MEMBERSHIP INTEREST PURCHASE AGREEMENT
Exhibit
10.1
MEMBERSHIP
INTEREST
PURCHASE
AGREEMENT
THIS
MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of October 5, 2006 (the
“Agreement”),
is by
and among XXXXXXX XXXXXX (“Seller”)
and
TURBECO, INC., a Texas corporation (“Buyer”).
WITNESSETH:
WHEREAS,
Buyer desires to purchase the ownership interest of Seller in and with respect
to CAVO Drilling Motors, Ltd. Co., a Texas limited liability company, and its
business and assets (the “Company”);
WHEREAS,
pursuant to Section 6.1(d) of this Agreement it is contemplated that Buyer
will
prior to Closing exchange his interest in the Company for a fifty percent (50%)
interest in the New Company (as defined herein);
NOW,
THEREFORE, in consideration of the premises and the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to
be
legally bound, agree as follows:
ARTICLE
I
THE
PURCHASE
Section
1.1. Purchase.
On and
subject to the terms and conditions of this Agreement, at the Closing, Buyer
will purchase: (i) the Acquired Interest, and (ii) Seller’s fifty percent (50%)
general partnership interest in Diamond Rock, a Texas general partnership with
X.X. Xxxxx (“Diamond
Rock”)
which
owns the facility located at 0000 Xxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxx 00000 and
the
adjacent property at 0000 Xxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxx 00000 (the
“Real
Estate”).
For
purposes hereof, the term “Acquired
Interest”
shall
mean all of the rights and interests of the Seller with respect to the New
Company, including but not limited to: (i) all of his rights under the Texas
Limited Liability Company Act with respect to the New Company, (ii) any
agreement entered into by him with respect to the New Company, (iii) his capital
account with respect to the New Company, and (iv) all of his rights to share
in
the profits and losses of the New Company, and (v) all of his rights to receive
distributions from the New Company. If the New Company is not formed and the
Buyer waives in writing the condition set forth in Section 6.1(d), references
to
the “New Company” in the immediately preceding sentence shall instead refer to
the Company.
Section
1.2. Purchase
Price for Acquired Interest.
As
consideration for the sale to it of the Acquired Interest, Buyer
shall:
(a) Pay
cash
at Closing in the aggregate amount of Two Million Seven Hundred Eighty-One
Thousand Seven Hundred Four and No/100 Dollars ($2,781,704) (the “Cash
Payment”);
(b) Cause
Flotek Industries, Inc. (“Flotek”)
to
issue to Seller, as additional purchase price for the Acquired Interest, an
aggregate number of shares (the “Flotek
Shares”)
of the
common stock of Flotek, .0001 par value per share (the “Flotek
Common Stock”)
determined by dividing One Million Eight Hundred Fifty-Four Thousand Four
Hundred Sixty-Nine and No/100 Dollars ($1,854,469) by the Share Value. For
purposes herein, the term “Share
Value”
shall
mean the value of the Flotek Shares based on the average for the ten business
days that precede the Closing Date of the daily closing trading prices of the
Flotek Common Stock on the American Stock Exchange;
(c) Issue
to
Seller a promissory note substantially in the form attached hereto as Exhibit
1.2(c) in the original principal amount of One Million Five Hundred Forty-Five
Thousand Three Hundred Ninety-One and No/100 Dollars ($1,545,391);
and
(d) Assume
the liability of Seller with respect the Xxxxx Fargo mortgage which encumbers
the Real Estate (the “Diamond
Rock Mortgage”).
Section
1.3. Assumption
of Liabilities.
Buyer
has not and will not assume from the Company or the Seller any liability or
obligation with the exception of the Diamond Rock Mortgage.
Section
1.4. Allocation.
The
parties will allocate for all purposes (including, but not limited to, financial
accounting and tax purposes) the purchase price of the Acquired Interest as
indicated on Schedule 1.4.
Section
1.5. Closing.
The
closing (the “Closing”)
of the
transactions contemplated by this Agreement (the “Purchase
Transaction”)
shall
take place at the offices of the attorneys for Buyer in Houston, Texas as
promptly as practicable (but in any event within five business days) following
the date on which the last of the conditions set forth in Article VI is
fulfilled or waived, or at such other time and place as Buyer and the Company
shall agree. The date on which the Closing occurs is referred to in this
Agreement as the “Closing
Date.”
The
Closing will be effective as of October 1, 2006 (the “Effective
Time”).
Section
1.6. Transfer
Documents.
At the
Closing, each of the parties hereto will perform such acts and deliver such
documents as are required pursuant to the terms hereof to be delivered at
Closing, including but not limited to:
(a) Seller
shall execute, acknowledge and deliver to Buyer:
(i) all
assignments, and other good and sufficient instruments of conveyance, sale,
transfer and assignment as shall be required to vest effectively in Buyer good
and indefeasible title in and to the Acquired Interest, free and clear of all
liens or encumbrances, including specifically, but not by way of limitation,
a
membership interest assignment in the form of Exhibit 1.6(a) (the “Assignment”);
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(ii) Employment
Agreement in the form of Exhibit 5.6 (the “Employment
Agreement”);
(iii) execute
and deliver to Buyer a voting agreement concerning the voting by Seller of
its
interest in the Company on behalf of Buyer in the form required by Buyer, in
its
sole and absolute discretion, in the event the New Company is not formed before
Closing;
(iv) execute
and deliver to Buyer a general warranty deed and any other documents required
to
vest in Buyer title to his interest in Diamond Rock and the Real
Estate.
(b) Buyer
shall:
(i) deliver
to the Company the Cash Payment in the form of bank check or wire
transfer;
(ii) execute
and deliver the Assignment and the Employment Agreements;
(iii)
execute
and deliver the Promissory Note; and
(iv) execute
and deliver such documents as are required to assume the Diamond Rock
Mortgage.
Section
1.7. Index.
An
index identifying the sections in which the definitions of certain terms are
set
forth in Exhibit A.
ARTICLE
II
REPRESENTATIONS
AND
WARRANTIES
OF BUYER
Buyer
represents and warrants to the Seller as follows:
Section
2.1. Organization
and Qualification.
Buyer
is a corporation duly organized, validly existing and in good standing under
the
laws of the State of Texas and has the requisite corporate power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted. Flotek is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted.
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Section
2.2. Authority;
Non-Contravention; Approvals.
(a) Buyer
and
Flotek each have full corporate power and authority to execute and deliver
this
Agreement to consummate the transactions contemplated hereby. Other than the
approval by the Board of Directors of Buyer and Flotek, no corporate proceedings
on the part of Buyer or Flotek are necessary to authorize the execution and
delivery of this Agreement or the consummation by Buyer and Flotek of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and Flotek, and, assuming the due authorization, execution
and delivery hereof by Seller, constitutes a valid and legally binding agreement
of Buyer and Flotek enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The
execution and delivery of this Agreement by Buyer and Flotek and the
consummation by Buyer and Flotek of the transactions contemplated hereby do
not
and will not violate or result in a breach of any provision of, or constitute
a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate
the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Buyer or Flotek under any
of
the terms, conditions or provisions of (i) the charter or bylaw of Buyer and
Flotek, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to Buyer or Flotek or any of their properties or assets
or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which Buyer or Flotek is now a party or by which Buyer or Flotek
or any of its properties or assets may be bound or affected.
Section
2.3. Reports.
Flotek
has previously made available or delivered to the Company and Seller copies
of
the Form 10-KSB filed by it with the Securities and Exchange Commission for
the
period ended December 31, 2005 (the “SEC”)
and
its quarterly report filed with the SEC on Form 10-QSB for the periods ending
March 31, 2006 and June 30, 2006 (“Flotek
SEC Reports”).
As of
their respective dates, the Flotek SEC Reports did not contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary to make the statements therein, in the light of
the
circumstances under which they were made, not misleading. Neither Buyer nor
Flotek has made any other representation to the Company or Seller regarding
the
Flotek Shares. The Flotek Shares will be restricted stock which will not be
tradable on the open market under the applicable securities laws for a period
of
one year.
Section
2.4. Brokers
and Finders.
Buyer
has not entered into any contract, arrangement or understanding with any person
or firm which may result in the obligation of Buyer to pay any finder's fees,
brokerage or agent commissions or other like payments in connection with the
transactions contemplated hereby. There is no claim for payment by Buyer of
any
investment banking fees, finder's fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement
or
the consummation of the transactions contemplated hereby.
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ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
SELLER
The
Seller represents and warrants to Buyer that:
Section
3.1. Organization
and Qualification.
The
Company is a limited liability company duly organized, validly existing and
in
good standing under the laws of the State of Texas and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. The Company is duly qualified
to
do business and is in good standing in each jurisdiction in which the properties
owned, leased, or operated by it or the nature of the business conducted by
it
makes such qualification necessary. True, accurate and complete copies of the
Company’s organizational documents, as in effect on the date hereof, including
all amendments thereto, have heretofore been delivered to Buyer.
Section
3.2. Ownership.
Seller
owns fifty percent (50%) of the issued and outstanding membership interest
in
the Company and X.X. Xxxxx (“Xxxxx”)
owns
the remaining fifty percent (50%) of the issued and outstanding membership
interest in the Company. The only members and managers of the Company are the
Seller and Xxxxx. There are no agreements between the Seller and Xxxxx with
respect to the management, operation, ownership, or tax classification of the
Company, or any other matter relating to the Company. The Acquired Interest
is
owned by the Seller free and clear of any lien, encumbrance or agreement. The
Acquired Interest has been duly authorized and issued, is nonassessable, and
is
not subject to any agreement to contribute capital to the Company or any other
agreement. The transfer of the Acquired Interest by the Seller to Buyer pursuant
to the terms hereof is not subject to any right of first refusal or similar
right, and will not violate any agreement or understanding between the Seller
and Xxxxx. There are no outstanding options, conversion rights or similar rights
granting any party the right to acquire any ownership interest in the Company
other than the Acquired Interest and the interest held by Xxxxx as described
herein.
Section
3.3. Other
Entities.
The
Company does not own stock or other ownership interests in any other
entity.
Section
3.4. Authority;
Non-Contravention; Approvals.
(a) No
further actions on the part of the Company are necessary to authorize the
execution and delivery of this Agreement or the consummation by the Company
of
the transactions contemplated hereby. This Agreement has been duly executed
and
delivered by Seller, and, assuming the due authorization, execution and delivery
hereof by Buyer, constitutes a valid and legally binding agreement of Seller,
enforceable against Seller in accordance with its terms, except that such
enforcement may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (b) general equitable
principles.
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(b) Except
as
set forth in the disclosure schedule attached to this Agreement (the
“Disclosure
Schedule”),
the
execution and delivery of this Agreement by Seller and the consummation by
Seller of the transactions contemplated hereby do not and will not violate
or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by,
or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the
properties or assets of the Company under any of the terms, conditions or
provisions of (i) the organizational documents of the Company or Diamond Rock,
(ii) any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Seller, Diamond Rock, or the Company or any of their
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, or any agreement to which the
Seller, Diamond Rock, or the Company is now a party or by which the Company
or
any of its properties or assets may be bound or affected.
Section
3.5. Financial
Statements.
The
Seller has furnished Buyer with a balance sheet of the Company as of December
31, 2004 and December 31, 2005, and the related statement of income for the
calendar years then ended (including the notes thereto) and a balance sheet
as
of August 31, 2006 and the related statement of income for the seven month
period then ended (collectively, the "Financial
Statements").
The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, and are accurate and complete
and
fairly present the financial condition and result of operations of the
Company.
Section
3.6. Absence
of Undisclosed Liabilities.
Except
as disclosed in the Disclosure Schedule, neither the Company nor Diamond Rock
has incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities or obligations (a)
which are provided for in the Financial Statements or reflected in the notes
thereto, (b) which were incurred after August 31, 2006, and were incurred in
the
ordinary course of business and consistent with past practices, or (c)
liabilities or obligations under this Agreement.
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Section
3.7. Absence
of Certain Changes or Events.
Since
August 31, 2006, the business of the Company has been conducted in the ordinary
course of business consistent with past practices, and there has not been any
event, occurrence, development or state of circumstances or facts which has
had,
or could reasonably be anticipated to have, individually or in the aggregate,
a
Material Adverse Effect. Specifically, but not by way of limitation, since
August 31, 2006, the Company has not engaged in or been subject to any of the
actions described in Section 4.1. "Material
Adverse Effect"
means
any event, occurrence, fact, condition, change, development, circumstance,
or
effect with respect to the business, assets (including intangible assets),
liabilities, condition (financial or other), operations, properties (including
intangible properties), results, or prospects of the Company with respect to
which there is a substantial likelihood that the event, occurrence, fact etc.
would have been viewed by a reasonable investor as having a significantly
negative effect on the value of the consideration such reasonable investor
would
have been willing to pay for the purchase of the Acquired Interest.
Section
3.8. Accounts
Receivable.
The
accounts receivable of the Company indicated on the Financial Statements are
valid, genuine and subsisting, arise out of bona fide sales and delivery of
goods, performance of services or other business transactions in the ordinary
course of business and are current and collectible. Each of the accounts
receivable will be collected in full, without any set-off and without resort
to
litigation, within 120 days after the Closing except as indicated in the
Disclosure Schedule.
Section
3.9. Tangible
Assets.
The
Financial Statements reflect all of the items of tangible personal property
owned by the Company (the “Tangible
Personal Property”)
and
all of the assets leased by the Company (the “Leased
Assets”).
The
Tangible Personal Property and the Leased Assets constitute all of the tangible
personal property necessary for the conduct by the Company of its business
as
now conducted. The Company has good and indefeasible title to the Tangible
Personal Property, free and clear of all mortgages, liens, pledges, charges,
or
encumbrance of any nature whatsoever. The Tangible Personal Property and Leased
Assets are in good, serviceable condition and fit for the particular purposes
for which they are used in the business of the Company, subject only to normal
maintenance requirements and wear and tear reasonably expected in the ordinary
course of business.
Section
3.10. Employee
Benefits.
Each
employee benefit plan of the Company (a ”Company
Plan”)
is or
was in compliance with the provisions of all applicable laws, rules and
regulations, including, without limitation, ERISA and the Code. None of the
Company Plans has incurred any “accumulated funding deficiency” (as defined in
Section 412(a) of the Code). The Company has not incurred any liability to
the
Pension Benefit Guaranty Corporation under Section 4062, 4063 or 4064 of ERISA,
or any withdrawal liability under Title IV of ERISA with respect to any
multiemployer plan. The Disclosure Schedule describes all bonuses and other
compensation which will be payable to any of the employees of the Company as
a
result of the consummation of the Purchase Transaction, and any obligation
to
pay severance payments.
Section
3.11. Litigation.
There
are no claims, suits, actions, or proceedings pending or, to the Knowledge
of
the Company, threatened against or relating to the Company, before any court,
governmental department, commission, agency, instrumentality or authority,
or
any arbitrator. The Company is not subject to any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator. For purposes of this Agreement,
“Knowledge”
means
actual or constructive knowledge of officers of the Seller after reasonable
inquiry.
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Section
3.12. No
Violation of Law.
The
Company is not in violation of or has been given notice or been charged with
any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Law) of any
governmental or regulatory body or authority. Except as disclosed in the
Disclosure Schedule, as of the date of this Agreement, to the Knowledge of
the
Seller, no investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or regulatory
body
or authority indicated an intention to conduct the same. The governmental
permits or licenses of the Company (the “Permits”)
are
sufficient for the Company to conduct its business in the manner currently
conducted, and the Company is not in violation of the terms thereof. The Company
is not in violation of the terms of any of its Permits and is not required
to
possess any other permit, license, franchise, variance, exemption, order or
other governmental authorization, consent or approval.
Section
3.13. Labor
Matters.
Except
as set forth in the Disclosure Schedule, (a) there are no material controversies
pending or, to the Knowledge of the Seller, threatened between the Company
on
the one hand and any of its employees on the other, (b) the Company is not
a
party to a collective bargaining agreement of other labor union contract
applicable to persons employed by the Company, nor does the Company have any
Knowledge of any activities or proceedings of any labor union to organize any
such employees, (c) the Company is not a party to any written agreement,
memorandum, or understanding with respect to the employment of any individual,
and (d) Seller is not aware of any intention of any employee to terminate his
or
her employment with the Company, either as a result of the Purchase Transaction
or otherwise.
Section
3.14. Customer
Relationships.
The
Disclosure Schedule lists all of the material customers of the Company. Except
as set forth in the Disclosure Schedule, there has not been (a) any adverse
change in the business relationship of the Company with any customer; or (b)
any
change in any term (including credit terms) of the agreements with any such
customer. The Company has not received any customer complaints concerning its
products and services.
Section
3.15. Real
Property.
(a) Except
as
set forth in the Disclosure Schedule, the Company does not own and has never
owned any interest of any kind (whether ownership, lease or otherwise) in any
real property, except the real estate leased by it at 2425 & 0000 Xxxxx Xxxx
Xxxxx, Xxxxxxx, Xxxxx 00000 (the “Company
Facilities”).
(b) The
Company Facilities are in good condition (reasonable wear and tear excepted),
and are adequate for the operation of the Company's business as presently
conducted.
(c) The
Company’s use of the Company Facilities in the normal conduct of its business
does not violate any applicable building, zoning or other law, ordinance or
regulation affecting such real property, and no covenants, easements, rights
of
way or other such conditions of record impair the Company’s use of the Company
Facilities in the normal conduct of its business.
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(d) The
Company has not experienced any material interruption in the delivery of
adequate quantities of any utilities or other public services to the Company
Facilities required by the Company in the normal operation of its
business.
Section
3.16. Environmental
Matters.
Except
as set forth in the Disclosure Schedule:
(a) no
notice, demand, request for information, citation, summons or order has been
received, no complaint has been served, no penalty has been assessed, and no
investigation, action, claim, suit, proceeding or review is pending or, to
the
Knowledge of the Seller, is threatened by any governmental entity or other
person relating to or arising out of any environmental law;
(b) each
of
the Company and Diamond Rock have been in compliance with all environmental
laws
and environmental permits; and
(c) there
are
no liabilities of or relating to the Company or Diamond Rock of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or
otherwise, arising under or relating to any environmental law and there are
no
facts, conditions, situations or set of circumstances which could reasonable
be
expected to result in or be the basis for any such liability.
Section
3.17. Material
Contracts.
The
Disclosure Schedule lists all agreements, leases, commitments, contracts,
undertakings or understandings, to which the Company, Diamond Rock, or the
Seller (with respect to the Company or Diamond
Rock) is a party, including but not limited to service agreements, manufacturing
agreements, purchase or sale agreements, master service agreements, supply
agreements, distribution or distributor agreements, real estate leases, purchase
orders, license agreements, customer orders and equipment rental agreements
(the
“Operating
Agreements”).
Each
Operating Agreement is a valid, binding and enforceable agreement of the
Company, Diamond Rock, or the Seller and, to the Knowledge of the Company,
the
other parties thereto. There has not occurred any breach or default under any
Operating Agreement on the part of the Company Diamond Rock, or the Seller
or,
to the Knowledge of Seller, any other parties thereto. No event has occurred
which with the giving of notice or the lapse of time, or both, would constitute
a default under any Operating Agreement on the part of the Company Diamond
Rock,
or the Seller, Diamond Rock, or the Seller, or, to the Knowledge of Seller,
any
of the other parties thereto. There is no dispute between the parties to any
Operating Agreement as to the interpretation thereof or as to whether any party
is in breach or default thereunder, and no party to any Operating Agreement
has
indicated its intention to, or suggested it may evaluate whether to, terminate
any Operating Agreement.
Section
3.18. Inventory.
All
inventory of the Company is usable and saleable in the ordinary course of
business by the Company, and is owned by the Company free and clear of any
lien
or encumbrance, and are in good condition. No items of Company inventory are
held by the Company on consignment from others.
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Section
3.19. Taxes.
The
Company has throughout its existence been classified as an S corporation
pursuant to Section 1361 of the Internal Revenue Code of 1986. The Company
has
filed all tax returns required to be filed by it and has paid all taxes required
to be paid prior to the date hereof. The New Company will be a newly formed
entity classified as a partnership for federal income tax purposes.
Section
3.20. Brokers
and Finders.
Neither
the Seller nor the Company has entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
the
Company or Seller to pay any finder's fees, brokerage or agent commissions
or
other like payments in connection with the transactions contemplated hereby.
There is no claim for payment by the Company or Seller of any investment banking
fees, finder's fees, brokerage or agent commissions or other like payments
in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
Section
3.21. Purchase
for Own Account.
The
Flotek Shares are being or will be acquired by Seller for his own account and
with no intention of distributing or reselling such securities or any part
thereof in any transaction that would be in violation of the securities laws
of
the United States of America, or any state, without prejudice, however, to
the
rights of Seller at all times (subject to Section 9.4) to sell or otherwise
dispose of all or any part of such securities under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act of 1933 (the “Securities
Act”).
Seller is experienced in evaluating companies such as Flotek and has such
knowledge and experience in financial and business matters as to be capable
of
evaluating the merits and risks of his investment and has the ability to suffer
the total loss of his investment. Seller has had the opportunity to ask
questions of and receive answers from executive officers of Flotek concerning
the terms and conditions of the offering of the Flotek Shares and to obtain
additional information to the satisfaction of Seller. Seller is an “accredited
investor” as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act. The Flotek Shares will not be registered at the time of
their issuance under the Securities Act for the reason that the sale provided
for in this Agreement is exempt pursuant to Section 4(2) of the Securities
Act
and that the reliance of Flotek on such exemption is predicated in part on
the
representations set forth herein. Seller will not sell or assign any Flotek
Shares except pursuant to a valid registration statement filed pursuant to
the
Securities Act or pursuant to a valid exemption from the registration
requirements thereof for a period of one year.
Section
3.22. Diamond
Rock.
Diamond
Rock is a partnership formed pursuant to the laws of the State of Texas. The
Seller owns a fifty percent (50%) interest in Diamond Rock and Xxxxx owns the
other fifty percent (50%) interest in Diamond Rock. There is no written
partnership agreement with respect to Diamond Rock or any other document or
agreement between the Seller and Xxxxx with respect to Diamond Rock. Diamond
Rock owns in fee simple all right, title and interest in and with respect to
the
Real Estate, free and clear of any liens or encumbrances, except as indicated
in
the Disclosure Schedule. The Company Facilities are leased by Diamond Rock
to
the Company pursuant to the written lease agreement a copy of which has been
provided to the Buyer. No other person has the right to utilize any of the
Company Facilities or the Real Estate. The amount of the Xxxxx Fargo Mortgage
will not exceed $958,000 as of Closing.
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Section
3.23. Disclosure.
No
representation or warranty of Seller set forth hereunder or in the schedules
attached hereto or in any certificate delivered pursuant to Section 6.2(a)
contains any untrue statement of the material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein
not
misleading.
ARTICLE
IV
CONDUCT
OF BUSINESS PENDING THE CLOSING
Section
4.1. Conduct
of Business of the Company.
Prior
to the Effective Time, Seller shall cause the Company to operate its business
in, and only in, the usual, regular and ordinary course of business in
substantially the same manner as operated on the date of this Agreement. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, the Company will not:
(a) Sell,
lease or otherwise dispose of, or agree to sell, lease or otherwise dispose
of,
any of its assets other than inventory in the ordinary course of business
consistent with past practice;
(b) Adopt,
amend or terminate any Company Plan;
(c) Except
as
provided in Section 5.6, amend or terminate any Operating
Agreement;
(d) Enter
into or modify any employment or severance agreement with any director, officer,
or employee, or agree to increase the compensation of any officer, director
or
employee; and/or
(e) Incur
any
indebtedness other than indebtedness incurred in the ordinary course of
business.
Section
4.2. Business
Organization.
Prior
to the Effective Time, Seller shall use his best efforts to (a) preserve intact
the business organization of the Company, (b) keep available the services of
the
officers and employees of the Company, (c) preserve the goodwill of the Company,
(d) maintain and keep the properties and assets of the Company in as good a
repair and condition as presently exists, and (e) maintain in full force and
effect its insurance coverage of the Company.
-11-
ARTICLE
V
ADDITIONAL
AGREEMENTS
Section
5.1. Cooperation.
Seller
shall cause the Company to afford to Buyer and its accountants, counsel,
financial advisors and other representatives reasonable access during normal
business hours throughout the period prior to the Effective Time to all of
its
properties, books, contracts, personnel, representatives of or contacts with
governmental or regulatory authorities, agencies or bodies, commitments, and
records (including, but not limited to, tax returns and any and all records
or
documents which are within the possession of governmental or regulatory
authorities, agencies or bodies, and the disclosure of which the Company can
facilitate or control) and, such parties as its representatives may reasonably
request. Any investigation pursuant to this Section shall be conducted in such
manner as not to interfere unreasonably with the conduct of the business of
the
Company or with the performance of any of the employees of the Company. No
investigation pursuant to this Section shall affect any representation or
warranty made by any party. Each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by
this Agreement,
Section
5.2. Further
Assurances.
Seller
and the Company shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to Buyer such assignments or other instruments of
transfer, assignment and conveyance, in form and substance satisfactory to
counsel of Buyer, as shall be necessary to vest in Buyer all of the right,
title
and interest in and to the Acquired Interest, in each case free and clear of
all
liens, charges, encumbrances, rights of others, mortgages, pledges or security
interests, and any other document reasonably requested by Buyer in connection
with this Agreement.
Section
5.3. Expenses
and Fees.
All
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, regardless of whether the Closing occurs. The Company shall not be
subject to the legal fees or other transaction costs of Seller.
Section
5.4. Public
Statements.
The
parties shall consult with each other prior to issuing any press release or
any
written public statement with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or written public
statement prior to such consultation.
Section
5.5. Notification
of Certain Matters.
Each of
the parties agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement
to be
untrue or inaccurate in any material respect (or in all respects in the case
of
any representation or warranty containing any materiality qualification) at
any
time from the date hereof to the Effective Time and (b) any material failure
(or
any failure in the case of any covenant, condition or agreement containing
any
materiality qualification) on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder.
-12-
Section
5.6. Employment
Agreement.
At the
Closing, Seller will enter into with the Buyer an employment agreement in the
form included on Exhibit 5.6.
Section
5.7. Prohibited
Activities.
Seller
will not, during the period beginning on the date hereof and ending on the
second anniversary of the Closing Date, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other
person:
(a) engage
as
an officer, director or in any other managerial capacity or as an owner,
co-owner or other investor of or in, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, dealer or
distributor of any kind, in the business of manufacturing, selling,
distributing, or marketing downhole motors for use in the oil and gas industry
within the United States of America (the “Territory”);
(b) call
on
or otherwise solicit any natural person who is at that time employed by the
Company in any managerial capacity with the purpose or intent of attracting
that
person from the employ of the Company; or
(c) call
on,
solicit or perform services for, either directly or indirectly, any person
that
at that time is, or at any time within two years prior to that time was, a
customer of any of the Company within any Territory, for the purpose of
soliciting or selling any product or service in competition with the Companies
within that Territory.
ARTICLE
VI
CONDITIONS
TO CLOSING
Section
6.1. Conditions
to Obligation of Seller to Effect the Purchase Transaction.
Unless
waived by Seller, the obligation of Seller to effect the Purchase Transaction
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional condition:
(a) Buyer
shall have performed in all material respects (or in all respects in the case
of
any agreement containing any materiality qualification) its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and
the representations and warranties of Buyer contained in this Agreement shall
be
true and correct in all material respects (or in all respects in the case of
any
representation or warranty containing any materiality qualification) on and
as
of the date made and on and as of the Closing Date as if made at and as of
such
date, and the Company shall have received a certificate executed on behalf
of
Buyer by the President or a Vice President of Buyer and on behalf of Buyer
by
the Chief Executive Officer of Buyer to that effect;
-13-
Section
6.2. Conditions
to Obligations of Buyer to Effect the Purchase Transaction.
Unless
waived by Buyer, the obligations of Buyer to effect the Purchase Transaction
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Seller
shall have performed in all material respects (or in all respects in the case
of
any agreement containing any materiality qualification) his agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and
the representations and warranties of Seller contained in this Agreement shall
be true and correct in all material respects (or in all respects in the case
of
any representation or warranty containing any materiality qualification) on
and
as of the date made and on and as of the Closing Date as if made at and as
of
such date, and Buyer shall have received a certificate executed on behalf of
the
Company by the President and Chief Executive Officer of the Company to that
effect.
(b) Except
as
stated in the Disclosure Statement, since August 31, 2006, there shall have
been
no changes that constitute, and no event or events shall have occurred which
have resulted in or constitute, a Material Adverse Effect.
(c) Buyer
shall have performed such due diligence with respect to the membership interest
of Xxxxx as shall be deemed appropriate by it, to its satisfaction (in its
sole
discretion).
(d) The
Seller shall have exchanged his membership interest in the Company for a fifty
percent (50%) membership interest in a Texas limited liability company which
owns substantially all of the assets owned by the Company as of the date hereof,
which new limited liability company will be taxable as a partnership for federal
income tax purposes (rather than as an S corporation) (the “New
Company”),
which
interest is subject to a limited liability company agreement between Seller
and
his successors on the one hand, and the Company, on the other, with terms and
conditions which are acceptable to Buyer, in its sole and absolute discretion.
-14-
ARTICLE
VII
INDEMNIFICATION
Section
7.1. Indemnification
of Buyer.
Seller
shall indemnify Buyer, its affiliates, and their respective officers, directors,
employees and agents against, and hold each of them harmless from and against,
any and all claims, actions, causes of action, arbitrations, proceedings,
losses, damages, liabilities, judgments and expenses (including, without
limitation, reasonable attorneys' fees) ("Indemnified
Amounts")
incurred by the indemnified party as a result of (a) any error, inaccuracy,
breach or misrepresentation in any of the representations and warranties made
by
or on behalf of the Company or Seller in this Agreement, and/or (b) any
violation or breach by the Company or Seller of or default by the Company or
Seller under the terms of this Agreement. The indemnified party shall be
entitled to recover its reasonable and necessary attorneys' fees and litigation
expenses incurred in connection with successful enforcement of its rights under
this Section.
Section
7.2. Indemnification
of Seller and the Company.
Buyer
shall indemnify Seller against, and hold him harmless from and against, any
and
all Indemnified Amounts incurred by Seller or the Company as a result of (a)
any
error, inaccuracy, breach or misrepresentation in any of the representations
and
warranties made by or on behalf of Buyer in this Agreement, and/or (b) any
violation or breach by Buyer of or default by Buyer under the terms of this
Agreement. The indemnified party shall be entitled to recover its reasonable
and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of his rights under this Section.
Section
7.3. Procedure.
The
defense of any claim, action, suit, proceeding or investigation subject to
indemnification under this Article shall be conducted by the indemnifying party.
If the indemnifying party fails to conduct such defense, the indemnified parties
may retain counsel satisfactory to them and the indemnifying party shall pay
all
reasonable fees and expenses of such counsel for the indemnified parties
promptly as statements therefor are received. The party not conducting the
defense will use reasonable efforts to assist in the vigorous defense of any
such matter, provided that such party shall not be liable for any settlement
of
any claim effected without its written consent, which consent, however, shall
not be unreasonably withheld. Any indemnified party wishing to claim
indemnification under this Article VII, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify the indemnifying party (but
the
failure so to notify a party shall not relieve such party from any liability
which it may have under this Article VII except to the extent such failure
materially prejudices such party). If the indemnifying party is responsible
for
the attorneys’ fees of the indemnified parties, then the indemnified parties as
a group may retain only one law firm to represent them with respect to each
such
matter unless there is, under applicable standards of professional conduct,
a
conflict on any significant issue between the positions of any two or more
indemnified parties.
-15-
Section
7.4. Express
Negligence Rule.
The
indemnification obligations under this Article VII shall apply regardless of
whether any suit or action results solely or in part from the passive or
concurrent negligence of the indemnified party.
The
rights of the parties to indemnification under this Article VII shall not be
limited due to any investigations heretofore or hereafter made by such parties
or their representatives, regardless of negligence in the conduct of any such
investigations.
ARTICLE
VIII
MISCELLANEOUS
Section
8.1. Termination.
This
Agreement may be terminated at any time prior to the Effective Time, as
follows:
(a) the
Company shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of Buyer shall fail to be true and correct in
all
material respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the date made
or, except in the case of any such representations and warranties made as of
a
specified date, on and as of any subsequent date as if made at and as of the
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 15 days after written notice
of
such failure is given to Buyer by the Company;
(ii) if
the
Purchase Transaction is not completed by October 15, 2006 (provided that the
right to terminate this Agreement under this Section 8.1(a)(ii) shall not be
available to the Company if the failure of the Company or Seller to fulfill
any
obligation to Buyer under or in connection with this Agreement has been the
cause of or resulted in the failure of the Purchase Transaction to occur on
or
before such date); or
(iii) if
Buyer
(A) fails to perform in any material respects any of its covenants (or in all
respects in the case of any covenant containing any materiality qualification)
in this Agreement and (B) does not cure such default in all material respects
(or in all respects in the case of any covenant containing any materiality
qualification) within 30 days after written notice of such default is given
to
Buyer by the Company.
(b) Buyer
shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of the Company shall fail to be true and correct
in all material respects (or in all respects in the case of any representation
or warranty containing any materiality qualification) on and as of the date
made
or, except in the case of any such representations and warranties made as of
a
specified date, on and as of any subsequent date as if made at and as of such
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 15 days after written notice
of
such failure is given to the Company by Buyer;
-16-
(ii) if
the
Purchase Transaction is not completed by October 15, 2006 (provided that the
right to terminate this Agreement under this Section 8.1(b)(ii) shall not be
available to Buyer if the failure of Buyer to fulfill any obligation to the
Company under or in connection with this Agreement has been the cause of or
resulted in the failure of the Purchase Transaction to occur on or before such
date); or
(iii) if
the
Company or Seller (A) fails to perform in any material respect (or in all
respects in the case of any covenant containing any materiality qualification)
any of their covenants in this Agreement and (B) do not cure such default in
all
material respects (or in all respects in the case of any covenant containing
any
materiality qualification) within 30 days after notice of such default is given
to the Company by Buyer.
Section
8.2. Effect
of Termination.
In the
event of termination of this Agreement by either Buyer or the Company pursuant
to the provisions of Section 8.1, this Agreement shall forthwith become void
and
there shall be no further obligations on the part of the Company, Buyer, or
its
respective officers or directors, or Seller to perform any covenant or provision
of this Agreement which otherwise would be required to be performed after the
date of termination (except as set forth in this Section 8.2 and in Sections
5.3
and 8.9, all of which shall survive the termination). Nothing in this Section
8.2 shall relieve any party from liability for any breach of this
Agreement.
Section
8.3. Remedies.
If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other relief to which it or he may be entitled at law or
equity.
Section
8.4. Notices.
All
notices, consents, demands or other communications required or permitted to
be
given pursuant to this Agreement shall be deemed sufficiently given: (i) when
delivered personally during a business day to the appropriate location described
below or telefaxed to the telefax number indicated below, or (ii) five (5)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed:
|
If
to Buyer:
|
0000
Xxxxxx Xxxxxxx Xxxxx
|
|
|
Xxxxxxx,
Xxxxx 00000
|
||
|
Telefax
No. (000) 000-0000
|
||
-17-
|
With
a copy to:
|
Xxxxx
X. Xxxxxxx
|
|
|
Xxxxxxx
& Xxxxxxx LLP
|
||
|
0000
Xx. Xxxxx Xxxxx, Xxxxx 000
|
||
|
Xxxxxxx,
Xxxxx 00000
|
||
|
Telefax
No. (000) 000-0000
|
||
|
If
to Seller:
|
000
Xxxxx Xxxxxxx Xxxx
|
|
|
Xxxxxx,
Xxxxx 00000
|
Section
8.5. Successors.
This
Agreement shall be binding upon each of the parties upon their execution, and
inure to the benefit of the parties hereto and their successors and assigns.
Section
8.6. Severability.
In the
event that any one or more of the provisions contained in this Agreement or
in
any other instrument referred to herein, shall, for any reason, be held to
be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this Agreement
or
any such other instrument.
Section
8.7. Section
Headings.
The
section headings used herein are descriptive only and shall have no legal force
or effect whatsoever. Except to the extent the context specifically indicates
otherwise, all references to articles and sections refer to articles and
sections of this Agreement, and all references to the exhibits and schedules
refer to exhibits and schedules attached hereto, each of which is made a part
hereof for all purposes.
Section
8.8. Gender.
Whenever the context so requires, the masculine shall include the feminine
and
neuter, and the singular shall include the plural and conversely.
Section
8.9. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Texas, U.S.A., applicable to agreements and contracts executed and
to
be wholly performed there, without giving effect to the conflicts of law
principles thereof.
Section
8.10. Multiple
Counterparts.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original. The parties agree to accept facsimile transmissions of
signed counterparts of this Agreement, to be followed by delivery of signed
original counterparts.
Section
8.11. Waiver.
Any
waiver by either party to be enforceable must be in writing and no waiver by
either party shall constitute a continuing waiver.
Section
8.12. Entire
Agreement.
This
Agreement and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and
thereof.
-18-
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first set forth above.
| BUYER: | ||
| TURBECO, INC., a Texas corporation | ||
| By: |
/s/
Xxxxx X. Xxxxx, Xx.
|
|
|
Xxxxx
X. Xxxxx, Xx., President
|
||
| SELLER: | ||
| /s/ Xxxxxxx Xxxxxx | ||
| Xxxxxxx Xxxxxx | ||
-19-
EXHIBIT
A
INDEX
OF DEFINITIONS
|
Acquired
Interest
|
Section
1.1
|
|
Cash
Payment
|
Section
1.2
|
|
Closing
|
Section
1.5
|
|
Closing
Date
|
Section
1.5
|
|
Company
Plans
|
Section
3.10
|
|
Diamond
Rock
|
Section
1.1
|
|
Diamond
Rock Mortgage
|
Section
1.2(d)
|
|
Disclosure
Schedule
|
Section
3.4(b)
|
|
Effective
Time
|
Section
1.5
|
|
Financial
Statements
|
Section
3.5
|
|
Flotek
|
Section
1.2(b)
|
|
Flotek
Common Stock
|
Section
1.2(b)
|
|
Flotek
Shares
|
Section
1.2(b)
|
|
Indemnified
Amounts
|
Section
7.1
|
|
Knowledge
|
Section
3.11
|
|
Leased
Assets
|
Section
3.9
|
|
Material
Adverse Effect
|
Section
3.7
|
|
New
Company
|
Section
6.2(d)
|
|
Operating
Agreements
|
Section
3.17
|
|
Xxxxx
|
Section
3.2
|
|
Purchase
Transaction
|
Section
1.5
|
|
Real
Estate
|
Section
1.1
|
|
Tangible
Personal Property
|
Section
3.9
|
