ASSET PURCHASE AGREEMENT
EXHIBIT
10.8
THIS
ASSET PURCHASE AGREEMENT, dated as of August 4, 2005 (the “Agreement”),
is by
and among Xxxxxx’x Machine Works, Inc., a Texas corporation (the “Company”),
Xxxxx
Xxxxxx, an individual residing in Midland, Texas (“JH”),
and
Turbeco, Inc., a Texas corporation (“Turbeco”).
W I T N E S S E T H:
WHEREAS,
Turbeco desires to purchase substantially all of the assets of the
Company;
WHEREAS,
JH owns a controlling interest in the Company and thus would derive a
substantial benefit from the consummation of the purchase transaction
contemplated herein;
NOW,
THEREFORE, in consideration of the premises and the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending
to be
legally bound, agree as follows:
ARTICLE
I
THE
PURCHASE
Section
1.1. Purchase.
On and
subject to the terms and conditions of this Agreement, at the Closing, Turbeco
will purchase from the Company, and the Company will sell to Turbeco, all
of the
assets, rights, properties, and interests of the Company other than the assets
specifically excluded pursuant to the terms of Section 1.2 (the “Acquired
Assets”).
The
Acquired Assets will specifically include, but shall not be limited to, the
following:
(a) Fee
title
to the real property described on Schedule 1.1(a) (the “Real
Estate”);
(b) The
leasehold rights of the Company with respect to the items of personal property
which are described on Schedule 1.1(b) (the “Leased
Assets”);
(c) The
machinery, office equipment, tools, shop equipment, computers, office supplies,
vehicles, furnishings and fixtures, and other items of tangible personal
property of the Company, including specifically but not limited to the items
described on Schedule 1.1(c) (the “Tangible
Personal Property”);
(d) The
inventories of finished goods, tooling inventory, work in progress and raw
materials of the Company as of the Effective Time (the “Purchased
Inventory”);
(e) The
accounts receivable of the Company as of the Effective Time (the “Accounts
Receivable”);
(f) The
rights of the Company under the Operating Agreements (as defined in Section
3.17;
(g) All
prepaid expenses and deposits of the Company, and the claims, deposits, rights
of recovery and causes of action of the Company;
(h) The
goodwill, tradename and trademarks of the Company;
(i) All
of
the customer lists, customer files (including credit applications and reports,
credit histories and applicable terms and conditions) books, records, ledgers,
files, documents, correspondence, plans, studies, and drawings of the
Company;
(j) The
cash
and other working capital of the Company as of the Effective Time (the
“Cash”);
and
(k) All
of
the other assets and properties of the Company, other than the assets listed
on
Schedule 1.2.
Section
1.2. Excluded
Assets.
Notwithstanding the foregoing, the Acquired Assets shall not include the
assets
listed on Schedule 1.2.
Section
1.3. Purchase
Price for Acquired Assets.
As
consideration for the sale to it of the Acquired Assets, Turbeco
shall:
(a) Assume
from the Company, up to a maximum aggregate assumed amount of $1,000,000,
(i)
the liabilities and obligations listed on Schedule 1.3(a), and (ii) the accounts
payable of the Company (the “Accounts
Payable”)
set
forth on the June 15, 2005 Financial Statements or arising subsequent to
June
15, 2005, in the ordinary course of business which are identified in the
Closing
Statement (as defined in Section 1.7) (collectively, the “Assumed
Liabilities”);
and
(b) Pay
the
Company a cash payment at Closing in the amount of $3,405,000, less any offsets
provided for in Section 1.9 (the “Cash
Payment”);
(c) Cause
Flotek Industries, Inc. (“Flotek”)
to
issue to the shareholders of the Company, as additional purchase price for
the
Acquired Assets, the number of shares (the “Flotek
Shares”)
of the
common stock of Flotek, .0001 par value per share (the “Flotek
Common Stock”)
determined by dividing $600,000 by the Share Value. The Flotek Shares shall
be
allocated among the shareholders of the Company as indicated on Schedule
1.3(c).
For purposes herein, the term “Share
Value”
shall
mean the value of the Flotek Shares based on the average for the ten business
days that precede the Closing Date of daily closing trading prices of the
Flotek
Common Stock on the American Stock Exchange.
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Section
1.4. Assumption
of Liabilities.
Turbeco
has not and will not assume from the Company any liability or obligation
other
than the Assumed Liabilities.
Section
1.5. Allocation.
The
parties will allocate for all purposes (including, but not limited to, financial
accounting and tax purposes) the purchase price of the Acquired Assets as
determined by Turbeco, subject to the approval of the Company, which approval
will not be unreasonably withheld.
Section
1.6. Closing.
The
closing (the “Closing”)
of the
transactions contemplated by this Agreement (the “Purchase
Transaction”)
shall
take place at the offices of the attorneys for Turbeco in Houston, Texas
as
promptly as practicable (but in any event within five business days) following
the date on which the last of the conditions set forth in Article VIII is
fulfilled or waived, or at such other time and place as Turbeco and the Company
shall agree. The date on which the Closing occurs is referred to in this
Agreement as the “Closing
Date.”
The
Closing will be effective at the election of Turbeco: (i) as of the beginning
of
the Closing Date, or (ii) as of the beginning of the first day of the month
which the Closing Date occurs (in either case, the “Effective
Time”).
Section
1.7. Transfer
Documents.
At the
Closing, each of the parties hereto will perform such acts and deliver such
documents as are required pursuant to the terms hereof to be delivered at
Closing, including but not limited to:
(a) the
Company and JH shall:
(i) execute,
acknowledge and deliver to Turbeco all deeds, bills of sale, endorsements,
assignments, and other good and sufficient instruments of conveyance, sale,
transfer and assignment as shall be required to vest effectively in Turbeco
good
and indefeasible title in and to the Acquired Assets, free and clear of all
liens or encumbrances, including specifically, but not by way of limitation,
an
assignment, xxxx of sale and assumption agreement in the form of Exhibit
1.7
(the “Assignment”).
(ii) deliver
or cause to be delivered to Turbeco possession of all of the Acquired Assets
capable of being physically delivered as contemplated in Section
1.10.
(iii) deliver
to Turbeco a closing statement, in a form reasonably satisfactory to Turbeco,
selling forth the balances of Cash, Accounts Receivable, and Accounts Payable
as
of the Effective Time (the “Closing
Statement”);
and
(iv) deliver
the executed Agreements Not To Compete (as defined in Section 5.2).
(b) Turbeco
shall:
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(i) deliver
to the Company the Cash Payment, in the form of a bank check or wire
transfer;
(ii) execute
and deliver the Assignment; and
(iii) cause
the
Flotek Shares to be issued as provided in Schedule 1.3(c).
Section
1.8. Property
Taxes.
Any
general property tax assessed against or pertaining to the Acquired Assets
for
the taxable period that includes the date of the Closing shall be prorated
between Turbeco and the Company.
Section
1.9. Offsets.
The
Cash Payment shall be offset and reduced at Closing to reflect any Working
Capital Deficit and/or Environmental Remediation Expense. The term “Working
Capital Deficit”
means
the excess, if any, of the aggregate balance of the Accounts Payable over
the
sum of the Cash and the aggregate balance of the Cash and Accounts Receivable.
The term “Environmental
Remediation Expense”
means
amounts paid or incurred by the Company in connection with the Environmental
Remediation (as defined in Section 5.5).
ARTICLE
II
REPRESENTATIONS
AND
WARRANTIES
OF TURBECO
Turbeco
represents and warrants to the Company and JH as follows:
Section
2.1. Organization
and Qualification.
Turbeco
is a corporation duly organized, validly existing and in good standing under
the
laws of the State of Texas and has the requisite corporate power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted.
Section
2.2. Authority;
Non-Contravention; Approvals.
(a) Turbeco
has full corporate power and authority to execute and deliver this Agreement
to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of Turbeco and Flotek, and no other corporate
proceedings on the part of Turbeco or Flotek are necessary to authorize the
execution and delivery of this Agreement or the consummation by Turbeco of
the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Turbeco, and, assuming the due authorization, execution and
delivery hereof by the Company and JH, constitutes a valid and legally binding
agreement of Turbeco enforceable against it in accordance with its terms,
except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
-4-
(b) The
execution and delivery of this Agreement by Turbeco and the consummation
by
Turbeco of the transactions contemplated hereby do not and will not violate
or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under,
or result in the termination of, or accelerate the performance required by,
or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the
properties or assets of Turbeco under any of the terms, conditions or provisions
of (i) the charter or bylaw of Turbeco, (ii) any statute, law, ordinance,
rule,
regulation, judgment, decree, order, injunction, writ, permit or license
of any
court or governmental authority applicable to Turbeco or any of its properties
or assets or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which Turbeco is now a party or by which Turbeco
or
any of its properties or assets may be bound or affected.
Section
2.3. Flotek
Shares.
The
Flotek Shares have been duly authorized and when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued
and
will be fully paid and non-assessable, and the issuance thereof is not subject
to any preemptive or other similar right. Flotek has previously made available
or delivered to the Company and its shareholders copies of the Form 10-KSB
filed
by it with the Securities and Exchange Commission (the “SEC”)
with
respect to the year ended December 31, 2005 and its quarterly report filed
with
the SEC on Form 10-QSB for the period ending March 31, 2005 (“Flotek
SEC Reports”).
As of
their respective dates, the Flotek SEC Reports did not contain any untrue
statement of a material fact or omit to state any material fact required
to be
stated therein or necessary to make the statements therein, in the light
of the
circumstances under which they were made, not misleading. Flotek has not
made
any other representation regarding the Flotek Shares. The Flotek Shares will
be
restricted stock which will not be tradable on the open market under the
applicable securities laws.
Section
2.4 Brokers
and Finders.
Turbeco
has not entered into any contract, arrangement or understanding with any
person
or firm which may result in the obligation of Turbeco to pay any finder's
fees,
brokerage or agent commissions or other like payments in connection with
the
transactions contemplated hereby. There is no claim for payment by Turbeco
of
any investment banking fees, finder's fees, brokerage or agent commissions
or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated
hereby.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
THE COMPANY AND JH
The
Company and JH jointly and severally represent and warrant to Turbeco
that:
Section
3.1. Organization
and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has the requisite corporate power
and
authority to own, lease and operate its assets and properties and to carry
on
its business as it is now being conducted. The Company is duly qualified
to do
business as a corporation and is in good standing in each jurisdiction in
which
the properties owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary. True, accurate and complete
copies of the Company’s organizational documents, as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered
to
Turbeco.
-5-
Section
3.2. Capitalization.
JH owns
90% of the issued and outstanding stock of the Company. All of the shareholders
of the Company are listed on Schedule 1.3.
Section
3.3. Other
Entities.
The
Company does not own stock or other ownership interests in any other
entity.
Section
3.4. Authority;
Non-Contravention; Approvals.
(a) The
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors and shareholders of the Company,
and
no other corporate actions on the part of the Company are necessary to authorize
the execution and delivery of this Agreement or the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Company and JH, and, assuming the due authorization,
execution and delivery hereof by Turbeco, constitutes a valid and legally
binding agreement of the Company and JH, enforceable against the Company
and JH
in accordance with its terms, except that such enforcement may be subject
to (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (b)
general equitable principles.
(b) Except
as
set forth in the disclosure schedule attached to this Agreement (the
“Disclosure
Schedule”),
the
execution and delivery of this Agreement by the Company and JH and the
consummation by the Company and JH of the transactions contemplated hereby
do
not and will not violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company
under
any of the terms, conditions or provisions of (i) the organizational documents
of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, or any Operating Agreement to which the Company is now a party
or by
which the Company or any of its properties or assets may be bound or
affected.
Section
3.5. Financial
Statements.
The
Company has furnished Turbeco with a balance sheet of the Company as of July
31,
2004 and the related statement of income for the calendar years then ended
(including the notes thereto) and a balance of the Company as of June 15,
2005
and the related statement of income for the period then ended (collectively,
the
"Financial
Statements").
The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, and are accurate and complete
and
fairly present the financial condition and result of operations of the
Company.
-6-
Section
3.6. Absence
of Undisclosed Liabilities.
Except
as disclosed in the Disclosure Schedule, the Company has not incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except liabilities or obligations (a) which are provided for
in
the Financial Statements or reflected in the notes thereto, (b) which were
incurred after June 15, 2005, and were incurred in the ordinary course of
business and consistent with past practices, or (c) liabilities or obligations
under this Agreement.
Section
3.7. Absence
of Certain Changes or Events.
Except
as disclosed in the Disclosure Schedule, since June 15, 2005, the business
of
the Company has been conducted in the ordinary course of business consistent
with past practices, and there has not been any event, occurrence, development
or state of circumstances or facts which has had, or could reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect. Specifically, but not by way of limitation, since June 15, 2005,
the
Company has not engaged in or been subject to any of the actions described
in
Section 4.1. "Material
Adverse Effect"
means
any event, occurrence, fact, condition, change, development or effect that
is or
could reasonably be anticipated to be materially adverse to the business,
assets
(including intangible assets), liabilities, financial condition, results
of
operations, properties (including intangible properties) or business prospects
of the Company, as applicable, taken as a whole, which is not reflected in
the
June 15, 2005 Financial Statements of the Company.
Section
3.8. Accounts
Receivable.
The
Accounts Receivable are valid, genuine and subsisting, arise out of bona
fide
sales and delivery of goods, performance of services or other business
transactions in the ordinary course of business and are current and collectible.
Each of the Accounts Receivable will be collected in full, without any set-off
and without resort to litigation, within 120 days after the
Closing.
Section
3.9. Inventory.
The
inventory reflected in the June 15, 2005 Financial Statements consists of
items
that are usable and saleable in the ordinary course of business by the Company
(the “Financial
Statement Inventory”).
Except as disclosed in the Disclosure Schedule, all items included in the
Financial Statement Inventory and the Purchased Inventory are owned by the
Company free and clear of any lien or encumbrance, and are not missing (except
for sales made in the ordinary course of business since June 15, 2005) and
are
in good condition. No items included in the Financial Statement Inventory
or the
Purchased Inventory are held by the Company on consignment from others.
Section
3.10. Tangible
Assets.
The
Real Estate, the Tangible Personal Property and the Leased Assets constitute
all
of the tangible property necessary for the conduct by the Company of its
business as now conducted. The Company has good and indefeasible title to
the
Real Estate and the Tangible Personal Property, free and clear of all mortgages,
liens, pledges, charges, or encumbrance of any nature whatsoever, except
as
indicated on the Disclosure Schedule. All of the Tangible Personal Property
and
the Leased Assets are in good, serviceable condition and fit for the particular
purposes for which they are used in the business of the Company, subject
only to
normal maintenance requirements and wear and tear reasonably expected in
the
ordinary course of business.
-7-
Section
3.11. Employee
Benefits.
The
Disclosure Schedule contains a complete list of “employee welfare plans” (as
that term is defined in Section 3(1) of the Employee Retirement Income Security
Act of 1974 (“ERISA”))
currently maintained by the Company or any person or trade or business under
common control with the Company, or in which active or former employees of
the
Company (collectively, the “Affected
Employees”)
currently participate (which plans are hereinafter referred to as “Welfare
Plans”).
The
Disclosure Schedule also contains a complete list of “employee pension benefit
plans” as that term is defined in Section 3(2) of ERISA maintained by the
Company or any person or trade or business under common control with the
Company, or in which any such entity currently contributes or is required
to
contribute or in which Affected Employees currently participate (which plans
are
hereinafter referred to as “Pension
Plans”).
Neither the Company nor any of the Affected Employees participate or ever
participated in any “multiemployer plan” (as that term is defined in Section
3(37) of ERISA). The Welfare Plans and Pension Plans, and any other plans
of the
type described in the first two sentences of this Section previously applicable
at any time to the Company, are collectively referred to as the “Company
Plans”.
Each
Company Plan is or was in compliance with the provisions of all applicable
laws,
rules and regulations, including, without limitation, ERISA and the Code.
None
of the Pension Plans has incurred any “accumulated funding deficiency” (as
defined in Section 412(a) of the Code). The Company has not incurred any
liability to the Pension Benefit Guaranty Corporation under Section 4062,
4063
or 4064 of ERISA, or any withdrawal liability under Title IV of ERISA with
respect to any multiemployer plan. The Disclosure Schedule describes all
bonuses
and other compensation which will be payable to any of the employees of the
Company as a result of the consummation of the Purchase Transaction, and
any
obligation to pay severance payments.
Section
3.12. Litigation.
Except
as described in the Disclosure Schedule, there are no claims, suits, actions,
or
proceedings pending or, to the Knowledge of the Company, threatened against
or
relating to the Company, before any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator. Except as described
in
the Disclosure Schedule, the Company is not subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator. For purposes of
this
Agreement, "Knowledge"
means
the actual knowledge after reasonable inquiry of officers of the
Company.
Section
3.13. No
Violation of Law.
The
Company is not in violation of or has been given notice or been charged with
any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Law) of any
governmental or regulatory body or authority. Except as disclosed in the
Disclosure Schedule, as of the date of this Agreement, to the Knowledge of
the
Company, no investigation or review by any governmental or regulatory body
or
authority is pending or threatened, nor has any governmental or regulatory
body
or authority indicated an intention to conduct the same. The governmental
permits or licenses of the Company (the “Permits”)
are
sufficient for the Company to conduct its business in the manner currently
conducted, and the Company is not in violation of the terms thereof. The
Company
is not in violation of the terms of any of its Permits and is not required
to
possess any other permit, license, franchise, variance, exemption, order
or
other governmental authorization, consent or approval.
-8-
Section
3.14. Real
Property.
(a) The
Company does not own or has ever owned any interest of any kind (whether
ownership, lease or otherwise) in any real property, except the Real
Estate.
(b) The
improvements included in the Real Estate (the “Company
Facilities”)
are in
good condition (reasonable wear and tear excepted), and are adequate for
the
operation of the Company's business as presently conducted. The Real Estate
is
not subject to any leases.
(c) The
Company’s use of the Company Facilities in the normal conduct of its business
does not violate any applicable building, zoning or other law, ordinance
or
regulation affecting such real property, and no covenants, easements, rights
of
way or other such conditions of record impair the Company’s use of the Company
Facilities in the normal conduct of its business.
(d) The
Company has not experienced any material interruption in the delivery of
adequate quantities of any utilities or other public services to the Company
Facilities required by the Company in the normal operation of its
business.
Section
3.15. Labor
Matters.
The
Disclosure Schedule sets forth a list of each of the employees of the Company,
and a description of the salaries and other compensation payable to such
individuals. Except as set forth in the Disclosure Schedule, (a) there are
no
material controversies pending or, to the Knowledge of the Company, threatened
between the Company on the one hand and any of its employees on the other,
(b)
the Company is not a party to a collective bargaining agreement of other
labor
union contract applicable to persons employed by the Company, nor does the
Company have any Knowledge of any activities or proceedings of any labor
union
to organize any such employees, (c) the Company is not a party to any written
agreement, memorandum, or understanding with respect to the employment of
any
individual, and (d) neither the Company or JH are aware of any intention
of any
employee to terminate his or her employment with the Company, either as a
result
of the Purchase Transaction or otherwise.
Section
3.16. Environmental
Matters.
Except
as set forth in the Disclosure Schedule:
(a) no
notice, demand, request for information, citation, summons or order has been
received, no complaint has been served, no penalty has been assessed, and
no
investigation, action, claim, suit, proceeding or review is pending or, to
the
Knowledge of the Company, is threatened by any governmental entity or other
person relating to or arising out of any environmental law;
-9-
(b) the
Company is and has been in compliance with all Environmental Laws and
environmental permits; and
(c) there
are
no liabilities of or relating to the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, arising
under or relating to any environmental law and there are no facts, conditions,
situations or set of circumstances which could reasonable be expected to
result
in or be the basis for any such liability.
Section
3.17. Material
Contracts.
The
Disclosure Schedule lists all agreements, leases, commitments, contracts,
undertakings or understandings, to which the Company is a party, including
but
not limited to service agreements, manufacturing agreements, purchase or
sale
agreements, supply agreements, distribution or distributor agreements, real
estate leases, purchase orders, license agreements, customer orders and
equipment rental agreements (the "Operating
Agreements").
Each
Operating Agreement is a valid, binding and enforceable agreement of the
Company
and, to the Knowledge of the Company, the other parties thereto. There has
not
occurred any breach or default under any Operating Agreement on the part
of the
Company or, to the Knowledge of the Company, any other parties thereto. No
event
has occurred which with the giving of notice or the lapse of time, or both,
would constitute a default under any Operating Agreement on the part of the
Company, or, to the Knowledge of the Company, any of the other parties thereto.
There is no dispute between the parties to any Operating Agreement as to
the
interpretation thereof or as to whether any party is in breach or default
thereunder, and no party to any Operating Agreement has indicated its intention
to, or suggested it may evaluate whether to, terminate any Operating Agreement.
Section
3.18. Brokers
and Finders.
The
Company has not entered into any contract, arrangement or understanding with
any
person or firm which may result in the obligation of the Company or JH to
pay
any finder's fees, brokerage or agent commissions or other like payments
in
connection with the transactions contemplated hereby. There is no claim for
payment by the Company or JH of any investment banking fees, finder's fees,
brokerage or agent commissions or other like payments in connection with
the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
Section
3.19. Disclosure.
No
representation or warranty of the Company or JH set forth hereunder or in
the
schedules attached hereto or in any certificate delivered pursuant to Section
6.3(a) contains any untrue statement of the material fact or omits to state
a
material fact necessary in order to make the statements contained herein
or
therein not misleading.
ARTICLE
IV
CONDUCT
OF BUSINESS PENDING THE CLOSING
Section
4.1. Conduct
of Business of the Company.
Prior
to the Effective Time, the Company shall operate its business in, and only
in,
the usual, regular and ordinary course of business in substantially the same
manner as operated on the date of this Agreement. JH will assure that the
Company complies with the requirements of this Section. Without limiting
the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time, the Company will not:
-10-
(a) Sell,
lease or otherwise dispose of, or agree to sell, lease or otherwise dispose
of,
any of its assets other than inventory in the ordinary course of business
consistent with past practice;
(b) Make
or
declare a dividend, distribution or other payment to any of its members,
or
redeem any of its capital stock;
(c) Adopt,
amend or terminate any Company Plan;
(d) Amend
or
terminate any Operating Agreement;
(e) Enter
into any transaction or agreement with JH, any family member of JH, or any
entity owned or controlled by JH;
(f) Make
any
payment or distribution to JH except payments of salary up to $59,705 per
annum;
(g) Enter
into or modify any employment or severance agreement with any director, officer,
or employee, or agree to increase the compensation of any officer, director
or
employee; and/or
(h) Incur
any
indebtedness other than indebtedness incurred in the ordinary course of
business.
Section
4.2. Business
Organization.
Prior
to the Effective Time, the Company and JH shall use their respective best
efforts to (a) preserve intact the business organization of the Company,
(b)
keep available the services of the officers and employees of the Company,
(c)
preserve the goodwill of the Company, (d) maintain and keep the properties
and
assets of the Company in as good a repair and condition as presently exists,
and
(e) maintain in full force and effect its insurance coverage of the
Company.
ARTICLE
V
ADDITIONAL
AGREEMENTS
Section
5.1. Cooperation.
The
Company shall afford to Turbeco and its accountants, counsel, financial advisors
and other representatives reasonable access during normal business hours
throughout the period prior to the Effective Time to all of its properties,
books, contracts, personnel, representatives of or contacts with governmental
or
regulatory authorities, agencies or bodies, commitments, and records (including,
but not limited to, tax returns and any and all records or documents which
are
within the possession of governmental or regulatory authorities, agencies
or
bodies, and the disclosure of which the Company can facilitate or control)
and,
such parties as its representatives may reasonably request. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company or with the
performance of any of the employees of the Company. No investigation pursuant
to
this Section shall affect any representation or warranty made by any party.
Each
of the parties hereto shall use all reasonable efforts to take, or cause
to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement,
-11-
Section
5.2. Other
Agreements.
At the
Closing, JH shall execute and deliver, and shall cause Xxxxxx Xxxxxxx and
Xxxxx
X. Xxxx to execute and deliver, agreements not to compete substantially
identical to the form attached hereto as Exhibit 5.2 (the “Agreements
Not To Compete”).
Section
5.3. Further
Assurances.
JH and
the Company shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to Turbeco such assignments or other instruments
of
transfer, assignment and conveyance, in form and substance satisfactory to
counsel of Turbeco, as shall be necessary to vest in Turbeco all of the right,
title and interest in and to the assets of the Company, in each case free
and
clear of all liens, charges, encumbrances, rights of others, mortgages, pledges
or security interests, and any other document reasonably requested by Turbeco
in
connection with this Agreement.
Section
5.4. Expenses
and Fees.
All
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, regardless of whether the Closing occurs.
Section
5.5. Environmental
Remediation.
Turbeco
has received a copy of the Limited Phase II Assessment prepared by Phase
Engineering, Inc. with respect to the Real Estate (the “Phase
II Assessment”).
The
Company will perform all of the remediation and cleanup work recommended
pursuant to the Phase II Assessment, and any other environmental remediation
and
cleanup work identified by Turbeco before the Closing Date, to the reasonable
satisfaction of Turbeco (collectively, the “Environmental
Remediation”).
Section
5.6. Public
Statements.
The
parties shall consult with each other prior to issuing any press release
or any
written public statement with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or written
public
statement prior to such consultation.
Section
5.7. Notification
of Certain Matters.
Each of
the parties agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence
or
failure to occur, of any event which occurrence or failure to occur would
be
likely to cause any of its representations or warranties in this Agreement
to be
untrue or inaccurate in any material respect (or in all respects in the case
of
any representation or warranty containing any materiality qualification)
at any
time from the date hereof to the Effective Time and (b) any material failure
(or
any failure in the case of any covenant, condition or agreement containing
any
materiality qualification) on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder.
-12-
Section
5.8. Employee
Matters.
(a) Effective
immediately following the Closing, Turbeco shall offer employment to all
of the
employees of the Company who are engaged in the business in the United States,
each of which who accepts a position shall hereinafter be referred to as
a
“Affected
Employee”
and
shall become an employee of Turbeco, terminable at will. In order to facilitate
the foregoing, the Company shall, effective immediately following the Closing,
terminate the employment of all employees of the Company and take all
appropriate steps necessary to comply with applicable law in connection with
the
termination of such employees.
(b) Notwithstanding
anything to the contrary contained in this Section, the parties acknowledge
and
agree that they do not intend to create any third-party beneficiary rights
respecting any employee of the Company as a result of the provisions hereof
and
specifically hereby negate any intention to so create any third-party
beneficiary rights.
(c) With
respect to employees, who accept employment with Turbeco, the Company will
remain responsible for medical expenses covered under their plans actually
incurred prior to the Effective Time and Turbeco will be responsible for
all
other medical expenses incurred on or after the Closing to the extent covered
under their plans without the application of any waiting period for coverage
generally applicable to newly hired employees. The Company shall make available,
at such Affected Employee’s expense, medical coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, to the Affected Employees
to the extent required by applicable law. The Company and Turbeco shall
cooperate and coordinate with each other to provide continuity of health,
hospitalization, life, travel and accident insurance coverage for the Affected
Employees. The cost of insurance coverage for the Affected Employees from
and
after the Effective Time shall be borne by Turbeco.
(d) Turbeco
and the Company shall complete and furnish to each other any other employee
data
as shall be reasonably required from time to time for each party to perform
and
fulfill its obligations under this Section 5.8.
(e) The
Company agrees that it shall be solely responsible for all liability, costs
and
expenses (including attorneys’ fees) for all employment claims (collectively,
the “Employment Claims”)
by any
employee or former employee of the Company which accrued prior to the Effective
Time relating to arbitrations, unfair labor practice charges, employment
discrimination charges, wrongful termination claims, workers’ compensation
claims, any employment-related tort claim or other claims or charges of or
by
employees of the Company. Turbeco agrees that it shall be responsible for
all
Employment Claims by any Affected Employee who accepts employment with Turbeco
which accrued after the Effective Time relating to arbitrations, unfair labor
practice charges, employment discrimination charges, wrongful termination
claims, workers’ compensation claims, any employment-related tort claim or other
claims or charges of or by the Affected Employees. The Disclosure Schedule
sets
forth a brief description of any known Employment Claims that have been filed
or
may be filed after the date hereof arising out of conditions, actions or
events
that occurred before the Effective Time.
-13-
ARTICLE
VI
CONDITIONS
TO CLOSING
Section
6.1. Conditions
to Obligation of the Company to Effect the Purchase Transaction.
Unless
waived by the Company, the obligation of the Company to effect the Purchase
Transaction shall be subject to the fulfillment at or prior to the Effective
Time of the following additional condition:
(a) Turbeco
shall have performed in all material respects (or in all respects in the
case of
any agreement containing any materiality qualification) its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and
the representations and warranties of Turbeco contained in this Agreement
shall
be true and correct in all material respects (or in all respects in the case
of
any representation or warranty containing any materiality qualification)
on and
as of the date made and on and as of the Closing Date as if made at and as
of
such date, and the Company shall have received a certificate executed on
behalf
of Turbeco by the President or a Vice President of Turbeco and on behalf
of
Turbeco by the Chief Executive Officer of Turbeco to that effect;
and
Section
6.2. Conditions
to Obligations of Turbeco to Effect the Purchase Transaction.
Unless
waived by Turbeco, the obligations of Turbeco to effect the Purchase Transaction
shall be subject to the fulfillment at or prior to the Effective Time of
the
following additional conditions:
(a) the
Company and JH shall have performed in all material respects (or in all respects
in the case of any agreement containing any materiality qualification) their
respective agreements contained in this Agreement required to be performed
on or
prior to the Closing Date and the representations and warranties of the Company
and JH contained in this Agreement shall be true and correct in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made and
on and
as of the Closing Date as if made at and as of such date, and Turbeco shall
have
received a certificate executed on behalf of the Company by the President
and
Chief Executive Officer of the Company to that effect;
-14-
(b) since
June 15, 2005, there shall have been no changes that constitute, and no event
or
events shall have occurred which have resulted in or constitute, a Material
Adverse Effect; and
(c) Turbeco
shall have received the amount of debt and equity financing reasonably required
to consummate the Purchase Transaction, from parties and pursuant to terms
acceptable to Turbeco, in its sole and absolute discretion.
ARTICLE
VII
INDEMNIFICATION
Section
7.1. Indemnification
of Turbeco.
JH and
the Company shall jointly and severally indemnify Turbeco and its officers,
directors, employees and agents against, and hold each of them harmless from
and
against, any and all claims, actions, causes of action, arbitrations,
proceedings, losses, damages, liabilities, judgments and expenses (including,
without limitation, reasonable attorneys' fees) ("Indemnified
Amounts")
incurred by the indemnified party as a result of (a) any error, inaccuracy,
breach or misrepresentation in any of the representations and warranties
made by
or on behalf of the Company or JH in this Agreement, (b) any violation or
breach
by the Company or JH of or default by the Company or JH under the terms of
this
Agreement, (c) any event or occurrence relating to the business of the Company
occurring prior to the Effective Time, including specifically, but not by
way of
limitation, the Environmental Remediation, and/or (d) any product liability
or
other claims concerning products sold by the Company prior to the Effective
Time
except the Warranty Obligation (as defined in Section 7.2). The indemnified
party shall be entitled to recover its reasonable and necessary attorneys'
fees
and litigation expenses incurred in connection with successful enforcement
of
its rights under this Section.
Section
7.2. Indemnification
of JH and the Company.
Turbeco
shall indemnify JH and the Company against, and hold each of them harmless
from
and against, any and all Indemnified Amounts incurred by JH or the Company
as a
result of (a) any error, inaccuracy, breach or misrepresentation in any of
the
representations and warranties made by or on behalf of Turbeco in this
Agreement, (b) any violation or breach by Turbeco of or default by Turbeco
under
the terms of this Agreement, and/or (c) the cost to repair and/or replace
defective products sold by the Company prior to the Effective Time, to the
extent required pursuant to the warranty policy of the Company in effect
at the
time of the sale (the “Warranty
Obligation”).
The
indemnified party shall be entitled to recover its reasonable and necessary
attorneys' fees and litigation expenses incurred in connection with successful
enforcement of his rights under this Section.
Section
7.3. Procedure.
The
defense of any claim, action, suit, proceeding or investigation subject to
indemnification under this Article shall be conducted by the indemnifying
party.
If the indemnifying party fails to conduct such defense, the indemnified
parties
may retain counsel satisfactory to them and the indemnifying party shall
pay all
reasonable fees and expenses of such counsel for the indemnified parties
promptly as statements therefor are received. The party not conducting the
defense will use reasonable efforts to assist in the vigorous defense of
any
such matter, provided that such party shall not be liable for any settlement
of
any claim effected without its written consent, which consent, however, shall
not be unreasonably withheld. Any indemnified party wishing to claim
indemnification under this Article VII, upon learning of any such claim,
action,
suit, proceeding or investigation, shall notify the indemnifying party (but
the
failure so to notify a party shall not relieve such party from any liability
which it may have under this Article VII except to the extent such failure
materially prejudices such party). If the indemnifying party is responsible
for
the attorneys’ fees of the indemnified parties, then the indemnified parties as
a group may retain only one law firm to represent them with respect to each
such
matter unless there is, under applicable standards of professional conduct,
a
conflict on any significant issue between the positions of any two or more
indemnified parties.
-15-
Section
7.4. Express
Negligence Rule.
The
indemnification obligations under this Article VII shall apply regardless
of
whether any suit or action results solely or in part from the active, passive
or
concurrent negligence of the indemnified party.
The
rights of the parties to indemnification under this Article VII shall not
be
limited due to any investigations heretofore or hereafter made by such parties
or their representatives, regardless of negligence in the conduct of any
such
investigations.
ARTICLE
VIII
MISCELLANEOUS
Section
8.1. Termination.
This
Agreement may be terminated at any time prior to the Effective Time, as
follows:
(a) the
Company shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of Turbeco shall fail to be true and correct
in
all material respects (or in all respects in the case of any representation
or
warranty containing any materiality qualification) on and as of the date
made
or, except in the case of any such representations and warranties made as
of a
specified date, on and as of any subsequent date as if made at and as of
the
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 30 days after written notice
of
such failure is given to Turbeco by the Company;
(ii) if
the
Purchase Transaction is not completed by December 31, 2005 (provided that
the
right to terminate this Agreement under this Section 8.1(a)(ii) shall not
be
available to the Company if the failure of the Company to fulfill any obligation
to Turbeco under or in connection with this Agreement has been the cause
of or
resulted in the failure of the Purchase Transaction to occur on or before
such
date); or
(iii) if
Turbeco (A) fails to perform in any material respects any of its covenants
(or
in all respects in the case of any covenant containing any materiality
qualification) in this Agreement and (B) does not cure such default in all
material respects (or in all respects in the case of any covenant containing
any
materiality qualification) within 30 days after written notice of such default
is given to Turbeco by the Company.
-16-
(b) Turbeco
shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of the Company shall fail to be true and correct
in all material respects (or in all respects in the case of any representation
or warranty containing any materiality qualification) on and as of the date
made
or, except in the case of any such representations and warranties made as
of a
specified date, on and as of any subsequent date as if made at and as of
such
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 30 days after written notice
of
such failure is given to the Company by Turbeco;
(ii) if
the
Purchase Transaction is not completed by December 31, 2005 (provided that
the
right to terminate this Agreement under this Section 8.1(b)(ii) shall not
be
available to Turbeco if the failure of Turbeco to fulfill any obligation
to the
Company under or in connection with this Agreement has been the cause of
or
resulted in the failure of the Purchase Transaction to occur on or before
such
date); or
(iii) if
the
Company or JH (A) fails to perform in any material respect (or in all respects
in the case of any covenant containing any materiality qualification) any
of
their covenants in this Agreement and (B) do not cure such default in all
material respects (or in all respects in the case of any covenant containing
any
materiality qualification) within 30 days after notice of such default is
given
to the Company by Turbeco.
Section
8.2. Effect
of Termination.
In the
event of termination of this Agreement by either Turbeco
or the Company pursuant to the provisions of Section 8.1, this Agreement
shall
forthwith become void and there shall be no further obligations on the part
of
the Company, Turbeco, or its respective officers or directors, or JH to perform
any covenant or provision of this Agreement which otherwise would be required
to
be performed after the date of termination (except as set forth in this Section
8.2 and in Sections 5.4 and 8.9, all of which shall survive the termination).
Nothing in this Section 8.2 shall relieve any party from liability for any
breach of this Agreement.
Section
8.3. Remedies.
If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other relief to which it or he may be entitled at law
or
equity.
-17-
Section
8.4. Notices.
All
notices, consents, demands or other communications required or permitted
to be
given pursuant to this Agreement shall be deemed sufficiently given: (i)
when
delivered personally during a business day to the appropriate location described
below or telefaxed to the telefax number indicated below, or (ii) five (5)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed:
|
If
to Turbeco:
|
0000
Xxxxxx Xxxxxxx Xxxxx
|
|
Xxxxxxx,
Xxxxx 00000
|
|
|
Telefax
No. (000) 000-0000
|
|
|
With
a copy to:
|
Xxxxx
X. Xxxxxxx
|
|
Xxxxxxx
& Xxxxxxx LLP
|
|
|
0000
Xx. Xxxxx Xxxxx, Xxxxx 000
|
|
|
Xxxxxxx,
Xxxxx 00000
|
|
|
Telefax
No. (000) 000-0000
|
|
|
If
to the Company or JH:
|
00000
Xxxx Xxxxxxx Xxxx, Xxxxx 000
|
|
Xxxxxx,
Xxxxx 00000
|
|
|
Telefax
No. (000) 000-0000
|
Section
8.5. Successors.
This
Agreement shall be binding upon each of the parties upon their execution,
and
inure to the benefit of the parties hereto and their successors and assigns.
Section
8.6. Severability.
In the
event that any one or more of the provisions contained in this Agreement
or in
any other instrument referred to herein, shall, for any reason, be held to
be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this Agreement
or
any such other instrument.
Section
8.7. Section
Headings.
The
section headings used herein are descriptive only and shall have no legal
force
or effect whatsoever. Except to the extent the context specifically indicates
otherwise, all references to articles and sections refer to articles and
sections of this Agreement, and all references to the exhibits and schedules
refer to exhibits and schedules attached hereto, each of which is made a
part
hereof for all purposes.
Section
8.8. Gender.
Whenever the context so requires, the masculine shall include the feminine
and
neuter, and the singular shall include the plural and conversely.
Section
8.9. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Texas, U.S.A., applicable to agreements and contracts executed and
to
be wholly performed there, without giving effect to the conflicts of law
principles thereof.
-18-
Section
8.10. Multiple
Counterparts.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original.
Section
8.11. Waiver.
Any
waiver by either party to be enforceable must be in writing and no waiver
by
either party shall constitute a continuing waiver.
Section
8.12. Entire
Agreement.
This
Agreement and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof
and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and
thereof.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date
and
year first set forth above.
| THE COMPANY: | ||
| XXXXXX’X MACHINE WORKS, INC., a Texas corporation | ||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Name: |
||
| Title: | ||
| TURBECO: | ||
| TURBECO, INC., a Texas corporation | ||
| |
|
|
| By: | /s/ Xxxxx X. Xxxxx Xx, | |
|
Name: |
||
| Title: | ||
| JH: | ||
| /s/ Xxxxx Xxxxxx | ||
|
Xxxxx Xxxxxx |
||
-19-
