REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of WellTech, Inc.:
We have audited the accompanying consolidated balance sheets of WellTech, Inc.
(a Delaware Corporation) and subsidiaries (WellTech) as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years in the period ended December 31, 1994.
These consolidated financial statements are the responsibility of WellTech's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further discussed in Note 12 to the consolidated financial statements, during
1995 WellTech was not in compliance with certain of the restrictive covenants of
its loan agreement and received a waiver for such events on non-compliance. On
January 19, 1996, WellTech entered into a three-year term loan agreement to
refinance such indebtedness. The new loan agreement does not contain any
restrictive covenants until WellTech's merger with Key Energy Group, Inc.
("Key") is completed, at which time the new indebtedness will be the obligation
of Key, as survivor of the merger. However, failure to consummate the merger by
April 30, 1996 could constitute an event of default if WellTech fails to
refinance the new indebtedness by July 31, 1996, or if Key fails to continue to
operate WellTech pursuant to the Interim Operations Agreement until such
refinancing is completed. If and when such refinancing becomes necessary, there
can be no assurances that it will be available upon terms satisfactory to
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WellTech, Inc. and subsidiaries
as of December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
August 31, 1995 (except with respect to the matters discussed in Note 12, as
to which the date is January 19, 1996)