EXHIBIT 7.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of February 1,
2002, by Xxxxx-Xxxxxxxx Corporation, a Delaware corporation ("BUYER") and Xxxx
X. Xxxxxxxxx, Xx., an individual resident in McAllen, Texas ("SELLER").
R E C I T A L S
Seller desires to sell, and Buyer desires to purchase, eighty-one
percent (81%) of the issued and outstanding shares (the "Shares") of capital
stock of Jens' Oil Field Service, Inc., a Texas corporation (the "Company"), for
the consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or
any of the assets owned or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if
there is or has been (a) any inaccuracy in or breach of, or any failure
to perform or comply with, such representation, warranty, covenant,
obligation, or other provision, or (b) any claim (by any person) or
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and
the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence or circumstance.
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"BUYER"--as defined in the first paragraph of this Agreement.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"COMPANY"--as defined in the Recitals of this Agreement.
"COMPANY'S CPAS"-are Ewing, Lara, Xxxxx & Company, P.C., certified
public accountants.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) the execution, delivery, and performance of the Promissory
Note, the Security Agreement, the Subordination Agreement, the
Shareholders Agreement, the Option Agreement, the Guaranty Agreement,
the Employment Agreement, the Non- competition Agreement, and the
Seller's Release;
(c) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and
exercise of control over the Company.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied)
that is legally binding.
"DAMAGES"--as defined in Section 8.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to Buyer
as of the Closing.
"EMPLOYMENT AGREEMENT"--as defined in Section 2.4(a)(iii).
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on- site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss.
9601 et seq., as amended ("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
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(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public interest to
recover for injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any
buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) currently or formerly owned or operated
by the Company.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
"GUARANTY AGREEMENT" --as defined in Section 2.4(b)(viii).
"HAZARDOUS ACTIVITY"--the distribution, generation, handling,
importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, or
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use (including any withdrawal or other use of groundwater) of Hazardous
Materials in, on, under, about, or from the Facilities or any part
thereof into the Environment, and any other act, business, operation,
or thing that increases the danger, or risk of danger, or poses an
unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the
Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any admixture or
solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.
"HSR ACT"--the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"INDEMNIFIED PERSONS"- as defined in Section 8.2.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"IRS"--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 course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving,
or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.
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"NET WORKING CAPITAL"-is the current assets less current liabilities as
determined in accordance with GAAP.
"NON-COMPETITION AGREEMENT"-as defined in Section 2.4(a)(iv).
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by
industry associations and insurance companies), designed to provide
safe and healthful working conditions.
"OPTION AGREEMENT"-as defined in Section 2.4(a)(ix).
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited
partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the
foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor
union, or other entity or Governmental Body.
"PLAN"--as defined in Section 3.13.
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"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by
or before, or otherwise involving, any Governmental Body or arbitrator.
"PROMISSORY NOTE"-as defined in Section 2.4(b)(ii).
"RELATED PERSON"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other
natural person who resides with such individual, and (b) "Material
Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least five percent
(5%) of the outstanding voting power of a Person or equity securities
or other equity interests representing at least five percent (5%) of
the outstanding equity securities or equity interests in a Person.
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"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial
advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SECURITY AGREEMENT"--as defined in Section 2.4(b)(ii).
"SELLER"--as defined in the first paragraph of this Agreement.
"SELLER'S RELEASE"--as defined in Section 2.4(a)(ii).
"SHARES"--as defined in the Recitals of this Agreement.
"SHAREHOLDERS AGREEMENT"--as defined in Section 2.4(b)(vi).
"SUBORDINATION AGREEMENT"--as defined in Section 2.4(a)(vii).
"SUBSIDIARY"--with respect to any Person (the "Owner"), 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 the
Owner or one or more of its Subsidiaries; when used without reference
to a particular Person, "Subsidiary" means a Subsidiary of the Company.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted
to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with
any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally
or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that
such a claim, Proceeding, dispute, action, or other matter is likely to
be asserted, commenced, taken, or otherwise pursued in the future.
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2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be (a)
$14,250,000.00, and (b) the shares of common stock, $.15 par value ("Common
Stock") of Buyer in an amount equal to $1,625,000.00 as determined pursuant to
2.4(b)(vii).
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Buyer's counsel at 000 Xxxxxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000, on the date of this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers), for
transfer to Buyer;
(ii) a release in the form of Exhibit 2.4(a)(ii)
executed by Seller ("Seller's Release");
(iii) employment agreement in the form of Exhibit
2.4(a)(iii), executed by Seller ("Employment Agreement");
(iv) non-competition agreement in the form of Exhibit
2.4(a)(iv), executed by Seller ("Non-Competition Agreement"),
providing for payments to Seller as described therein;
(v) a certificate executed by Seller representing and
warranting to Buyer that each of Seller's representations and
warranties in this Agreement was accurate in all respects as
of the Closing Date;
(vi) shareholders agreement in the form of Exhibit
2.4(a)(vi) executed by Seller ("Shareholders Agreement");
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(vii) subordination agreement executed by Seller in
such form as is agreeable to Seller ("Subordination
Agreement");
(viii) the amount of Net Working Capital on behalf of
the Company as described in Section 2.5 hereof; and
(ix) the option agreement in the form of Exhibit 2.4
(a)(ix) executed by Seller ("Option Agreement").
(b) Buyer will deliver to Seller:
(i) the following amounts by wire transfer to
accounts specified by Seller in the amount of $10,250,000.00;
(ii) the promissory note payable to Seller in the
principal amount of $4,000,000.00, in the form of Exhibit
2.4(b)(ii) ("Promissory Note"), such Promissory Note will be
secured by a lien on all the Company's equipment as described
in the Security Agreement in the form of Exhibit 2.4(b)(ii)
("Security Agreement");
(iii) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement was
accurate in all respects as of the Closing Date;
(iv) the Employment Agreement executed by the Company
and approved by Buyer;
(v) the Non-Competition Agreement executed by Buyer;
(vi) the Shareholder Agreement executed by Buyer and
the Company;
(vii) Buyer will issue to Seller such shares of
Common Stock as are determined by dividing $1,625,000.00 by
the average of the closing bid and offer price for the Common
Stock for the preceding thirty (30) trading days prior to the
Closing Date. Such amount will be rounded off to whole shares
and no payment will be made in lieu of fractional shares;
(viii) the guaranty agreement in the form of Exhibit
2.4(b)(viii) executed by Xxxxxxx X. Xxxxxxxxxxxx ("Guaranty");
(ix) the Option Agreement executed by the Company;
and
(x) Buyer will provide to Seller copies of the
promissory note from Buyer to the Company and copies of the
minutes of the Board of Directors meetings authorizing the
loan to Buyer from the Company.
(c) Buyer agrees to take all necessary action to remove Seller
from any personal guarantees of accounts or Contracts of the Company
and Buyer will take all necessary steps to maintain accounts if Buyer
so desires to maintain such accounts following Closing.
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2.5 FINANCIAL CONDITION REQUIREMENTS OF THE COMPANY; ADDITIONAL
PURCHASE PRICE
(a) Buyer will cause the Company's CPAs, within forty-five
(45) days after Closing, to prepare a review of the Company's financial
statements, to determine the (i) Net Working Capital as of December 31,
2001, (ii) the consolidated stockholder's equity as of the Closing and
(iii) the net income or loss as determined in accordance with GAAP for
the Company for the one month period of January 1, 2002 through January
31, 2002 ("Review"). Upon completion of the Review, Buyer will forward
a copy of the Review to Seller. The Review will include a list of the
domestic and Mexican account receivables by name of customer, amount
and invoice date included in the Net Working Capital. The accounts
receivable included in determining the Net Working Capital shall only
include those that are due and payable in full within ninety (90) days
of the date of invoice for domestic accounts receivable and within one
hundred twenty (120) days of the date of invoice for Mexican accounts
receivable as of December 31, 2001.
(b) Seller covenants and agrees that as of December 31, 2001
the Company's consolidated stockholder's equity shall be at least
$5,500,000.00 as determined in accordance with GAAP, and the Company
will have no indebtedness as of the Closing, except for trade payables,
insurance premium notes due and payable within twelve (12) months,
accrued liabilities and lessee's deposits incurred in the Ordinary
Course of Business. All customer deposits and escrow liabilities shall
be treated as a long term liability and all cash collateral required to
fund such liabilities shall be treated as a long term asset.
(c) Seller covenants and agrees that as of December 31, 2001
the Company will have at least $3,150,000.00 in Net Working Capital of
which at least $400,000.00 shall be in cash ("Net Working Capital
Requirement"). If the Net Working Capital, as indicated by the Review,
exceeds $3,150,000.00 as of December 31, 2001, such excess amount over
$3,150,000.00 shall be paid to Seller by Buyer in the form of
additional Purchase Price in cash within ten (10) days following the
receipt of the Review by Buyer. If the additional Purchase Price
payment described above is not paid within ten (10) days of the receipt
of the Review by Seller, the unpaid amount shall bear interest at the
rate of seven and one-half percent (7.5%) per annum until paid. If the
Review indicates that the Net Working Capital Requirement is not met,
then Seller will pay in cash to Buyer the amount necessary to equal the
Net Working Capital Requirement in ten (10) days following notice
thereof. In addition, the amount of any accounts receivable of the
Company accrued prior to December 31, 2001 and not included in
determining the Net Working Capital Requirement shall be paid to Seller
when collected by Buyer as additional purchase price.
(d) If as of April 30, 2002 all or any portion of the accounts
receivable that were included in the Net Working Capital Requirement as
indicated in the Review, are not collected by Buyer, then Buyer will
transfer and assign such uncollected accounts receivable or portion
thereof, as applicable, to Seller in return for cash equal to the full
value of such unpaid accounts receivable. Seller will pay to Buyer in
cash within five (5) days after written notice, the amount of such
accounts receivable or portion thereof not collected as of April 30,
2002 that was included in the Net Working Capital Requirement. Buyer
will cooperate and assist Seller in collecting such accounts receivable
so transferred. Any accounts receivable of the Company collected by
Buyer after April 30, 2002, that were fully reserved or not included in
the Net Working Capital Requirement and, shall be paid to Seller by
Buyer as additional Purchase Price upon collection of such accounts
receivable.
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(e) The Company's CPA's will determine the Company's net
income or loss, as the case may be, in accordance with GAAP for the
period beginning January 1, 2002 through January 31, 2002. Upon receipt
of the Review indicating such net income or loss, either (i) the
Company will pay to Seller in the event of net income, such amount of
net income for the month of January, 2002 as additional Purchase Price
within ten (10) days following receipt of the Review or (ii) in the
event of net loss the Buyer shall first offset such amount of net loss
against any additional Purchase Price due Seller under subsection (b)
above, or Seller shall pay in cash to Buyer the amount of the net loss
within 10 days following receipt of the Review.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list for the Company of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each
stockholder and the number of shares held by each). The Company is a
corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
Applicable Contracts. The Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification.
(b) Seller have delivered to Buyer copies of the
Organizational Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its
terms. Upon the execution and delivery by Seller of the Employment
Agreement, the Seller's Release, Non-Competition Agreement, Security
Agreement, the Subordination Agreement and the Shareholder Agreement
(collectively, the "Seller's Closing Documents"), the Seller's Closing
Documents will constitute the legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their respective
terms. Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the
Seller's Closing Documents and to perform its obligations under this
Agreement and the Seller's Closing Documents.
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(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of the Company, or (B) any resolution adopted by the board of
directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person
the right to challenge any of the Contemplated Transactions or
to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or Seller, or
any of the assets owned or used by the Company, may be
subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by the
Company;
(iv) cause the Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to
be reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Company.
Except as set forth in Part 3.2 of the Disclosure Letter,
neither the Seller or the Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
(c) Seller is acquiring the Promissory Note and shares of
Common Stock of Buyer for his own account and not with a view to the
distribution thereof within the meaning of Section 2(11) of the
Securities Act. The Seller is an "accredited investor" as such term is
defined in Rule 501(a) of the Securities Act. Seller understands that
the shares of the Common Stock of Buyer have not been registered under
the Securities Act, or any state securities laws, and that no resales
of such shares may be effected unless such resale is registered un the
Securities Act or an exemption from registration is available.
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3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 100,000
shares of common stock, no par value, of which 3,750 shares are issued and
outstanding and 1,250 are held as treasury shares. Seller is and will be on the
Closing Date the record and beneficial owner and holder of all the shares of
common stock, free and clear of all Encumbrances. Seller will transfer to Buyer
3,038 of the shares of common stock and will retain 712 shares of the common
stock which will constitute nineteen percent (19%) of the shares of common stock
and Buyer will own eighty-one percent (81%) of the shares of common stock. No
legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business. The Company does
not have any Subsidiaries.
3.4 FINANCIAL STATEMENTS
(a) Seller has delivered to Buyer: (i) unaudited consolidated
balance sheets of the Company as of the year ended March 31 for each of
the fiscal years 1998 through 2001, and the related unaudited
consolidated statements of income, changes in stockholders' equity, and
cash flow for each of the fiscal years then ended, and (ii) an
unaudited consolidated balance sheet of the Company as of September 30,
2001 (the "Interim Balance Sheet") which has been reviewed by the
Company's CPAs at Buyer's cost, and the related unaudited consolidated
statements of income, changes in stockholders' equity, and cash flow
for the six (6) months then ended, respectively, including in each case
the notes thereto. Such financial statements and notes, represent the
financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Company as at the respective
dates of and for the periods referred to in such financial statements,
all in accordance with GAAP, subject, in the case of interim financial
statements to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the year ended financial statements);
the financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the
periods involved. No financial statements of any Person other than the
Company is required by GAAP to be included in the consolidated
financial statements of the Company.
(b) The Company will have (i) at least $5,500,000.00 in
consolidated stockholders equity as determined in accordance with GAAP
on the Closing Date, (ii) no indebtedness except for trade payables,
insurance premium notes, accrued liabilities, and lessee deposits
incurred in the Ordinary Course of Business on the Closing Date, and
(iii) a minimum of $3,150,000.00 in Net Working Capital of which at
least $400,000.00 shall be in cash as of December 31, 2001.
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3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to Buyer, are
complete and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
(a) Part 3.6 of the Disclosure Letter contains a complete and
accurate list of all real property, leaseholds, or other interests
therein owned by the Company. Seller has delivered or made available to
Buyer copies of the deeds and other instruments (as recorded) by which
the Company acquired such real property and interests, and copies of
all title insurance policies, opinions, abstracts, and surveys in the
possession of Seller or the Company and relating to such property or
interests. The Company owns (with good and marketable title in the case
of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that it purports
to own, including all of the properties and assets reflected in the
Balance Sheet and the Interim Balance Sheet (except for assets held
under capitalized leases disclosed or not required to be disclosed in
Part 3.6 of the Disclosure Letter and personal property sold since the
date of the Balance Sheet and the Interim Balance Sheet, as the case
may be, in the Ordinary Course of Business), and all of the properties
and assets purchased or otherwise acquired by the Company since the
date of the Balance Sheet (except for personal property acquired and
sold since the date of the Balance Sheet in the Ordinary Course of
Business and consistent with past practice). All material properties
and assets reflected in the Balance Sheet and the Interim Balance Sheet
are free and clear of all Encumbrances and are not, in the case of real
property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages
or security interests shown on the Balance Sheet or the Interim Balance
Sheet as securing specified liabilities or obligations, with respect to
which no default (or event that, with notice or lapse of time or both,
would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after
the date of the Interim Balance Sheet (such mortgages and security
interests being limited to the property or assets so acquired), with
respect to which no default (or event that, with notice or lapse of
time or both, would constitute a default) exists, (c) liens for current
taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company, and (ii)
zoning laws and other land use restrictions that do not impair the
present or anticipated use of the property subject thereto. All
buildings, plants, and structures owned by the Company lies wholly
within the boundaries of the real property owned by the Company and
does not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person.
15
(b) The Company has no long term secured indebtedness as of
the Closing Date and no assets, real or personal property, are subject
to any Encumbrance except as listed in Part 3.6 of the Disclosure
Letter.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's businesses after the
Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date
(which reserves are adequate and calculated consistent with past practice and,
in the case of the reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than the reserve
reflected in the Interim Balance Sheet represented of the Accounts Receivable
reflected therein and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within 90-days of the date of invoice (except in
the case of foreign accounts receivable, within 120-days of the date of
invoice). There is no contest, claim, or right of set-off, other than returns in
the Ordinary Course of Business, under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Part 3.8 of the Disclosure Letter contains a complete and accurate
list of all Accounts Receivable as of the date of the Agreement, which list sets
forth the aging of such Accounts Receivable.
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Interim
Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Interim Balance Sheet or on the accounting records
of the Company as of the Closing Date, as the case may be. The quantities of
each item of inventory (whether raw materials, work-in-process, or finished
goods) are not excessive, but are reasonable in the present circumstances of the
Company.
16
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the Company
has no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Interim Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely
basis since January 1, 1996) all Tax Returns that are or were required
to be filed by or with respect to any of them, either separately or as
a member of a group of corporations, pursuant to applicable Legal
Requirements. Seller has delivered or made available to Buyer copies
of, and Part 3.11 of the Disclosure Letter contains a complete and
accurate list of, all such Tax Returns relating to income or franchise
taxes filed since January 1, 1996. The Company has paid, or made
provision for the payment of, all Taxes that have or may have become
due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Seller or the Company, except such Taxes, if
any, as are listed in Part 3.11 of the Disclosure Letter and are being
contested in good faith and as to which adequate reserves (determined
in accordance with GAAP) have been provided in the Balance Sheet and
the Interim Balance Sheet.
(b) Part 3.11 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each
audit. All deficiencies proposed as a result of such audits have been
paid, reserved against, settled, or, as described in Part 3.11 of the
Disclosure Letter, are being contested in good faith by appropriate
proceedings. Part 3.11 of the Disclosure Letter describes all
adjustments to the United States federal income Tax Returns filed by
the Company or any group of corporations including the Company for all
taxable years since January 1, 1996, and the resulting deficiencies
proposed by the IRS. Except as described in Part 3.11 of the Disclosure
Letter, neither Seller or the Company has given or been requested to
give waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or for which the
Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes
on the respective books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's liability
for Taxes. There exists no proposed tax assessment against the Company
except as disclosed in the Interim Balance Sheet or in Part 3.11 of the
Disclosure Letter. No consent to the application of Section 341(f)(2)
of the IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the Company
is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been
paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a
consolidated basis) the Company are true, correct, and complete. There
is no tax sharing agreement that will require any payment by the
Company after the date of this Agreement. The Company is not, nor
within the five-year period preceding the Closing Date has been, an "S"
corporation. During the consistency period (as defined in Section
338(h)(4) of the IRC with respect to the sale of the Shares to Buyer),
17
neither the Company or any target affiliate (as defined in Section
338(h)(6) of the IRC with respect to the sale of the Shares to Buyer)
has sold or will sell any property or assets to Buyer or to any member
of the affiliated group (as defined in Section 338(h)(5) of the IRC)
that includes Buyer. Part 3.11 of the Disclosure Letter lists all such
target affiliates.
3.12 NO MATERIAL ADVERSE CHANGE
Except as disclosed in Section 3.12 of the Disclosure Letter, since the
date of the Interim Balance Sheet and through the date of the Disclosure Letter
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of the Company, and to Seller's
knowledge no event has occurred or circumstance exists that may result in such a
material adverse change.
3.13 EMPLOYEE BENEFITS
(a) As used in this Section 3.13, the following terms have the
meanings set forth below.
"COMPANY OTHER BENEFIT OBLIGATION" means an Other Benefit Obligation
owed, adopted, or followed by the Company or an ERISA Affiliate of the
Company.
"COMPANY PLAN" means all Plans of which an Acquired Company or an ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which the
Company or an ERISA Affiliate of the Company otherwise contributes or
has contributed, or in which the Company or an ERISA Affiliate of the
Company otherwise participates or has participated. All references to
Plans are to Company Plans unless the context requires otherwise.
"COMPANY VEBA" means a VEBA whose members include employees of the
Company or any ERISA Affiliate of the Company.
"ERISA AFFILIATE" means, with respect to the Company, any other person
that, together with the Company, would be treated as a single employer
under IRC ss. 414.
"MULTI-EMPLOYER PLAN" has the meaning given in ERISA ss. 3(37)(A).
"OTHER BENEFIT OBLIGATIONS" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than
obligations, arrangements, and practices that are Plans. Other Benefit
Obligations include consulting agreements under which the compensation
paid does not depend upon the amount of service rendered, sabbatical
policies, severance payment policies, and fringe benefits within the
meaning of IRC ss. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
18
"PENSION PLAN" has the meaning given in ERISA ss. 3(2)(A).
"PLAN" has the meaning given in ERISA ss. 3(3).
"PLAN SPONSOR" has the meaning given in ERISA ss. 3(16)(B).
"QUALIFIED PLAN" means any Plan that meets or purports to meet the
requirements of IRC ss. 401(a).
"TITLE IV PLANS" means all Pension Plans that are subject to Title IV
of ERISA, 29 X.X.X.xx. 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC
ss. 501(c)(9).
"WELFARE PLAN" has the meaning given in ERISA ss. 3(1).
(b)
(i) Part 3.13(i) of the Disclosure Letter contains a
complete and accurate list of all Company Plans, Company Other
Benefit Obligations, and Company VEBAs, and identifies as such
all Company Plans that are (A) defined benefit Pension Plans,
(B) Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer
Plans.
(ii) Part 3.13(ii) of the Disclosure Letter contains
a complete and accurate list of (A) all ERISA Affiliates of
the Company, and (B) all Plans of which any such ERISA
Affiliate is or was a Plan Sponsor, in which any such ERISA
Affiliate participates or has participated, or to which any
such ERISA Affiliate contributes or has contributed.
(iii) Part 3.13(iii) of the Disclosure Letter sets
forth, for each Multi-Employer Plan, as of its last valuation
date, the amount of potential withdrawal liability of the
Company and the Company's other ERISA Affiliates, calculated
according to information made available pursuant to ERISA ss.
4221(e).
(c) Seller has delivered to Buyer, or will deliver to Buyer
within ten days of the date of this Agreement:
(i) all documents that set forth the terms of each
Company Plan, Company Other Benefit Obligation, or Company
VEBA and of any related trust, including (A) all plan
descriptions and summary plan descriptions of Company Plans
for which Seller or the Company are required to prepare, file,
and distribute plan descriptions and summary plan
descriptions, and (B) all summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans,
Company Other Benefit Obligations, and Company VEBAs for which
a plan description or summary plan description is not
required;
(ii) all personnel, payroll, and employment manuals
and policies;
19
(iii) all collective bargaining agreements pursuant
to which contributions have been made or obligations incurred
(including both pension and welfare benefits) by the Company
and the ERISA Affiliates of the Company, and all collective
bargaining agreements pursuant to which contributions are
being made or obligations are owed by such entities; and
(iv) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in
writing;
(d) Except as set forth in Part 3.13(vi) of the Disclosure
Letter:
(i) The Company has performed all of its respective
obligations under all Company Plans, Company Other Benefit
Obligations, and Company VEBAs. The Company has made
appropriate entries in its financial records and statements
for all obligations and liabilities under such Plans, VEBAs,
and Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has been
made by the Company to any Person with regard to any Plan or
Other Benefit Obligation that was not in accordance with the
Plan or Other Benefit Obligation and that could have an
adverse economic consequence to the Company or to Buyer.
(iii) Each Company Plan can be terminated within
thirty days, without payment of any additional contribution or
amount and without the vesting or acceleration of any benefits
promised by such Plan.
(iv) Since January 1, 1999, there has been no
establishment or amendment of any Company Plan, Company VEBA,
or Company Other Benefit Obligation.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) the Company is, and at all times since January 1,
1999 has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by the Company of, or a
failure on the part of the Company to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the
part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature; and
(iii) the Company has not received, at any time since
January 1, 1999, any notice or other communication (whether
oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or
20
potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or
potential obligation on the part of the Company to undertake,
or to bear all or any portion of the cost of, any remedial
action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or to any of the
assets owned or used by the Company. Each Governmental Authorization
listed or required to be listed in Part 3.14 of the Disclosure Letter
is valid and in full force and effect. Except as set forth in Part 3.14
of the Disclosure Letter:
(i) the Company is, and at all times since January 1,
1999 has been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or
required to be identified in Part 3.14 of the Disclosure
Letter;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of
or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in
Part 3.14 of the Disclosure Letter, or (B) result directly or
indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in
Part 3.14 of the Disclosure Letter;
(iii) the Company has not received, at any time since
January 1, 1999, any notice or other communication (whether
oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or
required to be listed in Part 3.14 of the Disclosure Letter
have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations
have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the
Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and
operate its business in the manner it currently conducts and operates
such business and to permit the Company to own and use its assets in
the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.15 of the Disclosure Letter,
there is no pending Proceeding:
21
(i) that has been commenced by or against the Company
or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, the Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
To the Knowledge of Seller and the Company, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Seller has delivered to Buyer
copies of all pleadings, correspondence, and other documents relating
to each Proceeding listed in Part 3.15 of the Disclosure Letter. The
Proceedings listed in Part 3.15 of the Disclosure Letter will not have
a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which the Company, or any of
the assets owned or used by the Company, is subject;
(ii) Seller is not subject to any Order that relates
to the business of, or any of the assets owned or used by, the
Company; and
(iii) to the Knowledge of Seller and the Company, no
officer, director, agent, or employee of the Company is
subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) the Company is, and at all times since January 1,
1999 has been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets
owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which the Company, or any
of the assets owned or used by the Company, is subject; and
(iii) the Company has not received, at any time since
January 1, 1999, any notice or other communication (whether
oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is or has been subject.
22
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since
January 1, 2001, the Company has conducted its businesses only in the Ordinary
Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital
stock of the Company; issuance of any security convertible into such
capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company of any shares of any
such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer,
or employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee (except in the
Ordinary Course of Business);
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of the Company;
(e) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial
condition, or prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii)
any Contract or transaction involving a total remaining commitment by
or to the Company of at least $10,000.00;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of
the Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Company, including
the sale, lease, or other disposition of any of the Intellectual
Property Assets;
(h) cancellation or waiver of any claims or rights with a
value to the Company in excess of $10,000.00;
(i) material change in the accounting methods used by the
Company; or
(j) agreement, whether oral or written, by the Company to do
any of the foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Letter contains a complete
and accurate list, and Seller have delivered to Buyer true and complete
copies, of:
23
(i) each Applicable Contract that involves
performance of services or delivery of goods or materials by
the Company of an amount or value in excess of $10,000.00;
(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to
the Company of an amount or value in excess of $10,000.00;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of the Company in excess of
$10,000.00;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $10,000.00 and
with terms of less than one year);
(v) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current
or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other
employee representative of a group of employees;
(vii) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by the Company with any
other Person;
(viii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of
the Company, the Seller or any Affiliate of the Company or
limit the freedom of the Company, the Seller or any Affiliate
of the Company to engage in any line of business or to compete
with any Person;
(ix) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits,
other than direct payments for goods;
(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by the Company to be responsible
for consequential damages;
(xii) each Applicable Contract for capital
expenditures in excess of $10,000.00;
24
(xiii) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by the Company other than in the Ordinary Course of
Business; and
(xiv) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably
complete details concerning such Contracts, including the parties to
the Contracts, the amount of the remaining commitment of the Company
under the Contracts, and the Company's office where details relating to
the Contracts are located.
(b) Except as set forth in Part 3.17(b) of the Disclosure
Letter:
(i) neither Seller (and no Related Person of Seller)
has or may acquire any rights under, and neither Seller has or
may become subject to any obligation or liability under, any
Contract that relates to the business of, or any of the assets
owned or used by the Company; and
(ii) no officer, director, agent, employee,
consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A)
engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the
Company or to any other Person any rights to any invention,
improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure
Letter, each Contract identified or required to be identified in Part
3.17(a) of the Disclosure Letter is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure
Letter:
(i) the Company is, and at all times since January 1,
1999 has been, in full compliance with all applicable terms
and requirements of each Contract under which the Company has
or had any obligation or liability or by which the Company or
any of the assets owned or used by the Company is or was
bound;
(ii) each other Person that has or had any obligation
or liability under any Contract under which the Company has or
had any rights is, and at all times since January 1, 1999 has
been, in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give
the Company or other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Applicable Contract; and
25
(iv) the Company has not given to or received from
any other Person, at any time since January 1, 1999, any
notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to the Company under current or completed Contracts with any
Person and no such Person has made written demand for such
renegotiation.
(f) The Contracts relating to the sale, design, manufacture,
or provision of products or services by the Company has been entered
into in the Ordinary Course of Business and have been entered into
without the commission of any act alone or in concert with any other
Person, or any consideration having been paid or promised, that is or
would be in violation of any Legal Requirement.
26
3.18 INSURANCE
(a) Seller have delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which the Company is a party or under which the
Company, or any director or officer of the Company, is or has
been covered at any time within the three (3) years preceding
the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of the Company's
financial statements with regard to the adequacy of such
entity's coverage or of the reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting
the Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by the
Company; and
(iii) all obligations of the Company to third parties
with respect to insurance (including such obligations under
leases and service agreements) and identifies the policy under
which such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, by year,
for the current policy year and each of the three (3) preceding policy
years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $10,000.00, which
sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer,
type of insurance, and period of coverage; and
(C) the amount and a brief description of
the claim; and
(iii) a statement describing the loss experience for
all claims that were self- insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure
Letter:
27
(i) All policies to which the Company is a party or
that provide coverage to Seller, the Company, or any director
or officer of the Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate
insurance coverage for the assets and the operations
of the Company for all risks normally insured against
by a Person carrying on the same business or
businesses as the Company;
(D) are sufficient for compliance with all
Legal Requirements and Contracts to which the Company
is a party or by which it is bound;
(E) will continue in full force and effect
following the consummation of the Contemplated
Transactions; and
(F) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of the Company.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in part 3.19 of the disclosure letter:
(a) The Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. Neither Seller nor the Company has any
basis to expect, nor has any of them or any other Person for whose
conduct they are or may be held to be responsible received, any actual
or Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any Facilities, of any
actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Seller
or the Company has had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by
Seller, the Company, or any other Person for whose conduct they are or
may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled,
or received.
(b) There are no pending or, to the Knowledge of Seller and
the Company, Threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with
respect to or affecting any of the Facilities or any other properties
and assets (whether real, personal, or mixed) in which Seller or the
Company has or had an interest.
28
(c) Neither Seller nor the Company has Knowledge of any basis
to expect, nor has any of them or any other Person for whose conduct
they are or may be held responsible, received, any citation, directive,
inquiry, notice, Order, summons, warning, or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged,
actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Seller
or the Company had an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Seller, the Company, or
any other Person for whose conduct they are or may be held responsible,
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(d) Neither Seller nor the Company, or any other Person for
whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the
Facilities or , to the Knowledge of Seller and the Company, with
respect to any other properties and assets (whether real, personal, or
mixed) in which Seller or the Company (or any predecessor), has or had
an interest, or at any property geologically or hydrologically
adjoining the Facilities or any such other property or assets.
(e) To the Knowledge of Seller, there are no Hazardous
Materials present on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the
Facilities or such adjoining property, or incorporated into any
structure therein or thereon. Neither Seller, the Company, any other
Person for whose conduct they are or may be held responsible, or to the
Knowledge of Seller and the Company, any other Person, has permitted or
conducted, or is aware of, any Hazardous Activity conducted with
respect to the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Seller or the Company has or had an
interest except in full compliance with all applicable Environmental
Laws.
(f) There has been no Release, to the Knowledge of Seller and
the Company, or Threat of Release of any Hazardous Materials at or from
the Facilities or at any other locations where any Hazardous Materials
were generated, manufactured, refined, transferred, produced, imported,
used, or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which
Seller or the Company has or had an interest, or any geologically or
hydrologically adjoining property, whether by Seller, the Company, or
any other Person.
(g) Seller have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Seller or the Company pertaining
to Hazardous Materials or Hazardous Activities in, on, or under the
Facilities, or concerning compliance by Seller, the Company, or any
other Person for whose conduct they are or may be held responsible,
with Environmental Laws.
29
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or
director of the Company, including each employee on leave of absence or
layoff status: employer; name; job title; current compensation paid or
payable and any change in compensation since January 1, 2001; vacation
accrued; and service credited for purposes of vesting and eligibility
to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment
credit or payroll stock ownership), severance pay, insurance, medical,
welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan or
any Director Plan.
(b) No employee or director of the Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement,
between such employee or director and any other Person ("Proprietary
Rights Agreement") that in any way adversely affects or will affect (i)
the performance of his duties as an employee or director of the
Company, or (ii) the ability of the Company to conduct its business,
including any Proprietary Rights Agreement with Seller or the Company
by any such employee or director. To Seller's Knowledge, no director,
officer, or other key employee of the Company intends to terminate his
employment with the Company.
(c) Part 3.20 of the Disclosure Letter also contains a
complete and accurate list of the following information for each
retired employee or director of the Company, or their dependents,
receiving benefits or scheduled to receive benefits in the future:
name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other
benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1999, the Company has not been nor is a party to any
collective bargaining or other labor Contract. Since January 1, 1999, there has
not been, there is not presently pending or existing, and to Seller's Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or its premises, or (c) any application for certification of a collective
bargaining agent. To Seller's Knowledge no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the Company, and no such action
is contemplated by the Company. The Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
30
3.22 INTELLECTUAL PROPERTY
(a) INTELLECTUAL PROPERTY ASSETS--The term "Intellectual
Property Assets" includes:
(i) the name the Company's name, all fictional
business names, trading names, registered and unregistered
trademarks, service marks, and applications (collectively,
"Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively,
"Patents");
(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights
in Mask Works"); and
(v) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by
the Company as licensee or licensor.
(b) AGREEMENTS
Part 3.22(b) of the Disclosure Letter contains a complete and
accurate list and summary description, including any royalties paid or
received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company
is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs
with a value of less than $10,000.00 under which the Company is the
licensee. There are no outstanding and, to Seller's Knowledge, no
Threatened disputes or disagreements with respect to any such
agreement.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS
The Intellectual Property Assets are all those necessary for
the operation of the Company's business as it is currently conducted.
The Company is the owner of all right, title, and interest in and to
each of the Intellectual Property Assets, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse
claims, and has the right to use without payment to a third party all
of the Intellectual Property Assets.
(d) PATENTS
(i) Part 3.22(d) of the Disclosure Letter contains a
complete and accurate list and summary description of all
Patents. The Company is the owner of all right, title, and
interest in and to each of the Patents, free and clear of all
liens, security interests, charges, encumbrances, entities,
and other adverse claims.
(ii) All of the issued Patents are currently in
compliance with formal legal requirements (including payment
of filing, examination, and maintenance fees and proofs of
working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling
due within ninety days after the Closing Date.
31
(iii) No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition
proceeding. To Seller's Knowledge, there is no potentially
interfering patent or patent application of any third party.
(iv) No Patent is infringed or, to Seller's
Knowledge, has been challenged or threatened in any way. None
of the products manufactured and sold, nor any process or
know-how used, by the Company infringes or is alleged to
infringe any patent or other proprietary right of any other
Person.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
(e) TRADEMARKS
(i) Part 3.22(e) of Disclosure Letter contains a
complete and accurate list and summary description of all
Marks. The Company is the owner of all right, title, and
interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities,
and other adverse claims.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are currently in
compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing Date.
(iii) No Xxxx has been or is now involved in any
opposition, invalidation, or cancellation and, to Seller's
Knowledge, no such action is Threatened with the respect to
any of the Marks.
(iv) To Seller's Knowledge, there is no potentially
interfering trademark or trademark application of any third
party.
(v) No Xxxx is infringed or, to Seller's Knowledge,
has been challenged or threatened in any way. None of the
Marks used by the Company infringes or is alleged to infringe
any trade name, trademark, or service xxxx of any third party.
(vi) All products and materials containing a Xxxx
xxxx the proper federal registration notice where permitted by
law.
32
(f) TRADE SECRETS
(i) With respect to each Trade Secret, the
documentation relating to such Trade Secret is current,
accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without
reliance on the Knowledge or memory of any individual.
(ii) Seller and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value
of their Trade Secrets.
(iii) The Company has good title and an absolute (but
not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or
literature, and, to Seller's Knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person
(other than the Company) or to the detriment of the Company.
No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
3.23 CERTAIN PAYMENTS
Since January 1, 1999, the Company has not, nor any director, officer,
agent, or employee of the Company, or any other Person associated with or acting
for or on behalf of the Company, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any Affiliate of the Company, or (iv) in violation of
any Legal Requirement, (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
3.24 DISCLOSURE
(a) No representation or warranty of Seller in this Agreement
and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
(c) There is no fact known to Seller that has specific
application to Seller or the Company (other than general economic or
industry conditions in the oil and gas industry) and that materially
adversely affects the assets, business, prospects, financial condition,
or results of operations of the Company (on a consolidated basis) that
has not been set forth in this Agreement or the Disclosure Letter.
33
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as described in Part 3.25 of the Disclosure Letter, no Seller or
any Related Person of Seller or of the Company has, or since January 1, 1999,
has had any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the Company's
businesses. No Seller or any Related Person of Seller or of the Company is, or
since January 1, 1999 has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with the
Company other than business dealings or transactions conducted in the Ordinary
Course of Business with the Company at substantially prevailing market prices
and on substantially prevailing market terms, or (ii) engaged in competition
with the Company with respect to any line of the products or services of the
Company (a "Competing Business") in any market presently served by the Company
except for less than one percent of the outstanding capital stock of any
Competing Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Seller has no record or beneficial interest in Maytep,
the Company's lessee in Mexico. Except as set forth in Part 3.25 of the
Disclosure Letter, no Seller or any Related Person of Seller or of the Company
is a party to any Contract with, or has any claim or right against, the Company.
3.26 BROKERS OR FINDERS
Seller and his agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement, except for the
Xxxxxxx Xxxxxxxx Group for which Seller shall be responsible for all fees and
expenses.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Buyer is duly qualified and in
good standing in the State of Texas.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of the Employment
Agreement, the Promissory Note, the Option Agreement, the Security
Agreement, the Non-Competition Agreement, the Subordination Agreement
and the Shareholder Agreement (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal,
valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the absolute and
unrestricted right, power, and authority to execute and deliver this
Agreement and the Buyer's Closing Documents and to perform its
obligations under this Agreement and the Buyer's Closing Documents.
34
(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay,
or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any provision of Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of directors
or the stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer
may be subject; or
(iv) any Contract to which Buyer is a party or by
which Buyer may be bound.
Buyer is not and will not be required to obtain any Consent
from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions. To
Buyer's Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Seller harmless from any such payment alleged to be due by or
through Buyer as a result of the action of Buyer or its officers or agents.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
5.1 ACCURACY OF REPRESENTATIONS
(a) All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these representations
and warranties (considered individually), must have been accurate in
all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on
the Closing Date, without giving effect to any supplement to the
Disclosure Letter.
35
(b) Each of Seller's representations and warranties in
Sections 3.3, 3.4, 3.12, and 3.24 must have been accurate in all
respects as of the date of this Agreement, and must be accurate in all
respects as of the Closing Date as if made on the Closing Date.
5.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section
2.4 must have been delivered.
5.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter,
if any, must have been obtained and must be in full force and effect.
5.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of X. X. Xxxx and Associates, dated the Closing
Date, in the form of Exhibit 5.4(a); and
(b) such other documents as Buyer may reasonably request for
the purpose of (i) evidencing the accuracy of any of Seller's
representations and warranties, (ii) evidencing the performance by
Seller of, or the compliance by Seller with, any covenant or obligation
required to be performed or complied with by such Seller, (iii)
evidencing the satisfaction of any condition referred to in this
Section 5, or (iv) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
5.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
36
5.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
5.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
5.8 FINANCING
Buyer's obligation to purchase Seller's Shares and consummate the
Contemplated Transactions are subject to Buyer's receipt of the approval of
Buyer's lenders and obtaining appropriate financing in an amount sufficient to
enable the Buyer to complete the purchase of the Shares.
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
6.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.4 and must have made the
cash payment required to be made by Buyer pursuant to Section
2.4(b)(i).
6.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter
must have been obtained and must be in full force and effect.
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6.4 ADDITIONAL DOCUMENTS
Buyer must have caused such other documents to be delivered to Seller
as Seller may reasonably request for the purpose of (i) enabling their counsel
to provide the opinion referred to in Section 5.4(a), (ii) evidencing the
accuracy of any representation or warranty of Buyer, (iii) evidencing the
performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (ii) evidencing
the satisfaction of any condition referred to in this Section 8, or (v)
otherwise facilitating the consummation of any of the Contemplated Transactions.
6.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Seller to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
6.6 SELLER'S APPROVAL OF SUBORDINATION AGREEMENT
Prior to the Closing, Buyer will deliver to Seller (a) the form of the
Subordination Agreement (including option to purchase) proposed by Buyer and its
lenders; (b) all documents referred to or referenced in the Subordination
Agreement; (c) any notes and other security agreements collateralized by the
equipment referenced in the Security Agreement; and (d) all documents pertaining
to the financing arrangements described in the Subordination Agreement. Unless
Seller, in his sole discretion, approves of the Subordination Agreement, Seller
will have no obligation to consummate the Contemplated Transaction, and Buyer
will be liable for the break-up fee described in Section 7.1.
7. TERMINATION
7.1 TERMINATION EVENTS
If Buyer does not consummate the Contemplated Transactions
through no fault of Seller or the Company, and Seller has not breached
this Agreement prior to Closing, then Buyer will pay to Seller
$50,000.00 as a break-up fee. In the event that Seller supplements the
Disclosure Letter in any manner and Buyer does not consummate the
Contemplated Transactions as a result of such supplement, then Buyer
will not be liable to Seller for the described break-up fee.
7.2 EFFECT OF TERMINATION
Each party's right of termination under Section 7.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 7.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections 9.1
and 9.3 will survive; provided, however, that if this Agreement is terminated by
a party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
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8. INDEMNIFICATION; REMEDIES
8.1 SURVIVAL; RIGHT TO INDEMNIFICATION
NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4(a)(v), and any other certificate
or document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation, provided,
however, Knowledge by Buyer's Chief Executive Officer with respect to the
accuracy or inaccuracy of or compliance with any representation, warranty,
covenant or obligation will limit Buyer's remedy solely to the right of
indemnification under Article VIII hereof.
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer, the Company, and their
respective Representatives (acting in the course and scope of their employment)
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by
Seller in this Agreement, the Disclosure Letter, or any other
certificate or document delivered by Seller pursuant to this Agreement;
(b) any Breach of any representation or warranty made by
Seller in this Agreement as if such representation or warranty were
made on and as of the Closing Date;
(c) any Breach by Seller of any covenant or obligation of
Seller in this Agreement;
(d) any matter relating to (i) that certain lawsuit styled,
United Oil Minerals Limited Partnership vs. JENS' OIL FIELD SERVICE,
INC.; Cause No. 01-12-10860CV in the 79th Judicial District Court of
Xxxxxx County, Texas, and (ii) that certain lawsuit styled, Xxxxxxx
Xxxxxx et xx x. Xxxxxx Producing Corp. and Jens' Oilfield Supply; Cause
No. 2001-CI-0670 in the 37th Judicial District Court of Bexar County,
Texas, whether set forth in the Disclosure Letter or otherwise.
Notwithstanding anything herein contained to the contrary in the
Disclosure Letter, the above two lawsuits shall be subject to
indemnification pursuant to this Section 8.2; and
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller
or the Company (or any Person acting on their behalf) in connection
with any of the Contemplated Transactions.
39
Except as otherwise provided in this Agreement, the remedies
provided in this Section 8.2 will not be exclusive of or limit any
other remedies that may be available to the Indemnified Persons. The
Seller's indemnification under this Section 8.2 shall not be applicable
to claims by stockholders of Buyer. Upon consummation of this
Agreement, Buyer agrees to maintain or provide for comprehensive
general liability insurance coverage for the Company which will be at
least as good or better than the coverage provided by the Company's
insurance prior to the Closing Date, and provide that no lapse of
insurance coverage for liability matters will be allowed to transpire
as a result of this Agreement. It is expressly provided herein that in
the event the Seller specifically discloses a condition that is a
Breach of a representation or warranty through the Disclosure Letter,
the Indemnified Persons will not be entitled to indemnification under
this Agreement for the Breach relating to such disclosure except for
those matters described in Section 8.2(d) hereof. It is also expressly
provided herein that in the event the Seller specifically discloses a
condition that is a Breach of a representation or warranty as of the
Closing, the Indemnified Persons will not be entitled to
indemnification under this Agreement for the Breach relating to such
disclosure except for claims by parties not related to, or affiliated
with, any of the following: (i) Buyer, (ii) the Company, or (iii) any
of their respective Representatives, stockholders, controlling persons
or affiliates ("Third Parties"), except for those matters described in
Section 8.2(d) hereof.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES
BY SELLER - ENVIRONMENTAL MATTERS
In addition to the provisions of Section 8.2, Seller will indemnify and
hold harmless Buyer, the Company, and the Indemnified Persons from Third
Parties' claims, and will pay to Buyer, the Company, and the Indemnified Persons
the amount of, any Damages (including costs of cleanup, containment, or other
remediation) arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation, or condition
at any time on or prior to the Closing Date of the Facilities or any
other properties and assets (whether real, personal, or mixed and
whether tangible or intangible) in which Seller or the Company has or
had an interest, or (B) any Hazardous Materials or other contaminants
that were present on the Facilities or such other properties and assets
at any time on or prior to the Closing Date; or (ii) (A) any Hazardous
Materials or other contaminants, wherever located, that were, or were
allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Seller or the Company or by any other Person for
whose conduct they are or may be held responsible at any time on or
prior to the Closing Date, or (B) any Hazardous Activities that were,
or were allegedly, conducted by Seller or the Company or by any other
Person for whose conduct they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and
death, and regardless of when any such bodily injury occurred, was
incurred, or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction, and deprivation of
the use of real property), or other damage of or to any Person,
including any employee or former employee of Seller or the Company or
any other Person for whose conduct they are or may be held responsible,
in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the
40
Facilities or the operation of the Company prior to the Closing Date,
or from Hazardous Material that was (i) present or suspected to be
present on or before the Closing Date on or at the Facilities (or
present or suspected to be present on any other property, if such
Hazardous Material emanated or allegedly emanated from any of the
Facilities and was present or suspected to be present on any of the
Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by Seller or the Company or any other Person for
whose conduct they are or may be held responsible, at any time on or
prior to the Closing Date.
Buyer will be entitled to control any Cleanup, any related
Proceeding, and, except as provided in the following sentence, any
other Proceeding with respect to which indemnity may be sought under
this Section 8.3. The procedure described in Section 8.9 will apply to
any claim solely for monetary damages relating to a matter covered by
this Section 8.3. Upon consummation of this Agreement, Buyer agrees to
maintain or provide for comprehensive general liability insurance
coverage for the Company which will be at least as good or better than
the coverage provided by the Company's insurance, and provide that no
lapse of insurance coverage for liability matters will be allowed to
transpire as a result of this Agreement. It is expressly provided
herein that in the event the Seller discloses an environmental
condition or liability through the Disclosure Letter, the Indemnified
Persons will not be entitled to indemnification under this Agreement
for the liability relating to such disclosure. It is also expressly
provided herein that in the event the Seller specifically discloses an
environmental condition as liability through the Closing, the
Indemnified Persons will not be entitled to indemnification under this
Agreement for the environmental condition or liability relating to such
disclosure except for claims by Third Parties.
8.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller, and will pay to Seller
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
8.5 TIME LIMITATIONS
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or
before two (2) years from the Closing Date Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.11, 3.13, or 3.19,
or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before two
(2) years from the Closing Date Seller notifies Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Seller. Notwithstanding any of the foregoing in this Section 8.5, the
indemnification pursuant to Section 8.2(d) hereof is not subject to any time
limitation hereunder.
41
8.6 LIMITATIONS ON AMOUNT--SELLER
(a) Seller will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a), clause
(b) or, to the extent relating to any failure to perform or comply
prior to the Closing Date, clause (c) of Section 8.2 until the total of
all Damages with respect to such matters exceeds $250,000.00, and then
only for the amount by which such Damages exceed $250,000.00. In no
event shall the aggregate indemnification to be provided by Seller
pursuant to the matters described in Section 8.2(a), (b), (c) and (e)
exceed $2,000,000.00. In the event Buyer makes a claim for
indemnification pursuant to clauses (a), (b), (c) or (e) of Section 8.2
and is entitled to indemnification pursuant to the terms of this
Article VIII, Buyer and Seller agree that any such indemnification will
be first set off against amounts due under the Note, including
principal and accrued interest, and if such indemnification exceeds the
amounts due under the Note, the excess shall be paid in cash.
(b) Seller agrees to pay all Damages and defend at Seller's
cost the matters described in clause (d) of Section 8.2 hereof, and to
pay to Buyer in cash any Damages for which Buyer may be entitled
pursuant to Section 8.2(d).
(c) However, this Section 8.6 will not apply to any Breach of
any of Seller's representations and warranties of which Seller had
Knowledge at any time prior to the date on which such representation
and warranty is made or any intentional Breach by Seller of any
covenant or obligation.
8.7 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 8.4 until the
total of all Damages with respect to such matters exceeds $25,000.00, and then
only for the amount by which such Damages exceed $25,000.00. In no event shall
the aggregate indemnification to be provided by Buyer pursuant to this Article
VIII exceed $5,000,000.00. However, this Section 8.7 will not apply to any
Breach of any of Buyer's representations and warranties of which Buyer had
Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional Breach by Buyer of any covenant or
obligation, and Buyer will be liable for all Damages with respect to such
Breaches.
8.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under
Section 8.2, 8.4, or (to the extent provided in the last sentence of
Section 8.3) Section 8.3 of notice of the commencement of any
Proceeding against it, such indemnified party will, if a claim is to be
made against an indemnifying party under such Section, give notice to
the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice.
42
(b) If any Proceeding referred to in Section 8.8(a) is brought
against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party
will, unless the claim involves Taxes, be entitled to participate in
such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will not, as
long as it diligently conducts such defense, be liable to the
indemnified party under this Section 8 for any fees of other counsel or
any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection
with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a
Proceeding, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the
scope of and subject to indemnification; (ii) no compromise or
settlement of such claims may be effected by the indemnifying party
without the indemnified party's consent unless (A) there is no finding
or admission of any violation of Legal Requirements or any violation of
the rights of any Person and no effect on any other claims that may be
made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and
(iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent.
If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after
the indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
43
8.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
8.10 RIGHT OF SET-OFF
Buyer will give written notice to Seller for a claim for
indemnification and set-off specifying the details and the basis for such right
to indemnification and set-off which it may be entitled under this Section 8
against amounts otherwise payable under the Promissory Note. Within ten (10)
days after receipt of notice by Seller, Seller must respond in writing to Buyer,
and either : (a) agree that Buyer's claim for indemnification and right to
set-off is valid, in which case Buyer will set-off such amount, or (b) dispute
such set-off, in which case the parties will arbitrate such dispute in
accordance with this Agreement and no set- off will occur unless and until a
final order authorizing such set-off is entered by the Arbitrator. If Seller
fails to respond in writing within ten (10) days to Buyer's written notice,
Seller shall be deemed to have agreed with Buyer's claim for indemnification and
Buyer may set-off against the Promissory Note. Neither the exercise of, nor the
failure to, exercise such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it.
9. GENERAL PROVISIONS
9.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Seller will pay all amounts payable to Xxxxxxx
Xxxxxxxx Group in connection with this Agreement and the Contemplated
Transactions. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party. In addition, in the
event of dispute involving this Agreement, the party who defaulted under the
Agreement will pay the attorney's fees, expenses, court costs and expert's fees
of the non-defaulting party.
9.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyer determines. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Seller shall,
and shall cause the Company to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person. Seller and Buyer
will consult with each other concerning the means by which the Company's
employees, customers, and suppliers and others having dealings with the Company
will be informed of the Contemplated Transactions, and Buyer will have the right
to be present for any such communication.
44
9.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Seller will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Company to maintain in
confidence, written information stamped "confidential" when originally furnished
by another party or the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
9.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
SELLER: Xxxx X. Xxxxxxxxx, Xx.
00000 Xxxxx Xxxx
XxXxxxx, Xxxxx 00000
With a copy to: X. X. Xxxx
Xxxx & Associates
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
XxXxxxx, Xxxxx 00000
Facsimile No: (000) 000-0000
BUYER: Xxxxx-Xxxxxxxx Corporation
0000 Xxxxxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxxxxx
Facsimile No: (000) 000-0000
with a copy to: Wilson, Cribbs, Xxxxx & Xxxxx, P.C.
000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxxxx X. Pound III
Facsimile No: (000) 000-0000
45
9.5 BINDING ARBITRATION
(a) On the request of any party hereto, whether made before or
after the institution of any legal proceeding, any action, dispute,
claim or controversy of any kind now existing or hereafter arising
between any of the parties hereto in any way arising out of, pertaining
to or in connection with this Agreement (a "DISPUTE) shall be resolved
by binding arbitration in accordance with the terms hereof. In the
event of any Dispute, any party may serve written notice of such
Dispute on any other party and each party to such Dispute shall
undertake in good faith to resolve such Dispute. If the parties cannot
agree to resolve such Dispute within fifteen (15) days after such
written notice, any party to such Dispute may, by further written
notice (the "ARBITRATION NOTICE") to the other party, commence an
arbitration proceeding by bringing the Dispute to one arbitrator or to
an arbitration panel selected as provided below.
(b) ARBITRATORS. Dispute shall be decided by a single
arbitrator, unless the parties cannot agree within ten (10) days on a
single arbitrator, in which case they shall choose an arbitration panel
comprised of three arbitrators, one arbitrator to be selected by the
party who sent the Arbitration Notice, a second arbitrator to be
selected by the other adverse party, and the third arbitrator (the
"INDEPENDENT ARBITRATOR") who will be the Chairman of the arbitration
panel, to be appointed by the first two arbitrators. In the event the
first two arbitrators fail to agree on the appointment of the
Independent Arbitrator within fifteen (15) days, the Independent
Arbitrator shall be appointed on request of any party hereto by any
state district court judge in Xxxxxxx or Xxxxxx County, Texas. Whether
there is one arbitrator or a panel, each arbitrator shall be a third
party and a business person knowledgeable in the subject matter of the
Dispute. In the event that any arbitrator shall resign, be unable or
otherwise fail to perform his or her duties, each party shall
immediately notify the other parties of such resignation, inability or
failure, and a replacement shall immediately be selected by the party
who selected such arbitrator in the instance, or, if the arbitrator to
be replaced is the Independent Arbitrator, then the parties shall
attempt in good faith to appoint a mutually agreeable replacement
Independent Arbitrator. If the parties fail to agree on such
replacement within fifteen (15) days, either party may request any
state district court judge in Xxxxxxx or Xxxxxx County, Texas to
appoint such replacement Independent Arbitrator.
(c) CONDUCT OF ARBITRATION. The arbitrator or the arbitration
panel shall conduct the arbitration in accordance with the Rules of
Arbitration of the American Arbitration Association then in effect,
except to the extent such rules are inconsistent with the provisions of
this Section 13. The parties shall prepare in writing a statement of
their positions, together with counterclaims, with supporting facts,
data, and affidavits, if any, and shall submit such statement to the
arbitrator, or arbitration panel within fifteen (15) days after
selection, but, in any event, within forty-five (45) days after service
of the Arbitration Notice. The arbitrator or the arbitration panel
shall give all parties the opportunity to make an oral presentation to
the arbitrator or the arbitration panel in the presence of the other
party, if either party so requests. The parties shall have, for a
period of one- hundred twenty (120) days after service of the
Arbitration Notice (the "DISCOVERY PERIOD"), all rights of discovery
provided by the Texas Rules of Civil Procedures then obtaining, except,
unless otherwise agreed, that all responses to discovery requests shall
be served within ten (10) days of such discovery request and no
discovery request may be served after the date ten (10) days before the
termination of the Discovery Period. The arbitrator or the arbitration
46
panel shall assume exclusive jurisdiction over the Dispute, may order
interim equitable relief (which shall be specifically enforceable as if
it were a final Award, as hereinafter defined), and shall be required
to make a final binding determination (the "AWARD"). The Award shall
not be subject to appeal to or review by any court or administrative
body except as set forth in Section 10(a) of the Federal Arbitration
Act, codified as 9 U.S.C.A. ss. 10(a) (West Supp. 1997). The Award
shall determine (i) whether each party's obligations under this
Agreement were met, and (ii) what damages or remedies (which may
include final equitable reliefs) are due under the terms of this
Agreement. In addition, the arbitrator or the arbitration panel shall
award recovery of all costs and fees of arbitration to the prevailing
party. The agreement to arbitrate contained in this Section 13 shall be
specifically enforceable under the prevailing arbitration law, and
shall survive termination of this Agreement. Judgment upon the Award
rendered by the arbitrator or the arbitration panel may be entered in
accordance with applicable law in any court having jurisdiction
therefor. Arbitration shall, unless all the parties otherwise agree in
writing, take place in Houston, Texas.
9.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement. Buyer agrees to provide Seller
with copies of quarterly financial statements and audited year end financial
statements until the Note is paid in full.
9.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
9.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
Seller dated May 2, 2001) and constitutes (along with the documents referred to
in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
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9.9 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, must relate only
to the representations and warranties in the Section of the Agreement
to which they expressly relate and not to any other representation or
warranty in this Agreement.
(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Letter (other
than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty),
the statements in the body of this Agreement will control.
9.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
9.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
9.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
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9.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER: XXXXX-XXXXXXXX CORPORATION
/S/XXXXXXX X. XXXXXXXXXXXX
--------------------------------------------
Xxxxxxx X. Xxxxxxxxxxxx,
Chief Executive Officer
SELLER:
/S/XXXX X. XXXXXXXXX, XX.
--------------------------------------------
Xxxx X. Xxxxxxxxx, Xx., Individually
/S/XXXXX XXXXXXXXX
--------------------------------------------
Spouse of Xxxx X. Xxxxxxxxx, Xx.
for sole purpose of conveying any community
property interest owned by her
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TABLE OF EXHIBITS AND SCHEDULES
EXHIBIT NAME PAGE NO.
2.4(a)(ii) Seller's Release 9
2.4(a)(iii) Employment Agreement 9
2.4(a)(iv) Non-Competition Agreement 9
2.4(a)(vi) Shareholder Agreement 10
2.4(a)(ix) Option Agreement 10
2.4(b)(ii) Non-Negotiable Promissory Note 10
2.4(b)(ii) Security Agreement 10
2.4(b)(viii) Guaranty Agreement
5.4(a) Opinion of X. X. Xxxx and Associates 36
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