STOCK PURCHASE AGREEMENT among John C. Nicholas, Rotating Machinery Technology, Inc. and Lufkin Industries, Inc. July 1, 2009 SELLER DISCLOSURE SCHEDULE
among
Xxxx
X. Xxxxxxxx,
Rotating
Machinery Technology, Inc.
and
Lufkin
Industries, Inc.
July
1, 2009
TABLE
OF CONTENTS
|
ARTICLE
1 DEFINITIONS
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|
|
1.1
|
Defined
Terms
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|
1.2
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References,
Construction and Titles
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|
ARTICLE
2 PURCHASE AND SALE
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|
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2.1
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Agreement
to Sell and to Purchase
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2.2
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Consideration
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2.3
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Deliveries
at Closing
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ARTICLE
3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS
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|
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3.1
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Authority;
Authorization; Enforceability
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3.2
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No
Conflicts or Violations
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|
3.3
|
Consents
and Approvals
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|
3.4
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Title
to Interests
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|
3.5
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Liability
for Fees
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|
3.6
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Status
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3.7
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Retained
Control
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3.8
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Litigation
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ARTICLE
4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS CONCERNING THE
COMPANY
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|
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4.1
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Organizational
Matters; Company Subsidiaries
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|
4.2
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Capitalization
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|
4.3
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Authority;
Authorization; Enforceability
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|
4.4
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No
Conflicts or Violations
|
|
4.5
|
Consents
and Approvals
|
|
4.6
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Financial
Statements
|
|
4.7
|
Non-Cash
Working Capital
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|
4.8
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Absence
of Undisclosed Liabilities
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|
4.9
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Absence
of Certain Changes or Events
|
|
4.10
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Title
to and Condition of Properties
|
|
4.11
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Intellectual
Property
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|
4.12
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Licenses,
Permits and Governmental Approvals
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|
4.13
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Compliance
with Law
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|
4.14
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Material
Contracts
|
|
4.15
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Labor
Matters
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|
4.16
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ERISA
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|
4.17
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Taxes
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|
4.18
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Litigation
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|
4.19
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Environmental
Matters
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|
4.20
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Insurance
|
|
4.21
|
Bank
Accounts
|
|
4.22
|
Customers
and Suppliers
|
|
4.23
|
FCPA
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|
4.24
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Liability
for Fees
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|
4.25
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No
Other Representations or Warranties
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|
ARTICLE
5 REPRESENTATIONS AND WARRANTIES OF LUFKIN
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|
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5.1
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Organizational
Matters
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|
5.2
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Authority;
Authorization; Enforceability
|
|
5.3
|
No
Conflicts or Violations
|
|
5.4
|
Consents
and Approvals
|
|
5.5
|
Investment
Representation
|
|
5.6
|
Liability
for Fees
|
|
ARTICLE
6 ADDITIONAL AGREEMENTS
|
|
|
6.1
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Further
Assurances
|
|
6.2
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Covenant
Not to Compete With the Business
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6.3
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Release
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6.4
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Tax
Matters
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|
6.5
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No
Public Announcement
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|
6.6
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Expenses
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|
6.7
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Distribution
of Property
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|
6.8
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Non-Cash
Working Capital
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|
6.9
|
Payment
of Obligations; Guaranty
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|
ARTICLE
7 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS
|
|
|
ARTICLE
8 INDEMNIFICATION
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|
|
8.1
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Indemnification
by the Sellers
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8.2
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Indemnification
by Lufkin
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8.3
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Limits
on Indemnification
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|
8.4
|
Procedure
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|
8.5
|
Payments
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|
8.6
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Failure
to Pay Indemnification
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|
8.7
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Express
Negligence
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|
8.8
|
Exclusive
Remedy
|
|
8.9
|
Tax
Treatment of Indemnity Payments
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|
ARTICLE
9 MISCELLANEOUS
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|
|
9.1
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Notices
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|
9.2
|
Specific
Performance
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|
9.3
|
Assignment
and Successors
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|
9.4
|
Entire
Agreement; Amendment
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|
9.5
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Governing
Law
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|
9.6
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Waiver
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|
9.7
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Severability
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9.8
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No
Third-Party Beneficiaries
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|
9.9
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Arbitration
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|
9.10
|
Counterparts
|
SELLER
DISCLOSURE SCHEDULE
|
Schedule
3.2
|
—
|
Conflicts
or Violations
|
|
Schedule
3.3
|
—
|
Consents
and Approvals
|
|
Schedule
4.1(a)
|
—
|
Company
Foreign Qualifications
|
|
Schedule
4.1(b)
|
—
|
Company
Subsidiaries, Joint Ventures, Etc.
|
|
Schedule
4.2
|
—
|
Company
Organizational Documents
|
|
Schedule
4.4
|
—
|
Conflicts
or Violations
|
|
Schedule
4.5
|
—
|
Consents
and Approvals
|
|
Schedule
4.6
|
—
|
Company
Financial Statements
|
|
Schedule
4.8
|
—
|
Undisclosed
Liabilities
|
|
Schedule
4.9
|
—
|
Certain
Changes or Events
|
|
Schedule
4.10(a)
|
—
|
Real
Property
|
|
Schedule
4.10(c)
|
—
|
Sufficiency
of Property
|
|
Schedule
4.11(a)
|
—
|
Intellectual
Property
|
|
Schedule
4.11(b)
|
—
|
Intellectual
Property Agreements
|
|
Schedule
4.11(c)
|
—
|
Infringements
|
|
Schedule
4.11(d)
|
—
|
Corporate
Names
|
|
Schedule
4.14(a)
|
—
|
Material
Contracts
|
|
Schedule
4.14(c)
|
—
|
Enforceability
|
|
Schedule
4.15
|
—
|
Labor
Matters
|
|
Schedule
4.16(a)
|
—
|
Benefit
Plans
|
|
Schedule
4.16(b)
|
—
|
Multiemployer
Plans, Pension Plans, Etc.
|
|
Schedule
4.16(e)
|
—
|
Triggering
Events under Benefit Plans
|
|
Schedule
4.16(l)
|
—
|
Section
409A
|
|
Schedule
4.17(a)
|
—
|
Tax
Returns
|
|
Schedule
4.17(c)
|
—
|
Tax
Payments
|
|
Schedule
4.17(d)
|
—
|
Accrual
for Taxes
|
|
Schedule
4.17(q)
|
—
|
Taxable
Nexus
|
|
Schedule
4.17(t)
|
—
|
Foreign
Tax Jurisdictions
|
|
Schedule
4.19
|
—
|
Environmental
Matters
|
|
Schedule
4.20(a)
|
—
|
Insurance
Policies
|
|
Schedule
4.20(b)
|
—
|
Insurance
Claims
|
|
Schedule
4.21
|
—
|
Bank
Accounts
|
|
Schedule
4.22
|
—
|
Customers
and Suppliers
|
|
Schedule
6.7
|
—
|
Distributed
Assets
|
This STOCK PURCHASE AGREEMENT
(this “Agreement”) is made and
entered into as of July 1, 2009, by and among ROTATING MACHINERY TECHNOLOGY,
INC., a New York corporation (the “Company”), Xxxx X. Xxxxxxxx
(the “Seller”) and
LUFKIN INDUSTRIES, INC., a Texas corporation (“Lufkin”). Each of
the Seller, the Company and Lufkin is sometimes referred to herein as a “Party,” and they are sometimes
collectively referred to herein as the “Parties.”
R
E C I T A L S :
WHEREAS, the Seller owns 100%
of the outstanding capital stock the Company; and
WHEREAS, the Seller desires to sell such
capital stock to Lufkin, and Lufkin desires to purchase the same, all upon the
terms and subject to the conditions set forth herein; and
WHEREAS, as a condition to
consummating the transactions contemplated by this Agreement, Lufkin wishes to
enter into an employment agreement with the Seller;
NOW, THEREFORE, in
consideration of the premises and the respective representations, warranties,
covenants and agreements contained herein, and other good and valuable
consideration, the legal sufficiency of which are herby acknowledged, the
Parties agree as follows, intending to be legally bound:
ARTICLE
1
DEFINITIONS
1.1 Defined Terms»
As used
in this Agreement and the Seller Disclosure Schedules, capitalized terms shall
have the meanings set forth below or set forth in the sections of this Agreement
referenced below:
“AAA” has the meaning given
such term in Section
9.9(a).
“AAA Rules” has the meaning
given such term in Section 9.9(a).
“Affiliate” means, with respect
to any specified Person, any officer or director of such specified Person or any
other Person that directly or indirectly controls, is controlled by or is under
common control with such specified Person.
“Agreement” has the meaning
given such term in the preamble of this Agreement.
“Arbitration Notice” has the
meaning given such term in Section 9.9(b).
“Arbitrator” has the meaning
given such term in Section 9.9(c).
“Arbitrator List” has the
meaning given such term in Section 9.9(c).
“Bankruptcy Law” means any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law.
“Benefit Plan” means any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical, dependent care, cafeteria, employee
assistance, scholarship or other plan, program, arrangement or understanding
(whether or not covered under Section 3(3) of ERISA and whether or not legally
binding), or any nonqualified deferred compensation plan (within the meaning of
Section 409A of the Code and the Treasury Regulations thereunder), maintained in
whole or in part, contributed to, or required to be contributed to by the
Company or any ERISA Affiliate for the benefit of any present or former officer,
employee, director or independent contractor of the Company or any ERISA
Affiliate within six years prior to the Closing Date.
“Business Day” means any day
other than a Saturday, Sunday or other day on which commercial banks in Houston,
Texas are authorized by Law to close.
“Capital Stock” means any and
all shares, interests, participations or other equivalents, however designated,
of corporate stock or other equity participations in the Company, including, but
not limited to, the Class A Stock and Class B Stock, and any rights, warrants or
options to acquire an equity interest in the Company.
“CERCLA” means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended.
“Claims” has the meaning given
such term in Section
8.4(b).
“Class A Stock” has the meaning
given such term in Section 4.2.
“Class B Stock” has the meaning
given such term in Section 4.2.
“Closing” has the meaning given
such term in Section 2.1(b).
“Closing Date” has the meaning
given such term in Section 2.1(b).
“Code” means the Internal
Revenue Code of 1986, as amended.
“Company” has the meaning given
such term in the preamble to this Agreement.
“Company Bylaws” means the
By-Laws, dated November 4, 1986, of the Company.
“Company Charter” means the
Certificate of Incorporation, filed December 1, 1986, of the Company, as amended
by the Certificate of Amendment, filed September 23, 1994, and the Certificate
of Amendment, filed October 18, 1995.
“Company Credit Facilities”
means the Loan Modification Agreement, and related loan and collateral
agreements, between the Company and KeyBank National Association, dated
September 26, 2005, and the Loan Agreement, and related loan and collateral
agreements, between the Company, the U.S. Small Business Administration and
KeyBank National Association (as applicable), dated September 26,
2005.
“Company Financial Statements”
has the meaning given such term in Section 4.6.
“Company Material Adverse
Effect” means a Material Adverse Effect on the Company.
“Company Material Contract” has
the meaning given such term in Section 4.14(a).
“Company’s Knowledge” means the
Knowledge of the Seller.
“Consulting Agreement” has the
meaning given such term in Section 6.2(d).
“Contract” means any agreement,
contract, obligation, or undertaking (whether written or oral and whether
express or implied) that is legally binding.
“Copyrights” has the meaning
given such term in Section 4.11(e)(ii).
“Debt Obligation” means any
contract, agreement, indenture, note or other instrument relating to the
borrowing of money, any capitalized lease obligation, any obligation properly
classified as indebtedness or debt under GAAP or any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business), and shall specifically include any loans or
advances to or from the Seller or his Affiliates.
“Deductible” has the meaning
given such term in Section 8.3(b).
“Deficit” has the meaning given
such term in Section
6.8(e).
“Disputes” has the meaning
given such term in Section 9.9(a).
“Distributed Assets” has the
meaning given such term in Section 6.7.
“Distributed Real Property”
means the Facility and all other real property previously owned by the Company,
set forth and described on Schedule 6.7 hereto, title to
which has been contributed by the Company to Newco prior to the execution of
this Agreement as described in Section 6.7.
“Employment Agreement” means
the employment agreement between the Seller and Lufkin, effective as of the
Closing Date.
“Encumbrances” has the meaning
given such term in Section 2.1(a).
“Environmental, Health and Safety
Laws” means all Laws relating to (a) emissions, discharges, releases or
threatened releases of Hazardous Materials into the environment, including into
ambient air, soil, sediments, land surface or subsurface, buildings or
facilities, surface water, groundwater, publicly-owned treatment works, or
septic systems, (b) emissions of greenhouse gasses, (c) the generation,
treatment, storage, disposal, use, handling, manufacturing, recycling,
transportation or shipment of Hazardous Materials, (d) occupational health and
safety or (e) the pollution of the environment, solid waste handling, treatment
or disposal, reclamation or remediation activities, or protection of
environmentally sensitive areas.
“Environmental Liabilities”
means any and all Losses (including remediation, removal, response, abatement,
clean-up, investigative and/or monitoring costs and any other related costs and
expenses) incurred or imposed (a) pursuant to any agreement, order, notice,
requirement, responsibility, directive (including directives embodied in
Environmental, Health and Safety Laws), injunction, judgment or similar document
(including a settlement) arising out of, in connection with or under
Environmental, Health and Safety Laws, or (b) pursuant to any claim by a
Governmental Entity or other Person for personal injury, property damage, damage
to natural resources, remediation or similar costs or expenses incurred or
asserted by such Governmental Entity or Person pursuant to Law and arising out
of or in connection with a release, as such term is defined in Environmental,
Health and Safety Laws, of Hazardous Materials.
“Environmental Permit” means
any permit, license, approval, registration, identification number or other
authorization with respect to the Company under any Environmental, Health and
Safety Law.
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any
entity that is required to be aggregated with the Company or any Subsidiary of
the Company under Section 414 of the Code.
“Escrow Account” means the bank
account designated pursuant to the Escrow Agreement.
“Escrow Agent” means JPMorgan
Chase Bank, National Association.
“Escrow Agreement” means the
escrow agreement, dated as of the Closing Date, among the Seller, Lufkin and the
Escrow Agent.
“Escrow Amount” has the meaning
given such term in Section 2.2(b).
“Estimated Non-Cash Working
Capital” means the Non-Cash Working Capital of the Company as of the
Closing, as calculated by the Seller in good faith.
“Excess” has the meaning given
such term in Section
6.8(e).
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Facility” means the building
and land located at 0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxx Xxxx.
“GAAP” means United States
generally accepted accounting principles applied on a consistent
basis.
“Governmental Entity” means any
national, state or local government, any subdivision thereof, any arbitrator,
court, administrative or regulatory agency, commission, department, board,
bureau, body or other government authority or instrumentality, or any entity or
Person exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
“Hazardous Material” means (a)
any substance or material that is listed, defined or otherwise designated as a
hazardous substance under any Environmental, Health and Safety Law, (b)
petroleum and any petroleum product, (c) radioactive material (including any
naturally occurring radioactive material), urea formaldehyde,
asbestos-containing materials in any form or condition and polychlorinated
biphenyls in any form or condition, and (d) any other chemical, pollutant,
contaminant, material, substance or waste that is regulated by any Governmental
Entity under any Environmental, Health and Safety Law.
“Indemnitee” has the meaning
given such term in Section 8.3(e).
“Indemnitor” has the meaning
given such term in Section 8.4(a).
“Intellectual Property” has the
meaning given such term in Section 4.11(e).
“IRS” means the United States
Internal Revenue Service or any successor agency and, to the extent relevant,
the United States Department of the Treasury.
“Knowledge” – an individual
will be deemed to have “Knowledge” of a particular fact or other matter if (a)
such individual is actually aware of such fact or other matter or (b) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the ordinary course of fulfilling his or her duties as an
employee, officer and/or director.
“Law” means any applicable
federal, state, municipal, local or foreign statute, code, law, ordinance, rule,
regulation, permit, consent, approval, license, order, judgment, writ,
injunction or decree enacted, adopted, issued or promulgated by any Governmental
Entity.
“Lease Agreement” means a lease
agreement executed by Newco and Lufkin granting Lufkin or one of its
Subsidiaries a lease with respect to the Facility.
“License” and “Licenses” have the meanings
given to such terms in Section 4.12.
“License Agreement” means a
license agreement executed by the Seller and Lufkin granting Lufkin the right to
use the software known as XLPocket and XLTltpad.
“Litigation” has the meaning
given to such term in Section 3.8.
“Losses” has the meaning given
to such term in Section 8.1.
“Lufkin” has the meaning given
such term in the preamble to this Agreement.
“Lufkin Indemnitees” has the
meaning given such term in Section 8.1.
“Lufkin Material Adverse
Effect” means a Material Adverse Effect on Lufkin and its subsidiaries,
taken as a whole.
“Lufkin Subsidiary” means a
consolidated subsidiary of Lufkin.
“Marks” has the meaning given
to such term in Section 4.11(e)(iii).
“Material Adverse Effect”
means, with respect to any Person, a material adverse effect on the business,
operations, assets, properties, prospects or material customer relationships of
such Person, but shall not include (a) an effect generally affecting the economy
or the financial, securities or credit markets in the U.S. or elsewhere in the
world, unless such effect disproportionately affects the business, operations,
assets, properties, prospects or material customer relationships of such Person
relative to other participants in its industry or (b) an effect to the extent
resulting from the announcement of the execution of this Agreement or the
pendency of the transactions contemplated hereby, provided that this clause (b)
shall not diminish the effect of, and shall be disregarded for the purposes of,
any representations or warranties herein.
“Newco” means P&N Bolivar
Road Properties LLC, a New York limited liability company, 100% of the equity
interests in which have been distributed by the Company to the Seller prior to
the execution of this Agreement as described in Section 6.7.
“Xxxxxxxx Guaranty” has the
meaning given such term in Section 6.9.
“Non-Cash Working Capital”
means current assets less the sum of (a) cash on
hand and (b) current liabilities, in each case calculated in accordance with
GAAP. It is understood and agreed that for purposes of the
calculation of Non-Cash Working Capital of the Company, (i) any bonuses payable
to employees of the Company at or following the Closing shall be deemed to be,
and counted as, current liabilities of the Company, and (ii) current liabilities
of the Company shall exclude (x) tax liabilities incurred as a result of the
transfer of the Distributed Real Property, (y) the current portion of long-term
liabilities, and (z) state tax liability for jurisdictions other than the State
of New York.
“Party” and “Parties” have the meanings
given to such terms in the preamble to this Agreement.
“Patents” has the meaning given
such term in Section
4.11(e)(i).
“PBGC” has the meaning given to
such term in Section
4.16(c).
“Pension Plans” has the meaning
given such term in Section 4.16(a).
“Permitted Encumbrances” means
(a) Encumbrances for Taxes, assessments or other governmental charges not yet
due and payable or which are being contested in good faith; (b) pledges or
deposits of money securing statutory obligations under workmen’s compensation,
unemployment insurance, social security or public liability laws or similar
legislation (excluding Encumbrances under ERISA); (c)(i) inchoate or unperfected
workers’, mechanics or similar liens arising in the ordinary course of business,
and (ii) xxxxxx and perfected workers’, mechanics or similar liens arising in
the ordinary course of business that are being contested in good faith and do
not exceed $50,000 in the aggregate at any one time, so long as such
Encumbrances attach only to equipment, fixtures and real estate; (d) carrier’s,
warehousemen’s, suppliers’ or other similar possessory liens arising in the
ordinary course of business and securing liabilities that are not yet due or, if
past due, are being contested in good faith and do not exceed $50,000 in the
aggregate at any time, so long as such Encumbrances attach only to inventory;
(e) zoning restrictions, easements, licenses or other restrictions on the use of
any real estate or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value or
marketability of such real estate; and (f) liens under the Company Credit
Facilities and equipment financing liens incurred in the ordinary course of
business consistent with past practice, including with respect to Intech Funding
Corp.
“Person” means a natural
person, corporation, company, partnership, joint stock company, joint venture,
association, limited liability company, trust, bank, trust company, Governmental
Entity or other entity or organization.
“Prospective Customer” has the
meaning given such term in Section 6.2(b).
“Purchase Price” has the
meaning given such term in Section 2.2.
“Released Parties” and “Released Party” have the
meanings given such term in Section 6.3(a).
“Restricted Period” has the
meaning given such term in Section 6.2(a).
“RMT Obligations” means the
Company Credit Facilities, the Company’s obligations to Intech Funding Corp.
pursuant to that certain Equipment Lease Agreement between the Company and
Intech Funding Corp., dated on or about August 25, 2006, and the Company’s
obligations under the Promissory Note, dated June 1, 2008, in favor
of Xxxxx X. Xxxxx, in the original principal amount of $25,309.93, and the
Promissory Note, dated June 1, 2008, in favor of Community Savings Bank, N.A. as
custodian for Xxxxx X. Xxxxx Investment Retirement Account (XXX), in the
original principal amount of $77,690.93.
“Seller” has the meaning given
such term in the preamble to this Agreement.
“Seller Disclosure Schedules”
means the disclosure schedules of even date herewith delivered to Lufkin by the
Seller.
“Seller Indemnitees” has the
meaning given such term in Section 8.2.
“Significant Subsidiary” means
any Subsidiary that would be deemed a “significant subsidiary” within the
meaning of Rule 1-02 under Regulation S-X promulgated by the United States
Securities and Exchange Commission.
“Stock” means 100% of the
Capital Stock of the Company.
“Subsidiary” means, with
respect to any Person, any corporation or other Person of which securities or
other interests having the power to elect a majority of that corporation’s or
other Person’s board of directors or similar governing body, or otherwise having
the power to direct the business and policies of that corporation or other
Person (other than securities or other interests having such power only upon the
happening of a contingency that has not occurred), are held by such Person or
one or more of its Subsidiaries.
“Tax” and “Taxes” have the meanings given
such terms in Section
4.17.
“Tax Contest or Disclosure” has
the meaning given such term in Section 6.4(c).
“Tax Returns” has the meaning
given such term in Section 4.17.
“Treasury Regulations” means
the regulations promulgated by the United States Treasury Department under the
Code.
“Voluntary Disclosure” has the
meaning given such term in Section 6.4(a)(iii).
“Welfare Plans” has the meaning
given such term in Section 4.16(a).
1.2 References, Construction and
Titles»
(a) All
references in this Agreement to Schedules, Articles, Sections, subsections and
other subdivisions refer to the corresponding Schedules, Articles, Sections,
subsections and other subdivisions of or to this Agreement, unless expressly
provided otherwise. Titles appearing at the beginning of any Article, Section,
subsection or other subdivision of this Agreement are for convenience only, do
not constitute any part of this Agreement, and shall be disregarded in
construing the language hereof. The words “this Agreement,” “herein,” “hereby,”
“hereunder” and “hereof,” and words of similar import, refer to this Agreement
as a whole and not to any particular Article, Section, subsection or subdivision
unless expressly so limited. The words “this Article” and “this Section,” and
words of similar import, refer only to the Article or Section hereof in which
such words occur.
(b) The word
“or” is not exclusive, and the word “including” (in its various forms) means
including without limitation. Pronouns in masculine, feminine or neuter genders
shall be construed to state and include any other gender, and words, terms and
titles (including terms defined herein) in the singular form shall be construed
to include the plural and vice versa, unless the context otherwise
requires.
(c) The
Parties have participated jointly in negotiating and drafting this Agreement. In
the event an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any provision(s) of this Agreement.
(d) Provisions
hereof referring to delivery of documents by one Party to another Party prior to
the date hereof shall be deemed to refer to either actual physical delivery of
such documents or the making of such documents available for review in a data
room or computer based virtual data room at least three Business Days prior to
the date hereof.
ARTICLE
2
PURCHASE AND
SALE
2.1 Agreement to Sell and to
Purchase»
(a) On the
Closing Date, upon the terms and subject to the conditions contained herein, the
Seller shall transfer, sell, assign and convey to Lufkin, and Lufkin shall
purchase from the Seller, the Stock, free and clear of any pledges, restrictions
on transfer, proxies and voting or other agreements, liens, claims, charges,
mortgages, security interests or other legal or equitable encumbrances,
limitation or restrictions of any nature whatsoever (“Encumbrances”).
(b) Subject
to the conditions set forth in this Agreement, the closing of such sale and
purchase (the “Closing”)
shall take place at the offices of the Company on the date of the execution
hereof or at such other time, date and place as the Parties shall mutually agree
upon (the “Closing
Date”). Failure to consummate the transactions contemplated
hereby on such date shall not result in a termination of this Agreement or
relieve any Party of any obligation hereunder. Title to, ownership of
and control over the Stock shall pass to Lufkin at the Closing.
2.2 Consideration»
In
consideration of the transfer to Lufkin of the Stock, Lufkin shall pay to the
Seller $6,155,770.03 (the “Purchase Price”), which shall
be paid as follows:
(a) $5,543,270.03
in cash shall be paid to the Seller at Closing by wire transfer of immediately
available funds to an account designated by the Seller; and
(b) $612,500
in cash (the “Escrow
Amount”) shall be deposited, by wire transfer of immediately available
funds, with the Escrow Agent in accordance with the Escrow Agreement, which the
Seller and Lufkin shall execute at or prior to the Closing. The
Escrow Amount shall be held in escrow pursuant to the terms of this Agreement
and the Escrow Agreement. Any portion of the Escrow Amount released
to the Seller pursuant to the Escrow Agreement shall be deemed to be part of the
Purchase Price.
2.3 Deliveries at
Closing»
At or
prior to the Closing:
(a) The
Seller shall deliver the following to Lufkin:
(i) an
irrevocable stock transfer power with respect to the Stock and such additional
instruments of transfer of the Stock as Lufkin may reasonably request to vest in
Lufkin all the right, title and interest in and to the Stock;
(ii) all other
instruments and documents as may be reasonably required to consummate the
transactions contemplated hereby;
(iii) a
certified copy of resolutions of the board of directors of the Company approving
this Agreement and the transactions contemplated hereby in a form reasonably
acceptable to Lufkin;
(iv) an
executed copy of the Employment Agreement;
(v) an
executed copy of the Lease Agreement;
(vi) an
executed copy of the Escrow Agreement;
(vii) an
executed copy of the License Agreement;
(viii) a copy of
each consent, approval, waiver or authorization of, or filing, registration or
qualification with, any Governmental Entity or any other Person necessary for
the consummation by the Seller or the Company of the transactions contemplated
by this Agreement;
(ix) the
Seller’s resignation as an officer and the sole director of the
Company;
(x) copies of
all documents and instruments, duly executed by the Seller and/or the Company,
necessary to lift and/or release any Encumbrances relating to the RMT
Obligations; and
(xi) certificates
issued by appropriate Governmental Entities evidencing (A) the due organization,
valid existence and good standing of the Company, as of a date not more than
five calendar days prior to the Closing Date, in its jurisdiction of
organization and (B) the due registration or qualification of the Company as a
foreign corporation, as of a date not more than five calendar days prior to the
Closing Date, or such longer period as is reasonably practicable under the
circumstances, in each of the other jurisdictions specified in Schedule 4.1(a)
hereto.
(b) Lufkin
shall deliver the following to the Seller:
(i) by wire
transfer of immediately available funds, the amount of $5,543,270.03, and
evidence of Lufkin’s wire transfer of immediately available funds of the Escrow
Amount to the Escrow Agent;
(ii) an
executed copy of the Employment Agreement;
(iii) an
executed copy of the Lease Agreement;
(iv) an
executed copy of the Escrow Agreement;
(v) an
executed copy of the License Agreement;
(vi) a copy of
each consent, approval, waiver or authorization of, or filing, registration or
qualification with, any Governmental Entity or any other Person necessary for
the consummation by Lufkin of the transactions contemplated by this
Agreement;
(vii) a
certificate issued by the appropriate Governmental Entity evidencing its due
organization, valid existence and good standing, as of a date not more than five
calendar days prior to the Closing Date, in the State of Texas;
(viii) copies of
all documents and instruments, duly executed by Lufkin, necessary to lift and/or
release any Encumbrances relating to the RMT Obligations, and payment in full by
Lufkin of the RMT Obligations (and evidence of such payment);
(ix) a
certified copy of resolutions of the board of directors of Lufkin approving this
Agreement and the transactions contemplated hereby in a form reasonably
acceptable to the Seller; and
(x) all other
instruments and documents as may be reasonably required to consummate the
transactions contemplated hereby.
ARTICLE
3
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
The
Seller hereby represents and warrants to Lufkin as follows:
3.1 Authority; Authorization;
Enforceability
The
Seller has all requisite power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform his obligations
hereunder. This Agreement has been duly authorized, executed and
delivered by the Seller, and constitutes a legal, valid and binding obligation
of the Seller, enforceable against the Seller in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditors’ rights
generally or by general equitable principles).
3.2 No Conflicts or
Violations»
Except as
set forth on Schedule
3.2
hereto, the execution, delivery and performance of this Agreement by the Seller
and the consummation by the Seller of the transactions contemplated hereby do
not and will not (a) violate any Law applicable to the Seller or (b) violate,
result in a breach of, constitute (with due notice or lapse of time or both) a
default under, impair the Seller’s rights under, result in the termination of or
in a right of termination or cancellation of, or cause any obligation, penalty
or premium to accelerate, arise or accrue under any contract, lease, credit or
loan agreement, mortgage, security agreement, indenture or other agreement or
instrument to which the Seller is a party or by which the Seller is
bound.
3.3 Consents and
Approvals»
Except as
set forth on Schedule
3.3
hereto, no consent, approval, waiver or authorization of, or filing,
registration or qualification with, any Governmental Entity or any other Person
(on the part of the Seller) is required for the Seller to execute and deliver
this Agreement, perform his obligations hereunder or consummated the
transactions contemplated hereby, except for such consents, approvals, waivers
or authorizations as have been obtained or such filings, registrations or
qualifications as have been accepted as of the date hereof.
3.4 Title to Stock»
The
Seller owns, of record and beneficially, the Stock, free and clear of any
Encumbrances. The Seller has the full power and legal right to cause
the Stock to be sold, assigned, transferred and conveyed to Lufkin, and at
Closing, Lufkin will acquire good and indefeasible title to the Stock, free and
clear of any and all Encumbrances.
3.5 Liability for
Fees»
Other
than with respect to Xxxxxxxx, Xxx & Xxxxxxxx, LLP (the fees of which shall
be paid by the Seller and not by the Company or Lufkin), the Seller has not
employed or retained any investment banker, broker, agent, finder or other
party, or incurred any liability or obligation, contingent or otherwise, for
brokers’ or finders’ fees, advisory fees or commissions, with respect to the
transactions contemplated by this Agreement for which Lufkin or the Company
shall have any responsibility.
3.6 Status»
The
Seller is not a “foreign person” within the meaning of Section 1445 of the Code
and he has reached the age of majority and is a United States citizen or
resident.
3.7 Retained Control»
Except as
set forth in Section
6.7,
immediately following the Closing, the Seller shall not own or otherwise control
any tangible asset or property necessary for the Company to conduct its business
in substantially the same manner as it was conducted immediately prior to
Closing. Any software owned by the Seller that is necessary for the
Company to conduct its business in substantially the same manner as it was
conducted immediately prior to the Closing will be licensed to Lufkin pursuant
to the License Agreement.
3.8 Litigation»
No
litigation, action, suit claim, lawsuit, demand, investigation or proceeding
before any Governmental Entity or any mediator or arbitrator (or panel thereof)
(collectively, “Litigation”) is now pending
or, to the Knowledge of the Seller, threatened against the Seller or any
Affiliate of the Seller that could reasonably be expected to materially
impair or delay the ability of the Seller to perform his obligations under this
Agreement or consummate the transactions contemplated hereby.
ARTICLE
4
REPRESENTATIONS AND
WARRANTIES OF THE SELLER CONCERNING THE
COMPANY
The
Seller hereby represents and warrants to Lufkin as follows:
4.1 Organizational Matters;
Company Subsidiaries»
(a) The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York; (ii) is duly registered
or qualified to conduct business and is in good standing in each other
jurisdiction set forth on Schedule 4.1(a) hereto, and
there is no other jurisdiction in which the Company’s ownership, operation or
lease of property or conduct of its business would require such registration or
qualification, except for any such failures to be so registered or qualified as
could not reasonably be expected to have a Company Material Adverse Effect; and
(iii) has the requisite power and authority and the legal right to own and
operate its properties, to lease the property it operates under lease and to
conduct its business as now, heretofore and proposed to be
conducted.
(b) Except as
set forth on Schedule
4.1(b)
hereto, the Company (i) has no Subsidiaries, (ii) is not engaged in any joint
venture, partnership or similar arrangement with any other Person, (iii) is
not an Affiliate of any other Person and (iv) does not otherwise hold any
equity interest in any other Person or any promissory note or other contractual
right exercisable or exchangeable for or convertible into any equity interest in
any other Person.
4.2 Capitalization»
Attached
as Schedule 4.2 hereto are true
and correct copies of the Company Charter and the Company Bylaws, as amended and
in full force and effect on the date hereof. As of the date hereof,
(i) the Company is authorized to issue up to 15,000 shares of Class A Voting
Stock, no par value per share (“Class A Stock”), and up to
5,000 shares of Class B Non-Voting Stock, no par value per share (“Class B Stock”), and has 1650
and 0 shares of Class A Stock and Class B Stock, respectively, outstanding and
(ii) the Company is not authorized to issue any shares of preferred stock, and
has no shares of preferred stock outstanding. As of the date hereof,
the Company has no outstanding options, warrants, convertible securities, calls,
rights, commitments, preemptive rights, agreements, arrangements or
understandings of any character obligating the Company (i) to issue,
deliver or sell, or cause to be issued, delivered or sold, additional Capital
Stock or any securities or obligations convertible into or exchangeable for
Capital Stock or (ii) to grant, extend or enter into any such option,
warrant, convertible security, call, right, commitment, preemptive right,
agreement, arrangement or understanding. All of the issued and
outstanding shares of Capital Stock were duly authorized and validly issued and
are fully paid and non-assessable, and were not issued in violation of any
preemptive, preferential purchase or other similar rights of any
Person.
4.3 Authority;
Authorization;
Enforceability»
The
Company has all requisite power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. The execution and delivery by the Company of this
Agreement, the consummation by the Company of the transactions contemplated
hereby and the performance of the Company’s obligations hereunder have been duly
and validly authorized by the board of directors of the Company and no other
proceedings on the part, or on behalf, of the Company are necessary for such
execution, delivery, consummation and performance. This Agreement has
been duly authorized, executed and delivered by the Company and is a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors’ rights generally or by general equitable principles).
4.4 No Conflicts or
Violations»
Except as
set forth on Schedule
4.4
hereto, the execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby do not and will not
(a) violate or conflict with any provision of the Company Charter, the
Company Bylaws or any other organizational documents; (b) violate any Law
applicable to the Company or any of its properties or assets; (c) violate,
result in a breach of, constitute (with due notice or lapse of time or both) a
default under, impair the Company’s rights under, result in the termination of
or in a right of termination or cancellation of, or cause any obligation,
penalty or premium to accelerate, arise or accrue under, any contract, lease,
credit or loan agreement, mortgage, security agreement, indenture or other
agreement or instrument to which the Company is a party, by which it is bound or
to which any of its properties or assets is subject; (d) result in the
creation of imposition of any Encumbrance upon any of the properties or assets
of the Company; or (e) result in the cancellation, modification, revocation
or suspension of any License (as defined in Section 4.12) of the Company
(except in the case of clauses (b), (c), (d) and (e) above for any
such violations, conflicts, breaches, defaults, impairments, terminations,
accelerations, accruals, Encumbrances, cancellations, modifications, revocations
or suspensions that could not reasonably be expected to have a Company Material
Adverse Effect).
4.5 Consents and
Approvals»
Except as
set forth on Schedule
4.5
hereto, no consent, approval, waiver or authorization of, or filing,
registration or qualification with, any Governmental Entity or any other Person
(on the part of the Company) is required for the Company to execute and deliver
this Agreement, perform its obligations hereunder or consummate the transactions
contemplated hereby, except for such consents, approvals, waivers or
authorizations as have been obtained or such filings, registrations or
qualifications as have been accepted as of the date hereof.
4.6 Financial
Statements»
Attached
as Schedule 4.6 hereto are true,
correct and complete copies of the consolidated balance sheets, statements
of income and statements of cash flows of the Company as of and for the (a)
years ended June 30, 2006, 2007 and 2008 (which have been audited) and (b) nine
months ended March 31, 2009 (which have not been audited) (collectively, the
“Company Financial
Statements”). Except as set forth on Schedule 4.6 hereto, the
Company Financial Statements (x) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered; (y) fairly
present in all material respects the financial position of the Company as of
their respective dates and the results of operations of the Company for the
periods indicated therein; and (z) have not in any material respect been
rendered untrue, incomplete or unfair as representations of the financial
condition of the Company as of the respective dates of the Company Financial
Statements by events subsequent to the respective dates of the Company Financial
Statements.
4.7 Non-Cash Working
Capital»
As of the
date hereof, the Company has Estimated Non-Cash Working Capital of not less than
$800,000.
4.8 Absence of Undisclosed
Liabilities»
Except as
set forth on Schedule 4.8 hereto or on the
unaudited Company Financial Statements as of March 31, 2009, the Company has no
indebtedness or liability, absolute or contingent, which is not shown or
provided for in the Company Financial Statements, other than
(a) liabilities incurred or accrued in the ordinary course of business
consistent with past practice since March 31, 2009 that do not exceed $25,000 in
the aggregate, or (b) liabilities of the Company that individually or in
the aggregate are not material to the Company and that are not required by GAAP
to be included in the Company Financial Statements.
4.9 Absence of Certain Changes
or Events»
Except as
set forth in Section
6.7 or
on Schedule 4.9 hereto, since
June 30, 2008, the business of the Company has been conducted in the ordinary
course of business consistent with past practices, and there has not been any
(a) Company Material Adverse Effect, (b) material change by the Company in any
of its accounting methods, principles or practices or any of its Tax methods,
practices or elections, (c) any declaration, setting aside or payment of any
dividend or distribution in respect of any Capital Stock or any redemption,
purchase or other acquisition of any of Capital Stock or (d) except in the
ordinary course of business consistent with past practices, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, option or other employee benefit
plan.
4.10 Title to and Condition of
Properties»
(a) Except as
set forth on Schedule
4.10(a)
hereto, the Company does not own or lease any real property.
(b) The
Company has good and marketable title to, or valid and subsisting leasehold
interests in, all of the personal property reflected on the Company Financial
Statements or used or useful in its business, free and clear of all
Encumbrances, except for Permitted Encumbrances.
(c) Except as
set forth on Schedule 4.10(c) hereto, the
Company owns or controls or otherwise has a license or other legal right to use
all of the tangible assets, contracts, leases or licenses required to enable it
to operate its business after the date hereof in the same manner as such
business is presently conducted. Except as set forth on Schedule 4.10(c), 4.11(a) or 4.14(a) hereto, the
business of the Company as presently conducted is not dependent on the right to
use the assets or property of others.
4.11 Intellectual
Property»
(a) Schedule 4.11(a) hereto sets
forth a true and complete list of all Intellectual Property described in Section 4.11(e)(i), 4.11(e)(ii) or 4.11(e)(iii) used in
the business of the Company, and, for each item listed, a statement as to
whether such Intellectual Property is (i) wholly owned (in which such case
the owner shall be named), (ii) licensed from a third party (in which such
case the licensee and third-party licensor shall be named), or
(iii) licensed to third parties by the Company (in which such case the
third-party licensee shall be named), except for off-the-shelf or common
software products sold or licensed in normal retail channels.
(b) Schedule 4.11(b) hereto sets
forth a true and complete list of all agreements, whether in the form of a
development, license, assignment, confidentiality or other agreement, relating
to the Intellectual Property to which the Company is a party or by which the
Company is bound.
(c) Except as
set forth on Schedule 4.11(c)
hereto, (i) the Company owns all right, title and interest in
and to, or has a valid and enforceable license or other right to use lawfully,
all the Intellectual Property used by the Company in connection with its
business, free and clear of any Encumbrances; (ii) the Company has not
infringed upon or otherwise violated the Intellectual Property of any other
Person and owns all right, title and interest in and to, or has a valid and
enforceable license or other right to use lawfully the Intellectual Property;
(iii) no action, hearing, investigation, claim or demand is pending or, to
the Company’s Knowledge, is threatened which challenges the legality, validity,
enforceability, use or ownership of any underlying item of Intellectual
Property; (iv) to the Company’s Knowledge, no Person has infringed upon or
otherwise violated the Intellectual Property of the Company; (v) the
consummation of the transactions contemplated by this Agreement will not alter,
impair or extinguish any Intellectual Property of the Company; and (vi) to
the Company’s Knowledge, there are no agreements, judicial orders or settlement
agreements which limit or restrict the Company’s rights to use any Intellectual
Property.
(d) The
Intellectual Property of the Company includes the corporate name “Rotating
Machinery Technology, Inc.” and any derivations thereof, including without
limitation the corporate names listed on Schedule 4.11(d)
hereto. All goodwill with respect to the use of such names will inure
to the benefit of Lufkin, and the Seller shall have no right to xxx or recover
against any Person with respect to the use of such name.
(e) For
purposes hereof, “Intellectual
Property” shall mean all:
(i) letters
patent of the United States or of any other country, all registrations and
recordings thereof, and all applications for letters patent of the United States
or of any other country, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any State thereof, or any other country or any political
subdivision thereof, and all reissues, continuations, continuations in part or
extensions thereof (collectively, “Patents”);
(ii) copyrights
(including all computer software, all documentation, source and object codes
with respect to such software and all licenses and leases of software) and
general intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any State thereof, or any other country or any political subdivision
thereof, and all reissues, extensions or renewals
thereof (collectively, “Copyrights”);
(iii) trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, slogans, domain names, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof, or any other country or any political
subdivision thereof, all reissues, extensions or renewals thereof, and all
goodwill associated with or symbolized by any of the foregoing (collectively,
“Marks”);
and
(iv) know-how,
unpatented inventions, trade secrets, secret formulas, processes, designs,
confidential and technical information, manufacturing, engineering and technical
drawings, product specifications and other proprietary rights necessary for the
business of the Company as now conducted and, to the Company’s Knowledge, as
presently proposed to be conducted.
4.12 Licenses, Permits and
Governmental Approvals»
(a) The
Company has all material consents, licenses, permits, certificates, franchises,
authorizations and approvals issued or granted by, and has made all material
registrations and filings with, any Governmental Entity as are necessary for the
conduct of its business as currently conducted (each a “License” and, collectively,
the “Licenses”).
(b) Each
License has been issued to, and duly obtained and fully paid for by, the holder
thereof and is valid and in full force and effect, except for any such
invalidities or failures to be in full force and effect as could not reasonably
be expected to have a Company Material Adverse Effect.
(c) To the
Company’s Knowledge, all such Licenses will be renewed in the ordinary course,
and no Governmental Authority has taken or, to the Company’s Knowledge,
threatened to take any action to terminate, cancel or modify any of such
Licenses.
(d) None of
the Licenses will terminate or become terminable as a result of the transactions
contemplated by this Agreement. Notwithstanding anything to the
contrary in this Section 4.12, the
representations and warranties in this Section 4.12 shall not apply
to (x) any right to Intellectual Property (which shall be subject to the
representations and warranties set forth in Section 4.11) or (y) any
License required under applicable Environmental, Health and Safety Law (which
shall be subject to the representations and warranties set forth in Section 4.19).
4.13 Compliance with
Law»
Except
with respect to Tax matters (which are addressed in Section 4.17), Intellectual
Property matters (which are addressed in Section 4.11) or
environmental, health and safety matters (which are addressed in Section 4.19), the operations
of the Company are and have been conducted in material compliance with all Laws
of all Governmental Entities having jurisdiction over any of the Company or its
assets, properties and operations, and no claim of any material violation of any
Law by the Company is pending or, to the Company’s Knowledge, threatened against
the Company.
4.14 Material
Contracts»
(a) Schedule 4.14(a) hereto sets
forth a true and complete list of the Contracts to which the Company is a party,
by which it is bound or otherwise relating or affecting any of its assets,
properties or operations, in each of the following categories (each, a “Company Material
Contract”):
(i) each
partnership, limited liability company or joint venture agreement;
(ii) each
Contract (or group of related Contracts) for the purchase by the Company of
goods and/or services involving total annual payments in excess of $25,000
incurred by the Company in the Company’s fiscal years 2008 or 2009;
(iii) each
Contract (or group of related Contracts) for the sale by the Company of goods
and/or services involving total annual revenues in excess of $25,000 received by
the Company in the Company’s fiscal years 2008 or 2009;
(iv) each
Contract (or group of related Contracts) relating to a Debt
Obligation;
(v) each
Contract relating to a loan or advance to, or investment in, any Person or any
agreement, contract, commitment or understanding relating to the making of any
such loan, advance or investment;
(vi) each
Contract limiting or purporting to limit the ability of the Company to engage or
compete in any line of business with any person or in any geographic
area;
(vii) each
Contract with any Affiliate of the Company (including the Seller);
(viii) each
labor union, management service, employment, consulting or other similar type of
Contract;
(ix) each
Contract obligating the Company, or that would obligate or require any
subsequent owner of the Company, to provide for indemnification or contribution
with respect to any matter;
(x) each
sales, distributorship, agency or similar agreement relating to the products
sold or services provided by the Company;
(xi) each
license, royalty or similar Contract;
(xii) each
Contract (or group of related Contracts) not entered into in the ordinary course
of business consistent with past practices and not cancelable by the Company,
without penalty to the Company, within 30 calendar days; or
(xiii) each
other Contract that might reasonably be expected to be material to the Company
or its business.
(b) (i) Each
Company Material Contract is (A) in full force and effect and is a valid
and binding obligation of the Company and (B) to Company’s Knowledge, a
valid and binding obligation of each other party thereto, (ii)(A) the
Company is not in breach thereof or default thereunder (and no event or
circumstance has occurred that with notice or lapse of time, or both, would
constitute an event of default), except for any such breaches or defaults as
could not reasonably be expected to have a Company Material Adverse Effect,
(B) to the Company’s Knowledge, no other party to any Company Material
Contract is in breach thereof or default thereunder and (iii) there is no
pending or, to Company’s Knowledge, threatened litigation with respect to any
Company Material Contract.
(c) Except as
set forth on Schedule
4.14(c)
hereto, the enforceability of the Company Material Contracts set forth on Schedule 4.14(a) hereto will
not be affected in any manner by the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, nor will the
counterparties thereto be subject to any additional rights or privileges
thereunder as a result thereof because of a “change of control” or
otherwise.
4.15 Labor Matters»
Except as
set forth on Schedule
4.15
hereto, as of the date hereof, (a) there is no material labor dispute
involving, or strike, slowdown or work stoppage against, the Company, and no
such dispute or action is pending or, to the Company’s Knowledge, threatened;
(b) the hours worked by and payments made by the Company to employees of
the Company comply with the Fair Labor Standards Act and each other federal,
state, local or foreign Law applicable to such matters; (c) all payments
due from the Company for employee health and welfare insurance have been paid or
accrued as a liability on the books of the Company; (d) the Company is not
a party to or bound by any collective bargaining agreement, management
agreement, consulting agreement, employment agreement, bonus, equity
compensation plan or agreement or any similar plan, agreement or arrangement;
(e) to the Company’s Knowledge, there is no organizing activity involving
the Company pending or threatened by any labor union or group of employees;
(f) there are no representation proceedings pending or, to the Company’s
Knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of the Company has made a pending demand for
recognition; (g) the Company has not received any written complaint of any
unfair labor practice or other unlawful employment practice or any written
notice of any material violation of any Law with respect to the employment of
individuals by, or the employment practices, wages, hours, or terms and
conditions of employment of, the Company; and (h) there are no material
complaints or charges against the Company pending or, to the Company’s
Knowledge, threatened to be filed with any Governmental Entity or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by the Company of any
individual.
4.16 ERISA»
For
purposes of this Section 4.16, unless
otherwise indicated, all references to the “Company” shall include the Company
and each ERISA Affiliate of the Company.
(a) Schedule 4.16(a) hereto
contains a list of all Benefit Plans and a brief description of each, which
among things, identifies each “employee pension benefit plan” (as defined in
Section 3(2) of ERISA) (“Pension Plan”), and each
“employee welfare benefit plan” (as defined in Section 3(1) of ERISA) (“Welfare Plan”) as
such. The Company has made available to Lufkin true, complete and
correct copies (to the extent applicable to the Company) of (i) each
Benefit Plan, including, without limitation, participating employer agreements
(or, in the case of any unwritten Benefit Plans, descriptions thereof);
(ii) the five annual reports on Form 5500 most recently filed with the IRS
and the related summary annual report distributed to participants with respect
to each Benefit Plan (if any such report was required); (iii) all minutes
of meetings of any committee established to administer any Benefit Plan other
than minutes that would be subject to privacy laws relating to disclosure of
medical information; (iv) the most recent actuarial report for each Benefit
Plan for which an actuarial report is required by ERISA or other applicable law;
(v) all summary plan descriptions for each Benefit Plan for which a summary
plan description is required by ERISA or other applicable Law and each summary
of material modifications prepared, as required by ERISA or other applicable
law; (vi) each trust agreement relating to any Benefit Plan; (vii) all
applications, including all attachments, submitted to the IRS by the Company for
IRS determination letters or rulings with respect to Benefit Plans and the IRS
determination letters or rulings issued as a result of such applications, and
all other material correspondence for the last six consecutive years prior to
the Closing Date with the IRS or the United States Department of Labor relating
to plan qualification, filing of required forms, or pending, contemplated and
announced plan audits; (viii) descriptions of all claims filed and pending
(other than for benefits in the normal course), lawsuits pending, grievances
pending and similar actions pending with respect to Benefit Plans of the
Company; (ix) a list of all employees or former employees receiving long
term disability benefits under a Benefit Plan of the Company; (x) a list of all
prior mergers, consolidations or transfers of Benefit Plan assets or liabilities
described in Section 414(l) of the Code or the regulations thereunder that have
occurred within the last six years prior to the Closing Date; (xi) copies
of all collective bargaining agreements (and any related side letters of
understanding) that relate to any Benefit Plans of the Company; and (xii) a
list of all Company employees indicating date of birth, date of commencement of
service, job title or brief job description, the amount of the employee’s salary
and bonus, if applicable, the date of the last salary increase for each salaried
employee, any material commitments, arrangements, promises or understandings
with the employee as to salary or bonus, if applicable, and any other contract
or payment agreement between the Company and the employee.
(b) Except as
set forth on Schedule
4.16(b)
hereto, the Company does not sponsor, maintain, participate in or contribute to,
and has not at any time sponsored, maintained, participated in or contributed to
(and been required to contribute to), any (i) “multiemployer plan” as that
term is defined in Section 414(f) of the Code or Section 4001(a)(3) of ERISA;
(ii) foreign Benefit Plan; (iii) voluntary employee benefit
associations intended to be exempt from federal income tax under Section
501(c)(9) of the Code; (iv) Pension Plan that is or was subject to Title IV of
ERISA; (v) Pension Plan that is or was subject to Section 302 of ERISA or
Section 412 of the Code; or (vi) Benefit Plan other than a Pension Plan (which
provides for no welfare benefits) that provides compensation or benefits to any
former employee, officer, director or other service provider or any dependents
or beneficiaries of any of the foregoing, other than fully insured death
benefits or as required by Part 6 of Title I of ERISA or Section 4980B of the
Code or any similar Law. Neither the Company nor any Benefit Plan
maintains or contributes to any group annuity contract.
(c) Except
with respect to the Company’s 401(k) Plan, which has not been subject to a
determination letter from the IRS, each Pension Plan that is subject to Section
201, 301 or 401 of ERISA has been the subject of a determination letter from the
IRS to the effect that such Pension Plan is qualified under Section 401(a) of
the Code, as currently in effect, or can still be submitted in a timely manner
to the IRS for such a letter; no such determination letter has been revoked nor,
to the Company’s Knowledge, has revocation of any such letter been threatened,
nor has any such Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect that would adversely
affect its qualification or increase its costs; to the Company’s Knowledge,
nothing has occurred or failed to occur in connection with the adoption or
maintenance of such Pension Plan which would cause the loss of such
qualification; and all amendments required to be adopted before the Closing Date
for any such Pension Plan to continue to be so qualified have been timely
adopted. Each Pension Plan that is not subject to Section 201, 301 or
401 of ERISA has timely filed the statement required by 29 CFR
2520.104-23. The Company has paid all premiums (including any
applicable interest, charges and penalties for late payment) due the Pension
Benefit Guaranty Corporation (the “PBGC”) with respect to each
Pension Plan for which premiums to the PBGC are required. No Pension
Plan in whole or in part ever maintained by the Company has been terminated or
partially terminated under circumstances which would result in liability to the
PBGC.
(d) Each of
the Benefit Plans which is sponsored by the Company or in which the Company
participates (i) is in compliance with all reporting and disclosure
requirements of Part 1 of Subtitle B of Title I of ERISA or other
applicable law; (ii) has had the appropriate required Form 5500 (or
equivalent annual report) timely filed with the appropriate governmental
authority for each year of its existence; (iii) has at all times complied
with the bonding requirements of Section 412 of ERISA or other applicable law;
(iv) has no issue pending (other than the payment of benefits in the normal
course) nor any issue resolved adversely to the Company which may subject the
Company to the payment of any material penalty, interest, tax or other
obligation, nor is there any basis for any imposition of any such liability; and
(v) has been maintained in all material respects with the requirements of
ERISA and the Code and other applicable Law (including all rules and regulations
issued thereunder) not otherwise covered hereunder so as not to give rise to any
liabilities to the Company.
(e) Except as
set forth on Schedule
4.16(e)
hereto, the execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger any, change
of control, accelerated vesting, severance or other similar provisions in any
Benefit Plan.
(f) Each such
Pension Plan of the Company (including any such plan covering retirees or other
former employees) may be amended or terminated without liability (other than
with respect to pension benefits in the ordinary course) to the Company on or at
any time after the consummation of the transactions contemplated by this
Agreement without contravening the terms of such plan or any Law or agreement
that pertains to the Company.
(g) None of
the Company, the officers of the Company, the Benefit Plans (including the
Pension Plans) or any fiduciary of any Benefit Plan which are subject to ERISA,
or any trustee or administrator thereof, has engaged in a “prohibited
transaction” (as such term is defined in Section 406, 407 or 408 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility that
could subject the Company or the officers of the Company to the tax or penalty
on prohibited transactions imposed by such Section 4975 or to any liability
under Section 502(i) or (1) of ERISA, or any other provision of ERISA, which
would have a Company Material Adverse Effect.
(h) With
respect to any Welfare Plan, (i) each such Welfare Plan that is a group
health plan, as such term is defined in Section 5000(b)(1) of the Code, has
complied at all times in form and in operation in all material respects with the
applicable requirements of Part 6 of Title I of ERISA and Section
4980B(f) of the Code and other applicable Law and (ii) each such Welfare
Plan (including any such plan covering retirees or other former employees) may
be amended (including, without limitation, to prospectively curtail or
discontinue benefits and/or impose or increase employee, retiree or other former
employee participant contribution requirements) or terminated without liability
(other than with respect to welfare benefits in the ordinary course) to the
Company on the consummation of the transactions contemplated by this Agreement
without contravening the terms of such plan or any Law or agreement that
pertains to the Company.
(i) All
contributions required by Law or by a collective bargaining or other agreement
to be made under the Benefit Plans with respect to all periods through the
Closing Date, including a pro rata share of contributions due for the current
plan year, will have been made by such date or provided for by adequate reserves
properly reflected on the books of the Company in accordance with
GAAP. No changes in contributions or benefit levels are scheduled to
occur other than in the ordinary course of business.
(j) The
Company has no liability for the Taxes of any other Person pursuant to, or as a
result of, any Benefit Plan.
(k) Without
the prior written consent of Lufkin, none of the Company, any officer of the
Company or any fiduciary of any Benefit Plan who is an employee of the Company
has made any legally binding written or oral representation to any employee or
any participant in any Benefit Plan concerning the transactions contemplated by
this Agreement or the effect such transactions will have on the Benefit Plans
that is inconsistent with the terms of such Benefit Plans.
(l) Except as
set forth on Schedule
4.16(l)
hereto, there is no amount or item of compensation under any agreement or
arrangement to which the Company is a party, including but not limited to any
Benefit Plan, which amount or item was or is, as of the Closing Date, includible
in gross income for Federal income tax purposes pursuant to Section 409A of the
Code and the Treasury Regulations and administrative guidance thereunder, and no
such inclusion would result from the operation and fulfillment of any agreement
or arrangement to which the Company is a party, including but not limited to any
Benefit Plan, in accordance with the terms thereof.
4.17 Taxes»
(a) Except
as set forth on Schedule 4.17(a) hereto, the
Company has filed (or joined in the filing of) when due all Tax Returns required
by applicable Law to be filed with any Governmental Entity; (b) all Tax
Returns filed by the Company were true, correct and complete in all material
respects as of the time of such filing; (c) except as set forth on Schedule 4.17(c) hereto, all
Taxes relating to periods ending on or before the Closing Date owed by the
Company (whether or not shown on any Tax Return) at any time on or prior to the
Closing Date, if required to have been paid, have been timely paid;
(d) except as set forth on Schedule 4.17(d) hereto, any
material liability of the Company for Taxes not yet due and payable, or that is
being contested in good faith in appropriate proceedings, has been adequately
provided for on the Company’s Financial Statements in accordance with GAAP, and
the amount of the liability of the Company for unpaid Taxes for all periods (or
portions thereof) ending on or before the Closing Date does not, in the
aggregate, exceed the amount of current liability accruals for Taxes (excluding
reserves for deferred Taxes net of any provision for net operating losses) as
such accruals are reflected in the Company Financial Statements, except to the
extent of Taxes arising out of operations and transactions in the ordinary
course of business of the Company since the date of such financial statements in
accordance with past practice, the accruals for which have been made in a manner
consistent with past practice; (e) there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to, the
Company in respect of any material Tax or Tax assessment, nor has any claim for
an additional material Tax or Tax assessment been asserted in writing or, to the
Company’s Knowledge, proposed by any Tax authority; (f) no written claim
made by any Governmental Entity in a jurisdiction in which the Company does not
currently file any Tax Returns that it is or may be subject to Tax by such
jurisdiction has been received by the Company, nor to the Company’s Knowledge
has any such assertion been threatened or proposed in writing; (g) the
Company is not a party to any Tax sharing agreement or other agreement, whether
written or unwritten, providing for the payment of Taxes, payment for Tax
losses, entitlements to refunds or similar Tax matters; (h) the Company has
withheld and paid all material Taxes required to be withheld by the Company in
connection with any amounts paid or owing to any employee, creditor, independent
contractor or other third party; (i) none of the Tax Returns of the Company
is currently being audited by the IRS or any other applicable Governmental
Entity; (j) the Company has not executed or filed with the IRS or any other
Governmental Entity any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Taxes;
(k) the Company has no liability for the Taxes of any other Person under
Treasury Regulations Section 1.1502-6 (or any similar provision of U.S. state,
local or foreign Law), as a result of being a member of any affiliated,
combined, unitary or similar group for Tax purposes; (l) there are no
Encumbrances for Taxes (other than Encumbrances for current Taxes not yet due
and payable) upon the assets of the Company; (m) no closing agreement pursuant
to Section 7121 of the Code (or any similar provision under other Law) has been
entered into that is binding on the Company; (n) the Company is not subject to
any private letter ruling of the IRS or comparable rulings of other Governmental
Entities; (o) the Company has not engaged in any transaction or participated in
any commercial arrangement under which the income therefrom is reportable on a
deferred basis for U. S. federal or other applicable income Tax purposes under
Section 453 of the Code or otherwise; (p) the Company has not been a party to a
transaction that is or is substantially similar to a “reportable transaction,”
within the meaning of Treasury Regulations Section 1.6011-4(b), or any other
transaction requiring disclosure under analogous provisions of U. S. state,
local or foreign Tax law; (q) except as set forth on Schedule 4.17(q) hereto, the
Company has not engaged in any activity in a state of the United States or
political subdivision of a state of the United States (which activity creates a
taxable nexus or permanent establishment) where Tax Returns have not been filed;
(r) neither the Company nor any Person on its behalf has granted to any Person
any power of attorney that is currently in force with respect to any Tax matter;
(s) none of the assets of the Company is (i) property required to be treated as
owned by another Person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Code, (ii) “tax-exempt use property” within the meaning of
Section 168(h)(1) of the Code, (iii) “tax-exempt financed property” within the
meaning of Section 168(h)(5) of the Code, (iv) “limited use property” within the
meaning of Revenue Procedure 2001-28, 2001-1 C.B. 1156, (v) subject to Section
168(g)(1)(A) of the Code or (vi) subject to a “Section 467 rental agreement” as
defined in Section 467 of the Code; (t) the Company (i) has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, (ii) has not been a stockholder of a
“controlled foreign corporation” as defined in Section 957 of the Code (or any
similar provision of United States state, local or foreign law), (iii) has
not been a “personal holding company” as defined in Section 542 of the Code (or
any similar provision of United States state, local or foreign law),
(iv) has not been a stockholder of a “passive foreign investment company”
within the meaning of Section 1297 of the Code, and (v) except as set forth
on Schedule
4.17(t)
hereto, has not engaged in a trade or business, had a permanent establishment
(within the meaning of an applicable Tax treaty) or otherwise become subject to
Tax jurisdiction in a country other than the country of its formation; (u) the
Company (i) has not been responsible for paying any accumulated earnings tax
under Section 531 of the Code, (ii) has not made, or will not make, a
consent dividend election under Section 565 of the Code and (iii) has not
elected at any time to be treated as an S corporation pursuant to Section
1362(a) of the Code; and (v) the Company has not constituted either a
“distributing corporation” or a “controlled corporation” in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code
(i) in the two years prior to the date of this Agreement, or (ii) in a
distribution which could otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code) that
includes the transactions contemplated by this Agreement.
For
purposes of this Agreement, “Tax Returns” means all
returns, reports, exhibits, schedules, information statements and other
documents (including any additional or supporting material) filed or maintained,
or required to be filed or maintained, in connection with the calculation,
determination, assessment or collection of any Tax and includes any amended
returns required as a result of examination adjustments made by the IRS or other
Governmental Entity. For purposes of this Agreement, “Tax” or “Taxes” means any and all
federal, state, local, foreign and other taxes, levies, fees, imposts and duties
of whatever kind (including any interest, penalties or additions to the tax
imposed in connection therewith or with respect thereto), including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, and also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
social security, workers’ compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes and customs duties.
4.18 Litigation»
No
Litigation is now pending or, to the Company’s Knowledge, threatened against the
Company that could reasonably be expected to (a) have a Company Material
Adverse Effect or (b) materially impair or delay the ability of the Seller
or the Company to perform their respective obligations under this Agreement or
consummate the transactions contemplated hereby. There is no
Litigation pending or, to the Company’s Knowledge, threatened, that seeks
damages in excess of $25,000 or injunctive relief against, or alleges criminal
misconduct of, the Company.
4.19 Environmental
Matters»
Except as
set forth on Schedule
4.19
hereto or as disclosed in any environmental reports or correspondence, or the
results of any studies or tests, that have been provided to Lufkin (each such
report, correspondence, study or test being identified on Schedule 4.19 hereto) or in
any environmental report, study or test (or similar document or activity)
performed by, for or at the direction of Lufkin:
(a) the
Distributed Real Property is free of contamination from any Hazardous Material
except for such contamination that would not adversely impact the value or
marketability of such real property in any material respect and that would not
result in liabilities that could reasonably be expected to exceed
$25,000;
(b) the
Company has not caused or allowed to occur any use, release, transportation,
storage, or disposal of Hazardous Materials on, at, in, under, above, to, from
or about any of the Distributed Real Property except where such use, release,
transportation, storage or disposal would not adversely impact the value or
marketability of such real property in any material respect and would not result
in liabilities that could reasonably be expected to exceed $25,000;
(c) the
Company is and has been in compliance with all Environmental, Health and Safety
Laws, except for such noncompliance that would not result in liabilities which
could reasonably be expected to exceed $25,000;
(d) the
Company has obtained, and is in compliance with, all Environmental Permits
required for the operation of its business as presently conducted or as proposed
to be conducted, except where the failure to so obtain or comply with such
Environmental Permits would not result in liabilities that could reasonably be
expected to exceed $25,000, and all such Environmental Permits are valid,
uncontested and in good standing;
(e) the
Company is not involved in operations, and to the Company’s Knowledge, there are
no facts, circumstances or conditions, including any use, release,
transportation, storage, or disposal of Hazardous Materials, that are likely to
result in any liabilities which could reasonably be expected to exceed $25,000,
and the Company has not permitted any current or former tenant or occupant of
the Distributed Real Property to engage in any such operations;
(f) there is
no Litigation arising under or related to any Environmental, Health and Safety
Laws, Environmental Permits or Hazardous Material pending or, to the Company’s
Knowledge, threatened that seeks damages, penalties, fines, costs or expenses in
excess of $25,000 or injunctive relief against, or that alleges criminal
misconduct by, the Company;
(g) the
Company has not received any notice of noncompliance with, violation of, or
liability or potential liability under any Environmental, Health and Safety Law
(including any notice identifying the addressee as a “potentially responsible
party” or requesting information under CERCLA or analogous state statutes) or
entered into or become subject to any consent decree or other agreement with any
Governmental Entity or any other Person relating to any Environmental, Health
and Safety Law or the cleanup of any Hazardous Material;
(h) to the
Company’s Knowledge, there are no past or present facts, circumstances or
conditions that are reasonably likely to result in (i) the Company’s incurring
costs, expenses, liabilities or obligations for cleanup, remediation, disposal
or corrective action under any Environmental, Health and Safety Law, (ii) claims
against the Company for personal injury, property damage or damage to natural
resources or (iii) fines, penalties or injunctive relief against the Company;
and
(i) the
Company has provided or made available to Lufkin copies of all existing
environmental reports, reviews and audits that are in the Company’s possession
relating to Distributed Real Property and all other material written information
pertaining to actual or potential Environmental Liabilities.
Notwithstanding
the foregoing, none of the matters addressed in clauses (a) through
(i) above,
individually or in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect.
4.20 Insurance»
The
Company is insured by insurers of recognized financial responsibility against
such losses and risks, and in such amounts, as set forth on Schedule 4.20(a), which lists all
insurance policies of any nature maintained for current occurrences with respect
to the Company, as well as a summary of the terms of each such
policy. All such policies are in full force and
effect. All premiums due on such policies have been paid, there is no
default by the Company or, to the Company’s Knowledge, any counterparty under
any provision of such policies, and no notice of cancellation or termination or
intent to cancel has been received by the Company with respect to such
policies. There is no material dispute between the Company and the
issuer of any such policies with respect to such policies. To the
Company’s Knowledge, no event relating specifically to the Company (as opposed
to events affecting the bearing design, bearing manufacture, rotor dynamics
analysis or repair and refurbishment of rotating equipment businesses in
general) has occurred that is reasonably likely to result in the Company’s being
unable to renew its existing coverage as and when such coverage expires, or to
obtain similar coverage from similar insurers, at a cost that would not have a
Company Material Adverse Effect. The Company has not been refused any
insurance coverage which it has sought or for which it has
applied. Excluding policies that have expired and been replaced in
the ordinary course of business, no excess liability or protection and indemnity
insurance policy has been cancelled by the insurer within one year prior to the
date hereof. Schedule 4.20(b) hereto sets forth
a list of all pending claims (including with respect to insurance obtained but
not currently maintained) and the claims history for the Company during the last
five years (including with respect to insurance obtained but not currently
maintained).
4.21 Bank Accounts»
Schedule 4.21 hereto lists all
banks and other financial institutions at which the Company maintains deposit or
other accounts or safe deposit boxes, and such Schedule correctly identifies the
name, address and telephone number of each depository, the name in which the
account is held, a description of the purpose of the account, the complete
account number therefor and the authorized signatories or persons having access
to such accounts.
4.22 Customers and
Suppliers»
Except as
set forth on Schedule
4.22
hereto, there has been no actual nor, to the Company’s Knowledge, is there any
threatened termination or cancellation of, or modification or change in, the
business relationship of the Company with any customer or group of customers
whose purchases during the year ended December 31, 2008 caused them to be ranked
among the ten largest customers of the Company, or the business relationship of
the Company with any supplier material to its operations, except for any such
actual or threatened terminations, cancellations, modifications or changes that
could not reasonably be expected to have a Company Material Adverse
Effect.
4.23 FCPA»
None of
the Company or any of its managers, officers, members, agents,
employees or other representatives has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity, has made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, has
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or has made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
4.24 Liability for
Fees»
Other
than with respect to Xxxxxxxx, Xxx & Xxxxxxx, LLP (the fees of which shall
be paid by the Seller and not by the Company or Lufkin), neither the Company nor
any of its Affiliates has employed or retained any investment banker, broker,
agent, finder or other party, or incurred any liability or obligation,
contingent or otherwise, for brokers’ or finders’ fees, advisory fees or
commissions, with respect to the transactions contemplated by this Agreement for
which Lufkin or the Company shall have any responsibility.
4.25 No Other Representations or
Warranties»
EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLES 3 AND 4 OF THIS AGREEMENT,
THE SELLER DOES NOT MAKE ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED (INCLUDING ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE
COMPANY), AND THE SELLER HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY,
WHETHER BY SELLER OR ANY OF ITS EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY
OTHER PERSON, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO LUFKIN OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY
OTHER PERSON OF ANY DOCUMENTATION OR OTHER INFORMATION BY THE SELLER OR ANY OF
THE SELLER’S EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY OTHER
PERSON. WITHOUT LIMITING THE FOREGOING, IT IS UNDERSTOOD THAT ANY
ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR REFERRED TO IN ANY
DOCUMENTS OR INFORMATION PROVIDED TO LUFKIN ARE NOT AND SHALL NOT BE DEEMED TO
BE REPRESENTATIONS OR WARRANTIES OF THE SELLER.
ARTICLE
5
REPRESENTATIONS AND
WARRANTIES OF LUFKIN
Lufkin
hereby represents and warrants to the Seller as follows:
5.1 Organizational
Matters»
Lufkin is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and each other jurisdiction necessary for the
consummation of this Agreement.
5.2 Authority; Authorization;
Enforceability»
Lufkin
has all requisite power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. The execution and delivery of this Agreement by Lufkin and
the performance of Lufkin’s obligations hereunder have been duly and validly
authorized by the board of directors of Lufkin and no other proceedings on the
part, or on behalf, of Lufkin are necessary to effect such execution, delivery,
consummation and performance. This Agreement has been duly
authorized, executed and delivered by Lufkin and is a legal, valid and binding
obligation of Lufkin, enforceable against Lufkin in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors’ rights generally or by
general equitable principles).
5.3 No Conflicts or
Violations»
The
execution, delivery and performance of this Agreement by Lufkin and the
consummation of the transactions contemplated hereby do not and will not
(a) violate or conflict with any provision of Lufkin’s articles of
incorporation, bylaws or other organizational documents; (b) violate any
Law or any judgment, order, decree, rule or regulation of any Governmental
Entity applicable to Lufkin or any of its properties or assets; or
(c) violate, result in a breach of, constitute (with due notice or lapse of
time or both) a default under or cause any obligation, penalty or premium to
arise or accrue under any contract, lease, credit or loan agreement, mortgage,
security agreement, indenture or other agreement or instrument to which it is a
party, by which it is bound or to which any of its properties or assets is
subject (except in the case of clauses (b) and (c) above for any
such violations, breaches, defaults or accruals that could not reasonably be
expected to have a Lufkin Material Adverse Effect).
5.4 Consents and
Approvals»
No
consent, approval, waiver or authorization of, or filing, registration or
qualification with, any Governmental Entity or any other Person (on the part of
Lufkin) is required for Lufkin to execute and deliver this Agreement or to
perform its obligations hereunder, except for such consents, approvals, waivers
or authorizations as have been obtained or such filings, registrations or
qualifications as have been accepted as of the date hereof.
5.5 Investment
Representation»
Lufkin
acknowledges that the sale and transfer of the Stock by the Seller hereunder has
not been and will not be registered under the Securities Act of 1933, as
amended, or under any state securities laws, that the Stock will be transferred
in a transaction exempt from the registration requirements under such act, and
that the Stock may not be further transferred by Lufkin except pursuant to an
effective registration under such act or in a transaction exempt from such
registration requirements. Lufkin is acquiring the Stock hereunder
for its own account for investment purposes and not with the intention of
distributing the Stock.
5.6 Liability for
Fees»
Lufkin
has not employed or retained any investment banker, broker, agent, finder or
other party, or incurred any liability or obligation, contingent or otherwise,
for brokers’ or finders’ fees, advisory fees or commissions, with respect to the
transactions contemplated by this Agreement for which any Seller shall have any
responsibility.
ARTICLE
6
ADDITIONAL
AGREEMENTS
6.1 Further
Assurances»
The
Seller shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to Lufkin such bills of sale, assignments and other
instruments of transfer, assignment and conveyance, in form and substance
satisfactory to counsel for Lufkin, as shall be necessary to vest in Lufkin all
the right, title and interest in and to the Stock free and clear of all
Encumbrances. Each Party shall use his or its best efforts to cause
to be taken such other actions as may be required to more effectively implement
and carry into effect the transactions contemplated by this
Agreement.
6.2 Covenant Not to Compete With
the Business»
(a) For a
period of five (5) years immediately following the Closing Date (the “Restricted Period”), the
Seller shall not, either directly or indirectly, anywhere in the
world:
(i) accept
employment with, work for, or provide services to any person or entity that is
engaged in the business of bearing design, bearing manufacture, rotor dynamics
analysis, and the repair and refurbishment of rotating equipment such as
compressors, expanders and gearboxes without Lufkin’s express written
consent;
(ii) divert or
take away, or attempt to divert or take away, any customer, Prospective
Customer, vendor or supplier of Lufkin;
(iii) solicit,
recruit or employ (whether as an employee, officer, director, agent, consultant
or independent contractor) any person who is or was at any time during the
preceding six (6) months an employee, officer or director of the Lufkin;
or
(iv) take any
action to encourage or induce any employee, representative, officer or director
of the Lufkin to cease their relationship with Lufkin for any
reason.
(b) For the
purposes of this Section 6.2, “Prospective Customer” means a
third party that is a bona fide potential customer of Lufkin with which Lufkin
has had significant contact and conversations regarding the goods and/or
services provided by Lufkin. If the Seller does not know, or should
not have reason to know, that a third party with which he is dealing or
communicating is a Prospective Customer, upon being made aware that such third
party is a Prospective Customer; provided that any dealings,
contact or communications with such Prospective Customer prior to being made so
aware shall not be deemed to be a violation of this Section 6.2; and provided, further, that if
the Seller has already been actually engaged by such Prospective Customer, and
would pay any penalty or be subject to any legal liability if he were to
terminate his dealings with such Prospective Customer, then the Seller shall
promptly so inform Lufkin but shall be permitted to complete the then-current
engagement.
(c) The
Seller acknowledges and agrees that the non-competition and non-solicitation
obligations set forth in this Section 6.2 are both
reasonable and necessary to protect Lufkin’s legitimate business interests,
including, without limitation, Lufkin’s legitimate interest in protecting its
investment in acquiring the Company. The Seller further acknowledges
and agrees that the temporal term, geographic scope, and activity scope of such
non-competition and non-solicitation obligations are reasonable and necessary,
and should be fully enforced.
(d) Notwithstanding
anything to the contrary in this Section 6.2, no action or
activity taken or engaged in by the Seller pursuant to and in compliance with
the Employment Agreement or any consulting agreement with Lufkin or the Company
(a “Consulting
Agreement”), as the case may be, shall be deemed to be a violation of
this Agreement.
(e) Lufkin
acknowledges and agrees that the restrictive covenants set forth in this Section 6.2 and in Section 8
of the Employment Agreement are the sole non-solicitation and non-competition
(or similar) covenants to which the Seller is bound, and are in lieu of any
covenants implied by law or in equity; provided, however, that if any of such
covenants shall be modified by an Arbitrator or court of law, Lufkin may seek
enforcement of such modified covenants.
6.3 Release»
(a) As of the
Closing Date, the Seller does hereby for himself and his successors and assigns
release, acquit and forever discharge Lufkin, the Company, their respective
Affiliates, the officers, directors, managers, employees and agents thereof and
their respective successors and assigns (collectively, the “Released Parties,” and
individually, a “Released
Party”) from of any and all claims, demands, liabilities,
responsibilities, disputes, causes of action and obligations of every nature
whatsoever, liquidated or unliquidated, known or unknown, matured or unmatured,
fixed or contingent, that the Seller or his Affiliates now has, owns or holds or
has at any time previously had, owned or held against the Released Parties or
any of them, including, without limitation, all liabilities created as a result
of the negligence, gross negligence and willful acts of the Company and its
employees and agents, or under a theory of strict liability, existing as of the
Closing Date or relating to any action, omission or event occurring on or prior
to the Closing Date; provided, however, that this Section 6.3(a) shall not
apply to any claims, demands, liabilities, responsibilities, disputes, causes of
action or obligations that may arise after the Closing in connection with the
failure of any of the Released Parties to perform any of their obligations or
covenants, or the breach by any of the Released Parties of any of their
representations, warranties, obligations or covenants, hereunder or under any
other agreement relating to the transactions contemplated by this Agreement or
any other agreement executed and delivered pursuant to this Agreement
(including, without limitation, the Employment Agreement, any Consulting
Agreement, the Escrow Agreement, the Lease Agreement and the License
Agreement).
(b) The
Seller represents and warrants that he has not previously assigned or
transferred, or purported to assign or transfer, to any Person or entity
whatsoever all or any part of any claim, demand, liability, responsibility,
dispute, cause of action or obligation released herein. The Seller
covenants and agrees that he will not assign or transfer to any Person or entity
whatsoever all or any part of the claim, demand, liability, responsibility,
dispute, cause of action or obligation released herein. The Seller
has read and understands all of the provisions of this Section 6.3, and he has been
represented by legal counsel of his or its own choosing in connection with the
negotiation, execution and delivery of this Agreement.
(c) The
release provided by the Seller pursuant to this Section 6.3 shall apply
notwithstanding that the matter for which release is provided may relate to the
ordinary, sole or contributory negligence, gross negligence, willful misconduct
or violation of Law by a released party, including Lufkin and its Affiliates,
officers, directors, employees and agents, and to liabilities based on theories
of strict liability, and shall be applicable whether or not negligence of the
released party is alleged or proven, it being the intention of the Parties to
release the released party from and against its ordinary, sole and contributory
negligence and gross negligence as well as liabilities based on the willful
actions or omissions of the released party and liabilities based on theories of
strict liability.
6.4 Tax Matters»
(a) The
following provisions shall govern the allocation of responsibility, payment of
Taxes and preparation of Tax Returns as between Lufkin and the Seller for
certain Tax matters following the Closing Date:
(i) The
Seller shall prepare or cause to be prepared and file or cause to be filed,
subject to the review and reasonable approval of Lufkin (which approval shall
not be unreasonably delayed), the federal, New York and Texas Tax Returns for
the Company for all periods ending on or prior to the Closing Date that are
required to be filed after the Closing Date. The cost of such
preparation and filing has been accrued as a Company expense on the Company
Financial Statements. Lufkin shall cause the Company to make
available to the Seller and the Seller’s accountant(s) such reasonable and
timely access to Company employees and Company documents and information related
to or reasonably necessary for the preparation of such Tax Returns as Seller or
Seller’s accountant(s) may reasonably request.
(ii) Lufkin
shall prepare or cause to be prepared and file or cause to be filed , subject to
the review and reasonable approval of the Seller (which approval shall not be
unreasonably delayed) any Tax Returns of the Company for Tax periods which begin
before the Closing Date and end after the Closing Date. With respect
to each such Tax Return, Lufkin shall reasonably seek the input of the Seller as
part of Lufkin’s preparation thereof. The Seller shall pay to Lufkin,
within fifteen (15) days before the date on which Taxes (as set forth in the
applicable Tax Return) are to be paid with respect to such periods, an amount
equal to the portion of such Taxes which relates to the portion of such Tax
period ending on the Closing Date. For purposes of this Section 6.4(a)(ii), in the
case of any Taxes that are imposed on a periodic basis and are payable for a Tax
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Tax period ending on the Closing Date
shall (x) in the case of any Taxes other than Taxes based upon or related to
income, gains or receipts, be deemed to be the amount of such Tax for the entire
Tax period multiplied by a fraction the numerator of which is the number of days
in the Tax period ending on the Closing Date and the denominator of which is the
number of days in the entire Tax period, and (y) in the case of any Tax based
upon or related to income, gains or receipts be deemed equal to the amount which
would be payable if the relevant Tax period ended on the Closing
Date. Any credits relating to a Tax period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Tax period ended on the Closing Date. All determinations necessary to
give effect to the foregoing allocations shall be made in a manner consistent
with reasonable prior practice of the Company.
(iii) Notwithstanding
the foregoing in this Section 6.4(a) or elsewhere
in this Agreement, (A) if Lufkin determines, after reasonable consultation with
and review by the Seller and the Seller’s accountant(s) that a Tax Return not
previously filed by the Company should be filed by the Company, then Lufkin
shall prepare and file or cause to be filed, subject to the review and
reasonable approval of the Seller (which approval shall not be unreasonably
delayed) any such Tax Return, and (B) in the event Lufkin believes that it is in
its best interest to send or file a voluntary disclosure (or send, file or take
any similar document or action) (a “Voluntary Disclosure”) with
any Governmental Entity relative to Taxes of the Company, then Lufkin shall not
do so unless and until the Seller (and the Seller’s accountant(s)) have a
reasonable opportunity to review and approve such voluntary disclosure (or
similar action) (such approval not to be unreasonably withheld).
(b) To the
extent permitted by applicable Law, Lufkin or an Affiliate may carry back, or
cause or permit any Affiliate to carry back, for U. S. federal, state, local or
non-U. S. Tax purposes to any taxable year or period, or portion thereof, ending
on or before the Closing Date any operating losses, net operating losses,
capital losses, Tax credits or similar items arising in a taxable period (or
portion thereof) occurring on or after the Closing Date, except to the extent
that the Seller would be materially adversely affected by such
carryback. To the extent that any liability for which, but for such
carryback, the Seller would be liable under Article 8 is thereby
reduced or extinguished, the Seller covenants to pay to Lufkin, an amount
equivalent to the liability that would otherwise have arisen under Article
8. Any refunds of Taxes resulting from such carrybacks shall
be for the benefit of Lufkin and such Affiliate, and the Seller shall have no
entitlement thereto.
(c) Tax Contests and Voluntary
Disclosures. Lufkin shall promptly inform the Seller of the
commencement of any audit, examination or proceeding, and any activity with
respect to a Voluntary Disclosure (“Tax Contest or Disclosure”)
relating in whole or in part to Taxes for which Lufkin may be entitled to
indemnity from the Seller hereunder and shall provide the Seller with reasonable
detail and information regarding such Tax Contest or Disclosure and with copies
of all documents and correspondence relating to such Tax Contest or
Disclosure. With respect to any Tax Contest or Disclosure for which:
(i) the Seller acknowledges in writing that the Seller is liable under Article 8 for all
Losses relating thereto and (ii) Lufkin reasonably believes that the Seller will
indemnify Lufkin for all such Losses, the Seller shall be entitled to control,
in good faith, all proceedings taken in connection with such Tax Claim with
counsel satisfactory to Lufkin in its reasonable discretion; provided, however, that (x)
the Seller shall promptly notify Lufkin in writing of his intention to control
such Tax Contest or Disclosure, (y) in the case of a Tax Contest or Disclosure
relating to Taxes of the Company for a Tax period beginning before and ending
after the Closing Date, the Seller and Lufkin shall jointly control all
proceedings taken in connection with any such Tax Contest or Disclosure (each
Party to bear the cost of its own counsel and accountants) and (z) if any Tax
Contest or Disclosure could reasonably be expected to have an adverse effect on
Lufkin, the Company, or any of their Affiliates in any Tax period beginning
after the Closing Date, the Tax Contest or Disclosure shall not be settled or
resolved without Lufkin’s consent, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, if notice is given to the
Seller of the commencement of any Tax Contest or Disclosure and the Seller does
not, within ten (10) Business Days after Lufkin’s notice is given, give notice
to Lufkin of his election to assume the defense thereof (and in connection
therewith, acknowledge in writing the indemnification obligations hereunder of
the Seller), the Seller shall be bound by any determination made in such Tax
Contest or Disclosure or any compromise or settlement thereof effected by
Lufkin, subject to Article
8. The failure of Lufkin to give reasonably prompt notice of
any Tax Contest or Disclosure shall not release, waive or otherwise affect the
Seller’s obligations with respect thereto except to the extent that the Seller
can demonstrate actual loss and prejudice as a result of such
failure. Lufkin and the Company shall use their reasonable efforts to
provide the Seller with such assistance, documents and information as may be
reasonably requested by the Seller in connection with a Tax Contest or
Disclosure controlled solely or jointly by the
Seller. Notwithstanding the foregoing or in limitation of any other
provision in this Agreement, Lufkin shall use commercially reasonable efforts to
minimize any Tax liability and potential indemnification obligation of the
Seller with respect to any Tax Contest or Disclosure.
(d) Transfer
Taxes. It is understood and agreed that the Seller shall have
no responsibility or liability for any Taxes incurred or to be incurred as a
result of the distribution of the Distributed Real Property, and that such Taxes
shall be the responsibility of Lufkin.
(e) Tax
Refunds. In the event that any tax refund received by Lufkin
relates to Taxes of the Company for any period of time that began and ended
prior to the Closing, Lufkin shall promptly pay over such refund to the Seller,
and in the event that any tax refund relates to a period of time that began
prior to the Closing but ended subsequent to the Closing, Lufkin shall promptly
pay over a share of such refund to the Seller (such share to be in the same
proportion that the pre-Closing portion of the period of time to which such
refund relates bears to the entire period of time to which such refund
relates).
6.5 No Public
Announcement»
None of
Lufkin, the Seller or any of their respective Affiliates shall, without the
written approval of Lufkin or the Seller, as the case may be, make any press
release or other public announcement concerning the transactions contemplated by
this Agreement, except as and to the extent that any such Person shall be so
obligated by Law or any rule or regulation of any securities exchange on which
such Person’s securities are listed for or admitted to trading, in which case
Lufkin or the Seller, as the case may be, shall be advised and Lufkin and the
Seller shall use their reasonable efforts to cause a mutually agreeable release
or announcement to be issued; provided, however, that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement (including communications or disclosures to lenders
or rating agencies or in connection with the receipt of any consents or
contractual notices) or to comply with applicable accounting, tax and disclosure
obligations of any Governmental Entity.
6.6 Expenses»
Except as
otherwise provided in this Agreement, Lufkin, the Company and the Seller shall
pay its or his costs and expenses incident to the negotiation and preparation of
this Agreement and its or his performance of and compliance with all agreements
and conditions contained herein on its or his part to be performed or complied
with, including fees, expenses and disbursements of legal counsel, investment
bankers and independent public accountants. In particular, it is
agreed that the legal fees of Merzbach Law Office, P.C. shall be paid by the
Seller and not by the Company.
6.7 Distribution of
Property»
It is
understood and agreed that prior to the Closing, (i) the Company has contributed
the Distributed Real Property (which is described on Schedule 6.7) to Newco, (ii)
the Company has distributed or paid to the Seller the assets set forth in Schedule 6.7 (the “Distributed Assets”),
including the amount of cash set forth therein and 100% of the equity interests
in Newco and (iii) the Company has authorized the distribution to the Seller of
the life insurance policy held by the Company on the Seller’s life (which
distribution will be finalized upon payment in full of all amounts due and owing
under the Company Credit Facilities and termination of the related collateral
assignment of such life insurance policy).
6.8 Non-Cash Working
Capital»
(a) Within 60
days of the Closing Date, Lufkin shall calculate the actual Non-Cash Working
Capital of the Company as of the Closing Date and provide to the Seller a copy
of its calculation together with any other information or documents reasonably
requested by the Seller with respect to the calculation. The
calculation of the Non-Cash Working Capital of the Company shall be in
accordance with GAAP and in a manner consistent with Lufkin’s demonstrable
historical practices.
(b) If the
Seller disagrees with Lufkin’s calculation of the Non-Cash Working Capital of
the Company as of the Closing Date, the Seller may, within twenty (20) days
after receipt of the Lufkin’s calculation and documents referred to in Section 6.8(a), deliver a
notice to Lufkin disagreeing with such calculation and setting forth the
Seller’s calculation of the Non-Cash Working Capital of the Company as of the
Closing Date. Any such notice of disagreement shall specify those
items or amounts as to which the Seller disagrees.
(c) If a
notice of disagreement shall have been delivered by the
Seller pursuant to Section 6.8(b), Lufkin and
the Seller shall, during the fifteen (15) days following such delivery, use
their best efforts to reach agreement on the disputed items or amounts and the
Non-Cash Working Capital of the Company as of the Closing Date, which amount
shall not be less than the amount shown in Lufkin’s calculation thereof
delivered pursuant to Section 6.8(a) nor more than
the amount shown in the Seller’s calculation thereof delivered pursuant to Section 6.8(b). If,
during such period, Lufkin and the Seller are unable to reach agreement, then
the disputed items shall be resolved pursuant to Arbitration as set forth in
this Agreement.
(d) Lufkin
and the Seller agree that they will, and will cause their respective independent
or internal accountants to, cooperate and assist in the determination of the
Non-Cash Working Capital of the Company as of the Closing Date, including
without limitation by making books, records, work papers and personnel available
to the extent necessary.
(e) Except as
set forth on the attached Schedule 6.8(e), which shall
be included in making the following calculation, to the extent it is agreed by
Lufkin and the Seller, or determined pursuant to Arbitration, that (i) the
actual Non-Cash Working Capital of the Company as of the Closing Date was less
than $800,000 (the “Deficit”), then Lufkin shall
be permitted to payment of the amount of the Deficit from the Escrow Account
(and the Seller will execute and deliver such authorization as is required under
the Escrow Agreement to effect such payment), or (ii) the actual Non-Cash
Working Capital of the Company as of the Closing Date was greater than $800,000
(the “Excess”), then
Lufkin shall pay to the Seller the amount of the Excess, by wire transfer of
immediately available funds to an account designated by the Seller, within five
(5) days of Lufkin and the Seller reaching agreement or the determination
pursuant to Arbitration of the Excess or the Deficit.
6.9 Payment of Obligations;
Guaranty»
It is
understood and agreed that at or prior to the Closing, Lufkin shall pay in full,
and upon the Closing Lufkin shall be solely responsible for, all RMT
Obligations. Further, in connection with the payment of the RMT Obligations,
Lufkin shall obtain, and the Seller shall provide such assistance as is
reasonably necessary for Lufkin to obtain, the termination and release of any
personal guarantee of the Seller with respect to any RMT Obligations (a “Xxxxxxxx
Guaranty”).
ARTICLE
7
SURVIVAL OF REPRESENTATIONS,
WARRANTIES,
COVENANTS AND
AGREEMENTS
The
representations and warranties of the Seller and Lufkin contained herein shall
survive the Closing until and through the date that is 18 months after the
Closing Date; provided,
however, that (a) the representations and warranties set forth in Sections 3.5, 4.24 and 5.6 (Liability for
Fees), Section
3.6
(Status), Section
3.7
(Retained Control), Section 4.11 (Intellectual
Property) and Section
4.19
(Environmental) shall survive until and through the date that is three years
after the Closing Date, (b) the representations and warranties set forth in
Section 4.17 (Taxes) shall
survive until and through the date that is thirty days after the expiration of
the applicable statute of limitations (including extensions) for each Tax and
taxable year and (c) the representations and warranties set forth in Sections 3.1, 4.3 and 5.2 (Authority;
Authorization; Enforceability), Sections 3.2, 4.4 and 5.3 (No Conflicts or
Violations), Section
3.4
(Title to Stock) and Section 4.2 (Capitalization)
shall survive indefinitely.
The
covenants and agreements in this Article 7 and in
Article 8 shall
survive the Closing and shall remain in full force and effect for such period as
is necessary to resolve any claim made in accordance with Article 8 with
respect to any representation, warranty, covenant or agreement contained herein
during the survival period thereof, and the covenants and agreements set forth
elsewhere in this Agreement shall survive the Closing for (x) the time period(s)
set forth with respect to such covenant or agreement, or (y) if no time period
is specified, without any contractual limitation on the period of
survival.
ARTICLE
8
INDEMNIFICATION
8.1 Indemnification by the
Seller»
Except as
otherwise limited by Article 7 and this
Article 8, the
Seller agrees to indemnify, defend and hold harmless Lufkin, each of its
Affiliates, each of their respective officers, directors, employees, agents, and
controlling Persons and each of their respective successors and assigns
(collectively, the “Lufkin
Indemnitees”) from, against and in respect of any liabilities, losses,
damages, demands, assessments, claims, costs and expenses (including interest,
awards, judgments, penalties, settlements, fines, costs of remediation,
diminutions in value, costs and expenses incurred in connection with
investigating and defending any claims or causes of action (including, without
limitation, reasonable attorneys’ fees and expenses and all fees and expenses of
consultants and other professionals)) actually suffered, incurred or realized by
any such party (collectively, “Losses”), arising out of,
resulting from or relating to any breach of any representation or warranty made
by the Seller or the Company, or any breach of any covenant or agreement
undertaken by the Seller, in this Agreement, or any misrepresentation in or
omission from the Schedules hereto.
8.2 Indemnification by
Lufkin»
Except as
otherwise limited by Article 7 and this
Article 8,
Lufkin agrees to indemnify, defend and hold harmless the Seller, the Seller’s
Affiliates and each of their heirs, beneficiaries, successors and assigns
(collectively, the “Seller
Indemnitees”) from, against and in respect of any Losses arising out of,
resulting from or relating to (i) any breach of any representation or warranty,
or any breach of any covenant or agreement, made or undertaken by Lufkin in this
Agreement or (ii) the RMT Obligations, including any Xxxxxxxx
Guaranty.
8.3 Limits on
Indemnification»
(a) Notwithstanding
anything in this Article 8 to the
contrary, no Party shall have any indemnification obligation hereunder to the
extent that a claim for indemnification is related to a representation, warranty
or covenant for which the survival period specified in Article 7 has expired
and is made after such expiration. For the avoidance of doubt, it is
understood and agreed that the expiration of the survival period with respect to
any particular representation, warranty or covenant shall have no effect upon a
claim for indemnification related to such representation, warranty or covenant
that was properly made prior to such expiration, and the Party making such claim
may pursue such claim as set forth in this Agreement until it is resolved or
abandoned.
(b) Notwithstanding
anything in this Article 8 to the
contrary, no Lufkin Indemnitee shall be entitled to indemnification from the
Seller pursuant to Section 8.1 until such time
as the cumulative, aggregate amount of Losses suffered by such Lufkin Indemnitee
exceeds $25,000 (the “Deductible”), after which time
such Lufkin Indemnitee shall be entitled to indemnification for the full amount
of Losses in excess of the Deductible; provided, however, that the
Deductible shall not apply to any claims based on the fraud, intentional
misconduct or gross negligence of the Seller or to any claims based on any
breach by the Seller of any representation or warranty contained in Section 4.2, 4.3, 4.4 or 4.17 or of any of his
covenants or agreements contained herein.
(c) Notwithstanding
anything in this Article 8 to the
contrary, no Seller Indemnitee shall be entitled to indemnification from Lufkin
pursuant to Section
8.2
until such time as the cumulative, aggregate amount of Losses suffered by such
Seller Indemnitee exceeds the Deductible, after which time such Seller
Indemnitee shall be entitled to indemnification for the full amount of Losses in
excess of the Deductible; provided, however, that the
Deductible shall not apply to any claims based on the fraud, intentional
misconduct or gross negligence of Lufkin or to any claims based on any breach by
Lufkin of any representation or warranty contained in Section 5.2 or 5.3 or of any of its
covenants or agreements contained herein.
(d) The
Seller shall not be liable for indemnification obligations under this Article 8 in the
aggregate in excess of an amount equal to $6,125,000; provided, however, that the
limitation set forth in this Section 8.3(d) shall not
apply to any claims based on the fraud, intentional misconduct or gross
negligence of the Seller or to any claims based on any breach by the Seller of
any representation or warranty contained in Section 4.2, 4.3, 4.4 or 4.17 or of any of his
covenants or agreements contained herein.
(e) For
purposes of calculating the aggregate amount of Losses claimed by a Party
entitled to receive indemnification hereunder (an “Indemnitee”), the amount of
each Loss shall be reduced by the amount of any third-party insurance benefits
which the Indemnitee received in respect of or as a result of such Losses, less
the reasonable costs incurred by the Indemnitee to recover those insurance
benefits to the extent such costs are not otherwise recovered. If a
Lufkin Indemnitee has been paid out of the Escrow Account pursuant to
the terms hereof and of the Escrow Agreement, and such Lufkin Indemnitee later
receives insurance benefits with respect to the same Loss giving rise to the
payment out of the Escrow Account, then the amount of such insurance benefits
shall: (i) if the Escrow Agreement is effective, be deposited in the Escrow
Account and then paid out in accordance with the terms of the Escrow Agreement
or (ii) if the Escrow Agreement is no longer effective, be paid to the
Seller.
8.4 Procedure»
Subject
to the limitations set forth in Article 7 and this
Article 8, all
claims for indemnification under this Article 8 shall be
asserted and resolved as follows:
(a) An
Indemnitee shall promptly give a Party obligated to indemnify an Indemnitee
hereunder (an “Indemnitor”) written notice of
any matter that an Indemnitee has determined has given or could give rise to a
right of indemnification under this Agreement, stating with reasonable
particularity the nature of such matter, the amount of the Loss, if known, and
the method of computation thereof. Failure to provide such notice
shall not affect the right of the Indemnitee to indemnification except to the
extent such failure shall have resulted in liability to the Indemnitor that
could have been actually avoided had such notice been provided within such
required time period or to the extent such notice shall not have been sent
within the time limitations set forth in Article 7
hereof.
(b) The
obligations and liabilities of an Indemnitor under this Article 8 with
respect to Losses arising from claims or actions of any third party that are
subject to the indemnification provided for in this Article 8 (“Claims”) shall be governed by
and contingent upon the following additional terms and conditions. If
an Indemnitee shall receive notice of any Claim, the Indemnitee shall give the
Indemnitor written notice of such Claim (such notice to include the information
set forth in Section
8.4(a))
as promptly as possible (and, if applicable, within ten (10) days of the service
of any citation or summons). The Indemnitor may, at its option,
assume and control the defense of such Claim at the Indemnitor’s expense and
through counsel of the Indemnitor’s choice reasonably acceptable to the
Indemnitee. In the event the Indemnitor assumes the defense against
any such Claim as provided above, the Indemnitee shall have the right to
participate (at its own cost) in the defense of such asserted liability, shall
cooperate with the Indemnitor in such defense and any investigation and trial
and will attempt to make available on a reasonable basis to the Indemnitor all
witnesses, pertinent records, materials and information in its possession or
under its control relating thereto as is reasonably required by the
Indemnitor. The Indemnitee shall have the right to employ separate
counsel in any such action and participate in the defense thereof; provided that the fees and
expenses of such separate counsel shall be at the expense of the Indemnitee
unless (i) the employment of such counsel shall have been specifically approved
in writing by the Indemnitor (such approval not to be unreasonably withheld in
light of any circumstances described in clause (ii) or (iii) of this sentence),
(ii) the named parties to any such Claim (including any impleaded parties)
include both the Indemnitee and the Indemnitor, and (iii) the Indemnitee
shall have been advised by such counsel that there is one or more legal defenses
available to it that are different from or additional to those available to the
Indemnitor. In any such case, the Indemnitor shall not, in connection
with any one action or separate but substantially similar or related action in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to local counsel) for the
Indemnitee. In the event the Indemnitor does not elect to conduct the
defense against any such Claim, (i) the Indemnitor shall pay all reasonable
costs and expenses of such defense as incurred and shall cooperate with the
Indemnitee (and be entitled to participate) in such defense and attempt to make
available to the Indemnitee on a reasonable basis all such witnesses, records,
materials and information in the Indemnitor’s possession or under the
Indemnitor’s control relating thereto as is reasonably required by the
Indemnitee and (ii) the Indemnitee shall keep the Indemnitor reasonably informed
regarding the progress of the defense against such Claim and shall not
compromise or settle any such Claim without the prior written consent of the
Indemnitor, such consent not to be unreasonably withheld. Except for
the settlement of a Claim that involves the payment of money only and for which
the Indemnitee is totally indemnified by the Indemnitor, no Claim may be settled
without the written consent of the Indemnitee, which shall not be unreasonably
withheld.
8.5 Payments»
(a) Any
payment by the Seller required under this Article 8 to be made
to a Lufkin Indemnitee shall be paid (i) first, if any sum remains in the Escrow
Account, out of the Escrow Account, subject to the terms of the Escrow
Agreement, and (ii) second, if no sum remains in the Escrow Account, by the
Seller in cash, by wire transfer of immediately available funds to an account
designated by Lufkin.
(b) Any
payment by Lufkin required under this Article 8 to be made
to a Seller Indemnitee shall be paid Lufkin in cash, by wire transfer of
immediately available funds to an account designated by the Seller.
8.6 Failure to Pay
Indemnification»
If and to
the extent an Indemnitee shall make written demand upon the Indemnitor for
indemnification for which amounts are due and payable pursuant to this Article 8 and the
Indemnitor shall refuse or fail to pay in full within ten Business Days of such
written demand the amounts demanded pursuant hereto and in accordance herewith,
then the Indemnitee may utilize any legal or equitable remedy to collect from
the Indemnitor the amount of its Losses. Nothing contained herein is
intended to limit or constrain the Indemnitee’s rights against the Indemnitor
for indemnity, the remedies herein being cumulative and in addition to all other
rights and remedies of the Indemnitee.
8.7 Express
Negligence»
THE
INDEMNITIES SET FORTH IN THIS ARTICLE 8 ARE
INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS
TERMS AND SCOPE THEREOF NOTWITHSTANDING TEXAS’ EXPRESS NEGLIGENCE RULE OR ANY
SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF
THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR
OTHER FAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.
8.8 Exclusive Remedy»
FROM AND
AFTER THE CLOSING, IN THE ABSENCE OF FRAUD, INTENTIONAL MISREPRESENTATION OR
GROSS MISCONDUCT, THE REMEDIES OF THE PARTIES SPECIFICALLY PROVIDED FOR BY THIS
ARTICLE 8 SHALL
BE THE SOLE AND EXCLUSIVE REMEDIES OF THE PARTIES FOR ALL MATTERS COVERED BY
THIS AGREEMENT; PROVIDED,
HOWEVER, THAT NOTHING HEREIN SHALL LIMIT A PARTY’S RIGHT TO SEEK SPECIFIC
PERFORMANCE OR INJUNCTIVE RELIEF IN CONNECTION WITH ANOTHER PARTY’S OBLIGATIONS
UNDER THIS AGREEMENT. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR
SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES,
LOST PROFITS, DIMINUTION IN VALUE, DAMAGE TO REPUTATION OR LOSS TO GOODWILL,
WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE, WHETHER ACTIVE, PASSIVE
OR CONCURRENT), STRICT LIABILITY OR OTHERWISE; PROVIDED, HOWEVER, THAT THIS
SECTION 8.8 SHALL NOT LIMIT A
PARTY’S RIGHT TO RECOVERY UNDER THIS ARTICLE 8 FOR ANY
SUCH DAMAGES TO THE EXTENT SUCH PARTY IS REQUIRED TO PAY SUCH DAMAGES TO A THIRD
PARTY IN CONNECTION WITH A MATTER FOR WHICH SUCH PARTY IS OTHERWISE ENTITLED TO
INDEMNIFICATION UNDER THIS ARTICLE
8.
8.9 Tax Treatment of Indemnity
Payments»
Each
Party, to the extent permitted by applicable law, agrees to treat any payments
made pursuant to this Article 8 as
adjustments to the consideration payable for the Stock for all federal and state
income and franchise Tax purposes.
ARTICLE
9
MISCELLANEOUS
9.1 Notices»
All
notices, requests, consents, directions and other instruments and communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered (a) in person,
(b) by courier, (c) by overnight delivery service with proof of
delivery or (d) by prepaid registered or certified first-class mail, return
receipt requested:
If to the
Seller, to:
Xxxx X.
Xxxxxxxx, Ph.D.
0000
Xxxxxxx Xxxx
Xxxxxxxxxx,
Xxx Xxxx 00000
Phone:
(000) 000-0000
With a
copy to:
Merzbach
Law Office, P.C.
00 Xxxxx
Xxxxxx
Xxxxxxxxx,
Xxx Xxxx 00000
Attention:
Xxxxxx X. Xxxxxxx
Phone:
(000) 000-0000
If to
Lufkin, to:
Lufkin
Industries, Inc.
000 Xxxxx
Xxxxxx
Xxxxxx,
XX 00000
Attention:
General Counsel
Phone:
(000) 000-0000
With a
copy to:
Xxxxxxx
Xxxxx LLP
000
Xxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
Attention:
Xxxx X’Xxxxx
Phone: (000)
000-0000
or to
such other address and to the attention of such other Person as any Party may
designate by written notice given in accordance with the provisions
hereof. Any notice sent by overnight delivery service shall be deemed
to have been given and received on the next Business Day following delivery of
such notice to such delivery service and any notice mailed shall be deemed to
have been given and received on the third Business Day following the day of
mailing.
9.2 Specific
Performance»
It is
specifically understood and agreed that any breach by a Party of the provisions
of this Agreement is likely to result in irreparable harm to the non-breaching
Party and that an action at Law for damages alone will be an inadequate remedy
for such breach. Accordingly, in addition to any other remedy that
may be available to it, in the event of breach or threatened breach by a Party
of the provisions of this Agreement, including, without limitation, Section 6.2, the
non-breaching Party shall be entitled to enforce the specific performance of
this Agreement by the breaching Party and to seek both temporary and permanent
injunctive relief (to the extent permitted by law), without the necessity of
providing actual damages, and such other relief as the court may
allow.
9.3 Assignment and
Successors»
Except as
specifically contemplated by this Agreement, no Party hereto shall assign this
Agreement or any part hereof without the prior written consent of the other
Parties; provided,
however, that Lufkin may assign its rights and obligations in this
Agreement to an Affiliate of Lufkin, but Lufkin shall remain jointly and
severally liable for its duties and obligations hereunder. This
Agreement shall inure to the benefit of, be binding upon and be enforceable by
the Parties and their respective successors and assigns.
9.4 Entire Agreement;
Amendment»
This
Agreement and the Schedules hereto constitute the entire agreement and
understanding among the Parties relating to the subject matter hereof and
thereof and supersede all prior representations, endorsements, premises,
agreements, memoranda communications, negotiations, discussions, understandings
and arrangements, whether oral, written or inferred, among the Parties relating
to the subject matter hereof. This Agreement (or any provision
hereof) may not be modified, amended, rescinded, canceled, altered or
supplemented, in whole or in part, except upon the execution and delivery of a
written instrument executed by a duly authorized representative of Lufkin and
the Company and by the Seller.
9.5 Governing Law»
This
Agreement shall be governed by and construed and interpreted in accordance with
the internal laws of the State of Texas, without regard to choice of law
rules.
9.6 Waiver»
The
waiver of any breach of any term or condition of this Agreement shall not be
deemed to constitute the waiver of any other breach of the same or any other
term or condition.
9.7 Severability»
Any
provision hereof that is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.8 No Third-Party
Beneficiaries»
Any
agreement contained, expressed or implied in this Agreement shall be only for
the benefit of the Parties and their respective legal representatives,
successors and assigns, and such agreements shall not inure to the benefit of
the obligees of any indebtedness of any Party, it being the intention of the
Parties that no Person shall be deemed a third-party beneficiary of this
Agreement, except to the extent a third party is expressly given rights
herein.
9.9 Arbitration»
(a) Except
for injunctive relief that a Party may seek in any court having jurisdiction,
the Parties shall first make a good faith effort to resolve any and all
disputes, controversies or claims (legal, equitable, tort, or statutory) between
any of the Parties that arise out of or relate to this Agreement or the other
agreements contemplated hereby (collectively, “Disputes”). If the
Parties, having negotiated in good faith for 30 days, shall be unable to resolve
a Dispute, the Parties shall next submit the Dispute to nonbinding
mediation. If the Parties are unable to resolve the Dispute in
mediation, then the Parties shall resolve the Dispute through binding
arbitration administered by the American Arbitration Association (“AAA”) in accordance with, to
the extent permitted by applicable law, the following, which shall have
controlling priority in the order listed: (i) the arbitration
provisions in this Agreement, (ii) the AAA Commercial Arbitration Rules (“AAA Rules”), (iii) the Federal
Arbitration Act (Title 9 of the United States Code); and (iv) to the extent (i),
(ii) or (iii) are inapplicable, unenforceable or invalid, the laws of the State
of Texas.
(b) Commencement of
Arbitration. An arbitration proceeding is commenced by one
Party serving a notice (an “Arbitration Notice”) on
another Party (with a copy to the AAA in accordance with the AAA Rules) in
accordance with the notice provisions set forth in Section 9.1. The
Arbitration Notice shall contain a reasonably detailed description of the
Dispute and the remedy sought.
(c) Selection of
Arbitrator. The arbitration shall be conducted by one (1)
neutral arbitrator whom the arbitration parties will choose, via the “alternate
strike” process set forth below, from an initial list the AAA provides of eleven
(11) persons whom the AAA deems meet the criteria of being a practicing attorney
with experience in the area of mergers and acquisitions (the “Arbitrator
List”). By 5:00 p.m. Houston, Texas time on the fifth Business
Day after receipt of the Arbitrator List from the AAA, the responding party
shall strike one arbitrator by faxed letter or email to the claiming party in
accordance with the notice provisions set forth in Section 9.1. By
5:00 p.m. Houston, Texas time the following Business Day, the claiming party
shall strike one arbitrator by faxed letter or email to the responding party in
accordance with the notice provisions set forth in Section 9.1. Thereafter,
the arbitration parties shall continue alternating in striking one arbitrator
from the Arbitrator List each Business Day by 5:00 p.m. Houston, Texas time
until one person remains on the list, who will be the arbitration parties’
chosen arbitrator for the arbitration (the “Arbitrator”). If an
arbitration party fails to communicate a strike in a timely fashion, that strike
shall be forfeited and it shall be made by the other arbitration party by its
making two strikes by its deadline for its next strike. If the
arbitrator selected by this process cannot serve for any reason, then within
five Business Days of being notified the selected arbitrator cannot serve, the
arbitration parties will attempt to agree on an alternative method for selecting
an arbitrator. If no agreement is reached within such five Business
Days, the arbitration parties will request the AAA to issue a new list of eleven
(11) arbitrators and the striking process set forth herein will be repeated to
select the Arbitrator.
(d) Governing Law And
Rules. The Arbitrator is empowered to resolve Disputes by
summary rulings in accordance with the standards followed by Texas courts for
motions to dismiss or summary judgments. Except for claims brought
under federal law, in which event federal laws and federal common laws and
statute of limitations shall govern, all Disputes shall be governed by, and the
Arbitrator shall resolve all Disputes in accordance with, the internal laws of
the State of Texas (including the statutes of limitations governing under Texas
laws), without regard to choice of law rules. The Arbitrator may
grant any remedy or relief available under the applicable law that the
Arbitrator deems just and equitable or that the Arbitrator deems necessary to
make effective the award, provided that in no event may
the Arbitrator award special, incidental, consequential, punitive or exemplary
damages, and the Parties agree that they waive their right to all special,
incidental, consequential, punitive or exemplary damages that may arise from
circumstances giving rise to a
Dispute. The Arbitrator shall award pre- and post-decision interest
on all amounts awarded in accordance with pre- and post-judgment interest rules
and statutes of the State of Texas.
(e) Discovery. After
appointment of the Arbitrator, the arbitration parties may conduct discovery,
including taking of depositions and requesting production of documents, that is
directly relevant to the Dispute. The Arbitrator and AAA are
empowered to enforce this discovery provision and impose sanctions for or
provide protection against discovery abuses as the Arbitrator or AAA deem just
and necessary.
(f) Commencement of
Hearing. To the maximum extent possible, the arbitration
parties, the AAA and the Arbitrator shall take all action necessary to require
that an arbitration proceeding and hearing be concluded within 180 days of the
Arbitration Notice being filed with the AAA.
(g) Venue. Unless
the arbitration parties agree in writing otherwise, arbitration of Disputes
shall be conducted in Houston, Xxxxxx County, Texas.
(h) Decision. The
Arbitrator shall have thirty days from the conclusion of the hearing or any
post-hearing motions in which to render a decision. Unless the
arbitration parties agree in writing or on the record otherwise, the decision
shall be a written opinion and shall be in the form of a findings of fact and
conclusions of law setting forth the bases for the opinion reached.
(i) Fees and
Costs. The arbitration parties shall initially each pay 50% of
the costs of the arbitration proceedings; provided, however, that the
Arbitrator shall award the substantially prevailing arbitration party the
reasonable and necessary attorneys’ fees and expenses the substantially
prevailing arbitration party incurred in connection with resolving the Dispute,
and the Arbitrator shall assess all arbitration costs, including the
Arbitrator’s fees and costs, against the arbitration party not substantially
prevailing. If the Arbitrator deems that neither arbitration party
substantially prevailed on the Disputes submitted, the Arbitrator may decide
that each arbitration party shall bear its own attorneys’ fees and costs and
that each arbitration party shall pay equally the arbitration expenses and the
Arbitrator’s fees and expenses.
(j) Finality. All
decisions by the Arbitrator or AAA shall be binding on the arbitration parties
and shall not be subject to review or appeal. All Disputes decided
shall have res judicata
or collateral estoppel effect in accordance with governing law.
(k) Survival. The
arbitration provisions in this Section 9.9 shall survive any
termination, amendment or expiration of this Agreement and they shall be
effective and binding upon a Party and its successors and assigns
notwithstanding a bankruptcy filing.
(l) Confidentiality. Each
Party agrees that all Disputes and all matters conducted, decided or settled in
connection with arbitrating a Dispute, including discovery and the arbitration
hearing, shall be kept strictly confidential, except to the extent applicable
law, a Party’s legal obligations or a Party’s legal position asserted in such
arbitration requires disclosure of such information, and except that a Party may
disclose any such information to its legal and financial advisors.
9.10 Counterparts»
This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each of the Parties and delivered to the other Parties, whether such
delivery is by physical delivery or by means of a facsimile or portable document
format (pdf) transmission, it being understood that all Parties need no sign the
same counterpart.
[Signature page
follows]
IN
WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the
date first above written.
LUFKIN:
LUFKIN
INDUSTRIES, INC.
By: /s/ Xxxxxxxxxxx
X.
Xxxxx
Name: Xxxxxxxxxxx
X. Xxxxx
Title: Vice
President, Treasurer and Chief Financial Officer
COMPANY:
ROTATING
MACHINERY TECHNOLOGY, INC.
By: /s/ Xxxx X.
Xxxxxxxx
Name: Xxxx
X. Xxxxxxxx, Ph.D.
Title: President
SELLER:
XXXX
X. XXXXXXXX
/s/ Xxxx X.
Xxxxxxxx
