ASSET PURCHASE AGREEMENT
THIS
ASSET PURCHASE AGREEMENT, dated as of June 6, 2006 (the “Agreement”),
is by
and among LifTech,
LLC, a Wyoming limited liability company (the
“Company”),
Xxxxx
Xxxxxx (“JT”),
Xxxx
Xxxxxx (“TS”),
and
USA Petrovalve, Inc., a Texas corporation (“Buyer”)
which
is a wholly-owned subsidiary of Flotek Industries, Inc.
WITNESSETH:
WHEREAS,
Buyer desires to purchase substantially all of the assets of the Company;
and
WHEREAS,
JT and TS each have an ownership interest in the Company and thus would derive
a
substantial benefit from the consummation of the purchase transaction
contemplated herein;
NOW,
THEREFORE, in consideration of the premises and the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to
be
legally bound, agree as follows:
ARTICLE
I
THE
PURCHASE
Section
1.1. Purchase.
On and
subject to the terms and conditions of this Agreement, at the Closing, Buyer
will purchase from the Company, and the Company will sell to Buyer, the
following assets, rights, properties, and interests of the Company (the
“Acquired
Assets”):
(a) The
machinery, office equipment, tools, shop equipment, computers, office supplies,
vehicles, furnishings and fixtures, and other items of tangible personal
property of the Company, including specifically but not limited to the items
described on Schedule 1.1(a) (the “Tangible
Personal Property”);
(b) The
leasehold rights of the Company with respect to the items of personal property
which are described on Schedule 1.1(b) (the “Leased
Assets”);
(c) The
rights of the Company under the agreements listed on Schedule 1.1(c) (the
“Assigned
Agreements”);
(d) All
of
the customer lists, customer files (including credit applications and reports,
credit histories and applicable terms and conditions) books, records, ledgers,
files, documents, correspondence, plans, studies, and drawings of the Company;
(e) The
inventories of finished goods, tooling inventory, work in progress and raw
materials of the Company as of the Effective Time (the “Purchased
Inventory”),
which
shall specifically include, but shall not be limited to, the inventory listed
on
Schedule 1.1(e) (the “Scheduled
Inventory”);
(f) The
accounts receivable of the Company as of the Effective Time (the “Accounts
Receivable”);
(g) The
cash
and other working capital of the Company as of the Effective Time (the
“Cash”);
and
(h) All
of
the goodwill of the Company and all of the rights of the Company to use the
tradename “LifTech” or any similar name (subject to the permitted use provided
for in Section 5.7) (the “Tradename”).
Section
1.2. Excluded
Assets.
Notwithstanding the foregoing, the Acquired Assets shall not include the assets
listed on Schedule 1.2.
Section
1.3. Purchase
Price for Acquired Assets.
As
consideration for the sale to it of the Acquired Assets, Buyer
shall:
(a) Pay
cash
at Closing in the aggregate amount of Seven Hundred Ninety-One Thousand Seven
Hundred Four and No/100 Dollars ($791,704) (the “Cash
Payment”)
less
any offset provided for in Section 1.10;
(b) Cause
Flotek Industries, Inc. (“Flotek”)
to
issue to JT and TS, as additional purchase price for the Acquired Assets, an
aggregate number of shares (the “Flotek
Shares”)
of the
common stock of Flotek, .0001 par value per share (the “Flotek
Common Stock”)
determined by dividing Three Million Eight Hundred Fifty-Eight Thousand Five
Hundred Twenty-Three and No/100 Dollars ($3,858,523) by the Share Value. The
Flotek Shares shall be allocated to JT and TS as indicated on Schedule 1.3(b).
For purposes herein, the term “Share
Value”
shall
mean the value of the Flotek Shares based on the average for the ten
business
days that precede June 6, 2006 of daily closing trading prices of the Flotek
Common Stock on the American Stock Exchange;
(c) Assume
liability, up to a maximum aggregate assumed amount of $1,231,000, for the
accounts payable of the Company (the “Accounts
Payable”)
set
forth on the April 30, 2006 Financial Statements or arising subsequent to April
30, 2006, in the ordinary course of business which are identified in the Closing
Statement (as defined in Section 1.7) (collectively, the “Assumed
Liabilities”);
and
(d) Execute
and deliver to the Company a Promissory Note in the amount of Five Hundred
Fourteen Thousand Four Hundred Sixty-Nine and No/100 Dollars ($514,469) in
the
form of Exhibit 1.3(d).
Section
1.4. Assumption
of Liabilities.
Except
as provided for in Section 1.3, Buyer has not and will not assume from the
Company any liability or obligation.
-2-
Section
1.5. Allocation.
The
parties will allocate for all purposes (including, but not limited to, financial
accounting and tax purposes) the purchase price of the Acquired Assets as
indicated on Schedule 1.5.
Section
1.6. Closing.
The
closing (the “Closing”)
of the
transactions contemplated by this Agreement (the “Purchase
Transaction”)
shall
take place at the offices of the attorneys for Buyer in Houston, Texas as
promptly as practicable (but in any event within five business days) following
the date on which the last of the conditions set forth in Article VI is
fulfilled or waived, or at such other time and place as Buyer and the Company
shall agree. The date on which the Closing occurs is referred to in this
Agreement as the “Closing
Date.”
The
Closing will be effective as of June 1, 2006 (the “Effective
Time”).
Section
1.7. Transfer
Documents.
At the
Closing, each of the parties hereto will perform such acts and deliver such
documents as are required pursuant to the terms hereof to be delivered at
Closing, including but not limited to:
(a) the
Company, JT and TS shall:
(i) execute,
acknowledge and deliver to Buyer all deeds, bills of sale, endorsements,
assignments, and other good and sufficient instruments of conveyance, sale,
transfer and assignment as shall be required to vest effectively in Buyer good
and indefeasible title in and to the Acquired Assets, free and clear of all
liens or encumbrances, including specifically, but not by way of limitation,
an
assignment, xxxx of sale and assumption agreement in the form of Exhibit 1.7(a)
(the “Assignment”)
and
the Employment Agreements in the form of Exhibit 5.8 (the “Employment
Agreements”);
(ii) deliver
or cause to be delivered to Buyer possession of all of the Acquired Assets
capable of being physically delivered; and
(iii) deliver
to Buyer a closing statement, in a form reasonably satisfactory to Buyer,
executed by both JT and TS setting forth the balances of Cash, Accounts
Receivable, and Assumed Liabilities as of the Effective Time (the “Closing
Statement”).
(b) Buyer
shall:
(i) deliver
to the Company the Cash Payment, net of any offset provided for in Section
1.10,
in the form of bank check or wire transfer;
(ii) execute
and deliver to the Company a Promissory Note and Guaranty in the form of Exhibit
1.3(d); and
(ii) execute
and deliver the Assignment and the Employment Agreements.
-3-
Section
1.9. Property
Taxes.
Any
general property and/or ad valorem tax assessed against or pertaining to the
Acquired Assets for the taxable period that includes the date of the Closing
shall be prorated between Buyer and the Company.
Section
1.10. Offsets.
The
Cash Payment shall be offset and reduced at Closing to reflect any Working
Capital Deficit. The term “Working
Capital Deficit”
means
the excess, if any, of the balances of the following amounts as of Closing:
(a)
the Accounts Payable plus $1,000, over (b) the sum of the Cash and the Accounts
Receivable.
Section
1.11. Index.
An
index identifying the sections in which the definitions of certain terms are
set
forth in Exhibit A.
ARTICLE
II
REPRESENTATIONS
AND
WARRANTIES
OF BUYER
Buyer
represents and warrants to the Company, JT and TS as follows:
Section
2.1. Organization
and Qualification.
Buyer
is a corporation duly organized, validly existing and in good standing under
the
laws of the State of Texas and has the requisite corporate power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted. Flotek is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being
conducted.
Section
2.2. Authority;
Non-Contravention; Approvals.
(a) Buyer
and
Flotek each have full corporate power and authority to execute and deliver
this
Agreement to consummate the transactions contemplated hereby. Other than the
approval by the Board of Directors of Buyer and Flotek, no corporate proceedings
on the part of Buyer or Flotek are necessary to authorize the execution and
delivery of this Agreement or the consummation by Buyer and Flotek of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and Flotek, and, assuming the due authorization, execution
and delivery hereof by the Company, JT and TS, constitutes a valid and legally
binding agreement of Buyer and Flotek enforceable against each of them in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The
execution and delivery of this Agreement by Buyer and Flotek and the
consummation by Buyer and Flotek of the transactions contemplated hereby do
not
and will not violate or result in a breach of any provision of, or constitute
a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate
the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Buyer or Flotek under any
of
the terms, conditions or provisions of (i) the charter or bylaw of Buyer and
Flotek, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to Buyer or Flotek or any of their properties or assets
or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which Buyer or Flotek is now a party or by which Buyer or Flotek
or any of its properties or assets may be bound or affected.
-4-
Section
2.3. Reports.
Flotek
has previously made available or delivered to the Company, JT, and TS copies
of
the Form 10-KSB filed by it with the Securities and Exchange Commission for
the
period ended December 31, 2005 (the “SEC”)
and
its quarterly report filed with the SEC on Form 10-QSB for the period ending
March 31, 2005 (“Flotek
SEC Reports”).
As of
their respective dates, the Flotek SEC Reports did not contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary to make the statements therein, in the light of
the
circumstances under which they were made, not misleading. Neither Buyer nor
Flotek has made any other representation to the Company, JT, or TS regarding
the
Flotek Shares. The Flotek Shares will be restricted stock which will not be
tradable on the open market under the applicable securities laws.
Section
2.4. Brokers
and Finders.
Buyer
has not entered into any contract, arrangement or understanding with any person
or firm which may result in the obligation of Buyer to pay any finder's fees,
brokerage or agent commissions or other like payments in connection with the
transactions contemplated hereby. There is no claim for payment by Buyer of
any
investment banking fees, finder's fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement
or
the consummation of the transactions contemplated hereby.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
THE COMPANY AND JT AND TS
The
Company, JT and TS jointly and severally represent and warrant to Buyer
that:
Section
3.1. Organization
and Qualification.
The
Company is a limited liability company duly organized, validly existing and
in
good standing under the laws of the State of Wyoming and has the requisite
power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. The Company is duly qualified
to
do business and is in good standing in each jurisdiction in which the properties
owned, leased, or operated by it or the nature of the business conducted by
it
makes such qualification necessary. True, accurate and complete copies of the
Company’s organizational documents, as in effect on the date hereof, including
all amendments thereto, have heretofore been delivered to Buyer.
-5-
Section
3.2. Ownership.
JT owns
seventy percent (70%) of the issued and outstanding membership interest in
the
Company and TS owns thirty percent (30%) of the issued and outstanding
membership interest in the Company. The only members of the Company are JT
and
TS.
Section
3.3. Other
Entities.
The
Company does not own stock or other ownership interests in any other
entity.
Section
3.4. Authority;
Non-Contravention; Approvals.
(a) The
Company has full limited liability company power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been approved by the managers of the Company and the members
of the Company to the extent required to consummate this transaction in
accordance with applicable law, including but not limited to the laws of the
State of Wyoming. No further actions on the part of the Company are necessary
to
authorize the execution and delivery of this Agreement or the consummation
by
the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company, JT and TS, and, assuming the due
authorization, execution and delivery hereof by Buyer, constitutes a valid
and
legally binding agreement of the Company and JT and TS, enforceable against
the
Company, JT and TS in accordance with its terms, except that such enforcement
may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (b) general equitable principles.
(b) Except
as
set forth in the disclosure schedule attached to this Agreement (the
“Disclosure
Schedule”),
the
execution and delivery of this Agreement by the Company, JT and TS and the
consummation by the Company, JT and TS, of the transactions contemplated hereby
do not and will not violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company under
any of the terms, conditions or provisions of (i) the organizational documents
of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its properties or assets, or
(iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, or any agreement to which the Company is now a party or by which
the
Company or any of its properties or assets may be bound or
affected.
Section
3.5. Financial
Statements.
The
Company has furnished Buyer with a balance sheet of the Company as of December
31, 2004, December 31, 2005 and April 30, 2006, and the related statement of
income for the calendar years then ended (including the notes thereto)
(collectively, the "Financial
Statements").
The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, and are accurate and complete
and
fairly present the financial condition and result of operations of the
Company.
-6-
Section
3.6. Absence
of Undisclosed Liabilities.
Except
as disclosed in the Disclosure Schedule, the Company has not incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except liabilities or obligations (a) which are provided for
in
the Financial Statements or reflected in the notes thereto, (b) which were
incurred after April 30, 2006, and were incurred in the ordinary course of
business and consistent with past practices, or (c) liabilities or obligations
under this Agreement.
Section
3.7. Absence
of Certain Changes or Events.
Since
April 30, 2006, the business of the Company has been conducted in the ordinary
course of business consistent with past practices, and there has not been any
event, occurrence, development or state of circumstances or facts which has
had,
or could reasonably be anticipated to have, individually or in the aggregate,
a
Material Adverse Effect. Specifically, but not by way of limitation, since
April
30, 2006, the Company has not engaged in or been subject to any of the actions
described in Section 4.1. "Material
Adverse Effect"
means
any event, occurrence, fact, condition, change, development, circumstance,
or
effect with respect to the business, assets (including intangible assets),
liabilities, condition (financial or other), operations, properties (including
intangible properties), results, or prospects of the Company with respect to
which there is a substantial likelihood that the event, occurrence, fact etc.
would have been viewed by a reasonable investor as having a significantly
negative effect on the value of the consideration such reasonable investor
would
have been willing to pay for the purchase of the Company.
Section
3.8. Accounts
Receivable.
The
Accounts Receivable are valid, genuine and subsisting, arise out of bona fide
sales and delivery of goods, performance of services or other business
transactions in the ordinary course of business and are current and collectible.
Each of the Accounts Receivable will be collected in full, without any set-off
and without resort to litigation, within 120 days after the
Closing.
Section
3.9. Tangible
Assets.
The
Tangible Personal Property and the Leased Assets constitute all of the tangible
personal property necessary for the conduct by the Company of its business
as
now conducted. The Company has good and indefeasible title to the Tangible
Personal Property, free and clear of all mortgages, liens, pledges, charges,
or
encumbrance of any nature whatsoever. The Tangible Personal Property and Leased
Assets are in good, serviceable condition and fit for the particular purposes
for which they are used in the business of the Company, subject only to normal
maintenance requirements and wear and tear reasonably expected in the ordinary
course of business.
Section
3.10. Employee
Benefits.
The
Disclosure Schedule contains a complete list of “employee welfare plans” (as
that term is defined in Section 3(1) of the Employee Retirement Income Security
Act of 1974 (“ERISA”))
currently maintained by the Company or any person or trade or business under
common control with the Company, or in which active or former employees of
the
Company (collectively, the “Affected
Employees”)
currently participate (which plans are hereinafter referred to as “Welfare
Plans”).
The
Disclosure Schedule also contains a complete list of “employee pension benefit
plans” as that term is defined in Section 3(2) of ERISA maintained by the
Company or any person or trade or business under common control with the
Company, or in which any such entity currently contributes or is required to
contribute or in which Affected Employees currently participate (which plans
are
hereinafter referred to as “Pension
Plans”).
Neither the Company nor any of the Affected Employees participate or ever
participated in any “multiemployer plan” (as that term is defined in Section
3(37) of ERISA). The Welfare Plans and Pension Plans, and any other plans of
the
type described in the first two sentences of this Section previously applicable
at any time to the Company, are collectively referred to as the “Company
Plans”.
Each
Company Plan is or was in compliance with the provisions of all applicable
laws,
rules and regulations, including, without limitation, ERISA and the Code. None
of the Pension Plans has incurred any “accumulated funding deficiency” (as
defined in Section 412(a) of the Code). The Company has not incurred any
liability to the Pension Benefit Guaranty Corporation under Section 4062, 4063
or 4064 of ERISA, or any withdrawal liability under Title IV of ERISA with
respect to any multiemployer plan. The Disclosure Schedule describes all bonuses
and other compensation which will be payable to any of the employees of the
Company as a result of the consummation of the Purchase Transaction, and any
obligation to pay severance payments.
-7-
Section
3.11. Litigation.
There
are no claims, suits, actions, or proceedings pending or, to the Knowledge
of
the Company, threatened against or relating to the Company, before any court,
governmental department, commission, agency, instrumentality or authority,
or
any arbitrator. The Company is not subject to any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator. For purposes of this Agreement,
“Knowledge”
means
actual or constructive knowledge of officers of the Company after reasonable
inquiry.
Section
3.12. No
Violation of Law.
The
Company is not in violation of or has been given notice or been charged with
any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Law) of any
governmental or regulatory body or authority. Except as disclosed in the
Disclosure Schedule, as of the date of this Agreement, to the Knowledge of
the
Company, no investigation or review by any governmental or regulatory body
or
authority is pending or threatened, nor has any governmental or regulatory
body
or authority indicated an intention to conduct the same. The governmental
permits or licenses of the Company (the “Permits”)
are
sufficient for the Company to conduct its business in the manner currently
conducted, and the Company is not in violation of the terms thereof. The Company
is not in violation of the terms of any of its Permits and is not required
to
possess any other permit, license, franchise, variance, exemption, order or
other governmental authorization, consent or approval.
Section
3.13. Labor
Matters.
The
Disclosure Schedule sets forth a list of each of the employees of the Company,
and a description of the salaries and other compensation payable to such
individuals. Except as set forth in the Disclosure Schedule, (a) there are
no
material controversies pending or, to the Knowledge of the Company, threatened
between the Company on the one hand and any of its employees on the other,
(b)
the Company is not a party to a collective bargaining agreement of other labor
union contract applicable to persons employed by the Company, nor does the
Company have any Knowledge of any activities or proceedings of any labor union
to organize any such employees, (c) the Company is not a party to any written
agreement, memorandum, or understanding with respect to the employment of any
individual, and (d) neither the Company, JT or TS are aware of any intention
of
any employee to terminate his or her employment with the Company, either as
a
result of the Purchase Transaction or otherwise.
-8-
Section
3.14. Customer
Relationships.
The
Disclosure Schedule lists all of the material customers of the Company. Except
as set forth in the Disclosure Schedule, there has not been (a) any adverse
change in the business relationship of the Company with any customer; or (b)
any
change in any term (including credit terms) of the agreements with any such
customer. The Company has not received any customer complaints concerning its
products and services.
Section
3.15. Real
Property.
(a) The
Company does not own and has never owned any interest of any kind (whether
ownership, lease or otherwise) in any real property, except the real estate
leased by it at 5608 South Xxxxxxx, Gillette, Wyoming (the “Company
Facilities”).
(b) The
Company Facilities are in good condition (reasonable wear and tear excepted),
and are adequate for the operation of the Company's business as presently
conducted.
(c) The
Company’s use of the Company Facilities in the normal conduct of its business
does not violate any applicable building, zoning or other law, ordinance or
regulation affecting such real property, and no covenants, easements, rights
of
way or other such conditions of record impair the Company’s use of the Company
Facilities in the normal conduct of its business.
(d) The
Company has not experienced any material interruption in the delivery of
adequate quantities of any utilities or other public services to the Company
Facilities required by the Company in the normal operation of its
business.
Section
3.16. Environmental
Matters.
Except
as set forth in the Disclosure Schedule:
(a) no
notice, demand, request for information, citation, summons or order has been
received, no complaint has been served, no penalty has been assessed, and no
investigation, action, claim, suit, proceeding or review is pending or, to
the
Knowledge of the Company, is threatened by any governmental entity or other
person relating to or arising out of any environmental law;
(b) the
Company is and has been in compliance with all environmental laws and
environmental permits; and
(c) there
are
no liabilities of or relating to the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, arising
under or relating to any environmental law and there are no facts, conditions,
situations or set of circumstances which could reasonable be expected to result
in or be the basis for any such liability.
-9-
Section
3.17. Material
Contracts.
Schedule 1.1(c) lists all agreements, leases, commitments, contracts,
undertakings or understandings, to which the Company is a party, including
but
not limited to service agreements, manufacturing agreements, purchase or sale
agreements, master service agreements, supply agreements, distribution or
distributor agreements, real estate leases, purchase orders, license agreements,
customer orders and equipment rental agreements. Each Operating Agreement is
a
valid, binding and enforceable agreement of the Company and, to the Knowledge
of
the Company, the other parties thereto. There has not occurred any breach or
default under any Operating Agreement on the part of the Company or, to the
Knowledge of the Company, any other parties thereto. No event has occurred
which
with the giving of notice or the lapse of time, or both, would constitute a
default under any Operating Agreement on the part of the Company, or, to the
Knowledge of the Company, any of the other parties thereto. There is no dispute
between the parties to any Operating Agreement as to the interpretation thereof
or as to whether any party is in breach or default thereunder, and no party
to
any Operating Agreement has indicated its intention to, or suggested it may
evaluate whether to, terminate any Operating Agreement.
Section
3.18. Inventory.
The
Purchased Inventory consists of items that are usable and saleable in the
ordinary course of business by the Company. All items of Purchased Inventory
are
owned by the Company free and clear of any lien or encumbrance, and are in
good
condition. No items of Purchased Inventory are held by the Company on
consignment from others. As of the Effective Time the Scheduled Inventory is
located on the premises of the Company as the Effective Time as determined by a
physical count conducted by the Company.
Section
3.19. Solvency.
The
Company will not be insolvent as of the Closing and will not be rendered
insolvent by the Purchase Transaction. After giving effect to the consummation
of the Purchase Transaction, the Company will be able to pay its liabilities
as
they become due.
Section
3.20. Brokers
and Finders.
Except
as indicated in the Disclosure Schedule, the Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company or the Member to pay any finder's fees,
brokerage or agent commissions or other like payments in connection with the
transactions contemplated hereby. There is no claim for payment by the Company
or the Member of any investment banking fees, finder's fees, brokerage or agent
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated
hereby.
Section
3.21. Purchase
for Own Account.
The
Flotek Shares are being or will be acquired by each of JT and TS for his own
account and with no intention of distributing or reselling such securities
or
any part thereof in any transaction that would be in violation of the securities
laws of the United States of America, or any state, without prejudice, however,
to the rights of JT and TS at all times (subject to Section 9.4) to sell or
otherwise dispose of all or any part of such securities under an effective
registration statement under the Securities Act, or under an exemption from
such
registration available under the Securities Act of 1933 (the “Securities
Act”).
JT
and TS are each experienced in evaluating companies such as Flotek and have
such
knowledge and experience in financial and business matters as to be capable
of
evaluating the merits and risks of their investment and has the ability to
suffer the total loss of their investment. JT and TS each have had the
opportunity to ask questions of and receive answers from executive officers
of
Flotek concerning the terms and conditions of the offering of the Flotek Shares
and to obtain additional information to the satisfaction of JT and TS. JT and
TS
are each an “accredited investor” as that term is defined by Rule 501 of
Regulation D promulgated under the Securities Act. The Flotek Shares will not
be
registered at the time of their issuance under the Securities Act for the reason
that the sale provided for in this Agreement is exempt pursuant to Section
4(2)
of the Securities Act and that the reliance of Flotek on such exemption is
predicated in part on the representations set forth herein. JT and TS will
not
sell or assign any Flotek Shares except pursuant to a valid registration
statement filed pursuant to the Securities Act or pursuant to a valid exemption
from the registration requirements thereof.
-10-
Section
3.22. Disclosure.
No
representation or warranty of the Company, JT or TS set forth hereunder or
in
the schedules attached hereto or in any certificate delivered pursuant to
Section 6.2(a) contains any untrue statement of the material fact or omits
to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
ARTICLE
IV
CONDUCT
OF BUSINESS PENDING THE CLOSING
Section
4.1. Conduct
of Business of the Company.
Prior
to the Effective Time, the Company shall operate its business in, and only
in,
the usual, regular and ordinary course of business in substantially the same
manner as operated on the date of this Agreement. JT and TS will assure that
the
Company complies with the requirements of this Section. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time, the Company will not:
(a) Sell,
lease or otherwise dispose of, or agree to sell, lease or otherwise dispose
of,
any of its assets other than inventory in the ordinary course of business
consistent with past practice;
(b) Adopt,
amend or terminate any Company Plan;
(c) Except
as
provided in Section 5.8, amend or terminate any Operating
Agreement;
(d) Enter
into or modify any employment or severance agreement with any director, officer,
or employee, or agree to increase the compensation of any officer, director
or
employee; and/or
(e) Incur
any
indebtedness other than indebtedness incurred in the ordinary course of
business.
-11-
Section
4.2. Business
Organization.
Prior
to the Effective Time, JT and TS shall use their respective best efforts to
(a)
preserve intact the business organization of the Company, (b) keep available
the
services of the officers and employees of the Company, (c) preserve the goodwill
of the Company, (d) maintain and keep the properties and assets of the Company
in as good a repair and condition as presently exists, and (e) maintain in
full
force and effect its insurance coverage of the Company.
ARTICLE
V
ADDITIONAL
AGREEMENTS
Section
5.1. Cooperation.
The
Company shall afford to Buyer and its accountants, counsel, financial advisors
and other representatives reasonable access during normal business hours
throughout the period prior to the Effective Time to all of its properties,
books, contracts, personnel, representatives of or contacts with governmental
or
regulatory authorities, agencies or bodies, commitments, and records (including,
but not limited to, tax returns and any and all records or documents which
are
within the possession of governmental or regulatory authorities, agencies or
bodies, and the disclosure of which the Company can facilitate or control)
and,
such parties as its representatives may reasonably request. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company or with the
performance of any of the employees of the Company. No investigation pursuant
to
this Section shall affect any representation or warranty made by any party.
Each
of the parties hereto shall use all reasonable efforts to take, or cause to
be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement,
Section
5.2. Further
Assurances.
JT, TS
and the Company shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to Buyer such assignments or other instruments of
transfer, assignment and conveyance, in form and substance satisfactory to
counsel of Buyer, as shall be necessary to vest in Buyer all of the right,
title
and interest in and to the Acquired Assets, in each case free and clear of
all
liens, charges, encumbrances, rights of others, mortgages, pledges or security
interests, and any other document reasonably requested by Buyer in connection
with this Agreement.
Section
5.3. Expenses
and Fees.
All
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, regardless of whether the Closing occurs.
Section
5.4. Public
Statements.
The
parties shall consult with each other prior to issuing any press release or
any
written public statement with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or written public
statement prior to such consultation.
-12-
Section
5.5. Notification
of Certain Matters.
Each of
the parties agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement
to be
untrue or inaccurate in any material respect (or in all respects in the case
of
any representation or warranty containing any materiality qualification) at
any
time from the date hereof to the Effective Time and (b) any material failure
(or
any failure in the case of any covenant, condition or agreement containing
any
materiality qualification) on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder.
Section
5.6. Employee
Matters.
(a) Effective
immediately following the Closing, Buyer shall offer employment to all of the
employees of the Company, each of which who accepts a position shall hereinafter
be referred to as a “Affected
Employee”
and
shall become an employee of Buyer, terminable at will. In order to facilitate
the foregoing, the Company shall, effective immediately following the Closing,
terminate the employment of all employees of the Company and take all
appropriate steps necessary to comply with applicable law in connection with
the
termination of such employees.
(b) Notwithstanding
anything to the contrary contained in this Section, the parties acknowledge
and
agree that they do not intend to create any third-party beneficiary rights
respecting any employee of the Company as a result of the provisions hereof
and
specifically hereby negate any intention to so create any third-party
beneficiary rights.
(c) With
respect to employees, who accept employment with Buyer, the Company will remain
responsible for medical expenses covered under their plans actually incurred
prior to the Effective Time and Buyer will be responsible for all other medical
expenses incurred on or after the Closing to the extent covered under their
plans without the application of any waiting period for coverage generally
applicable to newly hired employees. The Company shall make available, at such
Affected Employee’s expense, medical coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, to the Affected Employees to
the
extent required by applicable law. The Company and Buyer shall cooperate and
coordinate with each other to provide continuity of health, hospitalization,
life, travel and accident insurance coverage for the Affected Employees. The
cost of insurance coverage for the Affected Employees from and after the
Effective Time shall be borne by Buyer and not the Company, based on the terms
of the health insurance policies of the Buyer which are applicable from time
to
time with respect to employee premium contributions and other
matters.
(d) Buyer
and
the Company shall complete and furnish to each other any other employee data
as
shall be reasonably required from time to time for each party to perform and
fulfill its obligations under this Section 5.6.
-13-
(e) The
Company agrees that it shall be solely responsible for all liability, costs
and
expenses (including attorneys’ fees) for all claims relating to their
employment, including but not limited to arbitrations, unfair labor practice
charges, employment discrimination charges, wrongful termination claims,
workers’ compensation claims, any employment-related tort claim or other claims
or charges (collectively, “Employment Claims”)
by any
employee or former employee of the Company which accrued prior to the Effective
Time relating to arbitrations, unfair labor practice charges, employment
discrimination charges, wrongful termination claims, workers’ compensation
claims, any employment-related tort claim or other claims or charges of or
by
employees of the Company. Buyer agrees that it shall be responsible for all
Employment Claims by any Affected Employee who accepts employment with Buyer
which accrues after the Effective Time. The Disclosure Schedule sets forth
a
description of any known Employment Claims that have been filed or may be filed
after the date hereof arising out of conditions, actions or events that occurred
before the Effective Time.
Section
5.7. The
Tradename.
The
Company will change its name to a name dissimilar to the Tradename within 10
days of Closing.
Section
5.8. Individual
Agreements.
At the
Closing, JT and TS will each enter into with the Buyer employment agreements
in
the forms included on Exhibit 5.8.
Section
5.9. Prohibited
Activities.
Each of
JT
and TS
agree, severally and not jointly with any other person, that he will not, during
the period beginning on the date hereof and ending on the second anniversary
of
the Closing Date, directly or indirectly, for any reason, for his own account
or
on behalf of or together with any other person:
(a) engage
as
an officer, director or in any other managerial capacity or as an owner,
co-owner or other investor of or in, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, dealer or
distributor of any kind, in the business of electric submersible pumps sales
and
service within the United States (the “Territory”);
(b) call
on
or otherwise solicit any natural person who is at that time employed by the
Company in any managerial capacity with the purpose or intent of attracting
that
person from the employ of the Company; or
(c) call
on,
solicit or perform services for, either directly or indirectly, any person
that
at that time is, or at any time within two years prior to that time was, a
customer of any of the Company within any Territory, for the purpose of
soliciting or selling any product or service in competition with the Companies
within that Territory.
ARTICLE
VI
CONDITIONS
TO CLOSING
Section
6.1. Conditions
to Obligation of the Company to Effect the Purchase Transaction.
Unless
waived by the Company, the obligation of the Company to effect the Purchase
Transaction shall be subject to the fulfillment at or prior to the Effective
Time of the following additional condition:
-14-
(a) Buyer
shall have performed in all material respects (or in all respects in the case
of
any agreement containing any materiality qualification) its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and
the representations and warranties of Buyer contained in this Agreement shall
be
true and correct in all material respects (or in all respects in the case of
any
representation or warranty containing any materiality qualification) on and
as
of the date made and on and as of the Closing Date as if made at and as of
such
date, and the Company shall have received a certificate executed on behalf
of
Buyer by the President or a Vice President of Buyer and on behalf of Buyer
by
the Chief Executive Officer of Buyer to that effect.
Section
6.2. Conditions
to Obligations of Buyer to Effect the Purchase Transaction.
Unless
waived by Buyer, the obligations of Buyer to effect the Purchase Transaction
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) the
Company, JT and TS, shall have performed in all material respects (or in all
respects in the case of any agreement containing any materiality qualification)
their respective agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of the
Company, JT and TS, contained in this Agreement shall be true and correct in
all
material respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the date made
and on and as of the Closing Date as if made at and as of such date, and Buyer
shall have received a certificate executed on behalf of the Company by the
President and Chief Executive Officer of the Company to that effect;
(b) Except
as
stated in the Disclosure Statement, since April 30, 2006, there shall have
been
no changes that constitute, and no event or events shall have occurred which
have resulted in or constitute, a Material Adverse Effect; and
(c) the
landlord of the Company’s facility located at 0000 X. Xxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxx (the “Facility”) shall have entered into a written lease agreement
acceptable to Buyer whereby Buyer leases the Facility for a period of one (1)
year on the same terms and conditions as the Company presently leases the
Facility.
ARTICLE
VII
INDEMNIFICATION
Section
7.1. Indemnification
of Buyer.
JT, TS
and the Company shall jointly and severally indemnify Buyer, its affiliates,
and
their respective officers, directors, employees and agents against, and hold
each of them harmless from and against, any and all claims, actions, causes
of
action, arbitrations, proceedings, losses, damages, liabilities, judgments
and
expenses (including, without limitation, reasonable attorneys' fees)
("Indemnified
Amounts")
incurred by the indemnified party as a result of (a) any error, inaccuracy,
breach or misrepresentation in any of the representations and warranties made
by
or on behalf of the Company, JT or TS in this Agreement, (b) any violation
or
breach by the Company, JT or TS of or default by the Company, JT or TS under
the
terms of this Agreement, and/or (c) any event or occurrence relating to the
business of the Company occurring prior to the Effective Time. The indemnified
party shall be entitled to recover its reasonable and necessary attorneys'
fees
and litigation expenses incurred in connection with successful enforcement
of
its rights under this Section.
-15-
Section
7.2. Indemnification
of JT, TS and the Company.
Buyer
shall indemnify JT, TS and the Company against, and hold each of them harmless
from and against, any and all Indemnified Amounts incurred by JT, TS or the
Company as a result of (a) any error, inaccuracy, breach or misrepresentation
in
any of the representations and warranties made by or on behalf of Buyer in
this
Agreement, (b) any violation or breach by Buyer of or default by Buyer under
the
terms of this Agreement, and/or (c) any event or occurrence relating to the
business of the Company occurring after the Effective Time other than
Indemnified Amounts arising from activity conducted by JT or TS on behalf of
Buyer. The indemnified party shall be entitled to recover its reasonable and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of his rights under this Section.
Section
7.3. Procedure.
The
defense of any claim, action, suit, proceeding or investigation subject to
indemnification under this Article shall be conducted by the indemnifying party.
If the indemnifying party fails to conduct such defense, the indemnified parties
may retain counsel satisfactory to them and the indemnifying party shall pay
all
reasonable fees and expenses of such counsel for the indemnified parties
promptly as statements therefor are received. The party not conducting the
defense will use reasonable efforts to assist in the vigorous defense of any
such matter, provided that such party shall not be liable for any settlement
of
any claim effected without its written consent, which consent, however, shall
not be unreasonably withheld. Any indemnified party wishing to claim
indemnification under this Article VII, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify the indemnifying party (but
the
failure so to notify a party shall not relieve such party from any liability
which it may have under this Article VII except to the extent such failure
materially prejudices such party). If the indemnifying party is responsible
for
the attorneys’ fees of the indemnified parties, then the indemnified parties as
a group may retain only one law firm to represent them with respect to each
such
matter unless there is, under applicable standards of professional conduct,
a
conflict on any significant issue between the positions of any two or more
indemnified parties.
Section
7.4. Express
Negligence Rule.
The
indemnification obligations under this Article VII shall apply regardless of
whether any suit or action results solely or in part from the passive or
concurrent negligence of the indemnified party; provided, however, that the
indemnity obligations of the parties under Section 7.1(c) shall not apply to
the
extent any suit or action results from the due diligence investigation by Buyer
of the Company. The
rights of the parties to indemnification under this Article VII shall not be
limited due to any investigations heretofore or hereafter made by such parties
or their representatives, regardless of negligence in the conduct of any such
investigations.
-16-
ARTICLE
VIII
MISCELLANEOUS
Section
8.1. Termination.
This
Agreement may be terminated at any time prior to the Effective Time, as
follows:
(a) the
Company shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of Buyer shall fail to be true and correct in
all
material respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the date made
or, except in the case of any such representations and warranties made as of
a
specified date, on and as of any subsequent date as if made at and as of the
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 15 days after written notice
of
such failure is given to Buyer by the Company;
(ii) if
the
Purchase Transaction is not completed by June 30, 2006 (provided that the right
to terminate this Agreement under this Section 8.1(a)(ii) shall not be available
to the Company if the failure of the Company, JT or TS to fulfill any obligation
to Buyer under or in connection with this Agreement has been the cause of or
resulted in the failure of the Purchase Transaction to occur on or before such
date); or
(iii) if
Buyer
(A) fails to perform in any material respects any of its covenants (or in all
respects in the case of any covenant containing any materiality qualification)
in this Agreement and (B) does not cure such default in all material respects
(or in all respects in the case of any covenant containing any materiality
qualification) within 30 days after written notice of such default is given
to
Buyer by the Company.
(b) Buyer
shall have the right to terminate this Agreement:
(i) if
the
representations and warranties of the Company shall fail to be true and correct
in all material respects (or in all respects in the case of any representation
or warranty containing any materiality qualification) on and as of the date
made
or, except in the case of any such representations and warranties made as of
a
specified date, on and as of any subsequent date as if made at and as of such
subsequent date and such failure shall not have been cured in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) within 15 days after written notice
of
such failure is given to the Company by Buyer;
(ii) if
the
Purchase Transaction is not completed by June 30, 2006 (provided that the right
to terminate this Agreement under this Section 8.1(b)(ii) shall not be available
to Buyer if the failure of Buyer to fulfill any obligation to the Company under
or in connection with this Agreement has been the cause of or resulted in the
failure of the Purchase Transaction to occur on or before such date);
or
-17-
(iii) if
the
Company, JT or TS (A) fails to perform in any material respect (or in all
respects in the case of any covenant containing any materiality qualification)
any of their covenants in this Agreement and (B) do not cure such default in
all
material respects (or in all respects in the case of any covenant containing
any
materiality qualification) within 30 days after notice of such default is given
to the Company by Buyer.
Section
8.2. Effect
of Termination.
In the
event of termination of this Agreement by either Buyer or the Company pursuant
to the provisions of Section 8.1, this Agreement shall forthwith become void
and
there shall be no further obligations on the part of the Company, Buyer, or
its
respective officers or directors, JT or TS to perform any covenant or provision
of this Agreement which otherwise would be required to be performed after the
date of termination (except as set forth in this Section 8.2 and in Sections
5.3
and 8.9, all of which shall survive the termination). Nothing in this Section
8.2 shall relieve any party from liability for any breach of this
Agreement.
Section
8.3. Remedies.
If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other relief to which it or he may be entitled at law or
equity.
Section
8.4. Notices.
All
notices, consents, demands or other communications required or permitted to
be
given pursuant to this Agreement shall be deemed sufficiently given: (i) when
delivered personally during a business day to the appropriate location described
below or telefaxed to the telefax number indicated below, or (ii) five (5)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed:
| If to Buyer: |
0000 Xxxxxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Telefax No. (000) 000-0000
|
|
| With a copy to: |
Xxxxx X. Xxxxxxx
Xxxxxxx
& Xxxxxxx LLP
0000
Xx. Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Telefax
No. (000) 000-0000
|
|
|
If to the Company or
JT and TS:
|
0000 Xxxxx Xxxxxxx Xxxxx
Xxxxxxxx,
Xxxxxxx 00000
Telefax
No. (000) 000-0000
|
|
| With a copy to: | Xxxxxx X. Xxxxxxx
Xxxxxxx,
Edwards, Hallock, and Xxxxxxxxx, P.C.
X.X.
Xxx 0000
Xxxxxxxx,
XX 00000
|
-18-
Section
8.5. Successors.
This
Agreement shall be binding upon each of the parties upon their execution, and
inure to the benefit of the parties hereto and their successors and assigns.
Section
8.6. Severability.
In the
event that any one or more of the provisions contained in this Agreement or
in
any other instrument referred to herein, shall, for any reason, be held to
be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this Agreement
or
any such other instrument.
Section
8.7. Section
Headings.
The
section headings used herein are descriptive only and shall have no legal force
or effect whatsoever. Except to the extent the context specifically indicates
otherwise, all references to articles and sections refer to articles and
sections of this Agreement, and all references to the exhibits and schedules
refer to exhibits and schedules attached hereto, each of which is made a part
hereof for all purposes.
Section
8.8. Gender.
Whenever the context so requires, the masculine shall include the feminine
and
neuter, and the singular shall include the plural and conversely.
Section
8.9. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Texas, U.S.A., applicable to agreements and contracts executed and
to
be wholly performed there, without giving effect to the conflicts of law
principles thereof.
Section
8.10. Multiple
Counterparts.
This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original. The parties agree to accept facsimile transmissions of
signed counterparts of this Agreement, to be followed by delivery of signed
original counterparts.
Section
8.11. Waiver.
Any
waiver by either party to be enforceable must be in writing and no waiver by
either party shall constitute a continuing waiver.
Section
8.12. Entire
Agreement.
This
Agreement and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and
thereof.
-19-
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first set forth above.
|
THE
COMPANY:
LIFTECH,
LLC, a Wyoming limited liability company
|
||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Name: Xxxxx Xxxxxx |
||
| Title: Managing Member | ||
|
BUYER:
USA PETROVALVE, INC., a Texas
corporation
|
||
| |
|
|
| By: | /s/ Xxxxx X. Xxxxx, Xx. | |
|
Xxxxx X. Xxxxx, Xx., President |
||
| THE MEMBERS: | ||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Xxxxx Xxxxxx |
||
| |
|
|
| By: | /s/ Xxxx Xxxxxx | |
|
Xxxx Xxxxxx |
||
-20-
EXHIBIT
A
INDEX
OF DEFINITIONS
| Accounts Payable | Section 1.3(c) |
| Accounts Receivable | Section 1.1(f) |
| Acquired Assets | Section 1.1 |
| Affected Employee | Section 5.6 |
| Affected Employees | Section 3.10 |
| Assumed Liabilities | Section 1.3(c) |
| Cash | Section 1.1(g) |
| Cash Payment | Section 1.3 |
| Closing | Section 1.6 |
| Closing Date | Section 1.6 |
| Closing Statement | Section 1.7 |
| Company Plans | Section 3.10 |
| Disclosure Schedule | Section 3.4(b) |
| Effective Time | Section 1.6 |
| Financial Statements | Section 3.5 |
| Flotek | Section 1.3(b) |
| Flotek Common Stock | Section 1.3(b) |
| Flotek Shares | Section 1.3(b) |
| Indemnified Amounts | Section 7.1 |
| Knowledge | Section 3.11 |
| Leased Assets | Section 1.1(b) |
| Material Adverse Effect | Section 3.7 |
| Purchase Transaction | Section 1.6 |
| Purchased Inventory | Section 1.1(e) |
| Scheduled Inventory | Section 1.1(f) |
| Tangible Personal Property | Section 1.1(a) |
| Tradename | Section 1.1(h) |
