shall pay (and DPS shall cause Purchaser to pay) Forty-Six Million Dollars ($46,000,000) (the "Purchase Price"), as follows: (i) Thirty-Nine Million Eight Hundred Twenty Thousand Dollars ($39,820,000) shall be paid to the individual Sellers in the amounts set forth on Schedule 1.3(a) by wire transfer at the Closing, and (ii) Six Million One Hundred Eighty Thousand Dollars ($6,180,000) shall be delivered into escrow (together, the "Cash") to be held pursuant to the escrow agreement in the form of Exhibit A (the "Escrow Agreement"). The foregoing form of payment of the Purchase Price is predicated on the presumption that DPS shall be merged with Key Energy Group, Inc., a Maryland corporation ("Key"), or its wholly owned subsidiary (the "Merger"). If, at the time of the Closing, Key has not completed the Merger, or, in the reasonable judgment of Purchaser, it is unlikely that the Merger will be completed, then Purchaser shall have the right to pay Eleven Million Dollars ($11,000,000) of the Purchaser Price by delivering 880,000 shares of unregistered common stock, $0.01 par value per share, of DPS in the names and in the amounts set forth on Schedule 1.3(a) (the "Shares"). The Shares shall be subject to a Registration Rights Agreement in the form of Exhibit B (the "Registration Rights Agreement"). Notwithstanding the foregoing, the Purchase Price shall be reduced (by a reduction in the amount wire transferred to the Sellers at the Closing) by the amount, if any, (i) determined in accordance with Section 1.5 of this Agreement and (ii) by the amount of accrued vacation shown on Schedule 3.1(u). In addition, the Purchaser Price shall be adjusted after the Closing in accordance with Sections 1.3(b) and 1.3(c). (a) Seller Tax Basis and Fair Market Value of Assets. The fair market value and the tax basis for federal income tax purposes of the Assets of the Sellers being transferred to Purchaser shall be set forth on Schedule 1.3(b). The Sellers and Purchaser each hereby covenant and agree that such amounts reflect the fair market value of the Assets and that none of them, directly or indirectly, through a subsidiary or affiliate or otherwise, will take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is in any way inconsistent with the tax basis and fair market value of the Assets set forth on Schedule 1.3(b). Such allocations will be reflected in Forms 8594 to be signed and filed by Seller and Purchaser in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). In addition, the Purchase Price payable under Section 1.2 shall be allocated in the manner set forth on Schedule 1.3(b). A. Assumption of Liabilities. (a) At the Closing and except as otherwise specifically provided in this Section 1.4, Purchaser shall assume and agree to pay, discharge or perform, as appropriate, the liabilities and obligations of the Sellers set forth on Schedule 1.4(a) (the "Assumed Liabilities"); provided, however, that the aggregate amount of any debt and leases included in the Assumed Liabilities shall not exceed $150,000. (b) Notwithstanding Section 1.4(a), it is expressly understood that, other than obligations and liabilities expressly assumed in Section 1.4(a), Purchaser shall not be liable for, and shall not assume, any of the Sellers' or the Seller Shareholders' obligations or liabilities, whether known or unknown, matured or unmatured, or fixed or contingent, including but not limited to liabilities relating to events occurring prior to the Closing, any Taxes (as hereinafter defined, other than those pro rated as of the Closing Date), or any liabilities under any Employee Benefit Plans of the Sellers. The Sellers shall remain obligated to pay and discharge any liabilities and obligations not expressly assumed by Purchaser hereby. The Sellers and the Seller Shareholders hereby agree that they will indemnify Purchaser for any liabilities of the Sellers not expressly assumed pursuant to Section 1.4(a) by Purchaser and Purchaser and DPS agree that they will indemnify the Sellers and the Seller Shareholders with respect to the Assumed Liabilities. A. Prorations. All annual or periodic ad valorem fees, taxes and assessments, licensing fees and vehicle use fees, and similar charges imposed by taxing authorities on the Assets (collectively, "Property Taxes") shall be borne and paid (a) by Seller for all full tax years or periods ending before the date of the Closing and for that portion of any tax year or period ending on or after the effective date of Closing from the date of commencement of such year or period to the date immediately preceding the effective date of the Closing and (b) by Purchaser for all full tax years or periods beginning on or after the effective date of Closing and for that portion of any tax year or period ending on or after the effective date of the Closing from and including the effective date of Closing to the final date of such year or period, regardless of when or by which party such Property Taxes are actually paid to the applicable taxing authority. In addition, all rents and other lease charges, power and utility charges, license or other fees, Assigned Contracts, and similar items shall be allocated between Purchaser and the Sellers effective as of 12:01 a.m. on the effective date of the Closing. Such allocations shall be determined and payment accordingly made from one party to the other, as the case may be, on the date of the Closing to the extent they are known and agreed to by Purchaser and Seller; otherwise such allocations shall be determined and payment made (effective as of 12:01 a.m. on the effective date of the Closing) as soon as practicable but not later than the date 30 days thereafter. I. ARTICLE - CLOSING, ITEMS TO BE DELIVERED, THIRD PARTY CONSENTS AND FURTHER ASSURANCES A. Closing. Subject to the terms and conditions of this Agreement, the execution of documents relative to the sale and purchase of the Assets shall be held at Jenkens & Gilchrist, A Professional Corporation, in Austin, Texas on or about the date of the closing of the Merger. The effective date and time of the Closing (referred to herein as the "Closing" or "Closing Date") shall be 12:01 a.m., the Closing Date, and all risk of loss shall be borne by the Sellers until the Closing, and thereafter all such risk of loss shall be borne by Purchaser. A. Items to be Delivered at Closing. At the Closing and subject to the terms and conditions contained in this Agreement, (a) the Sellers shall deliver to Purchaser the following: (i) bills of sale with covenants of warranty of title and assignments of contracts in a form reasonable acceptable to the parties, stock certificates representing the Vehicle Sub Stock, together with executed stock powers, and other good and sufficient instruments and documents of conveyance and transfer, in a form reasonably satisfactory to Purchaser and its counsel, as shall be necessary and effective to transfer and assign to and vest in Purchaser all of the Sellers' right, title and interest in and to the Assets; (i) all of the certificates, certificates of title, Contracts, customer lists, supplier lists, Equipment Leases assumed by Purchaser, all correspondence, files, plans and other documents and instruments, books, Records, and data belonging to the Sellers which are part of the Assets; (i) a Closing and Secretary's Certificate from each of the Sellers, dated as of the Closing Date, certifying, among other items, that all representations and warranties of the Sellers and the Seller Shareholders contained in this Agreement or in any Schedule, certificate or document delivered by the Sellers to Purchaser pursuant to the provisions of this Agreement are true on the Closing Date and that the applicable Seller has performed and complied in all material respects with all of its obligations under this Agreement to be performed or complied with by it prior to or at the Closing and certifying that the Sellers and the Seller Shareholders have obtained all consents and approvals required with respect to the Sellers or the Business except as otherwise set forth on a Schedule hereto; (i) a certificate of existence issued by the Secretary of State of the State of Texas, and a certificate of good standing issued by the Comptroller of Public Accounts of the State of Texas, as of a date not more than ten calendar days prior to the Closing Date; (i) Employment Agreements, Non-Competition Agreements and Mutual Agreements to Arbitrate Claims in substantially the form attached hereto as Exhibit C executed by each of the Selling Shareholders (the "Employment, Non-Competition and Arbitration Agreement"); and (i) the Escrow Agreement; and (i) a Form P-4 executed by the applicable Sellers showing a change in the operator of each of the Assets that is a salt water disposal well; simultaneously with such delivery, the Sellers shall take all steps as may be reasonably required to put Purchaser in actual possession and operating control of the Assets. (a) Purchaser shall deliver (and DPS shall cause Purchaser to deliver) to the Sellers the following: (i) the wire transfer of the Cash less adjustments, if any, in accordance with Section 1.3 and less the amount delivered into escrow; (i) the Escrow Agreement; (i) the Non-Competition Payment (defined below); (i) a copy of a letter addressed to the DPS transfer agent providing for the issuance of the Shares to the Sellers; and (i) the Registration Rights Agreement. In addition, Purchaser shall deliver (and DPS shall cause Purchaser to deliver) that portion of the Cash subject to the Escrow Agreement to the escrow agent. A. Release of Liens. The Sellers shall cause all liens and other encumbrances other than Permitted Liens affecting the Assets to be released and discharged prior to Closing and shall provide Purchaser with proof thereof including but not limited to copies of UCC-3 filings. A. Third Party Consents. To the extent that any of the Sellers' rights under any Contracts, Authorizations (as defined in Section 3.1(j)), Permits or Equipment Leases assumed by Purchaser, or other Assets to be assigned to Purchaser may not be assigned without the consent of another person, which consent has not been obtained prior to the Closing, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and the applicable Seller, at such Seller's expense, shall use reasonable commercial efforts to obtain any such required consent(s) as promptly as possible after Closing. If any consent is not obtained or if any attempted assignment would be ineffective or would impair Purchaser's rights under or to the Asset in question so that Purchaser would not acquire the benefit of all such rights, the applicable Seller, to the maximum extent permitted by law and by the terms of any documents affecting the Asset, at such Seller's expense, shall act for one year after the Closing as Purchaser's agent in order to obtain for Purchaser the benefits thereunder and shall cooperate, to the maximum extent permitted by law and by the terms of any document affecting the Asset, with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser. A. Further Assurances. Each Seller from time to time after the Closing, at Purchaser's request, will execute, acknowledge and deliver to Purchaser such other instruments of conveyance and transfer and will take such other actions and execute and deliver such other documents, certifications and further assurances as Purchaser may reasonably request in order to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets, or to better enable Purchaser to complete, perform or discharge any of the liabilities or obligations assumed by Purchaser at the Closing pursuant to Section 1.4. Each of the parties will cooperate with the other and execute and deliver to the other parties such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party as necessary to carry out, evidence and confirm the intended purposes of this Agreement. If any of the Sellers dissolves within one year following the Closing Date, effective as of the dissolution of such Seller, such Seller hereby irrevocably appoints Purchaser or Purchaser's substitute as its attorney-in-fact coupled with an interest and with full power of substitution to carry out the provisions of this Section 2.5. A. No Equitable Conversion. Prior to the Closing, neither the execution of this Agreement nor the performance of any provision contained herein shall cause Purchaser to become liable for any aspect or obligation of relating to the Assets or the Business. I. ARTICLE - REPRESENTATIONS AND WARRANTIES A. Representations and Warranties of the Sellers and the Seller Shareholders. Each of the Sellers and the Seller Shareholders, jointly and severally, hereby represent and warrant to Purchaser and to DPS that the following statements are true and correct, except as set forth on the Schedules, each of which scheduled exceptions shall specifically identify the relevant section of this Agreement to which it relates and shall be deemed to be representations and warranties as if made hereunder; provided, however, that the representations and warranties made regarding the Seller Shareholders (as opposed to the Sellers) shall be deemed to be made by each Seller Shareholder severally and not jointly, wholly with respect to such Seller Shareholder individually. (a) Corporate Existence. Each of the Sellers is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Each of the Sellers is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the conduct of the Business requires it to be so qualified, all of which jurisdictions are listed on Schedule 3.1(a). None of the Sellers is nor has ever been an investment company within the meaning of the Investment Company Act of 1940. (a) Corporate Power; Authorization; Enforceable Obligations. Each of the Sellers has the corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by each of the Sellers has been duly authorized by all necessary corporate action as of the Closing Date. This Agreement has been, and the other agreements, documents and instruments required to be delivered by the Sellers in accordance with the provisions hereof (collectively, the "Seller Documents") will be duly executed and delivered on behalf of each Seller by duly authorized officers or directors of each Seller and this Agreement constitutes, and the Seller Documents when executed and delivered will constitute, the legal, valid and binding obligation of each of the Sellers enforceable against each of the Sellers in accordance with their respective terms except as the same may be limited by applicable bankruptcy, insolvency, reorganization, or other laws affecting the enforcement of creditors' rights generally and the application of general principles of equity. The Board of Directors of each of the Sellers has approved this Agreement and the transactions contemplated hereby. (a) Validity of Contemplated Transactions, Etc. Except as identified on Schedule 3.1(c), the execution, delivery and performance of this Agreement by each of the Sellers and the Seller Shareholders does not and will not violate, conflict with or result in the breach of any material term, condition or provision of, require notice to or the consent of any other person, result in the acceleration of or give any party a right to terminate, modify, accelerate or change the terms, rights or obligations under any of the following: (i) any Regulation (as hereinafter defined); (i) any judgment, order, writ, injunction, decree or award of any court, arbitrator or Governmental Entity; (i) the charter documents of any of the Sellers or any securities issued by any Seller; or (i) any material mortgage, indenture, undertaking, note, bond, debenture, letter of credit, commitment, agreement, contract, lease, Authorization, Assigned Contract (including but not limited to Vehicle Operating Leases and Equipment Leases) or other instrument, or understanding, whether or not assigned hereby (collectively, the "Contracts"), by which any of the Sellers may have rights or by which any of the Assets may be bound or affected. As of the Effective Date and as of the Closing Date, no fact or condition exists or will exist which would result in the termination of or give any party to a Contract the right to terminate, modify, accelerate or otherwise change the existing rights or obligations of the Sellers in or to the Assets or the Business. Except as otherwise identified on Schedule 3.1(c), no Authorization, approval or consent of, and no registration or filing with, any Governmental Entity is required in connection with the execution, delivery or performance of this Agreement by any of the Sellers or by any Seller Shareholder. (a) No Third Party Options. No person has any existing agreements, options, commitments or rights to acquire any of the Assets or any interest therein. (a) Financial Statements. Attached hereto as Schedule 3.1(e) are the following financial statements (collectively, the "Financial Statements") for the Sellers: (i) unaudited consolidated and consolidating balance sheet and statement of income, changes in shareholders' equity and cash flows, and unaudited earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as of and for the fiscal years ended December 31, 1995, and December 31, 1996, and December 31, 1997 (the "Most Recent Fiscal Year End") and as of and for the 12 month period ended June 30, 1998; and (ii) the unaudited consolidated balance sheet and statement of income, changes in shareholders' equity and cash flow and Adjusted EBITDA (the "Most Recent Financial Statements") as of and for the six month period ended June 30, 1998 (the "Most Recent Fiscal Month End") for the Sellers. The Financial Statements (including the notes thereto) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Sellers as of such dates and the results of operations of the Sellers for such periods, are correct and complete, and are consistent with the books and records of the Sellers (which books and records are correct and complete); provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments (which will not be material, individually or in the aggregate) and lack footnotes. The Financial Statements fairly present all of the activities of the Sellers that will be part of the operations and Business of the Sellers at Closing, and all assets, tangible or intangible, and all Contracts, formal or informal whether or not in writing, necessary to conduct the Business, as actually operating as of the Effective Date and as set forth in the Financial Statements, will be owned by the Sellers (in the case of such assets) and will be in full force and effect (in the case of such Contracts) immediately prior to the Closing. (a) Taxes; Tax and Other Returns and Reports. All federal, state, local and foreign tax returns, reports, statements and other similar filings required to be filed by the Sellers and affecting the Assets or the Business (the "Tax Returns") with respect to any federal, state, local or foreign taxes, assessments, interest, penalties, deficiencies, fees, duties and other governmental charges or impositions (including without limitation all income tax, unemployment compensation, social security, payroll, sales and use, excise, gross receipts, value-added, privilege, property, ad valorem, franchise, license, school transfer, mortgage recording, customs, withholding, estimated and other tax or similar governmental charge or imposition under laws of the United States or any state, county, or municipal entity, agency or instrumentality or political subdivision thereof or any foreign country or political subdivision thereof) insofar as same may affect the Assets or the Business (the "Taxes") have been timely filed with the appropriate governmental agencies in all jurisdictions in which such Tax Returns are required to be filed, and all such Tax Returns properly reflect the liabilities of Sellers for Taxes for the periods, property and events covered thereby. All Taxes, including without limitation, those which are called for by the Tax Returns, have been properly accrued or timely paid. Purchaser will have no liability to any person or taxing authority for Taxes relating to actions or events occurring prior to 12:01 a.m. on the Closing Date, except as otherwise provided by Section 1.5. The Sellers' warranties and representations under this Section 3.1(f) shall be construed consistently with Section 1.5. (a) Books of Account. The books, records and accounts of the Sellers maintained with respect to the Business and the Assets fairly reflect, in all material respects and in reasonable detail, the transactions and the assets and liabilities of each of the Sellers with respect to the Business. (a) Existing Condition. Except as set forth on Schedule 3.1(h), and except for such changes as have affected the oil field services business generally, since December 31, 1997, there has not been, and through the date of the Closing there will not have been, any material adverse change in the Assets or the Business or the financial condition, operations, results of operations, or future prospects of the Business. Without limiting the generality of the foregoing, since that date, except as otherwise stated on Schedule 3.1(h), none of the Sellers has (i) entered into any transaction or agreement affecting the Business or the Assets except in the ordinary course of business, consistent with past practice; (ii) encumbered, leased, licensed or transferred any tangible or intangible assets which would have been included in the Assets if the Closing had been held on December 31, 1997 or on any date since then; (iii) subjected any of the Assets to any lien or other encumbrance of any nature whatsoever, except in the ordinary course of business, consistent with past practices, and except for Permitted Liens (defined in Section 3.1(i)); (iv) entered into any agreement, Contract, lease, or license (or series of related agreements, Contracts, leases, and licenses) outside the ordinary course of business, made any amendment to or terminated any material agreement affecting the Business or the Assets, or canceled, modified or waived any rights affecting the Business or the Assets, whether or not in the ordinary course of business; (v) changed any of the accounting principles followed by it or the methods of applying such principles; (vi) increased the compensation of any employee other than in the ordinary course of business, entered into any employment Contract or collective bargaining agreement, written or oral, or modified the terms of any existing Contract or agreement, made any other change in employment terms for any of its directors, officers, or employees outside the ordinary course of business, or adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, retirement, employee benefit plan, employee pension benefit plan, or other plan, Contract, or commitment relating to its directors, officers, and employees; (vii) suffered any damage, destruction or loss to its property or other loss, whether or not covered by insurance, (a) materially and adversely affecting the Business or Assets or (b) of any items which amount to $20,000 or more in the aggregate; (vii) granted any license or sublicense of any rights under or with respect to any of Seller's intellectual property or other proprietary rights; (viii) canceled, compromised, waived, or released any right or claim (or series of related rights and claims) outside of the ordinary course of business; (ix) delayed or postponed the payment of accounts payable or any other liabilities outside the ordinary course of business; or (x) committed to any of the foregoing. In addition, no party (including the Sellers) has accelerated, terminated, modified, or canceled any agreement, Contract, lease, or license (or series of related agreements, Contracts, leases, and licenses) to which any of the Sellers is or was a party or by which any of them is or was bound. (a) Title to Properties. Notwithstanding anything herein to the contrary, each of the Sellers has good, valid and marketable title (or in the case of real property, indefeasible title) to all of its assets, real, personal and mixed, which would be included in the Assets if the Closing took place on the Effective Date, which it purports to own, including without limitation all assets reflected on the Schedules hereto, free and clear of all liens (including but not limited to tax liens), claims, restrictions and other encumbrances and defects of title of any nature whatsoever, except for (i) liens for current real or personal property taxes not yet due and payable; (ii) Personal Properties as to which the applicable Seller is the lessee; and (iii) liens and other exceptions to title as disclosed in Schedules 3.1(i) (collectively, "Permitted Liens"). (a) Compliance with Laws; Authorizations. Each of the Sellers has complied in all material respects with each, and is not in material violation of any, law, ordinance or governmental or regulatory rule or regulation, whether federal, state, local or foreign, to which the Business or Assets is subject ("Regulations"). Each of the Sellers owns, holds, possesses or lawfully uses in the operation of the Business all permits, franchises, licenses, easements, rights, applications, filings, registrations and other authorizations ("Authorizations") which are in any material respect necessary for it to conduct the Business as now conducted or for the ownership and use of the Assets in the conduct of the Business. Each of the Sellers is in compliance with all Regulations related to the Authorizations. All such Authorizations are listed and described in Schedule 3.1(j). None of the Sellers is not in default, nor has any of the Sellers received any notice of any claim of default, with respect to any such Authorization. None of the Sellers has received any notice that any of the Authorizations used by a Seller in the operation of the Business would not or cannot be renewed or continued in the ordinary course of business, and all such Authorizations are renewable by the Sellers by their terms or in the ordinary course of business. No person other than the Sellers owns or has any proprietary, financial or other interest (direct or indirect) in any Authorization. (a) Transactions With Affiliates. Any and all material transactions between each of the Sellers and its Affiliates (as defined herein) affecting the Business or the Assets have been upon terms substantially comparable to those that would have been available to such Seller from third parties in arms length transactions. (a) Litigation. Except as set forth on Schedule 3.1(l), no litigation or administrative proceeding, including any arbitration, investigation or other proceeding of or before any court, arbitrator or Governmental Entity is pending or, to the best knowledge of the Sellers, threatened against any Seller, which relates to the Business or Assets or the transactions contemplated by this Agreement, nor do the Sellers know of any reasonably likely basis for any such litigation, arbitration, investigation or proceeding, the result of which could reasonably be expected to adversely affect the Assets or Business, or the transactions contemplated hereby. None of the Sellers is a party to or subject to the provisions of any judgment, order, writ, injunction, decree or award of any court, arbitrator or Governmental Entity which may materially adversely affect the Assets or Business, or the transactions contemplated hereby. The Sellers shall reimburse and indemnify Purchaser for any damages, liabilities or other losses incurred by Purchaser in connection with any and all matters identified on Schedule 3.1(l). (a) Equipment. The Operating Assets are at the execution of this Agreement, and will be at Closing, in good working condition and sufficient to maintain the operation of the Business. (a) Contracts and Commitments. Except as set forth on Schedule 3.1(n), none of the Sellers is a party to any written or oral: (i) lease under which it is either lessor or lessee relating to the Assets or any property at which the Assets are located other than those set forth on the Schedules to this Agreement; (i) Contract or agreement for any capital expenditure or leasehold improvement relating to the Assets or Business; (i) Contract or agreement limiting or restraining such Seller, its successor or assigns, from engaging or competing in any manner in the Business, or any agreement concerning confidentiality, nor is any employee of any Seller subject to any such Contract; (i) agreement (or group of related agreements) for the purchase or sale of raw materials, supplies, products, or other personal property or for the furnishing or receipt of services, the performance of which will extend over a period of one year or result in a material loss to such Seller; (i) collective bargaining agreement; (i) agreement for the employment of any individual on a full-time, part-time, consulting or other basis, other than an oral Contract for employment at will; or (i) agreement under which the consequences of a default or termination could have a material adverse effect on the Business or the financial condition, operations, results of operations, or future prospects of any Seller. Each of the Contracts and agreements listed in Schedule 3.1(n), and each other Assigned Contract, including but not limited to Equipment Leases under which Purchaser is to acquire rights or obligations, is valid and enforceable in accordance with its terms; each of the Sellers is, and to each Seller's knowledge all other parties thereto are, in compliance with the provisions thereof; none of the Sellers is, and to each of the Seller's knowledge, no other party is, in default in the performance, observance or fulfillment of any material obligation, covenant or condition contained therein; and to each of the Seller's knowledge, no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder. Furthermore, no such Contract or agreement, in the reasonable opinion of the Sellers contains any requirement with which there is a reasonable likelihood a Seller or, to the Sellers' knowledge, any other party thereto will be unable to comply. (a) Environmental Matters. (i) Definitions. For purposes of this Agreement the following terms shall have the following meanings: A. "Contamination" shall mean the Release, in violation of Environmental, Health and Safety Laws, of Hazardous Substances in, on, underlying or surrounding (including into air, soils, surface water or groundwater) any real property, including migration of or depositing of Hazardous Substances onto or from adjoining or neighboring properties or the Release or presence of Hazardous Substances from or associated with the operations conducted on any real property when such Hazardous Substances have been transported to any other offsite location. B. "Environmental, Health and Safety Laws" shall mean any and all federal, state or local laws (including common law), rules, Regulations, orders, agreements, ordinances, writs, judgments, injunctions, decrees or determinations, or similar requirements, whether issued by a court or a Governmental Entity, relating to the protection of the environment, the Release of any Hazardous Substances into the environment, the generation, management, transportation, storage, treatment and disposal of Hazardous Substances, public health and safety, or employee health and safety, including laws relating to emissions, discharges, Releases, or threatened releases of pollutants, Contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, soils, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes (including, without limitation, the Clean Air Act, the Toxic Substance Control Act, the Clean Water Act, the Oil Pollution Act of 1990, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, and the Occupational Safety and Health Act of 1970, all as amended, including similar state or local laws). C. "Environmental Loss" shall mean any and all claims, damages, losses, expenses, costs, deficiencies, penalties, liens, interests, fines, assessments, charges, compensation, obligations and liabilities of any kind, whether known or unknown, imposed by private parties or Governmental Entities in civil, criminal or administrative proceedings, and which are incurred by, under or pursuant to Environmental, Health and Safety Laws, whether based on negligence, strict liability or otherwise, under any theory or process of recovery or relief, at law or at equity, including Remediation, restoration, abatement, investigation, testing, monitoring, personal injury, death and property damage costs, contribution for, or recovery of such costs under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, or similar state or federal laws, and reasonable attorneys' fees, court costs and interest paid or accrued, related to Contamination or the presence of Hazardous Substances at offsite locations arising from Seller's operations or activities, including but not limited to transportation or disposal activities. D. "Hazardous Substance" shall mean any toxic or hazardous substance, material or waste, pollutant, petroleum or petroleum derived substance or waste, salt water, oil and gas waste, radioactive substance, material or waste, asbestos containing materials, or any constituent of any such substance or waste regulated under or pursuant to any Environmental, Health and Safety Law. E. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the environment or into or out of any real property, including the movement of Hazardous Substances through or in the air, soil, surface water or groundwater of any real properties or adjoining properties. F. "Remediation" shall mean all actions, whether undertaken pursuant to judicial or administrative order or otherwise, reasonably necessary to comply with applicable Environmental, Health and Safety Laws, (a) to investigate, clean up, remediate, remove, treat, cover or in any other way adjust the levels of Hazardous Substances in or around the real properties; or (b) to prevent or control the Release of Hazardous Substances so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment. (i) Representations and Warranties. The parties agree that the following representations and warranties shall govern in the event of any conflict between the provisions of this Section 3.1(o) and any other provision of this Agreement or of the other agreements or conveyance instruments contemplated hereby. The Sellers and the Seller Shareholders, jointly and severally, represent and warrant that, except as otherwise set forth on Schedule 3.1(o), the following statements are true and correct in all material respects: A. Each of the Sellers has obtained all Authorizations, including permits, which are required in connection with the conduct of the Business under Environmental, Health and Safety Laws; B. Each of the Sellers is in compliance in all material respects in the conduct of the Business with all terms and conditions of the required Authorizations, and is also in compliance in all material respects with all Environmental, Health and Safety Laws and with any plan required by law, order, decree, judgment, or injunction entered, promulgated or approved thereunder, and, with any notice or demand letter issued thereunder; C. None of the Sellers is aware of, nor has any Seller received notice of, any past or present circumstances that, if continued, are reasonably likely to interfere with or prevent compliance or continued compliance in the conduct of the Business with any Environmental, Health and Safety Laws or with any plan required by law, order, decree, judgment or injunction entered, promulgated or approved thereunder, or, with any notice or demand letter, or which may otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any Hazardous Substance; D. There is no civil, criminal or administrative action, suit, order, demand, claim, hearing, notice or demand letter, notice of violation, investigation, or proceeding pending or, to the Sellers' knowledge, threatened against any Seller in connection with the conduct of the Business relating in any way to any Environmental, Health and Safety Laws; E. Each of the Sellers agrees to cooperate with Purchaser, both prior to and following the Closing, in connection with Purchaser's application for the transfer, renewal or issuance of any Authorizations or Purchaser's efforts to satisfy any Environmental, Health and Safety Laws involving the Business, (provided, however, that the Sellers shall not be required to incur any material expense in connection therewith); F. None of the Sellers, in connection with the operation of the Business, has handled or disposed of any Hazardous Substance in violation of Environmental, Health and Safety Laws, arranged for the disposal of any Hazardous Substance in violation of Environmental, Health and Safety Laws, exposed any employee or other individual to any Hazardous Substance or condition in violation of Environmental, Health and Safety Laws, or operated any Assets in any manner that could form the basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand for damage to, or for investigation and Remediation of, any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health and Safety Laws or Authorizations; G. Each of the Sellers has provided Purchaser all material information in such Seller's control or possession relating to: (1) the existence of Contamination on or affecting all Assets; (2) compliance with all Environmental, Health and Safety Laws; and (3) any alleged or actual Environmental Losses; and H. No oral or written agreements, including but not limited to indemnity or cleanup agreements, exist between the Sellers or the Seller Shareholders and any third parties, relating to or concerning the environmental, safety or health conditions of the Assets. (a) Availability of Documents. Each of the Sellers has provided Purchaser with copies of all material documents, including without limitation all of the Contracts, permits, licenses, patents, trademarks, copyrights and applications therefor listed in the Schedules. Each of the Sellers will use its best efforts to obtain any such documents not in its possession and promptly deliver same to Purchaser. Such copies are true and complete and include all amendments, supplements and modifications thereto or waivers currently in effect thereunder. (a) Assets. Except as set forth in Schedule 3.1(q), the Assets include all rights and property, other than real property, reasonably necessary for the conduct of the Business by Purchaser in the manner in which it has been conducted by the Sellers for the period of time reflected in the Financial Statements and for the conduct of the Business as presently conducted by each of the Sellers, and no property excluded from the Assets under Section 1.1(b), other than real property, constitutes property or rights material to the Business. Each such tangible Asset is structurally sound, has been maintained in accordance with normal industry practice, is in good operating condition and repair, subject to normal wear and tear, is suitable for the purposes for which it presently is used and for use in the continued conduct of the Business in substantially the same manner as conducted prior to the Closing. None of the tangible Assets is in need of maintenance or repairs except for ordinary routine maintenance and repairs that are not material in nature or cost. Any modifications that have been made to any of the tangible Assets prior to Closing, have been made in accordance with normal industry practice. (a) Restrictions. None of the Sellers is a party to any material agreement, license, Permit, Authorization or other instrument or any understanding or oral agreement, and none of the Sellers is subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree or award, which materially adversely affects or materially restricts the Business or Assets. (a) Conditions Affecting the Sellers. Except as provided in this Agreement or disclosed in the Schedules, and except for conditions that affect as a whole the oil field servicing industry generally, there is no fact known to the Sellers which may reasonably be expected to materially adversely affect the Business considered as a whole. Notwithstanding the foregoing, the Sellers and the Seller Shareholders shall not be deemed to have made to Purchaser or DPS any representation or warranty other than as expressly made in this Article II. Without limiting the generality of the foregoing, the Sellers and the Seller Shareholders make no representations or warranties to Purchaser or DPS with respect to (i) any projections, estimates or budgets heretofore delivered to or made available to Purchaser or DPS of future revenues, expenses or expenditures or future results of operations; or (ii) except as expressly covered by a representation and warranty contained in this Article II, any other information or documents (financial or otherwise) made available to Purchaser or DPS or its counsel, accountants or other advisors with respect to the Sellers, the Business or the Assets. (a) Employee Benefit Plans. Schedule 3.1(t) lists all of the Sellers' Employee Benefit Plans. None of the Sellers is now and for the preceding five years has not been, a party to any "employee pension benefit plan" as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). None of the Sellers is under any legal obligation to create a new Employee Benefit Plan, or amend an existing Employee Benefit Plan, that would affect any of the employees of the Sellers who are employed or otherwise compensated for activities involving the Assets or the Business ("Affected Employees"). (i) Purchaser shall have no responsibility or liability with respect to benefits which may have accrued or been promised to any Affected Employee under any "Employee Benefit Plan" of the Sellers or any member of a Seller's control group as determined under Sections 414(b) or (c) of the Code, or which form an affiliated service group with any of the Sellers or the Seller Shareholders within the meaning of Section 414(m) of the Code. The term "Employee Benefit Plan" includes, but is not limited to any profit sharing, stock, bonus, 401(k), nonqualified deferred compensation, medical, dental, workers' compensation, life insurance, incentive, vacation benefits, and fringe benefits plan or program and each "employee benefit plan" described in Section 3(3) of ERISA. The Sellers shall indemnify Purchaser as provided in Section VI of this Agreement against and in respect of any Damages (as hereinafter defined) which arise directly or indirectly with respect to an Employee Benefit Plan. None of the Sellers contributes to any "multiemployer plan" as defined in Section 3(37) or 4001(o)(3) of ERISA. (i) The Sellers shall pay and be liable to Purchaser, and shall indemnify Purchaser as provided in Section VI of this Agreement, from and against and in respect of any and all Damages that arise under section 4980B of the Code, imposed upon, incurred by, or assessed against Purchaser or any of its employees arising by reason of or relating (x) to any failure to comply with the continuation health care coverage requirements of section 4980B of the Code, which failure occurred with respect to any current or prior employee of Seller or any "qualified beneficiary" of such employee (as defined in section 4980B(g)(I) of the Code) on or prior to the Closing Date, and (y) to the extent, if any, of any amounts paid by Purchaser under its health plan to any current or prior employee of the Sellers as a result of a "qualifying event" (as defined in Section 4980B(f)(3) of the Code) which occurred prior to the Closing Date, over the amount of the "applicable premium" (as defined in section 4980B(f)(4) of the Code) paid to Purchaser or Purchaser's health plan, by such current or prior employee. References to the Code include any amendments that may be made to the Code from time to time. (a) Personnel. Schedule 3.1(u) lists the names and monthly or, as applicable, hourly rates of compensation (including base salary, bonus, commissions, and incentive pay) of the Affected Employees and summarizes the bonus, profit sharing, percentage compensation, automobile, club membership and other benefits, if any, paid or payable to the Affected Employees during the Sellers' 1997 fiscal year and from the beginning of each of the Seller's current fiscal year to the Effective Date and identifies all accrued vacation relating to the Affected Employees. Schedule 3.1(u) also contains a brief description of all material terms of all written or oral employment agreements, severance agreements, confidentiality agreements, noncompete agreements or similar agreements to which any Affected Employee is or may be subject. The Sellers have delivered to Purchaser accurate and complete copies of all such agreements, and all other agreements, plans and other instruments to which any of the Sellers is a party and under which the Affected Employees are entitled to receive benefits of any nature. To the Sellers' knowledge, and except as set forth on Schedule 3.1(u), the employee relations of each of the Sellers are good and there is no pending or threatened controversy, labor dispute or union organization campaign between any Seller and any of its employees or former employees. None of the Affected Employees are represented by any labor union or organization nor is any Seller a party to any collective bargaining agreement. Except as set forth on Schedule 3.1(u), each of the Sellers is in compliance in all material respects with all federal and state laws respecting employment and employment practices, terms and conditions of employment and wages and hours and is not engaged in any unfair labor practices. There is no unfair labor practices complaint or charge of employment discrimination pending, or threatened with respect to an Affected Employee before the National Labor Relations Board, the Equal Employment Opportunity Commission, or any other state, federal or local court or Governmental Entity, or any strike, labor dispute, work slowdown or work stoppage pending or, to the Sellers' knowledge, threatened against or involving any Seller, and none of the Sellers has experienced any material labor difficulty during the last three years. Except as otherwise specifically provided in this Agreement, Purchaser shall have no liability for any severance or termination expenses of any Seller or Seller Shareholder, including accrued vacation and sick leave time, in connection with the termination of employment by Seller of any Affected Employee, whether or not such person is employed by Purchaser. None of the Sellers nor any Seller Shareholder shall have any such liability in connection with the termination of employment by Purchaser of any Affected Employee who has been employed by Purchaser and subsequently terminated by Purchaser after the Closing. (a) Legal Compliance; Undisclosed Liabilities. Each of the Sellers and each of their predecessors and "Affiliates" (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934) has complied with all applicable laws (including rules, Regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. None of the Sellers has any liability and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Seller), except for (i) liabilities set forth on the face of the Financial Statements, (ii) liabilities which have arisen in the ordinary course of business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of Contract, breach of warranty, tort, infringement, or violation of law), and (iii) liabilities listed on Schedule 3.1(l). (a) Inventory. All inventory of the Sellers, whether or not reflected in the balance sheets, consists of a quality and quantity usable and where applicable, salable in the ordinary course of business. (a) Warranty. Schedule 3.1(x) includes copies of the standard terms and conditions of sale or lease for each of the products and services of the Sellers (containing applicable guaranty, warranty, and indemnity provisions). The products and services provided by the Sellers have, in each case, been in conformity with all applicable contractual commitments and all express and implied warranties, and none of the Sellers has any liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any liability) for replacement or repair or other damages in connection therewith, subject only to the reserve for warranty claims set forth on the face of the Financial Statements (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Sellers. No service provided by any of the Sellers is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale or lease listed in Schedule 3.1(x). (a) Investment. The Sellers and the Seller Shareholders understand that the Shares have not been, nor will be, registered under the Securities Act of 1933 or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering. Each of the Sellers is acquiring the Shares solely for its own account for investment purposes, and not with a view to the distribution thereof. The Sellers and Seller Shareholders are sophisticated investors, with knowledge and experience in business and financial matters, and are able to bear the economic risk and lack of liquidity inherent in holding the Shares. The Sellers and Seller Shareholders acknowledge and agree that (i) they have fully reviewed all periodic reports filed with the Securities and Exchange Commission by DPS within the past 12 months, (ii) they have had the opportunity to ask questions of and receive information from representatives of DPS and have received all information necessary for each of them to evaluate the merits and risks inherent in holding the Shares, (iii) the stock certificates issued to each Seller shall bear a restrictive legend indicating that the Shares have not been registered under the Securities Act or any other state securities laws. A. Representations and Warranties of Purchaser. Purchaser and DPS, jointly and severally, represent and warrant to the Sellers and the Seller Shareholders as follows: (a) Existence. Purchaser is a limited partnership validly existing and in good standing under the laws of the State of Delaware. DPS is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. (a) Power and Authorization. Purchaser and DPS each has the power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Purchaser and by DPS have been duly authorized by all necessary corporate and partnership action. This Agreement has been duly executed and delivered by Purchaser and DPS and constitutes the legal, valid and binding obligation of Purchaser and DPS, enforceable against Purchaser and DPS in accordance with its terms except as the same may be limited by applicable bankruptcy, insolvency, reorganization, or other laws affecting the enforcement of creditors' rights generally and the application of general principles of equity. (a) Noncontravention. The execution, delivery and performance of this Agreement by Purchaser and DPS does not and will not violate, conflict with or result in the breach of any material term, condition or provision of, or require the consent of any other party which has not already been obtained under, (i) any existing law, ordinance, or governmental rule or regulation to which Purchaser or DPS is subject, (ii) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to Purchaser or DPS, (iii) the Limited Partnership Agreement, Articles of Incorporation or Bylaws or equivalent organizational documents, or any securities issued by Purchaser, its general partner, or DPS as the case may be, or (iv) any Contract to which Purchaser or DPS is a party or by which Purchaser or DPS is otherwise bound. Except as otherwise contemplated by this Agreement, no Authorization, approval or consent of, and no registration or filing with, any Governmental Entity is required in connection with the execution, delivery and performance of this Agreement by Purchaser or DPS. (a) Shares. The Shares, if issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer other than restrictions on transfer set forth in this Agreement and under applicable state and federal securities laws. (a) No Material Misstatements. The documents filed by DPS pursuant to the Securities Exchange Act of 1934 do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. A. Survival. All statements of fact contained in any written statement (including financial statements), certificate, instrument or document delivered by or on behalf of any party hereto pursuant to this Agreement shall be deemed representations and warranties of such party. All covenants, agreements, representations and warranties of the parties to this Agreement shall survive and remain in full force and effect after the Closing Date and shall not be affected by any investigation heretofore or hereafter made by and on behalf of any of them or be deemed merged into any instruments or agreements delivered in connection with this Agreement or otherwise in connection with the transactions contemplated hereby. Subject to the limitations on indemnification obligations set forth in Article VI, the representations and warranties set forth in this Article III and in any schedule, certificate or instrument delivered by or on behalf of any party hereto in connection with this Agreement, shall terminate on the close of business on the fifth anniversary of the Closing Date, following which all the parties shall cease to have any right to bring any action or present any claim for a breach of such representations and warranties; provided that there shall be no termination of any such representation and warranty as to which a bona fide claim has been asserted and notice of such claim has been delivered prior to such termination date. Nothing in this Section 3.3 shall at any time relieve any party hereto from the performance of such party's agreements, covenants and undertakings set forth in the Agreement or in any other agreement executed and delivered by or on behalf of any party hereto at or prior to the Closing pursuant to this Agreement. I. ARTICLE - AGREEMENTS PENDING CLOSING A. Agreements of the Sellers and the Seller Shareholders Pending the Closing. The Sellers and the Seller Shareholders covenant and agree that, pending the Closing and except as otherwise agreed to in writing by Purchaser, they shall take the following actions: (a) Business in the Ordinary Course. The Business shall be conducted solely in the ordinary course consistent with past practice. The Sellers shall continue to maintain and service the physical Assets used in the conduct of the Business in good working condition consistent with past practices. The Sellers shall not cause or permit to occur any of the events or occurrences described in Section 3.1(h) (Existing Condition). Each of the Sellers shall use its reasonable commercial efforts to maintain in full force and effect all Authorizations currently in effect and used in the conduct of the Business, and shall comply with all Regulations applicable to the Business, the noncompliance with which might materially and adversely affect the Business or the Assets. The Sellers shall not (i) sell, lease, license, assign or otherwise transfer any of the Assets, (ii) enter into any Contract outside of the ordinary course of business, (iii) amend, modify, terminate, waive any material provision of, or breach any material Contract, or (iv) cancel, terminate or cause or allow to lapse any insurance coverage affecting the Business or the Assets. (a) Conduct of Business. Each of the Sellers shall use its best efforts to conduct the Business in such a manner that on the Closing Date the representations and warranties contained in this Agreement shall be true, except as specifically contemplated by this Article IV, as though such representations and warranties were made on and as of such date. Furthermore, each of the Sellers shall cooperate with Purchaser and use its reasonable commercial efforts to cause all of the conditions to the obligations of Purchaser under this Agreement to be satisfied on or prior to the Closing Date. (a) Exclusive Dealing. Until such time, if any, as this Agreement is terminated pursuant to Article VIII, none of the Sellers shall (nor shall any Seller cause its representatives and agents directly or indirectly, through any third party or otherwise to), sell or encumber any part of the Assets, or solicit, initiate, encourage or entertain any inquiries, proposals or offers from, discuss or negotiate with, provide any non-public information to or consider the merits of any inquiries or proposals from any person (other than Purchaser) relating to any transaction involving the sale of the Business or Assets, in whole or in part (other than sales of inventory in the ordinary course of business), or any of the capital stock of the Sellers, or any merger, consolidation, business combination or similar transaction involving any of the Sellers. (a) Access. Each of the Sellers shall give to Purchaser's officers, employees, counsel, accountants and other representatives free and full access to and the right to inspect, during normal business hours, all of the premises, properties, assets, records, Contracts and other documents relating to the Business and the Assets and shall permit them to consult with the officers, employees, accountants, counsel and agents of Seller for the purpose of making such investigation of the Business and the Assets as Purchaser shall desire to make, provided that such investigation shall be at Purchaser's sole cost and expense and shall not unreasonably interfere with the Sellers' business operations. Furthermore, each Seller shall furnish to Purchaser all such documents and copies of documents and Records and information with respect to the Business and the Assets and copies of any internal financial records relating thereto as Purchaser shall from time to time reasonably request and shall permit Purchaser and its agents to make such physical inventories and inspections of the Assets as Purchaser may reasonably request from time to time. (a) Press Release. Except for such press release and discussions with employees and customers as mutually agreed to by the Sellers and Purchaser and except as required by applicable law, the Sellers shall not give notice to third parties or otherwise make any public statement or releases concerning this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content by Purchaser, which approval shall not be unreasonably withheld. (b) Actions of Directors and Shareholders. Each of the Sellers shall promptly and diligently take all action necessary in accordance with law and its Articles of Incorporation, Bylaws and other organizational documents to approve this Agreement and to consummate the transactions contemplated hereby. (a) Employee Matters. Each of the Sellers shall give its employees all notices required by law, including but not limited to notices of their rights under the Comprehensive Omnibus Budget Reconciliation Act of 1986. Each of the Sellers shall terminate all of such Seller's Employee Benefit Plans, as listed on Schedule 3.1(u), as of the Closing. (a) Actions of Sellers and Seller Shareholders. None of the Sellers or the Seller Shareholders will intentionally take any action which would result in a breach of any of its representations and warranties. (a) Required Approvals; HSR. As promptly as practicable after the Effective Date, the Sellers and the Seller Shareholders will make all filings required to be made by them in order to consummate the transactions contemplated by this Agreement, including any filings required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and will use reasonable commercial efforts to cause the early termination of any applicable waiting period under the HSR Act. A. Agreements of Purchaser Pending the Closing. Purchaser and DPS covenant and agree that, pending the Closing and except as otherwise agreed to in writing by the Sellers, they shall take the following actions: (a) Press Release. Except for such press release and discussions with employees and customers as mutually agreed to by the Sellers and Purchaser and except as required by applicable law, Purchaser will not give notice to third parties or otherwise make any public statement or releases concerning this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content by Seller, which approval shall not be unreasonably withheld. (a) Actions of DPS and Purchaser. Each of DPS and Purchaser shall promptly and diligently take all action necessary in accordance with law and its Articles of Incorporation, Bylaws, Limited Partnership Agreement, or other organizational documents, as the case may be, to approve this Agreement and to consummate the transactions contemplated hereby. (a) Actions of Purchaser and DPS. Neither Purchaser nor DPS will intentionally take any action which would result in a breach of any of its representations and warranties hereunder. (b) Required Approvals; HSR. As promptly as practicable after the Effective Date, Purchaser and DPS will make all filings required to be made by them in order to consummate the transactions contemplated by this Agreement, including any filings required by the HSR Act and will use reasonable commercial efforts to cause the early termination of any applicable waiting period under the HSR Act. I. ARTICLE - CONDITIONS PRECEDENT TO THE CLOSING A. Conditions Precedent to the Obligation of Purchaser and DPS. All obligations of Purchaser and DPS under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: (a) Representations and Warranties True as of the Closing Date. The representations and warranties of the Sellers and the Seller Shareholders contained in this Agreement or in any Schedule, certificate or document delivered by the Sellers to Purchaser pursuant to the provisions hereof shall have been true on the date hereof and shall be true on the Closing Date as though such representations and warranties were made as of such date. (a) Compliance with this Agreement. Each of the Sellers shall have performed and complied in all material respects with all of its obligations under this Agreement to be performed or complied with by it prior to or at the Closing. (a) No Threatened or Pending Litigation. Except as otherwise provided on Schedule 5.1(c), on the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or be pending before any Governmental Entity in which 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, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (a) Consents and Approvals. The Sellers and the Seller Shareholders shall have obtained all third party consents required for the assignment or transfer of the Assets from the Sellers to Purchaser which are material to the continued operations of the Business after the Closing, all of which are listed on Schedule 5.1(d). (a) Material Adverse Changes. Neither the Assets nor the Business in the aggregate shall have been or shall be threatened to be materially adversely affected in any way as a result of any event or occurrence other than such conditions as may affect the well servicing industry as a whole. (a) Closing Certificate. Purchaser shall have received certificates from the Sellers, dated the Closing Date, certifying in such detail as Purchaser may reasonably request that the conditions specified in Sections 5.1(a) through 5.1(e) have been fulfilled. (a) Approval of Counsel; Corporate Matters. All actions, proceedings, resolutions, instruments and documents required to carry out this Agreement or incidental hereto and all other related legal matters shall have been approved on the Closing Date by Jenkens & Gilchrist, A Professional Corporation, counsel for Purchaser, in the exercise of its reasonable judgment. The Sellers also shall have delivered to Purchaser such other documents, instruments, certifications and further assurances as such counsel may reasonably require. (b) Physical Inventory. Purchaser shall be entitled to conduct an inventory of the Assets immediately prior to Closing to determine, among other matters, whether a Purchase Price adjustment will be required. (a) Employment Contracts. The Selling Shareholders shall have executed and delivered to Purchaser the Employment, Non-Competition and Arbitration Agreements. (a) Hart-Scott-Rodino Approval. The waiting period (including any extension thereof) applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or terminated or the transaction shall have been approved thereunder. (a) EBITDA. Purchaser's auditors shall have confirmed that Sellers' EBITDA for the 12-month period beginning June 1, 1997 through May 31, 1998 is not less than $9,400,000 determined on a basis consistent with that certain report dated July 24, 1998 prepared by Simmons & Co. for Purchaser attached as Schedule 5.1(k) and that Sellers' EBITDA for each of the months of June 1998 and July 1998 is not less than $800,000 for each such month. A. Conditions Precedent to the Obligations of the Sellers and the Seller Shareholders. All obligations of the Sellers and the Seller Shareholders under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: (a) Representations and Warranties True as of the Closing Date. The representations and warranties of Purchaser and DPS contained in this Agreement or in any list, certificate or document delivered by Purchaser or DPS to the Sellers pursuant to the provisions of this Agreement shall be true on the Closing Date as though such representations and warranties were made as of such date. (a) Compliance with this Agreement. Purchaser and DPS shall have performed and complied with all obligations required by this Agreement to be performed or complied with by it prior to or at the Closing. (a) No Threatened or Pending Litigation. Except as otherwise provided on Schedule 5.1(c), on the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or be pending before any Governmental Entity in which 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, and no investigations that might result in any such suit, action or proceeding shall be pending or threatened. (a) Closing Certificates. The Sellers shall have received a certificate from Purchaser and DPS, dated the Closing Date, certifying in such detail as the Sellers may reasonably request that the conditions specified in Sections 5.2(a) through 5.2(c) have been fulfilled. (a) Consent of Shareholders. If required, the requisite percentage of each of the Seller's shareholders shall have approved the consummation of the transactions contemplated in accordance with the requirements of applicable law. (a) Approval of Counsel; Corporate Matters. All actions, proceedings, resolutions, instruments and documents required to carry out this Agreement or incidental hereto and all other related legal matters shall have been approved on the Closing Date by Baker & Botts, L.L.P., counsel for the Sellers, in the exercise of its reasonable judgment. Purchaser and DPS also shall have delivered to the Sellers such other documents, instruments, certifications and further assurances as such counsel may reasonably require. (a) Employment Contracts. Purchaser shall have executed and delivered to the Selling Shareholders, the Employment, Non-Competition and Arbitration Agreements, and DPS shall have executed and delivered to the Sellers the Registration Rights Agreement. (a) Hart-Scott-Rodino Approval. The waiting period (including any extension thereof) applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or terminated or the transaction shall have been approved thereunder. I. ARTICLE - INDEMNIFICATION ================================================================================ The following Sections are important and should be read carefully. ================================================================================ A. Definitions. (a) "Governmental Entity" shall mean any arbitrator, court, administrative or regulatory agency, commission, department, board or bureau or body or other government or authority or instrumentality or any entity or person exercising, executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. (a) "Indemnitee" shall mean the person or persons indemnified, or entitled or claiming to be entitled to be indemnified, pursuant to the provisions of Article VI. (a) "Indemnitor" shall mean the person or persons having the obligation to indemnify pursuant to the provisions of Article VI. A. Indemnification by the Sellers and the Seller Shareholders. Except as otherwise limited by this Article VI, (and subject to the limitations set forth in Section 3.1 regarding the several, as opposed to joint, liability of the Seller Shareholders for representations and warranties made regarding the Seller Shareholders), the Sellers and the Seller Shareholders, jointly and severally, agree to indemnify, defend and hold harmless DPS, Purchaser and each of their officers, directors, employees, agents, shareholders and controlling persons, and their respective successors and assigns (the "Purchaser Indemnified Parties"), separate consideration for which is hereby acknowledged, of, from and against and in respect of any and all liabilities, losses, damages, demands, assessments, claims, costs and expenses (including interest, awards, judgments, penalties, settlements, fines, costs of Remediation, costs and expenses incurred in connection with investigating and defending any claims or causes of action including attorneys' fees and expenses and all fees and expenses of consultants and other professionals) ("Damages") actually suffered, incurred or realized by the Purchaser Indemnified Parties (collectively, "Purchaser Losses") arising out of or resulting from or relating to any of the following: any misrepresentation, breach of warranty or breach of any covenant or agreement made or undertaken by the Sellers or the Seller Shareholders in this Agreement or any misrepresentation in or omission from any other agreement, certificate, exhibit or writing delivered to Purchaser pursuant to this Agreement, including the Schedules; any liability other than the Assumed Liabilities relating to the Assets or the Business, whether known or unknown, now existing or hereafter arising, contingent or liquidated, including without limitation, any Tax liabilities of the Sellers prior to the Closing; (a) any products manufactured, sold or distributed or services provided by or on behalf of the Sellers on or prior to the Closing or with respect to any claims made pursuant to warranties to third persons in connection with products manufactured, sold or distributed or services provided by or on behalf of the Sellers on or prior to the Closing; (a) any Environmental Losses in connection with, relating to, or arising from acts or omissions of any of the Sellers or Seller Shareholders or conditions in existence on or prior to the Closing which relate to the Assets or the operations of the Business; and (a) any claims arising from, in connection with, or relating to, any breach of this Agreement by any of the Sellers or Seller Shareholders. A. Indemnification by Purchaser and DPS. Except as otherwise limited by this Article VI, Purchaser and DPS, jointly and severally, agree to indemnify, defend and hold each of the Sellers and the Seller Shareholders and each of their officers, directors, employees, agents, shareholders and controlling persons and their successors and assigns (the "Seller Indemnified Parties") harmless, separate consideration for which is hereby acknowledged, of, from and against and in respect of Damages actually suffered, incurred or realized by the Seller Indemnified Parties (collectively, "Seller Losses") arising out of or resulting from any of the following: (a) any misrepresentation, breach of warranty or breach of any covenant or agreement made or undertaken by Purchaser or DPS in this Agreement or any misrepresentation in or omission from any other agreement, certificate, exhibit or writing delivered to the Sellers pursuant to this Agreement; (a) (i) any Assumed Liability and (ii) any other liability relating to the Assets or the Business that arises out of the operation of the Business by Purchaser or DPS after the Closing, whether contingent or liquidated, including without limitation, any Tax liabilities of Purchaser or DPS pertaining to the Assets or the Business arising subsequent to the Closing; (a) any products manufactured, sold or distributed or services provided by or on behalf of Purchaser after the Closing or with respect to any claims made pursuant to warranties to third persons in connection with products manufactured, sold or distributed or services provided by or on behalf of Purchaser after the Closing; (a) any Environmental Losses in connection with, relating to, or arising from acts or omissions of Purchaser or DPS subsequent to the Closing which relate to the Assets or the operations of the Business; and (a) any claims arising from, in connection with, or relating to, any breach of this Agreement by Purchaser or DPS. A. Procedure. All claims for indemnification pursuant to Article VI of this Agreement shall be asserted and resolved as follows: (a) An Indemnitee promptly shall give the Indemnitor notice of any matter that an Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement, stating the amount of the Damages, if known, and method of computation thereof, all with reasonable particularity, and stating with particularity the nature of such matter. Failure to provide such notice shall not affect the right of an Indemnitee to indemnification except to the extent such failure shall have resulted in liability to the Indemnitor that actually could have been avoided had such notice been provided. (a) The obligations and liabilities of an Indemnitor with respect to Damages arising from claims of any third party that are subject to the indemnification provided for in this Article VI ("Third Party Claims") shall be governed by and contingent upon the following additional terms and conditions. If an Indemnitee receives notice of any Third Party Claim, the Indemnitee shall give the Indemnitor written notice of such Third Party Claim and the Indemnitor may, at its option, assume and control the defense of such Third Party Claim at the Indemnitor's expense and through counsel of the Indemnitor's choice reasonably acceptable to the Indemnitee. If the Indemnitor assumes the defense against any such Third Party Claim as provided above, the Indemnitee shall have the right to participate at its own expense in the defense of such asserted liability, shall cooperate with the Indemnitor in such defense and will attempt to make available on a reasonable basis to the Indemnitor all witnesses, pertinent records, materials and information in its possession or under its control relating thereto as reasonably required by the Indemnitor. If the Indemnitor does not elect to conduct the defense against any such Third Party Claim, the Indemnitor shall pay all reasonable costs and expenses of such defense as incurred and shall cooperate with the Indemnitee (and be entitled to participate) in such defense and attempt to make available to it on a reasonable basis all such witnesses, records, materials and information in its possession or under its control relating thereto as reasonably required by the Indemnitee. Except for the settlement of a Third Party Claim that involves the payment of money only and for which the Indemnitee is totally indemnified by the Indemnitor, no Third Party Claim may be settled without the written consent of the Indemnitee. A. Survival; Limitations on Amount. All of the representations and warranties of the parties contained in this Agreement shall survive until the fifth anniversary of the Closing (even if the damaged party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing except as disclosed on the Schedules). No party who is a Purchaser Indemnified Party shall make a claim for indemnification with respect to a claim based upon a breach of a representation or warranty until the aggregate amount of the Purchaser Losses attributable to claims for breach of representations or warranties is at least $50,000, at which time, all such amounts may be claimed. No party who is Seller Indemnified Party shall make a claim for indemnification with respect to a claim based upon a breach of a representation or warranty until the aggregate amount of the Seller Losses attributable to claims for breach of representations or warranties is at least $50,000 at which time, all such amounts may be claimed. However, neither the Sellers and the Seller Shareholders on the one hand, nor Purchaser or DPS on the other hand, shall be required to pay in the aggregate more than $25,000,000 to satisfy claims made pursuant to this Article 6 for claims based upon breaches of the representations and warranties. A. Payment; Failure to Pay Indemnification. Payment of any amount due pursuant to this Article VI shall be made by the Indemnitor within 30 business days after notice is sent by the Indemnitee. If and to the extent an Indemnitee makes written demand upon an Indemnitor for indemnification pursuant to this Article VI and the Indemnitor refuses or fails to pay in full within 30 business days of such written demand, then the Indemnitee after arbitration of the matter may use any legal or equitable remedy to collect from the Indemnitor the amount of its Damages. Nothing contained herein is intended to limit or constrain an Indemnitee's rights against an Indemnitor for indemnity, the remedies herein being cumulative and in addition to all other rights and remedies of the Indemnitee. A. Express Negligence. THE FOREGOING INDEMNITIES ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING TEXAS' EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES. A. Other Rights and Remedies Not Affected. The indemnification rights of the parties under this Agreement are independent of and in addition to such rights and remedies as the parties may have at law or in equity or otherwise for any misrepresentation, breach of warranty or failure to fulfill any agreement or covenant hereunder on the part of any party hereto, including without limitation the right to seek specific performance, rescission or restitution, none of which rights or remedies shall be affected or diminished hereby. I. ARTICLE - POST CLOSING MATTERS A. Arbitration. (a) Negotiation Period. All disputes arising under this Agreement (other than a suit for injunctive relief) or arising with respect to any transaction contemplated hereby will be subject to binding arbitration in accordance with this Section 7.1 If such a dispute exists, the parties shall attempt for a thirty-day period (the "Negotiation Period") from the date any party gives any one or more of the other parties notice (the "Dispute Notice") pursuant to this Section, to negotiate in good faith, a resolution of the dispute. The Dispute Notice shall set forth with specificity the basis of the dispute and shall be delivered to each party to this Agreement to whom the dispute relates. During the Negotiation Period, representatives of each party involved in the dispute who have authority to settle the dispute shall meet at mutually convenient times and places and use their best efforts to resolve the dispute. (a) Commencement of Arbitration. If a resolution is not reached by the parties prior to the end of the Negotiation Period, the parties agree to submit to binding arbitration in San Antonio, Texas with an arbitrator or arbitrators experienced in the arbitration of complex commercial disputes. (a) Consolidation of Hearings. If more than one party delivers a Dispute Notice to one or more other parties pursuant to this Section 7.1, the arbitrators selected with respect to each such Dispute Notice may elect, in their sole discretion, to combine the matters set forth in one or more, but not necessarily all, of the Dispute Notices into one or more hearings, in which case, the arbitrators shall adjust the time deadlines set forth herein as they determine appropriate, and shall decide which one of them will hear the evidence and render a final determination with respect to each hearing. (a) Conclusion of Arbitration. The arbitrator shall make the final decision as to the parties' respective rights and obligations. The arbitrator may determine that a party is entitled to damages hereunder from one or more other parties, and the manner in which such damages shall be assessed against the other parties. However, the arbitrator may not award emotional distress or punitive damages. (a) Expenses of Arbitrators. The expenses of the arbitrator(s) shall be shared equally by the parties to the arbitration. A. Discharge of Business Obligations. Following the Closing Date, the Sellers shall pay and discharge, in accordance with past practice but not more than 30 days within receipt of an invoice, all obligations and liabilities incurred prior to the Closing Date relating to the Business and the Assets (except for those expressly assumed by Purchaser hereunder and except to the extent prorated pursuant to Section 1.5), including without limitation any liabilities or obligations to employees, trade creditors and clients of the Business. The Sellers, Seller Shareholders, Purchaser and DPS shall each use commercially reasonable efforts following the Closing to ensure a smooth transition of the Business to Purchaser. A. Maintenance of Books and Records. The Sellers and Purchaser shall each preserve all records possessed by such party relating to the Business or Assets prior to the Closing Date for a period of at least six years following the fiscal year to which the records relate. After the Closing Date, where there is a legitimate purpose, such party shall provide the other parties and their representatives with access, upon prior reasonable written request specifying the need therefor, during regular business hours, to (a) the officers, employees and other duly appointed representatives of such party and (b) the books of account and records of such party, but, in each case, only to the extent relating to the Assets or Business prior to the Closing Date, and the other parties and their representatives shall have the right to make copies of such books and records; provided, however, that the foregoing right of access shall not be exercisable in such a manner as to interfere unreasonably with the normal operations and business of such party; and further, provided that, as to so much of such information as constitutes trade secrets or confidential business information of such party, the requesting party and its officers, directors and representatives will use due care to not disclose such information except (x) as required by law, (y) with the prior written consent of such party, which consent shall not be unreasonably withheld, or (z) where such information becomes available to the public generally, or becomes generally known to competitors of such party through sources other than the requesting party, its Affiliates or its officers, directors or representatives. Such records may nevertheless be destroyed by a party if such party sends to the other parties written notice of its intent to destroy the records, specifying with particularity the contents of the records to be destroyed. Such records may then be destroyed after the 30th day after such notice is given unless another party objects to the destruction in which case the party seeking to destroy the records shall deliver such records to the objecting party. A. Payments Received. The Sellers and Purchaser after the Closing shall hold and will promptly transfer and deliver to the other, from time to time as and when received by them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash), or other property that they may receive on or after the Closing which properly belongs to the other party, including without limitation any insurance proceeds, and will account to the other for all such receipts. Following the Closing, Purchaser shall have the right and authority to endorse without recourse the name of the Sellers on any check or any other evidences of indebtedness received by Purchaser on account of the Business and the Assets transferred to Purchaser hereunder, for the sole purpose of depositing such items into accounts over which the Sellers have signatory authority. A. Inquiries. Following the Closing Date, the Sellers will promptly refer all inquiries with respect to ownership of the Assets or the Business to Purchaser. The Sellers will execute such documents and financing statements as Purchaser may reasonably request from time to time to evidence the transfer of the Assets to Purchaser, including any necessary assignments of financing statements. In addition, the Sellers shall take all reasonable steps necessary to convey to Purchaser any Assets used in the normal course of the Business which are not listed in the Schedules set forth in Section 1.1(a) of this Agreement. A. Covenant Not to Compete. In exchange for the payment by Purchaser to the Seller Shareholders of Two Million Dollars ($2,000,000) in immediately available funds (the "Non-Competition Payment") in accordance with Schedule 7.6, and as part of the transactions described in this Agreement, the Sellers and the Seller Shareholders each separately agree, for a period of five years after the Closing Date, not to, directly or indirectly, own, manage, operate, join or control, or participate in ownership, management, operation or control of, any business whether in corporate, proprietorship or partnership form or otherwise as more than a one percent owner in such business where such business is competitive with the Business and is within a 300-mile radius of the Sellers' facilities used in the Business or in the operation of the Assets as of the Closing Date. The parties hereto specifically acknowledge and agree that the remedy at law for any breach of the foregoing will be inadequate and that Purchaser, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. The Seller and the Seller Shareholders acknowledge that this covenant not to compete is being provided as an inducement to Purchaser to acquire the Business and the Assets and that this Section 7.6 contains reasonable limitations as to time, geographical area and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of Purchaser in the Business. Whenever possible, each provision of this Section 7.6 shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Section 7.6 is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Section 7.6. If any provision of this Section 7.6 is, for any reason, judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Section 7.6 but shall be confined in its operation to the provision of this Section 7.6 directly involved in the controversy in which such judgment has been rendered. If the provisions of this Section 7.6 are ever deemed to exceed the time or geographic limitations permitted by applicable laws, then such provisions shall be reformed to the maximum time or geographic limitations permitted by applicable law. A. Transition Period. During the six-month period following the Closing (the "Transition Period"), the parties shall operate the Business in the following manner: (a) Collections. Purchaser's employees shall issue invoices for work in process as of the Closing Date for both the portion of the work completed by the Sellers prior to the Closing and the portion of the work completed by Purchaser thereafter. (a) Accounting. Purchaser's employees will assist Seller as reasonably necessary to close out the Sellers' books and records relating to the Business. (a) Licenses and Permits. The Sellers will continue to cooperate with Purchaser in connection with Purchaser's applications for the transfer, renewal or issuance of any permits, licenses, approvals or other Authorizations and as required to satisfy any regulatory requirements arising as a result of the sale of the Business pursuant to this Agreement, provided that all out-of-pocket expenses incurred in connection therewith shall be paid by Purchaser. A. Accounting Records. For a five year period following the Closing, each of the Sellers will use commercially reasonable efforts to take all action necessary or appropriate to allow Purchaser to obtain access to audit work papers of the Sellers' accountants for the immediately preceding five years, if Purchaser requests such access in connection with the audit by Purchaser of the Business for periods preceding the Closing. A. Nondisclosure of Proprietary Information. The Sellers and the Seller Shareholders agree that, from and after the Closing Date, they and all of their Affiliates shall hold in confidence and will not directly or indirectly at any time reveal, report, publish, disclose or transfer to any person other than Purchaser any proprietary information relating to the Business or the Assets (the "Proprietary Information") that is not generally known to the public or use any Proprietary Information for any purpose. The Sellers and the Seller Shareholders acknowledge that all documents and objects containing or reflecting any Proprietary Information whether developed by any of the Sellers or by a third party for any of the Sellers, will after the Closing Date become the exclusive property of Purchaser and be delivered to Purchaser. A. Contact with Former Employees. The Sellers and the Seller Shareholders agree that for a period of five years following the Closing Date, they will not solicit for employment, directly or indirectly, any of Purchaser's employees, or employees of Purchaser's Affiliates or related companies, or any person who has been so employed within one year prior to such solicitation. I. ARTICLE - TERMINATION A. Events of Termination. The obligation to close the transactions contemplated by this Agreement may be terminated as follows: (a) by mutual agreement of Purchaser and Sellers; (a) by Purchaser, if a material default is made by the Sellers or the Seller Shareholders in the observance or in the due and timely performance by the Sellers or the Seller Shareholders of any agreements and covenants of the Sellers or the Seller Shareholders herein contained, or if there has been a breach by the Sellers or the Seller Shareholders of any of the warranties and representations of the Sellers or the Seller Shareholders herein contained, and such default or breach has not been cured or waived within 20 days of written notice thereof; (a) by the Sellers, if a material default is made by Purchaser or DPS in the observance or in the due and timely performance by Purchaser or DPS of any agreements and covenants of Purchaser or DPS herein contained, or if there has been a breach by Purchaser or DPS of any of the warranties and representations of Purchaser or DPS herein contained, and such default or breach has not been cured or has not been waived within 20 days of written notice thereof; (a) by Purchaser or the Sellers (provided the terminating party has not materially breached any of its agreements, covenants or representations and warranties), if the Closing has not occurred on or before October 15, 1998. A. Liability Upon Termination. If the obligation to consummate the transactions contemplated by this Agreement is terminated pursuant to any provision of this Article VIII, then this Agreement shall forthwith become void and there shall not be any liability or obligation with respect to this Agreement on the part of Seller or Purchaser except and to the extent such termination results from the willful breach by a party of any of its representations, warranties or agreements hereunder. A. Notice of Termination. The parties hereto may exercise their respective rights of termination under this Article VIII only by delivering written notice to that effect to the other party on or before the Closing Date, specifically describing the factual basis and provisions of this Agreement relied upon for such termination. I. ARTICLE - MISCELLANEOUS A. Finders' Fees. Neither the Sellers nor the Seller Shareholders have engaged any person to act on their behalf in connection with the transactions contemplated by this Agreement who would have any claim against Purchaser or DPS or any of their respective Affiliates for brokerage or finders' fees or agent commissions or similar payments. A. Expenses. Except as otherwise provided in this Agreement, each party hereto shall pay its own expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the transactions contemplated hereby. A. Assignment and Binding Effect. This Agreement may not be assigned prior to the Closing by any party hereto without the prior written consent of the other party; provided, however, Purchaser and DPS may assign their rights but not their obligations hereunder to any other entity that is controlling, controlled by or under common control with Purchaser or DPS. Purchaser shall give Sellers prompt written notice of any such assignment. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the Sellers, the Seller Shareholders, Purchaser and DPS. A. Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telegram, facsimile, first class mail, postage prepaid, or overnight courier as follows: If to Purchaser or DPS, to: With a copy to: Dawson Production Partners, L.P. Jenkens & Gilchrist, 112 E. Pecan Street, Suite 1000 A Professional Corporation San Antonio, Texas 78205 600 Congress Avenue, Suite 2200 ATTN: Michael E. Little Austin, Texas 78701 Facsimile Number: (210) 354-1041 ATTN: J. Rowland Cook Facsimile Number: (512) 404-3520 If to the Sellers or the Seller Shareholders, to: With a copy to: Mr. Roger Hellums Baker & Botts, L.L.P. P.O. Drawer 330 One Shell Plaza Freer, Texas 78357 910 Louisiana Street Houston, Texas 77002 ATTN: L. Proctor Thomas, III Facsimile Number: (713) 229-1522 or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, telegraphed or faxed or five business days after the date so mailed, or on the day after the date delivered to Federal Express or another similar courier marked for next day delivery if delivered within the continental United States, and, if delivered overseas, two business days after the date so delivered to DHL, Federal Express or another similar overseas delivery service. A. Governing Law. This Agreement shall be governed by, interpreted and enforced in accordance with the laws of the State of Texas (without regard to the choice or conflicts of law provisions of Texas law). A. No Benefit to Others. The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and, in the case of Article VI hereof, certain other indemnified parties, and their heirs, executors, administrators, legal representatives, successors and assigns, and they shall not be construed as conferring any rights on any other persons. A. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements, or representations by or among the parties, written or oral, to the extent they related in any way to the subject matter hereof. All Exhibits and Schedules referred to herein are incorporated herein in full and are specifically made a part of this Agreement. A. Headings. All Section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. A. Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or enforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction; provided if any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the effective period of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each illegal, invalid, or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. A. Counterparts. This Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when all counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Agreement as to a party to produce or account for any of the other counterparts signed by another party not joined in the action. A. Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and Regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. Any reference to a "person" herein shall include an individual, firm, corporation, partnership, trust, Governmental Entity, association, unincorporated organization and any other entity. Any references to a Section, Article, Schedule or Exhibit are to sections, articles, schedule and exhibits to this Agreement, unless otherwise specifically stated. A. Waiver. No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. A. Specific Performance. The Sellers and the Seller Shareholders acknowledge and agree that Purchaser and DPS would be damaged irreparably if any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, the Sellers agree that Purchaser and DPS shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions of this Agreement in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter (subject to the provisions set forth in Section__), in addition to any other remedy to which they may be entitled, at law or in equity. A. Submission to Jurisdiction. Each of the parties submits to the jurisdiction of any state or federal court sitting in San Antonio, Texas, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims or proceedings will be heard and determined in any such court. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity. A. Good Faith. The parties agree to act in good faith in the performance and enforcement of this Agreement. B. Attorneys' Fees. If any arbitration or action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs from the other party; provided, however, that no party shall be a prevailing party unless such party has recovered more or paid less as a result of arbitration or a final order resulting from judicial proceedings than the amount offered in writing by an opposing party to settle the dispute. A. Appointment of Seller Shareholders' Representative. Each of the Seller Shareholders hereby constitutes and appoints Roger D. Hellums as such Seller Shareholder's duly authorized representative and attorney-in-fact (the "Representative") for all purposes of this Agreement, the Escrow Agreement, the Registration Rights Agreement and all actions to be taken hereunder and thereunder, having the power and authority, without limitation, (i) to execute and deliver, for and on behalf of such Seller Shareholder, the Escrow Agreement, the Registration Rights Agreement and any other documents, certificates or instruments required to be executed in connection with the transactions contemplated by this Agreement; (ii) to act for and on behalf of such Seller Shareholder with respect to any dispute arising under this Agreement, the Escrow Agreement or the Registration Rights Agreement; (iii) to exercise any investment authority conferred upon any of the Seller Shareholders individually or as a group by the Escrow Agreement; and (iv) to execute and deliver, for and on behalf of such Seller Shareholder, all certificates, confirmations and other documents as shall be necessary and appropriate to consummate the transactions provided for in this Agreement and to fulfill any and all of such Seller Shareholder obligations hereunder. Such power and authority of the Representative shall be irrevocable. Each Seller Shareholder expressly acknowledges and agrees that the Representative shall have no liability to such Seller Shareholder for error in judgment or acts or omissions in connection herewith, whether or not disclosed and whether or not due to his negligence, unless caused by his willful misconduct. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date first written. PURCHASER: DAWSON PRODUCTION PARTNERS, L.P. By: Dawson Production Management, Inc. its General Partner By: P. Mark Stark, Vice President DPS: DAWSON PRODUCTION SERVICES, INC. By: P. Mark Stark, Chief Financial Officer SELLERS: HELLUMS SERVICES II, INC. By: Roger D. Hellums, President SUPERIOR COMPLETION SERVICES, INC. By: Charles C. Forbes, President SOUTH TEXAS DISPOSAL, INC. By: Roger D. Hellums, President ELSIK, II, INC. By: Roger D. Hellums, President SELLER SHAREHOLDERS: Roger D. Hellums Charles C. Forbes, Jr. Robert W. Radle, Jr. Ronald D. Brieden John E. Crisp Charles Talley James J. Acker SCHEDULES Schedule 1.1(a)(i) Assigned Contracts Schedule 1.1(a)(ii) Equipment Leases Schedule 1.1(a)(iii) Operating Assets Schedule 1.1(a)(iv) Vehicles Schedule 1.1(a)(v) Equipment Schedule 1.1(a)(vii) Personal Property Schedule 1.1(a)(viii) Permits Schedule 1.1(b) Excluded Assets Schedule 1.3(a) Purchase Price Schedule 1.3(b) Seller Tax Basis and Fair Market Value of Assets Schedule 1.4(a) Assumed Liabilities Schedule 3.1(a) Corporate Jurisdiction Schedule 3.1(c) Validity of Contemplated Transactions Schedule 3.1(e) Financial Statements Schedule 3.1(h) Existing Condition Schedule 3.1(i) Permitted Liens Schedule 3.1(j) Compliance with Laws; Authorizations Schedule 3.1(l) Litigation Schedule 3.1(n) Contracts and Commitments Schedule 3.1(o) Environmental Matters Schedule 3.1(q) Assets Schedule 3.1(t) Employee Benefit Plans Schedule 3.1(u) Personnel Schedule 3.1(x) Warranty Schedule 5.1(c) No Threatened or Pending Litigation Schedule 5.1(f) Consents and Approvals Schedule 7.6 Covenant Not to Compete Schedule 9.1 Finders' Fees EXHIBITS: Exhibit A Escrow Agreement Exhibit B Registration Rights Agreement Exhibit C Employment Agreement, Non-Competition Agreement and Mutual Agreement to Arbitrate Claims -----END PRIVACY-ENHANCED MESSAGE-----