Exhibit 10.1 Agreement and Plan of Reorganization ("Merger Agreement") by and
among Force 10 Trading, Inc., a Nevada corporation, ("Force 10") and Petrex
Corporation, a Nevada corporation, ("Petrex") dated as of October 5, 2001
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FORCE 10 TRADING, INC.,
a Nevada corporation,
AND
PETREX CORPORATION.,
a Nevada corporation,
DATED AS OF OCTOBER 5, 2001
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of October 5, 2001, among, Petrex Corporation, a Nevada
corporation ("PETREX"), such corporation in its capacity as the surviving
corporation being herein sometimes called the "SURVIVING CORPORATION" and Force
10 Trading, Inc., a Nevada corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in conformity with Nevada Corporation Law
("NEVADA LAW"), PETREX and Company intend to enter into a business combination
transaction.
B. The Board of Directors of Company unanimously (i) has determined
that the Merger (as defined in Section 1.1) is consistent with and in
furtherance of the long-term business strategy of Company and fair to, and in
the best interests of, Company and its stockholders, (ii) has approved this
Agreement, the Merger (as defined in Section 1.1) and the other transactions
contemplated by this Agreement, and (iii) has determined to recommend that the
shareholders of Company adopt and approve this Agreement and approve the Merger.
C. The Board of Directors of PETREX unanimously (i) has determined that
the Merger is consistent with and in furtherance of the long-term business
strategy of PETREX and is fair to, and in the best interests of, PETREX and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, and (iii) has determined to
recommend that the stockholders of PETREX approve the issuance of shares of
PETREX Common Stock (as defined below) pursuant to the Merger (the "SHARE
ISSUANCE").
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE").
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NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I.
THE MERGER
1.1 THE MERGER.
At the Effective Time (as defined in Section 1.2) and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of
Nevada Law, Company shall be merged with and into PETREX or a wholly-owned
subsidiary of PETREX (the "MERGER"). PETREX shall continue as the surviving
corporation.
1.2 EFFECTIVE TIME; CLOSING.
Subject to the provisions of this Agreement, the parties hereto shall
cause the Merger to be consummated by filing an agreement and plan of merger and
articles, certificates or other appropriate filing documents with the Secretary
of State of the State of Nevada in accordance with the relevant provisions of
Nevada Law (collectively, the "CERTIFICATE OF MERGER") (the time of such filing
(or such later time as may be agreed in writing by Company and PETREX and
specified in the Certificate of Merger) being the "EFFECTIVE TIME") as soon as
practicable on or after the Closing Date (as herein defined). Unless the context
otherwise requires, the term "AGREEMENT" as used herein refers collectively to
this Agreement and Plan of Reorganization and the Certificate of Merger. The
closing of the Merger (the "CLOSING") shall take place at the offices of Weed &
Co. L.P., 0000 XxxXxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, XX 00000 at a time
and date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto agree
in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided in
this Agreement and the applicable provisions of Nevada Law.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
The certificate of incorporation and bylaws of PETREX as in effect at
the Effective Time shall from and after the Effective Time be the certificate of
incorporation and the by-laws of the Surviving Corporation until they are
amended.
1.5 DIRECTORS AND OFFICERS.
The initial directors of the Surviving Corporation shall be the
directors of the Company immediately prior to the Effective Time, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified. The initial officers of the Surviving Corporation shall
be the officers of the Company immediately prior to the Effective Time, each to
hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until their respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK.
Subject to the terms and conditions of this Agreement, at the Effective
Time, by virtue of the Merger and without any action on the part of PETREX,
Company or the holders of any of the following securities, the following shall
occur:
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(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock, par
value $.01 per share, of Company (the "COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be cancelled pursuant to Section 1.6(b)), will be
cancelled and extinguished and automatically converted (subject to section
1.6(d)) into the right to receive that number of shares of common stock of
PETREX (the"PETREX COMMON STOCK") equal to 1.0 (the "EXCHANGE RATIO"), upon
surrender of the certificate representing such share of Company Common Stock in
the manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.9). The PETREX Common Stock will be held in
escrow prior to its distribution to the Company's shareholders pursuant to the
terms and conditions of an escrow agreement between PETREX and the Company of
equal date herewith (the "Escrow Agreement") until the shareholder's equity of
the Surviving Company, as determined by accounting principles generally accepted
in the United States of America, exceeds one million dollars ($1,000,000.00). In
the event the conditions of the Escrow Agreement are not met, the PETREX Common
Stock shall be returned to PETREX. If any shares of Company Common Stock
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture, or other condition under any
applicable restricted stock purchase agreement or other agreement with the
Company, then, subject to the terms of the plan or agreement pursuant to which
such shares were issued, the shares of PETREX Common Stock issued in exchange
for such shares of Company Common Stock will also be unvested and subject to the
same repurchase option, risk of forfeiture, or other condition, and the
certificates representing such shares of PETREX Common Stock may accordingly be
marked with appropriate legends. Company shall take all action that may be
necessary to ensure that, from and after the Effective Time, PETREX is entitled
to exercise any such repurchase option or other right set forth in any such
restricted stock purchase agreement or other agreement.
(b) CANCELLATION OF COMPANY-OWNED STOCK. Each share of Company Common
Stock held by Company or any direct or indirect wholly-owned subsidiary of
Company immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.
(c) STOCK OPTIONS AND WARRANTS. At the Effective Time, all options to
purchase Company Common Stock and stock appreciation rights then outstanding, if
any, and all warrants to purchase Company Common Stock shall be converted into
options or warrants to purchase PETREX Common Stock or stock appreciation rights
to purchase PETREX Common Stock. All outstanding options and warrants to
purchase Company Common Stock are listed as Schedule 1.6(c).
(d) FRACTIONAL SHARES. No fraction of a share of PETREX Common Stock
will be issued by virtue of the Merger, but in lieu thereof, each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of PETREX Common Stock (after aggregating all fractional shares of
PETREX Common Stock that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificate(s) (as defined in Section 1.7(c)),
receive from PETREX a whole share of PETREX Common Stock.
1.7 SURRENDER OF CERTIFICATES; PAYMENT OF STOCK CONSIDERATION.
(a) EXCHANGE AGENT. PETREX and Company hereby select Merit Transfer
Company 00 Xxxxx Xxxx Xxxxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx 00000 to act as
the exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PETREX TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
PETREX shall make available to the Exchange Agent, for exchange in accordance
with this Article I, (i) the shares of PETREX Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Common Stock and any
dividends or distributions to which holders of shares of Company Common Stock
may be entitled pursuant to Section 1.7(d).
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, and in accordance with the Escrow Agreement (and in any event within five
business days after PETREX's receipt of all necessary shareholder list and other
supporting information), PETREX shall cause the Exchange Agent to mail to each
holder of record (as of the Effective Time) of a certificate or certificates
(the "CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares whose shares were converted into the right to receive shares
of PETREX Common Stock pursuant to Section 1.6(a) and any dividends or other
distributions pursuant to Section 1.7(d), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
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Agent and shall contain such other provisions as PETREX may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of PETREX Common Stock and any
dividends or other distributions pursuant to Section 1.7(d). Upon surrender of
Certificates for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by PETREX, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefore certificates representing the number of whole shares of PETREX Common
Stock into which their shares of Company Common Stock were converted at the
Effective Time and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be cancelled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the
payment of dividends and other distributions, to evidence only the ownership of
the number of full shares of PETREX Common Stock into which such shares of
Company Common Stock shall have been so converted.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to PETREX Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificate(s) with respect to the
shares of PETREX Common Stock represented thereby until the holders of record of
such Certificate(s) shall surrender such Certificate(s). Subject to applicable
law, following surrender of any such Certificate(s), the Exchange Agent shall
deliver to the record holders thereof, without interest, a certificate(s)
representing whole shares of PETREX Common Stock issued in exchange therefore
along with the amount of any such dividends or other distributions with a record
date after the Effective Time payable with respect to such whole shares of
PETREX Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate representing shares of
PETREX Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefore is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to PETREX or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of PETREX Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of PETREX or any agent designated by it that such tax has been paid
or is not payable.
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, PETREX, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local, or foreign tax law or under any other applicable legal
requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the person to whom such amounts would otherwise have been paid.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, PETREX, the Surviving Corporation, or
any party hereto shall be liable to a holder of shares of PETREX Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.
All shares of PETREX Common Stock issued upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
(together with any cash paid in respect thereof pursuant to Section 1.7(d))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article I.
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1.9 LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event that any Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate, upon the making of an affidavit of that fact by the
holder thereof, certificates representing the shares of PETREX Common Stock into
which the shares of Company Common Stock represented by such Certificates were
converted pursuant to Section 1.6 and any dividends or distributions payable
pursuant to Section 1.7(d); provided, however, that PETREX may, in its
discretion and as a condition precedent to the issuance of such certificates
representing shares of PETREX Common Stock, cash and other distributions,
require the owner of such lost, stolen or destroyed Certificate to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against PETREX, the Surviving Corporation, or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is also intended by the parties hereto that the Merger shall
qualify for accounting treatment as a purchase.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION.
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title, and possession to all assets,
property, rights, privileges, powers and franchises of Company, the officers and
directors of Company are fully authorized in the manner of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to PETREX, subject to such exceptions
as are specifically disclosed in writing in the schedules hereto (each such
exception to reference the specific section number of this Article II to which
it applies and each other section number of this Article II to the extent such
applicability is reasonably applicable to PETREX on the face of such exception),
dated as of the date hereof (the "COMPANY SCHEDULE"):
2.1 ORGANIZATION OF COMPANY; SUBSIDIARIES.
(a) Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3(b)(ii)) on Company.
(b) Schedule 2.1(b) of the Company Schedule contains a true and
complete list of all of Company's subsidiaries, indicating the jurisdiction of
incorporation of each subsidiary and Company's equity interest therein. Neither
Company nor any of its subsidiaries directly or indirectly owns an equity,
membership, partnership, or similar interest in, or any interest convertible
into, or exchangeable or exercisable for any such interest in, any corporation,
partnership, joint venture, limited liability company or other business
association or entity.
(c) Schedule 2.1(c) of the Company Schedule contains a true and correct
copy of the Certificate of Incorporation and Bylaws of Company and similar
governing instruments of each of its subsidiaries, each as amended to date, and
each such instrument is in full force and effect. Neither Company nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent governing instruments.
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(d) All of the outstanding shares of capital stock of each of Company's
subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the charter
documents of any such subsidiary or any agreement or document to which any such
subsidiary is party or by which its is bound, and all such shares are owned, of
record and beneficially, by Company or another subsidiary of Company free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on voting rights, charges or other encumbrances of any nature.
2.2 COMPANY CAPITAL STRUCTURE.
The authorized capital stock of Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share, of which there are 6,400,000 shares
issued and outstanding as of October 5, 2001, and 10,000,000 shares of Preferred
Stock, par value $.01 per share, of which no shares are issued or outstanding as
of October 2, 2001. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, and nonassessable, and are not subject
to preemptive rights created by statute, the Articles of Incorporation or Bylaws
of Company, or any agreement or document to which Company is a party or by which
it is bound. As of the Closing, there is no Company stock option plan or other
incentive plan besides those options and warrants granted and issued as
disclosed in Schedule 1.6(c).
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK.
Except as set forth in Company Schedule 2.3, as of the date hereof,
there are no equity securities, partnership interests, or similar ownership
interests of any class of Company, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests, or
similar ownership interests issued, reserved for issuance or outstanding. Except
for securities Company owns, directly or indirectly through one or more
subsidiaries, there are no equity securities, partnership interests, or similar
ownership interests of any class of any subsidiary of Company, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests issued, reserved for
issuance or outstanding. Except as set forth in Company Schedule 2.3, there are
no stock appreciation rights, phantom stock, or other similar rights of Company
and no options, warrants, equity securities, partnership interests, or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Company or any of its subsidiaries is a
party, or by which it is bound, obligating Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock of Company or any of its subsidiaries or
obligating Company or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such stock appreciation rights, phantom stock, or
other similar rights, or any such option, warrant, equity security, partnership
interest or similar ownership interest, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of Company there are no
voting trusts, proxies or other agreements or understandings with respect to any
equity security of any class of Company or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries.
2.4 AUTHORITY.
(a) Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company, subject only to the approval and
adoption of this Agreement and the approval of the Merger by Company's
shareholders and the filing and recordation of the Certificate of Merger
pursuant to Nevada Law. Votes of the holders of a majority of the outstanding
shares of Company Common Stock is required for Company's shareholders to approve
and adopt this Agreement and approve the Merger. This Agreement has been duly
executed and delivered by Company and, assuming the due authorization,
execution, and delivery by PETREX, constitutes the valid and binding obligations
of Company, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws of Company or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to obtaining
the approval of the Merger by Company's shareholders as contemplated in Section
5.2 and compliance with the requirements set forth in Section 2.4(b) below,
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conflict with or violate any law, rule, regulation, order, judgment, or decree
applicable to Company or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach of, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration, or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, or other instrument or
obligation to which Company or any of its subsidiaries is a party or by which
Company or any of its subsidiaries or its or any of their respective properties
are bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not, in the case of clause (ii) or
(iii), individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company or a material adverse effect on the ability
of Company to perform its obligations under this Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration, or filing with any court, administrative agency or commission or
other governmental authority or instrumentality ("GOVERNMENTAL ENTITY") is
required by or with respect to Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the Certificate of Merger with
the Secretary of State of Nevada, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (iii) such other consents,
authorizations, filings, approvals, and registrations which, if not obtained or
made, could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Company or a material adverse effect on the
ability of Company to perform its obligations under this Agreement.
2.5 FINANCIAL CONDITION.
If available, the Company has delivered to PETREX true and correct
copies of the following, initialed by the president of the Company: audited
consolidated balance sheets since inception, unaudited consolidated balance
sheets as of August 31, 2001, audited statements of income, consolidated
statements of stockholder's equity and consolidated statements of cash flows of
the Company since inception; and unaudited consolidated statements of income,
consolidated statement of stockholders' equity and consolidated statement of
cash flows for the six months ended August 31, 2001. The financial statements
referred to in this section 2.5 have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods involved and are in accordance with the books and records of the
Company.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Company Schedule 2.6, since the Effective Time,
there has not been (i) any Material Adverse Effect on the Company, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock, or property) in respect of, any of the Company's or any
of its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by the Company of any of the Company's capital stock or any other
securities of the Company or its subsidiaries or any options, warrants, calls or
rights to acquire any such shares or other securities, (iii) any split,
combination, or reclassification of any of the Company's or any of its
subsidiaries' capital stock, (iv) any granting by the Company or any of its
subsidiaries of any increase in compensation or fringe benefits, except for
normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by the Company or any of its
subsidiaries of any bonus, except for bonuses made in the ordinary course of
business consistent with past practice, (v) any granting by the Company or any
of its subsidiaries of any increase in severance or termination pay, (vi) any
entry by the Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any other
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving the Company of
the nature contemplated hereby, (vii) entry by the Company or any of its
subsidiaries into any licensing or other agreement with regard to the
acquisition or disposition of any material Intellectual Property (as defined
herein) other than licenses in the ordinary course of business consistent with
past practice, (viii) any material change by the Company in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, (ix) any revaluation by the Company of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable other than in the ordinary course of business
and consistent with past practice, (x) any changes in the vesting schedules of
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outstanding Company options or Company Warrants, or (xi) any grant of stock
options or Company Warrants prior to the date of this Agreement other than
grants to new employees in connection with the commencement of their employment.
2.7 TAXES.
Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local, and foreign taxes,
assessments, and other governmental charges, duties, impositions, and
liabilities relating to taxes, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
2.8 TAX RETURNS AND AUDITS.
(a) Company and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("RETURNS") and/or extensions relating to Taxes required to be filed by Company
and each of its subsidiaries with any Tax authority, except such Returns which
are not material to Company. Company and each of its subsidiaries have paid all
Taxes shown to be due on such Returns.
(b) Company and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income Taxes,
Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant to the
Federal Unemployment Tax Act, and other Taxes required to be withheld, except
such Taxes which are not material to Company.
(c) Neither Company nor any of its subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its subsidiaries,
nor has Company or any of its subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has Company
or any of its subsidiaries been notified of any request for such an audit or
other examination.
(e) No adjustment relating to any Returns filed by Company or any of
its subsidiaries has been proposed in writing formally or informally by any Tax
authority to Company or any of its subsidiaries or any representative thereof.
(f) Neither Company nor any of its subsidiaries has any liability for
any material unpaid Taxes which has not been accrued for or reserved on Company
balance sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Company, other than any liability
for unpaid Taxes that may have accrued since the fiscal year end in connection
with the operation of the business of Company and its subsidiaries in the
ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Company or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. There is no contract, agreement, plan, or arrangement
to which Company is a party or by which it is bound to compensate any individual
for excise taxes paid pursuant to Section 4999 of the Code.
(h) Neither Company nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Company or any of its subsidiaries.
9
(i) Neither Company nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or
arrangement.
(j) None of Company's or its subsidiaries' assets are tax-exempt use
property within the meaning of Section 168(h) of the Code.
(k) Company has (a) never been a member of an affiliated group (within
the meaning of Code Section 1504(a)) filing a consolidated federal income Tax
Return (other than a group the common PETREX of which was Company), (b) with
respect to the Taxes of any person (other than Company or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material liability
as a transferee or successor and (c) never been a party to any joint venture,
partnership or other agreement that should be treated as a partnership for Tax
purposes.
(l) Company has not been either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
2.9 COMPANY INTELLECTUAL PROPERTY.
For the purposes of this Agreement, the following terms have the
following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefore and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefore, and all other rights corresponding thereto
throughout the world; (iv) all industrial designs and any registrations and
applications therefore throughout the world; (v) all trade names, logos, common
law trademarks and service marks, trademark and service xxxx registrations and
applications therefore throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world, and (viii) any similar or equivalent rights to any of the foregoing
anywhere in the world. "COMPANY INTELLECTUAL PROPERTY" shall mean any
Intellectual Property that is owned by, or exclusively licensed to, Company.
(a) No Company Intellectual Property or product or service of Company
or any of its subsidiaries is subject to any proceeding or outstanding decree,
order, judgment, contract, license, agreement, or stipulation restricting in any
manner the use, transfer, or licensing thereof by Company or any of its
subsidiaries, or which may affect the validity, use or enforceability of such
Company Intellectual Property.
(b) To the knowledge of Company, Company owns, or has license or other
rights to use (sufficient for the conduct of its business as currently
conducted), each material item of Company Intellectual Property or other
Intellectual Property used by Company free and clear of any lien or encumbrance
(excluding licenses and related restrictions).
(c) Neither Company nor any of its subsidiaries has transferred
ownership of or granted any license with respect to, any material Company
Intellectual Property to any third party.
(d) To the knowledge of Company, the operation of the business of
Company and its subsidiaries as such business currently is conducted does not
infringe the Intellectual Property of any third party.
(e) Neither Company nor any of its subsidiaries has received notice
from any third party that the operation of the business of Company or any of its
subsidiaries or any act, product, or service of Company or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of Company, no person has or is infringing any
material Company Intellectual Property.
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(g) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Company or any of its
subsidiaries, and, without limiting the foregoing, each of Company and its
subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to PETREX and all current and former employees and contractors of
Company and any of its subsidiaries have executed such an agreement, except
where the failure to do so is not reasonably expected to be material to Company.
2.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment, or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, or other instrument or obligation
to which Company or any of its subsidiaries is a party or by which Company or
any of its subsidiaries or its or any of their respective properties is bound or
affected. To the knowledge of Company, no investigation or review by any
Governmental Entity is pending or threatened against Company or its
subsidiaries, nor has any Governmental Entity indicated an intention to conduct
the same. There is no material agreement, judgment, injunction, order, or decree
binding upon Company or any of its subsidiaries which has or would reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of Company or any of its subsidiaries, any acquisition of
material property by Company or any of its subsidiaries or the conduct of
business by Company as currently conducted.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders, and approvals from governmental authorities which are
material to the operation of the business of Company, as set forth in Company
Schedule 2.10(b) (collectively, the "COMPANY PERMITS"). Company and its
subsidiaries are in compliance in all material respects with the terms of the
Company Permits.
2.11 LITIGATION.
As of the date of this Agreement, except as set forth in Company
Schedule 2.11, there is no action, suit, proceeding, claim, arbitration, or
investigation pending, or as to which Company or any of its subsidiaries has
received any notice of assertion nor, to Company's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration, or investigation
against Company or any of its subsidiaries which in each case reasonably would
be likely to be material to Company, or which in any manner challenges or seeks
to prevent, enjoin, alter, or delay any of the transactions contemplated by this
Agreement.
2.12 BROKERS' AND FINDERS' FEES.
Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby except as disclosed in Company Schedule 2.12.
2.13 EMPLOYEE BENEFIT PLANS.
(a) Company or its subsidiaries do not contribute to, any pension,
profit-sharing, option, other incentive plan, or other Employee Benefit Plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974),
or has any obligation to or customary arrangement with employees for bonuses,
incentive compensation, vacations, severance pay, insurance, or other benefits,
except as set forth in Company Schedule 2.13.
(b) Company is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
11
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any shareholder, director or Company employee or
any of its subsidiaries under any agreement or otherwise, (ii) increase any
benefits otherwise payable under any agreement, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
2.14 ABSENCE OF LIENS AND ENCUMBRANCES.
Company and each of its subsidiaries has good and valid title to, or,
in the case of leased properties and assets, valid leasehold interests in, all
of its tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens or encumbrances except as reflected in the
Company Financials and except for liens for Taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which would not be
material to Company.
2.15 ENVIRONMENTAL MATTERS.
(a) Except as would not reasonably be likely to result in a Material
Adverse Effect on Company, (i) neither Company nor any of its subsidiaries has
generated, transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to pollutants, contaminants, wastes, or any
toxic, radioactive or otherwise hazardous materials ("HAZARDOUS MATERIALS") in
violation of, or in a manner that would be reasonably likely to result in
liability under, any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect as of the date hereof to protect the environment
or to prohibit, regulate or control Hazardous Materials "ENVIRONMENTAL LAWS")
and (ii) no Hazardous Materials are located in, on or under any real property or
facility now or previously owned, leased or operated by Company or any of its
subsidiaries in a manner which would reasonably be expected to result in
liability under, or a violation of, any Environmental Law.
(b) Except for matters which would not reasonably be expected to result
in a Material Adverse Effect on Company, no action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
Company's knowledge, threatened concerning any Company Permit relating to any
environmental matter, or otherwise relating to any Environmental Law.
2.16 LABOR MATTERS.
(i) There are no controversies pending or, to the knowledge of each of
Company and its respective subsidiaries, threatened, between Company or any of
its subsidiaries and any of their respective employees; (ii) as of the date of
this Agreement, neither Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Company or its subsidiaries nor does Company or its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement, neither
Company nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages or lockouts, or threats thereof, by or with respect to any
employees of Company or any of its subsidiaries.
2.17 AGREEMENTS, CONTRACTS, AND COMMITMENTS.
As of the date hereof, except as provided in Company Schedule 2.17,
neither Company nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of Company's
Board of Directors, other than those that are terminable by Company or any of
its subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to Company, (ii) any such agreement, contract or commitment
with any employee, consultant, shareholder or other person that will result in
any obligation of Company or any of its subsidiaries to make any payments as a
result of the transactions contemplated hereby, (iii) any agreement with any
employee, consultant or shareholder of Company pursuant to which Company has
loaned or is obligated to loan any money thereto or (iv) any agreement or
arrangement providing for severance or termination pay;
12
(b) any agreement or plan, including, without limitation, any stock
option plan, warrant agreement, stock appreciation right plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification of officers, directors or
employees of Company, except as provided for in Company's Articles of
Incorporation or Bylaws, or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business in any geographic area or to compete with any
person or granting to any person any interest in Company's distribution rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the ordinary
course of business or pursuant to which Company has any material ownership
interest in any corporation, partnership, joint venture or other business
enterprise other than Company's subsidiaries;
(f) any agreement, contract or commitment containing exclusivity
provisions pursuant to which Company has agreed not to purchase the goods or
services of, or enter into a commercial relationship with, another person;
(g) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 5,000 square feet; or
(j) any other agreement, lease, contract or commitment that involves
remaining obligations of Company of $10,000 or more individually. Neither
Company nor any of its subsidiaries, nor to Company's knowledge any other party
to a Company Contract (as defined below), is in breach, violation or default
under, and neither Company nor any of its subsidiaries has received written
notice that it has breached, violated or defaulted under, any of the terms or
conditions of any of the agreements, contracts or commitments to which Company
or any of its subsidiaries is a party or by which it is bound that are required
to be disclosed in the Company Schedules (any such agreement, contract or
commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
2.18 INSURANCE.
There is no material claim by Company or any of its subsidiaries
pending under any of the insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of Company and its subsidiaries as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
2.19 BOARD APPROVAL.
The Board of Directors of Company has, as of the date of this
Agreement, unanimously (i) determined that the Merger is fair to, advisable, and
in the best interests of Company and its shareholders, (ii) determined to
recommend that the shareholders of Company approve this Agreement and (iii) duly
approved the Merger, this Agreement, and the transactions contemplated hereby.
13
2.20 STATE TAKEOVER STATUTES.
The Board of Directors of Company has taken all actions so that (i) the
restrictions contained in Section 78.438 of the Nevada Law applicable to a
"business combination" (as defined in such Section 78.416) will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement. No other
state takeover statute or similar statute or regulation applies to or purports
to apply to the Merger, this Agreement, the Company Voting Agreements or the
transactions contemplated hereby and thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PETREX
PETREX and its subsidiaries jointly and severally represent and warrant
to Company, subject to such exceptions as are specifically disclosed in writing
in the schedules hereto (each such exception to reference the specific section
number of this Article III to which it applies and each other section number of
this Article III to the extent such applicability is reasonably applicable to
PETREX on the face of such exception), dated as of the date hereof (the "PETREX
SCHEDULE"):
3.1 ORGANIZATION OF PETREX; SUBSIDIARIES.
(a) PETREX and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3(b)(ii)) on PETREX.
(b) PETREX Schedule 3.1(b) contains a true and complete list of all of
PETREX's subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and PETREX's equity interest therein. Neither PETREX nor any of its
subsidiaries directly or indirectly owns an equity, membership, partnership or
similar interest in, or any interest convertible into, or exchangeable or
exercisable for any such interest in, any corporation, partnership, joint
venture, limited liability company or other business association or entity.
(c) PETREX has delivered or made available to Company a true and
correct copy of the Article of Incorporation and Bylaws of PETREX and similar
governing instruments of each of its subsidiaries, each as amended to date, and
each such instrument is in full force and effect. Neither PETREX nor any of its
subsidiaries is in violation of any of the provisions of its Article of
Incorporation or Bylaws or equivalent governing instruments.
(d) All of the outstanding shares of capital stock of each of PETREX's
subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the charter
documents of any such subsidiary or any agreement or document to which any such
subsidiary is party or by which its is bound, and all such shares (other than
directors' qualifying shares in the case of applicable foreign subsidiaries) are
owned, of record and beneficially, by PETREX or another subsidiary of PETREX
free and clear of all security interests, liens, claims, pledges, agreements,
limitations on voting rights, charges or other encumbrances of any nature.
3.2 PETREX CAPITAL STRUCTURE.
The authorized capital stock of PETREX consists of 75,000,000 shares of
Common Stock, par value $0.01 per share, of which 439,354 shares are issued and
outstanding as of October 5, 2001 and 50,000,000 shares of Preferred Stock, par
value $.01 per share, of which no shares are issued or outstanding. All
outstanding shares of PETREX Common Stock are duly authorized, validly issued,
fully paid, and non-assessable and are not subject to preemptive rights created
by statute, the Certificate of Incorporation or Bylaws of PETREX or any
14
agreement or document to which PETREX is a party or by which it is bound. As of
October 5, 2001, PETREX had reserved no shares of PETREX Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to PETREX's stock option plan (the "PETREX STOCK OPTION PLAN"). As of
October 2, 2001, PETREX had reserved no shares of PETREX Common Stock for
issuance to holders of warrants to purchase PETREX Common Stock ("PETREX
WARRANTS"). All shares of PETREX Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully
paid, and nonassessable.
3.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK.
Except as set forth in Section 3.2, and except as set forth in PETREX
Schedule 3.3, as of the date hereof, there are no equity securities, partnership
interests, or similar ownership interests of any class of PETREX, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities PETREX owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities, partnership interests or similar ownership interests of any class of
any subsidiary of PETREX, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests issued, reserved for issuance or outstanding. Except as set
forth in Section 3.2, and except as set forth in PETREX Schedule 3.3, there are
no stock appreciation rights, phantom stock or other similar rights of PETREX
and no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which PETREX or any of its subsidiaries is a
party or by which it is bound obligating PETREX or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock of PETREX or any of its subsidiaries or
obligating PETREX or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such stock appreciation rights, phantom stock or
other similar rights or any such option, warrant, equity security, partnership
interest or similar ownership interest, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of PETREX there are no
voting trusts, proxies or other agreements or understandings with respect to any
equity security of any class of PETREX or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries.
3.4 AUTHORITY.
(a) PETREX has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of PETREX, subject only to the approval and
adoption of this Agreement and the approval of the Share Issuance by PETREX's
stockholders and the filing and recordation of the Certificate of Merger
pursuant to Nevada Law. A vote of the holders of at least a majority of the
shares of PETREX Common Stock present or represented by proxy at the PETREX
Stockholders' Meeting is required for PETREX's stockholders to approve and adopt
a Share Issuance. This Agreement has been duly executed and delivered by PETREX
and, assuming the due authorization, execution and delivery by Company,
constitutes the valid and binding obligation of PETREX, enforceable in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other similar laws and general principles of equity. The execution and
delivery of this Agreement by PETREX do not, and the performance of this
Agreement by PETREX will not, (i) conflict with or violate the Article of
Incorporation or Bylaws of PETREX or the equivalent organizational documents of
any of its subsidiaries, (ii) subject to obtaining the approval of the Share
Issuance by PETREX's stockholders as contemplated in Section 5.2 and compliance
with the requirements set forth in Section 3.4(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
PETREX or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair PETREX's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of PETREX or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which PETREX or any of its subsidiaries is a party or by which PETREX or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except to the extent such conflict, violation, breach, default,
impairment or other effect could not, in the case of clause (ii) or (iii),
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on PETREX or a material adverse effect on PETREX's ability to
perform its obligations under this Agreement.
15
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to PETREX in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Secretary of State of
Nevada, (ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) the filing with PINK SHEETS of a Notification Form for
Listing of Additional Shares with respect to the shares of PETREX Common Stock
issued, if necessary, or to be reserved for issuance, in connection with the
Merger, and (iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not be material to PETREX or
have a material adverse effect on the ability of the parties to consummate the
Merger or to perform the obligations under this Agreement.
3.5 SEC FILINGS; PETREX FINANCIAL STATEMENTS.
(a) PETREX has filed all forms, reports and documents required to be
filed with the SEC since July 31, 2001, and has made available to Company such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports, and documents (including those that PETREX may file subsequent
to the date hereof) are referred to herein as the "PETREX SEC REPORTS." As of
their respective dates, the PETREX SEC Reports (i) were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such PETREX SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of PETREX's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the PETREX SEC Reports (the
"PETREX FINANCIALS"), including any PETREX SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-QSB under the Exchange Act) and (iii) fairly presented the
consolidated financial position of PETREX and its subsidiaries at the respective
dates thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not,
or are not expected to be, material in amount. The balance sheet of PETREX
contained in the PETREX SEC Reports as of May 31, 2001 is hereinafter referred
to as the "PETREX BALANCE SHEET." Except as disclosed in the PETREX Financials,
neither PETREX nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the aggregate,
material to the business, results of operations or financial condition of PETREX
and its subsidiaries taken as a whole, except liabilities (i) provided for in
the PETREX Balance Sheet, or (ii) incurred since the date of the PETREX Balance
Sheet in the ordinary course of business and immaterial in the aggregate.
(c) PETREX Schedule 3.5(a) sets forth a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or other instruments
which previously had been filed by PETREX with the SEC pursuant to the
Securities Act or the Exchange Act.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the date of the PETREX Balance Sheet there has not been: (i) any
Material Adverse Effect on the PETREX, (ii) any split, combination, or
reclassification of any of PETREX's or any of its subsidiaries' capital stock,
(iii) any granting by PETREX or any of its subsidiaries of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by PETREX or any of its subsidiaries of any bonus, except for
bonuses made in the ordinary course of business consistent with past practice,
16
(iv) any entry by PETREX or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any other
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving PETREX of the
nature contemplated hereby, (v) entry by PETREX or any of its subsidiaries into
any licensing or other agreement with regard to the acquisition or disposition
of any material PETREX Intellectual Property (as defined herein) other than
licenses in the ordinary course of business consistent with past practice, (vi)
any material change by PETREX in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, (vii) any
revaluation by PETREX of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable other than in the ordinary course of business and consistent with
past practice, (viii) any changes in the vesting schedules of outstanding PETREX
Options or PETREX Warrants, or (ix) any grant of stock options or warrants prior
to the date of this Agreement other than grants to new employees in connection
with the commencement of their employment.
3.7 TAXES.
(a) PETREX and each of its subsidiaries have timely filed all Returns
and/or extensions relating to Taxes required to be filed by PETREX and each of
its subsidiaries with any Tax authority, except such Returns which are not
material to PETREX. PETREX and each of its subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) PETREX and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income Taxes,
Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant to the
Federal Unemployment Tax Act and other Taxes required to be withheld, except
such Taxes which are not material to PETREX.
(c) Neither PETREX nor any of its subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against PETREX or any of its subsidiaries, nor
has PETREX or any of its subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of PETREX or any of its
subsidiaries by any Tax authority is presently in progress, nor has PETREX or
any of its subsidiaries been notified of any request for such an audit or other
examination.
(e) No adjustment relating to any Returns filed by PETREX or any of its
subsidiaries has been proposed in writing formally or informally by any Tax
authority to PETREX or any of its subsidiaries or any representative thereof.
(f) Neither PETREX nor any of its subsidiaries has any liability for
any material unpaid Taxes which has not been accrued for or reserved on PETREX
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to PETREX, other than any liability
for unpaid Taxes that may have accrued since February 28, 2001 in connection
with the operation of the business of PETREX and its subsidiaries in the
ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
PETREX or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of PETREX or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. There is no contract, agreement, plan or arrangement
to which PETREX is a party or by which it is bound to compensate any individual
for excise taxes paid pursuant to Section 4999 of the Code.
(h) Neither PETREX nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset(as defined in
Section 341(f)(4) of the Code) owned by PETREX or any of its subsidiaries.
17
(i) Neither PETREX nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or
arrangement.
(j) None of PETREX's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(k) PETREX has (a) never been a member of an affiliated group (within
the meaning of Code Section 1504(a)) filing a consolidated federal income Tax
Return (other than a group the common PETREX of which was PETREX), (b) with
respect to the Taxes of any person (other than PETREX or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material liability
as a transferee or successor and (c) never been a party to any joint venture,
partnership or other agreement that should be treated as a partnership for Tax
purposes.
3.8 PETREX INTELLECTUAL PROPERTY.
For the purposes of this Agreement, the following terms have the
following definitions:
"PETREX INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, PETREX.
(a) No PETREX Intellectual Property or product or service of PETREX or
any of its subsidiaries is subject to any proceeding or outstanding decree,
order, judgment, contract, license, agreement, or stipulation restricting in any
manner the use, transfer, or licensing thereof by PETREX or any of its
subsidiaries, or which may affect the validity, use or enforceability of such
PETREX Intellectual Property.
(b) To the knowledge of PETREX, PETREX owns, or has license or other
rights to use (sufficient for the conduct of its business as currently
conducted), each material item of PETREX Intellectual Property or other
Intellectual Property used by PETREX free and clear of any lien or encumbrance
(excluding licenses and related restrictions).
(c) Neither PETREX nor any of its subsidiaries has transferred
ownership of, or granted any license with respect to any material PETREX
Intellectual Property to any third party.
(d) To the knowledge of PETREX, the operation of the business of PETREX
and its subsidiaries as such business currently is conducted does not infringe
the Intellectual Property of any third party.
(e) Neither PETREX nor any of its subsidiaries has received notice from
any third party that the operation of the business of PETREX or any of its
subsidiaries or any act, product or service of PETREX or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of PETREX, no person has or is infringing or
misappropriating any material PETREX Intellectual Property.
(g) PETREX and each of its subsidiaries has taken reasonable steps to
protect PETREX's and its subsidiaries' rights in PETREX's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to PETREX or any of its
subsidiaries, and, without limiting the foregoing, each of PETREX and its
subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to Company and all current and former employees and contractors of
PETREX and any of its subsidiaries have executed such an agreement, except where
the failure to do so is not reasonably expected to be material to PETREX.
3.9 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither PETREX nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to PETREX or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
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agreement, lease, license, permit, franchise or other instrument or obligation
to which PETREX or any of its subsidiaries is a party or by which PETREX or any
of its subsidiaries or its or any of their respective properties is bound or
affected. To the knowledge of PETREX, no investigation or review by any
Governmental Entity is pending or threatened against PETREX or its subsidiaries,
nor has any Governmental Entity indicated an intention to conduct the same.
There is no material agreement, judgment, injunction, order or decree binding
upon PETREX or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any current business
practice of PETREX or any of its subsidiaries, any acquisition of material
property by PETREX or any of its subsidiaries or the conduct of business by
PETREX as currently conducted.
(b) PETREX and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of PETREX (collectively, the "PETREX
PERMITS"). PETREX and its subsidiaries are in compliance in all material
respects with the terms of the PETREX Permits.
3.10 LITIGATION.
As of the date of this Agreement, excluding such matters as are
disclosed in PETREX's SEC Reports, there is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which PETREX or any of its
subsidiaries has received any notice of assertion nor, to PETREX's knowledge, is
there a threatened action, suit, proceeding, claim, arbitration or investigation
against PETREX or any of its subsidiaries which reasonably would be likely to be
material to PETREX, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
3.11 BROKERS' AND FINDERS' FEES.
PETREX has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.12 EMPLOYEE BENEFIT PLANS.
(a) PETREX does not contribute to, any pension, profit-sharing, option,
other incentive plan, or other Employee Benefit Plan (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974), or has any obligation
to or customary arrangement with employees for bonuses, incentive compensation,
vacations, severance pay, insurance, or other benefits, except as set forth in
PETREX Schedule 3.12(a).
(b) PETREX is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or PETREX employee or
any of its subsidiaries under any agreement or otherwise, (ii) increase any
benefits otherwise payable under any agreement, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
3.13 ABSENCE OF LIENS AND ENCUMBRANCES.
PETREX and each of its subsidiaries has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens or encumbrances except as reflected in the
PETREX Financials and except for liens for Taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which would not be
material to PETREX.
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3.14 ENVIRONMENTAL MATTERS.
(a) Except as would not reasonably be likely to result in a Material
Adverse Effect on PETREX, (i) neither PETREX nor any of its subsidiaries has
generated, transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of, or in a
manner that would reasonably be likely to result in liability under, any
Environmental Law, and (ii) no Hazardous Materials are located in, on or under
any real property or facility now or previously owned, leased or operated by
PETREX or any of its subsidiaries in a manner which would reasonably be expected
to result in liability under, or in violation of, any Environmental Law.
(b) Except for matters which would not reasonably be expected to result
in a Material Adverse Effect on PETREX, no action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
PETREX's knowledge, threatened concerning any PETREX Permit relating to any
environmental matter, or otherwise relating to any Hazardous Material or any
Environmental Law.
3.15 LABOR MATTERS.
(a) There are no controversies pending or, to the knowledge of each of
PETREX and its respective subsidiaries, threatened, between PETREX or any of its
subsidiaries and any of their respective employees; (b) as of the date of this
Agreement, neither PETREX nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by PETREX or its subsidiaries nor does PETREX or its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement, neither
PETREX nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages or lockouts, or threats thereof, by or with respect to any
employees of PETREX or any of its subsidiaries.
3.16 AGREEMENTS, CONTRACTS, AND COMMITMENTS.
As of the date hereof, except as provided in PETREX Schedule 3.16,
neither PETREX nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or commitment
with any officer or director or member of PETREX's Board of Directors, other
than those that are terminable by PETREX or any of its subsidiaries on no more
than thirty (30) days' notice without liability or financial obligation to
PETREX, (ii) any such agreement, contract or commitment with any employee,
consultant, stockholder or other person that will result in any obligation of
PETREX or any of its subsidiaries to make any payments as a result of the
transactions contemplated hereby, (iii) any agreement with any employee,
consultant or stockholder of PETREX pursuant to which PETREX has loaned or is
obligated to loan any money thereto or (iv) any arrangement or agreement
providing for severance or termination pay;
(b) any agreement or plan, including, without limitation, any stock
option plan, warrant agreement, stock appreciation right plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification of officers, directors or
employees of PETREX, except as provided for in PETREX's Articles of
Incorporation or Bylaws, or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of PETREX;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of PETREX or any of its subsidiaries to engage
in any line of business in any geographic area or to compete with any person or
granting to any person any interest in PETREX's distribution rights;
20
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by PETREX or any of its subsidiaries after the
date of this Agreement of a material amount of assets not in the ordinary course
of business or pursuant to which PETREX has any material ownership interest in
any corporation, partnership, joint venture or other business enterprise other
than PETREX's subsidiaries;
(f) any contract, agreement or commitment containing exclusivity
provisions pursuant to which PETREX has agreed not to purchase the goods (other
than local grocery products) or services of, or enter into a commercial
relationship with, another person;
(g) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 25,000 square feet; or
(j) any other agreement, lease, contract or commitment that involves
remaining obligations of PETREX of $1,000 or more individually. Neither PETREX
nor any of its subsidiaries, nor to PETREX's knowledge any other party to a
PETREX Contract (as defined below), is in breach, violation or default under,
and neither PETREX nor any of its subsidiaries has received written notice that
it has breached, violated or defaulted under, any of the terms or conditions of
any of the agreements, contracts or commitments to which PETREX or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the PETREX Schedules (any such agreement, contract or commitment, a
"PETREX CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such PETREX Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate).
3.17 INSURANCE.
There is no material claim by PETREX or any of its subsidiaries pending
under any of the insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of PETREX and its subsidiaries as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds.
3.18 BOARD APPROVAL.
The Board of Directors of PETREX has, as of the date of this Agreement,
unanimously (i) determined that the Merger is fair to and in the best interests
of PETREX and its stockholders, (ii) determined to recommend that the
stockholders of PETREX approve the Share Issuance and (iii) duly approved the
Merger, this Agreement and the transactions contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Company and each of its subsidiaries shall, except to the extent
that PETREX shall otherwise consent in writing, carry on its business, in the
ordinary course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees, and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.
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In addition, except as expressly permitted by the terms of this
Agreement and except as set forth in Schedule 4.1 without the prior written
consent of PETREX, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of warrants or options or restricted stock, or reprice
warrants or options granted under any employee, consultant, director or other
stock plans or agreements or authorize cash payments in exchange for any options
granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing, or adopt any new severance
plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property other than in
the ordinary course of business consistent with past practices;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (i) the issuance,
delivery and/or sale of Company Common Stock pursuant to the exercise of stock
options and Company Warrants outstanding as of the date of this Agreement, and
(ii) the issuance of up to 500,000 shares of Company common stock to executive
officers of Company;
(g) Cause, permit, or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets (other than in the ordinary course of business consistent
with past practice) or enter into any joint ventures, strategic partnerships or
alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company, enter
into any agreement to maintain any financial statement condition or enter into
any arrangement having the economic effect of any of the foregoing other than in
connection with the financing of ordinary course trade payables consistent with
past practice;
22
(k) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than as required
by law or offer letters and letter agreements entered into in the ordinary
course of business consistent with past practice with employees who are
terminable "at will"), pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors, officers,
employees or consultants other than annual review salary increases for
non-officer employees in the ordinary course of business consistent with past
practice;
(l) (i) Pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement) in which Company is a defendant other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, or liabilities
recognized or disclosed in the most recent consolidated financial statements (or
the notes thereto) of Company, incurred in the ordinary course of business
consistent with past practice since the date of such financial statements, or
(ii) waive the benefits of, agree to modify in any manner, terminate, release
any person from or fail to enforce any confidentiality or similar agreement to
which Company or any of its subsidiaries is a party or of which Company or any
of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business in excess of $10,000;
(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to which
Company or any subsidiary thereof is a party or waive, delay the exercise of,
release or assign any material rights or claims thereunder;
(o) Enter into any agreement, contract or commitment which if in
existence on the date hereof would be required to be listed in Company Schedule
2.17;
(p) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment outside
of the ordinary course of business in excess of $10,000 individually;
(r) Engage in any action that would reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code, whether or not otherwise permitted by the provisions of this Article IV;
(s) Make any Tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the Tax liability
or Tax attributes of Company or any of its subsidiaries or settle or compromise
any material income Tax liability;
(t) Enter into any collective bargaining agreements; or
(u) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (t) above.
4.2 CONDUCT OF BUSINESS BY PETREX.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, PETREX and each of its subsidiaries shall, except to the extent
that Company shall otherwise consent in writing, carry on its business, in the
ordinary course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.
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In addition, except as expressly permitted by the terms of this
Agreement and except as set forth in PETREX Schedule 4.2, without the prior
written consent of Company, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, PETREX shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of warrants or options or restricted stock, or reprice
warrants or options granted under any employee, consultant, director or other
stock plans or authorize cash payments in exchange for any options granted under
any of such plans;
(b) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock, except for intercompany dividends or distributions, or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for any capital stock, except as set forth in PETREX Schedules;
(c) Cause, permit or propose any amendments to the PETREX Charter
Documents (or similar governing instruments of any of its subsidiaries) that
would have an adverse effect on the rights of holders of PETREX Common Stock;
(d) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(e) Engage in any action that would reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code, whether or not otherwise permitted by the provisions of this Article IV;
(f) Make any Tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the Tax liability
or Tax attributes of PETREX or any of its subsidiaries or settle or compromise
any material income Tax liability; or
(g) Agree in writing or otherwise to take any of the actions described
in Sections 4.2 (a) through (f) above.
4.3 ADDITIONAL AGREEMENTS
Notwithstanding the above Sections 4.1 and 4.2, PETREX may enter
into the agreements set forth in Article V of this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 INTENTIONALLY LEFT BLANK
5.2 SHAREHOLDER AND STOCKHOLDER MEETINGS.
Company shall call and hold the Company Shareholders' Meeting and
PETREX shall call and hold the PETREX Stockholders' Meeting as promptly as
practicable after the date hereof for the purpose of voting upon the adoption
and approval of this Agreement and the approval of the Merger (in the case of
the Company Shareholders' Meeting) and the Share Issuance (in the case of the
PETREX Stockholders' Meeting), and Company and PETREX shall use all reasonable
efforts to hold the PETREX Stockholders' Meeting and the Company Shareholders'
Meeting on the same day and as soon as practicable. Nothing herein shall prevent
Company or PETREX from adjourning or postponing the Company Shareholders'
24
Meeting or the PETREX Stockholders' Meeting, as the case may be, if there are
insufficient shares of Company Common Stock or PETREX Common Stock, as the case
may be, necessary to conduct business at their respective meetings of the
shareholders or stockholders. The Board of Directors of Company shall submit
this Agreement and the Merger for shareholder approval pursuant to Nevada Law
subject only to the condition of shareholder approval as described in Section
2.4. Unless Company's Board of Directors has withdrawn its recommendation of
this Agreement and the Merger in compliance with Section 5.4(a), Company shall
use commercially reasonable efforts to solicit from its shareholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and shall take all other commercially reasonable action necessary or
advisable to secure the vote or consent of shareholders required by Nevada Law
or applicable PINK SHEETS requirements to obtain such approval. PETREX shall use
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the Share Issuance and shall take all other commercially reasonable
action necessary or advisable to secure the vote or consent of stockholders
required by applicable PINK SHEETS requirements to obtain such approval. Company
shall call and hold the Company Shareholders' Meeting for the purpose of voting
upon the adoption and approval of this Agreement and the approval of the Merger
whether or not Company's Board of Directors at any time subsequent to the date
hereof withdraws its recommendation of this Agreement and the Merger.
5.3 ACCESS TO INFORMATION.
Each of Company and PETREX will afford the other and the other's
accountants, counsel and other representatives reasonable access to its
properties, books, records, shareholder lists and personnel during the period
prior to the Effective Time to obtain all information concerning its business as
such other party may reasonably request. No information or knowledge obtained in
any investigation pursuant to this Section 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 NO SOLICITATION.
(i) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly, (A) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below), (B) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or knowingly take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Acquisition Proposal, (C) engage in discussions with
any person with respect to any Acquisition Proposal, (D) approve, endorse or
recommend any Acquisition Proposal or (E) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction (as defined below); provided,
however, that nothing contained in this Section 5.4(a) shall prohibit the Board
of Directors of Company from (m) complying with Rule 14d-9 or 14e-2(a)
promulgated under the Exchange Act with regard to a tender or exchange offer not
made after a violation of this Section 5.4(a) or (n) at any time prior to the
date of the Company Shareholders' Meeting, in response to a bona fide written
Acquisition Proposal received without the prior occurrence of a breach of this
Section 5.4(a) that Company's Board of Directors reasonably concludes
constitutes a Superior Proposal (as defined below), engaging in discussions or
participating in negotiations with and furnishing information to the party
making such Acquisition Proposal to the extent (1) the Board of Directors of
Company determines in good faith after consultation with its outside legal
counsel that its fiduciary obligations under applicable law require it to do so,
(2) (x) at least two business days prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, such party,
Company gives PETREX written notice of Company's intention to furnish nonpublic
information to, or enter into discussions or negotiations with, such party and
(y) Company receives from such party an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such party by or on behalf of Company,
and (3) contemporaneously with furnishing any such nonpublic information to such
party, Company furnishes such nonpublic information to PETREX (to the extent
such nonpublic information has not been previously furnished by Company to
PETREX). Company and its subsidiaries will immediately cease any and all
existing activities, discussions, or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
this Section 5.4(a) by any officer, director, affiliate or employee of Company
or any of its subsidiaries or any investment banker, attorney or other advisor
or representative of Company or any of its subsidiaries shall be deemed to be a
25
breach of this Section 5.4(a) by Company. (ii) For purposes of this Agreement,
(A) "ACQUISITION PROPOSAL" shall mean any offer, inquiry or proposal (other than
an offer, inquiry or proposal by PETREX) relating to any Acquisition
Transaction. For the purposes of this Agreement; (B) "ACQUISITION TRANSACTION"
shall mean any transaction or series of related transactions other than the
transactions contemplated by this Agreement involving: (X) any acquisition or
purchase from Company by any person or "group" (as defined under Section 13(d)
of the Exchange Act and the rules and regulations thereunder) of more than a 15%
interest in the total outstanding voting securities of Company or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 15% or more of
the total outstanding voting securities of Company or any of its subsidiaries or
any merger, consolidation, business combination or similar transaction involving
Company pursuant to which the shareholders of Company immediately preceding such
transaction hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction; (Y) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
assets of Company; or (Z) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company; and (C) "SUPERIOR
PROPOSAL" shall mean an Acquisition Proposal with respect to which (x) if any
cash consideration is involved, shall not be subject to any financing
contingency or with respect to which Company's Board of Directors shall have
reasonably determined (based upon the advice of Company's financial advisors)
that the acquiring party is capable of consummating the proposed Acquisition
Transaction on the terms proposed, and (y) Company's Board of Directors shall
have reasonably determined that the proposed Acquisition Transaction provides
greater value to the shareholders of Company than the Merger (based upon a
written opinion of Company's financial advisor). (iii) In addition to the
obligations of Company set forth in paragraph (i) of this Section 5.4(a),
Company as promptly as practicable, and in any event within 24 hours, shall
advise PETREX orally and in writing of any request for information which Company
reasonably believes would lead to an Acquisition Proposal or of any Acquisition
Proposal, or any inquiry with respect to or which Company reasonably believes
would lead to any Acquisition Proposal, the material terms and conditions of
such request, Acquisition Proposal or inquiry, and the identity of the person or
group making any such request, Acquisition Proposal or inquiry. Company will
keep PETREX informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Acquisition Proposal, or inquiry. In addition to the foregoing, Company shall
(A) provide PETREX with at least 48 hours prior notice (or such lesser prior
notice as provided to the members of Company's Board of Directors but in no
event less than eight hours) of any meeting of Company's Board of Directors at
which Company's Board of Directors is reasonably expected to consider an
Acquisition Proposal and (B) provide PETREX with at least three (3) business
days prior written notice of a meeting of Company's Board of Directors at which
Company's Board of Directors is reasonably expected to recommend a Superior
Proposal to its shareholders and together with such notice a copy of the
definitive documentation relating to such Superior Proposal.
5.5 PUBLIC DISCLOSURE.
PETREX and Company will consult with each other and agree before
issuing any press release or otherwise making any public statement with respect
to the Merger, this Agreement or an Acquisition Proposal and will not issue any
such press release or make any such public statement prior to such agreement,
except as may be required by law or any listing agreement with a national
securities exchange, in which case reasonable efforts to consult with the other
party will be made prior to any such release or public statement. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use commercially reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using commercially reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
26
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement, the Company Voting Agreements or any of the
transactions contemplated hereby and thereby, use commercially reasonable
efforts to ensure that the Merger, this Agreement, the Company Voting Agreements
and the other transactions contemplated hereby and thereby may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger,
this Agreement, the Company Voting Agreements and the transactions contemplated
hereby and thereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require PETREX or Company or any subsidiary or
affiliate thereof to agree to any divestiture by itself or any of its affiliates
of shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to conduct
their business or to own or exercise control of such assets, properties and
stock.
(b) Company shall give prompt notice to PETREX of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of Company to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
6.3(a) or 6.3(b) would not be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(c) PETREX shall give prompt notice to Company of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of PETREX to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
6.2(a) or 6.2(b) would not be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
5.7 THIRD- PARTY CONSENTS.
As soon as practicable following the date hereof, PETREX and Company
will each use commercially reasonable efforts to obtain any consents, waivers
and approvals under any of its or its subsidiaries' respective agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby.
5.8 STOCK OPTIONS; WARRANTS.
(a) At the Effective Time, each outstanding option or warrant to
purchase shares of Company Common Stock (each, a "COMPANY STOCK OPTION"),
whether or not vested, and each outstanding Company Warrant, whether or not then
exercisable, shall be converted into options or warrants to purchase PETREX
Common Stock or stock appreciation rights to purchase PETREX Common Stock.
(b) PETREX shall cause employees of Company and its subsidiaries as of
the Effective Time ("AFFECTED EMPLOYEES") to be credited with service with
Company and each of its subsidiaries for purposes of eligibility and vesting
under each employee benefit plan maintained by PETREX or its subsidiaries after
the Effective Time to the extent of their service with Company provided,
however, that such service shall not be recognized to the extent that such
recognition would result in duplication of benefits. To the extent permitted by
the PETREX Plans and applicable law, PETREX will, or will cause Company to (i)
waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Affected Employees under any welfare benefit plans that such employees may
be eligible to participate in after the Effective Time, other than limitations
27
or waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Affected Employees immediately prior to the Effective Time,
and (ii) provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time.
5.9 [Reserved].
5.10 PINK SHEETS LISTING.
PETREX agrees to file with the PINK SHEETS, if necessary, a
Notification Form for Listing of Additional Shares with regards to the shares of
PETREX Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger.
5.11 AFFILIATES.
Set forth in Company Schedule 5.11 is a list of those persons who may
be deemed to be, in Company's reasonable judgment, affiliates of Company within
the meaning of Rule 145 promulgated under the Securities Act (each, a "COMPANY
AFFILIATE"). Company will promptly provide PETREX with updates to such list with
respect to persons who may deemed, after the date hereof, to be Company
Affiliates. Company has provided to PETREX (with respect to current Company
Affiliates), and will use its commercially reasonable efforts to deliver or
cause to be delivered to PETREX, as promptly as practicable on or following the
date any person who subsequently becomes a Company Affiliate, from each person
who becomes a Company Affiliate after the date hereof, an executed affiliate
agreement in substantially the form attached hereto as Exhibit C (the "AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time. PETREX will be entitled to place appropriate legends on the certificates
evidencing any PETREX Common Stock to be received by a Company Affiliate
pursuant to the terms of the Affiliate Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the PETREX Common Stock,
consistent with the terms of the Affiliate Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) SHAREHOLDER AND STOCKHOLDER APPROVALS. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of Company. The Share
Issuance shall have been approved by the requisite vote under the rules of
Nevada by the stockholders of PETREX.
(b) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(c) TAX-FREE TRANSACTION. Each of PETREX and Company shall act to
insure that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
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6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY.
The obligation of Company to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty of
PETREX contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date
except, in the case of clauses (i) and (ii), (A) for such failures to be true
and correct that do not in the aggregate constitute a Material Adverse Effect on
PETREX provided, however, that such Material Adverse Effect qualifier shall be
inapplicable with respect to the representations and warranties contained in
Section 3.2 (which representations and warranties shall have been true and
correct in all material respects as of the date of this Agreement and shall be
true and correct in all material respects as of the Closing Date), and (B) for
those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct (subject
to the qualifications set forth in the preceding clause (A)) as of such
particular date) (it being understood that, for purposes of determining the
accuracy of such representations and warranties in connection with clauses (i)
and (ii), all "Material Adverse Effect" qualifications and other qualifications
based on the word "material" or similar phrases contained in such
representations and warranties shall be disregarded). Company shall have
received a certificate with respect to the foregoing signed on behalf of PETREX
by an authorized officer of PETREX.
(b) AGREEMENTS AND COVENANTS. PETREX 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 Company shall have received a certificate to such effect signed on
behalf of PETREX by an authorized officer of PETREX.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PETREX.
The obligations of PETREX to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
PETREX:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty of
Company contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date except, in the case of clauses (i) and (ii), (A) for such failures to be
true and correct that do not in the aggregate constitute a Material Adverse
Effect on the Company provided, however, that such Material Adverse Effect
qualifier shall be inapplicable with respect to the representations and
warranties contained in Section 2.2 and 2.20 (which representations and
warranties shall have been true and correct in all material respects as of the
date of this Agreement and shall be true and correct in all material respects as
of the Closing Date) and (B) for those representations and warranties which
address matters only as of a particular date (which representations shall have
been true and correct (subject to the qualifications set forth in the preceding
clause (A)) as of such particular date) (it being understood that, for purposes
of determining the accuracy of such representations and warranties in connection
with clauses (i) and (ii), all "Material Adverse Effect" qualifications and
other qualifications based on the word "material" or similar phrases contained
in such representations and warranties shall be disregarded). PETREX shall have
received a certificate with respect to the foregoing signed on behalf of Company
by an authorized officer of Company.
(b) AGREEMENTS AND COVENANTS. Company 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 at or prior to the Closing
Date, and PETREX shall have received a certificate to such effect signed on
behalf of Company by an authorized officer of Company.
(c) CONSENTS. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby.
29
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after the requisite approval of the shareholders of
Company and the stockholders of PETREX:
(a) by mutual written consent duly authorized by the Boards of
Directors of PETREX and Company;
(b) by either Company or PETREX if the Merger shall not have been
consummated by October 15, 2001 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a material breach of this Agreement;
(c) by either Company or PETREX if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by either Company or PETREX if (i) required approval of the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Company shareholders duly convened therefore or at any adjournment thereof; or
(ii) the required approval by the stockholders of PETREX of the Share Issuance
required under applicable Nevada rules shall not have been obtained by reason of
the failure to obtain the required vote at a meeting of PETREX stockholders duly
convened therefore or at any adjournment or postponement thereof;
(e) by Company, upon a breach of any representation, warranty, covenant
or agreement on the part of PETREX set forth in this Agreement, or if any
representation or warranty of PETREX shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided, that if such inaccuracy in
PETREX's representations and warranties or breach by PETREX is curable by
PETREX, then Company may not terminate this Agreement under this Section 7.1(e)
for thirty (30) days after delivery of written notice from Company to PETREX of
such breach, provided PETREX continues to exercise best efforts to cure such
breach (it being understood that Company may not terminate this Agreement
pursuant to this paragraph (e) if such breach by PETREX is cured during such
thirty (30)-day period);
(f) by PETREX, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a), (b), or (c) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in
Company's representations and warranties or breach by Company is curable by
Company, then PETREX may not terminate this Agreement under this Section 7.1(f)
for thirty (30) days after delivery of written notice from PETREX to Company of
such breach, provided Company continues to exercise best efforts to cure such
breach (it being understood that PETREX may not terminate this Agreement
pursuant to this paragraph (f) if such breach by Company is cured during such
thirty (30)-day period);
(g) by PETREX, if (i) the Board of Directors of Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to PETREX or its stockholders, (ii) the Board of Directors of
Company shall have recommended to the shareholders of Company an Acquisition
Proposal, (iii) the Company fails to comply with Section 5.4, (iv) an
Acquisition Proposal shall have been announced or otherwise become publicly
known and the Board of Directors of Company shall have (A) failed to recommend
against acceptance of such by its shareholders (including by taking no position,
or indicating its inability to take a position, with respect to the acceptance
by its shareholders of an Acquisition Proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and recommendation of
this Agreement and the transactions contemplated hereby within five business
days thereafter or (v) the Board of Directors of Company resolves to take any of
the actions described above;
30
(h) by Company, if the Board of Directors of PETREX withdraws, modifies
or changes its recommendation of the Share Issuance in a manner adverse to
Company and its shareholders; or
(i) by Company or PETREX, if the respective Board of Directors
determines in its due diligence review that a condition exists that would have a
Material Adverse Effect on the business or financial condition of Company or
PETREX, as the case may be; provided, however, that notice is given pursuant to
Section 7.2 on or before October 15, 2001.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION.
Any termination of this Agreement under Section 7.1 above will be
effective immediately upon the delivery of written notice of the terminating
party to the other parties hereto (or such later time as may be required by
Section 7.1). In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 7.2, Section 5.3(a), Section 7.3 and Article 8,
each of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for fraud in connection with, or
any willful breach of, this Agreement.
7.3 FEES AND EXPENSES.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated.
7.4 AMENDMENT.
Subject to applicable law, this Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of PETREX, and Company.
7.5 EXTENSION; WAIVER.
At any time prior to the Effective Time, any party hereto may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party 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 an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Company and PETREX contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service,
or sent via telecopy (receipt confirmed) to the parties at the following
addresses or telecopy numbers (or at such other address or telecopy numbers for
a party as shall be specified by like notice):
31
(a) if to Company, to:
Force 10 Trading , Inc.
0000 Xxx Xxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxx X. Xxxxxx
Telecopy No.: 801-
with copies to:
Weed & Co., L.P.
0000 XxxXxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxx
Telecopy No.: (000) 000-0000
(b) if to PETREX, to:
PETREX CORPORATION
0000 Xxxxxxxx Xxxx.
Xxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxx
Telecopy No.: (000) 000-0000
8.3 INTERPRETATION; DEFINITIONS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party hereto, with
respect to any matter in question, the actual knowledge of the executive
officers of such party;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection with an
entity means any change, event, violation, inaccuracy, circumstance or effect
that is, or is reasonably likely to be, materially adverse to the business,
assets, liabilities, financial condition or results of operations of such entity
and its subsidiaries taken as a whole; provided, however, that in no event shall
(A) a decrease in such entity's stock price or the failure to meet or exceed
Wall Street research analysts' or such entity's internal earnings or other
estimates or projections in and of itself constitute a Material Adverse Effect
or (B) any change, event, violation, inaccuracy, circumstance or effect that
results from (x) changes affecting the industry in which such entity operates
generally (which changes do not disproportionately affect such entity), (y)
changes affecting the United States economy generally or (z) the public
announcement or pendency of the Merger, constitute a Material Adverse Effect;
(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company), firm
or other enterprise, association, organization, entity or Governmental Entity.
32
8.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES.
This Agreement and the documents and instruments and other agreements
among the parties hereto as contemplated by or referred to herein, including the
Company Schedules and the PETREX Schedules (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
8.6 SEVERABILITY.
In the event that any provision of this Agreement, or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business, and other purposes of
such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
8.8 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
8.9 ARBITRATION.
If a dispute should arise, all claims, disputes, controversies,
differences or other matters in question arising out of the Agreement to each
other in the matters stated in this Agreement (the claims) shall be settled
finally, completely and conclusively by arbitration in Salt Lake County, Utah,
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"), by one or more arbitrators chosen in accordance with
the Rules. Arbitration shall be initiated by written demand by the party seeking
arbitration. This Agreement to arbitrate shall be specifically enforceable only
in the District Court of Salt Lake County, Utah. A decision of the arbitrator or
arbitrators shall be final, conclusive and binding on PETREX and the Company,
and judgment may be entered thereon in the District Court of Salt Lake County,
Utah, to enforce such decision and the benefits thereof. Upon appointment, the
arbitrators shall then proceed to decide the arbitration subjects in accordance
with the Rules. Any arbitration held in accordance with this paragraph shall be
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private and confidential and no person shall be entitled to attend the hearings
except the arbitrator(s), the stenographer, if one is requested, PETREX,
Company, and any designated representatives of the parties. The matters
submitted for arbitration, the hearings and proceedings thereunder and the
arbitration award shall be kept and maintained in strictest confidence by the
parties and shall not be discussed, disclosed or communicated to any persons. On
request of either party, the record of the proceeding shall be sealed and may
not be disclosed except insofar, and only insofar, as may be necessary to
enforce the award of the arbitrators and any judgment enforcing such award. If
counsel is required to seek the enforcement of this agreement or this particular
section, counsel shall be entitled to recover its (his) reasonable and necessary
attorneys' fees and costs from the opposing party.
8.10 RULES OF CONSTRUCTION.
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
8.11 ASSIGNMENT.
No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
FORCE 10 TRADING, INC.
SIGNATURE: /S/ XXX X. XXXXXX
TITLE: PRESIDENT
PETREX CORPORATION
SIGNATURE: /S/ X.X. XXXXXXXXX
TITLE: PRESIDENT
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