Document:

Exhibit 10.4

 

TWELFTH AMENDMENT

TO

AMENDED AND RESTATED LOAN AGREEMENT

 

This Twelfth Amendment
(this “Amendment”) is made as of February 29, 2008
between CHASE CORPORATION (the “Borrower”) and BANK OF AMERICA, N.A., a
national banking association as successor by merger to Fleet National Bank  (the “Bank”).

 

RECITALS

 

A.            The
Bank and the Borrower entered into a First Amended and Restated Loan Agreement
dated as of October 31, 2001, as amended (the “Loan Agreement”), providing
for revolving loans by the Bank to the Borrower and for various term loans by
the Bank to the Borrower.  Capitalized
terms used herein without definition shall have the meanings assigned to them
in the Loan Agreement.

 

B.            The
Borrower desires to extend the Expiration Date of the Revolving Commitment.

 

C.            Subject
to certain terms and conditions, the Bank is willing to agree to extend the
Expiration Date, as hereinafter expressly set forth.

 

NOW THEREFORE,
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

 

1.             Amendments to Loan Agreement.  Section 7.1 of the Loan Agreement is
amended by amending the definition of “Expiration Date as set forth below:

 

“Expiration
Date” – March 31, 2011.

 

2.             No Further Amendments.  Except as specifically amended hereby, the
Loan Agreement shall remain otherwise unmodified and in full force and effect
and is hereby ratified and affirmed in all respects.

 

3.             Certain Representations of the Borrower.  As a material inducement to the Bank to enter
into this Amendment, the Borrower represents and warrants to the Bank, after
giving effect to this Amendment, as follows:

 

(a)     The
execution and delivery of this Amendment has been duly authorized by all
requisite corporate action on the part of the Borrower and will not violate any
provision of law, any order, judgment or decree of any court or other agency of
government, or the articles or by-laws of the Borrower or any indenture,
agreement or other instrument to which the Borrower is bound, or be in conflict
with, or result in a breach of, or constitute (with due notice or lapse of time
or both) a default under, or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the 

 

 

property or assets of the Borrower pursuant
to, any such indenture, agreement or instrument.

 

(b)     The
representations and warranties contained in the Loan Agreement are true and
correct in all material respects on and as of the date of this Amendment as
though made at and as of such date (except to the extent that such
representations and warranties expressly relate to an earlier date or except to
the extent variations therefrom have been permitted under the terms of the Loan
Agreement or otherwise permitted in writing by the Bank).  No material adverse change has occurred in
the assets, liabilities, financial condition, business or prospects of the
Borrower from that disclosed in the annual certified financial statements most recently
furnished to the Bank.  No event of
default or condition or event that, but for the requirement that time elapse or
notice be given or both, would constitute an event of default, has occurred or
is continuing.

 

(c)     This
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally or the application of principles
of equity, whether in any action at law or proceeding in equity, and subject to
the availability of the remedy of specific performance or of any other
equitable remedy or relief to enforce any right thereunder.

 

4.             Conditions.  The willingness of the Bank to agree to the
foregoing is subject to the following conditions:

 

(a)   The
Borrower shall have executed and delivered to the Bank (or shall have caused to
be executed and delivered to the Bank by the appropriate persons) the
following:

 

(i)      This
Amendment and

 

(ii)     Such
other supporting documents and certificates as the Bank or its counsel may
reasonably request.

 

(b)     All
legal matters incident to the transactions contemplated hereby shall be
satisfactory to counsel for the Bank.

 

5.                    Miscellaneous.

 

(a)   This
Amendment shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.

 

(b)   This
Amendment may be executed by the parties hereto in several counterparts hereof
and by the different parties hereto on separate 

 

2

 

counterparts hereof, all of which
counterparts shall together constitute one and the same agreement.

 

IN WITNESS WHEREOF,
the Bank and the Borrower have caused this Amendment to be duly executed as a
sealed instrument by their duly authorized representatives, all as of the date
and year first above written.

 

	
   

  	
  CHASE CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth
  L. Dumas

  
	
   

  	
   

  	
  Name:
  Kenneth L Dumas

  
	
   

  	
   

  	
  Title:
  CFO & Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter
  McCarthy

  
	
   

  	
   

  	
  Name: Peter
  McCarthy

  
	
   

  	
   

  	
  Title:
  Senior Vice President

  
					

 

3Exhibit 10.1

 

Michaels Stores, Inc. Fiscal Year 2008 Bonus Plan Summary

 

On April 3, 2008, the Board of Directors (the “Board”)
of Michaels Stores, Inc. (“Company”) adopted the Fiscal Year 2008 Bonus
Plan (the “2008 Bonus Plan”) and established fiscal 2008 bonus targets and
performance measures applicable to the Company’s executive officers, including
the Chief Executive Officer, President and Chief Financial Officer and the
other executives named in the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission on April 3, 2008, who were
employed by the Company as of that date.

 

For the 2008 Bonus Plan, the Board established
threshold, target and maximum bonus amounts for each of the executive officers
listed below as a percentage of applicable annual base salaries as follows:

 

	
   

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Maximum

  
	
  Brian
  C. Cornell

  	
   

  	
     35%

  	
   

  	
  100%

  	
   

  	
  200%

  
	
  Jeffrey
  N. Boyer

  	
   

  	
  24.5%

  	
   

  	
  70%

  	
   

  	
  140%

  
	
  Thomas
  M. Bazzone

  	
   

  	
  17.5%

  	
   

  	
  50%

  	
   

  	
  100%

  
	
  Thomas
  C. DeCaro

  	
   

  	
  17.5%

  	
   

  	
  50%

  	
   

  	
  100%

  
	
  Harvey
  S. Kanter

  	
   

  	
  17.5%

  	
   

  	
  50%

  	
   

  	
  100%

  

 

For the 2008 Bonus Plan the Board selected the
following performance measures and relative weights:

 

	
  Financial
  Weightings

  	
   

  	
  Brian Cornell

  	
   

  	
  Jeffrey Boyer

  	
   

  	
  Thomas Bazzone

  	
   

  	
  Thomas DeCaro

  	
   

  	
  Harvey Kanter

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Overall Company Results

  	
   

  	
  75%

  	
   

  	
  75%

  	
   

  	
  25%

  	
   

  	
  75%

  	
   

  	
  75%

  
	
  Business Unit Results

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  50%

  	
   

  	
   

  	
   

  	
   

  
	
  Personal Performance

  	
   

  	
  25%

  	
   

  	
  25%

  	
   

  	
  25%

  	
   

  	
  25%

  	
   

  	
  25%

  

 

Before any bonus is earned on any of the performance
measures, the Company must achieve the threshold Overall Company Results.  Overall Company Results is measured by
consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”),
less an inventory charge, which is consistent with the prior year bonus
plan.  Additionally, the bonus plan for Mr. Bazzone,
Executive Vice President - Specialty Businesses, contains a business unit
driven, adjusted-EBITDA, less inventory charge measure for the Aaron Brothers
business.

 

In evaluating Company financial performance, the
Board may adjust results to eliminate the effects of charges for restructurings,
discontinued operations, extraordinary items and items of gain, loss or
expenses determined to be extraordinary or unusual in nature, infrequent in
occurrence or related to a change in accounting principle.  Before any business unit or individual
performance portion can be earned, the calculated Overall Company Results
measure must meet or exceed the threshold (minimum) level of performance as
established by the Board.

 

Individual performance accounts for up to 25% of the
total bonus amount for each of the executive officers listed above.  Each officer is evaluated based upon
competencies and pre-established individual objectives.  Performance against these measures is
determined by the Compensation Committee on a scaled rating of Exceeds
Expectations, Solid Performance or 

 

 

Mixed Performance.  No specified weighting is given to each
measure and considerable discretion resides with the Compensation Committee in
its evaluation of personal performances.

 

For fiscal 2008, individual performance will be primarily
measured around progress on the Company’s strategic initiatives:  global sourcing, consumer insights, category
management, store environment/shopping experience, process and profit
improvements and Aaron Brothers profitability.

 

 

2Exhibit 10.1

 

 

PURCHASE AGREEMENT

 

BY AND BETWEEN

 

KEY ENERGY SERVICES, LLC,

 

AS BUYER,

 

WESTERN DRILLING HOLDINGS, INC.,

 

AS SELLER,

 

AND

 

FRED S. HOLMES

 

AND

 

BARBARA J. HOLMES,

 

AS SHAREHOLDERS

 

 

 

Dated as of April 3, 2008

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
   

  	
  Defined Terms

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.2

  	
   

  	
  Interpretation

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
  THE TRANSACTIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
   

  	
  Purchase and
  Sale of Interests

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
   

  	
  Closing Payment

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
   

  	
  Purchase Price
  Adjustment

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4

  	
   

  	
  Closing

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5

  	
   

  	
  Closing
  Obligations

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6

  	
   

  	
  Allocation

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.7

  	
   

  	
  Further
  Assurances

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
   

  	
  Organization and
  Good Standing

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
   

  	
  Authority;
  Execution; Enforceability

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.3

  	
   

  	
  Non-Contravention

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.4

  	
   

  	
  Consents

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.5

  	
   

  	
  Capitalization;
  No Subsidiaries; Ownership of Interests

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.6

  	
   

  	
  Financial
  Statements

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.7

  	
   

  	
  Books and
  Records

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.8

  	
   

  	
  Absence of
  Certain Changes or Events

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.9

  	
   

  	
  Undisclosed
  Liabilities

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.10

  	
   

  	
  Property; Title
  to Assets

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.11

  	
   

  	
  Sufficiency of
  Assets

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.12

  	
   

  	
  Major Contracts

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.13

  	
   

  	
  Litigation

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.14

  	
   

  	
  Compliance with
  Laws

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.15

  	
   

  	
  Licenses and
  Permits

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.16

  	
   

  	
  Real Property

  	
  18

  

 

i

 

	
   

  	
  3.17

  	
   

  	
  Intellectual
  Property

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.18

  	
   

  	
  Tax Matters

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.19

  	
   

  	
  Employee
  Benefits.

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.20

  	
   

  	
  Labor Matters

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.21

  	
   

  	
  Environmental
  Matters

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.22

  	
   

  	
  Related Party
  Transactions

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.23

  	
   

  	
  Brokers and
  Finders

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.24

  	
   

  	
  Insurance

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.25

  	
   

  	
  Customers

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.26

  	
   

  	
  Disclosure

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
  REPRESENTATIONS AND WARRANTIES OF BUYER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
   

  	
  Organization and
  Good Standing

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
   

  	
  Authority and
  Enforceability

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
   

  	
  Non-Contravention

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4

  	
   

  	
  Consents

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
   

  	
  Litigation

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
   

  	
  Brokers and
  Finders

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
   

  	
  No Knowledge of
  Seller’s Breach

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
   

  	
  Publicity

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
   

  	
  Directors’ and
  Officers’ Indemnification

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
   

  	
  Tax Matters

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
   

  	
  Books and
  Records

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
   

  	
  No Other
  Representations

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
   

  	
  Disclaimer
  Regarding Financial Data and Projections

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
   

  	
  Shareholders’
  Guaranty

  	
  32

  

 

ii

 

	
  ARTICLE VI

  	
   

  	
  EMPLOYEE MATTERS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
   

  	
  Participation in
  Benefit Plans

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
   

  	
  No Third Party
  Beneficiaries

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
   

  	
  Cooperation

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
   

  	
  Survival

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
   

  	
  General
  Indemnification

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
   

  	
  Limits on
  Indemnification

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.4

  	
   

  	
  Exclusive Remedy

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.5

  	
   

  	
  Mitigation

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
   

  	
  Further
  Assurances

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
   

  	
  Notices

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3

  	
   

  	
  Entire Agreement

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.4

  	
   

  	
  Governing Law

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.5

  	
   

  	
  Consent to
  Jurisdiction; Venue; Waiver of Jury Trial

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.6

  	
   

  	
  Arbitration

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.7

  	
   

  	
  Attorneys’ Fees

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.8

  	
   

  	
  Transaction
  Expenses

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.9

  	
   

  	
  Amendments

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.10

  	
   

  	
  Assignments; No
  Third Party Rights

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.11

  	
   

  	
  Waiver

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.12

  	
   

  	
  Severability

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.13

  	
   

  	
  Time of Essence

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.14

  	
   

  	
  Construction

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.15

  	
   

  	
  Incorporation by
  Reference

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.16

  	
   

  	
  Headings

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.17

  	
   

  	
  Counterparts

  	
  42

  

 

iii

 

EXHIBIT AND SCHEDULE
INDEX

 

	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of HWOC Services Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Working Capital Worksheet

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Assignment Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Forms of Real Property Documents

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Form of Release Agreement

  
	
   

  	
   

  	
   

  
	
  Purchase Agreement Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 2.6

  	
   

  	
  Allocation

  
	
   

  	
   

  	
   

  
	
  Seller Disclosure Schedules

  	
   

  	
   

  

 

iv

 

PURCHASE AGREEMENT

 

This PURCHASE AGREEMENT
(this “Agreement”) is entered into as of April 3, 2008, by and
between Key Energy Services, LLC, a Texas limited liability company (“Buyer”),
Western Drilling Holdings, Inc., a California corporation (“Seller”),
and Fred S. Holmes and Barbara J. Holmes (Fred S. Holmes and Barbara
J. Holmes are collectively and jointly and severally referred to herein as the “Shareholders”).

 

RECITALS

 

WHEREAS, Seller currently
owns all of the existing and outstanding membership interests (the “Interests”)
of Western Drilling, LLC, a California limited liability company and the
successor by reason of conversion (the “Conversion”) from Western
Drilling, Inc., a California corporation (Western Drilling, LLC, together
with its corporate predecessor, is hereinafter referred to as “Western
Drilling”);

 

WHEREAS, upon the terms and
subject to the conditions set forth herein, Seller desires to sell to Buyer,
and Buyer desires to purchase from Seller, all of the Interests upon the
terms and conditions set forth herein;

 

WHEREAS, the Shareholders
beneficially own all of the outstanding shares of stock of Seller, and as a
material inducement to Buyer to enter into this Agreement, the Shareholders
desire to guaranty the payment and performance of Seller’s obligations
hereunder;

 

WHEREAS, prior to the date hereof, the Fred S. and
Barbara J. Holmes Trust Dated January 23, 1983 (the “Trust”) caused
Seller to be incorporated and organized and, in connection therewith, the Trust
contributed all of the issued and outstanding shares of stock, $10.00 par value
per share, of Western Drilling, Inc., to Seller, following which Seller
caused the Conversion to be undertaken (such actions collectively being
referred to herein as the “Restructuring”); and

 

WHEREAS, Buyer and
Seller intend that the purchase of the existing and outstanding limited
liability company interests of Western Drilling pursuant to this Agreement be
treated for U.S. federal income Tax purposes (and state and local Tax purposes
where applicable) as the purchase by Buyer of all the assets held by Western
Drilling (including the Transferred Assets) in exchange for the Purchase Price
(as adjusted) (the “Intended Tax Treatment”);

 

NOW, THEREFORE, in
consideration of the premises and the mutual covenants, agreements and
conditions contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound hereby, agree as follows:

 

 

ARTICLE I

DEFINITIONS

 

1.1           Defined Terms.  For the purposes of this Agreement, the
following capitalized terms shall have the meanings ascribed to them below:

 

“Affiliate” means, with respect to a specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.

 

“Agreement” has the meaning ascribed to it in the Preamble
hereto.

 

“Ancillary Agreements” has the meaning ascribed to it in Section 3.2.

 

“Auction” means the process undertaken by Seller and Western
Drilling involving the potential disposition to one or more competing bidders
of all or substantially all of the equity interests in or assets of Western
Drilling.

 

“Balance Sheet Date” means September 30, 2007.

 

“Business” means the business of operating the drilling and oil
well services of Western Drilling as currently conducted.

 

“Business Day” means any day other than a Saturday or a Sunday
or a day on which banks located in Los Angeles, California generally are
authorized or required by Law or regulation to close.

 

“Buyer” has the meaning ascribed to it in the Preamble hereto.

 

“Buyer Indemnified Parties” has the meaning ascribed to it in Section 7.2(a).

 

“Closing” has the meaning ascribed to it in Section 2.4.

 

“Closing Date” has the meaning ascribed to it in Section 2.4.

 

“Closing Working Capital” means (i) the aggregate amount of
the Working Capital Assets of Western Drilling minus
(ii) the aggregate amount of the Working Capital Liabilities of Western
Drilling, in each case determined as of 11:59 p.m. (California time) on
the Closing Date on a basis consistent with the accounting principles and
policies used in the preparation of the Financial Statements.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commercially Reasonable Efforts” means the efforts that a
reasonably prudent person would, at the time of executing this Agreement,
contemplate using in similar circumstances in an effort to achieve the desired
result set forth in this Agreement in a 

 

2

 

reasonably
expeditious manner; provided that “Commercially Reasonable Efforts”
shall not require the provision of any consideration to any third party of any
material amounts, except for the costs of making filings in the ordinary course
of business, the reasonable fees and expenses of counsel and accountants, any
nominal consent fees provided for in the existing provisions of any Major
Contract, and the customary fees and charges of Governmental Authorities.

 

“Confidentiality Agreement” means the confidentiality agreement,
dated as of November 13, 2007, by and between Buyer and Western Drilling.

 

“Consent” means any consent or approval of any third-party
Person that is not a Governmental Authority.

 

“Contract” means any written agreement, contract, purchase
order, instrument or legally binding commitment or understanding.

 

“Conversion” has the meaning ascribed to it in the Recitals
hereto.

 

“Damages” has the meaning ascribed to it in Section 7.2(d).

 

“Disregarded Entity” has the meaning ascribed to it in Section 3.18(g).

 

“Employees” means the current employees of Western Drilling.

 

“Employee Benefit Plan” means any written compensation or
employee benefit plan, program, policy, agreement or other arrangement, whether
or not an “employee benefit plan” within the meaning of Section 3(3) of
ERISA and whether or not subject to ERISA, providing compensation, bonuses, or
cash or equity-based incentives, or health, medical, dental, pharmaceutical,
vision, sickness, long-term care, workers compensation, disability, employee
assistance, vacation, termination, severance, retirement, pension, savings,
deferred compensation, retention, stay bonus, unemployment, matching gift,
tuition reimbursement, or accident or life insurance benefits.

 

“Employee Welfare Benefit Plan” means any “employee welfare
benefit plan” as such term is defined in Section 3(1) of ERISA.

 

“Environmental Law” means all United States federal or state
Laws in effect relating to pollution, protection, preservation or restoration
of the environment (including air, surface water, groundwater, drinking water
supply, surface land and subsurface land) or natural resources, or to the
generation, transportation, storage, treatment, release, discharge or migration
of any hazardous substance regulated by any federal, state or local agency with
respect to environmental protection.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended.

 

3

 

“Estimated Purchase Price” has the meaning ascribed to it in Section 2.3(a).

 

“Excluded Employees” means the individuals designated as such on
Section 1.1(A) of the Seller Disclosure Schedules.

 

“Excluded Assets” means all of Western Drilling’s right, title
and interest in and to the assets set forth in Section 1.1(B) of
the Seller Disclosure Schedules, including, without limitation, internal
correspondence and memoranda, valuations, investment banking presentations and
bids received from other Persons in connection with the Auction, the Interests
Purchase and the other transactions contemplated by this Agreement.

 

“Final Closing Statement” has the meaning ascribed to it in Section 2.3(b).

 

“Financial Statements” has the meaning ascribed to it in Section 3.6.

 

“Form 2553” means IRS Form 2553, Election by a Small
Business Corporation.

 

“GAAP” means United States generally accepted accounting
principles as in effect from time to time, consistently applied.

 

“Governmental Approval” means any authorization, consent,
approval, certification, permit, license or order of, or any filing,
registration or qualification with, any Governmental Authority.

 

“Governmental Authority” means any domestic or foreign, federal,
state, county, municipal or other government, governmental, regulatory or
administrative authority, agency or commission, or any court, tribunal or
judicial or arbitral body exercising executive, legislative or judicial
functions.

 

“HWOC” means Holmes Western Oil Corporation, a California
corporation.

 

“HWOC Services Agreement” means a services agreement,
substantially in the form attached hereto as Exhibit A, pursuant to
which Buyer and Western Drilling will provide the drilling services and annual
well service rig time specified therein to HWOC upon the terms and conditions
specified therein.

 

“Indemnified Party” has the meaning ascribed to it in Section 7.2(c).

 

“Indemnifying Party” has the meaning ascribed to it in Section 7.2(c).

 

“Independent Accountant” means BDO Seidman LLP; provided
that if such firm is unable or
unwilling to serve as the Independent Accountant or shall have a conflict of
interest with respect to any party hereto, then Buyer on the one hand, and
Seller on the other hand, shall submit the name of a nationally recognized
independent accounting firm that has certified that it has not done more than a
de minimis amount of work for the
submitting party or any of its respective Affiliates (including Western
Drilling) within the preceding two (2) years, at which 

 

4

 

point the
determination of which such firm shall be the Independent Accountant shall be
done by lot and each party agrees that it shall not attempt to unduly influence
the selected accounting firm.

 

“Intellectual Property” means any patents, copyrights (published
or unpublished), trademarks and service marks (registered or unregistered),
applications for any of the foregoing and trade names, trade dress, logos,
trade secrets, inventions, discoveries, software, technical information,
process technology, plans, drawings, blueprints or know-how, in each case that
are used by Western Drilling in connection with the Business.

 

“Intended Tax Treatment” has the meaning ascribed to it in the
Recitals hereto.

 

“Interests” has the meaning ascribed to it in the Recitals
hereto.

 

“Interests Purchase” has the meaning ascribed to it in Section 2.1.

 

“Interim Financial Statements” means the unaudited balance sheet
of Western Drilling for the nine months ending on September 30, 2007 and
the related unaudited statements of income and cash flows for the nine months
ending on September 30, 2007.

 

“IntraLinks” means the information contained in the virtual data
room made available to Buyer, as of 5:00 p.m. (New York time) on the
Business Day prior to the Closing Date, including the documents, questions and
answers, and other data posted thereon as of such time and date.

 

“IRS” means the Internal Revenue Service.

 

“Key Employee” means any Employee holding a position materially
affecting the ongoing operation or management of the Business of Western
Drilling.

 

“Knowledge” means the extent, if any, of actual awareness of a
particular fact or matter, without implying or requiring independent
verification or investigation, of (i) with respect to Seller and Western
Drilling, Fred Holmes and Paul Hancock, and (ii) with respect to Buyer,
Dennis Douglas, James Flynt and Newton Wilson.

 

“Laws” means any and all foreign, international, multinational,
national, federal, state, provincial, regional, local, municipal and other
administrative laws (including common law), statutes, codes, orders,
ordinances, rules and regulations, constitutions and treaties enacted,
promulgated or issued and put into effect by a Governmental Authority.

 

“Leases” has the meaning ascribed to it in Section 3.16(b).

 

“Liabilities” means liabilities, obligations, guarantees,
assurances and commitments of every kind, nature, character and description
whatsoever, whenever arising, whether known or unknown, whether asserted or
unasserted, whether fixed, absolute or 

 

5

 

contingent,
whether accrued or unaccrued, whether matured or unmatured, whether liquidated
or unliquidated, whether due or to become due, and whether or not recorded or
reflected or required to be recorded or reflected on books and records or
financial statements, including fees, costs, expenses and losses relating
thereto.

 

“Liens” means any liens, pledges, mortgages, deeds of trust,
security interests, claims, leases, charges, options, rights of first refusal,
easements, servitudes, conditional sales contracts, encumbrances or transfer
restrictions under any shareholder or similar agreement.

 

“Major Contracts” has the meaning ascribed to it in Section 3.12.

 

“Material Adverse Effect” means
any effect that would be materially adverse to (a) the validity or
enforceability of this Agreement or the transactions contemplated hereby or (b) the
business, financial condition or results of operations of the Business, taken
as a whole, other than any effect arising from or related to (i) general
business, economic, political, social, legal or regulatory conditions, (ii) the
industries in which the Business operates in general, (iii) the
financial, banking, credit or securities markets (including any disruptions
therein or changes to interest rates, liquidity, currency rates or the value of
the U.S. Dollar relative to other currencies, consumer confidence, stock, bond
and/or debt prices and trends), (iv) changes
in applicable Law or GAAP, (v) outbreak of hostilities, terrorist
attack (whether against a nation or otherwise) or war, or (vi) the
performance or consummation of any of the transactions contemplated hereby.

 

“Order” means any order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award.

 

“Ordinary Course of Business” means the conduct of the Business
in a manner substantially consistent with the customary conduct of such
business, including any activities related to the conduct of the Auction or
authorized or contemplated by this Agreement or the transactions contemplated
hereby.

 

 “Permitted Exceptions”
means (a) any Liens for Taxes that are not yet due and payable and that
are not yet subject to penalties for delinquent nonpayment, (b) any Liens
in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction or similar Liens arising by operation of law or in
the Ordinary Course of Business in respect of obligations that are not yet due
and payable and that are not yet subject to penalties for delinquent
nonpayment, (c) any zoning, building code, land use, planning, entitlement
or similar Laws or regulations imposed by any Governmental Authority, (d) workers’
or unemployment compensation Liens arising in the Ordinary Course of Business, (e) the
interests of lessors in equipment or leasehold fixtures and improvements leased
or loaned to Western Drilling, (f) any Liens that will be discharged or
released either prior to, or substantially simultaneous with the Closing, (g) any
Liens created by Buyer or any of its Affiliates, and (h) any such other
Liens, imperfections of title and other similar matters that do not,
individually or in the aggregate, materially impair the current use and
enjoyment of any material property or assets of Western Drilling.

 

6

 

“Person” means
any natural person, partnership, limited liability company, joint venture,
corporation, trust, unincorporated organization, association, Governmental
Entity or other entity.

 

“Pre-Closing Tax Period” has the meaning ascribed to it in Section 5.3(a)(i).

 

“Proceeding” means any action, inquiry, proceeding, arbitration,
audit, hearing, investigation, litigation or suit (whether civil, criminal or
administrative), commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Authority.

 

“Profit Sharing Plan” means the Western Drilling, Inc.
Profit Sharing Plan.

 

“Purchase Price” has the meaning ascribed to it in Section 2.2.

 

“Real Property” means land, together with all buildings,
structures, fixtures, fittings and improvements located thereon, and all
privileges, rights, easements and appurtenants belonging thereto or for the
benefit thereof.

 

“Real Property Documents” mean, collectively, the (i) Lease
Agreement between Western Drilling and Seller relating to the premises located
at 101 Sixth Street, Taft, CA 93268, (ii) Lease Agreement between Western
Drilling and Seller relating to the premises located at 530 Main Street, Taft,
CA 93268, (iii) Lease Agreement relating to Western Drilling’s
headquarters facility located at 4300 Midway Road P.O. Box 1405, Taft,
California 93268, (iv) Access Agreement between Western Drilling and HWOC
relating to the premises located at 25450 Hwy 33, Fellows, CA 93224 and (v) Sub-Lease
Agreement between Western Drilling, Buyer and HWOC relating to HWOC’s office
space located within Western Drilling’s headquarters facility located at 4300
Midway Road P.O. Box 1405, Taft, California 93268.

 

“Restructuring” has the meaning ascribed to it in the Recitals
hereto.

 

“S Election” means to elect to be an “S corporation” under
Subchapter S of the Code and within the meaning of Section 1361 of the
Code.

 

“Seller” has the meaning ascribed to it in the Preamble hereto.

 

“Seller Disclosure Schedules” means the disclosure schedules to
this Agreement delivered by Seller to Buyer as of the Closing Date.

 

“Seller Indemnified Parties” has the meaning ascribed to it in Section 7.2(b).

 

“Seller Fundamental Representations” has the meaning ascribed to
it in Section 7.1.

 

“Shareholders” has the meaning ascribed to it in the Recitals
hereto.

 

“Statement” has the meaning ascribed to it in Section 5.3(d)(ii).

 

7

 

“Straddle Period” has the meaning ascribed to it in Section 5.3(b).

 

“Survival End Date” has the meaning ascribed to it in Section 7.1.

 

“Tax Authority” means any Governmental Authority or any
subdivision, agency, commission or authority thereof having jurisdiction over
the assessment, determination, collection or imposition of any Tax.

 

“Tax” means any national, federal, state, provincial, municipal,
local or foreign income, gross receipts, license, wage, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duty, capital, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, transaction, registration, value-added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition with respect thereto, whether disputed or not.

 

“Tax Return” means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto and any amendment thereof.

 

“Third Party Claims” has the meaning ascribed to it in Section 7.2(c).

 

“Transferred Assets” means the assets designated as such on Section 1.1(C) of
the Seller Disclosure Schedules.

 

“Transfer Taxes” has the meaning ascribed to it in Section 5.3(g).

 

“Trust” has the meaning ascribed to it in the Recitals hereto.

 

“WARN Act” means Worker Adjustment and Retraining Act of 1998,
as amended.

 

“Western Drilling” has the meaning ascribed to it in the
Recitals hereto.

 

“Western Drilling, Inc.” means Western Drilling, Inc.,
a California corporation that converted into Western Drilling, LLC, a
California limited liability company.

 

“Working Capital Assets” means the current assets of Western
Drilling as of 11:59 p.m. (California time) on the Closing Date
(consisting of the line items set forth on Exhibit B attached
hereto with respect to the current assets of Western Drilling).

 

“Working Capital Liabilities” means the current liabilities of
Western Drilling as of 11:59 p.m. (California time) on the Closing Date
(consisting of the line items set forth on Exhibit B attached
hereto with respect to the current liabilities of Western Drilling).

 

8

 

“2006 Financial Statements” means the audited balance sheet of
Western Drilling for each of the two (2) years ending on December 31,
2006 and the related audited statements of income and cash flows for each of
the two (2) years ending on December 31, 2006.

 

1.2                                 Interpretation.  Unless the context clearly indicates
otherwise: (a) each definition herein includes the singular and the
plural, (b) each reference herein to any gender includes the masculine,
feminine and neuter where appropriate, (c) the words “include” and “including”
and variations thereof shall not be deemed terms of limitation, but rather
shall be deemed to be followed by the words “without limitation,” (d) the
words “hereof,” “herein,” “hereto,” “hereby,” “hereunder” and derivative or
similar words refer to this Agreement as an entirety and not solely to any
particular provision of this Agreement, (e) each reference in this
Agreement to a particular Article, Section, Exhibit or Schedule means an Article or
Section of, or an Exhibit or Schedule to, this Agreement, unless
another agreement is specified, and (f) all references to “$” or “Dollars”
shall mean United States Dollars.

 

ARTICLE II

THE TRANSACTIONS

 

2.1                                 Purchase
and Sale of Interests.  Upon the
terms and subject to the conditions set forth in this Agreement, Seller has
sold, conveyed, transferred, assigned and delivered to Buyer, and Buyer has
purchased from Seller, all of Seller’s right, title and interest in and to the
Interests, which constitute one hundred percent (100%) of the issued and
outstanding membership interests of Western Drilling (the “Interests Purchase”).

 

2.2                                 Closing
Payment.  Upon the terms and subject
to the conditions set forth in this Agreement, Buyer has paid an amount to or to the order of Seller equal
to Forty Nine Million Eight Hundred Twenty Thousand Dollars ($49,820,000) in
cash, and reduced or increased, as the case may be, on a dollar-for-dollar
basis by the amount, if any, by which Closing Working Capital (estimated as set
forth in Section 2.3(a)) is less than or more than, respectively,
Two Million Nine Hundred Ninety Six Thousand Eight Hundred Forty Four Dollars
($2,996,844) (such amount, as finally determined pursuant to Section 2.3,
the “Purchase Price”).  Seller has
estimated Closing Working Capital to be Four Million Six Hundred Ninety
Thousand Dollars ($4,690,000).

 

2.3                                 Purchase
Price Adjustment.

 

(a)                                  The
Purchase Price paid at the Closing was preliminarily calculated in accordance
with Section 2.2 as if Seller’s estimate of Closing Working Capital
were the actual amount of Closing Working Capital.  The Purchase Price as so estimated is
referred to as the “Estimated Purchase Price.”

 

(b)                                 No
later than forty-five (45) days following the Closing Date, Buyer shall deliver
to Seller a statement (the “Final Closing Statement”), setting forth its
good faith calculation of (i) Closing Working Capital, determined on a
basis consistent with the accounting principles and policies used in the
preparation of the Estimated Purchase Price and the Financial

 

9

 

Statements (based on a trial balance sheet), and (ii) the Purchase
Price calculated as if Buyer’s calculation of Closing Working Capital were the
actual amount of Closing Working Capital. 
The Final Closing Statement shall be accompanied by a certificate
executed by a senior financial officer of Buyer to the effect that the Final
Closing Statement has been prepared in good faith in accordance with this Section 2.3(b).

 

(c)                                  Buyer
shall, upon Seller’s written request, promptly make available to Seller (i) a
copy of all workpapers, financial information and any other books and records
utilized by Buyer in the preparation of the Final Closing Statement, and (ii) all
personnel, including accounting personnel, of Buyer and its Affiliates
(including Western Drilling) involved in the preparation of the Final Closing
Statement.  Seller shall notify Buyer in
writing no later than thirty (30) days following Seller’s receipt of the Final
Closing Statement from Buyer that it accepts the Final Closing Statement or
that there is a dispute as to an item or items reflected thereon.  Such notice shall set forth Seller’s
objections, if any, to the Final Closing Statement in reasonable detail.  The failure by Seller to give Buyer such
notice within such period shall be deemed to constitute Seller’s acceptance of
the Final Closing Statement.  The parties
shall use Commercially Reasonable Efforts to resolve any such dispute, but if
such dispute cannot be resolved by the parties within thirty (30) days after
Seller gives notice of such dispute, it shall be referred to the Independent
Accountant who, acting as an expert and not as an arbitrator, shall resolve the
matters still in dispute and adjust the Final Closing Statement and/or the
Closing Working Capital to reflect such resolution.  The Independent Accountant’s resolution of
the matters in dispute shall be final and binding on all parties hereto for
purposes of the Final Closing Statement and Closing Working Capital.  The Parties shall instruct the Independent
Accountant to resolve such disputes by making its determination within thirty
(30) days after its engagement. The determination of the Independent Accountant
regarding such dispute shall be conclusive and binding on each party.

 

(d)                                 The
scope of any dispute to be resolved by the Independent Accountant shall be
limited to whether the amounts set forth on the Final Closing Statement (i) were
obtained from and in accordance with the books and records of Western Drilling
and (ii) prepared in accordance with GAAP, applied in a manner consistent
with the Financial Statements and this Agreement.  In resolving any disputed item, the
Independent Accountant may not assign a value to any particular item greater
than the greatest value for such item claimed by Buyer or the Seller or less
than the smallest value for such item claimed by Buyer or the Seller, in each
case as presented to the Independent Accountant.

 

(e)                                  All
of the fees and expenses of the Independent Accountant pursuant to this Section 2.3
shall be apportioned between Buyer and Seller by the Independent Accountant based
upon the inverse proportion of the disputed amounts resolved in favor of such
party (i.e., so that the prevailing party bears a lesser, or no, amount of such
fees, costs and expenses).

 

(f)                                    Buyer
and the Seller shall each make readily available to the Independent Accountant
all relevant work papers and books and records relating to Western

 

10

 

Drilling, the Final Closing Statement and the computation of Closing
Working Capital as are requested by the Independent Accountant and shall use
Commercially Reasonable Efforts to cooperate with the Independent Accountant in
resolving any disputed matters.

 

(g)                                 If
the Purchase Price as finally determined pursuant to this Section 2.3
(i) is less than the Estimated Purchase Price, Seller shall pay to Buyer
an amount equal to the shortfall, or (ii) is more than the Estimated
Purchase Price, Buyer shall pay to Seller an amount equal to the excess.  Any such payment pursuant to the preceding
sentence shall be made by wire transfer of immediately available U.S. funds, to
an account designated by Buyer or Seller, as the case may be, on the later of (x) the
second (2nd) Business Day after acceptance by Seller of the Final Closing
Statement or (y) the second (2nd) Business Day following resolution (as
contemplated by Section 2.3(c)) of any dispute concerning the Final
Closing Statement.  All payments made
pursuant to this Section 2.3(g) shall be accompanied by
interest at a rate per annum equal to the prime rate as quoted in the “Money
Rates” section of the Wall Street Journal
on the Closing Date for the period from the Closing Date through (but
excluding) the date such payment is made.

 

(h)                                 No
matter that gives rise to an adjustment under this Section 2.3
shall be the subject of or eligible for a claim by Buyer for indemnification
under Article VII, except and only to the extent the Damages
arising from such matter exceed the amount of such adjustment.

 

2.4                                 Closing.  The closing of the Interests Purchase and the
other transactions contemplated by this Agreement upon the terms and subject to
the conditions set forth herein (the “Closing”) have taken place on the
date of this Agreement at the offices of Munger, Tolles & Olson LLP,
Los Angeles, California at 10:00 a.m. local time (the “Closing Date”).

 

2.5                                 Closing
Obligations.  At the Closing:

 

(a)                                  Seller
has delivered to Buyer the following documents:

 

(i)                                     an
executed Assignment Agreement in the form attached hereto as Exhibit C;

 

(ii)                                  certificate
executed by Seller pursuant to Section 1.1445-2(b)(2) of the Treasury
Regulations certifying that Seller is not a foreign person and is not a
disregarded entity;

 

(iii)                               executed
copies of the Real Property Documents in the forms attached hereto as Exhibit D;

 

(iv)                              instruments
evidencing the resignation of (a) each officer of Western Drilling and (b) each
of Messrs. Joseph Eller, Terry Destrampe and Paul Hancock;

 

11

 

(v)                                 the
HWOC Services Agreement, executed on behalf of HWOC;

 

(vi)                              a
receipt duly executed by Seller certifying the receipt from Buyer of payment
for the Interests, and all other items to be delivered to it at the Closing,
including all items to be delivered pursuant to Article II of this
Agreement;

 

(vii)                           documentation
providing evidence of (A) the separation by Seller of the Excluded Assets
from the Business, such that Buyer has not, directly or indirectly, acquired
any Excluded Assets in connection with the Interests Purchase and the other
transactions contemplated hereby, and (B) that Seller has cancelled, and
has caused its Affiliates (other than HWOC with respect to accounts payable to
Western Drilling in the ordinary course) to cancel all remaining intercompany
debt and other intercompany obligations and intercompany receivables as between
Seller and its post-Closing Affiliates (other than HWOC with respect to
accounts payable to Western Drilling in the ordinary course), on the one hand,
and Western Drilling, on the other, and all remaining guarantees issued by
Western Drilling in support of any indebtedness for borrowed money of Seller or
any of its Affiliates;

 

(viii)                        documentation
providing evidence of the transfer by Seller and its Affiliates of all of the
Transferred Assets to Western Drilling, with the title as represented in Article III
with respect thereto;

 

(ix)                                an
executed General Release from the Shareholders in the form attached hereto as Exhibit E;

 

(x)                                   the
books and records referenced in Section 3.7;

 

(xi)                                a
certificate of the secretary of Seller, certifying its articles of
incorporation, its bylaws and  its
resolutions relating to this Agreement and the transactions contemplated
hereby; and

 

(xii)                             documentation
providing evidence of the transfer of sponsorship of the Profit Sharing Plan
from Western Drilling to HWOC.

 

(b)                                 Buyer’s
Closing Deliveries.  Buyer has
delivered to Seller:

 

(i)                                     the
Estimated Purchase Price by wire transfer in immediately available U.S. funds,
to the account set forth on Schedule 2.5(b)(i).

 

(ii)                                  an
executed Assignment Agreement in the form attached hereto as Exhibit C;

 

(iii)                               executed
copies of the Real Property Documents in the forms attached hereto as Exhibit D;

 

12

 

(iv)                              the
HWOC Services Agreement, executed on behalf of Western Drilling; and

 

(v)                                 a
receipt duly executed by Buyer certifying the receipt from Seller of all of the
items to be delivered to it at the Closing, including all items to be delivered
pursuant to Article II of this Agreement.

 

2.6                                 Allocation.  Buyer and Seller agree that the Purchase
Price (which for purposes of this Section 2.6 shall include any
Liabilities required to be treated as part of the Purchase Price for U.S.
federal income Tax purposes), as may be adjusted pursuant to Section 2.3,
shall be allocated to the assets of Western Drilling, including the Transferred
Assets, but excluding the Excluded Assets, in the manner set forth on the
allocation schedule attached hereto as Schedule 2.6 (the “Allocation”).  Buyer and Seller shall (a) be bound by
the Allocation for all purposes, including for determining any income Taxes for
all periods ending on or after the Closing Date, (b) prepare and file, and
cause their Affiliates to prepare and file, all income Tax Returns on a basis
consistent with the Allocation for all periods ending on or after the Closing
Date, and (c) take no position, and cause their Affiliates to take no
position, inconsistent with the Allocation on any such income Tax Return or in
any Proceeding before any Tax Authority relating to any such income Tax Return.  In the event the Allocation is audited or
disputed by any Tax Authority, or otherwise, the party receiving notice thereof
shall promptly notify the other party. 
Buyer and Seller acknowledge and confirm that the Allocation was
determined at arm’s length based on fair market values and the willingness of
Buyer and Seller to proceed with the Interests Purchase and the other
transactions contemplated by this Agreement.

 

2.7                                 Further
Assurances.  Without further
consideration therefor, Seller shall, and shall cause its Affiliates to,
execute and deliver to Buyer such further instruments and certificates of
conveyance and transfer as Buyer may reasonably request in order to more
effectively convey and transfer the Interests to Buyer.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Each representation and warranty contained in
this Article III is qualified by disclosures made with respect to
the Seller Disclosure Schedules.  Except
with respect to matters set forth in the Seller Disclosure Schedules, Seller
hereby represents and warrants to Buyer, as follows:

 

3.1                                 Organization
and Good Standing.  Western Drilling (a) is
a limited liability company duly organized, validly existing and in good
standing under the Laws of the State of California, (b) has the requisite
limited liability company power and authority to own, lease and operate its
properties and to carry on its business as now conducted, and (c) is duly
qualified and in good standing to transact business in each U.S. jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business makes such qualification necessary. 
Seller is a

 

13

 

corporation duly incorporated, validly existing and in good standing
under the Laws of the State of California.

 

3.2                                 Authority;
Execution; Enforceability.  Seller
has all requisite corporate power and authority to (a) execute and deliver
this Agreement and the other agreements, instruments and documents contemplated
hereby (the “Ancillary Agreements”) to which it is a party, (b) perform
its obligations hereunder, and (c) consummate the transactions
contemplated hereby.  The execution and
delivery of this Agreement and the Ancillary Agreements to which it is a party,
the performance of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of Seller.  Assuming the due authorization, execution and
delivery of this Agreement, and, to the extent required, the Ancillary
Agreements by Buyer, each of this Agreement and the Ancillary Agreements to
which they are parties constitutes the legal, valid and binding obligation of
Seller and the Shareholders, enforceable against each of them in accordance
with its terms, subject to (x) bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally
and (y) general principles of equity.

 

3.3                                 Non-Contravention.  Subject to the provisions of Section 3.4
regarding Consents, the execution and delivery by Seller and the Shareholders
of this Agreement and the Ancillary Agreements to which any of them is a party
do not, and Seller’s and the Shareholders’ performance hereunder and thereunder
and the consummation of the transactions contemplated hereby and thereby shall
not, (a) violate any provision of the articles of incorporation or bylaws
of Seller or the articles of organization or operating agreement of Western
Drilling, (b) violate or constitute a breach of or default under (with
notice or lapse of time, or both), or permit termination, modification or
acceleration under, any Major Contract, (c) violate any Law or Order of
any Governmental Authority applicable to Western Drilling, Seller or either
Shareholder, (d) result in the cancellation, modification, revocation or
suspension of any Governmental Approval granted to Western Drilling, or (e) result
in the imposition or creation of any Lien, except for Permitted Exceptions,
upon or with respect to any of the properties or assets of Western Drilling.

 

3.4                                 Consents.  The execution and delivery by Seller and the
Shareholders of this Agreement and the Ancillary Agreements to which any of
them is a party, Seller’s and the Shareholders’ performance hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby do not require (a) any Consent under any Major Contract, or (b) any
Governmental Approval.

 

3.5                                 Capitalization;
No Subsidiaries; Ownership of Interests.

 

(a)                                  Western
Drilling has an authorized capitalization consisting of 327 membership
interests, all of which are issued and outstanding and held of record by
Seller.  All of the issued and
outstanding Interests have been duly and validly authorized and are duly and
validly issued, fully paid and non-assessable, and none of them have been
issued in violation of preemptive or similar rights.  There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other agreements or rights of any kind to purchase or
otherwise acquire any membership interests in Western Drilling, and no

 

14

 

outstanding or
authorized equity appreciation, phantom equity, profit participation, or
similar rights for which Western Drilling has any liability.  Western Drilling has no subsidiaries and does
not directly or indirectly own, control or have any investment or other
ownership interest in any corporation, limited liability company, partnership,
joint venture, business trust or other entity.

 

(b)                                 Seller
is the owner of all right, title and interest (record and beneficial) in and to
the Interests.  The delivery to Buyer of
the Interests hereunder will transfer to Buyer valid title to all the
Interests, free and clear of any Liens (other than Liens created by Buyer and
its Affiliates).  There is no outstanding
option, warrant, right, commitment, subscription, call, unsatisfied preemptive right
or other agreement or right of any kind (contingent or otherwise) to purchase
or otherwise acquire from such Seller the Interests.

 

3.6                                 Financial
Statements.  Attached to Section 3.6
of the Seller Disclosure Schedules are true and complete copies of the 2006
Financial Statements and the Interim Financial Statements (collectively, the “Financial
Statements”).  Other than as set
forth on Section 3.6 of the Seller Disclosure Schedules, the
Financial Statements are derived from the books and records (which are accurate
and complete in all material respects) of Western Drilling, consistent with
past practice.  The Financial Statements
are accurate and complete in all material respects and fairly present the
financial position of Western Drilling as of the dates thereof and the results
of its operations and its cash flows for the periods then ended in accordance
with GAAP, subject, in the case of the Interim Financial Statements, to the
absence of footnotes and to normal year-end reclassifications and adjustments.

 

3.7                                 Books
and Records.  The books of account,
minute books, stock record books and other material corporate and company
records of Western Drilling, copies of which have been made available to Buyer,
are complete and correct in all material respects with respect to the past five
(5) year period prior to the date hereof. 
The minute books of Western Drilling contain records of all material
meetings held, and corporate action taken by, the shareholders, Board of
Directors and members of Western Drilling during such five (5) year period
and such minutes books are complete and correct in all material respects with
respect to such five (5) year period.

 

3.8                                 Absence
of Certain Changes or Events.  Except
as otherwise contemplated, required or permitted by this Agreement, from the
Balance Sheet Date to the Closing Date, there has not occurred any change,
event or circumstance that has resulted in a Material Adverse Effect.

 

3.9                                 Undisclosed
Liabilities.  Western Drilling does
not have any Liabilities or obligations, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued or otherwise, and
required to be reflected or reserved against on a balance sheet prepared in
accordance with GAAP, except for (a) liabilities reflected or reserved
against in the Financial Statements, (b) liabilities that have arisen
after the Balance Sheet Date in the Ordinary Course of Business, (c) liabilities
disclosed in this Agreement and in the Seller Disclosure Schedules and (d) liabilities
permitted by, or incurred pursuant to, this Agreement.

 

15

 

3.10                           Property;
Title to Assets.

 

(a)           Western
Drilling has good and marketable title to, or a valid and binding leasehold
interest in, its material personal property, except for (i) properties or
assets sold or otherwise disposed of in the Ordinary Course of Business, since
the date of the Financial Statements, free and clear of all Liens, except for
Permitted Exceptions, and (ii) the Excluded Assets.

 

(b)           Section 3.10(b) of
the Seller Disclosure Schedule sets forth, as of the date hereof, a
non-exclusive listing of those items of equipment considered by Buyer and
Seller to be material to the Business (the “Material Equipment”).  Western Drilling has good and marketable
title to, or a valid and binding leasehold interest in, the Material Equipment
and, as of the Closing, each items of Material Equipment is in the possession
of Western Drilling.

 

3.11                           Sufficiency
of Assets.  The tangible personal
property assets of Western Drilling are sufficient for the continued conduct of
the Business after the Closing in substantially the same manner as conducted
prior to the Closing.

 

3.12                           Major
Contracts.

 

(a)           Except as
disclosed in Section 3.12(a) of the Seller Disclosure
Schedules, as of the date hereof Western Drilling is not a party to or subject
to:

 

(i)            Any
well service and/or drilling contracts;

 

(ii)           Any
lease of personal or movable property as lessor or lessee, other than equipment
leased from third parties and sublet to customers in the Ordinary Course of
Business and other than leases which do not require payments in excess of One
Hundred Thousand and No/100 Dollars ($100,000.00) individually;

 

(iii)          Any
contract for the purchase of materials, supplies, goods, services, equipment or
other assets, other than contracts which do not require payments in excess of
One Hundred Thousand and No/100 Dollars ($100,000.00) individually;

 

(iv)          Any
sales, distribution or other similar agreement providing for the sale by
Western Drilling of materials, supplies, goods, services, equipment or other
assets, other than to customers in the ordinary course of the Business;

 

(v)           Any
contract relating to indebtedness for borrowed money (whether incurred,
assumed, guaranteed or secured by any asset);

 

(vi)          Any
contract or commitment that limits the freedom of Western Drilling to compete in
any line of business or with any person or in any area or to own, operate,
sell, transfer, pledge or otherwise dispose of or encumber any asset or which
would so limit the freedom of Western Drilling after the Closing;

 

16

 

(vii)         Any
contract relating to any guaranty or indemnity issued by Western Drilling other
than in the Ordinary Course of Business;

 

(viii)        Any
agreement relating to the acquisition or disposition of any part of the
Business other than sales of inventory in the Ordinary Course of Business;

 

(ix)           Any
other contract or commitment not made in the ordinary course of the Business
consistent with past practice or any other contract or commitment which
involves or could involve consideration individually in excess of One Hundred
Thousand and No/100 Dollars ($100,000.00); and

 

(x)            Any
agreement under which Western Drilling has advanced or loaned any amount of
money to any director, officer or employee (collectively, all such agreements
and commitments referenced in clauses (i) through (x) of this Section 3.12(a) are
referred to herein as “Major Contracts”).

 

(b)           Seller has
made available to Buyer by posting to IntraLinks copies of all Major Contracts
that are true and complete in all material respects, in each case subject to
Western Drilling’s confidentiality obligations to third parties and any
restrictions on disclosure required by such third parties (and where such
obligations and restrictions have been specifically disclosed on Schedule 3.12(b) of
the Seller Disclosure Schedule).

 

(c)           All of the
Major Contracts are in full force and effect in all material respects (except
as the same may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, preference, moratorium or other similar Laws now or
hereafter in effect relating to or affecting creditors generally or by general
equity principles (regardless of whether such enforceability is considered in a
Proceeding in equity or at law) and except that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any Proceeding may be
brought), and Western Drilling is not and, to the Knowledge of Seller, no other
party is, in breach thereof or default thereunder in any material respect, nor,
to the knowledge of Seller, has any event or circumstance occurred that, with
notice or lapse of time or both, would constitute any such material default or
breach.

 

3.13                           Litigation.  There is no Proceeding, at law or in equity,
pending against or, to the Knowledge of Seller, threatened in writing against
or affecting Western Drilling or which would, individually or in the aggregate,
prohibit or restrict in any material respect the performance by Seller of
Seller’s obligations under this Agreement or the consummation of the
transactions contemplated hereby, nor is there any Order of any Governmental
Authority or arbitrator outstanding against Western Drilling or the
Seller.  There are no unsatisfied
judgments against Western Drilling.

 

3.14                           Compliance
with Laws.  Western Drilling is, and
at all times during the three (3) years prior to the Closing Date, has
been, in compliance in all material respects with all applicable Laws, Orders
of Governmental Authorities and Governmental Approvals, except for 

 

17

 

matters that are the subject of Sections  3.13, 3.15,
3.17, 3.18, 3.19, 3.20 and 3.21, which are
controlled by such Sections without duplication with this Section.

 

3.15                           Licenses
and Permits.  Western Drilling
possesses all Governmental Approvals necessary to carry on its Business in the
manner currently conducted.  Each item of
Material Equipment has all Governmental Approvals necessary for the continued
operation thereof in a substantially similar manner as the same is operated as
of the Closing Date.  There is not now
pending or, to the Knowledge of Seller, threatened any Proceeding by or before
any Governmental Authority to revoke, cancel, rescind, modify or refuse to
renew in the Ordinary Course of Business any of such Governmental
Approval.  In the past three (3) years,
Western Drilling has not received written notice of, nor, to the Knowledge of
Seller, is there, any violation of the terms under which Western Drilling holds
any such Governmental Approval or of any enforcement action which could result
in the suspension or termination of any such license or permit.

 

3.16                           Real
Property.

 

(a)           Western
Drilling owns no Real Property.

 

(b)           Section 3.16(b) of
the Seller Disclosure Schedules sets forth the address of each parcel of Real
Property which as of immediately prior to the Closing is subject to a leasehold
or subleasehold interest possessed by Western Drilling and a true and complete
list of all leases and subleases for each such parcel.  Seller has made available to Buyer by posting
to Intralinks copies of all Leases that are true and complete in all material
respects, in each case subject to Seller’s and Western Drilling’s
confidentiality obligations to third parties and any restrictions on disclosure
required by such third parties.  Except
for Permitted Exceptions and for matters that would not have a Material Adverse
Effect:

 

(i)            each
such lease or sublease constitutes a valid and binding obligation of Western
Drilling, enforceable against such company in accordance with its terms in all
material respects, subject to (x) bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally, (y) general principles of equity, and (z) considerations
of public policy relating to indemnification; and

 

(ii)           Western
Drilling is not in breach of or default under any such lease or sublease, and
no event has occurred that (with notice or lapse of time, or both) would
constitute a breach of or default under, or permit termination, modification or
acceleration under, such lease or sublease.

 

3.17                           Intellectual
Property.  Western Drilling owns or has the right to use all of the material
Intellectual Property used by it in the conduct of the Business as currently
conducted.  Section 3.17
of the Seller Disclosure Schedules contains a list of all registered
trademarks, registered service marks and registered trade names and all
applications for registration for any of the foregoing owned or used by Western
Drilling.  Western Drilling has no
patents or registered copyrights.  Except for licenses listed in Section 3.17 of the Seller Disclosure Schedules, Western 

 

18

 

Drilling has not granted to any Person the right to
use any Intellectual Property.  To Seller’s
Knowledge, no use by Western Drilling of any Intellectual Property infringes
upon the intellectual property rights of any third party, except as would not
have a Material Adverse Effect.  No
proceedings are pending or, to Sellers’ Knowledge, threatened in writing,
alleging that the use by Western Drilling of any Intellectual Property
infringes upon the rights of any third party and no claim has been received by
Seller alleging any such infringement.

 

3.18                           Tax
Matters.  Except as set forth on Section 3.18
of the Seller Disclosure Schedules:

 

(a)           Filing of Tax Returns. 
Western Drilling has timely filed or caused to be timely filed with the
appropriate Tax Authorities all Tax Returns required to be filed by it under
applicable Law (taking into account any applicable extensions).  Neither Western Drilling nor any Person on
behalf of Western Drilling has requested any extension of time within which to
file any Tax Return, which Tax Return has not been filed.

 

(b)           Payment of Taxes. 
All Taxes due and payable by Western Drilling in respect of periods
ending on or before the Closing Date (whether or not shown to be due and
payable on any Tax Return) have been timely paid, or will be timely paid, on or
before the Closing Date.  Western
Drilling has withheld, collected, or paid over (or will pay over) in a timely
manner to the appropriate Tax Authority all Taxes required to have been withheld,
collected, or paid on or before the Closing Date in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder,
or any other third party.

 

(c)           Audits, Investigations or Claims. 
There are no audits, examinations, investigations, claims, assessments
or other Proceedings relating to Western Drilling with respect to any Tax
either (A) pending, (B) claimed or raised by any Tax Authority in
writing, or (C) as to which Seller has Knowledge based upon personal
contact with any agent or representative of any Tax Authority.  There are no Liens (other than Permitted
Exceptions) for Taxes on any of the assets of Western Drilling (including the
Transferred Assets).  Western Drilling has
not waived any statute of limitations in respect of any Tax or agreed to any
extension of time with respect to any Tax assessment or deficiency.  No power of attorney granted by Western
Drilling with respect to any Taxes is currently in force.

 

(d)           Non-Foreign Status. 
Seller is not a foreign person within the meaning of Treasury
Regulations Section 1.1445-2(b)(2) and Section 1445(f)(3) of
the Code.

 

(e)           Tax Returns.  Western Drilling has not
engaged in any transaction described as a “reportable transaction” in Treasury
Regulations Section 1.6011-4(b), including any transaction that is the
same or substantially similar to a transaction that the IRS has determined to
be a Tax avoidance transaction or that the IRS has identified through a notice,
Treasury Regulation or other form of published guidance as a “listed
transaction,” as such term is defined in Treasury Regulations Section 1.6011-4(b)(2).

 

19

 

(f)            S Corporation Matters. 
Western Drilling, Inc. filed a properly executed Form 2553
with the IRS to elect under Subchapter S of the Code to be an “S corporation”
within the meaning of Section 1361 of the Code.  Western Drilling, Inc.’s S Election
became effective on September 1, 2005 and Western Drilling, Inc. was
at all times from and including September 1, 2005, through and including
the effective time of the Conversion an “S corporation” within the meaning of Section 1361
of the Code (and an “S corporation” for all applicable state and local income
Tax purposes).

 

(g)           Disregarded
Entity.  Western Drilling will, on
the Closing Date and on the day before the Closing Date, be disregarded for
U.S. federal Tax purposes under Treasury Regulations §§ 301.7701-2 and
301.7701-3 (and for state and local Tax purposes under comparable provisions of
state and local Tax Law) (a “Disregarded Entity”).  No action has been taken prior to the Closing
that would result in Western Drilling’s being classified as an entity that is
not a Disregarded Entity.

 

(h)           Other.  Western Drilling (i) does
not have any liability for the Taxes of any entity under Treasury Regulations Section 1.1502-6
(or any similar provision of state, local or foreign Law), as a transferee or
successor, by contract, or otherwise, (ii) is not a party to or bound by,
and has no obligation under, any Tax allocation or Tax sharing agreement, Tax
indemnity agreement, or similar written or unwritten agreement or arrangement, (iii) is
not a party to or bound by, and has no obligation under, any agreement, ruling
or compromise entered into between Western Drilling and any Tax Authority
regarding Taxes or the assessment or payment thereof, (iv) is not a party
to any agreement, contract, arrangement or plan that has resulted, or could
result, individually or in the aggregate, in the payment of “excess parachute
payments” within the meaning of Section 280G of the Code (or any
corresponding provision of state, local or foreign Law), and (v) has not
distributed stock of another Person, nor has had its stock distributed by
another Person, in a transaction that was purported or intended to be governed
by Section 355 or 361 of the Code. 
Western Drilling is not, and will not be, required to include any item
of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result
of any (A) change in method of accounting for any taxable period ending on
or before the Closing Date, (B) “closing agreement” as described in Section 7121
of the Code (or any corresponding or similar provision of state, local or
foreign Law) executed on or before the Closing Date, (C) installment sale
or open transaction disposition made on or before the Closing Date, or (D) prepaid
amount received on or before the Closing Date. 
Western Drilling has not received any written notice that a claim has
been made by any Tax Authority or other governmental entity in a jurisdiction
where Western Drilling does not file Tax Returns that Western Drilling is or
may be subject to taxation by that jurisdiction.

 

3.19                           Employee
Benefits.

 

(a)           Section 3.19(a) of
the Seller Disclosure Schedules sets forth each Employee Benefit Plan that
Western Drilling maintains or to which Western Drilling contributes.  Seller has made available to Buyer by posting
to IntraLinks, or otherwise has made available to 

 

20

 

Buyer copies of all such Employee Benefit Plans that are true and
complete in all material respects.

 

(b)           Each
Employee Benefit Plan (and each related trust, custodial account or insurance
contract) has been administered and operated in compliance with its governing
documents and complies in form and in operation in all material respects with
the applicable requirements of Governmental Authorities and Law, including
ERISA and the Code.  Each Employee
Benefit Plan that is intended to be qualified under Code Section 401(a) and
any trust relating to an Employee Benefit Plan that is intended to be exempt
for Tax under Code Section 501(a) has received a favorable
determination letter from the Internal 
Revenue Service with respect to such plan’s or trust’s qualified or Tax
exempt status, as applicable, and complies in form and operation with the
requirements of Code Section 401(a) in all material respects.

 

(c)           Western
Drilling has not engaged in any prohibited transaction or any violation of its
fiduciary duties with respect to any Employee Benefit Plan, and no act,
omission or transaction has occurred with respect to any Employee Benefit Plan
which would result in imposition on Western Drilling or its Affiliates of (a) any
material liability for a breach of fiduciary duty liability damages under 409
of ERISA or (b) any material civil penalty assessed pursuant to
subsections (c), (i) or (1) of Section 502 of ERISA.

 

(d)           No charge,
complaint, claim or demand with respect to the administration or investment of
the assets of any Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of the Seller, threatened, and there
is no matter pending with respect to any Employee Benefit Plan before any Governmental
Authority that could result in material liability to Western Drilling.

 

(e)           Western
Drilling has no liability, contingent or otherwise, with respect to any
multiemployer plan (as defined in Section 3(37) of ERISA) or any defined
benefit plan subject to Title IV of ERISA.

 

(f)            Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will entitle any current or former
employee, director or independent contractor of Western Drilling to severance
pay or any other payment or benefit under any Employee Benefit Plan, or
accelerate the time of payment or vesting of any benefits under any Employee
Benefit Plan, or increase the amount of compensation due any current or former
employee, director or independent contractor of Western Drilling.

 

(g)           No
Employee Benefit Plan provides for medical or other health benefits or for
medical or life insurance benefits following an individual’s termination of
employment to be self-funded by Western Drilling, and Western Drilling has made
no commitments to provide such coverage, except, in each case, as required by
the Consolidated Omnibus Budget Reconciliation Act of 1985 or similar
applicable Law.

 

21

 

(h)           All contributions
required to be made to each Employee Benefit Plan under the terms of such
Employee Benefit Plan, the Code, ERISA or other applicable law have been timely
made or reserved for on the Financial Statements.

 

(i)            Except
for the Western Drilling, Inc. Money Purchase Pension Plan, the Profit
Sharing Plan is the only Employee Benefit Plan currently or within the last six
years maintained by Western Drilling or is Affiliates that is intended to be
qualified under Code Section 401(a), no Employee Benefit Plan is funded by
a trust that is intended to be exempt from federal income taxation pursuant to
Code Section 501(c)(9), and no Employee Benefit Plan is in violation of
Code Section 409A.

 

3.20                           Labor
Matters.

 

(a)           Section 3.20
of the Seller Disclosure Schedule lists all Persons currently employed by
Western Drilling and all contract employees providing services to Western
Drilling as independent contractors as of March 31, 2008 and provides,
with respect to such Persons, their job title, applicable compensation and
their names.

 

(b)           To the
Knowledge of the Seller, no Key Employee has expressed a current intention to
terminate employment with Western Drilling. 
There are no employment, severance, termination or other similar
agreements, policies or obligations providing for employment or for payment of
severance, benefits or termination costs, whether written or oral, accruing to
the benefit of any director, officer or Employee of Western Drilling, except
for any agreements disclosed on Section 3.20 of the Seller
Disclosure Schedules.

 

(c)           There is
no material Proceeding pending or, to the Knowledge of the Seller, threats that
are perceived as credible, against Western Drilling pertaining to terms and
conditions of employment, including those relating to wages, hours, benefits,
collective bargaining, employment discrimination or harassment, statutory
rights, public policy or retention claims, affirmative action plans,
occupational safety and health, laws guaranteeing rights to leave or
compensation time, the WARN Act or the payment of or withholding of Taxes and
other sums.

 

(d)           Western
Drilling has no collective bargaining agreement or other labor union Contract
applicable to the Employees, and there are no current negotiations regarding
entering into any such agreement. 
Western Drilling has not recognized any labor organization, nor has any
such organization been certified, as the exclusive bargaining agent of any
employees of Western Drilling.  To the
Knowledge of the Seller, there are no union organizing efforts in progress
relating to Western Drilling.

 

(e)           Western
Drilling has complied in all material respects with all Laws relating to the
employment of labor at all times during the forty-eight (48) months prior to
the Closing Date.

 

(f)            There are
no pending, or to the Knowledge of the Seller, threatened strikes, work
stoppages, slowdowns or lockouts against Western Drilling by any Employees, and

 

22

 

there are no pending or to the Knowledge of the Seller, threatened in
writing, unfair labor practice charges, grievances or complaints against
Western Drilling, nor have any of the foregoing occurred in the last
twenty-four (24) months.  To the
Knowledge of the Seller, Western Drilling is not engaged in any unfair labor
practice.

 

3.21                           Environmental
Matters.  Western Drilling is in
compliance in all material respects with all Environmental Laws and has, for
the past four (4) years, been in compliance in all material respects with
all Environmental Laws.  Except for
matters disclosed in Section 3.21 of the Seller Disclosure
Schedules, neither Seller nor Western Drilling has received any written or oral
notice and nothing has come to their attention to the effect that: (a) the
properties, operations and activities of Western Drilling are not in compliance
with all applicable Environmental Laws or require response, remedial,
corrective action or cleanup of any kind under any applicable Environmental
Laws that individually or in the aggregate would be material to Western
Drilling; (b) Western Drilling is subject to any existing, pending or
threatened action, suit, investigation, inquiry or Proceeding by or before any
court or governmental authority under any Environmental Law; (c) all
governmental licenses, permits, authorizations, consents or approvals
affecting, or relating in any way to, Western Drilling or the Business, if any,
required to be obtained or filed by Western Drilling under any Environmental
Law have not been obtained or filed and any such required permits are not valid
and currently in full force and effect and (d) there has been any release
of any hazardous substance, pollutant or contaminant into the environment by
Western Drilling in material violation of any applicable Environmental Law.
Western Drilling has made available to the Buyer all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters (in each case relevant to Western Drilling) in the
possession of Western Drilling or the Seller. 
Except for the underground storage tanks referenced in the Phase I
environmental report made available to Buyer by Western Drilling, there are
currently no, and to the Knowledge of Seller, there never have been any,
underground storage tanks on Real Property at any time owned, leased or
operated by Western Drilling.

 

3.22                           Related
Party Transactions.  Other than the
Excluded Assets and the Transferred Assets, no employee, officer, director,
shareholder, or Affiliate of Western Drilling or any family member or Affiliate
of Western Drilling, is a party to any contract, commitment or transaction with
Western Drilling or has any interest in any property used by the Western
Drilling.

 

3.23                           Brokers
and Finders.  Except for Simmons &
Company International, whose fees shall be paid by Seller, no agent, broker,
investment banker, intermediary, finder or firm acting on behalf of Seller or
Western Drilling is or will be entitled to any broker’s or finder’s fee or any
other commission or similar fee, directly or indirectly, from Seller or Western
Drilling in connection with the execution and delivery of this Agreement,
Seller’s performance hereunder, or the consummation of the transactions
contemplated hereby.

 

3.24                           Insurance.  Section 3.24 of the Seller
Disclosure Schedules lists the insurance policies held by Western Drilling,
copies of which, and claims histories for the past two (2) years under
which, have been made available to Buyer by posting to IntraLinks.

 

23

 

3.25                           Customers.  Section 3.25 of the Seller
Disclosure Schedules sets forth (a) a list of the top twenty (20)
customers of Western Drilling for the 2007 calendar year, (b) the gross
sales by Western Drilling attributable to each of such customers for such
period and (c) whether there is a written contract with each of such
customers.  Since the Balance Sheet Date,
none of the customers listed on Section 3.25 of the Seller
Disclosure Schedule has cancelled or terminated or, to the Knowledge of Seller,
made threats that are perceived as credible about its intention to cancel or
terminate its business relationship with Western Drilling.  Western Drilling is not currently obligated
to share any cost savings or reduction with any third party pursuant to any
Contract, including, without limitation any contract set forth on Section 3.12
of the Seller Disclosure Schedules.

 

3.26                           Disclosure.  None of the representations or warranties or
other statements made by the Seller in this Agreement or the Seller Disclosure
Schedules, when taken as a whole, contain any untrue statement or omit to state
a material fact necessary to make any of them, in light of the circumstances in
which they were made, not misleading.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller as follows:

 

4.1                                 Organization
and Good Standing.  Buyer is a limited liability company (a) duly
formed, existing and in good standing under the Laws of its jurisdiction of
formation, (b) has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now conducted,
and (c) is duly qualified and in good standing to transact business in
each U.S. jurisdiction in which the ownership or leasing of its properties or
the conduct of its business makes such qualification necessary, except where
failures to be so qualified and in good standing would not, individually or in
the aggregate, prohibit, restrict or delay, in any material respect, the
performance by Buyer of Buyer’s obligations hereunder or the consummation of
the transactions contemplated hereby.

 

4.2                                 Authority
and Enforceability.  Buyer has all
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements to which it is a party, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated
hereby and thereby.  The execution and
delivery of this Agreement and the Ancillary Agreements to which it is a party
by Buyer, its performance hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Buyer.  Each of this Agreement and the Ancillary
Agreements to which it is a party has been duly executed and delivered by Buyer
and, assuming due execution and delivery by Seller, constitutes a valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms and conditions, except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent transfer, preference, moratorium or
other similar Laws now or hereafter in effect relating to or affecting
creditors generally or by general equity principles (regardless of whether such
enforceability is 

 

24

 

considered in a Proceeding in equity or at law) and except that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any Proceeding may be brought.

 

4.3                                 Non-Contravention.  Subject to the provisions of Section 4.4
regarding  Consents, the execution and
delivery of this Agreement and the Ancillary Agreements to which it is a party
by Buyer do not, and Buyer’s performance hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby shall not (a) violate
any provision of the organizational documents of Buyer, (b) violate or
constitute a breach of or default under (with notice or lapse of time, or
both), or permit termination, modification or acceleration under, any Contract
to which Buyer is party or by which Buyer’s assets are bound, except where such
violations, breaches, defaults, terminations, modifications and accelerations
would not, individually or in the aggregate, prohibit, restrict or delay, in
any material respect, the performance by Buyer of Buyer’s obligations under
this Agreement or the consummation of the transactions contemplated hereby, or (c) violate
any Law or Order of any Governmental Authority applicable to Buyer, except
where such violations would not, individually or in the aggregate, prohibit,
restrict or delay, in any material respect, the performance by Buyer of Buyer’s
obligations under this Agreement or the consummation of the transactions
contemplated hereby.

 

4.4                                 Consents.  The execution and delivery by Buyer of this
Agreement, Buyer’s performance hereunder, and the consummation of the
transactions contemplated hereby do not require (a) any Consent under any
Contract to which Buyer is party or by which Buyer’s assets are bound, except
where failures to obtain such Consents would not, individually or in the
aggregate, prohibit, restrict or delay, in any material respect, the performance
by Buyer of Buyer’s obligations under this Agreement or the consummation of the
transactions contemplated hereby, or (b) any Governmental Approval, except
where failures to obtain such Governmental Approval would not, individually or
in the aggregate, prohibit, restrict or delay, in any material respect, the
performance by Buyer of Buyer’s obligations under this Agreement or the
consummation of the transactions contemplated hereby.

 

4.5                                 Litigation.  There is no Proceeding, at law or in equity,
pending against or, to the Knowledge of Buyer, threatened against or affecting
Buyer, nor is there any Order of any Governmental Authority or arbitrator
outstanding against Buyer, in each case the adverse outcome of which would, individually or in the aggregate, prohibit,
restrict or delay, in any material respect, the performance by Buyer of Buyer’s
obligations under this Agreement or the consummation of the transactions
contemplated hereby.

 

4.6                                 Brokers
and Finders.  No agent, broker,
investment banker, intermediary, finder or firm acting on behalf of Buyer is or
will be entitled to any broker’s or finder’s fee or any other commission or
similar fee, directly or indirectly, from Buyer in connection with the
execution and delivery of this Agreement, Buyer’s performance hereunder, or the
consummation of the transactions contemplated hereby.

 

4.7                                 No Knowledge of Seller’s Breach.  To
the Knowledge of Buyer, Seller is not in breach of any representation or
warranty in ARTICLE III of this Agreement (a) that could 

 

25

 

reasonably be expected to result in Damages in an amount greater than
the threshold amount described in Section 7.3(a) (i.e.
$505,000) and (b) where such Knowledge is based on facts (i) that are
derived from a source other than Seller, Western Drilling or any of their
respective officers, employees, agents or consultants, and (ii) that Buyer
reasonably believes are not known to Seller.

 

ARTICLE V

COVENANTS

 

5.1                                 Publicity.  Any party may issue a press release or make a
public statement following the Closing regarding the subject matter of this Agreement.  Any party issuing a press release or other
written public statement shall furnish a copy to the other party prior to its
dissemination.  Nothing herein shall
limit the ability of any party hereto to make any disclosures required by Law
in a timely manner.

 

5.2                                 Directors’
and Officers’ Indemnification.  For a
period of not less than six (6) years from the Closing Date, Buyer shall
use its Commercially Reasonable Efforts to cause Western Drilling to exculpate,
indemnify, advance expenses to and hold harmless all of its past and present
directors, officers, employees and agents for any acts or omissions occurring
at or prior to the Closing to the greatest extent currently permitted under
Western Drilling’s organizational documents and applicable Law, provided that
such indemnity and other rights shall not apply to any claim by Buyer against
any of the Sellers under this Agreement or any of the Ancillary Agreements.  In the event that any claim for
indemnification or advancement of expenses is asserted or made within such six (6) year
period, all rights to indemnification and advancement of expenses shall
continue until such claim is disposed of or all Orders of any Governmental
Authorities in connection with such claim are fully satisfied.

 

5.3                                 Tax
Matters.  The following provisions
shall govern the allocation of responsibility as between Buyer and Seller for
certain tax matters following the Closing Date:

 

(a)           Tax Indemnification.

 

(i)            Seller
and the Shareholders, jointly and severally, shall indemnify and hold the Buyer
Indemnified Parties harmless from and against any Damages for, arising out of,
resulting from, relating to, in the nature of, or caused by  (A) all Taxes (or the non-payment
thereof) of Western Drilling and Seller for all taxable periods ending on or
before the Closing Date and the portion through the end of the Closing Date for
any taxable period that includes (but does not end on) the Closing Date (“Pre-Closing Tax Periods”),
including, without limitation, any Taxes imposed in connection with the deemed
sale of Western Drilling’s assets resulting from consummation of the
transactions contemplated by this Agreement, (B) any and all Taxes of any
member of an affiliated, consolidated, combined, or unitary group of which
Western Drilling is or was a member on or prior to the Closing Date, including
pursuant to Treasury Regulation §1.1502-6 or 1.1502-78(b)(2) or any
analogous or similar state, local, or foreign Law or regulation, (C) any
and all Taxes of any Person imposed on Western Drilling as a transferee or
successor, by contract or pursuant to any Law, rule or regulation, which
Taxes 

 

26

 

relate to an event or transaction occurring (other than an event or
transaction of Buyer or its Affiliates) before the Closing and (D) the
Interests Purchase not being treated for U.S. federal income Tax purposes (and
state, local and foreign Tax purposes where applicable) as the purchase by
Buyer of all of the assets held by Western Drilling (including Transferred
Assets) in exchange for the Purchase Price as a result of a breach of any
representation or warranty contained in Section 3.18(g); provided
in each case that no indemnification will be made to the extent such Taxes have
been taken into account in determining the Closing Working Capital as shown on
the Final Closing Statement that has become final and binding pursuant to Section 2.3,  and provided  further, that no
amount shall be payable by Seller or the Shareholders pursuant to clause (A), (B) or
(C) of this Section 5.3(a)(i) for any Damages other than Taxes
until the aggregate amount of such Damages exceeds $100,000 and then only to
the extent by which such Damages exceed such threshold amount, provided  however,
that this limitation shall not apply in the event of fraud, intentional
misrepresentation or willful misconduct.

 

(ii)           Buyer
shall indemnify and hold the Seller Indemnified Parties harmless from and against
all Taxes (or the non-payment thereof) relating to the income or activities of
Western Drilling for all taxable periods that are not Pre-Closing Tax Periods,
including for the portion beginning immediately after the Closing Date of any
taxable period that includes (but does not end on) the Closing Date.

 

(iii)          If
a claim shall be made by any Tax Authority with respect to Taxes, which, if
successful, might result in an indemnity payment to a party pursuant to this Section 5.3,
the provisions of Section 7.2(c) shall apply with respect to
such claim.

 

(b)           Straddle Period.  In the case of any taxable period that
includes (but does not end on) the Closing Date (a “Straddle Period”),
the amount of any Taxes for the portion of such Straddle Period through the end
of the Closing Date shall be determined based on an interim closing of the
books as of the close of business on the Closing Date, except that the amount
of any property or ad valorem Taxes or franchise Taxes (which are measured
solely by, or based solely upon, capital, debt or a combination of capital and
debt) for the portion of such Straddle Period through the end of the Closing
Date shall be determined on a per diem basis.

 

(c)           Tax
Treatment of Interests Purchase. 
Buyer and Seller agree to report and file (and to cause their Affiliates
to report and file) their U.S. federal income Tax Returns (and state and local
income Tax Returns where applicable) in all respects and for all purposes
consistent with the Intended Tax Treatment. 
Buyer and Seller further agree not to take (and to cause their
respective Affiliates not to take) any position, whether in any Tax Return,
audit, examination, claim, adjustment, litigation or other proceeding with
respect to U.S. federal income Tax (and state and local income Tax where
applicable), which is inconsistent with such Intended Tax Treatment.

 

27

 

(d)           Filing
of Tax Returns.

 

(i)            Seller
shall cause to be prepared, at its cost and expense, each Tax Return required
to be filed by Western Drilling for each period ending on or before the Closing
Date, including the preparation of any short-period Tax Return ending on the
Closing Date provided, however, that Seller shall make such Tax Return and the
related work papers available to Buyer at least 15 days (or, in the case of an
income or franchise Tax Return, 60 days) before the due date (including any extensions
thereof) for filing such Tax Return to provide Buyer with a meaningful
opportunity to analyze and comment on such Tax Return and have such Tax Return
modified before the filing of such Tax Return.

 

(ii)           Buyer
shall cause to be prepared, at its cost and expense, each Tax Return required
to be filed by Western Drilling for each period beginning on or before the
Closing Date and ending after the Closing Date and shall determine in
accordance with Section 5.3(b) and Section 5.3(d)(vii) the
amount of Tax due with respect to the portion of such period ending on the
Closing Date, which determination shall be set forth in a statement (“Statement”)
prepared by Buyer; provided, however, that Buyer shall make such Tax Return,
the Statement related thereto, and the related work papers available to Seller
at least 15 days (or, in the case of an income or franchise Tax Return, 60
days) before the due date (including any extensions thereof) for filing such
Tax Return to provide Seller with a meaningful opportunity to analyze and
comment on such Tax Return and have such Tax Return modified before the filing
of such Tax Return.

 

(iii)          Each Tax Return described in Section 5.3(d)(i) and
(ii) shall be timely filed and shall be prepared in accordance with
past Tax accounting practices, methods and elections used with respect to the
Tax Return in question (except to the extent (A) any such past practice,
method or election or any such matter is not, or is no longer, permissible
under the applicable Tax Law or (B) otherwise required as a result of the
Tax treatment described in Sections 5.3(b) or 5.3(c), the
Allocation, or the transactions contemplated by this Agreement), and to the
extent any items are not covered by such past practices, methods or elections
(or in the event any such past practice, method or election or any such matter
is not, or is no longer, permissible under the applicable Tax Law) or otherwise
required as a result of the Tax treatment described in Sections 5.3(b) or
5.3(c), the Allocation, or the transactions contemplated by this Agreement,
in accordance with reasonable Tax accounting practices selected by the party
preparing such Tax Return after consultation with, and with the consent of, the
other party hereto (which consent shall not be unreasonably withheld, delayed
or conditioned); provided, however, that no position shall be taken in any such
Tax Return unless the tax treatment of such position would more likely than not
be sustained on its merits if challenged.

 

(iv)          Buyer
and Seller shall attempt in good faith to reach agreement with respect to any
issue resulting from any review of a Tax Return or a Statement.  Should Buyer and Seller fail to reach such an
agreement within 10 days after delivery of such Tax Return and, if applicable,
the Statement related thereto (or, in the case of an income or 

 

28

 

franchise Tax Return, within 30 days after delivery of such Tax Return
and, if applicable, the Statement related thereto), a determination with respect
to such issue shall be made by the Independent Accountant, whose decision shall
be final and binding upon the parties for purposes of finalizing such Tax
Return for filing with the appropriate Tax Authority and the Statement related
thereto.  All of the fees and expenses of
the Independent Accountant pursuant to this Section 5.3(d)(iv) shall
be apportioned between Buyer and Seller by the Independent Accountant based
upon the inverse proportion of the amounts resolved in favor of each such party
(i.e., so that the prevailing party bears a lesser, or no, amount of fees and
expenses).

 

(v)           Seller shall pay to the appropriate Tax
Authority or to Buyer, as appropriate, the amount of Tax that is
shown as due on a Tax Return described in Section 5.3(d)(i), and
shall pay to Buyer the amount of Tax that is shown as due on a Statement
prepared with respect to a Tax Return described in Section 5.3(d)(ii), no
later than (or, if paid to Buyer, at least two (2) days before) the due
date, including any extensions thereof, for filing such Tax Return; except to
the extent such Taxes have been taken into account in determining the Closing
Working Capital as shown on the Final Closing Statement that has become final
and binding pursuant to Section 2.3.

 

(vi)          Buyer
shall prepare and file, or cause to be prepared and filed, all Tax Returns
required to be filed by Western Drilling for all periods beginning after the
Closing Date.

 

(vii)         Buyer
and Seller agree to report all transactions not in the Ordinary Course of
Business occurring on the Closing Date after Buyer’s purchase of the Interests
as allocable to Buyer’s period of ownership to the extent permitted by
applicable Tax Law.  Buyer agrees to
indemnify Seller for any additional Tax owed by Seller (including Tax owed by
Seller due to this indemnification payment) resulting from any transaction
engaged in by Western Drilling not in the Ordinary Course of Business occurring
on the Closing Date after Buyer’s purchase of the Interests.

 

(e)           Cooperation
on Tax Matters.  Buyer and Seller
shall, and shall cause their respective Affiliates to, cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns with respect to Western Drilling and any audit,
litigation or other Proceeding with respect to Taxes.  Such cooperation shall include the retention
and (upon the request of the other party) the provision of records and
information that are reasonably relevant to any such Tax Returns or audit,
litigation or other Proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.  Buyer and
Seller agree, and Buyer shall cause its Affiliates, (A) to retain all
books and records with respect to Tax matters relating to Western Drilling for
any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Buyer or Seller, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any Taxing Authority, and (B) to
give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so 

 

29

 

requests, Buyer or Seller shall, and Buyer shall cause its Affiliates
to, allow such party to take possession of such books and records.  Buyer and Seller further agree, upon request,
to use, and cause their respective Affiliates to use, their respective
Commercially Reasonable Efforts to obtain any certificate or other document
from any Tax Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including with respect to
any of the transactions contemplated by this Agreement).

 

(f)            Tax
Refunds.  The amount or economic
benefit of any refunds of Taxes received by Seller, Buyer or Western Drilling
for any Pre-Closing Tax Period of Western Drilling shall be for the account of
Seller except as otherwise provided in this Section 5.3(f).  The amount or economic benefit of any refunds
of Taxes received by Seller, Buyer or Western Drilling for any periods that are
not Pre-Closing Tax Periods of Western Drilling shall be for the account of
Buyer.  In the case of a Straddle Period,
the amount or economic benefit of any refunds received by Seller, Buyer or
Western Drilling shall be apportioned between Seller and Buyer in accordance
with Section 5.2(b) except as otherwise provided in this Section 5.3(f).  In addition, (A) to the extent there is
a refund or credit against Tax by a Tax Authority to Seller, Buyer or Western
Drilling of any liability for a Tax accrued on the Final Closing Statement that
has become final and binding pursuant to Section 2.3, it shall be
for the account of Seller, and (B) to the extent there is a refund or
credit against Tax by a Tax Authority to Seller, Buyer or Western Drilling of
any amount of Tax that increased the Purchase Price pursuant to Section 2.3
by reason of the inclusion of an asset (or reduction of a liability) with
respect to such Tax on the Final Closing Statement that has become final and
binding pursuant to Section 2.3, it shall be for the account of
Buyer, and to the extent the amount of such asset (or reduction of a liability)
exceeds the amount of such refund or credit, Seller shall pay to Buyer the
amount of such excess.  Any such amounts
owing to Seller or Buyer, as applicable, as provided in this Section 5.2(f) shall
be paid by Buyer or Seller, as applicable, within fifteen (15) Business Days of
the receipt of any such payments, credits, or refunds.

 

(g)           Transfer
Taxes.  All transfer, documentary,
sales, use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with the consummation of the transactions
contemplated by this Agreement and the transfer of the Transferred Assets (“Transfer
Taxes”), shall be paid one half by Seller and one half by Buyer; provided,
however, that any Transfer Taxes due in connection with the Restructuring shall
be paid by Seller.

 

(h)           Tax
Treatment of Indemnity Payments.  The
parties hereto agree to treat any indemnity payment made pursuant to this
Agreement as an adjustment to the Purchase Price for federal, state, local and
foreign income Tax purposes.

 

(i)            Termination
of Tax Sharing Agreements.  The
Seller shall cause any and all Tax sharing or allocation agreements, intercompany
agreements or other agreements or arrangements, between Western Drilling and
any other Person and relating to any Tax matters to be terminated with respect
to Western Drilling as of the day before the Closing Date, and from 

 

30

 

and after the Closing Date, Western Drilling shall not be bound thereby
or have any liability thereunder for any taxable period (whether past, current
or future taxable periods).

 

5.4                                 Books
and Records.

 

(a)           Except as
otherwise provided in Section 5.3(e), Buyer shall, and shall cause
its Affiliates to, retain all books and records relating to Western Drilling
for a period of six (6) years after the Closing Date.  In addition to the foregoing, each of Buyer
and Seller shall, and shall cause its Affiliates to, afford to the other party
hereto, and its counsel, accountants and other authorized agents and
representatives, during normal business hours, upon reasonable notice and upon
the execution and delivery of a confidentiality and non-disclosure agreement in
customary form and substance (which shall include appropriate exceptions for
disclosure relating to Tax matters), reasonable access to the personnel, books,
records and other data relating to Western Drilling and the Employees, and the
right to make copies and extracts therefrom, to the extent that such access may
be reasonably required by the requesting party (i) to facilitate the
investigation, litigation and final disposition of any claims or audits which
may have been or may be made against any such party or its Affiliates, (ii) for
the preparation of Tax Returns and other documents and reports that such party
or its Affiliates are required to file with Governmental Authorities, (iii) for
accounting purposes (including for purposes of preparing closing financial
statements, and closing the books and records, of Western Drilling) and (iv) for
any other reasonable business purpose. 
The foregoing shall not require any party to permit any inspection, or
to disclose any information, that in its reasonable judgment, upon the advice
of outside counsel, is reasonably likely to result in the waiver of any
attorney-client privilege.

 

(b)           Seller may
retain (i) CD copies of the materials included on IntraLinks in connection
with the Auction, the Interests Purchase and the other transactions
contemplated by this Agreement, together with CD copies of all documents
referred to in such materials, (ii) all internal correspondence and
memoranda, valuations, investment banking presentations and bids received from
other Persons in connection with the Auction, the Interests Purchase and the
other transactions contemplated by this Agreement, and (iii) copies of all
consolidated and combined financial information and all other accounting
records prepared or used in connection with the preparation of the Financial
Statements.

 

5.5                                 No
Other Representations.  Buyer
acknowledges that it is, subject to Seller’s express representations,
warranties, covenants and obligations under this Agreement, acquiring Western
Drilling on an “as is, where-is” basis, with all faults, in reliance upon Buyer’s
inspection thereof.  Except as otherwise
expressly set forth in this Agreement, and without limiting Seller’s express
representations and warranties, Seller makes no representation or warranty of
any kind whatsoever with respect to any of the assets or liabilities of Western
Drilling, whether express or implied, including any representations or
warranties concerning or with respect to (a) the value, nature, quality of
condition, or state of repair of any of the assets of Western Drilling, or (b) the
habitability, merchantability, marketability, profitability or fitness for a
particular purpose of any personal or real property owned or leased by Western
Drilling.  Buyer hereby expressly
disclaims the implied warranty of habitability, the implied warranty of 

 

31

 

merchantability, the implied warranty of fitness for a particular
purpose, and all express or implied warranties relating to the quality of or
otherwise relating to the physical condition of the assets of Western Drilling.

 

5.6                                 Disclaimer
Regarding Financial Data and Projections. 
In connection with Buyer’s investigation of Western Drilling, Buyer has
received from Seller and its representatives certain (a) financial data, (b) projections
and other forecasts and (c) business plan information, in each case
relating to Western Drilling.  Buyer
acknowledges that (w) there are uncertainties inherent in attempting to
make any projections and other forecasts and plans, (x) Buyer is familiar
with such uncertainties, (y) Buyer is taking full responsibility for
making its own evaluation of the adequacy and, except as expressly set forth in
ARTICLE III, accuracy of all financial data, projections and other
forecasts and plans so furnished to it, and (z) except in connection with
a breach of ARTICLE III, which is governed by ARTICLE VII, Buyer
shall have no claim against any person with respect thereto.  Accordingly, except as expressly set forth in
ARTICLE III, Buyer acknowledges that Seller has not made, and is not
making, any representation or warranty with respect to such financial data,
projections, forecasts or plans.

 

32

 

5.7                                 Shareholders’
Guaranty.  Each of the Shareholders
hereby fully and unconditionally guarantees all of the duties and obligations
of Seller pursuant to this Agreement (other than Seller’s indemnification
obligations in Section 5.3(a) and ARTICLE VII for which
the Shareholders are jointly and severally liable), and in the event that
Seller fails to pay or perform any such duties or obligations, Buyer may
proceed against each of the Shareholders directly.  The
Shareholders hereby expressly waive the following, including, without
limitation, any and all defenses, claims and set-offs of any kind or nature
arising directly or indirectly as a result of any of the following:  (i) acceptance or notice of the
acceptance of this guaranty; (ii) presentment, demand, notice of dishonor,
protest, and all other notice whatsoever; (iii) the invalidity,
irregularity, or unenforceability of the liabilities hereby guaranteed; (iv) any
defense that may now or hereafter arise by reason of the incapacity, lack of
authority, death or disability of Seller, or any officer, partner or agent of
Seller, any co-guarantor, or any other person or entity or the failure of Buyer
to file or enforce a claim against the estate (either in bankruptcy or any
other proceeding) of Seller or any other person or entity; (v) the defense
of the statute of limitations in any action hereunder or for the collection of
the indebtedness or the performance of any obligation hereby guaranteed; (vi) any
delay on the part of Buyer in exercising any of its rights under this guaranty,
or otherwise; (vii) until the obligations hereby guaranteed are satisfied
in full, any right of subrogation to Buyer against Seller and any rights to
enforce any remedy which Buyer may have against Seller; (viii) any defense
based upon an election of remedies by Seller which destroys or otherwise
impairs any subrogation rights of the Shareholders or the right of the
Shareholders to proceed against Seller for reimbursement, and/or any other
rights of the Buyer to proceed against Seller, against any other guarantor, or
against any other person or security; (ix) any right to assert against
Seller any defense (legal or equitable), set-off, counterclaim, and/or claim
which the Shareholders may now or at any time hereafter have against Seller
and/or any other party liable to Buyer in any way or manner.  Without in any way limiting the foregoing,
the Shareholders expressly waive any and all benefits under California Civil
Code Sections 2809, 2810, 2819, 2845, 2849, 2850, and 2855.

 

ARTICLE VI

EMPLOYEE MATTERS

 

6.1                                 Participation
in Benefit Plans.  Effective as of
the day after the Closing Date (or as soon thereafter as practicable), Buyer
shall cause each Employee of Western Drilling, if and to the extent eligible,
to be provided with coverage under each employee benefit plan, program, policy
or arrangement of Buyer or any of its Affiliates on the same terms and
conditions as other similarly situated Buyer employees, except that certain
carryover service shall be provided as set forth below.  Buyer shall cause the insurance carriers and
benefit plan administrators or trustees of Buyer or its Affiliates to:  (i) recognize service with Western
Drilling (and any predecessor) prior to Closing (“Prior Service”) for purposes
of eligibility to enroll in the welfare plans of Buyer and its Affiliates (e.g.
its life, medical, dental, accident, disability, flexible spending and similar
benefit plans); and (ii) provide each such Western Drilling employee with
credit under its medical and dental plans for payments made under the
corresponding plan or employee benefit program in satisfying any deductible or
out-of-pocket limit requirements.  Buyer 

 

33

 

shall recognize Prior Service for all Western Drilling employees for
purposes of eligibility and vesting under the Buyer’s 401(k) Plan.  Buyer shall recognize Prior Service for all
Western Drilling employees for purposes of determining entitlement to vacation
and sick leave as employees under applicable vacation and sick leave policies
of Buyer.  Buyer shall recognize Prior
Service for purposes of determining entitlement to and the amount of any
severance benefits which may be payable by Buyer to any Western Drilling
employee.  The parties shall cooperate to
cause Western Drilling to transfer its Employee Welfare Benefit Plans to HWOC,
or take other mutually agreed action with respect thereto, as soon as
reasonably practical after the Closing.

 

6.2                                 No
Third Party Beneficiaries.  No
provision of this Agreement shall create any third party beneficiary rights in
any employees of Western Drilling or any beneficiaries or dependents thereof
with respect to the compensation, terms and conditions of employment and
benefits that may be provided to any of such employees by Western Drilling or
under any benefit plan which Western Drilling may maintain.

 

6.3                                 Cooperation.  To the extent Seller desires to communicate
with any beneficiaries of the Profit Sharing Plan following the Closing, Buyer
shall cause Western Drilling to reasonably cooperate in facilitating such
communications and to use its commercially reasonable endeavors to assist in
such related matters as may be reasonably requested.

 

ARTICLE VII

INDEMNIFICATION

 

7.1                                 Survival.  The representations and warranties contained
in Article III of this Agreement shall survive the Closing and
automatically expire on the date that is eighteen (18) months following the
Closing Date (the “Survival End Date”), except that the representations
and warranties contained in (a) Section 3.1 (Organization and
Good Standing), Section 3.2 (Authority; Execution; Enforceability),
Section 3.5 (Capitalization; Subsidiaries; Ownership of Interests),
and Section 3.23 (Brokers and Finders) (collectively, “Seller
Fundamental Representations”) shall survive in perpetuity with respect only
to the matters addressed therein, (b) Section 3.21
(Environmental Matters) shall survive the Closing and automatically expire on
the date that is twenty-four (24) months following the Closing Date and (c) Section 3.18
(Taxes) shall survive the Closing and automatically expire on the date that is
twenty (20) calendar days after the expiration of all statutes of limitation
(without giving effect to any extensions thereof) applicable to such
Taxes.  If written notice of a claim has
been given in accordance with Section 7.2(c) prior to the
expiration of the applicable representations, warranties, covenants or
agreements, then the applicable representations, warranties, covenants or
agreements shall survive as to such claim, until such claim has been finally
resolved.

 

7.2                                 General
Indemnification.

 

(a)           By
Seller and the Shareholders.  Seller
and the Shareholders shall, jointly and severally, indemnify, save and hold
harmless Buyer and its Affiliates, successors and permitted assigns and each of
the foregoing’s respective directors, officers, employees and agents 

 

34

 

(collectively, the “Buyer Indemnified Parties”) from and against
any and all Damages arising out of, resulting from or relating to, without
duplication:  (i) the breach of any
representation or warranty made by Seller under ARTICLE III, (ii) the
breach of any covenant or agreement of this Agreement or any of the Ancillary
Agreements to be performed by Seller or either of the Shareholders, (iii) the
Excluded Assets, (iv) the Excluded Employees, (v) the matter
disclosed on item 5 of Section 3.14 of the Seller Disclosure
Schedules or (vi) the Profit Sharing Plan and item 6 of Section 3.19
of the Seller Disclosure Schedules; provided that Seller and the
Shareholders shall not have any obligation hereunder with respect to any breach
set forth in (i) above unless the Buyer Indemnified Parties have made a
claim for indemnification pursuant to Section 7.2(c) with
respect to any such breach of a representation or warranty prior to the
expiration of such representation or warranty as set forth in Section 7.1.

 

(b)           By
Buyer.  Buyer shall indemnify, save
and hold harmless Seller and its Affiliates, successors and permitted assigns
and each of the foregoing’s respective directors, officers, employees and
agents (collectively, the “Seller Indemnified Parties”) from and against
any and all Damages arising out of or resulting from, without duplication: (i) the
breach of any representation or warranty made by Buyer in ARTICLE IV, (ii) the
breach of any covenant or agreement of this Agreement or any of the Ancillary
Agreements by Buyer or (iii) the ownership and/or operation of the
Business on and after the Closing.

 

(c)           Procedure.  Any party seeking indemnification under this Section 7.2
or Section 5.3 (an “Indemnified Party”) shall give the party
from whom indemnification is being sought (an “Indemnifying Party”)
notice of any matter which such Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement as soon as
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 7.2 or Section 5.3;
provided, however, that the failure to provide such notice shall
not release the Indemnifying Party from any of its obligations under this Section 7.2
or Section 5.3, except to the extent the Indemnifying Party is
materially prejudiced by such failure. 
The liability of an Indemnifying Party under this Section 7.2
or Section 5.3 with respect to Damages arising from claims of any
third party which are subject to the indemnification provided for in this Section 7.2
or Section 5.3 (“Third Party Claims”) shall be governed by
and contingent upon the following additional terms and conditions.  If an Indemnified Party shall receive notice
of any Third Party Claim, the Indemnified Party shall give the Indemnifying
Party notice of such Third Party Claim within twenty (20) days of the receipt
by the Indemnified Party of such notice; provided, however, that
the failure to provide such notice shall not release the Indemnifying Party
from any of its obligations under this Section 7.2 or Section 5.3,
except to the extent the Indemnifying Party is materially prejudiced by such
failure.  The Indemnifying Party shall be
entitled to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if it gives notice of its intention
to do so to the Indemnified Party within thirty (30) days of the receipt of
such notice from the Indemnified Party; provided, however, that
if there exists a material conflict of interest (other than one that is of a
monetary nature) that would make it inappropriate for the same counsel to
represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own 

 

35

 

counsel, at the expense of the Indemnifying Party; provided, further,
that the Indemnifying Party shall not be obligated to pay the reasonable fees
and expenses of more than one separate counsel for all Indemnified Parties,
taken together (except to the extent that local counsel are necessary or
advisable for the conduct of such Proceeding, in which case the Indemnifying
Party shall also pay the reasonable fees and expenses of any such local
counsel).  If the Indemnifying Party
shall not assume the defense of any Third Party Claim or litigation resulting
therefrom, the Indemnified Party may defend against such claim or litigation in
such manner as it may deem appropriate and may settle such claim or litigation
on such terms as it may deem appropriate; provided, however, that
in settling any action in respect of which indemnification is payable under
this ARTICLE VII or Section 5.3, it shall act reasonably and
in good faith and shall not so settle such action without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, delayed
or conditioned.  In the event the
Indemnifying Party exercises the right to undertake any such defense against
any such Third Party Claim as provided above, the Indemnified Party shall cooperate
with the Indemnifying Party in such defense and make available to the
Indemnifying Party, all witnesses, pertinent records, materials and information
in the Indemnified Party’s possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party.  Similarly, in the event the Indemnified Party
is, directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, all witnesses, records,
materials and information in the Indemnifying Party’s possession or under the
Indemnifying Party’s control relating thereto as is reasonably required by the
Indemnified Party.  The Indemnifying
Party shall not, without the written consent of the Indemnified Party, (i) settle
or compromise any Third Party Claim or consent to the entry of any judgment
which does not include an unconditional written release by the claimant or
plaintiff of the Indemnified Party from all liability in respect of such Third
Party Claim or (ii) settle or compromise any Third Party Claim if the
settlement imposes equitable remedies or material obligations on the
Indemnified Party other than financial obligations for which such Indemnified
Party will be indemnified hereunder.  No
Third Party Claim which is being defended in good faith by the Indemnifying
Party in accordance with the terms of this Agreement shall be settled or
compromised by the Indemnified Party without the written consent of the
Indemnifying Party.

 

(d)           Definition
of Damages.  The term “Damages”
means any and all costs, losses, Taxes, liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands and expenses (whether or not arising
out of Third Party Claims), including reasonable attorneys’ fees and all
amounts paid in investigation, defense or settlement of any of the
foregoing.  Notwithstanding the foregoing
or any other provision of this agreement to the contrary, no party hereto shall
be required to indemnify or hold harmless the other party hereto or otherwise
compensate any Indemnified Party hereto for damages with respect to such
Indemnified Party’s lost profits, lost business, lost business opportunities,
restitution, damage to reputation, diminutions in value, mental or emotional
distress or indirect, incidental, consequential, special, punitive, exemplary
or similar damages, even if the other party has been advised of the possibility
of such Damages.

 

36

 

(e)                                  Payment
for indemnification obligations arising under this Section 7.2
shall be subject to the limitations set forth in Section 7.3.

 

7.3                                 Limits
on Indemnification.  Notwithstanding
anything to the contrary contained in this Agreement:

 

(a)                                  no
amount shall be payable by Seller or the Shareholders pursuant to Section 7.2(a)(i) or
(v) until the aggregate amount of all claims for Damages that are
indemnifiable pursuant to Section 7.2(a)(i) exceeds $505,000,
and then only for the amount by which such Damages exceed such threshold
amount; provided that this limitation shall not apply to any breaches of
any of the Seller Fundamental Representations or to any claim for
indemnification under Section 5.3, and provided further,
that the limitation in this Section 7.3(a) shall not apply in
the event of fraud, intentional misrepresentation or willful misconduct;

 

(b)                                 the
maximum aggregate amount of Damages for which indemnity may be recovered by the
Buyer Indemnified Parties from Seller or the Shareholders pursuant to Section 7.2(a)(i) shall
be an amount equal to $6,060,000 less the aggregate amount of Damages, if any,
recovered by the Buyer Indemnified Parties from Seller or the Shareholders
pursuant to Section 7.2(a)(v) as such amount itself is limited
by this Section 7.3(b), inclusive of legal fees and costs of
defense incurred by Seller or the Shareholders in performing their obligations
under Section 7.2(a)(i),  provided
that this limitation shall not apply to any breaches of any of the Seller
Fundamental Representations, which breaches shall be indemnified against in
their entirety up to an amount not to exceed the sum of (i) the Purchase
Price (as adjusted) plus (ii) all amounts paid pursuant to Section 6.4,
or to any claim for indemnification under Section 5.3; and provided
further, that the maximum aggregate cost of Damages for which indemnity may
be recovered by the Buyer Indemnified Parties from Seller or the Shareholders
pursuant to Section 7.2(a)(v) shall be an amount equal to
$1,250,000, and provided further, that the limitations in this Section 7.3(b) shall
not apply in the event of fraud, intentional misrepresentation or willful
misconduct;

 

(c)                                  the
amount of any Damages for which any Buyer Indemnified Party is entitled to
indemnification hereunder shall be reduced by any net amount of insurance,
indemnity, contribution or other payments or recoveries of a like nature with
respect thereto actually received by such Buyer Indemnified Party (it being
agreed that, promptly after the receipt of any such amount that reduces Damages
pursuant hereto, Buyer shall cause such Buyer Indemnified Party to reimburse
Seller or the Shareholders, as applicable, for such reduction in Damages for
which such Buyer Indemnified Party was indemnified prior to the receipt of such
amount).  Nothing herein, including,
without limitation, the anticipated future receipt of any such amount reducing
Damages, shall limit Seller’s and the Shareholders’ obligation to promptly pay
any indemnification amounts due hereunder;

 

(d)                                 an
Indemnified Party shall not be entitled under this Agreement to multiple
recovery for the same Damages;

 

(e)                                  if
Seller or the Shareholders can establish that the Buyer breached its
representation in Section 4.7 with respect to a specific breach of
a representation or warranty in 

 

37

 

ARTICLE III for which a Buyer
Indemnified Party is seeking indemnification under Section 7.2(a)(i),
then neither the Seller nor either of the Shareholders shall have any liability
for any Damages resulting from such specific breach;

 

(f)                                    in
determining the amount of indemnification due under Section 5.3(a) or
Section 7.2, all payments shall be reduced by any Tax benefit
actually and currently realized by the Indemnified Party on account of the
underlying claim with respect to the taxable period in which such underlying
claim occurred.  In computing the amount
of any such Tax benefits, the Indemnified Party shall be deemed to recognize
all other items of income, gain, loss, deduction or credit before recognizing
any items arising from the receipt or accrual of any indemnity payment
hereunder or the incurrence or payment of any indemnified Damages for which
indemnification is provided under this Agreement.  For purposes of this Agreement, the
Indemnified Party shall be deemed to have “actually realized” a net Tax benefit
in any taxable year to the extent that, during such taxable year, the amount of
Taxes payable by the Indemnified Party for such taxable year is reduced below
the amount of Taxes that the Indemnified Party would have been required to pay
but for the incurrence or payment of such indemnified Damages;

 

(g)                                 the
amount of any Damages claimed by any Buyer Indemnified Party hereunder shall be
net of any allowances and reserves that are specifically identified with
respect thereto to the extent such allowances or reserves have been treated as
a Working Capital Liability (or have otherwise reduced the amount of Working
Capital Assets) in the Final Closing Statement that has become final and
binding pursuant to Section 2.3;

 

(h)                                 Buyer
acknowledges and agrees that the representations and warranties set forth in Section 3.18
shall not provide the basis for any claim for indemnification under Section 5.3
or Section 7.2(a) for Taxes with respect to any period that is
not a Pre-Closing Tax Period; provided, however, that this Section 7.3(h) shall
not apply to, and shall in no way limit, Seller’s and the Shareholders’
indemnification obligations for any breach of Seller’s representations and warranties
in Section 3.18(g); and

 

(i)                                     if
an Indemnified Party recovers Damages from an Indemnifying Party under Section 7.2,
the Indemnifying Party shall be subrogated, to the extent of such recovery, to
the Indemnified Party’s rights against any third party, other than a third
party with whom the Indemnified Party has a material business agreement or
arrangement, with respect to such recovered Damages, subject to the subrogation
rights of any insurer providing insurance coverage under one of the Indemnified
Party’s policies and except to the extent that the grant of subrogation rights
to the Indemnifying Party is prohibited by the terms of the applicable
insurance policy.

 

7.4                                 Exclusive
Remedy.  Each party hereby
acknowledges and agrees that, from and after the Closing, its sole and
exclusive remedy relating to the Business, the Interests Purchase, the other
transactions contemplated by this Agreement or the subject matter of this
Agreement (other than claims for or in the nature of fraud, intentional misrepresentation
or willful misconduct) shall be pursuant to the indemnification provisions of
this ARTICLE VII and Section 5.3.  In furtherance of the foregoing, each party
hereby waives, from and after the Closing, to the 

 

38

 

fullest extent permitted by law, any and all other rights, claims and
causes of action it may have against the other party or its Affiliates,
successors and permitted assigns and each of the foregoing’s respective
shareholders, directors, officers, employees and agents relating to the
Business, the Interests Purchase, the other transactions contemplated by this
Agreement or the subject matter of this Agreement (other than claims for or in
the nature of fraud, intentional misrepresentation or willful misconduct).

 

7.5                                 Mitigation.  Each Indemnified Party shall use Commercially
Reasonable Efforts to mitigate any Damages for which it may claim
indemnification under this ARTICLE VII and to seek all applicable
recoveries available to it pursuant to any insurance, indemnity, contribution
or other payment rights it may have or other similar recovery rights it may
have with respect to any Damages for which it may claim indemnification under
this ARTICLE VII.

 

ARTICLE VIII

MISCELLANEOUS

 

8.1                                 Further
Assurances.  Each party hereto shall
use its Commercially Reasonable Efforts to do and perform, or cause to be done
and performed, all such further acts and things and shall execute and deliver
all such other agreements, certificates, instruments or documents as the other
party hereto may reasonably request in order to carry out the intent and
purposes of this Agreement and the consummation of the transactions
contemplated hereby.

 

8.2                                 Notices.  All notices, requests, instructions, claims,
demands, consents and other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date delivered by hand or by internationally recognized courier
service such as Federal Express, or by other messenger (or, if delivery is
refused, upon presentment) or upon receipt by facsimile transmission (with
confirmation), or upon delivery by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses:

 

	
   

  	
  If to Buyer:

  
	
   

  	
   

  
	
   

  	
  Key Energy
  Services, LLC

  
	
   

  	
  1301 McKinney
  Street, Suite 1800

  
	
   

  	
  Houston, Texas
  77010

  
	
   

  	
  Facsimile: (713)
  651-4559

  
	
   

  	
  Attn: General
  Counsel

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
			

 

39

 

	
   

  	
  Paul S.
  Blencowe, Esq.

  
	
   

  	
  Fulbright &
  Jaworski L.L.P.

  
	
   

  	
  555 South Flower
  Street, 41st Floor

  
	
   

  	
  Los Angeles,
  California 90071

  
	
   

  	
  Facsimile: (213)
  892-9494

  
	
   

  	
   

  
	
   

  	
  If to Seller and the Shareholders:

  
	
   

  	
   

  
	
   

  	
  Western Drilling
  Holdings, Inc.

  
	
   

  	
  4300 Midway Road

  
	
   

  	
  P.O. Box
  1405

  
	
   

  	
  Taft, California
  93268

  
	
   

  	
  Attention:  Fred
  S. Holmes

  
	
   

  	
    Paul
  C. Hancock

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Munger,
  Tolles & Olson LLP

  
	
   

  	
  355 South Grand
  Avenue

  
	
   

  	
  35th
  Floor

  
	
   

  	
  Los Angeles,
  California 90071-1560

  
	
   

  	
  Attention:  J.
  Martin Willhite

  
			

 

or to such other persons or addresses as the person to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above (provided that notice of any change of address shall be effective
only upon receipt thereof).

 

8.3                                 Entire
Agreement.  This Agreement, including
the Exhibits and Schedules attached hereto, the Seller Disclosure Schedules and
any agreement, certificate, instrument or other document executed and delivered
in connection herewith, and the Confidentiality Agreement, constitute the
entire agreement and understanding of the parties hereto, and supersede all
other prior covenants, agreements, undertakings, obligations, promises,
arrangements, communications, representations and warranties, whether oral or
written, by any party hereto or by any shareholder, director, officer,
employee, agent, Affiliate or representative of either party hereto.

 

8.4                                 Governing
Law.  The parties hereto expressly
agree that all the terms and conditions hereof shall be governed by and
construed and enforced in accordance with the Laws of the State
of California applicable to agreements made and to be performed entirely
therein, without regard to principles of conflicts of laws.

 

8.5                                 Consent
to Jurisdiction; Venue; Waiver of Jury Trial.  The parties
hereto irrevocably agree that all actions to enforce an arbitrator’s decision
or award pursuant to Section 8.6 shall be instituted in the federal
or state courts sitting in Los Angeles, California.  Each party to this Agreement irrevocably
submits to the non-exclusive jurisdiction of and venue in 

 

40

 

the courts of the State of California and of the
United States sitting in the City of Los Angeles, California, in connection
with any such proceeding, and waives any objection based on forum non conveniens.

 

8.6                                 Arbitration.  Except as otherwise expressly
provided in Section 2.3 or Section 8.5, any dispute
with respect to, in connection with or relating in any manner to this Agreement
or the transactions contemplated hereby shall be submitted for resolution to
arbitration in Los Angeles, California,
or such other location as the parties may agree to, under the Commercial
Arbitration Rules of the American Arbitration Association to which shall
be added the provisions of the Federal Rules of Civil Procedure relating
to the production of evidence, and the parties hereto agree that the arbitrator
may impose sanctions in his or her discretion to enforce compliance with
discovery and other obligations.  Such
proceedings shall be presided over by a single arbitrator.  If the parties to the dispute do not agree on
the arbitrator within fifteen (15) days after a party requests
arbitration, the arbitrator shall be selected by the parties to the dispute
from a list of five arbitrators provided by the American Arbitration
Association.  Such list shall be provided
within ten (10) days of the request of any party for arbitration.  The party requesting arbitration shall delete
one name from the list.  The other party
shall delete one name from the list. 
This process shall then be repeated in the same order and the last
remaining person on the list shall be the arbitrator.  This selection process shall take place
within the two (2) Business Days following both parties’ receipt of the
list of five (5) potential arbitrators. 
Hearings of such arbitration proceeding shall commence within twenty
(20) days of the selection of the arbitrator or as soon thereafter as the
arbitrator is available.  The arbitrator
shall deliver his or her opinion within twenty (20) days after the completion
of the arbitration hearings.  The
arbitrator’s decision shall be final and binding upon the parties, and may be
entered and enforced in any court of competent jurisdiction by either of the
parties.  The arbitrator shall have the
power to grant temporary, preliminary and permanent relief, including
injunctive relief and specific performance. 
Unless otherwise ordered by the arbitrator pursuant to Section 8.7
of this Agreement, the arbitrator’s expenses shall be shared equally by the
parties to the arbitration.

 

8.7                                 Attorneys’ Fees.  If any arbitration is brought
under Section 8.6, the arbitrator may award the successful or
prevailing party reasonable attorneys’ fees and other costs and expenses
incurred in connection with that action or proceeding, in addition to any other
relief to which it may be entitled.  If
any other proceeding is brought by one party against another to enforce an
arbitration award, the successful or prevailing party shall be entitled to
recover its reasonable attorneys fees and other costs and expenses incurred in
that action or proceeding, in addition to any other relief to which it may be
entitled.

 

8.8                                 Transaction
Expenses.  Except as otherwise
expressly provided in this Agreement, including Sections 2.3(e) and
5.3, whether or not the transactions contemplated by this Agreement are consummated,
each party hereto shall pay its own fees, costs and expenses incident to the
negotiation, preparation, drafting, execution, delivery, performance and
closing of this Agreement and the transactions contemplated hereby, including
the fees and expenses of its own counsel, accountants and other experts,
provided that Seller shall pay all such fees, costs and expenses of Western
Drilling incurred prior to the Closing.

 

41

 

8.9                                 Amendments.  This Agreement may only be amended or
modified, except by a written agreement duly executed by Buyer and Seller.

 

8.10                           Assignments;
No Third Party Rights.

 

(a)                                  Neither
Buyer nor Seller may assign any of its rights, interest or obligations under
this Agreement without the prior written consent of the other party and any
purported assignment without such consent shall be void.

 

(b)                                 Nothing
in this Agreement, express or implied, is intended to or shall confer upon any
Person other than the parties hereto, the Seller Indemnified Parties and the
Buyer Indemnified Parties, any legal or equitable right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement or any provision of
this Agreement.  This Agreement and all
of its provisions and conditions are binding upon, are for the sole and
exclusive benefit of, and are enforceable by the parties hereto, the Seller
Indemnified Parties and the Buyer Indemnified Parties and their respective
successors and permitted assigns.

 

8.11                           Waiver.  No breach of any provision hereof shall be
deemed waived unless expressly waived in writing by the party hereto who may
assert such breach.  No waiver that may
be given by a party hereto shall be applicable except in the specific instance
for which it is given.  No waiver of any
provision hereof shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall any such waiver
constitute a continuing waiver, unless otherwise expressly provided
therein.  Except where a specific period
for action or inaction is provided in this Agreement, neither the failure nor
any delay on the part of any party in exercising any right, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any other or
further exercise thereof or the exercise of any other such right, power or
privilege.  The rights and remedies of
the parties hereto are cumulative and not alternative.

 

8.12                           Severability.  In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such provision or provisions shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, without invalidating the remainder of such provision or
provisions or the remaining provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein, unless such a construction would be
unreasonable.

 

8.13                           Time
of Essence.  With regard to all dates
and time periods set forth or referred to in this Agreement, time is of the
essence.  The parties hereto acknowledge
that each will be relying upon the timely performance by the other of its
obligations hereunder as a material inducement to such party’s execution of
this Agreement.

 

42

 

8.14                           Construction.  This Agreement shall be deemed to have been
drafted jointly by the parties hereto. 
Every term and provision of this Agreement shall be construed simply according
to its fair meaning and not strictly for or against either party hereto.

 

8.15                           Incorporation
by Reference.  Each Exhibit and
Schedule attached hereto and referred to herein is incorporated in this
Agreement by reference and shall be considered part of this Agreement as if
fully set forth herein, unless this Agreement expressly otherwise provides.

 

8.16                           Headings.  The descriptive headings used in this
Agreement have been inserted for convenience of reference only, and are not
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof.

 

8.17                           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  The parties hereto agree and acknowledge that
delivery of a signature by facsimile shall constitute execution by such
signatory.

 

[Remainder of
Page Intentionally Left Blank]

 

43

 

IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement as of the date and year first above written.

 

	
   

  	
  BUYER  

  
	
   

  	
   

  
	
   

  	
  KEY ENERGY SERVICES,
  LLC 

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Jim D. Flynt

  
	
   

  	
   Name:

  	
  Jim D. Flynt

  
	
   

  	
   Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER

  
	
   

  	
   

  
	
   

  	
  WESTERN DRILLING
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Fred S. Holmes

  
	
   

  	
   Name:

  	
  Fred S. Holmes

  
	
   

  	
   Title:

  	
  President and Chief
  Executive

  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Paul Hancock

  
	
   

  	
   Name:

  	
  Paul Hancock

  
	
   

  	
   Title:

  	
  Chief Financial
  Officer, Vice

  President and Secretary

  
	
   

  	
   

  
	
   

  	
  SHAREHOLDERS  

  
	
   

  	
   

  
	
   

  	
    /s/ Fred S. Holmes

  
	
   

  	
  Fred S. Holmes

  
	
   

  	
   

  
	
   

  	
    /s/ Barbara J. Holmes

  
	
   

  	
  Barbara J. Holmes

  
					

 

44

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