EXHIBIT 10.8
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STOCK PURCHASE AGREEMENT
between
UNION DRILLING, INC.
and
THE SHAREHOLDER OF XXXXXXXX DRILLING COMPANY
MARCH 31, 2005
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TABLE OF CONTENTS
PAGE
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ARTICLE I SALE AND TRANSFER OF SHARES; REINVESTMENT...................... 1
Section 1.1 Sale of Shares........................................ 1
Section 1.2 Reinvestment In Buyer................................. 1
ARTICLE II CLOSING; DETERMINATION OF PURCHASE PRICE...................... 1
Section 2.1 Closing............................................... 1
Section 2.2 Closing Obligations................................... 2
Section 2.3 Final Determination of Purchase Price................. 3
Section 2.4 Additional Purchase Price Payment..................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER...................... 5
Section 3.1 Organization and Qualification........................ 5
Section 3.2 Subsidiaries.......................................... 5
Section 3.3 Capitalization........................................ 6
Section 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance......................................... 6
Section 3.5 Financial Statements.................................. 8
Section 3.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities............................ 8
Section 3.7 Litigation; Regulatory Proceedings.................... 8
Section 3.8 Tax Matters........................................... 9
Section 3.9 Employee Matters; ERISA............................... 11
Section 3.10 Environmental Protection.............................. 12
Section 3.11 Required Approvals.................................... 15
Section 3.12 Insurance............................................. 15
Section 3.13 Brokers............................................... 15
Section 3.14 No Agreements to Sell Buyer or Its Assets............. 15
Section 3.15 Assets................................................ 16
Section 3.16 Contracts and Commitments............................. 16
Section 3.17 Absence of Breaches or Defaults....................... 17
Section 3.18 Labor Matters......................................... 18
Section 3.19 Affiliate Transactions................................ 18
Section 3.20 Intellectual Property................................. 18
Section 3.21 Investment Representation............................. 19
Section 3.22 Disclosure............................................ 19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER REGARDING THE
COMPANY.................................................................. 19
Section 4.1 Organization and Qualification........................ 19
Section 4.2 Subsidiaries.......................................... 20
Section 4.3 Capitalization........................................ 20
Section 4.4 Non-Contravention; Statutory Approvals; Compliance.... 21
Section 4.5 Financial Statements.................................. 22
Section 4.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities............................ 22
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Section 4.7 Litigation; Regulatory Proceedings.................... 22
Section 4.8 Tax Matters........................................... 23
Section 4.9 Employee Matters; ERISA............................... 25
Section 4.10 Environmental Protection.............................. 27
Section 4.11 Insurance............................................. 28
Section 4.12 Brokers............................................... 28
Section 4.13 No Other Agreements to Sell the Company or Its
Assets............................................. 29
Section 4.14 Assets................................................ 29
Section 4.15 Contracts and Commitments............................. 29
Section 4.16 Absence of Breaches or Defaults....................... 31
Section 4.17 Labor Matters......................................... 31
Section 4.18 Affiliate Transactions................................ 32
Section 4.19 Intellectual Property................................. 32
Section 4.20 Required Approvals.................................... 32
Section 4.21 Substantial Suppliers................................. 33
Section 4.22 Substantial Customers................................. 33
Section 4.23 Certain Payments...................................... 33
Section 4.24 Rig Crews............................................. 33
Section 4.25 Disclosure............................................ 34
ARTICLE V ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER........ 34
Section 5.1 Natural Person; Residence............................. 34
Section 5.2 Authorization; No Breach.............................. 34
Section 5.3 Investment Representation............................. 34
Section 5.4 Brokers............................................... 34
Section 5.5 Litigation............................................ 35
Section 5.6 Capital Stock and Related Matters..................... 35
Section 5.7 Company Transactions.................................. 35
Section 5.8 Accredited Investor, etc.............................. 35
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS..................... 36
Section 6.1 Conduct of the Company's Business Pending the
Closing............................................ 36
Section 6.2 Conduct of Buyer's Business Pending the Closing....... 38
ARTICLE VII ADDITIONAL AGREEMENTS........................................ 39
Section 7.1 Access to Information................................. 39
Section 7.2 Notification of Certain Matters....................... 40
Section 7.3 Further Action........................................ 40
Section 7.4 Public Announcements.................................. 41
Section 7.5 Takeover Statutes..................................... 41
Section 7.6 Employment Agreement.................................. 41
Section 7.7 Registration Rights Agreement......................... 41
Section 7.8 Post-Closing Sales.................................... 41
Section 7.9 Tax Matters........................................... 42
Section 7.10 Payment of Company Debt............................... 43
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ARTICLE VIII CONDITIONS.................................................. 44
Section 8.1 Conditions to the Obligations of Each Party........... 44
Section 8.2 Conditions to the Obligations of Buyer................ 44
Section 8.3 Conditions to All Obligations of the Seller........... 45
Section 8.4 Conditions to Obligations to Purchase Reinvestment
Securities......................................... 45
ARTICLE IX TERMINATION................................................... 46
Section 9.1 Termination........................................... 46
Section 9.2 Effect of Termination................................. 47
Section 9.3 Fees and Expenses..................................... 47
ARTICLE X REMEDIES FOR BREACHES OF THIS AGREEMENT........................ 47
Section 10.1 Survival of Representations, Warranties, Covenants
and Agreements..................................... 47
Section 10.2 Reimbursement and Indemnification..................... 48
ARTICLE XI MISCELLANEOUS................................................. 51
Section 11.1 Amendment............................................. 51
Section 11.2 Extension; Waiver..................................... 51
Section 11.3 Notices............................................... 52
Section 11.4 Certain Definitions................................... 53
Section 11.5 Other Defined Terms................................... 56
Section 11.6 Descriptive Headings.................................. 57
Section 11.7 Severability.......................................... 57
Section 11.8 Counterparts.......................................... 57
Section 11.9 Entire Agreement; No Third Party Beneficiaries........ 57
Section 11.10 Governing Law; Consent to Jurisdiction................ 58
Section 11.11 Assignment............................................ 58
Section 11.12 Specific Performance.................................. 58
Section 11.13 Non-Competition, Non-Solicitation and Non-Disclosure.. 58
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Seller's Release
Exhibit B Form of Xxxxxxxx Employment Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Xxxxxx & Xxxxxxx, LLP
Exhibit E Form of Legal Opinion of Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
Exhibit F SPA Asset Purchase Agreement
Buyer Disclosure Schedule
Seller Disclosure Schedule
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of March 31, 2005, by
and between Union Drilling, Inc., a Delaware corporation ("Buyer"), and Xxxxxxx
Xxxxxxxx (the "Seller") the sole shareholder of Xxxxxxxx Drilling Company, a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Section 11.4.
WHEREAS, The Seller desires to sell, and Buyer desires to purchase, 400
shares of the Common Stock, par value $0.01 per share, of the Company (the
"Shares"), representing 100% of the issued and outstanding shares of the capital
stock of the Company as of the date hereof and the Closing Date, and the Seller
desires to subscribe for and purchase the Reinvestment Securities from the Buyer
and the Buyer is willing to issue and sell the Reinvestment Securities to the
Seller, all for the consideration and on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND TRANSFER OF SHARES; REINVESTMENT
Section 1.1 Sale of Shares.
At the Closing, the Seller shall sell and transfer the Shares to Buyer,
free and clear of all Encumbrances, and Buyer shall purchase the Shares from the
Seller, upon the terms set forth in this Agreement for the Purchase Price, as
determined pursuant to Section 2.3.
Section 1.2 Reinvestment In Buyer.
At the Closing, the Seller shall purchase from Buyer, and the Buyer shall
issue and sell to the Seller, 111,111 shares of Buyer Common Stock (the
"Reinvestment Securities" ) for a purchase price of $1,999,998 ($18.00 per
share).
ARTICLE II
CLOSING; DETERMINATION OF PURCHASE PRICE
Section 2.1 Closing.
The closing of the purchase and sale of the Shares and the Reinvestment
Securities contemplated by this Agreement (the "Closing") will take place (a) at
10:00 a.m. on the second business day after satisfaction or waiver of all of the
conditions to the respective obligations of the parties set forth in Article
VIII hereof or (b) at such other time and date as Buyer and the Seller shall
agree (such date and time on and at which the Closing occurs being referred to
herein as the "Closing Date"). At the Closing, there shall be delivered to Buyer
and the Seller certificates and other documents and instruments required to be
delivered under Article VIII hereof. The Closing shall take place at such
location as Buyer and the Seller shall agree.
Section 2.2 Closing Obligations
At the Closing:
(a) The Seller will deliver to Buyer:
(i) certificates representing the Shares duly endorsed (or
accompanied by duly executed stock powers), for transfer to
Buyer;
(ii) a release in the form attached as Exhibit A hereto executed
by the Seller ("Seller's Release");
(iii) a certificate executed by Seller as to the matters
addressed in paragraphs (a) and (b) of Section 8.2, if required;
(iv) the Employment Agreement executed by Xxxxxxx Xxxxxxxx;
(v) the resignations of each officer and director of the Company;
(vi) any documents necessary or appropriate to change the
authorized signatories to all bank or other financial accounts of
the Company to Persons designated by Buyer;
(vii) the Registration Rights Agreement executed by Xxxxxxx
Xxxxxxxx; and
(viii) the other documents to be delivered by Seller pursuant to
Article VIII.
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(b) Buyer will deliver to the Seller:
(i) by wire transfer to an account which was specified in writing
to the Buyer by, the Seller, the aggregate amount of $19,801,946
(the "Closing Payment") less the $1,999,998 purchase price for
the Reinvestment Securities, in payment for the Shares;
(ii) a certificate executed by Buyer as to the matters addressed
in paragraphs (a) and (b) of Section 8.3, if required;
(iii) one or more certificates representing the Seller's
Reinvestment Securities as shown on Schedule 1.3 hereto;
(iv) the Employment Agreement, executed by the Company;
(v) the Registration Rights Agreement executed by Buyer; and
(vi) the other documents to be delivered by Buyer pursuant to
Article VIII.
Section 2.3 Final Determination of Purchase Price.
(a) As promptly as practicable, but in no event later than ninety (90)
days after the Closing Date, the Buyer shall prepare and deliver to the Seller,
a statement (the "Closing Statement") setting forth its calculation of Closing
Working Capital and the Purchase Price (the "Closing Values").
(b) At and from the time of the delivery of the Closing Statement to
Seller until the due date of the Objection Notice, the Buyer shall permit the
Seller and the Seller's representatives to have, at any reasonable time or times
requested by the Seller or the Seller's representatives, access to the books and
records used to prepare the Closing Statement. If the Seller disagrees with the
Buyer's calculation of the Closing Values as set forth on the Closing Statement,
the Seller will notify the Company in writing of such disagreement (the
"Objection Notice") (such Objection Notice setting forth the basis for such
disagreement in reasonable detail) within thirty (30) days after the Company's
delivery of the Closing Statement to the Seller, setting forth the Seller's
calculation of the Closing Values. The Objection Notice shall specifically state
and shall only state those items or amounts as to which the Seller disagrees and
the basis of such disagreement, and the Seller shall be deemed to have agreed
with all other items and amounts contained in the calculation of the Closing
Values or otherwise set forth on the Closing Statement. If an Objection Notice
is not delivered within such time period, then the calculations set forth in the
Closing Statement shall be conclusive and binding upon the Seller and the
Seller's affiliates. The Seller and the Buyer thereafter shall negotiate in good
faith to resolve any such disagreements with respect to the computation of the
Closing Values. If the Seller and the Buyer are unable to resolve any such
disagreements within fifteen (15) days after
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the Seller's delivery of Seller's Objection Notice to the Buyer, the Buyer and
Seller shall submit the dispute to a nationally or regionally recognized
accounting firm, other than the accounting firm that audits the financial
statements of the Buyer, selected by the Buyer (subject to the approval of the
Seller, such approval not to be unreasonably withheld) (the "Auditor") for
resolution. If the Seller and the Buyer are unable to agree upon the Auditor in
accordance with the previous sentence, the Auditor shall be a "big four"
accounting firm (or a successor thereto) selected by lot (after the Seller and
the Buyer each exclude one such accounting firm).
(c) The Seller and the Buyer shall use their respective best efforts
to cause the Auditor to resolve all disagreements with respect to the
computation of the Closing Values as soon as practicable, but in any event they
shall direct the Auditor to render a determination within sixty (60) days of its
retention. The Auditor shall consider only those items and amounts in the
Closing Statement which are identified in the Objection Notice as being items
which the Seller and the Buyer are unable to resolve. In resolving any disputed
item, the Auditor may not assign a value to any item greater than the greatest
value for such item claimed by either party or less than the smallest value for
such item claimed by either party. The Auditor's determination will be based
solely on the definitions of the Closing Values contained herein (it being
understood that the Auditor must use the Buyer's determination as to the items
and amounts set forth in the Closing Statement to the extent such items and
amounts have been prepared by the Buyer in accordance with GAAP). The
determination of the Auditor will be conclusive and binding upon the parties and
their affiliates.
(d) Buyer and the Seller agree that they will, and agree to cause
their respective independent accountants and the Company and each of its
Subsidiaries to, cooperate and assist in the conduct of the audits and reviews
referred to in this Section 2.3, including the making available to the extent
necessary of books, records, work papers and personnel.
(e) The Auditor will allocate its costs and expenses between Buyer and
Seller based on the percentage which the portion of the amount contested by and
not awarded to each party bears to the total amount contested by such party,
e.g. if Buyer's determination is $8,000 less than the Auditor's and Seller's
determination is $2,000 more than the Auditor's, then Buyer would pay 80% and
Seller would pay 20% of the costs and expenses of the Auditor.
(f) If the Closing Payment exceeds the Purchase Price, as finally
determined pursuant to this Section 2.3, Seller shall, within ten (10) days of
such final determination, pay to Buyer the amount of such excess. If the
Purchase Price, as finally determined pursuant to this Section 2.3, exceeds the
Closing Payment, Buyer shall, within ten (10) days of such final determination,
pay to Seller the amount of such excess.
Section 2.4 Additional Purchase Price Payment.
(a) Notwithstanding the determination of the Purchase Price pursuant
to Section 2.3, an additional purchase price in the amount of $720,000 shall be
delivered to Seller, by wire transfer in immediately available funds to an
account previously designated by the Seller to Buyer, at the later of the
Closing or the SPA Closing, whether such acquisition is consummated by Buyer or
the Company, it being understood that no additional amount shall be payable to
the
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Seller pursuant to this Section 2.4 if such acquisition is not consummated,
for any reason, on substantially the terms set forth in the SPA Asset Purchase
Agreement.
(b) A true and complete copy of the SPA Asset Purchase Agreement is
attached hereto as Exhibit F, and the Seller represents and warrants to the
Buyer that there are no other agreements or arrangements between the Seller and
SPA Drilling relating to the acquisition of the SPA Assets. The Seller agrees
that it shall not amend or terminate the SPA Asset Purchase Agreement in any
respect or waive any provision thereof without the prior written consent of
Buyer. [The Seller shall use its reasonable best efforts to cause the SPA
Closing to occur, and] the Seller shall promptly notify the Buyer of any matter
of which it becomes aware, including any action or omission of SPA Drilling or
any third party, which would be reasonably likely to prohibit or materially
delay the SPA Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
Section 3.1 Organization and Qualification.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its Assets (as hereinafter defined) and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets (as hereinafter defined)
makes such qualification necessary other than in such jurisdictions where the
failure to be so qualified and in good standing will not, when taken together
with all other such failures, have a Buyer Material Adverse Effect (as
hereinafter defined).
Section 3.2 Subsidiaries.
Section 3.2 of the disclosure schedule delivered by Buyer to the Seller
concurrently with the execution of this Agreement (the "Buyer Disclosure
Schedule") sets forth a description as of the date hereof of all Subsidiaries
(as defined in Section 11.4) of Buyer and each other corporation, partnership,
limited liability company, business, trust or other Person in which Buyer or any
of its Subsidiaries owns, directly or indirectly, an interest in the equity,
including the name of each such Person and Buyer's interest therein, and, as to
each Subsidiary identified in Section 3.2 of the Buyer Disclosure Schedule, a
brief description of the principal line or lines of business conducted by each
such entity. Except as set forth in Section 3.2 of the Buyer Disclosure
Schedule, each of Buyer's Subsidiaries is duly organized, validly existing and
in good standing under the laws of its state or county of organization, has all
requisite organizational power and authority, and has been duly authorized by
all necessary approvals and orders, to own, lease and operate its Assets and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets make such qualification
necessary, other than
5
in such jurisdictions where the failure to be so qualified and in good standing
will not, when taken together with all other such failures, have a Buyer
Material Adverse Effect. Except as set forth in Section 3.2 of the Buyer
Disclosure Schedule, all of the issued and outstanding shares of capital stock
of each Subsidiary of Buyer are validly issued, fully paid, nonassessable and
free of preemptive rights; are owned directly or indirectly by Buyer free and
clear of any liens, claims, encumbrances, security interests, equities, charges
and options of any nature whatsoever ("Encumbrances"), and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment.
Section 3.3 Capitalization.
The authorized capital stock of Buyer consists of 25,000,000 shares of
Common Stock, par value $.01 per share (the "Buyer Common Stock"). There are
issued and outstanding 5,000,000 shares of Buyer Common Stock, and, after giving
effect to the issuance of the Reinvestment Securities, but before the issuance
of Buyer Common Stock pursuant to the Investors Stock Purchase Agreement, there
will be issued and outstanding 5,111,111 shares of Buyer Common Stock. All of
such shares of the capital stock of Buyer are, or will be upon issuance, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 3.3 of the Buyer Disclosure Schedule or as contemplated by this
Agreement or the Investors Stock Purchase Agreement, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating Buyer
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Buyer or obligating
Buyer or any of its Subsidiaries to grant, extend or enter into any such
agreement or commitment. Except as set forth in Section 3.3 of the Buyer
Disclosure Schedule, Buyer has no commitments or obligations to purchase or
redeem any shares of capital stock of Buyer or any of its Subsidiaries. Except
as set forth in Section 3.3 of the Buyer Disclosure Schedule or as contemplated
by this Agreement, there are no stockholder agreements, voting trusts, proxies
or other agreements or understandings to which Buyer or any of its Subsidiaries
is a party or by which Buyer or any of its Subsidiaries is bound relating to the
voting of any shares of the capital stock of Buyer or any of its Subsidiaries by
any Person other than Buyer or a Subsidiary of Buyer. True, accurate and
complete copies of the Articles of Incorporation and Bylaws of Buyer and the
charter and bylaws or other organizational documents and operating agreements
for each Subsidiary of Buyer, as in effect on the date hereof, have previously
been made available to the Seller.
Section 3.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. Buyer has all requisite power and authority to enter
into this Agreement and, subject to obtaining each of the statutory approvals
listed in Section 3.4(c) (the "Buyer Required Statutory Approvals"), to
consummate the Contemplated Transactions. The execution and delivery of this
Agreement and the consummation by Buyer of the Contemplated
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Transactions have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement has been duly and validly executed and delivered
by Buyer and, assuming the due authorization, execution and delivery hereof by
the Seller, constitutes the valid and binding obligation of Buyer enforceable
against it in accordance with its terms (subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally and general equitable
principles, whether considered in a proceeding in equity or at law).
(b) Non-Contravention. The execution and delivery of this Agreement by
Buyer does not, and the consummation of the Contemplated Transactions will not
(with or without notice or lapse of time or both), (i) violate or conflict with
any provision of the Articles of Incorporation or Bylaws of Buyer or similar
governing documents of any of Buyer's Subsidiaries, (ii) subject to obtaining
the Buyer Required Statutory Approvals, violate or conflict with any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority (as hereinafter defined)
applicable to Buyer or any of its Subsidiaries or any of their respective
Assets, or (iii) violate, conflict with, or result in a breach of any provision
of, or constitute a default under, or trigger any obligation to repurchase,
redeem or otherwise retire indebtedness under, or result in the termination of,
or accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under, or result in the creation of any Encumbrance upon any of the
Assets of Buyer or any of its Subsidiaries pursuant to any provisions of, 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 any of its Subsidiaries is now a party or by which it or
any of its Assets is bound or affected, except in connection with the Financing
and, in the case of clauses (ii) and (iii), as would not, in the aggregate, have
or be reasonably likely to have a Buyer Material Adverse Effect.
(c) Statutory Approvals. Except for (i) applicable requirements, if
any, of the Securities Act and state securities or "blue sky" laws ("Blue Sky
Laws"), and (ii) any notices or filings not required to be given or made until
or after the Closing, no declaration, filing or registration with, or notice to
or authorization, consent or approval of, any court, governmental or regulatory
body (including a stock exchange or other self-regulatory body) or authority,
domestic or foreign (each, a "Governmental Authority") is necessary for the
execution and delivery of this Agreement by Buyer or the consummation by Buyer
of the Contemplated Transactions, except for such notices, reports, filings,
waivers, consents, approvals or authorizations that, if not made or obtained,
would not, in the aggregate, have or reasonably be expected to have a Buyer
Material Adverse Effect.
(d) Compliance. Neither Buyer nor any of its Subsidiaries is in
violation of or, to Buyer's knowledge, is under investigation with respect to,
or been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment of any Governmental Authority,
except for violations, investigations and charges that, in the aggregate, would
not have or reasonably be expected to have a Buyer Material Adverse Effect.
Buyer and each of its Subsidiaries have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as presently conducted and permits, licenses, franchises,
authorizations, consents and approvals the failure to
7
possess, in the aggregate, would not have or reasonably be expected to have a
Buyer Material Adverse Effect.
Section 3.5 Financial Statements.
The audited consolidated financial statements of Buyer as of and for the
fiscal year ended December 31, 2003, and the unaudited consolidated financial
statements of Buyer as of and for the fiscal year ended December 31, 2004,
previously delivered to the Company (collectively, the "Buyer Financial
Statements") have been prepared in accordance with GAAP (except as indicated in
the notes thereto) and fairly present the financial position of Buyer as of the
dates thereof and the results of its operations and cash flows for the periods
then ended, subject, in the case of the unaudited financial statements, to
normal, year-end and recurring audit adjustments.
Section 3.6 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
(a) From December 31, 2004, through the date hereof each of Buyer and
its Subsidiaries has conducted its business in all material respects only in the
ordinary course of such businesses consistent with past practice and there has
not been any (i) declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of Buyer; (ii) repurchase, redemption or other acquisition by Buyer or any
of its Subsidiaries of any outstanding shares of capital stock or other equity
securities of or other ownership interests in, Buyer or any of its Subsidiaries;
(iii) material change in any method of accounting or accounting practices by
Buyer or any of its Subsidiaries other than as required by GAAP or applicable
law; or (iv) material change in Buyer's business operations, condition
(financial or otherwise), results of operations, assets or liabilities.
(b) Neither Buyer nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) except (i)
liabilities, obligations or contingencies that are accrued or reserved against
in the Buyer Financial Statements; (ii) normal and recurring liabilities which
were incurred after December 31, 2004, in the ordinary course of business
consistent with past practice; (iii) obligations under Buyer Contracts that
Buyer is not required to accrue or reserve against under GAAP or (iv)
liabilities, obligations or contingencies that would not have, or could not
reasonably be expected to have, in the aggregate, a Buyer Material Adverse
Effect.
Section 3.7 Litigation; Regulatory Proceedings.
Except as set forth in Section 3.7 of the Buyer Disclosure Schedule, (i)
there are, as of the date hereof, no suits, actions, proceedings or, to the
knowledge of Buyer, claims pending or, to the knowledge of Buyer, threatened,
before a court or other Governmental Authority nor are there, to the knowledge
of Buyer, any investigations or reviews pending or threatened against, relating
to or affecting Buyer, any of its Subsidiaries or any of their respective Assets
and (ii) there are no judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator applicable to Buyer or any of its Subsidiaries which, in the
aggregate, would have or would reasonably be expected to have a Buyer Material
Adverse Effect.
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Section 3.8 Tax Matters.
(a) Filing of Timely Tax Returns. Buyer and each of its Subsidiaries
have filed (or there has been filed on their behalf) all Tax Returns required to
be filed by each of them under applicable law. All Tax Returns were in all
material respects (and, as to Tax Returns not filed as of the date hereof will
be) true, complete and correct and filed on a timely basis.
(b) Payment of Taxes. Buyer and each of its Subsidiaries have, within
the time and in the manner prescribed by law, paid (and until the Closing Date
will pay within the time and in the manner prescribed by law) all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) Tax Reserves. Buyer and its Subsidiaries have established (and
until the Closing will maintain) on their books and records reserves adequate to
pay all Taxes, all deficiencies in Taxes asserted or proposed against Buyer or
its Subsidiaries and reserves for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Buyer or any
of its Subsidiaries except liens for Taxes not yet due and payable.
(e) Withholding Taxes. Buyer and each of its Subsidiaries have
complied (and until the Closing will comply) in all material respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6441 and 6049 of the Code, as
well as similar provisions under any other laws, and have, within the time and
is the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set forth in
Section 3.8(f) of the Buyer Disclosure Schedule; neither Buyer nor any of its
Subsidiaries has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither Buyer nor any of its
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Buyer or any of its Subsidiaries, and
neither Buyer nor any of its Subsidiaries has any knowledge of any threatened
action, audit or administrative or court proceeding with respect to any such
Taxes or Tax Returns.
(i) Powers of Attorney. No power of attorney currently in force has
been granted by Buyer or any of its Subsidiaries concerning any Tax matter.
(j) Tax Rulings. Neither Buyer nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a
9
continuing material adverse effect after the Closing. "Tax Ruling," as used in
this Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "Closing Agreement," as used in this Agreement, shall mean a written and
legally binding agreement with a taxing authority relating to Taxes.
(k) Availability of Tax Returns. Buyer and its Subsidiaries have made
available to the Seller complete and accurate copies of all federal income and
state income or franchise Tax Returns, and any amendments thereto, filed by
Buyer or any of its Subsidiaries for all taxable years commencing on or after
January 1, 2001. Section 3.8(k) of the Buyer Disclosure Schedule sets forth all
foreign, state and local jurisdictions in which Buyer or any of its Subsidiaries
is or has been subject to Tax and each material type of Tax payable in such
jurisdiction during the taxable years ended December 31, 2002 and December 31,
2003. In addition, Buyer and its Subsidiaries have made available to the Seller
complete and accurate copies of all audit reports received from any taxing
authority relating to any Tax Return filed by Buyer or any of its Subsidiaries
for all taxable years commencing on or after January 1, 2001.
(l) Tax Sharing Agreements. No agreements relating to allocating or
sharing of Taxes exist between or among Buyer and any of its Subsidiaries.
(m) Code Section 341(f). Neither Buyer nor any of its Subsidiaries has
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by Buyer or any of its Subsidiaries.
(n) Code Section 481 Adjustments. Except for adjustments that in the
aggregate could not reasonably be expected to have a Buyer Material Adverse
Effect, neither Buyer nor any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code, by reason of a
voluntary change in accounting method initiated by Buyer or any of its
Subsidiaries, and to the best of the knowledge of Buyer, the Internal Revenue
Service (the "IRS") has not proposed any such adjustment or change in accounting
method.
(o) Tax Attributes. Section 3.8(o) of the Buyer Disclosure Schedule
sets forth, with respect to Buyer and its Subsidiaries (i) the amount of and
year of expiration of any net operating loss carryovers and (ii) the amount of
and year of expiration of any tax credit carryovers.
(p) Acquisition Indebtedness. Except for the Financing, no
indebtedness of Buyer or any of its Subsidiaries is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
(q) Affiliated Group. None of Buyer and its Subsidiaries (A) has been
a member of an affiliated group filing a consolidated federal income Tax Return
or (B) has any liability for Taxes of any other Person (other than any of Buyer
and its Subsidiaries) under Treasury Regulation Section 1.1502-6. (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise. Neither Buyer nor any of its Subsidiaries has engaged
in any intercompany transactions within the meaning of Treasury Regulation
Section 1.1502-13 for which any income remains unrecognized as of the close of
the last taxable year of the Buyer prior to the Closing.
10
Section 3.9 Employee Matters; ERISA.
(a) Benefit Plans. Section 3.9(a) of the Buyer Disclosure Schedule
contains a true and complete list of each material employee benefit plan,
program or arrangement currently sponsored, maintained or contributed to by
Buyer or any of its Subsidiaries for the benefit of employees, former employees
or directors and their beneficiaries or for which Buyer or any of its
Subsidiaries may have any liability, including, but not limited to, any employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and any employment,
consulting, non-compete, severance or change in control agreement (collectively,
the "Buyer Benefit Plans"). For the purposes of this Section 3.9 only, the term
"Buyer" shall be deemed to include predecessors thereof.
(b) Termination of Buyer Benefit Plans; Withdrawal. All of the Buyer
Benefit Plans can be terminated by Buyer without incurring any material
liability. Neither Buyer nor any of its Subsidiaries currently participates in
any Buyer Benefit Plan that is a multiemployer plan.
(c) Contributions. All material contributions and other payments
required to be made as of the date hereof by Buyer or any of its Subsidiaries to
any Buyer Benefit Plan (or to any person pursuant to the terms thereof) have
been made or the amount of such payment or contribution obligation has been
properly reflected in the Buyer Financial Statements in accordance with GAAP.
(d) Qualification; Compliance. Each of the Buyer Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified, and, to the best knowledge of
Buyer, no circumstances exist that may be reasonably expected to result in the
revocation of any such determination. Buyer is in compliance in all material
respects with, and each Buyer Benefit Plan is and has been operated in all
material respects in compliance with, all applicable laws, rules and regulations
governing such plan, including, without limitation, ERISA and the Code. Each
Buyer Benefit Plan intended to provide for the deferral of income, the reduction
of salary or other compensation, or to afford other income tax benefits,
complies with the material requirements of the applicable provisions of the Code
or other laws, rule and regulations required to provide such income tax
benefits.
(e) Liabilities. With respect to the Buyer Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the best knowledge of
Buyer, there exists no condition or set of circumstances that is reasonably
likely to subject Buyer or any of its Subsidiaries to any liability arising
under the Code, ERISA or any other applicable law (including, without
limitation, any liability to any such plan or the Pension Benefit Guaranty
Corporation (the "PBGC")), or under an indemnity agreement to which Buyer is a
party, which liability could reasonably be expected to have a Buyer Material
Adverse Effect.
(f) Welfare Plans. None of the Buyer Benefit Plans that are "welfare
plans," within the meaning of Section 3(1) of ERISA, provides for any retiree
benefits other than coverage mandated by applicable law or the full cost of
which is borne by the retiree.
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(g) Documents Made Available. Buyer has made available to the Seller a
true and correct copy of each Buyer Benefit Plan, (i) such plan and summary plan
description, as applicable, (ii) the most recent annual report filed with the
IRS, (iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to the
qualified status of such plan, and (v) the most recent actuarial report or
valuation.
(h) Payments Resulting From Contemplated Transactions or Other
Transactions. Except as specifically provided for herein, neither Buyer nor, any
of its Subsidiaries is a party to any plan, agreement or arrangement pursuant to
the terms of which the consummation or announcement of any transaction
contemplated by this Agreement or any other agreement currently being negotiated
or in effect will (either alone or in connection with the occurrence of any
additional or further acts of events) result in any (A) payment (whether of
severance pay or otherwise) becoming due from Buyer or any of its Subsidiaries
to any officer, employee, former employee or director thereof or to a trustee
under any "rabbi trust," "change of control," "golden parachute" or similar
arrangement, or (B) benefit under any Buyer Benefit Plan being established or
becoming accelerated, or immediately vested or payable.
Section 3.10 Environmental Protection.
(a) Compliance. Each of Buyer and its Subsidiaries is in compliance in
all material respects with all applicable Environmental Laws. Neither Buyer nor
any of its Subsidiaries has received any unresolved written communication since
January 1, 2002, from any Person or Governmental Authority that alleges that
Buyer or any of its Subsidiaries is not in such compliance with applicable
Environmental Laws.
(b) Environmental Permits. Each of Buyer and its Subsidiaries has
obtained or has applied for all material environmental, health and safety
permits and governmental authorizations (collectively, the "Environmental
Permits") necessary for the construction or operation of their facilities or the
conduct of their operations, and all such permits are in good standing or,
where, applicable, a renewal application has been timely filed and is pending
agency approval, and Buyer and its Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits.
(c) Environmental Claims. Except as set forth in Section 3.10(c) of
the Buyer Disclosure Schedule, (i) as of the date hereof, there is no
Environmental Claim pending (x) against Buyer or any of its Subsidiaries, (y) to
Buyer's knowledge, against any Person whose liability for any Environmental
Claim Buyer or any of its Subsidiaries has retained or assumed contractually, or
(z) against any real or personal property or operations which Buyer or any of
its Subsidiaries owns, leases or manages, in whole or in part, and (ii) there
are no past or present actions, activities, circumstances, conditions, events or
incidents which could reasonably be expected to form the basis of any such
Environmental Claim except as would not be expected to have, individually or in
the aggregate, a Buyer Material Adverse Effect.
(d) Releases. Except as set forth in Section 3.10(c) of the Buyer
Disclosure Schedule, as of the date hereof there have been no Releases of any
Hazardous Substances that
12
would be reasonably likely to form the basis of any Environmental Claim against
Buyer or any of its Subsidiaries, or to Buyer's knowledge against any Person
whose liability for any Environmental Claim Buyer or any of its Subsidiaries has
retained or assumed contractually, except for those that would not be expected
to have, individually or in the aggregate, a Buyer Material Adverse Effect.
(e) Predecessors. To Buyer's knowledge with respect to any predecessor
of Buyer or any predecessor of any Subsidiary of Buyer, there is no
Environmental Claim pending or, to Buyer's knowledge, threatened, nor any
Release of Hazardous Substances that would be reasonably likely to form the
basis of any Environmental Claim, except for those that would not be expected to
have, individually or in the aggregate, a Buyer Material Adverse Effect.
(f) Disclosure. Buyer has made available to the Company all material
documents which Buyer reasonably believes provide the basis for (i) the cost of
Buyer pollution control equipment currently required or known to be required in
the future; (ii) current Buyer remediation costs or Buyer remediation costs
known or suspected to be required in the future; or (iii) any other
environmental matter affecting Buyer, except for those that would not be
expected to have, individually or in the aggregate, a Buyer Material Adverse
Effect.
(g) Reports. Each of Buyer and its Subsidiaries has made available to
the Seller true, complete and correct summaries or copies of all environmental
audits, assessments or investigations which (i) have been conducted by or on
behalf of Buyer or any of its Subsidiaries since January 1, 2002 and (ii) are
available to or in the possession of Buyer or any of its Subsidiaries on any
currently or formerly owned, leased or operated property.
(h) Release. Except as set forth in Section 3.10(c) of the Buyer
Disclosure Schedule, neither Buyer nor any of its Subsidiaries has released any
party from any material claim under any Environmental Law or waived any rights
against any other party under any Environmental Law, except for those that would
not be expected to have, individually or in the aggregate, a Buyer Material
Adverse Effect.
(i) Prior Indemnification Agreements. Neither Buyer nor any of its
Subsidiaries has entered into any material agreement that may require Buyer or
any of its Subsidiaries to pay to, reimburse, guarantee, pledge, defend,
indemnify or hold harmless any Person for or against any Environmental Claim,
except for standard IADC drilling contracts and those that would not be expected
to have, individually or in the aggregate, a Buyer Material Adverse Effect.
(j) Definitions.
(i) "Cleanup" means all actions required to: (1) cleanup, remove,
treat or remediate Hazardous Substances in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Substances so that
they do not migrate, endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment; (3) perform pre-remedial
studies and investigations and post-remedial monitoring and care, or
(4) respond to any government requests for information or documents in
any way relating to cleanup, removal, treatment or remediation or
potential cleanup, removal, treatment or remediation of Hazardous
Substances in the indoor or outdoor environment.
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(ii) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person
alleging potential liability (including, without limitation, potential
liability for investigatory costs, Cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or Release or threatened Release into the environment,
of any Hazardous Substances at any location, whether or not now or
formerly owned, operated, leased or managed by the Buyer or any of its
Subsidiaries or the Company or any of its Subsidiaries, as applicable;
(b) circumstances forming the basis of any violation or alleged
violation of, or responsibility or alleged responsibility under, any,
Environmental Law; or (c) any and all claims by any Person seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Substances.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws, rules, regulations, statutes, common law, ordinances,
policies or directives relating to pollution or protection of human
health or the environment, including without limitation, laws relating
to Releases or threatened Releases of Hazardous Substances or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, Release, disposal, transport or handling of
Hazardous Substances and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Substances.
(iv) "Hazardous Substances" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing
polychlorinated biphenyls; (B) any chemicals, materials or substances
which are now defined as or included in the definition of "hazardous
substances," "hazardous wastes," hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import, under any
Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under
any Environmental Law in a jurisdiction in which the Buyer or any of
its Subsidiaries or the Company or any of its Subsidiaries, as
applicable, operates.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Substances through or in the air, soil, surface
water, groundwater or property.
14
Section 3.11 Required Approvals.
(a) No vote by the stockholders of Buyer (or of any holders of an
equity interest in any Subsidiary of Buyer), is required to approve this
Agreement or consummation of the Contemplated Transactions.
(b) The Board of Directors of Buyer has approved this Agreement in
accordance with the Delaware General Business Corporation Law.
(c) To Buyer's knowledge, no state takeover statute or similar statute
or regulation applies or purports to apply to this Agreement, the issuance of
the Reinvestment Securities or any of the Contemplated Transactions and no
provision of the Articles of Incorporation or Bylaws of Buyer or the charter,
bylaws or other organizational document of any of its Subsidiaries would,
directly or indirectly, restrict or impair the ability of the Seller to vote, or
otherwise to exercise the rights of a stockholder with respect to, the
Reinvestment Securities.
Section 3.12 Insurance.
Buyer has furnished the Seller a list of, and true and complete copies of,
all insurance policies and fidelity bonds relating to the assets, business,
operations, employees, officers or directors of Buyer and its Subsidiaries.
There is no claim by Buyer or any of its Subsidiaries pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights. All premiums payable under all such
policies and bonds have timely paid and Buyer and its Subsidiaries have
otherwise complied fully with the terms and conditions of all such policies and
bonds. Each of Buyer and its Subsidiaries is, and has been continuously since
January 1, 2002, insured with financially responsible insurers or under other
financially responsible arrangements in such amounts and such risks and losses
as are customary for companies conducting the business as conducted by Buyer and
its Subsidiaries during such time period. Neither Buyer nor its Subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy of Buyer or its Subsidiaries. The insurance policies of Buyer
and each of its Subsidiaries are valid and enforceable policies in all material
respects.
Section 3.13 Brokers.
No Person is entitled to any brokerage, finder's or other similar fee or
commission in connection with the Contemplated Transactions based upon
arrangements made by or on behalf of Buyer.
Section 3.14 No Agreements to Sell Buyer or Its Assets.
Neither Buyer nor any of its Subsidiaries has any legal obligation,
absolute or contingent, to any other Person to sell any material portion of the
Assets of Buyer or any of its Subsidiaries, to sell any material portion of the
capital stock or other ownership interests of Buyer or any of its Subsidiaries
(other than pursuant to the exercise of any Stock Rights granted under any of
Buyer's Stock Plans) or to effect any merger, consolidation or other
reorganization of Buyer or any of its Subsidiaries or to enter into any
agreement with respect thereto. Since December 1,
15
2004, Buyer has neither executed a confidentiality agreement nor engaged in any
negotiations with any Person in connection with such Person's consideration of
acquiring all or a substantial part of the Assets or capital stock of Buyer or
any of its Subsidiaries, including capital stock and assets of the Company, or
to effect any merger, consolidation or other reorganization of Buyer or any of
its Subsidiaries or to enter into any agreement with respect thereto.
Section 3.15 Assets.
Except as set forth in Section 3.15 of the Buyer Disclosure Schedule or
except as would not, in the aggregate, have or be reasonably likely to have a
Buyer Material Adverse Effect, Buyer and its Subsidiaries have good and
marketable title to or a valid leasehold estate in or a valid right to use all
of the material Assets reflected on the Buyer Financial Statements (except for
Assets subsequently sold in the ordinary course of business consistent with past
practice). All of such Assets are free and clear of all Encumbrances (other than
Permitted Encumbrances) and have been maintained in reasonable operating
condition and repair, subject to ordinary wear and tear.
Section 3.16 Contracts and Commitments.
As of the date hereof, Section 3.16 of the Buyer Disclosure Schedule
contains a complete and accurate list of all contracts (written or oral), plans,
undertakings, commitments or agreements or pending negotiations (including,
without limitation, intercompany contracts) ("Buyer Contracts") of the following
categories to which Buyer or any of its Subsidiaries is a party or by which any
of them is bound as of the date of this Agreement:
(a) employment contracts, including, without limitation, contracts to
employ executive officers and other contracts with officers, directors or
stockholders of Buyer, and all severance, change in control or similar
arrangements with any officers, employees or agents of Buyer that will
result in any obligation (absolute or contingent) of Buyer or any of its
Subsidiaries to make any payment to any officers, employees or agents of
Buyer or any of its Subsidiaries following the consummation of the
Contemplated Transactions or termination or change of terms and conditions
of employment, including a change in control of the Buyer;
(b) Buyer Contracts for the purchase of inventory, supplies or
services which are not cancellable (without material penalty, cost or other
liability) within one year and, other than Buyer Contracts described
elsewhere in this Section 3.16, other Buyer Contracts involving annual
expenditures or liabilities in excess of $100,000 which are not cancelable
(without material penalty, cost or other liability) within 90 days;
(c) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments providing for the lending of money,
whether as borrower, lender or guarantor;
(d) Buyer Contracts containing covenants limiting the freedom of Buyer
or any of its Subsidiaries to engage in any line of business or compete
with any Person or operate at any location;
16
(e) any Buyer Contract pending for the acquisition or disposition,
directly or indirectly (by merger or otherwise), of material Assets (other
than inventory) or capital stock of any Person (including, without
limitation, Buyer or any of its Subsidiaries);
(f) other than Buyer Contracts described elsewhere in this Section
3.16 or Buyer Contracts which may be omitted pursuant to the specific size
limitations set forth in other provisions of this Section 3.16, Buyer
Contracts between Buyer and any of its wholly owned Subsidiaries, on one
hand, and any affiliate of Buyer which is not wholly owned, directly or
indirectly, by Buyer, on the other hand;
(g) any lease (whether of real or personal property) providing for
annual rentals of $15,000 or more;
(h) any sales, distribution or other similar agreement providing for
the sale by Buyer or any of its Subsidiaries of materials, supplies, goods,
services (including drilling services), equipment or other assets; and
(i) any partnership, joint venture or other similar agreement or
arrangement.
True and complete copies of the written Buyer Contracts identified in
Section 3.16 of the Buyer Disclosure Schedule or true summaries of all material
terms, have been delivered or made available to the Seller.
Section 3.17 Absence of Breaches or Defaults.
(i) neither Buyer nor any of its Subsidiaries is in default under, or in
breach or violation of (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default under, or a breach or
violation of), any term, condition or provision of its respective charter,
bylaws or other governing documents and (ii) neither Buyer nor any of its
Subsidiaries is and, to the knowledge of Buyer, no other party is in default
under, or in breach or violation of (and no event has occurred which, with
notice or the lapse of time or both, would constitute a default under, or a
breach or violation of), any term, condition or provision of any Buyer Contract
identified on Section 3.16 of the Buyer Disclosure Schedule except for defaults,
breaches, violations or events which, individually or in the aggregate, would
not have a Buyer Material Adverse Effect. Other than contracts which have
terminated or expired in accordance with their terms, each of the Buyer
Contracts identified on Section 3.16 of the Buyer Disclosure Schedule is valid,
binding and enforceable in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered on a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing) and is in full force and
effect. To the knowledge of Buyer, no event has occurred which either entitles,
or would, on notice or lapse of time or both, entitle the holder of any
indebtedness for borrowed money affecting Buyer or any of its Subsidiaries to
accelerate, or which does accelerate, the maturity of any indebtedness affecting
Buyer or any of its Subsidiaries.
17
Section 3.18 Labor Matters.
(a) None of the employees of Buyer or any of its Subsidiaries is
currently represented by any labor organization, and Buyer is not a party to any
labor or collective bargaining agreement. As of the date hereof, there is no
strike or work stoppage, pending or, to the knowledge of Buyer, threatened,
which involves any employees of Buyer or any of its Subsidiaries.
(b) As of the date hereof, there is no (i) material unfair employment
or labor practice charge which is presently pending which, to the knowledge of
Buyer, have been filed with any Governmental Authority by or an behalf of any
employee against Buyer or any of its Subsidiaries or (ii) material
employment-related litigation, including, without limitation, any arbitration or
administrative proceeding which is presently pending, filed by or on behalf of
any former, current or prospective employee against Buyer or any of its
Subsidiaries.
(c) There are not presently pending or, to the knowledge of Buyer,
threatened, against Buyer or any of its Subsidiaries any claims by any
Governmental Authority, labor organization, or any former, current or
prospective employee alleging that Buyer or any such employer has violated any
applicable laws respecting employment practices, except where such claims would
not, individually or in the aggregate, have a Buyer Material Adverse Effect.
Section 3.19 Affiliate Transactions.
Except as set forth in Schedule 3.19 of the Buyer Disclosure Schedule, from
December 31, 2003 through the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings (and no such
arrangements are pending) between Buyer or any of its Subsidiaries, on the one
hand, and affiliates of Buyer or other Persons, on the other hand.
Section 3.20 Intellectual Property.
There are no registrations or applications for registrations of any
Intellectual Property of Buyer. Buyer and its Subsidiaries have used
commercially reasonable measures to protect the confidentiality of the material
trade secrets used in connection with its business. To Buyer's knowledge, no
material Intellectual Property used in connection with its businesses has been
improperly used, improperly divulged or misappropriated by Buyer or any other
Person. As of the date hereof, neither Buyer nor any of its Subsidiaries has
made in the past three years any claim in writing which remains unresolved of a
violation, infringement, misuse or misappropriation by others of rights of Buyer
and its Subsidiaries to or in connection with any material Intellectual Property
used in connection with its business. There is no pending or, to the knowledge
of Buyer, threatened claim by any third person of a violation, infringement,
misuse or misappropriation by any of Buyer or any of its Subsidiaries of any
Intellectual Property owned by any third person, or of the invalidity of any
patent used in connection with its business, that would, individually or in the
aggregate, have a Buyer Material Adverse Effect. No trade secret, formula,
process, invention, design, know-how or other information considered material,
confidential or proprietary to Buyer or any of its Subsidiaries has been
disclosed or authorized to be disclosed except in the ordinary course of
business or pursuant to any obligation of confidentiality binding on the
recipient.
18
"Intellectual Property" means intellectual and similar property of every
kind and nature, whether registered or unregistered, relating to, used or
necessary in the operation of the business of a Person and each of its
Subsidiaries, including, without limitation, all U.S. and foreign patents and
patent applications, divisions, continuations or continuations-in-part,
extensions, reissues or substitutions of any of the foregoing, all U.S. and
foreign trademarks, service marks, and trademark or service xxxx registrations
and applications, trade names, logos, designs, Internet domain names, slogans
and general intangibles of like nature, all registrations and recordings thereof
and all extensions and renewals thereof together, with all goodwill symbolized
thereby or associated therewith, copyrights, U.S. and foreign copyright
registrations, renewals and applications, technology, trade secrets and other
confidential information, know how, confidential or proprietary technical and
business information, proprietary processes, formulae, algorithms, models and
methodologies, licenses and rights with respect to the intellectual property,
agreements, computer programs, databases and compilations (and all descriptions,
flow-charts, documentation and other work product related to the foregoing) and
all other proprietary rights.
Section 3.21 Investment Representation.
Buyer is acquiring the Shares solely for investment purposes and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws.
Section 3.22 Disclosure.
No representation or warranty of Buyer in this Agreement or the Buyer
Disclosure Schedule omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER REGARDING THE COMPANY
The Seller hereby represents and warrants to Buyer as follows:
Section 4.1 Organization and Qualification.
Except as set forth in Section 4.1 of the disclosure schedule delivered by
the Seller to Buyer concurrently with the execution of this Agreement (the
"Seller Disclosure Schedule"), the Company is, a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power and authority, and has been duly authorized by
all necessary approvals and orders, to own, lease and operate its Assets and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its Assets makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a Company Material Adverse Effect.
19
Section 4.2 Subsidiaries.
Section 4.2 of the Seller Disclosure Schedule sets forth a description as
of the date hereof of all Subsidiaries of the Company and each other
corporation, partnership, limited liability company, business, trust or other
Person in which the Company or any of its Subsidiaries owns, directly or
indirectly, an interest in the equity, including the name of each such Person
and the Company's interest therein, and, as to each Subsidiary identified in
Section 4.2 of the Seller Disclosure Schedule, a brief description of the
principal line or lines of business conducted by each such entity. Except as set
forth in Section 4.2 of the Seller Disclosure Schedule, each of Company's
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its state of organization, has all requisite organizational power and
authority, and has been duly authorized by all necessary approvals and orders,
to own, lease and operate its Assets and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its Assets make such qualification necessary, other than in such
jurisdictions where the failure to be so qualified and in good standing will
not, when taken together with all other such failures, have a Company Material
Adverse Effect. Except as sat forth in Section 4.2 of the Seller Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of the Company are validly issued, fully paid, nonassessable and free
of preemptive rights, are owned directly or indirectly by the Company free and
clear of any Encumbrances and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating the Company or any such Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating it to grant, extend or enter into any such agreement or
commitment.
Section 4.3 Capitalization.
The authorized capital stock of the Company consists of (i) 10,000 shares
of common stock, par value $0.01 ("Company Common Stock"), of which, as of the
date hereof, 400 shares are issued and outstanding and 200 shares are held in
the treasury of the Company. All of the issued and outstanding shares of the
capital stock of the Company are owned by the Seller and are validly issued,
fully paid, nonassessable and free of preemptive rights. As of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of the Company
or any such Subsidiaries or obligating the Company or any of its Subsidiaries to
grant, extend or enter into any such agreement or commitment. The Company has no
commitments or obligations to purchase or redeem any shares of capital stock of
the Company or any of its Subsidiaries. Except as contemplated by this
Agreement, there are no stockholder agreements, voting trusts, proxies or other
agreements or understandings to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is bound relating to
the voting of any shares of the capital stock of the Company or any of its
Subsidiaries by any Person other than the Company or a Subsidiary of the
Company. True, accurate and complete copies of the Certificate
20
of Incorporation and Bylaws of the Company, the charter and bylaws or other
organizational documents and operating agreements for each Subsidiary of the
Company and all shareholder, partnership or similar agreements to which the
Company or any of its Subsidiaries is a party, as in effect on the date hereof,
have previously been delivered to Buyer.
Section 4.4 Non-Contravention; Statutory Approvals; Compliance.
(a) Non-Contravention. Except as set forth in Section 4.4(a) of the
Seller Disclosure Schedule, the execution and delivery of this Agreement by the
Seller does not, and the consummation of the Contemplated Transactions will not
(with or without notice or lapse of time or both), (i) violate or conflict with
any provision of the Certificate of Incorporation or Bylaws of the Company or
similar governing documents of any of the Company's Subsidiaries; (ii) subject
to obtaining the Company Required Statutory Approvals, violate or conflict with
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority applicable to
the Company or any of its Subsidiaries or any of their respective Assets; or
(iii) subject to obtaining the third-party consents set forth in Section 4.4(a)
of the Seller Disclosure Schedule (the "Company Required Consents"), violate,
conflict with, or result in a breach of any provision of, or constitute a
default under, or trigger any obligation to repurchase, redeem or otherwise
retire indebtedness under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or
result in the creation of any Encumbrance upon any of the Assets of the Company
or any of its Subsidiaries pursuant to any provisions of, any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease of other instrument, obligation or agreement of any kind to
which the Company or any of its Subsidiaries is now a party or by which it or
any of its Assets is bound or affected, except, in the case of clauses (ii) and
(iii), as would not, in the aggregate, have or be reasonably likely to have a
Company Material Adverse Effect.
(b) Statutory Approvals. Except for (i) applicable requirements, if
any, of the Securities Act or "Blue Sky Laws," and (ii) any notices or filings
not required to be given or made until or after the Closing (the "Company
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by the Seller or
the consummation by the Seller of the Contemplated Transactions, except for such
notices, reports, filings, waivers, consents, approvals or authorizations that,
if not made or obtained, would not, in the aggregate, have or reasonably be
expected to have a Company Material Adverse Effect.
(c) Compliance. Except as set forth in Section 4.4(c) of the Seller
Disclosure Schedule, neither the Company nor any of its Subsidiaries is in
violation of or, to the Company's knowledge, is under investigation with respect
to, or has been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment of any Governmental
Authority and except for violations, investigations and charges that, in the
aggregate, would not have or reasonably be expected to have a Company Material
Adverse Effect. Except as set forth in Section 4.4(c) of the Seller Disclosure
Schedule, the Company and each of its Subsidiaries have all permits, licenses,
franchises and other governmental
21
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted and permits, licenses, franchises, authorizations, contents
and approvals the failure to possess, in the aggregate, would not have or
reasonably be expected to have a Company Material Adverse Effect.
Section 4.5 Financial Statements.
Except as set forth in Section 4.5 of the Seller Disclosure Schedule, the
audited balance sheet of the Company as of December 31, 2003, the audited
financial statements of the Company as of and for the seven-month period ended
July 31, 2004, and the unaudited financial statements of the Company as of and
for the fiscal year ended December 31, 2004, previously delivered to Buyer
(collectively, the "Company Financial Statements") have been prepared in
accordance with GAAP (except as may be indicated in the notes thereto) and
fairly present the financial position of the Company as of the dates thereof and
the results of its operations and cash flows for the periods then ended,
subject, in the case of the unaudited financial statements, to normal, year-end
and recurring audit adjustments.
Section 4.6 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
(a) Except as set forth in Section 4.6 of the Seller Disclosure
Schedule, from July 31, 2004, through the date hereof each of the Company and
its Subsidiaries has conducted its business in all material respects only in the
ordinary course of such businesses consistent with past practice and there has
not been any (i) declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of the Company; (ii) repurchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any outstanding shares of capital stock or
other equity securities of or other ownership interests in the Company or any of
its Subsidiaries; (iii) material change in any method of accounting or
accounting practices by the Company or any of its Subsidiaries other than as
required by GAAP or applicable law; or (iv) material change in the Company's
business operations, condition (financial or otherwise), results of operations,
assets or liabilities.
(b) Neither the Company nor any of its Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
except (i) liabilities, obligations or contingencies that are accrued or
reserved against in the Company Financial Statements or reflected in the notes
thereto; (ii) normal and recurring liabilities which were incurred after July
31, 2004, in the ordinary course of business consistent with past practice;
(iii) obligations under Company Contracts that the Company is not required to
accrue or reserve against under GAAP or (iv) liabilities, obligations or
contingencies that would not have, or would not reasonably be expected to have,
in the aggregate, a Company Material Adverse Effect.
Section 4.7 Litigation; Regulatory Proceedings.
There are as of the date hereof no suits, actions, proceedings or, to the
knowledge of the Company, claims pending or, to the knowledge of the Company,
threatened, before a court or other Governmental Authority nor are there, to the
knowledge of the Company, any investigations or reviews pending or threatened
against, relating to or affecting the Company,
22
any of its Subsidiaries or any of their respective Assets. There are no
judgments, decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator applicable to
the Company or any of its Subsidiaries which, in the aggregate, would have or
would reasonably be expected to have a Company Material Adverse Effect.
Section 4.8 Tax Matters.
(a) Filing of Timely Tax Returns. Except as set forth in Section
4.8(a) of the Seller Disclosure Schedule, the Company and each of its
Subsidiaries have filed (or there has been filed on their behalf) all Tax
Returns required to be filed by each of them under applicable law. All Tax
Returns were in all material respects (and, as to Tax Returns not filed as of
the date hereof, but to be filed before Closing, will be) true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. Except as set forth in Section 4.8(b) of the
Seller Disclosure Schedule, the Company and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all Taxes
that are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) Tax Reserves. Except as set forth in Section 4.8(c) of the Seller
Disclosure Schedule, the Company and its Subsidiaries have established (and
until the Closing will maintain) on their books and records reserves adequate to
pay all Taxes, all deficiencies in Taxes asserted or proposed against the
Company or its Subsidiaries and reserves for deferred income taxes in accordance
with GAAP.
(d) Tax Liens. There are no Tax liens upon the Assets of the Company
or any of its Subsidiaries, except liens for Taxes not yet due and payable.
(e) Withholding Taxes. Except as set forth in Section 4.8(e) of the
Seller Disclosure Schedule, the Company and each of its Subsidiaries have
complied (and until the Closing will comply) in all respects with the provisions
of the Code relating to the payment and withholding of Taxes, including, without
limitation, the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 and 6049, of the Code, as well as
similar provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Except as set forth in
Section 4.8(f) of the Seller Disclosure Schedule, neither the Company nor any of
its Subsidiaries has requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither the Company nor any of
its Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
23
(h) Audit, Administrative and Court Proceedings. Except as set forth
in Section 4.8(h) of the Seller Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries,
and neither the Company nor any of its Subsidiaries has any knowledge of any
threatened action, audit or administrative or court proceeding with respect to
any such Taxes or Tax Returns.
(i) Powers of Attorney. No power of attorney currently in force has
been granted by the Company or any of its Subsidiaries concerning any Tax
matter.
(j) Tax Rulings. Neither the Company nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Closing.
(k) Availability of Tax Returns. The Company and its Subsidiaries have
made available to Buyer complete and accurate copies of all federal income and
state income or franchise Tax Returns, and any amendments thereto, filed by the
Company or any of its Subsidiaries for all taxable years commencing on or after
January 1, 2001. Section 4.8(k) of the Seller Disclosure Schedule sets forth all
foreign, state and local jurisdictions in which the Company or any of its
Subsidiaries, is or has been subject to Tax and each material type of Tax
payable in such jurisdiction during the taxable years ended December 31, 2002
and December 31, 2003. In addition, the Company and its Subsidiaries have made
available to Buyer complete and accurate copies of all audit reports received by
the Company or any of its Subsidiaries on or after January 1, 2001 from any
taxing authority relating to any Tax Return filed by the Company or any of its
Subsidiaries for all taxable years commencing on or after January 1, 2001.
(l) Tax Sharing Agreements. No agreements relating to allocating or
sharing of Taxes exist between or among the Company and any of its Subsidiaries.
(m) Code Section 341(f). Neither the Company nor any of its
Subsidiaries has filed (or will file prior to the Closing) a consent pursuant to
Section 341(f) of the Code or has agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as that term is defined in
Section 341(f)(4) of the Code) owned by the Company or any of its Subsidiaries.
(n) Code Section 481 Adjustments. Except for adjustments that in the
aggregate could not reasonably be expected to have a Company Material Adverse
Effect, neither the Company nor any of its Subsidiaries is required to include
in income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any of its
Subsidiaries, and to the best of the knowledge of the Company, the IRS has not
proposed any such adjustment or change in accounting method.
(o) Tax Attributes. Section 4.8(o) of the Seller Disclosure Schedule
sets forth with respect to the company and its Subsidiaries (i) the amount of
and year of expiration of any net operating loss carryovers and (ii) the amount
of and year of expiration of any tax credit carryovers.
24
(p) Acquisition Indebtedness. Except as set forth in Section 4.8(p) of
the Seller Disclosure Schedule, no indebtedness of the Company or any of its
Subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(q) Code Section 280G. Neither the Company nor any of its Subsidiaries
is a party to any agreement, contract, or arrangement that could result, on
account of the Contemplated Transactions, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G of
the Code.
(r) Affiliated Group. None of the Company and its Subsidiaries (A) has
been a member of an affiliated group filing a consolidated federal income Tax
Return or (B) has any liability for Taxes of any other Person (other than any of
the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee, or
successor by contract, or otherwise. Neither the Company nor any of its
Subsidiaries has engaged in any intercompany transactions within the meaning of
Treasury Regulation Section 1.1502-13 for which any income remains unrecognized
as of the close of the last taxable year prior to the Closing.
(s) The Company has never filed an election to be treated as any S
Corporation under the Code.
Section 4.9 Employee Matters; ERISA.
(a) Benefit Plans. Section 4.9(a) of the Seller Disclosure Schedule
contains a true and complete list of each material employee benefit plan,
program or arrangement currently sponsored, maintained or contributed to by the
Company or any of its Subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries or for which the Company or any
of its Subsidiaries may have any liability, including, but, not limited to, any
employee benefit plans within the meaning of Section 3(3) of ERISA; and any
employment, consulting, non-compete, severance or change in control agreement;
(collectively, the "Company Benefit Plans"). For the purposes of this Section
4.9 only, the term "Company" shall be deemed to include predecessors thereof.
(b) Termination of Company Benefit. Plans; Withdrawal. All of the
Company Benefit Plans (other than any multiemployer plan, as defined in Section
3(37) of ERISA) can be terminated by the Company without incurring any material.
liability. Subject to any collective bargaining obligations, except as set forth
in Section 4.9(b) of the Seller Disclosure Schedule, the Company and its
Subsidiaries can withdraw from participation in any Company Benefit Plan that is
a multiemployer plan, without incurring any material liability.
(c) Contributions. All material contributions and other payments
required to be made as of date hereof by the Company or any of its Subsidiaries
to any Company Benefit Plan (or to any person pursuant to the terms thereof)
have been made or the amount of such payment or contribution obligation has been
properly reflected in the Company Financial Statements in accordance with GAAP.
(d) Qualification; Compliance. Except as set forth in Section 4.9(d)
of the Seller Disclosure Schedule, each of the Company Benefit Plans (other than
any multiemployer plan as
25
defined in Section 3(37) of ERISA) intended to be "qualified" within the meaning
of Section 401(a) of the Code has been determined by the IRS to be so qualified,
and, to the best knowledge of the Company, no circumstances exist that are
reasonably expected by the Company to result in the revocation of any such
determination. Except as set forth in Section 4.9(d) of the Seller Disclosure
Schedule, the Company is in compliance in all material respects with, and each
Company Benefit Plan (other than any multiemployer plan as defined in Section
3(37) of ERISA) is and has, been operated in all material respects in compliance
with, all applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code. Except as set forth in Section 4.9(d) of
the Seller Disclosure Schedule, each Company Benefit Plan (other than any
multiemployer plan as defined in Section 3(37) of ERISA) intended to provide for
the deferral of income, the reduction of salary or other compensation, or to
afford other income tax benefits, complies with the material requirements of the
applicable provisions of the Code or other laws, rules and regulations required
to provide such income tax benefits.
(e) Liabilities. With respect to the Company Benefit Plans
individually and in the aggregate, no event has occurred, and, to the best
knowledge of the Company, there exists no condition or set of circumstances that
is reasonably likely to subject the Company or any of its Subsidiaries to any
liability arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to any such plan or the PBGC), or under any
indemnity agreement to which the Company is a party, which liability could
reasonably be expected to have a Company Material Adverse Effect.
(f) Welfare Plans. None of the Company Benefit Plans that are "welfare
plans" within the meaning of Section 3(1) of ERISA, provides for any retiree
benefits other than coverage mandated by applicable law or benefits the full
cost of which is borne by the retiree.
(g) Documents Made Available. The Seller has made available to Buyer a
true and correct copy of each collective bargaining agreement to which the
Company' or any of its Subsidiaries is a party or under which the Company or any
of its Subsidiaries has obligations and, with respect to each Company Benefit
Plan, (i) such plan and summary plan description, as applicable, (ii) the most
recent annual report filed with the IRS, (iii) each related trust agreement,
insurance contract, service provider or investment management agreement
(including all amendments to each such document), (iv) the most recent
determination of the IRS with respect to the qualified status of such plan, and
(v) the most recent actuarial report or valuation.
(h) Payments Resulting From Contemplated Transactions. Except as set
forth in Section 4.9(h) of the Seller Disclosure Schedule or specifically
provided for herein, neither the Company nor any of its Subsidiaries is a party
to any plan, agreement or arrangement pursuant to the terms of which the
consummation or announcement of any of the Contemplated Transactions will
(either alone or in connection with the occurrence of any additional or further
acts or events) result in any (A) payment (whether of severance pay or
otherwise) becoming due from the Company or any of its Subsidiaries to any
officer, employee, former employee or director thereof or to a trustee under any
"rabbi trust" or similar arrangement, or (B) benefit under any Company Benefit
Plan being established or becoming accelerated, or immediately vested or
payable.
26
Section 4.10 Environmental Protection.
(a) Compliance. Each of the Company and its Subsidiaries is in
compliance in all material respects with all applicable Environmental Laws.
Neither the Company nor any of its Subsidiaries has received any unresolved
written communication since January 1, 2002, from any Person or Governmental
Authority that alleges that the Company or any of its Subsidiaries is not in
such compliance with applicable Environmental Laws.
(b) Environmental Permits. Each of the Company and its Subsidiaries
has obtained or has applied for all material Environmental Permits necessary for
the construction of their facilities or the conduct of their operations, and all
such permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and the Company and its
Subsidiaries are in material compliance with all terms and conditions of the
Environmental Permits.
(c) Environmental Claims. As of the date hereof, there is no
Environmental Claim pending (x) against the Company or any of its Subsidiaries,
(y) to the Company's knowledge, against any Person whose liability for any
Environmental Claim the Company or any of its Subsidiaries has retained or
assumed contractually or (z) against any real or personal property or operations
which the Company or any of its Subsidiaries owns, leases or manages, in whole
or in part. There are no past or present actions, activities, circumstances,
conditions, events or incidents which could reasonably be expected to form the
basis of any such Environmental Claim, except as would not be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(d) Releases. As of the date hereof there have been no Releases of any
Hazardous Substances that would be reasonably likely to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
Company's knowledge against any Person whose liability for any Environmental
Claim the Company or any of its Subsidiaries has retained or assumed
contractually, except for those that would not be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
(e) Predecessors. To the Company's knowledge with respect to any
predecessor of the Company or any predecessor of any Subsidiary of the Company,
there is no Environmental Claim pending or, to the Company's knowledge,
threatened, nor any Release of Hazardous Substances that would be reasonably
likely to form the basis of any Environmental Claim, except for those that would
not be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
(f) Disclosure. The Company has made available to Buyer all material
documents which the Company reasonably believes provide the basis for (i) the
cost of Company pollution control equipment currently required or known to be
required in the future; (ii) current Company remediation costs or Company
remediation costs known or suspected to be required in the future; or (iii) any
other environmental matter affecting the Company, except for those that would
not be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
27
(g) Reports. Each of the Company and its Subsidiaries has made
available to Buyer true, complete and correct summaries or copies of all
environmental audits, assessments or investigations, which (i) have been
conducted by or on behalf of the Company or any of its Subsidiaries since
January 1, 2000, and (ii) are available to, or in the possession of, the Company
or any of its Subsidiaries on any currently or formerly owned, leased or
operated property.
(h) Release. Neither the Company nor any of its Subsidiaries has
released any party from any material claim under any Environmental Law or waived
any rights against any other party under any Environmental Law, except for those
that would not be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(i) Prior Indemnification Agreements. Neither the Company nor any of
its Subsidiaries has entered into any material agreement that may require the
Company or any of its Subsidiaries to pay to, reimburse, guarantee, pledge,
defend, indemnify or hold harmless any Person for or against any Environmental
Claim, except for standard IDC drilling contracts and those that would not be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
Section 4.11 Insurance.
The Seller has furnished Buyer a list of, and true and complete copies of,
all insurance policies and fidelity bonds relating to the assets, business,
operations, employees, officers or directors of the Company and its
Subsidiaries. There is no claim by the Company or any of its Subsidiaries
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights. All premiums
payable under all such policies and bonds have timely paid and the Company and
its Subsidiaries have otherwise complied fully with the terms and conditions of
all such policies and bonds. Each of the Company and its Subsidiaries is, and
has been continuously since January 1, 1999, insured with financially
responsible insurers or under other financially reasonable arrangements in such
amounts and against such risks and losses as are customary for companies
conducting the business as conducted by the Company and its Subsidiaries during
such time period. Neither the Company nor its Subsidiaries has received any
notice of cancellation or termination with respect to any material insurance
policy of the Company or its Subsidiaries. The insurance policies of the Company
and each of its Subsidiaries are valid and enforceable policies in all material
respects.
Section 4.12 Brokers.
No Person (other than RSM EquiCo Capital Markets LLC, whose fees and
expenses shall be paid in full by the Seller and not, for avoidance of doubt, by
the Company or Buyer) is entitled to any brokerage, finder's or other similar
fee or commission in connection with the Contemplated Transactions based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished Buyer a complete and correct copy of all agreements between the
Company and RSM EquiCo Capital Markets LLC pursuant to which such firm would be
entitled to any payment relating to the Contemplated Transactions.
28
Section 4.13 No Other Agreements to Sell the Company or Its Assets.
Except pursuant to this Agreement and as set forth in Section 4.13 of the
Seller Disclosure Schedule, neither the Company nor any of its Subsidiaries has
any legal obligation, absolute or contingent, to any other Person to sell any
material portion of the Assets of the Company or any of its Subsidiaries, to
sell any material portion of the capital stock or other ownership interests of
the Company or any of its Subsidiaries or to effect any merger, consolidation or
other reorganization of the Company or any of its Subsidiaries or to enter into
any agreement with respect thereto. Since December 1, 2004, the Company has
executed no confidentiality agreement with any Person other than Buyer in
connection with its consideration of acquiring all or a substantial part of the
Assets or capital stock of the Company or any of its Subsidiaries, or to effect
any merger, consolidation or other reorganization of the Company or any of its
Subsidiaries or to enter into any agreement with respect thereto.
Section 4.14 Assets.
Section 4.14 of the Seller Disclosure Schedule contains a complete and
accurate list of all real property and leasehold interests, or other interests
therein owned or operated by the Company and its Subsidiaries. The Company has
delivered or made available to Buyer copies of the deeds, leases and other
instruments (as recorded, where applicable) by which the Company or any
Subsidiary acquired such property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of the
Company and relating to such property or interests. The Company and its
Subsidiaries own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentences) all the Assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Company or any
Subsidiary or reflected as owned in the books and records of the Company and its
Subsidiaries (except for Assets held under capitalized leases disclosed or not
required to be disclosed in Section 4.15 of the Seller Disclosure Schedule and
personal property acquired or sold since July 31, 2004, in the ordinary course
of business), and such Assets constitute all of the Assets owned or used by the
Company and its Subsidiaries. All of the Assets purchased or otherwise acquired
by the Company or any Subsidiary since July 31, 2004 (except for personal
property acquired and sold since July 31, 2004, in the ordinary course of
business, Inventory and short-term investments) are listed in Section 4.14 of
the Seller Disclosure Schedule. Except for Permitted Encumbrances, all Assets
reflected in the Company Financial Statements are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, easements, Encumbrances,
reservations, or limitations of any nature. Except as set forth in Section 4.14
of the Seller Disclosure Schedule, all facilities, buildings, plants, and
structures owned by the Company or any Subsidiary lie wholly within the
boundaries of the real property owned by the Company or any Subsidiary and do
not encroach upon the property of, or otherwise conflict with the property
rights of, any other Person.
Section 4.15 Contracts and Commitments.
As of the date hereof, Section 4.15 of the Seller Disclosure Schedule
contains a complete and accurate list of all contracts (written or oral), plans,
undertakings, commitments or agreements or pending negotiations (including,
without limitation, intercompany contracts)
29
("Company Contracts") of the following categories to which the Company or any of
its Subsidiaries is a party or by which any of them is bound as of the date of
this Agreement:
(a) employment contracts, including, without limitation, contracts to
employ executive officers and other contracts with officers, directors or
stockholders of the Company, and all severance, change in control or similar
arrangements with any officers, employees or agents of the Company that will
result in any obligation (absolute or contingent) of the Company or any of its
Subsidiaries to make any payment to any officers, employees or agents of the
Company following the consummation of the Contemplated Transactions or
termination or change of terms and conditions of employment;
(b) collective bargaining agreements;
(c) Company Contracts for the purchase of inventory, supplies or
services which are not cancellable (without material penalty, cost or other
liability) within one year and, other than Company Contracts described elsewhere
in this Section 4.15, other Company Contracts involving annual expenditures or
liabilities in excess of $50,000 which are not cancellable (without material
penalty, cost or other liability) within 90 days;
(d) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments providing for the lending of money, whether as
borrower, lender or guarantor;
(e) Company Contracts containing covenants limiting the freedom of the
Company or any of its Subsidiaries to engage in any line of business or compete
with any Person or operate at any location;
(f) any Company Contract pending for the acquisition or disposition,
directly or indirectly (by merger or otherwise) of material Assets (other than
inventory) or capital stock of any Person (including, without limitation, the
Company or any of its Subsidiaries);
(g) other than Company Contracts described elsewhere in this Section
4.15 or Company Contracts which may be omitted pursuant to the specific size
limitations set forth in other provisions of this Section 4.15, Company
Contracts between the Company and any of its wholly owned Subsidiaries, on one
hand, and any affiliate of the Company which is not wholly owned, directly or
indirectly by the Company on the other hand;
(h) any lease (whether of real or personal property) providing for
annual rentals of $15,000 or more;
(i) any sales, distribution or other similar agreement providing for
the sale by the Company or any of its Subsidiaries of materials, supplies,
goods, services (including drilling services), equipment or other assets; and
(j) any partnership, joint venture or other similar agreement or
arrangement.
True and complete copies of the written Company Contracts identified in
Section 4.15 of the Seller Disclosure Schedule have been delivered or made
available to Buyer.
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Section 4.16 Absence of Breaches or Defaults.
Neither the Company nor any of its Subsidiaries is in default under, or in
breach or violation of (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default under, or a breach or
violation of) any term, condition or provision of its charter, bylaws or other
governing documents. Neither the Company nor any of its Subsidiaries is and, to
the knowledge of the Company, no other party is in default under, or in breach
or violation of (and no event has occurred which, with notice or the lapse of
time or both, would constitute a default under, or a breach or violation of),
any term, condition or provision of any Company Contract identified on Section
4.15 of the Seller Disclosure Schedule except for defaults, breaches, violations
or events which, individually or in the aggregate, would not have a Company
Material Adverse Effect; provided that any defaults, breaches, violations or,
events with respect to those Company Contracts referred to in Section 4.15(d)
shall be scheduled without regard to any Company Material Adverse Effect. Other
than contracts which have terminated or expired in accordance with their terms,
each of the Company Contracts identified on Section 4.15 of the Seller
Disclosure Schedule is valid, binding and enforceable in accordance with its
terms (subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles, whether considered on
a proceeding in equity or at law, and an implied covenant of good faith and fair
dealing) and is in full force and effect. To the knowledge of the Company, no
event has occurred which either entitles, or would, on notice or lapse of time
or both, entitle the holder of any indebtedness for borrowed money affecting the
Company or any of its Subsidiaries to accelerate, or which does accelerate, the
maturity of any indebtedness affecting the Company or any of its Subsidiaries,
except as set forth in Section 4.16 of the Seller Disclosure Schedule.
Section 4.17 Labor Matters.
(a) There are no organizations representing the employees of the
Company or any of its Subsidiaries. As of the date hereof, there is no strike or
work, stoppage, pending or, to the knowledge of the Company, threatened, which
involves any employees of the Company or any of its Subsidiaries.
(b) As of the date hereof, there are no (i) material unfair employment
or labor practice charges which are presently pending which, to the knowledge of
the Company, have been filed with any Governmental Authority by or on behalf of
any employee against the Company or any of its Subsidiaries or (ii) material
employment-related litigation, including, without limitation, arbitrations or
administrative proceedings which are presently pending, filed by or on behalf of
any former, current or prospective employee against the Company or any of its
Subsidiaries.
(c) There are not presently pending or, to the knowledge of the
Company, threatened, against the Company or any of its Subsidiaries any claims
by any Governmental Authority, labor organization, or any former, current or
prospective employee alleging that the Company or any such employer has violated
any applicable laws respecting employment practices, except where such claims
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
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Section 4.18 Affiliate Transactions.
Except as set forth in Section 4.18 of the Seller Disclosure Schedule, from
December 31, 2003, through the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings (and no such
arrangements are pending) between the Company or any of its Subsidiaries, on the
one hand, and affiliates of the Company or other Persons, on the other hand.
Section 4.19 Intellectual Property.
Schedule 4.19 of the Seller Disclosure Schedules contains a true and
complete list of each of the registrations and applications for registrations of
any Intellectual Property of the Company. Subject to obtaining required consents
under all license agreements pursuant to which the Company or its Subsidiaries
have obtained the right to use the Intellectual Property owned by third parties,
the Surviving Corporation, after giving effect to the Contemplated Transactions,
will own or have the valid, legal right to use all Intellectual Property used in
connection with its business as conducted by the Company and its Subsidiaries on
the date hereof. No trade secret, formula, process, invention, design, know-how
or other information considered material, confidential or proprietary to the
Company or any of its Subsidiaries has been disclosed or authorized to be
disclosed except in the ordinary course of business or pursuant to an obligation
of confidentiality binding on the recipient. The Company and its Subsidiaries
have used commercially reasonable measures to protect the confidentiality of the
material trade secrets used in connection with their businesses. To the
Company's knowledge, no material Intellectual Property used in connection with
its or its Subsidiaries' businesses has been improperly used, improperly
divulged or misappropriated by the Company or any other Person. As of the date
hereof, neither the Company nor any of its Subsidiaries has made in the past
three years any claim in writing which remains unresolved of a violation,
infringement, misuse or misappropriation by others of rights of the Company and
its Subsidiaries to or in connection with any material Intellectual Property
used in connection with their respective businesses. There is no pending or, to
the knowledge of the Company, threatened claim by any third person of a
violation, infringement, misuse or misappropriation by any of the Company or any
of its Subsidiaries of any Intellectual Property owned by any third person, or
of the invalidity of any patent used in connection with its business, that
would, individually or in the aggregate, have a Company Material Adverse Effect.
Section 4.20 Required Approvals.
(a) No vote of the board of directors of the Company or of holders of
Company Common Stock (or any holders of an equity interest in any Subsidiary of
the Company) is required to approve this Agreement or the Contemplated
Transactions.
(b) No state takeover statute or similar statue or regulation applies
or purports to apply to this Agreement or the Contemplated Transactions and no
provision of the Certificate of Incorporation, Bylaws or other similar
organizational documents of the Company or any of its Subsidiaries would,
directly or indirectly, restrict or impair the ability of Buyer to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of
capital stock of the
32
Company and its Subsidiaries that may be acquired or controlled by Buyer as
contemplated by this Agreement.
Section 4.21 Substantial Suppliers.
The Company has previously furnished Buyer with lists of the ten (10)
suppliers of the Company that were paid the greatest amount for products and
services supplied to the Company during the twelve-month period ending December
31, 2004, and the aggregate amount the Company paid to each such supplier during
such period and the product(s) or service(s) purchased from each supplier during
each such period. To the knowledge of the Seller, the consummation of the
Contemplated Transactions shall not cause any such supplier to cease to provide
products or services to the Company.
Section 4.22 Substantial Customers.
The Company has previously furnished Buyer with lists of the ten (10)
customers of the Company that paid the greatest amount for products and services
provided by the Company during the twelve-month period ending December 31, 2004,
and the aggregate amount each such customer paid to the Company during such
period and the product(s) or service(s) sold to each customer during each such
period. To the knowledge of the Seller, the consummation of the Contemplated
Transactions shall not cause any such customer to cease to purchase products or
services from the Company.
Section 4.23 Certain Payments.
To the knowledge of the Seller, Xxxxx Xxxxxxxx and Xxxxx Xxxxxxxxxx,
Drilling Superintendent of the Company, neither the Company nor any director,
officer, agent or employee of the Company or any Subsidiary, or any other Person
associated with or acting for or on behalf of the Company or any Subsidiary, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any
Subsidiary, or (iv) in violation of any legal requirement, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
Section 4.24 Rig Crews.
Each of the Company's drilling rigs is currently fully crewed. To the
knowledge of the Seller, the consummation of the Contemplated Transactions shall
not cause any of such rig crew members or any other employees of the Company to
terminate their employment relationship with the Company, assuming such
consummation does not result in an adverse effect on the salary, benefits or
working conditions of any employees of the Company.
33
Section 4.25 Disclosure.
No representation or warranty of the Seller in this Agreement or the Seller
Disclosure Schedule omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to Buyer as follows:
Section 5.1 Natural Person; Residence.
The Seller is a natural person and is a resident of Texas.
Section 5.2 Authorization; No Breach.
This Agreement constitutes a valid and legally binding obligation of the
Seller, enforceable in accordance with its terms. The execution and delivery by
the Seller of this Agreement and the fulfillment of and compliance with the
terms hereof do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any Encumbrances upon any capital stock or any asset
or property of the Seller pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of or (vi) require any exemption or other action by or notice or declaration to,
or filing with, or other consent from, any Governmental Authority pursuant to,
any material legal requirement to which the Seller or any of its assets or
properties is subject, or any material contract to which the Seller or any of
its assets or properties is subject.
Section 5.3 Investment Representation.
The Seller is acquiring the Reinvestment Securities pursuant to the
consummation of this Agreement solely for investment purposes and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws.
Section 5.4 Brokers.
Other than the agreement with RSM EquiCo Capital Markets LLC, whose fees
and expenses shall be paid in full by the Seller and not, for avoidance of
doubt, by the Company or Buyer, there are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the Contemplated
Transactions based on any contract binding upon the Seller. The Seller shall
pay, and hold the Company and Buyer harmless against, any liability (including
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim based on any contract binding upon the Seller. Seller has
delivered to Buyer a true and correct copy of the agreement with RSM EquiCo
Capital Markets LLC.
34
Section 5.5 Litigation.
There are no actions, suits, proceedings, orders, investigations, claims or
complaints pending, threatened against or affecting the Seller, which could
affect the Seller's performance hereunder or the consummation of the
Contemplated Transactions.
Section 5.6 Capital Stock and Related Matters.
The Seller is the record and beneficial owner of, and has good and
marketable title to, all of the Company Common Stock, free and clear of all
Encumbrances. At the Closing, the Seller shall transfer to Buyer good and
marketable title to such Company Common Stock, free and clear of all
Encumbrances. After giving effect to the Closing, the Seller will not have any
interest in any capital stock of the Company or any Subsidiary thereof. The
Seller does not have any rights, outstanding commitments, subscriptions,
warrants, options, conversion rights or agreements of any kind outstanding to
purchase or otherwise acquire any shares of capital stock of the Company or any
Subsidiary or securities or obligations of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of the Company or
any Subsidiary or any outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company or any Subsidiary.
There are no agreements with respect to the voting or transfer of capital stock
of the Company or any of its Subsidiaries or with respect to any other aspect of
their affairs and, after giving effect to the Closing, neither the Buyer, the
Company nor any Subsidiary will have any liability to the Seller, except
pursuant to the terms of this Agreement.
Section 5.7 Company Transactions.
Except pursuant to this Agreement and as set forth in Section 4.13 of the
Seller Disclosure Schedule, the Seller has no legal obligation, absolute or
contingent, to any other Person to sell any of the Assets of the Company or any
of its Subsidiaries, to sell any of the capital stock or other ownership
interests of the Company or any of its Subsidiaries or to effect any merger,
consolidation or other reorganization of the Company or any of its Subsidiaries
or to enter into any agreement with respect thereto. Since December 1, 2004, the
Seller has executed no confidentiality agreement with any Person in connection
with its consideration of acquiring all or a substantial part of the Assets or
capital stock of the Company or any of its Subsidiaries.
Section 5.8 Accredited Investor, etc.
(a) The Seller understands that the offering and sale of the
Reinvestment Securities hereby is intended to be exempt from registration under
the Securities Act and there is no existing public or other market for the
Reinvestment Securities and there can be no assurance that the Seller will be
able to sell or dispose of the Reinvestment Securities to be purchased by the
Seller.
(b) The Seller's financial situation is such that the Seller can
afford to bear the economic risk of holding the Reinvestment Securities acquired
hereunder for an indefinite period of time, the Seller has adequate means for
providing for the Seller's needs and contingencies and can afford to suffer the
complete loss of the investment in the Reinvestment Securities.
35
(c) The Seller's knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of the
investment in the Reinvestment Securities, or the Seller has been advised by a
representative possessing such knowledge and experience.
(d) The Seller understands that the Reinvestment Securities acquired
hereunder are a speculative investment which involves a high degree of risk of
loss of the entire investment therein, and that for an indefinite period
following the date hereof there will be no public market for the Reinvestment
Securities and that, accordingly, it may not be possible for the Seller to sell
the Reinvestment Securities in case of emergency or otherwise.
(e) The Seller and its representatives, including its professional,
financial, tax and other advisors, have carefully reviewed all documents
available to them in connection with the investment in the Reinvestment
Securities, and the Seller understands and has taken cognizance of all the risks
related to such investment.
(f) The Seller and its representatives have been given the opportunity
to examine all documents and to ask questions of, and to receive answers from,
Buyer and its representatives concerning the terms and conditions of the
acquisition of the Reinvestment Securities and related matters and to obtain all
additional information which the Seller or its representatives deem necessary.
(g) All information which the Seller has provided to Buyer and its
representatives concerning the Seller and the Seller's financial position is
true, complete and correct, and the Seller agrees to promptly notify Buyer if at
any time this ceases to be the case.
(h) The Seller is an "accredited investor" as such term is defined in
Regulation D under the Securities Act.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of the Company's Business Pending the Closing.
The Seller covenants and agrees that, during the period from the date
hereof to the Closing (except as otherwise contemplated by the terms of this
Agreement), unless Buyer shall otherwise agree in writing in advance, the
businesses of the Company and its Subsidiaries shall be conducted only in the
usual and ordinary course of business substantially the same manner as
heretofore conducted and in compliance with applicable laws, and the Seller
shall cause the Company and its Subsidiaries to use all commercially reasonable
efforts consistent with the foregoing to preserve substantially intact the
business organization of the Company and its Subsidiaries, to keep available the
services of the present officers and employees of the Company and its
Subsidiaries, to preserve the present relationships of the Company and its
Subsidiaries with customers, suppliers, distributors and other Persons with
which the Company or any of the Subsidiaries has significant business relations,
to maintain and keep its material Assets in good repair and condition (subject
to ordinary wear and tear), and to maintain supplies and inventories in
quantities consistent with past practice. By way of amplification and not
36
limitation, Seller shall ensure that neither the Company nor any of its
Subsidiaries will, except as set forth in Section 6.1 of the Seller Disclosure
Schedule and as otherwise contemplated by the terms of this Agreement, between
the date of this Agreement and the Closing, directly or indirectly do, or
propose or commit to do, any of the following without the prior written consent
of Buyer:
(a) except as required by law, make or commit to make any capital
expenditures (other than reimbursable expenditures which are collected from
third parties within 120 days of incurrence) in excess of $25,000, other
than (i) expenditures for routine maintenance and repair or (ii) unplanned
capital expenditures due to emergency conditions, unanticipated
catastrophic events or extreme weather;
(b) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person (other than the Company or a wholly owned
Subsidiary of the Company) or enter into any "keep well" or other agreement
to maintain the financial condition of another Person (other than the
Company or a wholly owned Subsidiary of the Company) or make any loans, or
advances of borrowed money or capital contributions to, or equity
investments in, any other Person (other than the Company or a wholly owned
Subsidiary of the Company) or issue or sell any debt securities;
(c) (i) amend its Certificate of Incorporation or Bylaws or the
charter or bylaws or organizational documents of any of its Subsidiaries;
(ii) split, combine or reclassify the outstanding shares of its capital
stock or declare, set aside or pay any dividend payable in cash, stock or
property or make any other distribution with respect to such shares of
capital stock or other ownership interests; (iii) except as set forth on
Section 6.1(c) of the Seller Disclosure Schedule, redeem, purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
or other ownership interests; or (iv) sell or pledge any stock of any of
its Subsidiaries;
(d) (i) issue or sell or agree to issue or sell any additional shares
of, or grant, confer or award any options, warrants or rights of any kind
to acquire any shares of, its capital stock of any class; (ii) enter into
any agreement, contract or commitment out of the ordinary course of its
business, to dispose of or acquire, or relating to the disposition or
acquisition of, a segment of its business; (iii) except in the ordinary
course of business consistent with past practice, sell, pledge, dispose of
or encumber any material amount of Assets (including without limitation,
any indebtedness owed to them or any claims held by them); or (iv) acquire
(by merger, consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division thereof
or acquire any material amount of assets (other than in the ordinary course
of business consistent with past practice) or make any material investment,
either by purchase of stock or other securities, or contribution to
capital, in any case, in any other Person (other than a Subsidiary of the
Company as of the date hereof);
(e) except as required by law, grant any severance or termination pay
or increase the benefits payable under its severance or termination pay
policies or agreements in effect on the date hereof or enter into any
employment (other than "at will") or severance agreement with any officer,
director or employee;
37
(f) except as set forth on Section 6.1(f) of the Seller Disclosure
Schedule or as required by law, adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or employee
or increase in any manner the compensation or fringe benefits of any
director, officer or, except in the ordinary course of business consistent
with past practice, employee, or grant, confer, award or pay any forms of
cash incentive bonuses or other benefit not required by any existing plan,
arrangement or agreement;
(g) enter into any collective bargaining agreement;
(h) make any material change in its tax or accounting policies or any
material reclassification of Assets or liabilities except as required by
law, rule or regulation or GAAP;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except the payment, discharge or satisfaction of (i)
liabilities or obligations in the ordinary course of business consistent
with past practice or in accordance with the terms thereof as in effect on
the date hereof or (ii) claims settled or compromised to the extent
permitted by Section 6.1(j), or waive, release, grant or transfer any
rights of material value or modify or change in any material respect any
existing Company Contract, in each case other than in the ordinary course
of business consistent with past practice;
(j) settle or compromise any litigation, other than for amounts not in
excess of amounts reserved for in the most recent Company Financial
Statements, provided such settlement documents do not involve any
non-monetary obligations on the part of the Company and its Subsidiaries;
(k) consummate (i) any acquisition other than the acquisition of the
SPA Assets or disposition pursuant to any Company Contract disclosed
pursuant to Section 4.15 other than in accordance with the terms so
disclosed (including without waiver of any condition to the Company's
obligations to consummate such acquisition), excluding insignificant
deviations from such terms, or (ii) the acquisition of the SPA Assets; and
(l) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 6.1(a) through 6.1(k)
or any action which would or is reasonably likely to result in (i) a
material breach of any provision of this Agreement, (ii) any of the
representations and warranties of the Seller set forth in this Agreement
becoming untrue or (iii) any of the conditions set forth in Article VIII
not being satisfied.
Section 6.2 Conduct of Buyer's Business Pending the Closing.
Except as set forth in Section 6.2 of the Buyer Disclosure Schedule, Buyer
covenants and agrees that, during the period from the date hereof to the Closing
(except as otherwise contemplated by the terms of this Agreement), unless the
Seller shall otherwise agree in writing in advance, the businesses of Buyer and
its Subsidiaries shall be conducted only in the ordinary course of business in
substantially the same manner as heretofore conducted and in compliance
38
with applicable laws, and Buyer and its Subsidiaries shall each use all
commercially reasonable efforts consistent with the foregoing to preserve
substantially intact the business organization of Buyer and its Subsidiaries, to
keep available the services of the present officers and employees of Buyer and
its Subsidiaries (subject to prudent management of workforce needs and ongoing
programs currently in force), to preserve the present relationships of Buyer and
its Subsidiaries with customers, suppliers, distributors and other Persons with
which Buyer or any of the Subsidiaries has significant business relations, to
maintain and keep its material assets in good repair and condition (subject to
ordinary wear and tear), and to maintain supplies and inventories in quantities
consistent with past practice. By way of amplification and not limitation,
neither Buyer nor any of its Subsidiaries shall, except as set forth in Section
6.2 of the Buyer Disclosure Schedule and as otherwise contemplated by the terms
of this Agreement, between the date of this Agreement and the Closing, directly
or indirectly do, or propose or commit to do, any of the following without the
prior written consent of the Company or except as contemplated herein:
(a) (i) amend its Articles of Incorporation or Bylaws or the charter
or bylaws of any of its Subsidiaries; (ii) split, combine or reclassify the
outstanding shares of its capital stock or declare, set aside or pay any
dividend payable in cash; (ii) split, combine or reclassify the outstanding
shares of its capital stock or declare, set aside or pay any dividend
payable in cash, stock or property or make any other distribution with
respect to such shares of capital stock or other ownership interests; (iii)
redeem, purchase or otherwise acquire, directly or indirectly, any shares
of its capital stock or other ownership interests; or (iv) sell or pledge
any stock of any of its Subsidiaries; and
(b) take any action which would or is reasonably likely to result in:
(i) a material breach of any provision of this Agreement, (ii) any of the
representations and warranties of Buyer set forth in this Agreement
becoming untrue in any material respect, or (iii) any of the conditions set
forth in Article VIII not being satisfied.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which the Company or Buyer or any of their
respective Subsidiaries is a party or pursuant to applicable law or the
regulations or requirements of any stock exchange or other regulatory
organization with whose rules the parties are required to comply, from the date
of this Agreement to the Closing, the Seller shall, and shall cause the Company
and its Subsidiaries to, and Buyer shall, and shall cause its Subsidiaries to,
furnish promptly such information concerning, and provide reasonable access
during normal business hours with respect to, the business, properties,
contracts, assets, liabilities, personnel and other aspects of such party and
its Subsidiaries as the other party or its representatives may reasonably
request. Each party shall use reasonable efforts to accommodate the other
party's request for information or access in the event the first party is
subject to a confidentiality agreement. No investigation conducted pursuant to
this Section 7.1 shall affect or be deemed to modify any representation or
warranty made in this Agreement. On and after the Closing,
39
Seller shall cooperate with Buyer in, and at Buyer's expense use reasonable
commercial efforts to make available to Buyer any employees or consultants
necessary or useful to, the preparation of historical audited financial
statements relating to the Company and at Buyer's expense shall use reasonable
commercial efforts to cause such employees or consultants to deliver to the
Buyer's auditors all certifications, attestations and representations deemed
necessary or useful for the completion of such historical audits.
(b) The parties shall comply with, and shall cause their respective
representatives to comply with, all of their respective obligations under the
confidentiality agreement dated January 15, 2004 (the "Confidentiality
Agreement") between the Company and Buyer with respect to the information
disclosed pursuant to this Section 7.1.
Section 7.2 Notification of Certain Matters.
The Seller shall give prompt notice to Buyer, and Buyer shall give prompt
notice to the Seller, of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be reasonably likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate and (ii) any failure of the Seller or Buyer, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder, provided, however, that the delivery of any notice
pursuant to this Section 7.2 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 7.3 Further Action.
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all commercially reasonable efforts to take, or cause to be
taken, all appropriate 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 Contemplated Transactions and the Financing,
including, without limitation: (i) using all commercially reasonable efforts to
make all required regulatory filings and applications, whether made before or
after Closing, and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and its Subsidiaries as are necessary for
the consummation of the Contemplated Transactions and to fulfill the conditions
to the Closing, including, without limitation, the Company Required Statutory
Approvals and the Buyer Required Statutory Approvals, (ii) cooperating in all
respects with each other in connection with any investigation or other inquiry,
including any proceeding initiated by a private party, in connection with the
transactions pursuant hereto, (iii) keeping the other party informed in all
material respects of any material communication received by such party from, or
given by such party to, any Governmental Authority and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the Contemplated Transactions, (iv)
permitting the other party to review any communication given by it to, and
consult with each other in advance of any meeting or conference with, any
Governmental Authority or, in connection with any proceeding by a private party,
with any other Person, in each case regarding any of the Contemplated
Transactions, and (v) cooperating with and complying with any reasonable request
of the Lender in connection with the Financing. From and after the Closing, the
Seller will provide Buyer with all computer passwords and codes
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and any similar information necessary to effectively access all of the Company's
assets and records.
Section 7.4 Public Announcements.
Subject to each party's disclosure obligations imposed by applicable law,
Buyer and the Seller shall cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement or any of the Contemplated Transactions and shall not
issue any public announcement or statement without the prior consent of the
other party.
Section 7.5 Takeover Statutes.
If any "interested stockholder," "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the Contemplated Transactions, the Seller shall cause the Company
and the members of its Board of Directors to grant such approvals and take such
other actions as may be necessary to make Buyer and its Subsidiaries exempt
under or otherwise not subject to such statutes.
Section 7.6 Employment Agreement.
Buyer and the Seller shall execute and deliver an employment agreement
substantially in the form attached as Exhibit B hereto (the "Employment
Agreement"), such agreement to be effective as of the Closing.
Section 7.7 Registration Rights Agreement.
Buyer and the Seller shall execute and deliver a registration rights
agreement substantially in the form attached as Exhibit C hereto (the
"Registration Rights Agreement"), such agreement to be effective as of the
Closing.
Section 7.8 Post-Closing Sales.
(a) If, within the nine months after the Closing, Buyer issues any shares
of its common stock for a price per share less than $18.00 per share or any
securities convertible into shares of common stock at a conversion price of less
than $18.00 per share (other than pursuant to options or warrants outstanding as
of the date hereof, or any warrants issued by Buyer after the date hereof in
connection with bona fide debt financings in an aggregate amount not to exceed
0.5% of the outstanding shares of Buyer Common Stock at the time of issuance),
then at the expiration of such period Buyer shall issue a number of additional
shares of its common stock to Seller, for no additional consideration, equal to
(i) the quotient of 1,999,998 divided by the New Price minus (ii) 111,111. All
shares of Buyer common stock issued pursuant to this Section 7.8(a) shall be
subject to the Registration Rights Agreement.
(b) The Buyer shall not, either in one transaction or in a series of
related transactions, dispose of all or substantially all of the stock or assets
of the Company or any successor thereto to any bona fide third party for value
(whether by merger, sale of stock, sale of assets or otherwise) (a
"Disposition") at any time during the period commencing on the Closing Date and
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ending on the first anniversary thereof without previously delivering a written
notice to the Seller stating the terms (including price and amount) on which it
would be willing to consummate a Disposition (an "Offer Notice"). The Seller may
deliver a written response to the Buyer within 30 days after its receipt of the
Offer Notice indicating its election to consummate a Disposition on the terms
referenced in the Offer Notice (an "Acceptance"). If the Seller does not deliver
an Acceptance within such period, or if the Buyer and the Seller fail to
consummate a Disposition within 90 days after the delivery of any such
Acceptance by the Seller, then the Buyer shall be entitled to consummate a
Disposition with a bona fide third party on terms no less favorable, in the
aggregate, than those set forth in the Offer Notice. Buyer agrees that it shall
not enter into any agreement with any third party that would frustrate the
ability of the Seller to exercise its rights pursuant to this Section 7.8(b).
This Section 7.8(b) shall not apply to a sale or other disposition of the Buyer
or its business as a whole.
Section 7.9 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) 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 based on or measured by income or receipts of the Company for the tax
period ending on the Closing Date (the "Pre-Closing Tax Period") shall be
determined based on an interim closing of the books as of the close of business
on the Closing Date (and for such purpose, the taxable period of any partnership
or other pass-through entity in which the Company holds a beneficial interest
shall be deemed to terminate at such time) and the amount of other Taxes of the
Company for a Straddle Period that relates to the Pre-Closing Tax Period shall
be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period
ending on the Closing Date and the denominator of which is the number of days in
such Straddle Period.
(b) Responsibility for Filing Tax Returns. Buyer shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for the
Company that are filed after the Closing Date, including the Federal and state
income Tax Returns for the taxable year of the Company ended December 31, 2004.
In this regard, Buyer and the Company agree that either may file an extension of
the time to file such Tax Returns. Buyer shall permit Seller to review and
comment on each such Tax Return described in the preceding sentence prior to
filing. Buyer shall make no changes in the methods of accounting for Taxes or in
any Tax reporting positions used before the Closing by the Company for any Tax
Return that covers any period of time before or including the Closing Date,
unless such change is required by law.
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(c) Cooperation on Tax Matters.
(i) Buyer, the Company, and Seller shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns pursuant to this Section 7.9 and any
audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information that are reasonably
relevant to any such 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. The Company and Seller agree (A) to retain all books and
records with respect to Tax matters pertinent to the Company relating
to 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 requests, the
Company or Seller, as the case may be, shall allow the other party to
take possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions
contemplated hereby).
(iii) Buyer and Seller further agree, upon request, to provide
the other party with all information that either party may be required
to report pursuant to Code Section 6043 and all Treasury Regulations
promulgated thereunder.
Certain Taxes and Fees. 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 consummation of the transactions contemplated by this Agreement
shall, except to the extent such transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges relate to the issuance or delivery of the
Reinvestment Securities in which case such costs shall be borne by Buyer, be
paid by the Seller when due, and the Seller will, at the Seller's own expense,
file all necessary Tax Returns and other documentation with respect to all such
Taxes, fees and charges, and, if required by applicable law, Buyer will, and
will cause its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
Section 7.10 Payment of Company Debt.
At the Closing, Buyer shall cause the Company to repay in full the
indebtedness of the Company identified in paragraph (d) of Schedule 4.15 of the
Seller Disclosure Schedule.
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ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to the Obligations of Each Party.
The obligations of the Seller, on the one hand, and Buyer, on the other
hand, to effect the Contemplated Transactions and to consummate the Closing are
subject to the satisfaction or, if permitted by applicable law, waiver of the
following conditions:
(a) No Injunction. No court of competent jurisdiction shall have
issued or entered any order which is then in effect and has the effect of making
any of the Contemplated Transactions illegal, or otherwise prohibiting their
consummation.
(b) Consents and Approvals. All necessary consents, authorizations,
orders, permits and approvals of (or registrations, declarations or filings
with) any Governmental Authorities in connection with the execution, delivery
and performance of this Agreement shall have been obtained and made.
Section 8.2 Conditions to the Obligations of Buyer.
The obligations of Buyer to effect the Contemplated Transactions and to
consummate the Closing are subject to the satisfaction or, if permitted by
applicable law, waiver of the following further conditions:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in this Agreement shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except where any such failure
or failures to be so true and correct (without regard to any materiality or
knowledge qualifiers contained therein), in the aggregate, would not have, or
would not reasonably be expected to have, a Company Material Adverse Effect. If
the Closing does not occur on the date hereof, Buyer shall have received a
certificate of the Seller to such effect.
(b) Covenants. The Seller shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by them on or prior to the Closing Date, and,
if the Closing does not occur on the date hereof, Buyer shall have received a
certificate of the Seller to that effect.
(c) Company Material Adverse Effect. No Company Material Adverse
Effect shall have occurred.
(d) Required Consents. The Company Required Consents and the Company
Required Statutory Approvals shall have been obtained at or prior to the
Closing.
(e) Employment Agreement. The Seller shall have executed the
Employment Agreement and delivered it to Buyer.
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(f) Seller's Release. The Seller shall have executed the Seller's
Release and delivered it to Buyer.
(g) Resignations. All of the Company's officers and directors shall
have submitted their resignations from their respective offices, effective as of
the Closing.
(h) Legal Opinion. Buyer shall have received a written opinion of
Xxxxxx & Xxxxxxx, LLP, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit D.
Section 8.3 Conditions to All Obligations of the Seller.
The obligations of the Seller to effect the Contemplated Transactions and
to consummate the Closing are subject to the satisfaction or, if permitted by
applicable law, waiver of the following further conditions:
(a) Representations and Warranties. The representations and warranties
of Buyer set forth in Sections 3.1, 3.4, 3.11, 3.13, 3.14 and 3.21 shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date, except where any such failure or failures to be so true and
correct (without regard to any materiality or knowledge qualifiers contained
therein), in the aggregate, would not have, or would not reasonably be expected
to have, a Buyer Material Adverse Effect. If the Closing does not occur on the
date hereof, the Seller shall have received a certificate of the President of
Buyer to such effect.
(b) Covenants. Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and, if the
Closing does not occur on the date hereof, the Seller shall have received a
certificate of the President of Buyer to that effect.
(c) Required Consents. The Buyer Required Statutory Approvals shall
have been obtained at or prior to the Closing.
(d) Employment Agreement. Buyer shall have executed the Employment
Agreement and delivered it to Xxxxxxx Xxxxxxxx.
(e) Legal Opinion. The Seller shall have received a written opinion of
Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit E.
(f) Registration Rights Agreement. Buyer shall have executed the
Registration Rights Agreement and delivered it to the Seller.
Section 8.4 Conditions to Obligations to Purchase Reinvestment Securities.
The obligations of the Seller to purchase the Reinvestment Securities
pursuant to Section 1.2 are subject to the satisfaction or, if permitted by
applicable law, waiver of the following further conditions:
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(a) Representations and Warranties. The representations and warranties
of Buyer set forth in this Agreement shall be true and correct in all respects
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date, except where
any such failure or failures to be so true and correct (without regard to any
materiality or knowledge qualifiers contained therein), in the aggregate, would
not have, or would not reasonably be expected to have, a Buyer Material Adverse
Effect. The Seller shall have received a certificate of the President of Buyer
to such effect.
(b) Buyer Material Adverse Effect. No Buyer Material Adverse Effect
shall have occurred.
ARTICLE IX
TERMINATION
Section 9.1 Termination.
Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and the Contemplated Transactions may be abandoned
at any time prior to the Closing:
(a) By the mutual consent of Buyer and the Seller.
(b) By either the Seller or Buyer:
(i) if the Closing does not take place on or before April 20,
2005 or such later date as Buyer and the Seller may mutually agree;
provided, however, that the right to terminate this Agreement under
this Section 9.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to have
taken place on or before such date; or
(ii) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their reasonable
efforts to lift), in each case, permanently restraining, enjoining or
otherwise prohibiting the Contemplated Transactions and such order,
decree, ruling or other action shall have become final and
non-appealable.
(c) By the Seller if, prior to the Closing, Buyer breaches or fails in
any material respect to perform or comply with any of its material covenants and
agreements contained herein or if any of its representations and warranties
fails to be true and correct in any respect, which breach cannot be or has not
been cured within 30 days after the giving of written notice by the Company to
Buyer and which breach of a covenant, representation or warranty would
reasonably be expected to result in a Buyer Material Adverse Effect; provided
that the Seller may not terminate this Agreement pursuant to this Section 9.1(c)
if the Seller is in material breach of this Agreement;
46
(d) By Buyer if, prior to the Closing, the Seller breaches or fails in
any material respect to perform or comply with any of their material covenants
or agreements contained herein or if any of their representations and warranties
fail to be true and correct in any respect, which breach cannot be or has not
been cured within 30 days after the giving of written notice by Buyer to the
Seller and which breach of a covenant, representation or warranty would
reasonably be expected to result in a Company Material Adverse Effect; provided
that Buyer may not terminate this Agreement pursuant to this Section. 9.1(d) if
Buyer is in material breach of this Agreement.
Section 9.2 Effect of Termination.
In the event of the termination of this Agreement as provided in Section
9.l hereof, written notice thereof shall forthwith be given to the other party
or parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall forthwith become null and void, except as set
forth in Article X, and there shall be no liability on the part of the Buyer or
the Seller except (a) for fraud and (b) as set forth in Article X. Nothing
contained in this Section 9.2 shall relieve any party from liability for any
breach of this Agreement.
Section 9.3 Fees and Expenses.
Except as contemplated by this Agreement, all costs and expenses incurred
in connection with this Agreement and the consummation of the Contemplated
Transactions shall be paid by the party incurring such expenses, except that
Buyer shall pay those out of pocket costs of the Company or the Seller which
were incurred at the request of the Buyer to facilitate the due diligence effort
or the financing of the purchase by the Buyer, including but not limited to any
expenses or charges of Ernst & Young to review or audit the financial records of
the Company. The Seller agrees to pay any amounts due under the agreement with
RSM EquiCo Capital Markets LLC at the Closing, and to provide Buyer with
evidence of such payment.
ARTICLE X
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 10.1 Survival of Representations, Warranties, Covenants and
Agreements.
The representations and warranties, covenants and agreements contained in
this Agreement shall survive the Closing as follows:
(a) the representations and warranties in Sections 3.8 and 4.8 (Tax
Matters), Sections 3.9 and 4.9 (Employee Matters; ERISA), Sections 3.10 and 4.10
(Environmental Protection) and Sections 3.20 and 4.19 (Intellectual Property)
shall terminate when the applicable statutes of limitations with respect to the
liabilities in question expire (after giving effect to any extensions or waivers
thereof), plus sixty (60) days;
(b) the representations and warranties in Sections 3.3 and 4.3
(Capitalization), Sections 3.4(a) and 4.4(a) (Authority), Article V and the
covenants and agreements set forth in this Agreement shall not terminate; and
47
(c) all other representations and warranties in this Agreement or in
any certificate delivered by any Party hereto to another party in connection
with this Agreement shall terminate two years after the Closing Date;
provided that any representation or warranty in respect of which indemnity may
be sought under Section 10.2, and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this Section
10.1 if notice of the inaccuracy or breach or potential inaccuracy or breach
thereof giving rise to such right or potential right of indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time. Notwithstanding anything in this Section 10.1 to the contrary, in the
event of any breach of a representation or warranty by a party that constitutes
actual fraud, the representation or warranty shall survive consummation of the
transactions contemplated in this Agreement and continue in full force and
effect without any time limitation. The covenants and agreements of the parties
hereto contained in this Agreement or in any certificate or other writing
pursuant hereto or in connection herewith shall survive the Closing indefinitely
or for the shorter period explicitly specified therein, except that for such
covenants and agreements that survive for such shorter period, breaches thereof
shall survive indefinitely or until the latest date permitted by law. The
representations, warranties, covenants and agreements made herein, including the
indemnification provisions herein, are intended among other things to allocate
the economic cost and the risks inherent in the Contemplated Transactions
between the parties and, accordingly, a party shall be entitled to the
indemnification or other remedies provided in this Agreement by reason of any
breach of any such representation, warranty, covenant or agreement by another
party notwithstanding any investigation, inquiry or examination made for or on
behalf of any party, or the knowledge of any party's officers, directors,
shareholders, employees or agents or the acceptance by any party of any
certificate or opinion hereunder.
Section 10.2 Reimbursement and Indemnification.
(a) Article V Indemnification by the Seller. The Seller shall
indemnify each of Buyer and its affiliates (including, after Closing, the
Company and its Subsidiaries), and its and their shareholders (other than the
Seller), partners, officers, directors, employees, agents, representatives,
successors and permitted assigns (collectively, the "Buyer Parties") and save
and hold each of them harmless against and pay on behalf of or reimburse such
Buyer Parties as and when incurred for any loss (including diminution in value),
demand, claim, complaint, action, cause of action, cost, damage, deficiency,
tax, penalty, fine, expense or other liability whether or not arising out of
third party claims (including interest, penalties, reasonable attorneys' fees
and expenses and all amounts paid in investigation, defense or settlement of any
of the foregoing) (collectively, "Losses"), which any such Buyer Party may
suffer, sustain or become subject to, as a result of: (i) any breach of any
representation or warranty of the Seller in Article V of this Agreement or in
any of the certificates furnished by the Seller pursuant to Article V of this
Agreement, or (ii) any nonfulfillment or breach of any covenant, agreement or
other provision by the Seller under this Agreement. If and to the extent any
provision of this Section 10.2 is unenforceable for any reason, the Seller
hereby agrees to make the maximum contribution to the payment and satisfaction
of any Loss for which indemnification is provided for in this Section 10.2 which
is permissible under applicable law.
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(b) Article IV Indemnification by the Seller. The Seller shall
indemnify each of the Buyer Parties and save and hold each of them harmless
against and pay on behalf of or reimburse such Buyer Parties as and when
incurred for any Losses which any such Buyer Party may directly or indirectly
suffer, sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of (i) any breach of any covenant of the
Seller contained herein, (ii) any representation or warranty of the Seller
contained in Article IV of this Agreement, or in any of the certificates
furnished by the Seller pursuant to Article IV of this Agreement, or (iii) any
matter identified in Section 4.9(d) of the Seller Disclosure Schedule; provided
that, with respect to claims for indemnification under this Section 10.2(b)
relating to a breach of any representation or warranty described in Section
10.1(c) or any matter identified in Section 4.9(d) of the Seller Disclosure
Schedule, (i) no indemnification will be required with respect to any individual
claim unless the amount of Losses with respect thereto exceeds twenty-five
thousand dollars ($25,000), (ii) if the total amount of all claims by Buyer
Parties against the Seller under this Article X does not exceed two hundred
thousand dollars ($200,000), then the Seller shall have no obligation under this
Article X with respect to any such claim, (iii) if the total amount of all
claims by Buyer Parties exceeds two hundred thousand dollars ($200,000), then
the Seller's obligations under this Article X shall be limited to the amount by
which the aggregate amount of all Buyer Parties' claims exceeds that amount, and
(iii) the aggregate amount of all payments made by the Seller in satisfaction of
claims shall not exceed ten million dollars ($10,000,000).
(c) Indemnification by Buyer. Buyer shall, with respect to the
representations, warranties, covenants and agreements made by Buyer, indemnify
the Seller and hold them harmless against any Losses which the Seller may
suffer, sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of: (a) any breach of any representation
or warranty of Buyer contained in this Agreement, or in any of the certificates
furnished by Buyer pursuant to this Agreement; or (b) any nonfulfillment or
breach of any covenant, agreement or other provision by Buyer contained in this
Agreement; provided that with respect to any individual claim for
indemnification under this Section 10.2(c) relating to a breach of any
representation or warranty described in Section 10.1(c), (i) no such breach
shall be deemed to have occurred unless the amount of Losses with respect
thereto exceeds twenty-five thousand dollars ($25,000) and (ii) the aggregate
amount of all payments made the Seller in satisfaction of claims shall not
exceed one million dollars ($1,000,000).
(d) Determination of Losses. Notwithstanding anything to the contrary
contained this Agreement, for purposes of determining whether there has been a
breach and the amount of any Losses that are the subject matter of a claim for
indemnification hereunder, each representation, warranty and other provision
contained in this Agreement and each certificate delivered pursuant hereto shall
be read without regard and without giving effect to any materiality or Material
Adverse Effect standard or qualification contained in such representation or
warranty which has the effect of making such representation and warranty less
restrictive (as if such standard or qualification were deleted from such
representation and warranty). The indemnifying party shall pay the indemnified
party in immediately available funds for any Losses on as-incurred basis
promptly after the indemnified party provides the indemnifying party with
written notice of a claim hereunder, unless the amount of or responsibility for
such Losses is contested by the indemnifying party (or the indemnifying party
has otherwise assumed defense of the claim pursuant to Section 10.2(e)). Any
such indemnification payments shall
49
include interest at the rate of 8% per annum (subject to any applicable legal
limits) from the date any such Loss is suffered or sustained to the date such
payment is due pursuant to this Article X and interest at a rate of 12% per
annum (subject to any applicable legal limits) thereafter until indemnification
payments with respect to such Losses are fully paid. Interest on any such unpaid
amount shall be compounded semi-annually, computed on the basis of a 360-day
year.
(e) Defense of Third Party Claims. Any Person making a claim for
indemnification under this Section 10.2 (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder, except to the extent that the Indemnitor is materially
prejudiced by such failure. Any Indemnitor shall be entitled to participate in
the defense of such action, lawsuit, proceeding, investigation or other claim
giving rise to an Indemnitee's claim for indemnification at such Indemnitor's
expense, and at its option (subject to the limitations set forth below) shall be
entitled to assume the defense thereof by appointing a reputable counsel
reasonably acceptable to the Indemnitee to be the lead counsel in connection
with such defense; provided that, prior to the Indemnitor assuming control of
such defense it shall first (x) verify to the Indemnitee in writing that such
Indemnitor shall be fully responsible (with no reservation of any rights) for
all Losses relating to such claim for indemnification and that it shall provide
full indemnification (whether or not otherwise required hereunder) to the
Indemnitee with respect to such action, lawsuit, proceeding, investigation or
other claim giving rise to such claim for indemnification hereunder (y)
unconditionally guarantee the payment and performance of any liability which may
arise with respect to such claim or the circumstances giving rise to such claim
for indemnification (with no reservation of rights), and (z) furnish the
Indemnitee with reasonable evidence that the Indemnitor is and will be able to
satisfy any such liability; and provided further, that:
(i) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any fees and expenses of
such separate counsel that are incurred prior to the date the
Indemnitor effectively assumes control of such defense which,
notwithstanding the foregoing, shall be borne by the Indemnitor);
(ii) the Indemnitor shall not be entitled to assume control of
such defense and shall pay the out-of-pocket costs and expenses
incurred by the Indemnitee (including counsel retained by the
Indemnitee) on an as and when incurred basis if (A) the claim for
indemnification relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation; (B) the
Indemnitee reasonably believes an adverse determination with respect
to the action, lawsuit, investigation, proceeding or other claim
giving rise to such claim for indemnification would be detrimental to
or injure the Indemnitee's reputation or future business prospects
(including matters relating to independent contractor issues); (C) the
claim seeks an injunction or equitable relief against the Indemnitee;
(D) the claim involves environmental, in which case
50
the Indemnitee shall have sole control and management authority over
the resolution of such claim, including hiring legal counsel and
consultants, conducting investigations and environmental cleanups,
negotiating with governmental agencies and third parties and defending
or settling claims and actions; (E) the Indemnitee has been advised in
writing by counsel that a reasonable likelihood exists of a conflict
of interest between the Indemnitor and the Indemnitee; or (F) upon
petition by the Indemnitee, the appropriate court rules that the
Indemnitor failed or is failing to vigorously prosecute or defend such
claim; provided that, in each case, the Indemnitee shall keep the
Indemnitor reasonably apprised of any major developments relating to
any such claim; and
(iii) If the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim, except to
the extent that such a settlement involves only the payment of money
damages and fully releases the Indemnitee, and the Indemnitor shall
provide reasonable prior written notice if it intends to cease to
defend a claim, and if the Indemnitee shall control the defense of any
such claim, the Indemnitee shall obtain the prior written consent of
the Indemnitor (not to be unreasonably withheld) before entering into
any settlement of a claim or ceasing to defend such claim, if as a
result of such action by the Indemnitee, the Indemnitee claims or
expects to claim indemnification from the Indemnitor.
(f) Certain Waivers and Consents. The Seller hereby agrees that the
Seller shall not and the Seller hereby agrees to cause each of its related
persons to agree to not, make any claim for indemnification hereunder against
the Company or any Subsidiary by reason of the fact that the Seller or related
person is or was a shareholder, director, officer, employee or agent of the
Company or any Subsidiary or is or was serving at the request of the Company or
any Subsidiary as a partner, trustee, director, officer, employee or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise) with respect
to any Losses brought by any of the Buyer Parties against the Seller pursuant to
this Agreement and the Seller hereby acknowledges and agrees and shall cause
each of its related persons to acknowledge and agree that the Seller or related
person shall have no claims or right to contribution or indemnity from the
Company or any Subsidiary with respect to any amounts paid by the Seller
pursuant to this Section 10.2.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Amendment.
This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
Section 11.2 Extension; Waiver.
At any time prior to the Closing, either party hereto may (a) extend the
time for the performance of any of the obligations or other acts of the other
party hereto, (b) waive any
51
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
Section 11.3 Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (which is confirmed)
or sent by overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to the Seller, to:
Xxxxxxx Xxxxxxxx
0000 Xxxxxxx Xxxx Xxxxx
Xxx. 00000
Xxxxxxxxxxx, Xxxxx 00000
Fax:
with a copy to:
Xxxxxx & Xxxxxxx, LLP
000 Xxxxx xx Xxxxxxx, Xxxxx X
Xxxxx Xx, Xxx Xxxxxx 00000
Attn: Xxxx Rather, Esq.
Fax: (000) 000-0000
and if to Buyer; to:
Union Drilling, Inc.
South Pittsburgh Technology Park
0000 Xxxxxxxxxx Xxxx
Xxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxxxxxxxxx Xxxxxx, President and CEO
Fax: (000) 000-0000
and a copy to:
Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
52
Section 11.4 Certain Definitions.
"affiliate" shall mean, with respect to any Person, any other Person that
directly, or through one or more intermediaries, controls or is controlled by or
is under common control with such Person.
"Assets" shall mean, with respect to any Person, all properties, land,
buildings, improvements, leasehold improvements, Fixtures and Equipment and
other assets, real or personal, tangible or intangible, owned, leased or
licensed by such Person or any of its Subsidiaries.
"Buyer Material Adverse Effect" shall mean a change in or effect on the
business, operations, assets, financial condition or results of operations of
Buyer and its Subsidiaries, taken as a whole, that results in a diminution in
their value of $7 million or more or any change that materially impairs or
materially delays the ability of Buyer to consummate the Contemplated
Transactions.
"Closing Working Capital" shall mean the Company's current assets less its
current liabilities (other than Debt and any Prepayment Penalties) as of the
Closing Date, as determined in accordance with GAAP; plus all reasonable costs,
fees and expenses of lawyers or accountants incurred by the Company in
connection with the SPA Asset Purchase Agreement to the extent paid by the
Company prior to Closing or accrued as a liability in the final determination of
the Closing Working Capital. The parties hereby agree that current liabilities
shall include, to the extent incurred but not paid by the Seller prior to
Closing, all legal, accounting, banking and other advisor fees, costs and
expenses incurred by the Company and any Subsidiary in connection with this
Agreement.
"Company Material Adverse Effect" shall mean a change in or effect on the
business, operations, assets, financial condition or results of operations of
the Company and its Subsidiaries, taken as a whole, that results in a diminution
in their value of $2 million or more or any change that materially impairs or
materially delays the ability, of the Company to consummate the Contemplated
Transactions.
"Contemplated Transactions" shall mean all of the transactions contemplated
by this Agreement, including, without limitation, the sale of the Shares by the
Seller to Buyer; the issuance and sale of the Reinvestment Securities to the
Seller; the execution, delivery and performance of the Employment Agreement, and
the performance by the parties hereto of their respective covenants, agreements
and obligations hereunder and thereunder.
"Debt" shall mean, as to any Person at a particular time, without
duplication, all of the following, whether or not included as indebtedness or
liabilities in accordance with GAAP: (i) all obligations of such Person for
borrowed money and all obligations of such Person evidenced by bonds,
debentures, notes, loan agreements or other similar instruments; (ii) all direct
or contingent obligations of such Person arising under letters of credit
(including standby and commercial), bankers' acceptances, bank guaranties,
surety bonds and similar instruments; (iii) all obligations of such Person to
pay the deferred purchase price of property or services (other than trade
accounts payable in the ordinary course of business); (iv) indebtedness
(excluding prepaid interest thereon) secured by an Encumbrance on property owned
or being purchased by
53
such Person (including indebtedness arising under conditional sales or other
title retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; (v) all capital, synthetic,
off-balance sheet or tax retention or any similar lease arrangements; and (vi)
all guarantees of such Person in respect of any of the foregoing.
"Financing" shall mean the credit arrangement contemplated and governed by
the Revolving Credit and Security Agreement to be dated as of the Closing Date
by and between Buyer and the Company (as Borrowers) and PNC Bank, National
Association (as Lender and as Agent) providing for a revolving line of credit in
the maximum amount of $50,000,000.
"Fixtures and Equipment" shall mean, with respect to any Person, all of the
furniture, fixtures, furnishings, machinery and equipment owned, leased or
licensed by such Person, and located in, at or upon the facilities of such
Person.
"GAAP" shall mean generally accepted accounting principles in the United
States, as in effect from time to time, consistently applied.
"Investors Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated the date hereof between Buyer and the investors named therein
providing for the sale by Buyer and the purchase by such investors of an
aggregate of 1,052,632 shares of Buyer Common Stock for an aggregate purchase
price of $20,000,008 ($19.00 per share).
"knowledge," the phrase "to the knowledge of Buyer" or any, similar phrase
shall mean and be limited to the actual (but not constructive or imputed)
knowledge of senior management of Buyer, without inquiry; the phrase "to the
knowledge of the Seller" or any similar phrase shall mean and be limited to the
actual (but not constructive or imputed) knowledge of any Seller (or their
senior management, if not a natural person), without inquiry.
"Lender" shall mean PNC Bank, National Association and any other Lender (as
defined therein) under the credit agreement described in the definition of
Financing, above.
"New Price" means the lower of (x) the lowest price per share paid for
shares of Buyer's common stock during the period commencing on the Closing Date
and ending nine months thereafter (other than pursuant to the exercise of
options or warrants outstanding as of the date hereof) and (y) the lowest price
per share at which securities issued during such period may be converted into
shares of Buyer's common stock, which price shall be determined assuming that
such securities were converted into shares at the end of such period, in each
case appropriately adjusted for any change in the outstanding shares of capital
stock of Buyer during the relevant period, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period.
"Permitted Encumbrances" shall mean any Encumbrances resulting from (i) all
statutory or other liens for Taxes or assessments which are not yet due or
delinquent or the validity of which are being contested in good faith by
appropriate proceedings for which adequate reserves are being maintained in
accordance with GAAP; (ii) all cashiers', landlords', workers' and repairers'
liens, and similar liens imposed by law, incurred in the ordinary course of
business; (iii) all laws and governmental rules, regulations, ordinances and
restrictions; (iv) all leases,
54
subleases, licenses, concessions or service contracts to which any Person or any
of its Subsidiaries is a party; (v) Encumbrances identified on title policies or
preliminary title reports or other documents or writing delivered or made
available for inspection to any Person prior to the date hereof or included in
the public records; and (vi) all other liens and mortgages (but solely to the
extent such liens and mortgages secure indebtedness described or referred to in
the Buyer Disclosure Schedule or the Seller Disclosure Schedule, as applicable),
covenants, imperfections in title, charges, easements, restrictions and other
Encumbrances which, in the case of any such Encumbrances pursuant to clause (i)
through (vi), do not materially detract from or materially interfere with the
present use of the Asset subject thereto or affected thereby.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, governmental agency or instrumentality, or any
other entity.
"Prepayment Penalties" shall mean any prepayment penalties arising out of
the contemplated prepayment of the indebtedness of the Company identified in
paragraph (d) of Schedule 4.15 of the Seller Disclosure Schedule.
"Purchase Price" shall mean $28,364,763 (i) less Debt of the Company
(whether current or long term) as of the Closing Date, other than the $500,000
Debt under the Company's revolving line of credit incurred to pay the option fee
pursuant to the SPA Drilling Asset Purchase Agreement and other than any
Prepayment Penalties, (ii) less the excess, if any, of $3,000,000 over Closing
Working Capital.
"Restricted Area" shall mean Oklahoma, Arkansas and Texas.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SPA Asset Purchase Agreement" shall mean the Option and Asset Purchase and
Sale Agreement, dated as of February 28, 2005, by and between the Company and
SPA Drilling.
"SPA Assets" shall mean the Assets (as defined therein) to be acquired by
the Company pursuant to the SPA Asset Purchase Agreement.
"SPA Closing" shall mean the closing of the acquisition of the SPA Assets
contemplated by the SPA Asset Purchase Agreement.
"SPA Drilling" shall mean SPA Drilling, L.P., a Texas limited partnership.
"Stock Plan" shall mean any employee stock option, performance unit, stock
purchase or similar plan of a Person or any of its Subsidiaries.
"Stock Rights" shall mean any outstanding stock options, stock appreciation
rights, limited stock appreciation rights, performance units, phantom stock and
stock purchase rights of a Person.
"Subsidiary" shall mean, with respect to any Person, (i) any corporation,
partnership, joint venture or other organization, whether incorporated or
unincorporated, of which such Person directly or indirectly owns or controls at
least a majority of the securities or other
55
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions, (ii) any limited
partnership of which such Person, or any Subsidiary of such Person, is the
general partner and (iii) any general partnership of which such Person, or any
Subsidiary of such Person, owns an interest in the revenues or profits of 50% or
more.
"Tax" or "Taxes" includes all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
including, without limitation, all income, gross receipts, gains, profits,
windfall profits, gift, severance, ad valorem, social security, employment,
disability, unemployment, premium, recapture, credit, excise, property, sales,
use, occupation, service, service use, leasing, leasing use, value added,
transfer, payroll, withholding, estimated, license, stamp, franchise or similar
taxes (including any interest earned thereon or penalties, additions or fines
attributable thereto or attributable to any failure to comply with any
requirement regarding Tax Returns and any interest in respect of such penalties,
additions or fines).
"Tax Return" includes any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction with respect to Taxes, including, without limitation, any
supporting schedules or attachments and any amendments or claims for refund with
respect thereto.
Section 11.5 Other Defined Terms.
The following terms shall have. the respective meanings given to such terms
in the Sections set forth below:
Term Section
---- -------
Acceptance................................................................7.8(b)
Agreement...............................................................Recitals
Blue Sky Laws.............................................................3.4(c)
Buyer...................................................................Recitals
Buyer Benefit Plans.......................................................3.9(a)
Buyer Common Stock...........................................................3.3
Buyer Contracts.............................................................3.19
Buyer Disclosure Schedule....................................................3.1
Buyer Financial Statements...................................................3.5
Buyer Required Statutory Approvals...........................................3.4
Closing......................................................................2.1
Closing Agreement.........................................................3.8(k)
Closing Date.................................................................2.1
Closing Payment........................................................2.2(b)(i)
Closing Values............................................................2.3(a)
Code....................................................................Recitals
Company.................................................................Recitals
Company Benefit Plans.....................................................4.9(a)
Company Common Stock.........................................................4.3
Company Contracts...........................................................4.15
56
Company Financial Statements.................................................4.5
Company Required Consents.................................................4.4(b)
Confidentiality Agreement.................................................7.1(b)
Disposition...............................................................7.8(b)
Employment Agreement.........................................................7.6
Encumbrances.................................................................3.2
Environmental Permits.......................................................3.10
ERISA.....................................................................3.9(a)
Governmental Authority....................................................3.4(c)
Intellectual Property.......................................................3.20
IRS.......................................................................3.8(p)
Noncompete Period.......................................................11.13(a)
Offer Notice..............................................................7.8(b)
PBGC......................................................................3.9(e)
Reinvestment Securities......................................................1.2
Seller Disclosure Schedule...................................................4.1
Seller's Release..........................................................2.2(a)
Tax Ruling................................................................3.8(k)
Section 11.6 Descriptive Headings.
The descriptive headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
Section 11.7 Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the Contemplated
Transactions is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
Contemplated Transactions be consummated as originally contemplated to the
fullest extent possible.
Section 11.8 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute a single
agreement.
Section 11.9 Entire Agreement; No Third Party Beneficiaries.
This Agreement, together with the Confidentiality Agreement, the
Registration Rights Agreement, the Employment Agreement and the Seller's
Release, (a) constitutes the entire agreement and, supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; and (b) is not intended to confer upon any
Person, other than the parties hereto any rights or remedies hereunder.
57
Section 11.10 Governing Law; Consent to Jurisdiction.
This Agreement shall be governed and construed in accordance with the laws
of the State of Pennsylvania without regard to any applicable conflicts of law
principles. The parties hereby consents to the jurisdiction of any state or
federal court located within the county of Allegheny, Commonwealth of
Pennsylvania, and irrevocably agree that all actions or proceedings relating to
this Agreement or any of the Contemplated Transactions may be litigated in such
courts, and each party waives any objection which it may have based on improper
venue or forum non conveniens to the conduct of any proceeding in any such
court.
Section 11.11 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties;
provided that Buyer may assign its rights hereunder to the Lender as security
for its obligations arising out of the Financing, and the Seller hereby consents
to such assignment and agrees to execute any documents or instruments requested
by the Lender to evidence such consent. This Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
Section 11.12 Specific Performance.
The parties recognize and agree that if for any reason any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise breached, immediate and irreparable harm or injury would be
caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that, in addition to any other available remedies, the other
party shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity. In the event that any action should be
brought in equity to enforce the provisions of this Agreement, no party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
Section 11.13 Non-Competition, Non-Solicitation and Non-Disclosure.
The Seller acknowledges that he is familiar with the trade secrets of the
Company and its Subsidiaries and with other confidential information concerning
the Company and its Subsidiaries, including all (a) inventions, technology and
research and development of the Company and its Subsidiaries, (b) customers and
clients and customer and client lists of the Company and its Subsidiaries, (c)
products and services of the Company and its Subsidiaries and related costs and
pricing structures and drilling techniques, (d) accounting and business methods
and practices of the Company and its Subsidiaries and (e) similar and related
confidential information and trade secrets of the Company and its Subsidiaries.
The Seller further acknowledges that his services have been and shall be of
special, unique and extraordinary value to the Company and its Subsidiaries,
that he has been substantially responsible for the growth and development of the
Company and its Subsidiaries and the creation and preservation of the Company
and its Subsidiaries' goodwill. The Seller acknowledges and agrees that the
Company and its Subsidiaries would be irreparably damaged if he were to disclose
any such confidential information or provide services to any Person competing
with the Company and its Subsidiaries or engaged in a similar business and that
such competition by him would result in a significant
58
loss of goodwill by the Company and its Subsidiaries. The Seller further
acknowledges and agrees that the covenants and agreements set forth in this
Section 11.13 were a material inducement to Buyer to enter into this Agreement
and to perform its obligations hereunder, and that Buyer would not obtain the
benefit of the bargain set forth in this Agreement as specifically negotiated by
the parties if the Seller breached the provisions of this Section 11.13.
Therefore, in further consideration for the payment of the Purchase Price, and
in order to protect the value of the Shares acquired by Buyer hereunder
(including the goodwill inherent in the Company and its Subsidiaries as of the
Closing Date), the Seller agrees that:
(a) during the period from the Closing Date to and including the fifth
anniversary of such Closing Date (the "Noncompete Period"), the Seller shall not
have any affiliation (as defined below) with any corporation, partnership or
other business entity, enterprise or other Person (other than Buyer, the Company
and their Subsidiaries) having any location within the Restricted Area which
engages in the management and/or operation of any entity that engages in any
business which is the same as or substantially similar to the business of any of
the Company and its Subsidiaries or their respective Subsidiaries as presently
conducted or as presently proposed to be conducted by the Company and its
Subsidiaries or their Subsidiaries from and after the Closing Date; provided
that nothing contained herein shall be construed to prohibit the Shareholders
from purchasing up to an aggregate of 1% of any class of the outstanding voting
securities of any other Person whose securities are listed on a national
securities exchange or traded in the Nasdaq National Market System. For purposes
of this paragraph (a), the term "affiliation" shall mean any direct or indirect
interest in such entity, enterprise or other Person, whether as an officer,
director, employee, investor, partner, shareholder, sole proprietor, trustee,
consultant, agent, representative, broker, finder, promoter or otherwise;
(b) during the Noncompete Period, the Seller shall not, other than on
behalf of Buyer, the Company or their Subsidiaries, (A) contact, approach or
solicit for the purpose of offering employment to or hiring (whether as an
employee, consultant, agent, independent contractor or otherwise) or actually
hire any person employed by the Company or any Subsidiary at any time prior to
the Closing Date or during the Non-Compete Period, without the prior written
consent of Buyer; (B) call-on, solicit or service any customer, supplier,
licensee or business relation of the Company or any of its Subsidiaries; (C)
solicit or attempt to induce any customer or other business relation of the
Company or any Subsidiary into any business relationship which might materially
harm the Company or any of its Subsidiaries or (D) induce or attempt to induce
any customer, supplier, licensee or other business relation of the Company or
any Subsidiary thereof to cease doing business with the Company or any
Subsidiary thereof or in any way interfere with the relationship between any
such customer, supplier, licensee or business relation of the Company or any
Subsidiary thereof; and
(c) during the Noncompete Period and thereafter, the Seller shall not
disclose any confidential information of the Company or any Subsidiary thereof.
(d) Notwithstanding anything in this Section 11.13 to the contrary, if
at any time, in any judicial or arbitration proceeding, any of the restrictions
stated in this Section 11.13 is found by a final order of a court of competent
jurisdiction or arbitrator(s) to be unreasonable or otherwise unenforceable
under circumstances then existing, the Seller agrees that the period,
59
scope or geographical area, as the case may be, shall be reduced to the extent
necessary to enable the court and arbitrator(s) to enforce the restrictions to
the extent such provisions are allowable under applicable law, giving effect to
the agreement and intent of the parties that the restrictions contained herein
shall be effective to the fullest extent permissible. In the event of an alleged
breach or violation by any Seller of any of the provisions of this Section
11.13, the Noncompete Period will be tolled until such alleged breach or
violation is resolved; provided that if the Seller is found to have not violated
the provisions of this Section 11.13, then the Noncompete Period will not be
deemed to have been tolled. The Seller agrees that the restrictions contained in
this Section 11.13 are reasonable in all respects and necessary to protect
Buyer's valid and legitimate interest and the value of the Company and its
Subsidiaries, including the related goodwill.
60
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly signed as of the date first written above.
UNION DRILLING, INC.
By: /s/ XXXXXXXXXXX XXXXXX
------------------------------------
Name: Xxxxxxxxxxx Xxxxxx
Title: President and CEO
THE SELLER
/s/ XXXXXXX XXXXXXXX
----------------------------------------
Xxxxxxx Xxxxxxxx
CONSENT OF SPOUSE
The undersigned spouse of the Seller named in the attached Stock Purchase
Agreement (the "AGREEMENT"; capitalized terms not otherwise defined herein shall
have the meanings given to them in the Agreement) has read and understands the
terms of the Agreement and has had an opportunity to discuss such agreements
with individuals of her choice. The undersigned understands that even if the
Shares referred to in the Agreement are considered to be a part of the "marital
property" belonging to her and the Seller, she hereby consents to the sale of
the Shares to the Buyer and waives any rights (other than to the consideration
that is received by Seller for the Shares) she might otherwise have in the
Shares as specifically identifiable property.
/s/ XXXXX XXXXXXXX
----------------------------------------
Xxxxx Xxxxxxxx
Date: 3-31-05
61
