As filed with the Securities and Exchange Commission on October 12, 2001.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 12, 2001 (August 15, 2001)
FLOTEK INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Alberta 1-13270 77-0709256
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7030 Empire Central Drive, Houston, Texas 77040
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (713) 849-9911
Not Applicable
(Former name or former address, if changed since last report)
FLOTEK INDUSTRIES INC.
TABLE OF CONTENTS
FOR
CURRENT REPORT ON FORM 8-K
Item 5. Other Events................................................3
Item 7. Financial Statements and Exhibits...........................5
Signature..............................................................6
Item 5. Other Events.
The Company has entered into an Agreement and Plan of Reorganization
("Agreement") with Chemical & Equipment Specialties, Inc. ("CESI"), dated August
15, 2001, pursuant to which shares of the common stock of the Company will be
issued to the shareholders of CESI in connection with the merger of CESI with a
newly formed subsidiary of the Company (the "Merger").
The Agreement requires that, prior to the closing of the Merger, (i) at
least 1,903 shares of the Preferred Stock of the Company be converted into
shares of the Common Stock of the Company at a conversion price of $.027 (rather
than $.03, the price provided for in the terms of the preferred stock), and (ii)
at least 63,419,738 of the outstanding warrants to acquire common stock of the
Company be either (a) exercised, or (b) replaced with new warrants ("New
Warrants"). The New Warrants will provide for (1) an exercise price of $.12 per
share (rather than the current $.03), (2) a revised expiration date five years
from the date of replacement, and (3) an option on the part of the Company to
accelerate the expiration date of the New Warrants in the event that the trading
price of the common stock of the Company exceeds 150% of the warrant exercise
price for a specified period to time. In addition, the Agreement requires that
at least 59,896,419 of the outstanding warrants must be exercised for cash.
As of October 4, 2001, (i) warrants to purchase 62,174,555 shares of the
common stock of the Company have been exercised for cash, which resulted in
total cash proceeds to the Company of US $1,865,236, and (ii) warrants to
purchase at least 63,419,738 shares of common stock of the Company have either
been exercised for cash or replaced with New Warrants, and (iii) all of the
outstanding shares of Preferred Stock of the Company are subject to agreements
pursuant to which such shares will be converted into shares of the common stock
of the Company at an exercise price of US $.027 per share, effective with, and
contingent upon, the closing of the Merger. Thus, the conditions in the
Agreement concerning the exercise or replacement of the warrants of the Company
and the conversion of the Preferred Stock have been satisfied.
Pursuant to the Agreement, the number of shares of common stock issuable to
the CESI shareholders in the Merger will result in the CESI shareholders as a
group owning a minimum of 61.5% of the fully-diluted shares of the combined
company (excluding stock options). The final number of shares issuable to the
CESI shareholders is subject to certain adjustments at closing which could
result in the CESI shareholders owning as much as 61.8% of the combined company.
The persons who are shareholders of Flotek Industries Inc. immediately prior to
the Merger, after taking into account the shares issued from the exercise of
warrants and the conversion of Preferred Stock discussed above, will own between
38.2% and 38.5% of the combined company upon closing of the Merger.
The closing of the Merger is subject to certain other material conditions
set forth in the Agreement. The Company currently expects that these conditions
will be satisfied and the Merger will close on or about October 31, 2001.
For accounting purposes, the Merger will be treated under the purchase
method of accounting as an acquisition of Flotek Industries Inc. by CESI, since
the CESI shareholders will receive a majority of the shares of the combined
company. This will result in the combined company reporting the historical
results of CESI and incorporating the results of Flotek Industries Inc. only for
periods subsequent to closing of the Merger. Upon consummation of the Merger,
the combined company intends to adopt the fiscal year of CESI, which is based on
a calendar year ending December 31.
CESI, headquartered in Duncan, Okla., is a proprietary chemical
development and blending, equipment manufacturing, and engineering, design and
construction company marketing products and services to the oil field service
industry worldwide. The chemical company develops and blends state-of-the-art
chemicals for cementing and stimulation; the equipment company manufactures
specialized equipment, such as nitrogen pumpers, fracturing pumpers and
blenders, and cement mixing units for pumping treatments into wells. The
engineering company designs and constructs bulk material handling and loading
facilities for the major oil service companies. For the year ended December 31,
2000, CESI had consolidated pro-forma revenues of approximately $10 million.
This Current Report on Form 8-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. Forward-looking
statements involve known and unknown risks and uncertainties and are indicated
by words such as "anticipates", "expects", "believes", "plans", "could",
"approximately" and similar words and phrases. These risks and uncertainties
include, but are not limited to, uncertainties relating to market acceptance of
and continuing demand for the Company's products, the impact of competitive
products and pricing, the Company's ability to obtain continued financing to
support its operations, the success of ongoing research and development,
development of new business opportunities and other risks that may be detailed
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission.
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following material is filed as an exhibit to this
Current Report on Form 8-K:
Exhibit
Number Description of Exhibit
------- ----------------------
99.1 Agreement and Plan of Reorganization by and between Flotek
Industries Inc. and Chemical & Equipment Specialties, Inc.
99.2 Form of Acquiror Amended Replacement Warrant
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FLOTEK INDUSTRIES INC.
Registrant
Date: October 12, 2001 By: /s/ Jerry D. Dumas, Sr.
----------------------------------
Jerry D. Dumas, Sr.
Chairman, President and Chief
Executive Officer
EXHIBIT INDEX
Exhibit Page
Number Description Number
------- ----------- ------
99.1 Agreement and Plan of Reorganization by and between
Flotek Industries Inc. and Chemical & Equipment
Specialties, Inc.
99.2 Form of Acquiror Amended Replacement Warrant
EXHIBIT 99.1
------------
AGREEMENT AND PLAN OF REORGANIZATION
by and between
FLOTEK INDUSTRIES, INC.
and
CHEMICAL & EQUIPMENT SPECIALTIES, INC.
Dated as of August 15, 2001
TABLE OF CONTENTS
1. THE MERGER.............................................................1
1.1 The Merger........................................................1
1.2 Effect of the Merger..............................................1
1.3 Governing Instruments, Directors and Officers of the
Surviving Corporation.............................................2
1.4 Effect on Securities..............................................2
1.5 Payment of the Merger Consideration...............................3
1.6 Exchange of Certificates; Distributions With Respect
to Unexchanged Shares.............................................3
1.7 Acquiror Preferred Stock and Warrants.............................4
1.8 Effective Time of the Merger......................................4
1.9 Taking of Further Action..........................................4
2. REPRESENTATIONS AND WARRANTIES OF TARGET...............................4
2.1 Organization, Power and Qualification.............................4
2.2 Subsidiaries......................................................5
2.3 Authority; Power; Binding Effect..................................5
2.4 No Violation; Consents............................................5
2.5 Ownership of Target's Capital Stock...............................6
2.6 Transactions with Certain Persons.................................6
2.7 Financial Statements..............................................6
2.8 Receivables.......................................................6
2.9 Inventory.........................................................6
2.10 Absence of Undisclosed Liabilities; List of Accounts Payable......7
2.11 Contracts and Commitments.........................................7
2.12 Title to Assets...................................................9
2.13 Condition and Location of Assets..................................9
2.14 Intellectual Property.............................................9
2.15 Software..........................................................9
2.16 Real Property....................................................10
2.17 Insurance........................................................11
2.18 Conduct of Target Since the Target Balance Sheet Date11
2.19 Personnel Information............................................13
2.20 Employee Benefits................................................14
2.21 Severance Arrangements...........................................16
2.22 Litigation; Decrees..............................................17
2.23 Compliance With Law; Permits.....................................17
2.24 Environmental Matters............................................17
2.25 Tax Matters......................................................18
2.26 Commissions or Finders Fees......................................19
2.27 Certain Business Practices and Regulations; Potential
Conflicts of Interest............................................19
2.28 Accounts.........................................................19
2.29 Disclosure.......................................................20
i
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR............................20
3.1 Organization, Power and Qualification............................20
3.2 Subsidiaries.....................................................20
3.3 Authority; Power; Binding Effect.................................20
3.4 No Violation; Consents...........................................21
3.5 Capital Stock....................................................21
3.6 Transactions with Certain Persons................................21
3.7 Commission Documents and Other Reports...........................22
3.8 Receivables......................................................22
3.9 Inventory........................................................22
3.10 Absence of Undisclosed Liabilities; List of Accounts Payable.....23
3.11 Contracts and Commitments........................................23
3.12 Title to Assets..................................................25
3.13 Condition and Location of Assets.................................25
3.14 Intellectual Property............................................25
3.15 Software.........................................................25
3.16 Real Property....................................................26
3.17 Insurance........................................................27
3.18 Conduct of Acquiror Since the Acquiror Balance Sheet Date.......27
3.19 Personnel Information............................................29
3.20 Employee Benefits................................................30
3.21 Severance Arrangements...........................................32
3.22 Litigation; Decrees..............................................33
3.23 Compliance With Law; Permits.....................................33
3.24 Environmental Matters............................................33
3.25 Tax Matters......................................................34
3.26 Commissions or Finders Fees......................................35
3.27 Certain Business Practices and Regulations; Potential
Conflicts of Interest............................................35
3.28 Accounts.........................................................36
3.29 Disclosure.......................................................36
4. OTHER COVENANTS AND AGREEMENTS........................................36
4.1 General..........................................................36
4.2 Target Shareholders Agreement....................................36
4.3 Acquiror Principal Shareholders Agreement........................36
4.4 Full Access to Information.......................................36
4.5 Conduct of Business of Target and Acquiror.......................37
4.6 Notification.....................................................38
4.7 Approvals; Filings...............................................38
4.8 Confidentiality..................................................38
4.9 Publicity........................................................39
4.10 Acquisition Proposals............................................39
4.11 Tax-Free Reorganization..........................................39
ii
4.12 Reincorporation..................................................40
4.13 Agreements of Affiliates.........................................40
4.14 Payment of Expenses..............................................40
4.15 Board of Directors of Acquiror Following Effective Time..........41
4.16 Performance of the Audit.........................................41
4.17 Warrant Proceeds.................................................41
5. CONDITIONS TO THE MERGER..............................................41
5.1 Conditions to Each Party's Obligation............................41
5.2 Conditions Precedent to Obligations of Target....................42
5.3. Conditions Precedent to Obligations of Acquiror..................43
6. INTENTIONALLY OMITTED.................................................44
7. CLOSING...............................................................44
7.1 Closing Dates....................................................44
7.2 Documents to be Delivered by Acquiror............................44
7.3 Documents to be Delivered by Target..............................45
7.4 Mutual Deliveries................................................45
7.5 Concurrent Conditions............................................46
8. NO INDEMNIFICATION....................................................46
8.1 No Survival......................................................46
9. TERMINATION...........................................................46
9.1 Termination Events...............................................46
9.2 Effect of Termination............................................47
10. MISCELLANEOUS PROVISIONS..............................................47
10.1 Specific Performance.............................................47
10.2 Notices..........................................................47
10.3 Waiver...........................................................48
10.4 Entire Agreement and Amendment...................................49
10.5 Further Assurances...............................................49
10.6 Governing Law....................................................49
10.7 Severability.....................................................49
10.8 Execution in Counterparts........................................49
10.9 Assignments, Successors and No Third Party Rights................49
10.10Certain Interpretive Matters and Definitions.....................49
10.11Jurisdiction and Venue...........................................50
10.12Dispute Resolution...............................................50
11. DEFINITIONS...........................................................51
11.1 Definitions......................................................51
11.2 Other Definitions................................................57
iii
EXHIBITS
Exhibit 1.3 Officers and Directors
Exhibit 1.5 Merger Consideration to Target Shareholders (omitted)
Exhibit 1.7 Acquiror Amended Warrant
Exhibit 4.2 Target Shareholders Agreement (omitted)
Exhibit 4.3 Acquiror Shareholders Agreement (omitted)
Exhibit 4.13 Acquiror Shareholder Lockup Agreement (omitted)
SCHEDULES (all Schedules omitted)
Target:
Schedule 2.1 Foreign Qualification
Schedule 2.2 Subsidiaries of Target and Jurisdictions
of Qualification
Schedule 2.4 No Violation; Consents
Schedule 2.5 Ownership of Target's Capital Stock
Schedule 2.6 Transactions with Certain Persons
Schedule 2.7 Target Financial Statements
Schedule 2.10 Liabilities; Accounts Payable
Schedule 2.11 Contracts and Commitments
Schedule 2.13 Equipment, Tangible Assets or Properties
Schedule 2.14 Intellectual Property
Schedule 2.16 Owned and Leased Real Property
Schedule 2.17 Insurance Policies
Schedule 2.18 Conduct of Target Since Interim Balance Sheet Date
Schedule 2.19 Personnel Information
Schedule 2.20 Employee Benefit Plans
Schedule 2.21 Severance Arrangements
Schedule 2.22 Litigation
Schedule 2.23 Compliance with Laws; Permits
Schedule 2.24 Environmental Matters
Schedule 2.27 Conflicts of Interest
Schedule 2.28 Accounts
Acquiror:
--------
Schedule 3.1 Foreign Qualification
Schedule 3.2 Subsidiaries of Acquiror and Jurisdictions
of Qualification
Schedule 3.4 No Violation; Consents
Schedule 3.5 Ownership of Acquiror's Capital
Stock
Schedule 3.6 Transactions with Certain Persons
Schedule 3.10 Liabilities; Accounts Payable
Schedule 3.11 Contracts and Commitments
Schedule 3.13 Equipment, Tangible Assets or Properties
Schedule 3.14 Intellectual Property
Schedule 3.16 Owned and Leased Real Property
iv
Schedule 3.17 Insurance Policies
Schedule 3.18 Conduct of Acquiror Since Interim
Balance Sheet Date
Schedule 3.19 Personnel Information
Schedule 3.20 Employee Benefit Plans
Schedule 3.21 Severance Arrangements
Schedule 3.22 Litigation
Schedule 3.23 Compliance with Laws; Permits
Schedule 3.27 Conflicts of Interest
Schedule 3.28 Accounts
v
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION("Agreement"), dated as of August
15, 2001, is entered into by and between Flotek Industries, Inc., an Alberta,
Canada corporation ("Acquiror"), Flotek Acquisition Sub, Inc., an Oklahoma
corporation ("Sub") and Chemical & Equipment Specialties, Inc., an Oklahoma
corporation ("Target"). Acquiror, Sub and Target are referred to collectively
herein as the "Parties" and individually as a "Party."
RECITALS
A. The board of directors of each of Acquiror and Target has determined
that it is in the best interests of Acquiror and Target, and their respective
shareholders, to approve the acquisition of Target by Acquiror by means of the
merger of Sub with and into Target upon the terms and subject to the conditions
set forth in this Agreement (the "Merger").
B. For United States federal income tax purposes, it is intended that the
Merger qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and that this Agreement constitute a
plan of reorganization for purposes of Section 368(a).
C. The Parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and to prescribe various
conditions to the Merger.
D. Terms capitalized but not otherwise defined herein have the meanings
ascribed to them in Section 12.
TERMS AND CONDITIONS
In consideration of the foregoing recitals and the mutual covenants,
representations and warranties contained in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
1. THE MERGER.
----------
1.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Sub shall be merged with and into Target in
accordance with the provisions of this Agreement.
1.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Sub shall cease and Target, as the surviving corporation
in the Merger (the "Surviving Corporation"), shall continue its corporate
existence under the laws of the State of Oklahoma. The Merger shall have the
effects specified in this Agreement and the OGCA.
1.3 Governing Instruments, Directors and Officers of the Surviving
Corporation.
--------------------------------------------------------------
(a) The certificate of incorporation of Target, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in
accordance with its terms and applicable law.
(b) The bylaws of Target, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
duly amended in accordance with their terms and applicable law.
(c) At and after the Effective Time, the officers and directors of
the Acquiror and Subsidiaries of Acquiror shall be the individuals listed
on Exhibit 1.3, until their respective successors have been duly elected
or appointed.
1.4 Effect on Securities.
--------------------
(a) Acquiror Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each
share of Acquiror Common Stock, Acquiror Preferred Stock, Acquiror Warrant
and Acquiror Amended Warrant outstanding immediately prior to the
Effective Time and each stock option outstanding prior to the Effective
Time shall remain outstanding and continue unaffected by the Merger, and
each certificate or other instrument evidencing ownership of any such
shares or other securities shall continue to evidence ownership of the
same number of shares or other securities of Acquiror.
(b) Target Securities.
-----------------
(i) Target Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof,
each share of Target Common Stock that is issued and outstanding
immediately prior to the Effective Time shall be converted into the
right to receive the Conversion Number of the shares of validly
issued, fully paid and nonassessable Acquiror Common Stock rounded to
the nearest whole share. Each share of Target Common Stock, when so
converted, shall automatically be canceled and retired, shall cease
to exist and shall no longer be outstanding; and the holder of any
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares
of Acquiror Common Stock to be issued in exchange therefor.
(ii) Target Treasury Stock. At the Effective Time, by virtue of
the Merger, any and all shares of Target Common Stock that are issued
and held as treasury stock shall be canceled and retired and shall
cease to exist, and no shares of Acquiror Common Stock or other
consideration shall be paid or payable in exchange therefor.
(iii) Options. At the Effective Time, the outstanding options to
purchase Target Common Stock shall be converted into the right to
acquire the number of shares of Acquiror Common Stock that would have
been issued to the holders thereof if the options had been exercised
before the Merger under option agreements on the same terms as the
existing agreements, with appropriate adjustment to the exercise
price.
(iv) Total. At the Effective Time, Target will have outstanding
no more than 1,166,588 shares of Target Common Stock and options to
acquire 25,000 shares of Target Common Stock.
(c) Sub Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Acquiror, each share of Sub Common
Stock shall be converted into one share of common stock of the Surviving
Corporation.
1.5 Payment of the Merger Consideration. Certificates representing the
Acquiror Common Stock constituting the Merger Consideration shall be delivered
by Acquiror to the Target Shareholders at the Merger Closing in the amounts set
forth in Exhibit 1.5 (against surrender by the Target Shareholders of
certificates representing Target Common Stock) or as otherwise provided in
Section 1.6 below. The Acquiror Common Stock issued in connection with this
Agreement will be "restricted securities" under the Securities Act and Rule 144
promulgated thereunder and may only be sold or otherwise transferred by the
holder thereof pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act. Certificates representing the Acquiror Common Stock shall bear a
legend indicating such restrictions.
1.6 Exchange of Certificates; Distributions With Respect to Unexchanged
Shares. Target shall use its reasonable best efforts to cause the Target
Shareholders to deliver for cancellation at the Merger Closing all certificates
representing Target Common Stock outstanding as of the Merger Closing. To the
extent any such certificates or agreements are not delivered for cancellation at
the Merger Closing, Acquiror shall provide written notice to any
non-surrendering Target Shareholder of the effectiveness of the Merger and
instructions for surrendering certificates representing such Target
Shareholder's shares of Target Common Stock. Until surrendered as provided in
this Agreement, each certificate representing Target Common Stock shall be
deemed at any time after the Effective Time to represent solely the right to
receive upon such surrender the Merger Consideration as provided by this
Agreement and the OGCA. No dividends or other distributions will be paid by
Acquiror to the holder of any unsurrendered certificate representing Target
Common Stock until such certificate has been duly surrendered. Subject to the
effect, if any, of applicable escheat and other laws, following surrender of any
certificate representing Target Common Stock, Acquiror shall cause to be
delivered to the Person entitled thereto, without interest, the amount of
dividends or other distributions theretofore paid with respect to the Acquiror
Common Stock so withheld as of any date subsequent to the Effective Time and
prior to such date of delivery.
1.7 Acquiror Preferred Stock and Warrants. The Acquiror will use its
reasonable best efforts to cause (i) on or before the Merger Closing Date,
Acquiror Principal Shareholders who own Acquiror Preferred Stock to convert the
Acquiror Preferred Stock into shares of Acquiror Common Stock based on a
conversion price of $0.027 per share of Acquiror Common Stock rather than the
conversion price of U.S. $0.03 set forth in the terms of the Acquiror Preferred
Stock, (ii) on or before the date which is 30 days after the date of this
Agreement (the "Warrant Exercise Date") the holders of Acquiror Warrants to
either (a) exercise such Warrants in accordance with their terms (with at least
85% of the outstanding Acquiror Warrants being exercised by cash payments); or
(b) accept an equal number of Amended and Restated Warrants in the form attached
hereto as Exhibit 1.7 ("Acquiror Amended Warrants"). If all of the Acquiror
Preferred Stock and Acquiror Warrants are not converted or exercised or amended
as described above, then (i) for each share of Acquiror Preferred Stock not
converted on or before the Merger Closing, the Conversion Number shall be
increased such that an additional 0.75 share of Acquiror Common Stock
("Additional Share Number") will be issued pro rata to the Target Shareholders
as a group for each share of Acquiror Common Stock that would be issued upon
conversion of any Acquiror Preferred Stock not converted before the Merger
Closing; (ii) for each Acquiror Warrant not exercised or amended on or before
the Warrant Exercise Date, the Conversion Number shall be increased such that an
Additional Share Number will be issued pro rata to Target Shareholders as a
group for each Acquiror Warrant not exercised or amended. Such adjustments to
the Conversion Number, if any, shall be applied before any adjustment required
by Section 4.12.
1.8 Effective Time of the Merger. The Merger shall become effective
immediately when a certificate of merger ("Certificate of Merger") in accordance
with the OGCA is accepted for filing by the Secretary of State of Oklahoma or at
such time thereafter as is provided in the Certificate of Merger (the "Effective
Time"). The Certificate of Merger shall be filed, and the Effective Time shall
occur, on the Merger Closing Date immediately after the Merger Closing.
1.9 Taking of Further Action. If, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Acquiror or Target, the officers and directors of the Surviving
Corporation are fully authorized, in the name of the Surviving Corporation or
otherwise to take, and shall take, all such lawful and necessary action.
2. REPRESENTATIONS AND WARRANTIES OF TARGET. As a material inducement to
Acquiror to enter into this Agreement and consummate the transactions
contemplated herein, Target represents and warrants to Acquiror, as of the date
of this Agreement and as of the Merger Closing Date (as if made on such date),
as follows:
2.1 Organization, Power and Qualification. Target is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Oklahoma. Target has all requisite corporate power and authority to own,
lease and operate its Assets and to carry on its business or businesses as
presently conducted. Target has delivered to Acquiror complete and correct
copies of the Organizational Documents of Target, as currently in effect. Set
forth in Schedule 2.1 is a listing of each jurisdiction in which Target is
qualified to do business as a foreign corporation. Target is duly qualified as a
foreign corporation and is in good standing to do business in every jurisdiction
in which such qualification is necessary because of the nature of the Assets
owned, leased or operated by it or the nature of the businesses conducted by it.
2.2 Subsidiaries. Set forth in Schedule 2.2 is a listing of all of the
Subsidiaries of Target (the "Target Subsidiaries"). Each Target Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Oklahoma. Target has all requisite corporate power and
authority to own, lease and operate its Assets and to carry on its business or
businesses as presently conducted. Each Target Subsidiary has delivered to
Acquiror complete and correct copies of the Organizational Documents of each
Target Subsidiary, as currently in effect. Set forth in Schedule 2.1 is a
listing of each jurisdiction in which each Target Subsidiary is qualified to do
business as a foreign corporation. Each Target Subsidiary is duly qualified as a
foreign corporation and is in good standing to do business in every jurisdiction
in which such qualification is necessary because of the nature of the Assets
owned, leased or operated by it or the nature of the businesses conducted by it.
Target owns 100% of the outstanding equity securities of each Target Subsidiary
and Target and each Target Subsidiary have no interest, direct or indirect, and,
have no commitment to purchase any interest, direct or indirect, in any other
corporation not listed in Schedule 2.2 or in any partnership, joint venture or
other business enterprise or entity.
2.3 Authority; Power; Binding Effect. The execution, delivery and
performance of this Agreement by Target have been authorized by all necessary
action on the part of Target and Target Shareholders and no other proceedings
(corporate or other) on the part of Target are necessary to authorize the
execution, delivery and performance of this Agreement. Target has the requisite
right, power, authority and capacity to execute and deliver this Agreement and
to carry out the transactions contemplated hereby and to take any and all other
actions required to be taken by it pursuant to this Agreement. This Agreement
has been duly executed and delivered by Target and, assuming the due execution
and delivery of this Agreement by Acquiror, constitutes the legal, valid and
binding obligation of Target enforceable against Target in accordance with its
terms and conditions.
2.4 No Violation; Consents. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, by
Target will, directly or indirectly, with or without notice or the passage of
time, except as contemplated by this Agreement or as set forth in Schedule 2.4:
(a) violate or conflict with any provision of the Organizational Documents of
Target or any Target Subsidiary; (b) violate any provision of any law of any
Governmental Entity applicable to Target or any Target Subsidiary; (c) conflict
with, violate or result in a breach of or constitute (with due notice or lapse
of time) a default under any contract, lease, loan agreement, mortgage, security
agreement, indenture, or other agreement or instrument to which Target or any
Target Subsidiary is a party or by which Target or any Target Subsidiary is
bound or to which any of its Assets is subject; (d) result in the imposition of
any Encumbrance on Target or any Target Subsidiary or any of its Assets; or (e)
require any authorization, consent, approval or other action by or notice to or
filing with any Person or Governmental Entity.
2.5 Ownership of Target's Capital Stock. Target's capital stock consists
of 5,000,000 shares of authorized Target Common Stock and 2,500,000 shares of
authorized preferred stock, par value $0.01 per share, of which 1,166,588 shares
of Target Common Stock are issued and outstanding and no shares of preferred
stock are issued and outstanding. To Target's Knowledge, Target Shareholders are
the lawful record and beneficial owners of all of Target's issued and
outstanding Target Common Stock, free and clear of any Encumbrances except as
set forth on Schedule 2.5, and all of such shares have been duly authorized and
are validly issued, fully paid and nonassessable. Schedule 2.5 sets forth the
number of shares of Target Common Stock owned of record and beneficially by each
of the Target Shareholders. Except as set forth in Schedule 2.5, there are no
options, warrants, calls, conversion or other rights, or any agreements or
commitments of any nature which obligate the Target or any Target Subsidiary to
issue any additional shares of capital stock or any securities convertible into
or exchangeable for any such shares of capital stock and no authorization
therefor has been given.
2.6 Transactions with Certain Persons. Except as set forth in Schedule
2.6: (i) neither Target nor any Target Subsidiary owes any amount to, or have
any contract with or commitment to, Target Shareholders, or any of Target's,
Target Subsidiary's or Target Shareholders' directors, officers, employees,
consultants or Affiliates (other than compensation for current services not yet
due and payable and reimbursement of expenses arising in the Ordinary Course of
Business), and none of such persons owes any amount to Target or any Target
Subsidiary; and (ii) no part of the Assets of any Target Shareholder or any
direct or indirect Affiliate of any Target Shareholder is used by Target or any
Target Subsidiary.
2.7 Financial Statements. True and complete copies of the unaudited
consolidated interim balance sheet of Target (the "Target Balance Sheet") as of
June 30, 2001 (the "Target Balance Sheet Date") and the related statement of
operations through the six months ended June 30, 2001(collectively, the "Target
Financial Statements") are attached hereto as Schedule 2.7. The Target Financial
Statements have been prepared in accordance with the books and records of Target
and Target Subsidiaries and show all material liabilities, required to be shown
in accordance with such principles. The Target Financial Statements fairly
present the consolidated financial condition of Target as of the Target Balance
Sheet Date and fairly present the results of operations and cash flows of Target
for the periods indicated (subject to changes resulting from completion of the
audit of Target's year end financial statements).
2.8 Receivables. All receivables (including, without limitation, accounts
receivable, loans receivable and advances) of Target which are reflected on the
Target Balance Sheet or arising since the date thereof: (a) represent valid and
genuine obligations; (b) have arisen solely out of bona fide transactions in the
Ordinary Course of Business; and (c) are not subject to any valid defenses,
set-offs or counterclaims.
2.9 Inventory. All Inventory reflected on the Target Balance Sheet, or
acquired since the date thereof: (a) was acquired and has been maintained in the
Ordinary Course of Business; (b) is of good and merchantable quality; (c) is
valued at the lower of cost or market on a first in, first out basis; and (d) is
not subject to any write-down or write-off. Except for items of Inventory in
transit from the vendor thereof and items of Inventory which are off-site for
repair or preparation for sale in the Ordinary Course of Business, all Inventory
is located at the Owned Real Property or Leased Real Property.
2.10 Absence of Undisclosed Liabilities; List of Accounts Payable.
---------------------------------------------------------------
(a) Except as set forth in Schedule 2.10, Target and each Target
Subsidiary have no Liabilities except:
(i) those Liabilities reflected or reserved against on the
face of the Target Balance Sheet (excluding the notes thereto) and
not heretofore paid or discharged in the Ordinary Course of Business;
(ii) Liabilities arising in the Ordinary Course of Business
under any agreement, contract, commitment, lease or plan specifically
set forth in Schedule 2.11 (or not required to be disclosed under
Section 2.11 because of the term or amount involved); and
(iii) current Liabilities incurred in the Ordinary
Course of Business since the Target Balance Sheet Date.
(b) Schedule 2.10 sets forth as of May 31, 2001 a complete and
accurate list of Target's and each Target Subsidiary's accounts payable,
including the name, vendor identification, and, to Target's Knowledge, the
amount owed to each Person as of the date of the Target Financial
Statements other than amounts payable to Personnel of Target in the
Ordinary Course of Business.
2.11 Contracts and Commitments.
-------------------------
(a) Except as set forth in Schedule 2.11, Target and each Target
Subsidiary are not a party to (or otherwise bound by) any written or oral:
(i) agreement, contract or commitment for the future purchase
of, or payment for, supplies or products, or for the performance of
services by a third-party involving payments in excess of $50,000,
excluding purchase orders in the Ordinary Course of Business;
(ii) agreement, contract or commitment to sell or
supply products or to perform services involving
payments in excess of $50,000;
(iii) agreement, contract or commitment for any
capital expenditure or leasehold improvement in excess
of $50,000;
(iv) agreement, contract, or commitment for the
sale or disposition of any Assets involving payments in
excess of $50,000;
(v) lease under which Target is either lessor or
lessee involving payments in excess of $50,000;
(vi) any other agreement, contract or commitment
involving payments in excess of $50,000;
(vii) note, debenture, bond, letter of credit agreement, loan
agreement or other contract or commitment for the borrowing or
lending of money or agreement or arrangement for a line of credit or
guarantee, pledge or undertaking of the indebtedness of any other
Person;
(viii) distribution, representative or sales agency agreement,
contract or commitment;
(ix) agreement, contract or commitment for any
charitable or political contribution;
(x) agreement, contract or commitment limiting or restraining
Target or any successor thereto from engaging or competing in any
manner or in any business, nor, to Target's Knowledge, is any
employee of Target subject to any such agreement, contract or
commitment;
(xi) agreement, contract or commitment for a joint venture or
other arrangement that has or is expected to involve a sharing of
profits or expenses with other Persons;
(xii) agreement of indemnification;
(xiii) license or other agreements which relate in whole or in
part to any software, patent, trademark, trade name, service mark or
copyright or to any ideas, technical assistance or other know-how
(other than nonexclusive software licenses granted to Target in
connection with the use of commercially available pre-packaged
software); or
(xiv) agreement, contract or commitment not made in
the Ordinary Course of Business.
(b) Each of the agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings set forth in Schedule 2.11
(or not required to be listed thereon because of the terms thereof), is
enforceable in accordance with its terms. Except as set forth in Schedule
2.11, Target or each Target Subsidiary is, and, to Target's Knowledge, all
other parties thereto are, in compliance with the provisions thereof and,
to Target's Knowledge, no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute a default
thereunder or a breach of a representation or warranty set forth therein.
Target has delivered to Acquiror true, correct and complete copies of each
of the written, and a correct and complete summary of each of the oral,
agreements, contracts, commitments, leases, plans and other instruments,
documents and undertakings set forth in Schedule 2.11.
2.12 Title to Assets. Target and each Target Subsidiary have and,
following the Merger Closing, the Surviving Corporation and each Target
Subsidiary will have, good and marketable title to, or a valid leasehold
interest in, the Assets, free and clear of all Encumbrances excepting only (i)
the Liabilities expressly reflected or reserved against on the face of the
Target Balance Sheet (rather than any notes thereto) and (ii) Permitted
Encumbrances.
2.13 Condition and Location of Assets. The Assets of Target and each
Target Subsidiary are in good operating condition and repair, subject to normal
wear and maintenance, are adequate and usable in the Ordinary Course of Business
and, to Target's Knowledge, materially conform to all applicable Laws and
Permits relating to their construction, use and operation. No Person other than
Target or a Target Subsidiary owns any equipment or other tangible assets or
properties situated on the premises of Target or a Target Subsidiary which is
necessary to the operation of the business of Target or a Target Subsidiary,
except for items leased pursuant to contracts set forth in Schedule 2.11 and any
other items set forth in Schedule 2.13. All of the tangible Assets of Target or
any Target Subsidiary are located on the Owned Real Property or Leased Real
Property.
2.14 Intellectual Property. Schedule 2.14 contains a complete and accurate
list of all of the Intellectual Property owned or licensed by Target or any
Target Subsidiary ("Target Intellectual Property"). Except as set forth in
Schedule 2.14: (i) Target or a Target Subsidiary owns royalty free the entire
right, title and interest in and to the Target Intellectual Property (including,
without limitation, the right to use and license the same); and (ii) there are
no pending or, to the Knowledge of Target, threatened actions of any nature
affecting the Target Intellectual Property. Schedule 2.14 lists all notices or
claims received by Target or a Target Subsidiary which claim infringement,
interference with, misappropriation or violation of any Target Intellectual
Property rights of third parties. Target has delivered to Acquiror true, correct
and complete copies of all agreements, contracts, licenses, commitments, leases
and other documents evidencing, representing or covering the Target Intellectual
Property and the Target Software (as defined below) and the maintenance and
support thereof.
2.15 Software. Target has delivered to Acquiror complete and correct
copies of all material user and technical documentation related to the computer
software of Target or a Target Subsidiary included in the Target Intellectual
Property (the "Target Software"). The Target Software contains all current
revisions of such Target Software, is properly licensed in favor of Target or a
Target Subsidiary, is assignable by Target to the Surviving Corporation (if
owned or licensed by Target) and performs in accordance with the documentation
and other written materials provided in connection therewith.
2.16 Real Property.
-------------
(a) Owned Real Property. Target or a Target
Subsidiary owns the legal or beneficial interest in the Real
Property identified in Schedule 2.16.
(b) Leased Real Property. Target or a Target
Subsidiary leases the real property identified in Schedule 2.16.
With respect to the Leased Real Property:
(i) Each Real Property Lease is, and at the Merger Closing
shall be, in full force and effect and has not been assigned or
further modified, supplemented or amended; neither Target or the
applicable Target Subsidiary nor the landlord or sublandlord under
any Real Property Lease is in default under any of the Real Property
Leases; and no circumstances or state of facts presently exists
which, with the giving of notice or passage of time, or both, would
permit the landlord or sublandlord under any Real Property Lease to
terminate any Real Property Lease;
(ii) After the Merger Closing, the Surviving Corporation and
the applicable Target Subsidiary shall receive and enjoy all right,
title and interest of Target or the applicable Target Subsidiary in
and to all Real Property Leases and Leased Real Property;
(iii) Other than Target or a Target Subsidiary, no Person will
be leasing, using or occupying the leased premises covered by the
Real Property Leases or any part thereof as of the Merger Closing
Date;
(iv) The Leased Real Property is not subject to any sublease or
grant by Target or any Target Subsidiary to any Person of any right
to the use, occupancy or enjoyment of the property or any portion
thereof, whether such right currently exists or may arise in the
future;
(vi) All rents and other amounts payable by Target or any
Target Subsidiary with respect to the Leased Real Property currently
due have been paid, and at the Merger Closing shall have been paid;
and
(vii) To Target's Knowledge, the Leased Real Property and the
present uses thereof comply with all Laws of all Governmental
Entities having jurisdiction over the Leased Real Property and all
restrictive covenants affecting the Leased Real Property, and Target
or any Target Subsidiary have received no notices, oral or written,
from any Governmental Entity, and has no reason to believe, that the
Leased Real Property or any improvements erected or situated thereon,
or the uses conducted thereon or therein, violate any Laws of any
Governmental Entity having jurisdiction over the Leased Real Property
or any restrictive covenants affecting the Leased Real Property.
2.17 Insurance.
---------
(a) Schedule 2.17 sets forth a list identifying the insurer and
policy number of each material insurance policy (including policies
providing property, casualty, liability, title, life, business
interruption and workers' compensation coverage and bond and surety
arrangements) with respect to which Target or any Target Subsidiary is a
party, a named insured, or otherwise the beneficiary of coverage and
contains a true and accurate copy of each such policy.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect in all
material respects; (ii) neither Target or the applicable Target Subsidiary
nor, to Target's Knowledge, any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving
of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (iii) no party to the
policy has repudiated any material provision thereof. Target and the
Target Subsidiaries have no self-insurance arrangements.
2.18 Conduct of Target Since the Target Balance Sheet Date. Except as set
forth in Schedule 2.18, or as otherwise approved by Acquiror between the date
hereof and the Merger Closing, since the Target Balance Sheet Date, Target and
each Target Subsidiary have conducted their business only in the Ordinary Course
of Business and have not, except in the Ordinary Course of Business:
(a) incurred any Liabilities or assumed, guaranteed, endorsed or
otherwise become responsible for the Liabilities of any Person, or
discharged or satisfied any Encumbrance, or paid any Liability, or failed
to pay or discharge when due any Liabilities of which the failure to pay
or discharge has caused or will cause any material damage or risk of
material loss to Target or any Target Subsidiary or any of their Assets;
(b) sold, encumbered, assigned or transferred any
Assets, or made any contract or agreement for any of the
foregoing;
(c) created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or mortgaged, pledged or subjected any of its Assets to
any Encumbrance, except for Permitted Encumbrances;
(d) made or suffered any amendment or termination prior to the stated
expiration of any material agreement, contract, commitment, lease or plan
to which it is a party or by which it is bound, or canceled, modified or
waived any substantial debt or claim held by it or waived any right of
material value;
(e) declared or paid any dividends on or made other distributions in
respect of any of its capital stock; split, combined or reclassified any
of its capital stock or issued or authorized or proposed the issuance of
any shares of capital stock (other than as disclosed in Schedule 2.5),
other securities in respect of, in lieu of or in substitution for shares
of capital stock, or repurchased, redeemed or otherwise acquired, any
shares of its capital stock;
(f) received notice or had Knowledge of any actual or threatened
labor trouble, or other occurrence, event or condition of any similar
character which has had or might have a material adverse effect on its
business, operations, Assets, prospects or condition (financial or
otherwise);
(g) made any agreement, contract or commitment, including an
agreement to purchase or lease Assets, which includes an aggregate payment
or commitment on the part of either party of more than $50,000;
(h) increased the salaries or other compensation of any Personnel or
made any increase in, or any addition to, other benefits to which any of
its Personnel may be entitled by formula or otherwise or as may be
required under employment or severance agreements in effect on the date of
this Agreement;
(i) except as set forth in clause (h) above, instituted, granted or
modified in any respect any (A) bonus, incentive compensation, service
award, severance or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any Personnel of Target
or any Target Subsidiary, (B) employee welfare, pension, retirement,
profit-sharing or similar payment or arrangement made or agreed to by
Target or any Target Subsidiary for any Personnel of Target or any Target
Subsidiary, or (C) new written employment agreement with any Personnel
engaged in the business of Target or any Target Subsidiary to which Target
or any Target Subsidiary is a party which cannot be terminated at will;
(j) made any advance (excluding advances for ordinary
and necessary business expenses) or loan to any of its
Personnel;
(k) extended credit in the sale of Inventory,
services, collection of receivables or otherwise;
(l) amended the Organizational Documents of Target or
any Target Subsidiary; or
(m) suffered any material adverse change in its business, operations,
assets, prospects, of condition (financial or otherwise).
2.19 Personnel Information.
---------------------
(a) Except as set forth in Schedule 2.19, Target and each Target
Subsidiary are not a party to, do not have any obligation with respect to,
and are not bound by any employment or consulting agreement or any
collective bargaining agreement or other labor or employment agreement, or
any incentive compensation, change in control, severance, personal or sick
days or paid time off, contract, policy, plan or arrangement with respect
to any Personnel or director of Target or any Target Subsidiary or other
Person (the "Employee Arrangements").
(b) Schedule 2.19 contains a complete and accurate list of all
individuals employed by Target or any Target Subsidiary, including name,
date of hire, job title and rate of hourly pay or salary. Schedule 2.19
also contains a complete and accurate list of all individuals, if any, to
whom offers of employment have been made but not yet accepted, including
anticipated date of hire and a description of material compensation
arrangements offered to such individual (other than Employee Benefit Plans
set forth in Schedule 2.20).
(c) Target and each Target Subsidiary have no plans or arrangements
contemplating or requiring Target or any Target Subsidiary to provide to
any retired employee or director of Target or any Target Subsidiary, or
their dependents, any benefits in the future, including, without
limitation, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, or other benefits.
(d) Target and each Target Subsidiary have not agreed to recognize
any union, employee organization, or other collective bargaining unit nor
has any union or other collective bargaining unit been certified as
representing any of Target's or any of Target Subsidiary's employees;
there has been no organizational effort made or, to the Knowledge of
Target, threatened by or on behalf of any labor union or other employee
organization with respect to employees of Target or any Target Subsidiary
within the preceding three (3) years; and there is no labor strike,
slowdown, work stoppage or lockout actually pending or, to the Knowledge
of Target, threatened against or affecting Target or any Target
Subsidiary.
(e) Except as listed or set forth in Schedule 2.19, Target and each
Target Subsidiary, with respect to its Personnel: (i) have no written
personnel policy applicable to any Personnel, (ii) are in material
compliance with all applicable Laws regarding employment and employment
practices, including, without limitation ERISA and those laws relating to
terms and conditions of employment, wages and hours, occupational safety
and health and workers' compensation and is not engaged in any unfair
labor practices, (iii) have no unfair labor practice charges pending or,
to the Knowledge of Target, threatened against it in or before the
National Labor Relations Board, (iv) have no grievances pending or, to the
Knowledge of Target, threatened against it, (v) have no charges or
complaints pending or, to the Knowledge of Target, threatened before the
Equal Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices, and (vi)
have no private agreement restricting Target or any Target Subsidiary from
relocating, closing or terminating any of its facilities.
2.20 Employee Benefits.
-----------------
(a) Attached hereto and made a part hereof are Schedules, identified
below, which list all employee benefit plans within the three-year period
before the date of this Agreement, (i) which are or have been maintained
or administered by Target, any Target Subsidiary or any ERISA Affiliate,
(ii) to which Target or any Target Subsidiary or any ERISA Affiliate
contributes or contributed, or is or was legally obligated to contribute,
or (iii) under which Target or any Target Subsidiary or any ERISA
Affiliate has or had any liability with respect to its current or former
Personnel:
(i) Schedule 2.20 contains a list of each "employee welfare
benefit plan" (as defined in ERISA Section 3) (collectively, the "Welfare
Plans");
(ii) Schedule 2.20 contains a list of each "employee pension
benefit plan" (as defined in ERISA Section 3) (collectively, the "Pension
Plans");
(iii) Schedule 2.20 contains a list of each employee benefit
plan, program, arrangement, agreement, policy or commitment, whether
insured or uninsured, funded or unfunded, that is not a Welfare Plan or
Pension Plan, relating to deferred compensation, bonus or compensation in
addition to regular pay or wages, stock-related compensation, severance,
unemployment, flexible benefits, disability, vacation, sickness, leave of
absence, fringe benefits, employee awards, educational assistance or
reimbursement, employee discounts, excess benefits, rabbi, secular or
vesting trust, child or dependent care, long-term and nursing home care,
and profit sharing (collectively, the "Employee Plans").
Solely for purposes of this Section 2.20, "ERISA Affiliate" means any
Person which together with Target would be treated as a single employer
under Code Section 414. Schedule 2.20 sets forth the names of each such
ERISA Affiliate. Solely for purposes of this Section 2.20, the Employee
Plans, Welfare Plans and Pension Plans are collectively referred to as
"Employee Benefit Plans."
(b) Except as set forth in Schedule 2.20: (i) each Pension Plan is
qualified under Code Section 401, and any trust maintained pursuant
thereto is exempt from federal income taxation under Code Section 501;
(ii) the Welfare Plans and Employee Plans, and all trust agreements,
custodial agreements, insurance or annuity contracts thereunder, have been
maintained, in all material respects, in accordance with their terms and
applicable Law; (iii) Target and each Target Subsidiary have complied with
respect to each Employee Benefit Plan, in all material respects, with the
reporting, notice and disclosure requirements of ERISA; (iv) no plan
fiduciary, "party in interest" or "disqualified person" has engaged in a
"prohibited transaction" within the meaning of ERISA Section 406 or Code
Section 4975 which has or will result in any penalty or Tax under ERISA
Section 502(i) or Code Sections 4975 and 4976 to Target, any Target
Subsidiary or any ERISA Affiliate, or any director, officer or employee of
Target or any ERISA Affiliate; (v) all of the Employee Benefit Plans
comply currently both as to form (to the extent required by Code Section
401(b)) and operation, in all material respects, with their terms and with
the provisions of ERISA and the Code, and all other applicable laws, rules
and regulations; and (vi) a favorable determination as to the
qualification under Code Section 401(a) has been made by the IRS with
respect to each Pension Plan, and to the Knowledge of Target, nothing has
occurred since the date of such determination that would adversely affect
such qualification. Neither Target, any Target Subsidiary nor any ERISA
Affiliate has during the preceding six (6) years made or had an obligation
to make contributions to any benefit plan set forth in ERISA Sections
4001(a)(3), 4062, 4063 or 4064.
(c) With respect to each Pension Plan, the funding method used in
connection with such Pension Plan has at all times satisfied and will as
of the Merger Closing Date satisfy any and all requirements under ERISA or
the Code. Except as set forth in Schedule 2.20, there is as of the date
hereof no "accumulated funding deficiency" (as defined in ERISA Section
302(a)(2) and Code Section 412(a)), whether or not waived, which exists
with respect to any plan year of any Pension Plan.
(d) All contributions required to have been made under any Employee
Benefit Plans or any Law (without regard to any waivers granted under Code
Section 412) to any trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extensions).
(e) With respect to each Employee Benefit Plan, a complete and
correct copy of each of the following documents (if applicable) has been
made available to Acquiror: (i) the most recent plan and related trust
documents, agency agreements, custodial agreements, insurance or annuity
contracts, and any other funding instruments, and all amendments thereto;
(ii) the most recent summary plan description, and all related summaries
of material modifications; (iii) the most recent Form 5500 (including
schedules); (iv) the most recent IRS determination letter and any IRS
Private Letter Ruling applicable to such Employee Benefit Plan; (v) the
most recent actuarial reports (including reports prepared for purposes of
Financial Accounting Standards Board report nos. 87, 106 and 112); and
(vi) all minutes of the governing body or committee of Target, any Target
Subsidiary and each ERISA Affiliate relating to each such plan; (vii)
filings with, or reports to, the PBGC; (viii) each advisory opinion,
private exemption or other letter from the United States Department of
Labor or PBGC applicable to such Employee Benefit Plan; and (ix) all
information relating to the termination, merger or curtailment of any
Employee Benefit Plan of Target or any Target Subsidiary occurring in any
of the five (5) calendar years preceding the date of this Agreement.
(f) Except as set forth in Schedule 2.20, there are no pending or, to
the Knowledge of Target, threatened actions, lawsuits, claims for benefits
(except in the ordinary course of administration), proceedings,
investigations, audits, or arbitrations, as of the date of this Agreement
and as of the Merger Closing Date, involving any Employee Benefit Plan or
its assets, plan sponsor, plan administrator or fiduciaries with respect
to the operation of such plan.
(g) Target, each Target Subsidiary and each ERISA Affiliate have
complied with the requirements of COBRA and the rules and regulations
thereunder. Target has furnished to Acquiror a list of: (i) all
individuals who have elected or who are eligible to elect COBRA
continuation coverage under any of the Welfare Benefit Plans, and (ii) the
dates of each qualifying event and COBRA continuation coverage periods for
each such individual.
(h) Neither Target, each Target Subsidiary nor any ERISA Affiliate
has any leased employees within the meaning of Code Section 414(n) nor any
employees within the meaning of the regulations under Code Section 414(o).
Except as set forth in Schedule 2.20, none of the employees of Target, any
Target Subsidiary or any ERISA Affiliate is a member of, nor is any
Employee Benefit Plan maintained in connection with, any voluntary
employees' beneficiary association within the meaning of Code Section
501(c)(9) which is maintained, sponsored or contributed to by Target, any
Target Subsidiary or any ERISA Affiliate.
(i) No condition, fact, or circumstance exists, or will exist at the
Merger Closing, which would prevent Target, any Target Subsidiary or any
ERISA Affiliate from amending or terminating any Employee Benefit Plan
with respect to any current, former or retired Personnel or independent
contractor of Target, any Target Subsidiary or any ERISA Affiliate except
under the terms of any collective bargaining agreement set forth in
Schedule 2.20.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in
any payment becoming due to any Personnel (current, former or retired) of
Target or any Target Subsidiary; (ii) increase any benefits under any
Employee Benefit Plan or any arrangement set forth in Section 2.20; or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.21 Severance Arrangements. Without limiting Section 2.20 above, except
as set forth in Schedule 2.22, Target and each Target Subsidiary have not
entered into any severance or similar arrangement in respect of any present or
former Personnel that shall result in any obligation (absolute or contingent) of
Target, any Target Subsidiary, Acquiror, any Acquiror Subsidiary or the
Surviving Corporation to make any payment to any present or former Personnel
following termination of employment, including the termination of employment
effected by the transactions contemplated by this Agreement. The consummation of
the transactions contemplated by this Agreement will not trigger any severance
or similar arrangement of Target or any Target Subsidiary payable by Acquiror or
the Surviving Corporation after the Merger Closing.
2.22 Litigation; Decrees. To Target's Knowledge, there are no judicial or
administrative actions, proceedings or investigations pending or threatened that
question the validity of this Agreement or any action taken or to be taken by
Target, any Target Subsidiary or the Target Shareholders in connection with this
Agreement. Except as set forth in Schedule 2.22: (i) there are no lawsuits,
claims, administrative or other Proceedings or investigations pending or, to
Target's Knowledge, threatened by, against or affecting Target, any Target
Subsidiary or any of their Assets; and (ii) there are no judgments, orders or
decrees of any Governmental Entity binding on Target or any of their Assets.
2.23 Compliance With Law; Permits. To Target's Knowledge, except as set
forth in Schedule 2.23, Target and each Target Subsidiary have materially
complied with each Law of any Governmental Entity to which Target, any Target
Subsidiary or their business, operations or Assets is subject (including,
without limitation, any federal, state or local Laws, relating to network
marketing, business opportunities, franchising, lottery, pyramid schemes or
similar laws) and are not currently in violation, or alleged by any Governmental
Entity to have violated, of any of the foregoing. Target and each Target
Subsidiary own, hold, possess or lawfully use in the operation of its business
all Permits which are required for it to conduct its business as now conducted
or for the ownership and use of the Assets, in material compliance with all
Laws.
2.24 Environmental Matters.
---------------------
(a) Target and each Target Subsidiary have complied and is in
compliance, each case in all material respects, with all Environmental
Laws applicable to the ownership, use and/or operation of Target's or the
Target Subsidiary's Assets or business;
(b) (i) Target and each Target Subsidiary have obtained and currently
maintain all Environmental Permits required by applicable Environmental
Laws for Target's or the Target Subsidiary's business and operations, and
Target and each Target Subsidiary are in compliance in all material
respects with such Environmental Permits; (ii) there are no judicial or
administrative actions, proceedings or investigations pending or, to
Target's Knowledge, threatened, to revoke or materially modify the terms
of any such Environmental Permits; and (iii) Target and each Target
Subsidiary have not been notified by any Governmental Entity or Person
that Target or the Target Subsidiary does not have all Environmental
Permits required for the current use or operation of any of their Assets
or Target's or the Target Subsidiary's business;
(c) There are no judicial or administrative actions, proceedings,
inquiries or investigations pending or, to Target's Knowledge, threatened,
against Target or any Target Subsidiary alleging the violation of any
Environmental Law or the terms of any Environmental Permit;
(d) To Target's Knowledge, Target and each Target Subsidiary are not
subject to any Environmental Costs and Liabilities as respects any
violation of any applicable Environmental Law concerning the generation,
storage, treatment, disposal or release of Hazardous Materials, and, to
Target's Knowledge, no facts or circumstances exist which could subject
Target or any Target Subsidiary to any Environmental Costs and Liabilities
concerning the generation, storage, treatment, disposal or Release of
Hazardous Materials;
(e) To Target's Knowledge, there are no Hazardous Materials present
in violation of any applicable Environmental Law at, on, in or under the
Owned Real Property, Leased Real Property or any geologically or
hydrologically adjoining property; and
(f) Target has provided for Acquiror's review true and complete
copies of all Environmental Permits issued to Target or any Target
Subsidiary, and any and all written reports, studies, analyses, surveys,
assessments, tests and sampling results in Target's or any Target
Subsidiary's possession or under Target's or any Target Subsidiary's
control pertaining to Hazardous Materials at, in, on or under the Leased
Real Property, or concerning the Leased Real Property's compliance with
Environmental Laws, or the compliance by Target or any Target Subsidiary
or any other person or entity for whose conduct Target or any Target
Subsidiary is or may be held responsible with Environmental Laws.
2.25 Tax Matters. Target and each Target Subsidiary have duly filed all
material federal, state and local income, franchise, excise, real and personal
property and other Tax Returns and reports (including, but not limited to, those
filed on a consolidated, combined or unitary basis) required to have been filed
by the Target or any Target Subsidiary prior to the date hereof, or requests for
extensions to file such returns and reports have been timely filed. All of the
foregoing returns and reports are true and correct in all material respects, and
Target and each Target Subsidiary have paid, or prior to the Effective Time will
pay all Taxes in excess of $10,000 in the aggregate, whether or not shown on
such returns or reports, as being due or claimed to be due to any Governmental
Entity and Target and each Target Subsidiary has paid and will pay all
installments of estimated taxes due on or before the Effective Time. Target and
each Target Subsidiary have paid or made adequate provision in accordance with
GAAP in Target's Financial Statements for all Taxes payable in respect of all
periods ending on or prior to the date of this Agreement and will have made or
provided for all Taxes payable in respect of all periods ended on or prior to
the Merger Closing Date. As of the date hereof, all deficiencies proposed as a
result of any audits have been paid or settled. Target and each Target
Subsidiary have paid, collected or withheld, or caused to be paid, collected or
withheld, all amounts of Taxes required to be paid, collected or withheld, other
than such Taxes for which adequate reserves in Target's Financial Statements
have been established or which are being contested in good faith. There are no
claims or assessments pending against Target or any Target Subsidiary for any
alleged deficiency in any Tax, and Target has not been notified in writing of
any proposed Tax claims or assessments against Target or any Target Subsidiary.
To Target's Knowledge, there is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by Acquiror, Target, or any
Target Subsidiary by reason of Section 280G of the Code.
2.26 Commissions or Finders Fees. Neither Target, any Target Subsidiary
nor any Person acting on behalf of Target or any Target Subsidiary has agreed to
pay a commission, finder's fee or similar payment in connection with this
Agreement or any matter related hereto to any Person.
2.27 Certain Business Practices and Regulations; Potential
Conflicts of Interest.
-------------------------------------------------------
(a) To Target's Knowledge, neither Target, any Target Subsidiary nor
any Personnel or any other Person acting on behalf of Target or any Target
Subsidiary has made any unlawful payment which might subject Target or any
Target Subsidiary to any damage or penalty in any civil, criminal or
governmental litigation or proceeding which could have a material adverse
effect on Target's or any Target Subsidiary's business, operations,
Assets, prospects or condition (financial or otherwise).
(b) Except as set forth in Schedule 2.27, no officer or director of
Target or any Target Subsidiary nor, to Target's knowledge, any other
Target Shareholder or employee of Target or any Target Subsidiary or any
Person controlled by any of the foregoing (i) owns, directly or
indirectly, any interest in, or is a director, officer, employee,
consultant or agent of, any Person which is a competitor, lessor, lessee
or customer of, or supplier of goods or services to, the business of
Target or any Target Subsidiary, (ii) has any cause of action or other
suit, action or claim whatsoever against, or owes any amount to Target or
any Target Subsidiary, or (iii) is a party to any contract or agreement or
participates in any arrangement, written or oral, pursuant to which Target
or any Target Subsidiary provides services of any nature to any such
Person, otherwise than in his capacity as an employee of Target or a
Target Subsidiary. Except for transactions in the Ordinary Course of
Business and except as set forth in Schedule 2.27, there are no
transactions presently pending or planned, or initiated since the Target
Balance Sheet Date, between Target or any Target Subsidiary and any
officer or director of Target or a Target Subsidiary or, to Target's
knowledge, any other Target Shareholder or employee of Target or a Target
Subsidiary or any Person controlled by any of the foregoing, including any
contract, agreement or other arrangement (x) providing for the furnishing
of services by Target or any Target Subsidiary, (y) providing for the
rental of real or personal property of Target or any Target Subsidiary, or
(z) otherwise requiring payments from Target or any Target Subsidiary
(other than for services as officers or directors of Target) to any such
Person.
(c) Neither Target, any Target Subsidiary or to Target's Knowledge,
directors, officers or employees of Target or any Target Subsidiary has
engaged in any business practice (i) which may be considered dishonest or
unethical or (ii) not in compliance with industry custom and standards, in
connection with any of the operations of Target or any Target Subsidiary.
2.28 Accounts. Schedule 2.28 sets forth a list of all cash, deposit, money
market or securities accounts maintained by Target or any Target Subsidiary at
any bank, brokerage firm or similar entity and the names of the authorized
signatories.
2.29 Disclosure. With respect to this Agreement, the Schedules and
Exhibits to this Agreement and the other agreements contemplated by this
Agreement, to the Knowledge of Target, Target has not made any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. As a material inducement to
Target to enter into this Agreement and consummate the transactions contemplated
herein, Acquiror represents and warrants to Target, as of the date of this
Agreement and as of the Merger Closing Date (as if made on such date), as
follows:
3.1 Organization, Power and Qualification. Acquiror is a corporation duly
incorporated, validly existing and in good standing under the laws of the
province of Alberta, Canada. Acquiror has all requisite corporate power and
authority to own, lease and operate its Assets and to carry on its business or
businesses as presently conducted. Acquiror has delivered to Target complete and
correct copies of the Organizational Documents of Acquiror, as currently in
effect. Set forth in Schedule 3.1 is a listing of each jurisdiction in which
Acquiror is qualified to do business as a foreign corporation. Acquiror is duly
qualified as a foreign corporation and is in good standing to do business in
every jurisdiction in which such qualification is necessary because of the
nature of the Assets owned, leased or operated by it or the nature of the
businesses conducted by it.
3.2 Subsidiaries. Set forth in Schedule 3.2 is a listing of all of the
Subsidiaries of Acquiror, including Sub, (the "Acquiror Subsidiaries") and the
jurisdiction of incorporation. Each Acquiror Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Acquiror Subsidiary has all requisite
corporate power and authority to own, lease and operate its Assets and to carry
on its business or businesses as presently conducted. Each Acquiror Subsidiary
has delivered to Target complete and correct copies of the Organizational
Documents of each Acquiror Subsidiary, as currently in effect. Set forth in
Schedule 3.2 is a listing of each jurisdiction in which each Acquiror Subsidiary
is qualified to do business as a foreign corporation. Each Acquiror Subsidiary
is duly qualified as a foreign corporation and is in good standing to do
business in every jurisdiction in which such qualification is necessary because
of the nature of the Assets owned, leased or operated by it or the nature of the
businesses conducted by it. Except as otherwise indicated in Schedule 3.2,
Acquiror owns 100% of the outstanding equity securities of each Acquiror
Subsidiary and Acquiror and each Acquiror Subsidiary have no interest, direct or
indirect, and, have no commitment to purchase any interest, direct or indirect,
in any other corporation not listed on Schedule 3.2 or in any partnership, joint
venture or other business enterprise or entity.
3.3 Authority; Power; Binding Effect. The execution, delivery and
performance of this Agreement by Acquiror and Sub have been authorized by all
necessary action on the part of Acquiror and Sub and no other proceedings
(corporate or other) on the part of Acquiror or Sub are necessary to authorize
the execution, delivery and performance of this Agreement. Acquiror and Sub have
the requisite right, power, authority and capacity to execute and deliver this
Agreement and to carry out the transactions contemplated hereby and to take any
and all other actions required to be taken by them pursuant to this Agreement.
This Agreement has been duly executed and delivered by Acquiror and, assuming
the due execution and delivery of this Agreement by Target, constitutes the
legal, valid and binding obligation of Acquiror and Sub enforceable against them
in accordance with its terms and conditions.
3.4 No Violation; Consents. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, by
Acquiror will, directly or indirectly, with or without notice or the passage of
time, except as contemplated by this Agreement or as set forth in Schedule 3.4:
(a) violate or conflict with any provision of the Organizational Documents of
Acquiror or any Acquiror Subsidiary; (b) violate any provision of any law of any
Governmental Entity applicable to Acquiror or any Acquiror Subsidiary; (c)
conflict with, violate or result in a breach of or constitute (with due notice
or lapse of time) a default under any contract, lease, loan agreement, mortgage,
security agreement, indenture, or other agreement or instrument to which
Acquiror or any Acquiror Subsidiary is a party or by which Acquiror or any
Acquiror Subsidiary is bound or to which any of its Assets is subject; (d)
result in the imposition of any Encumbrance on Acquiror or any Acquiror
Subsidiary or any of its Assets; or (e) require any authorization, consent,
approval or other action by or notice to or filing with any Person or
Governmental Entity.
3.5 Capital Stock. Acquiror capital stock consists of (i) an unlimited
number of authorized shares of Acquiror Common Stock, of which 68,666,176 shares
are issued and outstanding; (ii) an unlimited number of authorized shares of
first preferred stock of which 2,365.27 shares have been designated Series A
Convertible Preferred Stock, and 2,089.075 of which are issued and outstanding.
Acquiror also has outstanding 70,466,375 Acquiror Warrants. To Acquiror's
Knowledge, the Acquiror Principal Shareholders are the lawful record and
beneficial owners of all of the outstanding Acquiror Preferred Stock and the
Acquiror Warrants, free and clear of any Encumbrances. Except as set forth on
Schedule 3.5, all of the shares of Acquiror Common Stock and Acquiror Preferred
Stock have been duly authorized and are validly issued, fully paid and
nonassessable. Schedule 3.5 sets forth the number of shares of Acquiror Common
Stock, Acquiror Preferred Stock and Acquiror Warrants owned of record and
beneficially by each of the Acquiror Principal Shareholders. Except for the
Acquiror Warrants and as set forth in Schedule 3.5, there are no options,
warrants, calls, conversion or other rights, or any agreements or commitments of
any nature which obligate the Acquiror or any Acquiror Subsidiary to issue any
additional shares of capital stock or any securities convertible into or
exchangeable for any such shares of capital stock and no authorization therefor
has been given.
3.6 Transactions with Certain Persons. Except as set forth in Schedule
3.6: (i) Neither Acquiror nor any Acquiror Subsidiary owes any amount to, or
have any contract with or commitment to, Acquiror Principal Shareholders, or any
of Acquiror's, Acquiror Subsidiary's or Acquiror Shareholders' directors,
officers, employees, consultants or Affiliates (other than compensation for
current services not yet due and payable and reimbursement of expenses arising
in the Ordinary Course of Business), and none of such persons owes any amount to
Acquiror or any Acquiror Subsidiary; and (ii) no part of the Assets of any
Acquiror Principal Shareholder or any direct or indirect Affiliate of any
Acquiror Principal Shareholder is used by Acquiror or any Acquiror Subsidiary.
3.7 Commission Documents and Other Reports. Acquiror has filed all
periodic reports required to be filed by it with the Commission (the "Acquiror
Commission Documents"). As of their respective dates, the Acquiror Commission
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, and none of the Acquiror Commission Documents contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since the date of the
last filed Acquiror Commission Document, Acquiror has not suffered a material
adverse change in its condition (financial or otherwise). The consolidated
financial statements of Acquiror included in the Acquiror Commission Documents
complied as to form in all material respects with the applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with GAAP (except, in the case of
the unaudited statements, as permitted by the regulations of the Commission)
consistently applied throughout the periods involved (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position, results of operations and cash flows of Acquiror and its consolidated
subsidiaries as of the dates or for the periods indicated therein, subject, in
the case of the unaudited statements, to normal non-material changes resulting
from audit, customary year-end adjustments and the absence of footnote
disclosure. The latest balance sheet included in the Acquiror Commission
Documents shall be the Acquiror Balance Sheet as of February 28, 2001(the
"Acquiror Balance Sheet Date") and the related statements of operations and cash
flows for the year then ended shall collectively be the "Acquiror Financial
Statements".
3.8 Receivables. All receivables (including, without limitation, accounts
receivable, loans receivable and advances) of Acquiror which are reflected on
the Acquiror Balance Sheet or arising since the date thereof: (a) represent
valid and genuine obligations; (b) have arisen solely out of bona fide
transactions in the Ordinary Course of Business; and (c) are not subject to any
valid defenses, set-offs or counterclaims.
3.9 Inventory. All Inventory reflected on the Acquiror Balance Sheet, or
acquired since the date thereof: (a) was acquired and has been maintained in the
Ordinary Course of Business; (b) is of good and merchantable quality; (c) is
valued at the lower of cost or market on a first in, first out basis; and (d) is
not subject to any write-down or write-off. Except for items of Inventory in
transit from the vendor thereof and items of Inventory which are off-site for
repair or preparation for sale in the Ordinary Course of Business, all Inventory
is located at the Owned Real Property or Leased Real Property.
3.10 Absence of Undisclosed Liabilities; List of Accounts Payable.
---------------------------------------------------------------
(a) Except as set forth in Schedule 3.10, Acquiror and each Acquiror
Subsidiary have no Liabilities except:
(i) those Liabilities reflected or reserved against on the
face of the Acquiror Balance Sheet (excluding the notes thereto) and
not heretofore paid or discharged in the Ordinary Course of Business;
(ii) Liabilities arising in the Ordinary Course of Business
under any agreement, contract, commitment, lease or plan specifically
set forth in Schedule 3.10 (or not required to be disclosed under
Section 3.10 because of the term or amount involved); and
(iii) current Liabilities incurred in the Ordinary
Course of Business since the Acquiror Balance Sheet
Date.
(b) Schedule 3.10 sets forth as of May 31, 2001 a complete and
accurate list of Acquiror's and Acquiror Subsidiary's accounts payable,
including the name, vendor identification, and, to Acquiror's Knowledge,
the amount owed to each Person as of the date of the Acquiror Financial
Statements other than amounts payable to Personnel of Acquiror in the
Ordinary Course of Business.
3.11 Contracts and Commitments.
-------------------------
(a) Except as set forth in Schedule 3.11, Acquiror and each Acquiror
Subsidiary are not a party to (or otherwise bound by) any written or oral:
(i) agreement, contract or commitment for the future purchase
of, or payment for, supplies or products, or for the performance of
services by a third-party involving payments in excess of $50,000,
excluding purchase orders in the Ordinary Course of Business;
(ii) agreement, contract or commitment to sell or
supply products or to perform services involving
payments in excess of $50,000;
(iii) agreement, contract or commitment for any
capital expenditure or leasehold improvement in excess
of $50,000;
(iv) agreement, contract, or commitment for the
sale or disposition of any Assets involving payments in
excess of $50,000;
(v) lease under which Acquiror is either lessor
or lessee involving payments in excess of $50,000;
(vi) any other agreement, contract or commitment
involving payments in excess of $50,000;
(vii) note, debenture, bond, letter of credit agreement, loan
agreement or other contract or commitment for the borrowing or
lending of money or agreement or arrangement for a line of credit or
guarantee, pledge or undertaking of the indebtedness of any other
Person;
(viii) distribution, representative or sales
agency agreement, contract or commitment;
(ix) agreement, contract or commitment for any
charitable or political contribution;
(x) agreement, contract or commitment limiting or restraining
Acquiror or any successor thereto from engaging or competing in any
manner or in any business, nor, to Acquiror's Knowledge, is any
employee of Acquiror subject to any such agreement, contract or
commitment;
(xi) agreement, contract or commitment for a joint venture or
other arrangement that has or is expected to involve a sharing of
profits or expenses with other Persons;
(xii) agreement of indemnification;
(xiii) license or other agreements which relate in whole or in
part to any software, patent, trademark, trade name, service mark or
copyright or to any ideas, technical assistance or other know-how
(other than nonexclusive software licenses granted to Acquiror in
connection with the use of commercially available pre-packaged
software); or
(xiv) agreement, contract or commitment not made in
the Ordinary Course of Business.
(b) Each of the agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings set forth in Schedule 3.11
(or not required to be listed thereon because of the terms thereof), is
enforceable in accordance with its terms. Except as set forth in Schedule
3.11, Acquiror or each Acquiror Subsidiary is, and, to Acquiror's
Knowledge, all other parties thereto are, in compliance with the
provisions thereof and, to Acquiror's Knowledge, no event has occurred
which with or without the giving of notice or lapse of time, or both,
would constitute a default thereunder or a breach of a representation and
warranty therein. Acquiror has delivered to Target true, correct and
complete copies of each of the written, and a correct and complete summary
of each of the oral, agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings set forth in Schedule 3.11.
3.12 Title to Assets. Acquiror and each Acquiror Subsidiary have and,
following the Merger Closing, the Surviving Corporation and each Acquiror
Subsidiary will have, good and marketable title to, or a valid leasehold
interest in, the Assets, free and clear of all Encumbrances excepting only (i)
the Liabilities expressly reflected or reserved against on the face of the
Acquiror Balance Sheet (rather than any notes thereto) and (ii) Permitted
Encumbrances.
3.13 Condition and Location of Assets. The Assets of Acquiror and each
Acquiror Subsidiary are in good operating condition and repair, subject to
normal wear and maintenance, are adequate and usable in the Ordinary Course of
Business and, to Acquiror's Knowledge, materially conform to all applicable Laws
and Permits relating to their construction, use and operation. No Person other
than Acquiror or an Acquiror Subsidiary owns any equipment or other tangible
assets or properties situated on the premises of Acquiror or an Acquiror
Subsidiary which is necessary to the operation of the business of Acquiror or an
Acquiror Subsidiary, except for items leased pursuant to contracts set forth in
Schedule 3.11 and any other items set forth in Schedule 3.13. All of the
tangible Assets of Acquiror or any Acquiror Subsidiary are located on the Owned
Real Property or Leased Real Property.
3.14 Intellectual Property. Schedule 3.14 contains a complete and accurate
list of all of the Intellectual Property owned or licensed by Acquiror or any
Acquiror Subsidiary ("Acquiror Intellectual Property"). Except as set forth in
Schedule 3.14: (i) Acquiror or an Acquiror Subsidiary owns royalty free the
entire right, title and interest in and to the Acquiror Intellectual Property
(including, without limitation, the right to use and license the same); and (ii)
there are no pending or, to the Knowledge of Acquiror, threatened actions of any
nature affecting the Acquiror Intellectual Property. Schedule 3.14 lists all
notices or claims received by Acquiror or an Acquiror Subsidiary which claim
infringement, interference with, misappropriation or violation of any Acquiror
Intellectual Property rights of third parties. Acquiror has delivered to Target
true, correct and complete copies of all agreements, contracts, licenses,
commitments, leases and other documents evidencing, representing or covering the
Acquiror Intellectual Property and the Acquiror Software (as defined below) and
the maintenance and support thereof.
3.15 Software. Acquiror has delivered to Target complete and correct
copies of all material user and technical documentation related to the computer
software of Acquiror or a Acquiror Subsidiary included in the Acquiror
Intellectual Property (the "Acquiror Software"). The Acquiror Software contains
all current revisions of such Acquiror Software, is properly licensed in favor
of Acquiror or an Acquiror Subsidiary, is assignable by Acquiror to the
Surviving Corporation (if owned or licensed by Acquiror) and performs in
accordance with the documentation and other written materials provided in
connection therewith.
3.16 Real Property.
-------------
(a) Owned Real Property. Acquiror or an Acquiror
Subsidiary owns the legal or beneficial interest in the
Owned Real Property identified in Schedule 3.16.
(b) Leased Real Property. Acquiror or a Acquiror
Subsidiary leases the real property identified in Schedule
3.16. With respect to the Leased Real Property:
(i) Each Real Property Lease is, and at the Merger Closing
shall be, in full force and effect and has not been assigned or
further modified, supplemented or amended; neither Acquiror or the
applicable Acquiror Subsidiary nor the landlord or sublandlord under
any Real Property Lease is in default under any of the Real Property
Leases; and no circumstances or state of facts presently exists
which, with the giving of notice or passage of time, or both, would
permit the landlord or sublandlord under any Real Property Lease to
terminate any Real Property Lease;
(ii) After the Merger Closing, the Surviving Corporation and
the applicable Acquiror Subsidiary shall receive and enjoy all right,
title and interest of Acquiror or the applicable Acquiror Subsidiary
in and to all Real Property Leases and Leased Real Property;
(iii) Other than Acquiror or an Acquiror Subsidiary, no Person
will be leasing, using or occupying the leased premises covered by
the Real Property Leases or any part thereof as of the Merger Closing
Date;
(iv) The Leased Real Property is not subject to any sublease or
grant by Acquiror or any Acquiror Subsidiary to any Person of any
right to the use, occupancy or enjoyment of the property or any
portion thereof, whether such right currently exists or may arise in
the future;
(vi) All rents and other amounts payable by Acquiror or any
Acquiror Subsidiary with respect to the Leased Real Property
currently due have been paid, and at Merger Closing shall have been
paid; and
(vii) To Acquiror's Knowledge, the Leased Real Property and the
present uses thereof comply with all Laws of all Governmental
Entities having jurisdiction over the Leased Real Property and all
restrictive covenants affecting the Leased Real Property, and
Acquiror or any Acquiror Subsidiary have received no notices, oral or
written, from any Governmental Entity, and has no reason to believe,
that the Leased Real Property or any improvements erected or situated
thereon, or the uses conducted thereon or therein, violate any Laws
of any Governmental Entity having jurisdiction over the Leased Real
Property or any restrictive covenants affecting the Leased Real
Property.
3.17 Insurance.
---------
(a) Schedule 3.17 sets forth a list identifying the insurer and
policy number of each material insurance policy (including policies
providing property, casualty, liability, title, life, business
interruption and workers' compensation coverage and bond and surety
arrangements) with respect to which Acquiror or any Acquiror Subsidiary is
a party, a named insured, or otherwise the beneficiary of coverage and
contains a true and accurate copy of each such policy.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect in all
material respects; (ii) neither Acquiror or the applicable Acquiror
Subsidiary nor, to Acquiror's Knowledge, any other party to the policy is
in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or
the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (iii) no
party to the policy has repudiated any material provision thereof.
Acquiror and the Acquiror Subsidiaries have no self-insurance
arrangements.
3.18 Conduct of Acquiror Since the Acquiror Balance Sheet Date. Except as
set forth in Schedule 3.18 and as contemplated by Section 4.12, or as otherwise
approved by Target between the date hereof and the Merger Closing, since the
Acquiror Balance Sheet Date, Acquiror and each Acquiror Subsidiary have
conducted their business only in the Ordinary Course of Business and have not,
except in the Ordinary Course of Business:
(a) incurred any Liabilities or assumed, guaranteed, endorsed or
otherwise become responsible for the Liabilities of any Person, or
discharged or satisfied any Encumbrance, or paid any Liability, or failed
to pay or discharge when due any Liabilities of which the failure to pay
or discharge has caused or will cause any material damage or risk of
material loss to Acquiror or any Acquiror Subsidiary or any of their
Assets;
(b) sold, encumbered, assigned or transferred any
Assets, or made any contract or agreement for any of the
foregoing;
(c) created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or mortgaged, pledged or subjected any of its Assets to
any Encumbrance, except for Permitted Encumbrances;
(d) made or suffered any amendment or termination prior to the stated
expiration of any material agreement, contract, commitment, lease or plan
to which it is a party or by which it is bound, or canceled, modified or
waived any substantial debt or claim held by it or waived any right of
material value;
(e) declared or paid any dividends on or made other distributions in
respect of any of its capital stock; split, combined or reclassified any
of its capital stock or issued or authorized or proposed the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of capital stock (other than Target Common Stock on conversion of
Target Preferred Stock or on exercise of Target Warrants or Target Amended
Warrants), or repurchased, redeemed or otherwise acquired, any shares of
its capital stock;
(f) received notice or had Knowledge of any actual or threatened
labor trouble, or other occurrence, event or condition of any similar
character which has had or might have a material adverse effect on its
business, operations, Assets, prospects or condition (financial or
otherwise);
(g) made any agreement, contract or commitment, including an
agreement to purchase or lease Assets, which includes an aggregate payment
or commitment on the part of either party of more than $50,000;
(h) increased the salaries or other compensation of any Personnel or
made any increase in, or any addition to, other benefits to which any of
its Personnel may be entitled by formula or otherwise or as may be
required under employment or severance agreements in effect on the date of
this Agreement;
(i) except as set forth in clause (h) above, instituted, granted or
modified in any respect any (A) bonus, incentive compensation, service
award, severance or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any Personnel of
Acquiror or any Acquiror Subsidiary, (B) employee welfare, pension,
retirement, profit-sharing or similar payment or arrangement made or
agreed to by Acquiror or any Acquiror Subsidiary for any Personnel of
Acquiror or any Acquiror Subsidiary, or (C) new written employment
agreement with any Personnel engaged in the business of Acquiror or any
Acquiror Subsidiary to which Acquiror or any Acquiror Subsidiary is a
party which cannot be terminated at will;
(j) made any advance (excluding advances for ordinary
and necessary business expenses) or loan to any of its
Personnel;
(k) extended credit in the sale of Inventory,
services, collection of receivables or otherwise;
(l) amended the Organizational Documents of Acquiror
or any Acquiror Subsidiary; or
(m) suffered any material adverse change in its business, operations,
assets, prospects, of condition (financial or otherwise).
3.19 Personnel Information.
---------------------
(a) Except as set forth in Schedule 3.19, Acquiror and each Acquiror
Subsidiary are not a party to, do not have any obligation with respect to,
and are not bound by any employment or consulting agreement or any
collective bargaining agreement or other labor or employment agreement, or
any incentive compensation, change in control, severance, personal or sick
days or paid time off, contract, policy, plan or arrangement with respect
to any Personnel or director of Acquiror or any Acquiror Subsidiary or
other Person (the "Employee Arrangements").
(b) Schedule 3.19 contains a complete and accurate list of all
individuals employed by Acquiror or any Acquiror Subsidiary, including
name, date of hire, job title and rate of hourly pay or salary. Schedule
3.19 also contains a complete and accurate list of all individuals, if
any, to whom offers of employment have been made but not yet accepted,
including anticipated date of hire and a description of material
compensation arrangements offered to such individual (other than Employee
Benefit Plans set forth in Schedule 3.20).
(c) Acquiror and each Acquiror Subsidiary have no plans or
arrangements contemplating or requiring Acquiror or any Acquiror
Subsidiary to provide to any retired employee or director of Acquiror or
any Acquiror Subsidiary, or their dependents, any benefits in the future,
including, without limitation, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, or
other benefits.
(d) Acquiror and each Acquiror Subsidiary have not agreed to
recognize any union, employee organization, or other collective bargaining
unit nor has any union or other collective bargaining unit been certified
as representing any of Acquiror's or any Acquiror Subsidiary's employees;
there has been no organizational effort made or, to the Knowledge of
Acquiror, threatened by or on behalf of any labor union or other employee
organization with respect to employees of Acquiror or any Acquiror
Subsidiary within the preceding three (3) years; and there is no labor
strike, slowdown, work stoppage or lockout actually pending or, to the
Knowledge of Acquiror, threatened against or affecting Acquiror or any
Acquiror Subsidiary.
(e) Except as listed or set forth in Schedule 3.19, Acquiror and each
Acquiror Subsidiary, with respect to its Personnel: (i) have no written
personnel policy applicable to any Personnel, (ii) are in material
compliance with all applicable Laws regarding employment and employment
practices, including, without limitation ERISA and those laws relating to
terms and conditions of employment, wages and hours, occupational safety
and health and workers' compensation and is not engaged in any unfair
labor practices, (iii) have no unfair labor practice charges pending or,
to the Knowledge of Acquiror, threatened against it in or before the
National Labor Relations Board, (iv) have no grievances pending or, to the
Knowledge of Acquiror, threatened against it, (v) have no charges or
complaints pending or, to the Knowledge of Acquiror, threatened before the
Equal Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices, and (vi)
has no private agreement restricting Acquiror or any Acquiror Subsidiary
from relocating, closing or terminating any of its facilities.
3.20 Employee Benefits.
-----------------
(a) Attached hereto and made a part hereof are Schedules, identified
below, which list all employee benefit plans within the three-year period
before the date of this Agreement, (i) which are or have been maintained
or administered by Acquiror, any Acquiror Subsidiary or any ERISA
Affiliate, (ii) to which Acquiror or any Acquiror Subsidiary or any ERISA
Affiliate contributes or contributed, or is or was legally obligated to
contribute, or (iii) under which Acquiror or any Acquiror Subsidiary or
any ERISA Affiliate has or had any liability with respect to its current
or former Personnel:
(i) Schedule 3.20 contains a list of each "employee welfare
benefit plan" (as defined in ERISA Section 3) (collectively the
"Welfare Plans");
(ii) Schedule 3.20 contains a list of each "employee pension
benefit plan" (as defined in ERISA Section 3) (collectively, the
"Pension Plans");
(iii) Schedule 3.20 contains a list of each employee benefit
plan, program, arrangement, agreement, policy or commitment, whether
insured or uninsured, funded or unfunded, that is not a Welfare Plan
or Pension Plan, relating to deferred compensation, bonus or
compensation in addition to regular pay or wages, stock-related
compensation, severance, unemployment, flexible benefits, disability,
vacation, sickness, leave of absence, fringe benefits, employee
awards, educational assistance or reimbursement, employee discounts,
excess benefits, rabbi, secular or vesting trust, child or dependent
care, long-term and nursing home care, and profit sharing
(collectively, the "Employee Plans").
Solely for purposes of this Section 3.20, "ERISA Affiliate" means any
Person which together with Acquiror would be treated as a single employer
under Code Section 414. Schedule 3.20 sets forth the names of each such
ERISA Affiliate. Solely for purposes of this Section 3.20, the Employee
Plans, Welfare Plans and Pension Plans are collectively referred to as
"Employee Benefit Plans."
(b) Except as set forth in Schedule 3.20: (i) each Pension Plan is
qualified under Code Section 401, and any trust maintained pursuant
thereto is exempt from federal income taxation under Code Section 501;
(ii) the Welfare Plans and Employee Plans, and all trust agreements,
custodial agreements, insurance or annuity contracts thereunder, have been
maintained, in all material respects, in accordance with their terms and
applicable Law; (iii) Acquiror and each Acquiror Subsidiary have complied
with respect to each Employee Benefit Plan, in all material respects, with
the reporting, notice and disclosure requirements of ERISA; (iv) no plan
fiduciary, "party in interest" or "disqualified person" has engaged in a
"prohibited transaction" within the meaning of ERISA Section 406 or Code
Section 4975 which has or will result in any penalty or Tax under ERISA
Section 502(i) or Code Sections 4975 and 4976 to Acquiror, any Acquiror
Subsidiary or any ERISA Affiliate, or any director, officer or employee of
Acquiror or any ERISA Affiliate; (v) all of the Employee Benefit Plans
comply currently both as to form (to the extent required by Code Section
401(b)) and operation, in all material respects, with their terms and with
the provisions of ERISA and the Code, and all other applicable laws, rules
and regulations; and (vi) a favorable determination as to the
qualification under Code Section 401(a) has been made by the IRS with
respect to each Pension Plan, and to the Knowledge of Acquiror, nothing
has occurred since the date of such determination that would adversely
affect such qualification. Neither Acquiror, any Acquiror Subsidiary nor
any ERISA Affiliate has during the preceding six (6) years made or had an
obligation to make contributions to any benefit plan set forth in ERISA
Sections 4001(a)(3), 4062, 4063 or 4064.
(c) With respect to each Pension Plan, the funding method used in
connection with such Pension Plan has at all times satisfied and will as
of the Merger Closing Date satisfy any and all requirements under ERISA or
the Code. Except as set forth in Schedule 3.20, there is as of the date
hereof no "accumulated funding deficiency" (as defined in ERISA Section
302(a)(2) and Code Section 412(a)), whether or not waived, which exists
with respect to any plan year of any Pension Plan.
(d) All contributions required to have been made under any Employee
Benefit Plans or any Law (without regard to any waivers granted under Code
Section 412) to any trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extensions).
(e) With respect to each Employee Benefit Plan, a complete and
correct copy of each of the following documents (if applicable) has been
made available to Target: (i) the most recent plan and related trust
documents, agency agreements, custodial agreements, insurance or annuity
contracts, and any other funding instruments, and all amendments thereto;
(ii) the most recent summary plan description, and all related summaries
of material modifications; (iii) the most recent Form 5500 (including
schedules); (iv) the most recent IRS determination letter and any IRS
Private Letter Ruling applicable to such Employee Benefit Plan; (v) the
most recent actuarial reports (including reports prepared for purposes of
Financial Accounting Standards Board report nos. 87, 106 and 112); and
(vi) all minutes of the governing body or committee of Acquiror, any
Acquiror Subsidiary and each ERISA Affiliate relating to each such plan;
(vii) filings with, or reports to, the PBGC; (viii) each advisory opinion,
private exemption or other letter from the United States Department of
Labor or PBGC applicable to such Employee Benefit Plan; and (ix) all
information relating to the termination, merger or curtailment of any
Employee Benefit Plan of Acquiror or any Acquiror Subsidiary occurring in
any of the five (5) calendar years preceding the date of this Agreement.
(f) Except as set forth in Schedule 3.20, there are no pending or, to
the Knowledge of Acquiror, threatened actions, lawsuits, claims for
benefits (except in the ordinary course of administration), proceedings,
investigations, audits, or arbitrations, as of the date of this Agreement
and as of the Merger Closing Date, involving any Employee Benefit Plan or
its assets, plan sponsor, plan administrator or fiduciaries with respect
to the operation of such plan.
(g) Acquiror, each Acquiror Subsidiary and each ERISA Affiliate have
complied with the requirements of COBRA and the rules and regulations
thereunder. Acquiror has furnished to Target a list of: (i) all
individuals who have elected or who are eligible to elect COBRA
continuation coverage under any of the Welfare Benefit Plans, and (ii) the
dates of each qualifying event and COBRA continuation coverage periods for
each such individual.
(h) Neither Acquiror, each Acquiror Subsidiary nor any ERISA
Affiliate has any leased employees within the meaning of Code Section
414(n) nor any employees within the meaning of the regulations under Code
Section 414(o). Except as set forth in Schedule 3.20, none of the
employees of Acquiror, any Acquiror Subsidiary or any ERISA Affiliate is a
member of, nor is any Employee Benefit Plan maintained in connection with,
any voluntary employees' beneficiary association within the meaning of
Code Section 501(c)(9) which is maintained, sponsored or contributed to by
Acquiror, any Acquiror Subsidiary or any ERISA Affiliate.
(i) No condition, fact, or circumstance exists, or will exist at
Merger Closing, which would prevent Acquiror, any Acquiror Subsidiary or
any ERISA Affiliate from amending or terminating any Employee Benefit Plan
with respect to any current, former or retired Personnel or independent
contractor of Acquiror, any Acquiror Subsidiary or any ERISA Affiliate
except under the terms of any collective bargaining agreement set forth in
Schedule 3.20.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in
any payment becoming due to any Personnel (current, former or retired) of
Acquiror or any Acquiror Subsidiary; (ii) increase any benefits under any
Employee Benefit Plan or any arrangement set forth in Section 3.20; or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits.
3.21 Severance Arrangements. Without limiting Section 3.20 above, except
as set forth in Schedule 3.22, Acquiror and each Acquiror Subsidiary have not
entered into any severance or similar arrangement in respect of any present or
former Personnel that shall result in any obligation (absolute or contingent) of
Acquiror, any Acquiror Subsidiary or the Surviving Corporation to make any
payment to any present or former Personnel following termination of employment,
including the termination of employment effected by the transactions
contemplated by this Agreement. The consummation of the transactions
contemplated by this Agreement will not trigger any severance or similar
arrangement of Acquiror or any Acquiror Subsidiary payable by Acquiror or the
Surviving Corporation after the Merger Closing.
3.22 Litigation; Decrees. To Acquiror's Knowledge, there are no judicial
or administrative actions, proceedings or investigations pending or threatened
that question the validity of this Agreement or any action taken or to be taken
by Acquiror, any Acquiror Subsidiary or the Acquiror Shareholders in connection
with this Agreement. Except as set forth in Schedule 3.22: (i) there are no
lawsuits, claims, administrative or other Proceedings or investigations pending
or, to Acquiror's Knowledge, threatened by, against or affecting Acquiror, any
Acquiror Subsidiary or any of their Assets; and (ii) there are no judgments,
orders or decrees of any Governmental Entity binding on Acquiror or any of its
Assets.
3.23 Compliance With Law; Permits. To Acquiror's Knowledge, except as set
forth in Schedule 3.23, Acquiror and each Acquiror Subsidiary have materially
complied with each Law of any Governmental Entity to which Acquiror, any
Acquiror Subsidiary or their business, operations or Assets is subject
(including, without limitation, any federal, state or local Laws, relating to
network marketing, business opportunities, franchising, lottery, pyramid schemes
or similar laws) and are not currently in violation, or alleged by any
Governmental Entity to have violated, of any of the foregoing. Acquiror and each
Acquiror Subsidiary own, hold, possess or lawfully use in the operation of its
business all Permits which are required for it to conduct its business as now
conducted or for the ownership and use of the Assets, in material compliance
with all Laws.
3.24 Environmental Matters.
---------------------
(a) Acquiror and each Acquiror Subsidiary have complied and is in
compliance, each case in all material respects, with all Environmental
Laws applicable to the ownership, use and/or operation of Acquiror's or
the Acquiror Subsidiary's Assets or business;
(b) (i) Acquiror and each Acquiror Subsidiary have obtained and
currently maintain all Environmental Permits required by applicable
Environmental Laws for Acquiror's or the Acquiror Subsidiary's business
and operations, and Acquiror and each Acquiror Subsidiary are in
compliance in all material respects with such Environmental Permits; (ii)
there are no judicial or administrative actions, proceedings or
investigations pending or, to Acquiror's, threatened, to revoke or
materially modify the terms of any such Environmental Permits; and (iii)
Acquiror and each Acquiror Subsidiary have not been notified by any
Governmental Entity or Person that Acquiror or the Acquiror Subsidiary do
not have all Environmental Permits required for the current use or
operation of any of their Assets or Acquiror's or the Acquiror
Subsidiary's business;
(c) There are no judicial or administrative actions, proceedings,
inquiries or investigations pending or, to Acquiror's Knowledge,
threatened, against Acquiror or any Acquiror Subsidiary alleging the
violation of any Environmental Law or the terms of any Environmental
Permit;
(d) To Acquiror's Knowledge, Acquiror and each Acquiror Subsidiary
are not subject to any Environmental Costs and Liabilities as respects any
violation of any applicable Environmental Law concerning the generation,
storage, treatment, disposal or release of Hazardous Materials, and, to
Acquiror's Knowledge, no facts or circumstances exist which could subject
Acquiror or any Acquiror Subsidiary to any Environmental Costs and
Liabilities concerning the generation, storage, treatment, disposal or
Releases of Hazardous Materials;
(e) To Acquiror's Knowledge, there are no Hazardous Materials present
in violation of any applicable Environmental Law at, on, in or under the
Owned Real Property, Leased Real Property or any geologically or
hydrologically adjoining property; and
(f) Acquiror has provided for Target's review true and complete
copies of all Environmental Permits issued to Acquiror or any Acquiror
Subsidiary, and any and all written reports, studies, analyses, surveys,
assessments, tests and sampling results in Acquiror's or any Acquiror
Subsidiary's possession or under Acquiror's or any Acquiror Subsidiary's
control pertaining to Hazardous Materials at, in, on or under the Acquiror
Leased Real Property, or concerning the Acquiror Leased Real Property's
compliance with Environmental Laws, or the compliance by Acquiror or any
Acquiror Subsidiary or any other person or entity for whose conduct
Acquiror or any Acquiror Subsidiary is or may be held responsible with
Environmental Laws.
3.25 Tax Matters. Acquiror and each Acquiror Subsidiary have duly filed
all material federal, state and local income, franchise, excise, real and
personal property and other Tax Returns and reports (including, but not limited
to, those filed on a consolidated, combined or unitary basis) required to have
been filed by the Acquiror or any Acquiror Subsidiary prior to the date hereof,
or requests for extensions to file such returns and reports have been timely
filed. All of the foregoing returns and reports are true and correct in all
material respects, and Acquiror and each Acquiror Subsidiary have paid, or prior
to the Effective Time will pay all Taxes in excess of $10,000 in the aggregate,
whether or not shown on such returns or reports, as being due or claimed to be
due to any Governmental Entity and Acquiror and each Acquiror Subsidiary has
paid and will pay all installments of estimated taxes due on or before the
Effective Time. Acquiror and each Acquiror Subsidiary have paid or made adequate
provision in accordance with GAAP in Acquiror's Commission Documents or
Financial Statements for all Taxes payable in respect of all periods ending on
or prior to the date of this Agreement and will have made or provided for all
Taxes payable in respect of all periods ended on or prior to the Merger Closing
Date. As of the date hereof, all deficiencies proposed as a result of any audits
have been paid or settled. Acquiror and each Acquiror Subsidiary have paid,
collected or withheld, or caused to be paid, collected or withheld, all amounts
of Taxes required to be paid, collected or withheld, other than such Taxes for
which adequate reserves in Acquiror's Commission Documents and Financial
Statements have been established or which are being contested in good faith.
There are no claims or assessments pending against Acquiror or any Acquiror
Subsidiary for any alleged deficiency in any Tax, and Acquiror has not been
notified in writing of any proposed Tax claims or assessments against Acquiror
or any Acquiror Subsidiary. To Acquiror's Knowledge, there is no contract,
agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by Acquiror or any Acquiror Subsidiary by reason of Section 280G of
the Code.
3.26 Commissions or Finders Fees. Neither Acquiror, any Acquiror
Subsidiary nor any Person acting on behalf of Acquiror or any Acquiror
Subsidiary has agreed to pay a commission, finder's fee or similar payment in
connection with this Agreement or any matter related hereto to any Person.
3.27 Certain Business Practices and Regulations; Potential
Conflicts of Interest.
-------------------------------------------------------
(a) To Acquiror's Knowledge, neither Acquiror, any Acquiror
Subsidiary nor any Personnel or any other Person acting on behalf of
Acquiror or any Acquiror Subsidiary has made any unlawful payment which
might subject Acquiror or any Acquiror Subsidiary to any damage or penalty
in any civil, criminal or governmental litigation or proceeding which
could have a material adverse effect on Acquiror's or any Acquiror
Subsidiary's business, operations, Assets, prospects or condition
(financial or otherwise).
(b) Except as set forth in Schedule 3.27, no officer or director of
Acquiror or any Acquiror Subsidiary nor, to Acquiror's knowledge, any
Acquiror Principal Shareholder or employee of Acquiror or any Acquiror
Subsidiary or any Person controlled by any of the foregoing (i) owns,
directly or indirectly, any interest in, or is a director, officer,
employee, consultant or agent of, any Person which is a competitor,
lessor, lessee or customer of, or supplier of goods or services to, the
business of Acquiror or any Acquiror Subsidiary, (ii) has any cause of
action or other suit, action or claim whatsoever against, or owes any
amount to Acquiror or any Acquiror Subsidiary, or (iii) is a party to any
contract or agreement or participates in any arrangement, written or oral,
pursuant to which Acquiror or any Acquiror Subsidiary provides services of
any nature to any such Person, otherwise than in his capacity as an
employee of Acquiror or an Acquiror Subsidiary. Except for transactions in
the Ordinary Course of Business and except as set forth in Schedule 3.27,
there are no transactions presently pending or planned, or initiated since
the Acquiror Balance Sheet Date, between Acquiror or any Acquiror
Subsidiary and any officer or director of Acquiror or an Acquiror
Subsidiary or, to Acquiror's knowledge, any Acquiror Principal Shareholder
or employee of Acquiror or a Acquiror Subsidiary or any Person controlled
by any of the foregoing, including any contract, agreement or other
arrangement (x) providing for the furnishing of services by Acquiror or
any Acquiror Subsidiary, (y) providing for the rental of real or personal
property of Acquiror or any Acquiror Subsidiary, or (z) otherwise
requiring payments from Acquiror or any Acquiror Subsidiary (other than
for services as officers or directors of Acquiror) to any such Person.
(c) Neither Acquiror, any Acquiror Subsidiary nor any of the Acquiror
Principal Shareholders, or to Acquiror's Knowledge, directors, officers or
employees of Acquiror or any Acquiror Subsidiary has engaged in any
business practice (i) which may be considered dishonest or unethical or
(ii) not in compliance with industry custom and standards, in connection
with any of the operations of Acquiror or any Acquiror Subsidiary.
3.28 Accounts. Schedule 3.28 sets forth a list of all cash, deposit, money
market or securities accounts maintained by Acquiror or any Acquiror Subsidiary
at any bank, brokerage firm or similar entity and the names of the authorized
signatories.
3.29 Disclosure. With respect to this Agreement, the Schedules and
Exhibits to this Agreement and the other agreements contemplated by this
Agreement, to the Knowledge of Acquiror, Acquiror has not made any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading.
4. OTHER COVENANTS AND AGREEMENTS.
------------------------------
4.1 General. Each of the Parties will use reasonable best efforts in good
faith to take all action and to do all things necessary, proper or advisable in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Sections 5 and 6), and no Party shall take any action which is
inconsistent with its obligations under this Agreement.
4.2 Target Shareholders Agreement. Target shall use reasonable best
efforts to cause each of the Target Shareholders to execute and deliver (prior
to or contemporaneously with the execution and delivery hereof by Target) the
Target Shareholders Agreement in the form attached hereto as Exhibit 4.2 (the
"Target Shareholders Agreement").
4.3 Acquiror Principal Shareholders Agreement. Acquiror shall use
reasonable best efforts to cause each of the Acquiror Principal Shareholders to
execute and deliver (prior to or contemporaneously with the execution and
delivery hereof by Acquiror) the Acquiror Principal Shareholders Agreement in
the form attached hereto as Exhibit 4.3 (the "Acquiror Shareholders Agreement").
4.4 Full Access to Information. Each of Target and Acquiror will permit
representatives of the other to have full access at all reasonable times, and in
a manner so as not to interfere with the normal business operations of each of
them, to all premises, properties, personnel, books, records (including tax
records), contracts and documents of or pertaining to their respective
businesses.
4.5 Conduct of Business of Target and Acquiror.
------------------------------------------
(a) Except as consented to by the other in writing, between the date
hereof and the Merger Closing Date, each of Target and Acquiror will, and
will cause their respective Subsidiaries to:
(i) conduct their respective businesses only in
the Ordinary Course of Business;
(ii) use reasonable best efforts to preserve intact their
respective current business organizations, keep available the
services of their Personnel, and maintain the relations and good will
with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with them;
(iii) confer with the other concerning operational matters of a
material nature (including, without limitation, any purchase orders
in excess of $10,000);
(iv) otherwise report periodically to the other
concerning the status of their respective business,
operations and finances; and
(b) Except as consented to by the other in writing, between the date
hereof and the Merger Closing Date, each of Target and Acquiror will not
take or omit to take any action that is inconsistent with any
representation or warranty of Target or Acquiror in Section 2 or 3,
respectively, or that would cause any such representation or warranty to
be untrue or incorrect if such representation or warranty were made
immediately following the taking of or failure to take such action.
(c) Between the date hereof and the Merger Closing Date, Target and
Acquiror will cause to be formed an operations committee ("Committee")
consisting of the same persons who will serve on the Board of Acquiror
immediately following the Merger as provided on Exhibit 1.3 who shall meet
either in person or telephonically to discuss and review operational,
marketing business and financial matters of Acquiror and Target and their
respective subsidiaries, and to approve any action otherwise prohibited by
Sections 2.18 or 3.18. Such meetings will be held periodically, but in no
event less frequently than every 30 days, on call of either Jerry Dumas or
Glenn Penny. A quorum of the Committee shall require the attendance of at
least three Target Designees and at least two Acquiror Designees.
4.6 Notification. Between the date hereof and the Merger Closing Date:
(i) each Party will promptly notify the other Party in writing if it
becomes aware of any fact or condition that causes or constitutes a Breach
of any of its representations and warranties as of the date of this
Agreement, or if it becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made
as of the time of occurrence or discovery of such fact or condition.
Should any such fact or condition require any change in any of the
Schedules if the Schedules were dated prior to the date of the occurrence
or discovery of any such fact or condition, such Party will promptly
deliver to the other Party a supplement to its Schedules specifying such
change; and
(ii) each Party will promptly notify the other Party of the
occurrence of any Breach by it of any covenant in this Section 4, or of
the occurrence of any event that may make the satisfaction of the
conditions in Sections 5 or 6 impossible or unlikely.
4.7 Approvals; Filings. As promptly as practicable after the execution of
this Agreement, each Party shall use its reasonable best efforts to obtain, and
to cooperate with the other Parties in obtaining, all authorizations, consents,
orders and approvals of any Governmental Entity or other Person that may be or
become necessary in connection with the consummation of the transactions
contemplated by this Agreement, and to take all reasonable actions to avoid the
entry of any order or decree by any Governmental Entity prohibiting the
consummation of the transactions contemplated hereby. However, the foregoing
notwithstanding, this Agreement shall not require Acquiror, any Acquiror
Subsidiary, Target, any Target Subsidiary or any of their Affiliates to dispose
of or make any change in any portion of its business or to incur any other
burden to obtain the authorization, consent or approval of any Governmental
Entity.
4.8 Confidentiality. Prior to the Merger Closing, Acquiror and Target
shall keep confidential, and shall use reasonable best efforts to cause their
respective shareholders, directors, officers, employees and representatives to
keep confidential all information obtained by it with respect to the other and
their respective Affiliates in connection with this Agreement and the
negotiations preceding this Agreement, and shall use, and shall cause its
respective shareholders, directors, officers, employees and representatives to
use, such information solely in connection with the transactions contemplated by
this Agreement. If the transactions contemplated hereby are not consummated,
each shall return to the other, without retaining a copy thereof, any schedules,
documents or other written information obtained from the other in connection
with this Agreement and the transactions contemplated hereby. Notwithstanding
the foregoing, no party shall be required to keep confidential or return any
information which (a) is known or available through other lawful sources not
bound by a confidentiality agreement with the disclosing party, (b) is or
becomes publicly known through no fault of the receiving party or its agents,
(c) is required to be disclosed pursuant to an order or request of a judicial
authority or Governmental Entity (provided the disclosing party is given
reasonable prior notice), including but not limited to, such disclosure as is
required under applicable securities laws, or (d) is developed by the receiving
party independently of the disclosure by the disclosing party.
4.9 Publicity. Prior to the Merger Closing, no Party hereto will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated hereby without the
prior consent of the other Party, which consent will not be unreasonably
withheld; provided, however, that nothing herein will prohibit any Party from
issuing or causing publication of any such press release or public announcement
to the extent that such Party determines such action to be required by Law in
which event the Party making such determination will, if practicable in the
circumstances, use reasonable best efforts to allow the other Party reasonable
time to comment on such release or announcement in advance of its issuance. The
foregoing notwithstanding, the Parties shall cooperate in the issuance of one or
more joint press releases or other communications (including communications to
customers of Target and Acquiror) in form and content satisfactory to Target and
Acquiror concerning the execution and delivery of this Agreement and the
transactions contemplated hereby.
4.10 Acquisition Proposals. Unless and until this Agreement shall be
terminated in accordance with Section 11, each of Target and Acquiror shall not
and shall not authorize or permit any director or Personnel of Target or
Acquiror, or any investment banker, attorney, accountant or other representative
retained by them to, directly or indirectly, solicit, initiate or encourage
submission of (including by way of furnishing information) any proposal or offer
from any Person which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, entertain any discussions or negotiations with respect to
an Acquisition Proposal, or enter into any agreement or commitment providing for
or relating to an Acquisition Proposal. With respect to Acquisition Proposals
received after the date of this Agreement, each of Target and Acquiror shall
promptly notify the other upon receipt of any Acquisition Proposal or any
request for information in connection with an Acquisition Proposal or for access
to their respective directors, Personnel, assets, books or records.
4.11 Tax-Free Reorganization. It is intended that the Merger be treated as
a reorganization within the meaning of Section 368(a) of the Code. Subject to
the terms and conditions hereof, the Parties shall use their reasonable best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Code and to be satisfied that (i) the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, (ii) each of Acquiror and Target will be a party
to such reorganization within the meaning of Section 368(b) of the Code, and
(iii) no gain or loss will be recognized by the Target Shareholders as a result
of the Merger with respect to the shares of Target Common Stock converted into
shares of Acquiror Common Stock.
4.12 Reincorporation.
---------------
(a) Notwithstanding anything to the contrary set forth herein,
Acquiror will be permitted to continue to pursue its efforts to cause
itself to be continued as a corporation under the laws of the state of
Delaware by means of an "arrangement" under the ABCA (the
"Reincorporation") with a certificate of incorporation and bylaws mutually
acceptable to Target and Acquiror. It is anticipated that Acquiror will
call a special shareholders meeting to approve the Reincorporation and
will file such documents as may be necessary for such purpose, including a
proxy statement with the Commission. Acquiror will keep Target fully
informed concerning the status of the Reincorporation and provide Target
with copies of the proxy statement and any correspondence with the
Commission or any other Governmental Entity relating to such transaction.
In connection with the Reincorporation, Acquiror shall issue one share of
common stock for each multiple number of shares of Acquiror Common Stock
outstanding prior thereto as Acquiror and Target may mutually agree
("Reverse Split Number") which will result in an adjustment to the
Conversion Number and the Additional Share Number by dividing it by the
Reverse Split Number.
(b) Acquiror hereby covenants and agrees with Target that the proxy
statement relating to the continuance (at the time it is first mailed to
stockholders of Acquiror and at the time of the meeting of stockholders)
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
(c) The completion of the Reincorporation shall not be
a condition to the Merger Closing.
4.13 Agreements of Affiliates. Prior to the Warrant Exercise Date,
Acquiror shall use its reasonable best efforts to cause each Person listed as a
"Lock-Up Acquiror Shareholder" on Exhibit 4.13 to execute a lock-up agreement in
the form attached hereto as Exhibit "4.13" (if such Person has not executed and
delivered an agreement substantially to the same effect contemporaneously with
the execution of this Agreement).
4.14 Payment of Expenses. Except as otherwise provided herein, each party
hereto shall pay its own expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger shall be consummated, and
specifically, but not by way of limitation, the costs and expenses associated
with the Reincorporation shall be borne by Acquiror.
4.15 Board of Directors of Acquiror Following Effective Time. Acquiror and
Target shall take such action as may be necessary or advisable to ensure that,
immediately after the Effective Time, the Board of Directors of Acquiror shall
consist of the individuals set forth in Schedule 1.3, and to cause such persons
to be nominated for reelection at the next annual meeting of the stockholders of
Acquiror, each to serve until his or her respective successor shall be duly
elected and shall qualify.
4.16 Performance of the Audit. Target will cause an audit of its books and
records to be completed as soon as practicable after the date hereof and in any
event before the Merger Closing (the "Audit"). The audited financial statements
of Target resulting from the Audit shall comply with the requirements of Form
8-K with respect to the transactions contemplated herein; provided, however,
that the audited financial statements of Neal's Technology, Inc. may consist
solely of an audited balance sheet of Neal's as of December 31, 2000.
4.17 Warrant Proceeds. Acquiror will not use in excess of 38.5% of the
cash proceeds received on any exercise of the Acquiror Warrants for any purpose
which is not approved by Target, other than purchase orders not in excess of
$50,000.
5. CONDITIONS TO THE MERGER
------------------------
5.1 Conditions to Each Party's Obligation. The respective obligations of
each Party under this Agreement to consummate the Merger will be subject to the
satisfaction, at or prior to the Merger Closing, of all of the following
conditions, any one or more of which may be waived in whole or in part at the
option of Acquiror or Target:
(a) Governmental and Third Party Consents and Approvals. All
consents, approvals, waivers permits and authorizations required to be
obtained prior to the Merger Closing Date from, any Governmental Entity or
other Person (including, without limitation, those set forth in Schedules
2.4 and 3.4) in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including the Merger, shall have been made or obtained (as the case may
be).
(b) No Adverse Proceedings. No temporary restraining order,
preliminary or permanent injunction or other order preventing the
consummation of the Merger shall have been issued by any Governmental
Entity and remain in effect, and no proceedings seeking the issuance of
such an order or injunction, or seeking relief against Acquiror or Target
if the Merger is consummated, shall be pending or threatened which, in the
good faith judgment of Target's or Acquiror's respective Board of
Directors (acting upon the written opinion of their respective outside
counsel), has a reasonable probability of resulting in such order,
injunction or relief and any such relief would have a material adverse
effect on such Party.
(c) SEC Matters. Acquiror shall have received a waiver or other
action by the SEC sufficient to reasonably satisfy the Acquiror and Target
that the absence of audited income and cash flow statements for Neal's
Technology, Inc. that may be required by Regulation S-X of the SEC will
not preclude Acquiror from registering securities under the Securities Act
of 1933 after audited financial statements are available for the year
ending December 31, 2001.
5.2 Conditions Precedent to Obligations of Target. The obligations of
Target under this Agreement to consummate the Merger will be subject to the
satisfaction, at or prior to the Merger Closing, of all of the following
conditions (any one or more of which may be waived in whole or in part at the
option of Target):
(a) Representations and Warranties. The representations and
warranties of Acquiror made in this Agreement or in any Exhibit, Schedule
or document delivered pursuant hereto must have been true and correct in
all material respects as of the date hereof and must be true and correct
in all material respects on and as of the Merger Closing Date as if made
on and as of the Merger Closing Date.
(b) Performance by Acquiror. All of the covenants and obligations
that Acquiror is required to perform or to comply with pursuant to this
Agreement at or prior to the Merger Closing must have been duly performed
and complied with in all material respects.
(c) Absence of Material Adverse Changes. From the date of this
Agreement until the Merger Closing, there must not have occurred any
material adverse change in the consolidated business operations, Assets,
prospects or condition (financial or otherwise) of Acquiror and the
Acquiror Subsidiaries.
(d) Certificate. Target shall have received a certificate, dated as
of the Merger Closing Date, executed on behalf of Acquiror by its chief
executive officer and its chief financial officer, certifying that each of
the conditions specified in Sections 5.2(a), 5.2(b) and 5.2(c) have been
satisfied and that, except as set forth on a schedule to such certificate,
all third party or governmental consents, approvals, waivers, permits and
authorizations referred to in Section 5.1(b) required to obtained by
Acquiror have been obtained and are in full force and effect as of the
Merger Closing.
(e) Execution of Acquiror Shareholders Agreement by all Acquiror
Shareholders. Prior to the Warrant Exercise Date, each of the Acquiror
Principal Shareholders must have executed and delivered the Acquiror
Shareholders Agreement, and no Acquiror Principal Shareholder shall be in
Breach of any representation, warranty or covenant contained therein.
(f) Acquiror Preferred Stock and Warrants. On or before the Merger
Closing Date, at least 90% or 1,903 shares of the outstanding Acquiror
Preferred Stock shall have been converted and, on or before the Warrant
Exercise Date, at least 90% or 63,419,737 of the Acquiror Warrants shall
have been exercised or amended as contemplated by Section 1.7 with at
least 85% or 59,896,418 of the outstanding Acquiror Warrants being
exercised for cash.
(g) Merger Closing Documents. Acquiror or the
Acquiror Shareholders must have delivered to Target all of
the documents set forth in Sections 7.2 and 7.4.
(h) Lock-up Agreements. On or before the Warrant
Exercise Date, Target shall have received lock-up agreements
as contemplated by Section 4.13.
(i) Tax-Free Reorganization. Target shall be
satisfied that the Merger will be a tax free reorganization
as contemplated by Section 4.11.
5.3. Conditions Precedent to Obligations of Acquiror. The
obligation of Acquiror under this Agreement to consummate the
Merger hereby is subject to the satisfaction, at or prior to the
Merger Closing, of each the following conditions (any of which
may be waived in whole or in part at the option of Acquiror ):
(a) Representations and Warranties. All representations and
warranties of Target made in this Agreement or in any Exhibit, Schedule or
document delivered pursuant hereto must have been true and correct in all
material respects as of the date hereof and must be true and correct in
all material respects on and as of the Merger Closing Date as if made on
and as of the Merger Closing Date.
(b) Performance by Target. All of the covenants, agreements and
obligations that Target is required to perform or to comply with pursuant
to this Agreement at or prior to the Merger Closing must have been duly
performed and complied with in all material respects.
(c) Absence of Material Adverse Changes. From the date of this
Agreement until the Merger Closing, there must not have occurred any
material adverse change in the business operations, Assets, prospects or
condition (financial or otherwise) of Target and the Target Subsidiaries.
(d) Certificate. Acquiror must have received a certificate, dated as
of the Merger Closing Date, by a duly authorized officer of Target,
certifying that the conditions specified in Sections 5.3(a), 5.3(b) and
5.3(c) have been satisfied.
(e) Execution of Target Shareholders Agreement by Target Principal
Shareholders. On or before the Warrant Exercise Date, the Target
Shareholders must have executed, delivered and entered into the Target
Shareholders Agreement, and no Target Shareholders shall be in breach of
any representations, warranties or covenants contained therein.
(f) Closing Documents. Target must have delivered to
Acquiror or the Acquiror Shareholders all of the documents
set forth in Sections 7.3 and 7.4.
(g) Audited and Pro Forma Financial Statements. On or before the
Warrant Exercise Date, the audited financial statements of Target and the
Target Subsidiaries shall have been completed with unqualified audit
opinions from Weinstein Spira LLP for the periods required by Regulation
S-X of the Securities and Exchange Commission and the unaudited pro forma
combined operating results of Target and Target Subsidiaries for the 12
months ended December 31, 2000 based on such financial statements shall
reflect EBITDA of at least $1.66 million, after pro forma adjustments
required by Regulation S-X and pro forma adjustments to eliminate
compensation to Plainsman Technology officers not retained or replaced and
to eliminate shareholder distributions to Esses shareholders; provided,
however, that the audited financial statements of Neal's Technology, Inc.
may consist solely of an audited balance sheet of Neal's as of December
31, 2000 and for purposes of the unaudited pro forma operating results,
the EBITDA of Neal's shall be included at an amount of $150,000.
6. INTENTIONALLY OMITTED
---------------------
7. CLOSING.
-------
7.1 Closing Dates. The closing of the Merger (the "Merger Closing") shall
take place at the offices of Crowe & Dunlevy, or at such other location as the
Parties shall agree, commencing at 1:00 p.m. local time within five (5) business
days after all of the conditions precedent set forth herein have been satisfied
or waived or on such date as the Parties shall agree (the "Merger Closing
Date").
7.2 Documents to be Delivered by Acquiror. At the Merger
Closing, Acquiror will deliver to Target, as applicable, the
following:
(a) Officers' Certificate. A certificate, dated the
Merger Closing Date, executed on behalf of Acquiror in the
form set forth in Section 5.2(d).
(b) Opinion. A written opinion of Doherty, Doherty & Adams, LLP,
counsel to Acquiror, addressed to Target, dated the Merger Closing Date,
with respect to the matters addressed in Section 3.1, 3.2, 3.3, 3.4 and
3.5, in form and substance satisfactory to Target.
(c) Good Standing Certificates. Governmental certificates showing
that Acquiror and each Acquiror Subsidiary is duly incorporated, validly
existing and in good standing in the state of its incorporation certified
as of a date not more than ten (10) days before the Merger Closing Date.
(d) Evidence of Governmental and Third-Party Consents and Approvals.
Evidence in form reasonably satisfactory to Target of the receipt of each
of the governmental and third-party consents, approvals and waivers set
forth in Section 5.1(a).
(e) Lien Searches. Lien searches for federal and state tax liens,
judgment liens, and other liens dated no earlier than ten (10) days prior
to Merger Closing Date and showing the absence of any Encumbrances (other
than Permitted Encumbrances) against the assets of Acquiror and the
Acquiror Subsidiaries.
(f) Other Documents. Such additional certificates,
instruments, documents, information and materials as Target
may reasonably request.
7.3 Documents to be Delivered by Target. At the Merger
---------------------------------------
Closing, Target will deliver to Acquiror, as applicable, the
following:
(a) Officer's Certificate. A certificate, dated the
Merger Closing Date, executed on behalf of Target in the
form set forth in Section 5.3(d).
(b) Opinion. Written opinion of Crowe & Dunlevy, addressed to the
Acquiror Shareholders, dated the Merger Closing Date, with respect to the
matters addressed in Sections 2.1, 2.2, 2.3, 2.4 and 2.5, in form and
substance satisfactory to Acquiror.
(c) Good Standing Certificates. Governmental certificate showing that
Target and each Target Subsidiary is duly organized, validly existing and
in good standing in the state of its incorporation as of a date not more
than ten (10) days before the Merger Closing Date.
(d) Evidence of Governmental and Third-Party Consents and Approvals.
Evidence in form reasonably satisfactory to Acquiror of the receipt of
each of the governmental and third-party consents, approvals and waivers
set forth in Section 5.1(a).
(e) Lien Searches. Lien searches for federal and state tax liens,
judgment liens, and other liens dated no earlier than ten (10) days prior
to Merger Closing Date and showing the absence of any Encumbrances (other
than Permitted Encumbrances) against the assets of Target and the Target
Subsidiaries.
(f) Other Documents. Such additional certificates,
instruments, documents, information and materials as
Acquiror may reasonably request.
7.4 Mutual Deliveries. At the Merger Closing, the Parties
will deliver or cause to be delivered the following:
(a) Merger Consideration. Certificates representing the Acquiror
Common Stock constituting the Merger Consideration shall be delivered to
the Target Shareholders in the amounts and manners as set forth in Section
1.5 against surrender of the certificates for Target Common Stock.
(b) Certificate of Merger. The Certificate of Merger,
or copies thereof, in form suitable for filing as
contemplated by Section 1.8.
7.5 Concurrent Conditions. The performance or tender of performance at the
Merger Closing of all matters applicable to a Party under this Agreement shall
be deemed concurrent conditions and no Party shall be required at the Merger
Closing to perform, or tender performance of, the obligations of such Party
hereunder unless, coincident therewith, each other Party from whom performance
is required under this Agreement performs or tenders performance of its
obligations hereunder.
8. NO INDEMNIFICATION.
------------------
8.1 No Survival. All representations, warranties, covenants and
obligations in this Agreement, any Schedules attached hereto pursuant to
Sections 2 and 3 or otherwise, the certificates delivered pursuant to Sections
5.2(d) and 5.3(d) and any other certificate or agreement delivered pursuant to
this Agreement will not survive the Merger Closing and neither Target
Shareholders nor Acquiror Principal Shareholders shall have any liability after
the Merger Closing. After the Merger Closing, no representations and warranties
of either Acquiror or Target will survive and the only agreements that survive
shall be those requiring performance subsequent to the Merger Closing.
9. TERMINATION.
-----------
9.1 Termination Events. This Agreement may, by written
notices, be terminated:
(a) at any time prior to the Merger Closing by the
mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target if the Merger Closing shall not have
occurred on or before January 31, 2002, or such later date as Acquiror and
the Target may agree upon;
(c) by either Acquiror or Target if there shall have been entered a
final, nonappealable order or injunction of any Governmental Entity
restraining or prohibiting the consummation of the transactions
contemplated hereby;
(d) by either Acquiror or Target if, prior to either the Merger
Closing Date, any other Party is in material Breach of any representation,
warranty, covenant or agreement herein contained and such Breach shall not
be cured within fifteen (15) days of the date of notice of default served
by the Party claiming such material default; provided that such
terminating Party shall not also be in material Breach of this Agreement
at the time notice of termination is delivered; or
(e) (i) by Acquiror if any of the conditions in Sections 5.1 or 5.3
has not been satisfied as of the Merger Closing Date or the Warrant
Exercise Date, if applicable, or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Acquiror to comply
with its obligations under this Agreement) and Acquiror has not waived
such condition or before the applicable Closing Date; or (ii) by Target,
if any of the conditions in Sections 5.1 or 5.2 has not been satisfied as
of the the Merger Closing Date or the Warrant Exercise Date, if
applicable, or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Target to comply with its
obligations under this Agreement) and Target has not waived such condition
on or before the applicable Closing Date.
9.2 Effect of Termination. If this Agreement is terminated by either
Target or Acquiror pursuant to the provisions of Section 9.1 before the Merger
Closing, the Merger shall not be consummated. There shall be no further
obligation on the part of any Party hereto or its respective Affiliates,
members, directors, officers or shareholders, except pursuant to the provisions
of Sections 4.8 and Article 10 (which shall survive and continue pursuant to
their terms); provided however, that a termination of this Agreement shall not
relieve any Party hereto from any liability for damages incurred as a result of
a Breach by such Party of its representations, warranties, covenants, agreements
or other obligations hereunder occurring prior to such termination. Except as a
result of any such Breach, no Party hereto, or its respective Affiliates,
members, directors, officers or shareholders, shall have any liability to the
other Parties as a result of the termination of this Agreement or the failure to
complete the transactions contemplated hereby for any reason whatsoever.
10. MISCELLANEOUS PROVISIONS.
------------------------
10.1 Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are Breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
Breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof, in addition to any other remedy
to which they may be entitled, at law or in equity. If any action is brought by
a Party to specifically enforce this Agreement, the Breaching Party shall waive
any defense that there is an adequate remedy at law.
10.2 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 or certified 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):
(a) Acquiror: Flotek Industries, Inc.
7030 Empire Central Drive
Houston, TX 77040
Facsimile: 713-466-8386
Attn: Jerry Dumas
With a Copy to: Doherty, Doherty & Adams LLP
1717 St. James Place, Suite 520
Houston, TX 77056
Facsimile: 713-572-1001
Attn: Casey Doherty
(b) Target: Chemical & Equipment Specialties, Inc.
P. O. Box 1006
Duncan, OK 73533
Facsimile: 580-255-2673
Attn: Glenn Penny
With a Copy to: Crowe & Dunlevy
1800 Mid-America Tower
Oklahoma City, OK 73102
Facsimile: 405-272-5238
Attn: Michael M. Stewart
10.3 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 Parties; (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.
10.4 Entire Agreement and Amendment. This Agreement supersedes all prior
agreements between the Parties with respect to its subject matter 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.
10.5 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 any other
Party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to herein.
10.6 Governing Law. This Agreement, including without limitation, the
interpretation, construction and validity hereof, shall be governed by the laws
of the State of Oklahoma, without regard to its conflict of laws principles.
10.7 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.
10.8 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original copy of the
Agreement and all of which, when taken together will be deemed to constitute one
and the same agreement.
10.9 Assignments, Successors and No Third Party Rights. No Party may
assign any of its rights or obligations under this Agreement without the prior
consent of the other Party. 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, except as set
forth immediately below with respect to third party beneficiary rights of the
Target Shareholders. 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; provided, however, that the Target Shareholders shall be
deemed to be third party beneficiaries to the rights of Target under this
Agreement and with respect to any provision hereunder for the Target
Shareholders' benefit (including, without limitation, Section 10).
10.10 Certain Interpretive Matters and Definitions.
--------------------------------------------
(a) Unless the context otherwise requires, (i) all references to
Sections or Schedules are to Sections or Schedules of or to this
Agreement, (ii) each term defined in this Agreement has the meaning
assigned to it, (iii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iv)
"or" is disjunctive but not necessarily exclusive, and (v) words in the
singular include the plural and vice versa. All references to "$" or
dollar amounts will be to lawful currency of the United States of America.
(b) No provision of this Agreement will be interpreted in favor of,
or against, any of the Parties hereto by reason of the extent to which any
such Party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any
prior draft hereof or thereof.
(c) Any reference to any Law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise.
(d) The word "including" means "including, without limitation," and
does not limit the preceding words or terms.
(e) All words used in this Agreement will be construed to be of such
gender or number as the circumstances require.
10.11 Jurisdiction and Venue. The Parties intend that all disputes
concerning this Agreement shall be resolved by arbitration as provided below,
unless arbitration shall be held by a court of competent jurisdiction to be
unenforceable. In such event, the Parties agree that any suit, action or
proceeding with respect to this Agreement may be brought in (i) the Oklahoma
state courts of competent jurisdiction in Oklahoma County, Oklahoma or in the
United States District Court in which the City of Oklahoma City is located or
(ii) the Texas state courts of competent jurisdiction in Harris County, Texas or
in the United States District Court in which the City of Houston is located. ALL
PARTIES HEREBY IRREVOCABLY WAIVE ANY OBJECTIONS WHICH THEY MAY NOW OR HEREAFTER
HAVE TO THE PERSONAL JURISDICTION OR VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT AND
HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
10.12 Dispute Resolution. Except as otherwise provided in this Section
11.12, in the event of any dispute, controversy or claim arising out of or
relating to this Agreement or the Breach thereof, the Parties shall meet
promptly (through representatives with authority to resolve the dispute). If the
Parties cannot resolve the dispute within 30 days, the Parties shall arbitrate
the dispute in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, by a sole arbitrator, but the arbitration proceeding
may not revoke or revise any provision of this Agreement. All arbitrators
selected shall be independent third parties and shall have knowledge and
experience in the matters addressed by the claim. Except as set forth in this
Section 11.12, arbitration shall be the sole and exclusive remedy between the
Parties with respect to any dispute, protest, controversy or claim arising out
of or relating to this Agreement, provided, the arbitrator shall not have the
power or authority to award consequential, incidental or punitive damages.
Unless all the Parties to an arbitration otherwise consent in writing, the
location of the arbitration hearings and the place of entry of the award shall
be in Oklahoma City, Oklahoma. The Parties consent to jurisdiction of, and agree
that venue will lie in, any of the state and federal courts set forth in Section
11.11. The arbitration award shall be final and binding and shall not be
reviewable in any court on any grounds except corruption, fraud or undue means
of a Party or for evident partiality or corruption of the arbitrator. The
Parties intend to eliminate all other court review of the award and the
arbitration proceedings. Except for a proceeding to enforce or confirm an award
or a proceeding brought by all Parties to the dispute to vacate or modify an
award, the initiation of any suit relating to a dispute that is arbitrable under
this Agreement shall constitute a material Breach of this Agreement. However,
the Parties hereby acknowledge that Breach of this Agreement may give rise to
irreparable injury to the Parties, inadequately compensable in monetary damages
alone, and notwithstanding anything to the contrary stated herein, the Parties
shall be permitted to seek and obtain specific performance as provided in
Section 11.1.
11. DEFINITIONS.
-----------
11.1 Definitions. Capitalized terms used in this Agreement and not defined
elsewhere in this Agreement shall have the meanings ascribed to them in this
Section 12.1 (such meanings applicable to both the singular and plural forms of
the terms defined) as follows:
"ABCA" means the Alberta Corporation Law.
"Acquiror Amended Warrants" means the Acquiror warrants in the form of
Exhibit 1.7.
"Acquiror Common Stock" means shares of common stock, no par value, of
Acquiror.
"Acquiror Preferred Stock" means shares of Acquiror Series A convertible
preferred stock, no par value.
"Acquiror Principal Shareholders" means the persons who are holders of the
Acquiror Preferred Stock and Acquiror Warrants.
"Acquiror Warrants" means Acquiror's Warrants to purchase common stock
dated as of April 30, 2000 entitling the holders to purchase Acquiror common
stock at a purchase price of U.S. $0.03 per share.
"Acquisition Proposal" means any offer or proposal for, or any indication
of interest in, a merger, consolidation or other business combination involving
Target or Acquiror as the case may be, the acquisition of a majority of the
equity securities of Target or Acquiror as the case may be, or the acquisition
of all or a substantial portion of the Assets of Target or Acquiror as the case
may be, excluding the transactions provided for in this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Assets" means assets, rights, properties and goodwill of any kind or
type, tangible and intangible, wheresoever located.
"Breach" means a "Breach" of a representation, warranty, covenant,
obligation or other provision of this Agreement or any instrument delivered
pursuant to this Agreement.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and the regulations promulgated thereunder.
"COBRA" means the Consolidated Omnibus Reconciliation Budget Act of 1985,
as amended.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor law, and the regulations promulgated thereunder.
"Commission" means the United States Securities and Exchange Commission,
and any successor thereto.
"Conversion Number" means that number that will result in the number of
shares of Acquiror Common Stock being issued to Target Shareholders as a group
(excluding persons holding options to purchase Target Common Stock) representing
61.50% of the fully-diluted Acquiror Common Stock outstanding, after the Merger,
assuming full conversion of the Acquiror Preferred Stock at $0.027 per share and
full exercise of the Acquiror Warrants for cash, but excluding any stock options
outstanding disclosed on Schedule 3.5), but before any adjustment to the
Conversion Number required by Section 1.7. To the extent any Acquiror Warrants
are exercised in a cashless exercise prior to the Warrant Exercise Date, subject
to the condition requiring at least 85% of the outstanding Acquiror Warrants to
be exercised for cash as set forth in Section 5.2(f), the shares of Acquiror
Common Stock surrendered shall reduce the total number of shares outstanding,
but will not affect the 61.50% aggregate ownership of Target Shareholders as a
group or the 38.50% aggregate ownership of Acquiror Shareholders as a group
described above. Assuming the Merger Closing and the conversion of the Acquiror
Preferred Stock occurs on September 30, 2001, the Conversion Number will be
313.8968242, as calculated on Exhibit 1.5, which exhibit also shows the
methodology of adjustments required by Section 1.7.
"Encumbrance" means 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, mortgage, easement, servitude, right of way, encroachment,
receipt of income, or exercise of any other attribute of ownership.
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Lien, demand, abatement or other order or directive
(conditional or otherwise) by any Governmental Entity or any other Person
(including any employee or former employee of any contractor or subcontractor of
Target) for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment (including natural
resources), nuisance, pollution, contamination, trespass or other adverse
effects on the environment, or for fines, penalties or restrictions resulting
from or based upon (i) the existence, or the continuation of the existence, of a
Release (including, without limitation, sudden or non-sudden accidental or
non-accidental Releases) of, or exposure to, any Hazardous Material, odor or
audible noise in, into or onto the environment (including, without limitation,
the air, soil, surface water or ground water) at, in, by, from or related to the
Real Property or any activities or operations thereof; (ii) the transportation,
storage, treatment or disposal of Hazardous Materials in connection with the
Real Property; or (iii) the violation, or alleged violation, of any
Environmental Laws or Environmental Permits relating to environmental matters
connected with the Real Property.
"Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions, claims,
costs and expenses (including fees, disbursements and expenses of legal counsel,
experts, engineers and consultants and the costs of investigation and
feasibility studies, remedial or removal actions and cleanup activities) arising
from or under any Environmental Law or Environmental Claim or any order or
agreement now in effect with any Governmental Entity or other Person.
"Environmental Law" means any applicable federal, state, local or foreign
law (including common law), statute, code, ordinance, rule, regulation or other
requirement relating to the environment, natural resources or public and
employee health and safety including, but not limited to, CERCLA, the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the
Federal Insecticide, Fungicide, and Rodenticide Act, the Oil Pollution Act of
1990, the Federal Safe Drinking Water Act, and the Occupational Safety and
Health Act, as such laws have been amended or supplemented, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes.
"Environmental Permit" means any permit, approval, authorization, license,
variance, registration or permission required under any applicable Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Entity" means any domestic or foreign court, government or
governmental or regulatory agency, authority, entity or instrumentality.
"Hazardous Materials" means any substance, material or waste which is
regulated by any Governmental Entity in connection with its protection of the
environment, public or employee health, wildlife or natural resources,
including, without limitation, any material, substance or waste which is defined
as a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous substance," "restricted hazardous waste," "contaminant," "toxic waste"
or "toxic substance" under any provision of any Environmental Law, which
includes, but is not limited to, petroleum, petroleum products (including crude
oil and any fraction thereof), asbestos, asbestos-containing materials, urea
formaldehyde and polychlorinated biphenyls.
"Hazardous Substance" means any hazardous substance, hazardous waste,
contaminant or pollutant as defined under applicable Environmental Laws.
"Intellectual Property" means all domestic or foreign letters patent
(including any reissue or re-examination thereof), patent applications
(including any continuation, division, renewal or substitute thereof), patent
licenses, inventions, software licenses, know-how licenses, trade names,
trademark registrations and applications, service mark registrations and
applications, common law trademarks and service marks, copyrights, copyright
registrations and applications, trade secrets, technical knowledge, know-how or
other confidential proprietary information capable of being described.
"Inventory" means all products held for resale in the Ordinary Course of
Business.
"IRS" means the United States Internal Revenue Service.
"Knowledge" means an individual will be deemed to have "Knowledge,"
whether or not such term is capitalized herein, of a particular fact or other
matter if such individual is actually aware of such fact or other matter after
conducting a reasonable investigation. 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 served, as a director, executive officer,
partner, executor or trustee of such person (or in any similar capacity) or any
Subsidiary of such person has, at any time prior to Closing, had Knowledge of
such fact or other matter.
"Laws" means all foreign, federal, state, county and local statutes, laws
(including common law), ordinances, regulations, rules, resolutions, orders,
codes, determinations, writs, injunctions, awards (including, without
limitation, awards of any arbitrator), judgments and decrees applicable to the
specified Person or to the businesses or assets and properties thereof
(including, without limitation, Laws relating to securities registration and
regulation, the sale, leasing, ownership or management of real property,
employment practices, terms and conditions, and wages and hours, building
standards land use and zoning, safety, health and fire prevention, and
environmental protection, including Environmental Laws).
"Leased Real Property" means all rights and incidents of interests with
respect to all real property leased or used by a Person, if any, including all
structures, fixtures and improvements located thereon.
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
ordinance, principal of common law, regulation, statute or treaty.
"Liabilities" means any direct or indirect, or matured or unmatured,
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, whether absolute, fixed, contingent or
otherwise, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
"Merger Consideration" means the shares of Acquiror Common Stock that
Target Shareholders shall have a right to receive upon conversion of the Target
Common Stock as provided in Section 1.4 hereof.
"OGCA" means the Oklahoma General Corporation Act, as amended, or any
successor law or regulations promulgated thereunder.
"Ordinary Course of Business" means 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" means the articles or certificate of
incorporation and the bylaws of a corporation and any amendment to any of the
foregoing.
"Owned Real Property" means real estate or interests therein owned legally
or beneficially by a Person.
"PBGC" means the Pension Benefit Guaranty Association.
"Permits" means all assignable franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate the properties and
assets and to carry on the business of any specified Person as it is now being
conducted.
"Permitted Encumbrances" means only those Encumbrances which do not and
will not materially interfere with the use of, impair, or reduce the value of
any Assets or Leased Real Property.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, trust or any other entity, association or
organization including a Governmental Entity.
"Personnel" means the officers and employees of Target.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, suit (whether civil, criminal, administrative, investigative or
informal), commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Real Property Lease" means any agreement, contract, commitment or lease
pursuant to which Target has a leasehold interest in any Leased Real Property.
"Recitals" means the portion of this Agreement preceding Section 1.
"Reincorporation" means the transactions described in Section 4.12.
"Release" means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the indoor or outdoor environment or into or out of any
property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily taken to (i) clean up remove,
treat, or in any other way address any Hazardous Material or other substance;
(ii) prevent the Release or threat of Release, or minimize the further Release,
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; (iii)
perform pre-remedial studies and investigations or post-remedial monitoring and
care; or (iv) bring facilities on the Real Property and the facilities located
and operations conducted thereon into compliance with all Environmental Laws and
Environmental Permits.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and the regulations promulgated thereunder.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target Common Stock" means shares of common stock, par value $.01 per
share, of Target.
"Target Shareholders" means the holders of Target Common Stock.
"Target Shareholders' Representative" has the meaning ascribed to it in
the Target Shareholders Agreement.
"Tax" and any derivatives thereof, means and includes any and all federal,
state, county, local, and foreign income (including gross, adjusted gross and
supplemental net income), payroll, Medicare, withholding, unemployment
insurance, social security, sales, use, service, service use, leasing, leasing
use, excise, recording, franchise, gross receipts, value added, alternative or
add-on minimum, estimated, occupation, real and personal property, stamp,
transfer, workers' compensation, severance, windfall profits, and environmental
(including taxes under Code Section 59(A)) and any other tax, charge, fee, levy
or assessment of the same or of a similar nature, including any and all
interest, penalties and additions thereto, whether disputed or not.
"Tax Return" means and includes any and all returns, forms, declarations,
reports, claims for refund and information returns and statements relating to
Taxes and any amendments thereto, and including any schedules or attachments
thereto.
11.2 Other Definitions. Each of the following terms is
defined in the Section set forth opposite such term and in some
cases is modified by Acquiror or Target, when applicable.
"Acquiror" Recitals
"Acquiror Commission Documents" Section 3.7
"Acquiror Intellectual Property" Section 3.14
"Acquiror Shareholders Agreement" Section 4.3
"Additional Share Number" Section 1.7
"Agreement" Recitals
"Audit" Section 4.17
"Certificate of Merger" Section 1.8
"Committee" Section 4.5
"Effective Time" Section 1.8
"Employee Arrangements" Section 2.19(a) and 3.19(a)
"Employee Benefit Plans" Section 2.20(a)
"Employee Plans" Section 2.20(a)(iii)
"ERISA Affiliate" Section 2.20(a)
"Financial Statements" Sections 2.7 and 3.7
"Balance Sheet" Sections 2.7 and 3.7
"Balance Sheet Date" Sections 2.7 and 3.7
"Merger Closing" Section 7.1
"Merger Closing Date" Section 7.1
"Merger" Recitals
"Party or Parties" Recitals
"Pension Plan(s)" Section 2.20(a)(ii)
"PVI" Section 4.16
"Reverse Split Number" Section 4.12
"Software" Sections 2.15 and 3.15
"Sub" Recitals
"Subsidiary" Sections 2.2 and 3.2
"Surviving Corporation" Section 1.2
"Target" Recitals
"Target Shareholders Agreement" Section 4.2
"Warrant Exercise Date" Section 1.7
"Welfare Plan(s)" Section 2.20(a)(i)
"Year-End Financial Statements" Section 2.7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
"ACQUIROR"
FLOTEK INDUSTRIES, INC.
By: _______________________________
Title: ____________________________
"SUB"
FLOTEK ACQUISITION SUB, INC.
By: _______________________________
Title: ____________________________
"TARGET"
CHEMICAL & EQUIPMENT SPECIALTIES, INC.
By: ________________________________
Title: ____________________________
EXHIBIT 1.3
Officers and Directors
----------------------
(Acquiror and Subsidiaries of Acquiror)
Directors of Flotek Industries, Inc. after Merger
Acquiror Designees Target Designees
------------------ ----------------
Jerry Dumas Glenn Penny
John Chisholm Tom Morton
Gary Pittman Richard Johnson(1)
Bill Zeigler Roger Padgham
Robert Beall(1)
(1) Or such other person as may be designated by Target
Officers of Flotek Industries, Inc. after Merger
Name Title
---- -----
Jerry Dumas Chairman and Chief Executive Officer
Glenn Penny President and Chief Operating Officer
Tom Morton Comptroller, Secretary and Treasurer
Mike Gillespie Vice President - Facilities Design
and Construction
Rick Johnson Vice President - Marketing
Dan Neal Vice President - Equipment Operations
Roger Padgham Vice President - International Sales
Todd Sanner Vice President - Chemical Operations
Earl Schott Vice President - Domestic Sales
Bob Whitman Vice President - Engineering
Rosalie Melia Assistant Secretary
Director of Subsidiaries
o Glenn Penny and Jerry Dumas will serve as sole director of all
subsidiaries.
Officers of all Subsidiaries
o Chief Executive Officer - Jerry Dumas
o President - Glenn Penny
o Vice President, Comptroller, Secretary and Treasurer - Tom Morton
o Vice President - Designated officers of Acquiror who are
primarily responsible for operations of subsidiary, i.e.,
Dan Neal is Vice President of Neal's Technology
Exhibit 99.2
------------
[FORM OF ACQUIROR AMENDED REPLACEMENT WARRANT]
(Exhibit 1.7
to the
Agreement and Plan of Reorganization
by and between
Flotek Industries Inc.
and
Chemical & Equipment Specialties, Inc.)
WARRANT TO PURCHASE COMMON STOCK OF
FLOTEK INDUSTRIES, INC.
VOID AFTER 5:30 P.M. CENTRAL
TIME ON THE EXPIRATION DATE
________ Shares of
Warrant No. ______ Warrant Stock
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND HAVE BEEN ISSUED PURSUANT TO A CLAIM OF EXEMPTION
FROM THE REGISTRATION OR QUALIFICATION PROVISIONS OF FEDERAL AND STATE
SECURITIES LAWS BASED, IN PART, ON AN INVESTMENT REPRESENTATION OF THE PART OF
THE PURCHASER THEREOF. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
FLOTEK INDUSTRIES, INC. (the "Company"), an Alberta corporation, for value
received, hereby agrees to sell upon the terms and on the conditions hereinafter
set forth, but no later than 5:30 p.m., Central time, on the Expiration Date (as
hereinafter defined) to ____, the registered holder hereof (the "Holder"),
having an address set forth in the Warrant Register maintained by the Company,
under the terms as hereinafter set forth, ____fully paid and non-assessable
shares of the Company's Common Stock, no par value (the "Warrant Stock"), at a
purchase price per share of Twelve U.S. Cents ($0.12) (as adjusted as provided
herein, the "Warrant Price") pursuant to this Warrant (the "Warrant"). This
Warrant was originally issued in accordance with the terms of that certain
Securities Purchase and Exchange Agreement dated April 30, 2000 (the "Securities
Purchase Agreement") between the Company and the initial Holder, inter alia, and
is being amended and restated pursuant to that certain Agreement and Plan of
Reorganization between the Company and Chemical & Equipment Specialties, Inc.
dated August 15, 2001. The number of shares of Warrant Stock to be so issued and
the Warrant Price are subject to adjustment as hereinafter set forth. The term
"Common Stock" shall mean, when used herein, unless the context otherwise
requires, the stock and other securities and property at the time receivable
upon the exercise of this Warrant.
Exhibit 1.7 - page 1
1. Exercise of Warrant.
-------------------
(a) The Holder may exercise this Warrant according to its terms by
surrendering this Warrant to the Company at the address set forth in
Section 10, the subscription form attached hereto having then been duly
executed by the Holder, accompanied by cash, certified check or bank draft
in payment of the purchase price for the number of shares of the Warrant
Stock specified in the subscription form, or as otherwise provided in this
Warrant prior to 5:30 p.m., Central time, on the Expiration Date. The
Expiration Date shall be _____ subject to acceleration as provided in
Section 1(e) below. The purchase price of the shares of Warrant Stock as
to which this Warrant shall be exercised shall be paid to the Company at
the time of exercise either in cash, in Common Stock of the Company
already owned by the Holder, by the relinquishment of a portion of this
Warrant having a total fair market value equal to the purchase price, or
any combination of the foregoing. For purposes of this Section, the fair
market value of the portion of this Warrant that is relinquished shall be
the excess of: (x) the Fair Market Value at the time of exercise of the
number of shares of Common Stock subject to the portion of this Warrant
that is relinquished over (y) the aggregate exercise price specified in
this Warrant with respect to such shares.
The Fair Market Value of the Common Stock shall be equal to the average of
the closing sales prices of the Company's Common Stock on any stock
exchange or market on which the Company's Common Stock is then traded on
the ten trading days immediately preceding the date of exercise. If the
exchange or market does not report sales prices, the Fair Market Value of
the Common Stock shall be equal to the average of the average of the
closing bid and ask prices of the Company's Common Stock on the ten
trading days immediately preceding the date of exercise. If the Company's
Common Stock is then traded on more than one exchange or market, the Fair
Market Value shall be the highest of Fair Market Values determined as
provided above. If the Company's Common Stock is not then traded on any
exchange or market, the Fair Market Value shall be determined in good
faith by the Board of Directors of the Company.
(b) This Warrant may be exercised in whole or in part so long as any
exercise in part hereof would not involve the issuance of fractional
shares of Warrant Stock. If exercised in part, the Company shall deliver
to the Holder a new Warrant, identical in form, in the name of the Holder,
evidencing the right to purchase the number of shares of Warrant Stock as
to which this Warrant has not been exercised, which new Warrant shall be
signed by the President and the Secretary or the Assistant Secretary of
the Company. The term Warrant as used herein shall include any subsequent
Warrant issued as provided herein.
(c) No fractional share or scrip representing fractional shares shall
be given upon the exercise of this Warrant. The Company shall pay cash in
lieu of fractions with respect to the Warrants based upon the Warrant
Price at the time of exercise of this Warrant.
Exhibit 1.7 - Page 2
(d) In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Stock so purchased,
registered in the name of the Holder, shall be delivered to the Holder
within a reasonable time after such rights shall have been so exercised.
The person or entity in whose name any certificate for the Warrant Stock
is issued upon exercise of the rights represented by this Warrant shall
for all purposes be deemed to have become the holder of record of such
shares immediately prior to the close of business on the date on which the
Warrant was surrendered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are closed, such person
shall be deemed to have become the holder of such shares at the opening of
business on the next succeeding date on which the stock transfer books are
open.
(e) In the event the average daily closing price of the shares of
Common Stock of the Company during any consecutive sixty trading days
exceeds 150% of the Warrant Price during such period at any time while
this Warrant remains outstanding and unexpired, then the Company
thereafter shall have the right to accelerate the expiration date
("Accelerated Expiration Date") of this Warrant to a date which is at
least 45 days following the date of written notice of acceleration to the
holders of such Warrants. After 5:30 p.m. Central time on the Accelerated
Expiration Date, the Warrants will terminate and will no longer be
exercisable.
2. Disposition of Warrant Stock and Warrant.
----------------------------------------
(a) By the acceptance of this Warrant, the Holder hereby acknowledges
and covenants that this Warrant and any Warrant Stock purchased pursuant
thereto are and will be held for investment and not for distribution;
provided that:
(i) the Warrant and/or Warrant Stock may not be transferred by
the Holder, (A) unless an exemption is available under the Securities
Act of 1933, as amended, and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder (collectively the
"Act"), and to a person who, in the reasonable opinion of counsel to
the Company, is a person to whom the Warrant and/or Warrant Stock may
be transferred legally without registration and without the delivery
of a current prospectus under the Act with respect thereto and then
only against receipt of (x) an agreement of such person to comply
with the provisions of this Section 2 with respect to any resale or
other disposition of such securities and (y) an agreement by such
person that he is acquiring such securities for investment and not
for distribution except in compliance with the Act; or (B) except to
a person upon delivery of a prospectus relating to the Warrant and/or
Warrant Stock then meeting the requirements of the Act;
Exhibit 1.7 - Page 3
(ii) the Warrant Stock shall be issued upon
exercise of this Warrant only in compliance with the
Act; and
(iii) the Warrant and the Warrant Stock may be
pledged to a lender to secure the debt of the
Holder.
(b) If, at the time of issuance of the shares issuable upon exercise
of this Warrant, no registration statement is in effect with respect to
such shares under applicable provisions of the Act, the Company may at its
election require that the Holder provide the Company with written
reconfirmation of the Holder's investment intent and that any stock
certificate delivered to the Holder of a surrendered Warrant shall bear
legends reading substantially as follows:
"Transfer of the shares represented by this certificate is subject to
certain restrictions set forth in the Warrant pursuant to which these
shares were purchased from the Company. Copies of those restrictions
are on file at the principal offices of the Company, and no transfer
of such shares or of this certificate, or of any shares or other
securities (or certificates therefor) issued in exchange for or in
respect of such shares, shall be effective unless and until the terms
and conditions therein set forth shall have been complied with."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, and may not be sold, transferred,
pledged or otherwise disposed of in the absence of an effective
registration statement under the Securities Act of 1933 or an opinion
of counsel satisfactory to the issuer of this certificate that
registration is not required under said Act."
In addition, so long as the foregoing legend may remain on any stock
certificate delivered to the Holder, the Company may maintain appropriate
"stop transfer" orders with respect to such certificates and the shares
represented thereby on its books and records and with those to whom it may
delegate registrar and transfer functions.
3. Reservation of Shares.
---------------------
Exhibit 1.7 - Page 4
The Company hereby agrees that at all times there shall be reserved for
issuance upon the exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of this Warrant and that
the par value of such shares will at all times be less than or equal to the
applicable Warrant Price. The Company further agrees that all shares which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and non-assessable, free from all taxes,
liens and charges with respect to the issuance thereof other than taxes, if any,
in respect of any transfer occurring contemporaneously with such issuance and
other than transfer restrictions imposed by federal and state securities laws.
4. Capital Adjustments.
-------------------
This Warrant is subject to the following further provisions:
(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or
any merger or consolidation of the Company into or with a corporation or
other business entity, or the sale or transfer of all or substantially all
of the Company's assets or of any successor corporation's assets to any
other corporation or business entity (any such corporation or other
business entity being included within the meaning of the term "successor
corporation") shall be effected, at any time while this Warrant remains
outstanding and unexpired, then, as a condition of such recapitalization,
reclassification, merger, consolidation, sale or transfer, lawful and
adequate provision shall be made whereby the Holder of this Warrant
thereafter shall have the right to receive upon the exercise hereof as
provided in Section 1 and in lieu of the shares of Common Stock
immediately theretofore issuable upon the exercise of this Warrant, such
shares of capital stock, securities or other property as may be issued or
payable with respect to or in exchange for a number of outstanding shares
of Common Stock equal to the number of shares of Common Stock immediately
theretofore issuable upon the exercise of this Warrant had such
recapitalization, reclassification, merger, consolidation, sale or
transfer not taken place, and in each such case, the terms of this Warrant
shall be applicable to the shares of stock or other securities or property
receivable upon the exercise of this Warrant after such consummation.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the number of shares of Warrant Stock
purchasable upon exercise of this Warrant shall be proportionately
adjusted.
(c) Certain Dividends and Distributions. If the Company at any time
while this Warrant is outstanding and unexpired shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Common Stock, then the
number of shares of Warrant Stock purchasable upon exercise of this
Warrant shall be adjusted to that number determined by multiplying the
number of shares of Warrant Stock so purchasable immediately prior to such
record date by a fraction (i) the numerator of which shall be the sum of
(A) the total number of outstanding shares of Common Stock immediately
prior to such record date and (B) the total number of shares of Common
Stock issuable pursuant to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such record date.
Exhibit 1.7 - Page 5
(d) Corresponding Warrant Price Adjustment. Whenever the number of
shares of Warrant Stock purchasable upon the exercise of the rights
granted to the Holder herein is increased or decreased as provided in
Section 4 (b) or (c), the Warrant Price payable for the exercise of such
rights shall be adjusted by multiplying such Warrant Price immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of shares of Warrant Stock purchasable upon the exercise of
such rights immediately prior to such adjustment, and of which the
denominator shall be the number of shares of Warrant Stock purchasable
immediately thereafter.
(e) Certain Other Warrant Price Adjustments.
(i) If the Company at any time while this Warrant is outstanding
and unexpired issues and sells, or is deemed to have issued and sold
(as provided in Section 4(e)(ii) or (iii)), any shares of Common
Stock, for a consideration per share of less than Fair Market Value
determined in the manner described in Section 1(a) then, immediately
following the issue and sale of such additional Common Stock, the
Warrant Price shall be adjusted by multiplying the Warrant Price in
effect immediately before the issuance of such additional Common
Stock by the number determined by dividing:
(A) An amount equal to (1) the total number of shares of
Common Stock outstanding immediately following the last previous
adjustment of the Warrant Price pursuant to this Section 4 (or
on the date hereof if there shall have been no previous
adjustment) multiplied by the Fair Market Value immediately
prior to such issuance, plus (2) the consideration, if any,
received or deemed to have been received by the Company upon
such issuance and upon the issuance of any Common Stock issued
subsequent to the last previous adjustment of the Warrant Price
pursuant to this Section 4 (or subsequent to the date hereof if
there shall have been no such previous adjustment), by
(B) The total number of shares of Common Stock outstanding
immediately after the issuance of such additional Common Stock
(or which would have been outstanding but for retirement of
Common Stock or acquisitions of Common Stock by or for the
account of the Company during the period covered by the
computation) multiplied by the Fair Market Value immediately
prior to such issuance.
Exhibit 1.7 - Page 6
(ii) If the Company at any time while this Warrant is
outstanding and unexpired grants any rights, warrants or options
(other than the rights granted herein or in any stock option plan of
the Company covering officers, directors, consultants or employees of
the Company) to subscribe for Common Stock or any securities
convertible or exchangeable into Common Stock (such rights, warrants
and options being called the "Options" and such securities
convertible into Common Stock the "Convertible Securities"), then the
maximum number of shares of Common Stock issuable upon the exercise
of such Options or upon the conversion or exchange of the Convertible
Securities will be deemed to have been outstanding and to have been
issued and sold by the Company, and the appropriate adjustment to the
Warrant Price will be made in accordance with Section 4(e)(i). For
purposes of this paragraph, the consideration of the shares of Common
Stock issuable upon the exercise of such Options will be equal to the
total amount received or receivable by the Company for the granting
of the Options plus the minimum aggregate amount of additional
consideration due the Company upon the exercise of the Options (plus,
in the case of the Options relating to Convertible Securities, any
additional consideration payable upon the issuance or sale and the
conversion and exchange thereof).
(iii) If the Company at any time while this Warrant is
outstanding and unexpired issues or sells any Convertible Securities,
then the maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities will be
deemed to be outstanding and to have been issued or sold by the
Company, and the appropriate adjustment to the Warrant Price will be
made in accordance with Section 4(e)(i). For purposes of this
paragraph, the consideration for the shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities will
be equal to the total amount received or receivable by the Company
for the issue or sale of such Convertible Securities plus the minimum
aggregate amount of additional consideration, if any, payable upon
the conversion or exchange thereof.
(iv) If at any time while this Warrant is outstanding and
unexpired the purchase price per share for any Option, or any
additional consideration payable to the Company upon the exercise of
any Option or upon conversion of a Convertible Security, or the rate
at which any Convertible Securities are convertible or exchangeable
into Common Stock, is reduced, then the consideration for the shares
of Common Stock issuable upon the exercise or conversion thereof will
be recalculated giving effect to such reduction, and immediately
after any such price reduction or rate reduction becomes effective,
the appropriate adjustment to the Warrant Price will be made in
accordance with Section 4(e)(i).
Notwithstanding the foregoing,
(1) no further adjustments in the Warrant Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
Exhibit 1.7 - Page 7
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase or decrease in the consideration payable to the
Company, or decrease or increase in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Warrant Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities; provided, however, that no
such adjustment of the Warrant Price shall affect Common Stock
previously issued upon conversion of the Warrant;
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities
which shall not have been exercised, the Warrant Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(A) in the case of Convertible Securities or Options
for Common Stock the only additional shares of Common Stock
issued were the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for
the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company
upon such conversion or exchange and
(B) in the case of Options for Convertible Securities
only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue
of such Options, and the consideration received by the
Company for the additional shares of Common Stock deemed to
have been then issued was the consideration actually
received by the Company for the issue of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (determined as described
above) upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
Exhibit 1.7 - Page 8
(4) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no
adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(3) above;
(5) no adjustments in the Warrant Price shall be made in
respect of grants of stock pursuant to employee benefit plans of
the Company;
(6) no adjustments in the Warrant Price shall be made in
respect of the issuance of Warrant Stock upon exercise of the
Warrant or in respect of the issuance of Common Stock upon
conversion of the Series A Preferred Stock of the Company;
(7) no further adjustments in the Warrant Price shall be
made under this paragraph (e) in respect of adjustments required
pursuant to paragraphs (a) through (c) of this Section 4.
(f) Certain Shares Excluded. The number of shares of Common Stock
outstanding at any given time for purposes of the adjustments set forth in
this Section 4 shall exclude any shares then directly or indirectly held
in the treasury of the Company.
(g) Deferral and Cumulation of De Minimis Adjustments. The Company
shall not be required to make any adjustment of the Warrant Price pursuant
to this Section 4 if the amount of such adjustment would be less than one
percent (1%) of the Warrant Price in effect immediately before the event
that would otherwise have given rise to such adjustment. In such case,
however, any adjustment that would otherwise have been required to be made
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to not less than one percent (1%) of the Warrant
Price in effect immediately before the event giving rise to such next
subsequent adjustment.
(h) Duration of Adjusted Warrant Price. Following each computation or
readjustment of an adjusted Warrant Price as provided in this Section 4,
the new adjusted Warrant Price shall remain in effect until a further
computation or readjustment thereof is required.
5. Notices to Holders.
------------------
(a) Notice of Record Date. In case:
Exhibit 1.7 - Page 9
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the
exercisable of this Warrant) for the purpose of entitling them to
receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to
subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation with or merger of the Company into another corporation,
or any conveyance of all or substantially all of the assets of the
Company to another corporation; or
(iii)of any voluntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will mail or cause to be mailed
to the Holder hereof at the time outstanding a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the date on
which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any, is to be fixed, as of which the holders of record of
Common Stock (or such stock or securities at the time receivable upon the
exercise of this Warrant) shall be entitled to exchange their shares of
Common Stock (or such other stock or securities) for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 30 days prior to the record date
therein specified, or if no record date shall have been specified therein,
at least 30 days prior to such other specified date.
(b) Notice of Adjustments. Whenever any Warrant Price shall be
adjusted, pursuant to Section 4 hereof, the Company shall promptly make a
certificate signed by its Chairman, its CEO, its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Warrant Price after giving
effect to such adjustment, and shall promptly cause copies of such
certificates to be mailed (by first class mail, postage prepaid) to the
Holder of this Warrant.
6. Loss, Theft, Destruction or Mutilation.
--------------------------------------
Upon receipt by the Company of evidence satisfactory to it, in the
exercise of its reasonable discretion, of the ownership and the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to the Company and, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
execute and deliver in lieu thereof, without expense to the Holder, a new
Warrant of like tenor dated the date hereof.
Exhibit 1.7 - Page 10
7. Warrant Holder Not a Stockholder.
--------------------------------
The Holder of this Warrant, as such, shall not be entitled by reason of
this Warrant to any rights whatsoever as a stockholder of the Company.
8. Transfer; Register.
------------------
Subject to the provisions of Section 2 above, this Warrant is transferable
in the same manner and with the same effect as in the case of a negotiable
instrument payable to a specified person. The Warrants shall be issued in
registered form only and the Company shall keep a register (the "Warrant
Register") in which provisions shall be made for the registration of the
Warrants and the registration of transfers thereof. Such Register shall be kept
at the principal office of the Company and the Company is hereby appointed the
"Warrant Registrar" for the purpose of registering the Warrants and transfers of
the Warrants. Subject to compliance with the provisions of Section 2 hereof and
Article III of the Securities Purchase Agreement by a transferee, upon surrender
for registration of transfer of any Warrant at the principal office of the
Company and compliance with the provisions of Section 2 hereof and Section 3.1
of the Securities Purchase Agreement, if applicable, the Company shall execute
and deliver, in the name of the designated transferee, a new Warrant. The
Company shall treat the individual or entity in whose name each Warrant is
registered on the Warrant Register as the sole and absolute owner thereof,
notwithstanding any contrary notice.
9. Registration Rights.
-------------------
The Holder shall have certain registration rights with respect to the
Warrant Shares, all as set forth in a Registration Rights Agreement of even date
herewith among the Company, the Holder and certain other Holders.
10. Notices.
-------
Any notice required or contemplated by this Warrant shall be deemed to
have been duly given if transmitted by registered or certified mail, return
receipt requested, to the Company at 7030 Empire Central Drive, Houston, Texas
77040, Attention: President, or to the Holder at the name and address set forth
in the Warrant Register maintained by the Company.
11. Choice of Law.
-------------
This Warrant shall be governed by the local laws of the Texas, except to
the extent that the law of the Company's jurisdiction of organization is
required to be applied.
[END OF PAGE - SIGNATURES PAGE NEXT PAGE]
Exhibit 1.7 - Page 11
IN WITNESS WHEREOF, the undersigned has duly signed this Warrant as of
this_____ day of ____________, 2001.
FLOTEK INDUSTRIES, INC.
By: ___________________________________
Jerry D. Dumas, Sr., President and CEO
Exhibit 1.7 - Page 12
ASSIGNMENT FORM
FOR VALUE RECEIVED, the Undersigned Holder of the attached Warrant, hereby
sells, assigns and transfers unto _______________________________ the right to
purchase ______________________________ shares of Common Stock of FLOTEK
INDUSTRIES, INC. evidenced by the attached Warrant, and does hereby irrevocably
constitute and appoint _________________________________ Attorney to transfer
the said Warrant on the books of the Company with full power of substitution.
HOLDER:
________________________________________
Name:
Dated: _________________________________
----------------------------------
In the presence of:
Name:
(NOTE: The signature of the Holder on the foregoing Assignment must correspond
exactly to the name as written on the face of the Warrant, without any
alteration, enlargement or change whatsoever.)
Exhibit 1.7 - Page 13
SUBSCRIPTION FORM
The Undersigned, the Holder of the attached Warrant, hereby irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase thereunder, the following shares of Common Stock of FLOTEK INDUSTRIES,
INC.:
Number of Shares Purchase Price Per Share
The undersigned herewith makes payment of $_______ therefor, and requests
that certificates for such shares (and any warrants or other property issuable
upon such exercise) be issued in the name of and delivered to___________________
whose address is ________________________________________ and, if such shares
shall not include all of the shares issuable under such warrant, that a new
warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
HOLDER:
__________________________________
Name:
Dated: ___________________________
----------------------------------
Exhibit 1.7 - Page 14