EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of February 1, 2002,
by Allis-Chalmers Corporation, a Delaware corporation ("Buyer") and Jens H.
Mortensen, Jr., an individual resident in McAllen, Texas ("Seller").
R E C I T A L S
Seller desires to sell, and Buyer desires to purchase, eighty-one percent
(81%) of the issued and outstanding shares (the "Shares") of capital stock of
Jens' Oil Field Service, Inc., a Texas corporation (the "Company"), for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Applicable Contract"--any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or
any of the assets owned or used by it is or may become bound.
"Balance Sheet"--as defined in Section 3.4.
"Best Efforts"--the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if
there is or has been (a) any inaccuracy in or breach of, or any failure
to perform or comply with, such representation, warranty, covenant,
obligation, or other provision, or (b) any claim (by any person) or
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and
the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence or circumstance.
"Buyer"--as defined in the first paragraph of this Agreement.
"Closing"--as defined in Section 2.3.
"Closing Date"--the date and time as of which the Closing actually takes
place.
"Company"--as defined in the Recitals of this Agreement.
"Company's CPAs"-are Ewing, Lara, Ebner & Company, P.C., certified
public accountants.
"Consent"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
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(b) the execution, delivery, and performance of the Promissory
Note, the Security Agreement, the Subordination Agreement, the
Shareholders Agreement, the Option Agreement, the Guaranty Agreement,
the Employment Agreement, the Non-competition Agreement, and the
Seller's Release;
(c) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Company.
"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Damages"--as defined in Section 8.2.
"Disclosure Letter"--the disclosure letter delivered by Seller to Buyer
as of the Closing.
"Employment Agreement"--as defined in Section 2.4(a)(iii).
"Encumbrance"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.
"Environmental, Health, and Safety Liabilities"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") required by applicable
Environmental Law or Occupational Safety and Health Law (whether or not
such Cleanup has been required or requested by any Governmental Body or
any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and
Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq., as amended ("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
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(a) advising appropriate authorities, employees, and the public
of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of
the commencements of activities, such as resource extraction or
construction, that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"Facilities"--any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any
buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) currently or formerly owned or operated by
the Company.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4 were prepared.
"Governmental Authorization"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"Guaranty Agreement"--as defined in Section 2.4(b)(viii).
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"Hazardous Activity"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on,
under, about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that
increases the danger, or risk of danger, or poses an unreasonable risk
of harm to persons or property on or off the Facilities, or that may
affect the value of the Facilities or the Company.
"Hazardous Materials"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any admixture or
solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act
or any successor law.
"Indemnified Persons"- as defined in Section 8.2.
"Intellectual Property Assets" --as defined in Section 3.22.
"Interim Balance Sheet"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving,
or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or
at any time had, Knowledge of such fact or other matter.
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.
"Net Working Capital"-is the current assets less current liabilities as
determined in accordance with GAAP.
"Non-Competition Agreement"-as defined in Section 2.4(a)(iv).
"Occupational Safety and Health Law"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and
healthful working conditions.
"Option Agreement"--as defined in Section 2.4(a)(ix).
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"Order"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons
exercising similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other Persons
that are in the same line of business as such Person.
"Organizational Documents"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership; (c)
the limited partnership agreement and the certificate of limited
partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any amendment to any of the foregoing.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.
"Plan"--as defined in Section 3.13.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by
or before, or otherwise involving, any Governmental Body or arbitrator.
"Promissory Note"-as defined in Section 2.4(b)(ii).
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
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(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b)
or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural
person who resides with such individual, and (b) "Material Interest"
means direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least five percent (5%) of the
outstanding voting power of a Person or equity securities or other
equity interests representing at least five percent (5%) of the
outstanding equity securities or equity interests in a Person.
"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether intentional or unintentional.
"Representative"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial
advisors.
"Securities Act"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Security Agreement"--as defined in Section 2.4(b)(ii).
"Seller"--as defined in the first paragraph of this Agreement.
"Seller's Release"--as defined in Section 2.4(a)(ii).
"Shares"--as defined in the Recitals of this Agreement.
"Shareholders Agreement"--as defined in Section 2.4(b)(vi).
"Subordination Agreement"--as defined in Section 2.4(a)(vii).
"Subsidiary"--with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power
to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to
direct the business and policies of that corporation or other Person
(other than securities or other interests having such power only upon
the happening of a contingency that has not occurred) are held by the
Owner or one or more of its Subsidiaries; when used without reference to
a particular Person, "Subsidiary" means a Subsidiary of the Company.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted
to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any
Legal Requirement relating to any Tax.
"Threat of Release"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment
that may result from such Release.
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"Threatened"--a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances
exist, that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be (a)
$14,250,000.00, and (b) the shares of common stock, $.15 par value ("Common
Stock") of Buyer in an amount equal to $1,625,000.00 as determined pursuant to
2.4(b)(vii).
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Buyer's counsel at 440 Louisiana, Suite 2200,
Houston, Texas 77002, on the date of this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;
a release in the form of Exhibit 2.4(a)(ii) executed by Seller
("Seller's Release");
employment agreement in the form of Exhibit 2.4(a)(iii),
executed by Seller ("Employment Agreement");
non-competition agreement in the form of Exhibit 2.4(a)(iv),
executed by Seller ("Non-Competition Agreement"), providing for
payments to Seller as described therein;
a certificate executed by Seller representing and warranting to
Buyer that each of Seller's representations and warranties in this
Agreement was accurate in all respects as of the Closing Date;
shareholders agreement in the form of Exhibit 2.4(a)(vi)
executed by Seller ("Shareholders Agreement");
(ii) subordination agreement executed by Seller in such form as
is agreeable to Seller ("Subordination Agreement");
the amount of Net Working Capital on behalf of the Company as
described in Section 2.5 hereof; and
the option agreement in the form of Exhibit 2.4 (a)(ix) executed
by Seller ("Option Agreement").
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Buyer will deliver to Seller:
the following amounts by wire transfer to accounts specified by
Seller in the amount of $10,250,000.00;
the promissory note payable to Seller in the principal amount of
$4,000,000.00, in the form of Exhibit 2.4(b)(ii) ("Promissory
Note"), such Promissory Note will be secured by a lien on all the
Company's equipment as described in the Security Agreement in the
form of Exhibit 2.4(b)(ii) ("Security Agreement");
a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in all
respects as of the Closing Date;
the Employment Agreement executed by the Company and approved by
Buyer;
the Non-Competition Agreement executed by Buyer;
the Shareholder Agreement executed by Buyer and the Company;
Buyer will issue to Seller such shares of Common Stock as are
determined by dividing $1,625,000.00 by the average of the closing
bid and offer price for the Common Stock for the preceding thirty
(30) trading days prior to the Closing Date. Such amount will be
rounded off to whole shares and no payment will be made in lieu of
fractional shares;
the guaranty agreement in the form of Exhibit 2.4(b)(viii)
executed by Munawar H. Hidayatallah ("Guaranty");
the Option Agreement executed by the Company; and
Buyer will provide to Seller copies of the promissory note from
Buyer to the Company and copies of the minutes of the Board of
Directors meetings authorizing the loan to Buyer from the Company.
(c) Buyer agrees to take all necessary action to remove Seller from
any personal guarantees of accounts or Contracts of the Company and
Buyer will take all necessary steps to maintain accounts if Buyer so
desires to maintain such accounts following Closing.
2.5 FINANCIAL CONDITION REQUIREMENTS OF THE COMPANY;
ADDITIONAL PURCHASE PRICE
(a) Buyer will cause the Company's CPAs, within forty-five (45) days
after Closing, to prepare a review of the Company's financial
statements, to determine the (i) Net Working Capital as of December 31,
2001, (ii) the consolidated stockholder's equity as of the Closing and
(iii) the net income or loss as determined in accordance with GAAP for
the Company for the one month period of January 1, 2002 through January
31, 2002 ("Review"). Upon completion of the Review, Buyer will forward a
copy of the Review to Seller. The Review will include a list of the
domestic and Mexican account receivables by name of customer, amount and
invoice date included in the Net Working Capital. The accounts
receivable included in determining the Net Working Capital shall only
include those that are due and payable in full within ninety (90) days
of the date of invoice for domestic accounts receivable and within one
hundred twenty (120) days of the date of invoice for Mexican accounts
receivable as of December 31, 2001.
(b) Seller covenants and agrees that as of December 31, 2001 the
Company's consolidated stockholder's equity shall be at least
$5,500,000.00 as determined in accordance with GAAP, and the Company
will have no indebtedness as of the Closing, except for trade payables,
insurance premium notes
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due and payable within twelve (12) months, accrued liabilities and
lessee's deposits incurred in the Ordinary Course of Business. All
customer deposits and escrow liabilities shall be treated as a long term
liability and all cash collateral required to fund such liabilities
shall be treated as a long term asset.
(c) Seller covenants and agrees that as of December 31, 2001 the
Company will have at least $3,150,000.00 in Net Working Capital of which
at least $400,000.00 shall be in cash ("Net Working Capital
Requirement"). If the Net Working Capital, as indicated by the Review,
exceeds $3,150,000.00 as of December 31, 2001, such excess amount over
$3,150,000.00 shall be paid to Seller by Buyer in the form of additional
Purchase Price in cash within ten (10) days following the receipt of the
Review by Buyer. If the additional Purchase Price payment described
above is not paid within ten (10) days of the receipt of the Review by
Seller, the unpaid amount shall bear interest at the rate of seven and
one-half percent (7.5%) per annum until paid. If the Review indicates
that the Net Working Capital Requirement is not met, then Seller will
pay in cash to Buyer the amount necessary to equal the Net Working
Capital Requirement in ten (10) days following notice thereof. In
addition, the amount of any accounts receivable of the Company accrued
prior to December 31, 2001 and not included in determining the Net
Working Capital Requirement shall be paid to Seller when collected by
Buyer as additional purchase price.
(d) If as of April 30, 2002 all or any portion of the accounts
receivable that were included in the Net Working Capital Requirement as
indicated in the Review, are not collected by Buyer, then Buyer will
transfer and assign such uncollected accounts receivable or portion
thereof, as applicable, to Seller in return for cash equal to the full
value of such unpaid accounts receivable. Seller will pay to Buyer in
cash within five (5) days after written notice, the amount of such
accounts receivable or portion thereof not collected as of April 30,
2002 that was included in the Net Working Capital Requirement. Buyer
will cooperate and assist Seller in collecting such accounts receivable
so transferred. Any accounts receivable of the Company collected by
Buyer after April 30, 2002, that were fully reserved or not included in
the Net Working Capital Requirement and, shall be paid to Seller by
Buyer as additional Purchase Price upon collection of such accounts
receivable.
(e) The Company's CPA's will determine the Company's net income or
loss, as the case may be, in accordance with GAAP for the period
beginning January 1, 2002 through January 31, 2002. Upon receipt of the
Review indicating such net income or loss, either (i) the Company will
pay to Seller in the event of net income, such amount of net income for
the month of January, 2002 as additional Purchase Price within ten (10)
days following receipt of the Review or (ii) in the event of net loss
the Buyer shall first offset such amount of net loss against any
additional Purchase Price due Seller under subsection (b) above, or
Seller shall pay in cash to Buyer the amount of the net loss within 10
days following receipt of the Review.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
Part 3.1 of the Disclosure Letter contains a complete and accurate
list for the Company of its name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each stockholder and the
number of shares held by each). The Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform all
its obligations under Applicable Contracts. The Company is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or
the nature of the activities conducted by it, requires such
qualification.
Seller have delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
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3.2 AUTHORITY; NO CONFLICT
This Agreement constitutes the legal, valid, and binding obligation of Seller,
enforceable against Seller in accordance with its terms. Upon the
execution and delivery by Seller of the Employment Agreement, the
Seller's Release, Non-Competition Agreement, Security Agreement, the
Subordination Agreement and the Shareholder Agreement (collectively, the
"Seller's Closing Documents"), the Seller's Closing Documents will
constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms.
Seller has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the Seller's Closing
Documents and to perform its obligations under this Agreement and the
Seller's Closing Documents.
Except as set forth in Part 3.2 of the Disclosure Letter, neither the execution
and delivery of this Agreement nor the consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with
or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of
(A) any provision of the Organizational Documents of the Company,
or (B) any resolution adopted by the board of directors or the
stockholders of the Company;
(ii) contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any
Order to which the Company or Seller, or any of the assets owned
or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate,
or modify, any Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or any of
the assets owned or used by the Company;
(iv) cause the Company to become subject to, or to become
liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a violation
or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Company.
Except as set forth in Part 3.2 of the Disclosure Letter, neither
the Seller or the Company is or will be required to give any notice to
or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any
of the Contemplated Transactions.
(c) Seller is acquiring the Promissory Note and shares of Common
Stock of Buyer for his own account and not with a view to the
distribution thereof within the meaning of Section 2(11) of the
Securities Act. The Seller is an "accredited investor" as such term is
defined in Rule 501(a) of the Securities Act. Seller understands that
the shares of the Common Stock of Buyer have not been registered under
the Securities Act, or any state securities laws, and that no resales of
such shares may be effected unless such resale is registered under the
Securities Act or an exemption from registration is available.
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3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 100,000
shares of common stock, no par value, of which 3,750 shares are issued and
outstanding and 1,250 are held as treasury shares. Seller is and will be on the
Closing Date the record and beneficial owner and holder of all the shares of
common stock, free and clear of all Encumbrances. Seller will transfer to Buyer
3,038 of the shares of common stock and will retain 712 shares of the common
stock which will constitute nineteen percent (19%) of the shares of common stock
and Buyer will own eighty-one percent (81%) of the shares of common stock. No
legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business. The Company does
not have any Subsidiaries.
3.4 FINANCIAL STATEMENTS
(a) Seller has delivered to Buyer: (i) unaudited consolidated
balance sheets of the Company as of the year ended March 31 for each of
the fiscal years 1998 through 2001, and the related unaudited
consolidated statements of income, changes in stockholders' equity, and
cash flow for each of the fiscal years then ended, and (ii) an unaudited
consolidated balance sheet of the Company as of September 30, 2001 (the
"Interim Balance Sheet") which has been reviewed by the Company's CPAs
at Buyer's cost, and the related unaudited consolidated statements of
income, changes in stockholders' equity, and cash flow for the six (6)
months then ended, respectively, including in each case the notes
thereto. Such financial statements and notes, represent the financial
condition and the results of operations, changes in stockholders'
equity, and cash flow of the Company as at the respective dates of and
for the periods referred to in such financial statements, all in
accordance with GAAP, subject, in the case of interim financial
statements to normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, be materially adverse) and
the absence of notes (that, if presented, would not differ materially
from those included in the year ended financial statements); the
financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the
periods involved. No financial statements of any Person other than the
Company is required by GAAP to be included in the consolidated financial
statements of the Company.
The Company will have (i) at least $5,500,000.00 in consolidated
stockholders equity as determined in accordance with GAAP on the Closing
Date, (ii) no indebtedness except for trade payables, insurance premium
notes, accrued liabilities, and lessee deposits incurred in the Ordinary
Course of Business on the Closing Date, and (iii) a minimum of
$3,150,000.00 in Net Working Capital of which at least $400,000.00 shall
be in cash as of December 31, 2001.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to Buyer, are
complete and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
(a) Part 3.6 of the Disclosure Letter contains a complete and
accurate list of all real property, leaseholds, or other interests
therein owned by the Company. Seller has delivered or made available to
Buyer copies of the deeds and other instruments (as recorded) by which
the Company acquired such real
33
property and interests, and copies of all title insurance policies,
opinions, abstracts, and surveys in the possession of Seller or the
Company and relating to such property or interests. The Company owns
(with good and marketable title in the case of real property, subject
only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether
tangible or intangible) that it purports to own, including all of the
properties and assets reflected in the Balance Sheet and the Interim
Balance Sheet (except for assets held under capitalized leases disclosed
or not required to be disclosed in Part 3.6 of the Disclosure Letter and
personal property sold since the date of the Balance Sheet and the
Interim Balance Sheet, as the case may be, in the Ordinary Course of
Business), and all of the properties and assets purchased or otherwise
acquired by the Company since the date of the Balance Sheet (except for
personal property acquired and sold since the date of the Balance Sheet
in the Ordinary Course of Business and consistent with past practice).
All material properties and assets reflected in the Balance Sheet and
the Interim Balance Sheet are free and clear of all Encumbrances and are
not, in the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties
and assets, (a) mortgages or security interests shown on the Balance
Sheet or the Interim Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (b)
mortgages or security interests incurred in connection with the purchase
of property or assets after the date of the Interim Balance Sheet (such
mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (c)
liens for current taxes not yet due, and (d) with respect to real
property, (i) minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or impairs the
use of the property subject thereto, or impairs the operations of the
Company, and (ii) zoning laws and other land use restrictions that do
not impair the present or anticipated use of the property subject
thereto. All buildings, plants, and structures owned by the Company lies
wholly within the boundaries of the real property owned by the Company
and does not encroach upon the property of, or otherwise conflict with
the property rights of, any other Person.
(b) The Company has no long term secured indebtedness as of the
Closing Date and no assets, real or personal property, are subject to
any Encumbrance except as listed in Part 3.6 of the Disclosure Letter.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's businesses after the
Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Interim Balance Sheet or
on the accounting records of the Company as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a greater percentage of
the Accounts Receivable as of the Closing Date than the reserve reflected in the
Interim Balance Sheet represented of the Accounts Receivable reflected therein
and will not represent a material adverse change in the composition of such
Accounts Receivable in terms of aging). Subject to such reserves, each of the
Accounts Receivable either has been or will be collected in full, without any
set-off, within 90-days of the date of invoice (except in the case of foreign
accounts receivable, within 120-days of the date of invoice). There is no
contest, claim, or right of set-off, other than returns in the Ordinary Course
of Business, under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. Part 3.8 of the
Disclosure Letter contains a complete and accurate list of all Accounts
Receivable as of the date of the Agreement, which list sets forth the aging of
such Accounts Receivable.
34
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Interim
Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Interim Balance Sheet or on the accounting records
of the Company as of the Closing Date, as the case may be. The quantities of
each item of inventory (whether raw materials, work-in-process, or finished
goods) are not excessive, but are reasonable in the present circumstances of the
Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the Company
has no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Interim Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis
since January 1, 1996) all Tax Returns that are or were required to be
filed by or with respect to any of them, either separately or as a
member of a group of corporations, pursuant to applicable Legal
Requirements. Seller has delivered or made available to Buyer copies of,
and Part 3.11 of the Disclosure Letter contains a complete and accurate
list of, all such Tax Returns relating to income or franchise taxes
filed since January 1, 1996. The Company has paid, or made provision for
the payment of, all Taxes that have or may have become due pursuant to
those Tax Returns or otherwise, or pursuant to any assessment received
by Seller or the Company, except such Taxes, if any, as are listed in
Part 3.11 of the Disclosure Letter and are being contested in good faith
and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Balance Sheet and the Interim Balance Sheet.
(b) Part 3.11 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each audit.
All deficiencies proposed as a result of such audits have been paid,
reserved against, settled, or, as described in Part 3.11 of the
Disclosure Letter, are being contested in good faith by appropriate
proceedings. Part 3.11 of the Disclosure Letter describes all
adjustments to the United States federal income Tax Returns filed by the
Company or any group of corporations including the Company for all
taxable years since January 1, 1996, and the resulting deficiencies
proposed by the IRS. Except as described in Part 3.11 of the Disclosure
Letter, neither Seller or the Company has given or been requested to
give waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or for which the Company
may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on
the respective books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's liability
for Taxes. There exists no proposed tax assessment against the Company
except as disclosed in the Interim Balance Sheet or in Part 3.11 of the
Disclosure Letter. No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the Company
is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been
paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated
basis) the Company are true, correct, and complete. There is no tax
sharing agreement that will require any payment by the Company after the
date of this Agreement. The Company is not, nor within the five-year
period preceding the Closing Date has been, an "S" corporation. During
the consistency period (as defined in Section 338(h)(4) of the IRC with
respect to the sale of the Shares to Buyer), neither the Company or any
target affiliate (as defined in Section 338(h)(6) of the IRC with
respect to the sale of the Shares to Buyer) has sold or will sell any
property or assets to Buyer or to any member of the affiliated group (as
defined in Section 338(h)(5) of the IRC) that includes Buyer. Part 3.11
of the Disclosure Letter lists all such target affiliates.
3.12 NO MATERIAL ADVERSE CHANGE
35
Except as disclosed in Section 3.12 of the Disclosure Letter, since the
date of the Interim Balance Sheet and through the date of the Disclosure Letter
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of the Company, and to Seller's
knowledge no event has occurred or circumstance exists that may result in such a
material adverse change.
3.13 EMPLOYEE BENEFITS
As used in this Section 3.13, the following terms have the meanings
set forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation
owed, adopted, or followed by the Company or an ERISA Affiliate of the
Company.
"Company Plan" means all Plans of which an Acquired Company or an ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which the
Company or an ERISA Affiliate of the Company otherwise contributes or
has contributed, or in which the Company or an ERISA Affiliate of the
Company otherwise participates or has participated. All references to
Plans are to Company Plans unless the context requires otherwise.
"Company VEBA" means a VEBA whose members include employees of the
Company or any ERISA Affiliate of the Company.
"ERISA Affiliate" means, with respect to the Company, any other person
that, together with the Company, would be treated as a single employer
under IRC Section 414.
"Multi-Employer Plan" has the meaning given in ERISA Section 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than
obligations, arrangements, and practices that are Plans. Other Benefit
Obligations include consulting agreements under which the compensation
paid does not depend upon the amount of service rendered, sabbatical
policies, severance payment policies, and fringe benefits within the
meaning of IRC Section 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of IRC Section 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC
Section 501(c)(9).
"Welfare Plan" has the meaning given in ERISA Section 3(1).
(b)
(i) Part 3.13(i) of the Disclosure Letter contains a
complete and accurate list of all Company Plans, Company Other
Benefit Obligations, and Company VEBAs, and identifies as such
all Company Plans that are (A) defined benefit Pension Plans, (B)
Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer Plans.
36
(ii) Part 3.13(ii) of the Disclosure Letter contains a
complete and accurate list of (A) all ERISA Affiliates of the
Company, and (B) all Plans of which any such ERISA Affiliate is
or was a Plan Sponsor, in which any such ERISA Affiliate
participates or has participated, or to which any such ERISA
Affiliate contributes or has contributed.
(iii) Part 3.13(iii) of the Disclosure Letter sets forth,
for each Multi-Employer Plan, as of its last valuation date, the
amount of potential withdrawal liability of the Company and the
Company's other ERISA Affiliates, calculated according to
information made available pursuant to ERISA Section 4221(e).
(c) Seller has delivered to Buyer, or will deliver to Buyer
within ten days of the date of this Agreement:
(i) all documents that set forth the terms of each Company
Plan, Company Other Benefit Obligation, or Company VEBA and of
any related trust, including (A) all plan descriptions and
summary plan descriptions of Company Plans for which Seller or
the Company are required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries
and descriptions furnished to participants and beneficiaries
regarding Company Plans, Company Other Benefit Obligations, and
Company VEBAs for which a plan description or summary plan
description is not required;
(ii) all personnel, payroll, and employment manuals and
policies;
(iii) all collective bargaining agreements pursuant to
which contributions have been made or obligations incurred
(including both pension and welfare benefits) by the Company and
the ERISA Affiliates of the Company, and all collective
bargaining agreements pursuant to which contributions are being
made or obligations are owed by such entities; and
(iv) a written description of any Company Plan or Company
Other Benefit Obligation that is not otherwise in writing;
(d) Except as set forth in Part 3.13(vi) of the Disclosure
Letter:
(i) The Company has performed all of its respective
obligations under all Company Plans, Company Other Benefit
Obligations, and Company VEBAs. The Company has made appropriate
entries in its financial records and statements for all
obligations and liabilities under such Plans, VEBAs, and
Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has been made
by the Company to any Person with regard to any Plan or Other
Benefit Obligation that was not in accordance with the Plan or
Other Benefit Obligation and that could have an adverse economic
consequence to the Company or to Buyer.
(iii) Each Company Plan can be terminated within thirty
days, without payment of any additional contribution or amount
and without the vesting or acceleration of any benefits promised
by such Plan.
(iv) Since January 1, 1999, there has been no
establishment or amendment of any Company Plan, Company VEBA, or
Company Other Benefit Obligation.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS
Except as set forth in Part 3.14 of the Disclosure Letter:
the Company is, and at all times since January 1, 1999
has been, in full compliance with each Legal Requirement that is
or was applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
37
no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the
Company to comply with, any Legal Requirement, or (B) may give rise
to any obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any
nature; and
the Company has not received, at any time since January 1,
1999, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to
comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of the Company to
undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or to any of the
assets owned or used by the Company. Each Governmental Authorization
listed or required to be listed in Part 3.14 of the Disclosure Letter is
valid and in full force and effect. Except as set forth in Part 3.14 of
the Disclosure Letter:
the Company is, and at all times since January 1, 1999 has
been, in full compliance with all of the terms and requirements of
each Governmental Authorization identified or required to be
identified in Part 3.14 of the Disclosure Letter;
no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly
or indirectly in a violation of or a failure to comply with any
term or requirement of any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Letter, or (B)
result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification
to, any Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter;
the Company has not received, at any time since January 1,
1999, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of or failure to
comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of,
or modification to any Governmental Authorization; and
all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in
Part 3.14 of the Disclosure Letter have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis
with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the
Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and
operate its business in the manner it currently conducts and operates
such business and to permit the Company to own and use its assets in the
manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
Except as set forth in Part 3.15 of the Disclosure Letter, there is
no pending Proceeding:
38
that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, the Company; or
that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of Seller and the Company, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
Seller has delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 3.15 of the Disclosure
Letter. The Proceedings listed in Part 3.15 of the Disclosure Letter will not
have a material adverse effect on the business, operations, assets, condition,
or prospects of the Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
Seller is not subject to any Order that relates to the business of,
or any of the assets owned or used by, the Company; and
to the Knowledge of Seller and the Company, no officer, director,
agent, or employee of the Company is subject to any Order that prohibits
such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business
of the Company.
Except as set forth in Part 3.15 of the Disclosure Letter:
the Company is, and at all times since January 1, 1999 has been, in
full compliance with all of the terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been
subject;
no event has occurred or circumstance exists that may constitute or
result in (with or without notice or lapse of time) a violation of or
failure to comply with any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is subject;
and
the Company has not received, at any time since January 1, 1999, any
notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term
or requirement of any Order to which the Company, or any of the assets
owned or used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since January
1, 2001, the Company has conducted its businesses only in the Ordinary Course of
Business and there has not been any:
change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
39
amendment to the Organizational Documents of the Company;
payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee (except in the Ordinary Course of
Business);
adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of the Company;
damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by or to the Company
of at least $10,000.00;
sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Company, including
the sale, lease, or other disposition of any of the Intellectual
Property Assets;
cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000.00;
material change in the accounting methods used by the Company; or
agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Seller have delivered to Buyer true and complete
copies, of:
each Applicable Contract that involves performance of
services or delivery of goods or materials by the Company of an
amount or value in excess of $10,000.00;
each Applicable Contract that involves performance of
services or delivery of goods or materials to the Company of an
amount or value in excess of $10,000.00;
each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or
receipts of the Company in excess of $10,000.00;
each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract
affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional
sales agreements having a value per item or aggregate
40
payments of less than $10,000.00 and with terms of less
than one year);
each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former employees,
consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets;
each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee
representative of a group of employees;
each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by the Company with any other Person;
each Applicable Contract containing covenants that in any
way purport to restrict the business activity of the Company, the
Seller or any Affiliate of the Company or limit the freedom of
the Company, the Seller or any Affiliate of the Company to engage
in any line of business or to compete with any Person;
each Applicable Contract providing for payments to or by
any Person based on sales, purchases, or profits, other than
direct payments for goods;
each power of attorney that is currently effective and
outstanding;
each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an
express undertaking by the Company to be responsible for
consequential damages;
each Applicable Contract for capital expenditures in
excess of $10,000.00;
each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by
the Company other than in the Ordinary Course of Business; and
each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably
complete details concerning such Contracts, including the parties to the
Contracts, the amount of the remaining commitment of the Company under
the Contracts, and the Company's office where details relating to the
Contracts are located.
Except as set forth in Part 3.17(b) of the Disclosure Letter:
neither Seller (and no Related Person of Seller) has or
may acquire any rights under, and neither Seller has or may
become subject to any obligation or liability under, any Contract
that relates to the business of, or any of the assets owned or
used by the Company; and
no officer, director, agent, employee, consultant, or
contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any
conduct, activity, or practice relating to the business of the
Company, or (B) assign to the Company or to any other Person any
rights to any invention, improvement, or discovery.
41
Except as set forth in Part 3.17(c) of the Disclosure Letter,
each Contract identified or required to be identified in Part 3.17(a) of
the Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms.
Except as set forth in Part 3.17(d) of the Disclosure Letter:
the Company is, and at all times since January 1, 1999 has
been, in full compliance with all applicable terms and
requirements of each Contract under which the Company has or had
any obligation or liability or by which the Company or any of the
assets owned or used by the Company is or was bound;
each other Person that has or had any obligation or
liability under any Contract under which the Company has or had
any rights is, and at all times since January 1, 1999 has been,
in full compliance with all applicable terms and requirements of
such Contract;
no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give the Company or
other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; and
the Company has not given to or received from any other
Person, at any time since January 1, 1999, any notice or other
communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or
default under, any Contract.
There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable
to the Company under current or completed Contracts with any Person and
no such Person has made written demand for such renegotiation.
The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company has been entered into
in the Ordinary Course of Business and have been entered into without
the commission of any act alone or in concert with any other Person, or
any consideration having been paid or promised, that is or would be in
violation of any Legal Requirement.
42
3.18 INSURANCE
Seller have delivered to Buyer:
true and complete copies of all policies of insurance to which
the Company is a party or under which the Company, or any director
or officer of the Company, is or has been covered at any time
within the three (3) years preceding the date of this Agreement;
true and complete copies of all pending applications for
policies of insurance; and
any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or
of the reserves for claims.
Part 3.18(b) of the Disclosure Letter describes:
any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by the Company; and
all obligations of the Company to third parties with respect to
insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is
provided.
Part 3.18(c) of the Disclosure Letter sets forth, by year, for the
current policy year and each of the three (3) preceding policy years:
a summary of the loss experience under each policy;
a statement describing each claim under an insurance policy for
an amount in excess of $10,000.00, which sets forth:
the name of the claimant;
a description of the policy by insurer, type of insurance,
and period of coverage; and
the amount and a brief description of the claim; and
a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such
claims.
Except as set forth on Part 3.18(d) of the Disclosure Letter:
All policies to which the Company is a party or that provide
coverage to Seller, the Company, or any director or officer of the
Company:
are valid, outstanding, and enforceable;
are issued by an insurer that is financially sound and
reputable;
taken together, provide adequate insurance coverage for
the assets and the operations of the Company for all risks
normally insured against by a Person carrying on the same
business or businesses as the Company;
43
are sufficient for compliance with all Legal Requirements
and Contracts to which the Company is a party or by which it is
bound;
will continue in full force and effect following the
consummation of the Contemplated Transactions; and
do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in part 3.19 of the disclosure letter:
The Company is, and at all times has been, in full compliance with,
and has not been and is not in violation of or liable under, any
Environmental Law. Neither Seller nor the Company has any basis to
expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or Threatened
order, notice, or other communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii) the current or
prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or
mixed) in which Seller or the Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials
were generated, manufactured, refined, transferred, imported, used, or
processed by Seller, the Company, or any other Person for whose conduct
they are or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
There are no pending or, to the Knowledge of Seller and the
Company, Threatened claims, Encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health, and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to
or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which Seller or the Company has or
had an interest.
Neither Seller nor the Company has Knowledge of any basis to
expect, nor has any of them or any other Person for whose conduct they
are or may be held responsible, received, any citation, directive,
inquiry, notice, Order, summons, warning, or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged,
actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Seller
or the Company had an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Seller, the Company, or any
other Person for whose conduct they are or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
Neither Seller nor the Company, or any other Person for whose
conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or , to
the Knowledge of Seller and the Company, with respect to any other
properties and assets (whether real, personal, or mixed) in which Seller
or the Company (or any predecessor), has or had an interest, or at any
44
property geologically or hydrologically adjoining the Facilities or any
such other property or assets.
To the Knowledge of Seller, there are no Hazardous Materials
present on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited
or located in land, water, sumps, or any other part of the Facilities or
such adjoining property, or incorporated into any structure therein or
thereon. Neither Seller, the Company, any other Person for whose conduct
they are or may be held responsible, or to the Knowledge of Seller and
the Company, any other Person, has permitted or conducted, or is aware
of, any Hazardous Activity conducted with respect to the Facilities or
any other properties or assets (whether real, personal, or mixed) in
which Seller or the Company has or had an interest except in full
compliance with all applicable Environmental Laws.
There has been no Release, to the Knowledge of Seller and the
Company, or Threat of Release of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used,
or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which Seller
or the Company has or had an interest, or any geologically or
hydrologically adjoining property, whether by Seller, the Company, or
any other Person.
Seller have delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Seller or the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Seller, the Company, or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws.
3.20 EMPLOYEES
Part 3.20 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the
Company, including each employee on leave of absence or layoff status:
employer; name; job title; current compensation paid or payable and any
change in compensation since January 1, 2001; vacation accrued; and
service credited for purposes of vesting and eligibility to participate
under the Company's pension, retirement, profit-sharing, thrift-savings,
deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation
plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan or any Director Plan.
No employee or director of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement,
between such employee or director and any other Person ("Proprietary
Rights Agreement") that in any way adversely affects or will affect (i)
the performance of his duties as an employee or director of the Company,
or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Seller or the Company by any such
employee or director. To Seller's Knowledge, no director, officer, or
other key employee of the Company intends to terminate his employment
with the Company.
Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or
45
director of the Company, or their dependents, receiving benefits or
scheduled to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage, retiree
life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1999, the Company has not been nor is a party to any
collective bargaining or other labor Contract. Since January 1, 1999, there has
not been, there is not presently pending or existing, and to Seller's Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or its premises, or (c) any application for certification of a collective
bargaining agent. To Seller's Knowledge no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the Company, and no such action
is contemplated by the Company. The Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
Intellectual Property Assets--The term "Intellectual Property
Assets" includes:
the name the Company's name, all fictional business names,
trading names, registered and unregistered trademarks, service
marks, and applications (collectively, "Marks");
all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
all copyrights in both published works and unpublished works
(collectively, "Copyrights");
all rights in mask works (collectively, "Rights in Mask
Works"); and
all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Company as licensee or licensor.
Agreements
Part 3.22(b) of the Disclosure Letter contains a complete and
accurate list and summary description, including any royalties paid or
received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company
is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs
with a value of less than $10,000.00 under which the Company is the
licensee. There are no outstanding and, to Seller's Knowledge, no
Threatened disputes or disagreements with respect to any such agreement.
Know-How Necessary for the Business
The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The
Company is the owner of all right, title, and interest in and to each of
the Intellectual Property Assets, free and clear of all liens, security
interests, charges,
46
encumbrances, equities, and other adverse claims, and has the right to
use without payment to a third party all of the Intellectual Property
Assets.
Patents
Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents. The Company
is the owner of all right, title, and interest in and to each of
the Patents, free and clear of all liens, security interests,
charges, encumbrances, entities, and other adverse claims.
All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use),
are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the
Closing Date.
No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Seller's
Knowledge, there is no potentially interfering patent or patent
application of any third party.
No Patent is infringed or, to Seller's Knowledge, has been
challenged or threatened in any way. None of the products
manufactured and sold, nor any process or know-how used, by the
Company infringes or is alleged to infringe any patent or other
proprietary right of any other Person.
All products made, used, or sold under the Patents have been
marked with the proper patent notice.
Trademarks
Part 3.22(e) of Disclosure Letter contains a complete and
accurate list and summary description of all Marks. The Company is
the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date.
No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Seller's Knowledge, no such
action is Threatened with the respect to any of the Marks.
To Seller's Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
47
No Mark is infringed or, to Seller's Knowledge, has been
challenged or threatened in any way. None of the Marks used by the
Company infringes or is alleged to infringe any trade name,
trademark, or service mark of any third party.
All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
Trade Secrets
With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in detail
and content to identify and explain it and to allow its full and
proper use without reliance on the Knowledge or memory of any
individual.
Seller and the Company have taken all reasonable precautions to
protect the secrecy, confidentiality, and value of their Trade
Secrets.
The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are
not part of the public knowledge or literature, and, to Seller's
Knowledge, have not been used, divulged, or appropriated either for
the benefit of any Person (other than the Company) or to the
detriment of the Company. No Trade Secret is subject to any adverse
claim or has been challenged or threatened in any way.
3.23 CERTAIN PAYMENTS
Since January 1, 1999, the Company has not, nor any director, officer,
agent, or employee of the Company, or any other Person associated with or acting
for or on behalf of the Company, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any Affiliate of the Company, or (iv) in violation of
any Legal Requirement, (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
3.24 DISCLOSURE
No representation or warranty of Seller in this Agreement and no
statement in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
There is no fact known to Seller that has specific application to
Seller or the Company (other than general economic or industry
conditions in the oil and gas industry) and that materially adversely
affects the assets, business, prospects, financial condition, or results
of operations of the Company (on a consolidated basis) that has not been
set forth in this Agreement or the Disclosure Letter.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as described in Part 3.25 of the Disclosure Letter, no Seller or
any Related Person of Seller or of the Company has, or since January 1, 1999,
has had any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the Company's
businesses. No Seller or any Related
48
Person of Seller or of the Company is, or since January 1, 1999 has owned (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company except for less than
one percent of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Seller has no record or beneficial interest in Maytep, the Company's lessee in
Mexico. Except as set forth in Part 3.25 of the Disclosure Letter, no Seller or
any Related Person of Seller or of the Company is a party to any Contract with,
or has any claim or right against, the Company.
3.26 BROKERS OR FINDERS
Seller and his agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement, except for the
Dillard Anderson Group for which Seller shall be responsible for all fees and
expenses.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Buyer is duly qualified and in
good standing in the State of Texas.
4.2 AUTHORITY; NO CONFLICT
This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms. Upon
the execution and delivery by Buyer of the Employment Agreement, the
Promissory Note, the Option Agreement, the Security Agreement, the
Non-Competition Agreement, the Subordination Agreement and the
Shareholder Agreement (collectively, the "Buyer's Closing Documents"),
the Buyer's Closing Documents will constitute the legal, valid, and
binding obligations of Buyer, enforceable against Buyer in accordance
with their respective terms. Buyer has the absolute and unrestricted
right, power, and authority to execute and deliver this Agreement and
the Buyer's Closing Documents and to perform its obligations under this
Agreement and the Buyer's Closing Documents.
Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the Contemplated Transactions
by Buyer will give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
any provision of Buyer's Organizational Documents;
any resolution adopted by the board of directors or the
stockholders of Buyer;
any Legal Requirement or Order to which Buyer may be subject;
or
any Contract to which Buyer is a party or by which Buyer may be
bound.
Buyer is not and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
49
Buyer is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Seller harmless from any such payment alleged to be due by or
through Buyer as a result of the action of Buyer or its officers or agents.
50
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
5.1 ACCURACY OF REPRESENTATIONS
All of Seller's representations and warranties in this Agreement
(considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all
material respects as of the date of this Agreement, and must be accurate
in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure
Letter.
Each of Seller's representations and warranties in Sections 3.3,
3.4, 3.12, and 3.24 must have been accurate in all respects as of the
date of this Agreement, and must be accurate in all respects as of the
Closing Date as if made on the Closing Date.
5.2 SELLER'S PERFORMANCE
All of the covenants and obligations that Seller is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
Each document required to be delivered pursuant to Section 2.4 must
have been delivered.
5.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter, if
any, must have been obtained and must be in full force and effect.
5.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
an opinion of J. W. Dyer and Associates, dated the Closing Date, in
the form of Exhibit 5.4(a); and
such other documents as Buyer may reasonably request for the purpose
of (i) evidencing the accuracy of any of Seller's representations and
warranties, (ii) evidencing the performance by Seller of, or the
compliance by Seller with, any covenant or obligation required to be
performed or complied with by such Seller, (iii) evidencing the
satisfaction of any condition referred to in this Section 5, or (iv)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
5.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
5.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
51
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
5.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
5.8 FINANCING
Buyer's obligation to purchase Seller's Shares and consummate the
Contemplated Transactions are subject to Buyer's receipt of the approval of
Buyer's lenders and obtaining appropriate financing in an amount sufficient to
enable the Buyer to complete the purchase of the Shares.
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
52
6.2 BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash
payment required to be made by Buyer pursuant to Section 2.4(b)(i).
6.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter
must have been obtained and must be in full force and effect.
6.4 ADDITIONAL DOCUMENTS
Buyer must have caused such other documents to be delivered to Seller as
Seller may reasonably request for the purpose of (i) enabling their counsel to
provide the opinion referred to in Section 5.4(a), (ii) evidencing the accuracy
of any representation or warranty of Buyer, (iii) evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation required
to be performed or complied with by Buyer, (ii) evidencing the satisfaction of
any condition referred to in this Section 8, or (v) otherwise facilitating the
consummation of any of the Contemplated Transactions.
6.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Seller to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
6.6 SELLER'S APPROVAL OF SUBORDINATION AGREEMENT
Prior to the Closing, Buyer will deliver to Seller (a) the form of the
Subordination Agreement (including option to purchase) proposed by Buyer and its
lenders; (b) all documents referred to or referenced in the Subordination
Agreement; (c) any notes and other security agreements collateralized by the
equipment referenced in the Security Agreement; and (d) all documents pertaining
to the financing arrangements described in the Subordination Agreement. Unless
Seller, in his sole discretion, approves of the Subordination Agreement, Seller
will have no obligation to consummate the Contemplated Transaction, and Buyer
will be liable for the break-up fee described in Section 7.1.
7. TERMINATION
7.1 TERMINATION EVENTS
If Buyer does not consummate the Contemplated Transactions through
no fault of Seller or the Company, and Seller has not breached this
Agreement prior to Closing, then Buyer will pay to Seller $50,000.00 as
a break-up fee. In the event that Seller supplements the Disclosure
Letter in any manner and Buyer does not consummate the Contemplated
Transactions as a result of such supplement, then Buyer will not be
liable to Seller for the described break-up fee.
7.2 EFFECT OF TERMINATION
Each party's right of termination under Section 7.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 7.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections 9.1
and 9.3 will survive; provided, however, that if this Agreement is terminated by
a party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's
53
failure to comply with its obligations under this Agreement, the terminating
party's right to pursue all legal remedies will survive such termination
unimpaired.
8. INDEMNIFICATION; REMEDIES
8.1 SURVIVAL; RIGHT TO INDEMNIFICATION
NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4(a)(v), and any other certificate
or document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation, provided,
however, Knowledge by Buyer's Chief Executive Officer with respect to the
accuracy or inaccuracy of or compliance with any representation, warranty,
covenant or obligation will limit Buyer's remedy solely to the right of
indemnification under Article VIII hereof.
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer, the Company, and their
respective Representatives (acting in the course and scope of their employment)
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
any Breach of any representation or warranty made by Seller in this
Agreement, the Disclosure Letter, or any other certificate or document
delivered by Seller pursuant to this Agreement;
any Breach of any representation or warranty made by Seller in this
Agreement as if such representation or warranty were made on and as of
the Closing Date;
any Breach by Seller of any covenant or obligation of Seller in this
Agreement;
any matter relating to (i) that certain lawsuit styled, United Oil
Minerals Limited Partnership vs. JENS' OIL FIELD SERVICE, INC.; Cause
No. 01-12-10860CV in the 79th Judicial District Court of Brooks County,
Texas, and (ii) that certain lawsuit styled, Deborah Sutton et al v.
Sutton Producing Corp. and Jens' Oilfield Supply; Cause No. 2001-CI-0670
in the 37th Judicial District Court of Bexar County, Texas, whether set
forth in the Disclosure Letter or otherwise. Notwithstanding anything
herein contained to the contrary in the Disclosure Letter, the above two
lawsuits shall be subject to indemnification pursuant to this Section
8.2; and
any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller
or the Company (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions.
Except as otherwise provided in this Agreement, the remedies
provided in this Section 8.2 will not be exclusive of or limit any other
remedies that may be available to the Indemnified Persons. The Seller's
indemnification under this Section 8.2 shall not be applicable to claims
by stockholders of Buyer. Upon consummation of this Agreement, Buyer
agrees to maintain or provide for comprehensive general liability
insurance coverage for the Company which will be at least as good or
better than the coverage provided by the Company's insurance prior to
the Closing Date, and provide that no lapse of insurance coverage for
liability matters will be allowed to transpire as a result of this
Agreement. It is expressly provided herein
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that in the event the Seller specifically discloses a condition that is
a Breach of a representation or warranty through the Disclosure Letter,
the Indemnified Persons will not be entitled to indemnification under
this Agreement for the Breach relating to such disclosure except for
those matters described in Section 8.2(d) hereof. It is also expressly
provided herein that in the event the Seller specifically discloses a
condition that is a Breach of a representation or warranty as of the
Closing, the Indemnified Persons will not be entitled to indemnification
under this Agreement for the Breach relating to such disclosure except
for claims by parties not related to, or affiliated with, any of the
following: (i) Buyer, (ii) the Company, or (iii) any of their respective
Representatives, stockholders, controlling persons or affiliates ("Third
Parties"), except for those matters described in Section 8.2(d) hereof.
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8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES
BY SELLER -- ENVIRONMENTAL MATTERS
In addition to the provisions of Section 8.2, Seller will indemnify and
hold harmless Buyer, the Company, and the Indemnified Persons from Third
Parties' claims, and will pay to Buyer, the Company, and the Indemnified Persons
the amount of, any Damages (including costs of cleanup, containment, or other
remediation) arising, directly or indirectly, from or in connection with:
any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other
properties and assets (whether real, personal, or mixed and whether
tangible or intangible) in which Seller or the Company has or had an
interest, or (B) any Hazardous Materials or other contaminants that were
present on the Facilities or such other properties and assets at any
time on or prior to the Closing Date; or (ii) (A) any Hazardous
Materials or other contaminants, wherever located, that were, or were
allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Seller or the Company or by any other Person for
whose conduct they are or may be held responsible at any time on or
prior to the Closing Date, or (B) any Hazardous Activities that were, or
were allegedly, conducted by Seller or the Company or by any other
Person for whose conduct they are or may be held responsible; or
any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including
trespass, nuisance, wrongful eviction, and deprivation of the use of
real property), or other damage of or to any Person, including any
employee or former employee of Seller or the Company or any other Person
for whose conduct they are or may be held responsible, in any way
arising from or allegedly arising from any Hazardous Activity conducted
or allegedly conducted with respect to the Facilities or the operation
of the Company prior to the Closing Date, or from Hazardous Material
that was (i) present or suspected to be present on or before the Closing
Date on or at the Facilities (or present or suspected to be present on
any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be
present on any of the Facilities on or prior to the Closing Date) or
(ii) Released or allegedly Released by Seller or the Company or any
other Person for whose conduct they are or may be held responsible, at
any time on or prior to the Closing Date.
Buyer will be entitled to control any Cleanup, any related
Proceeding, and, except as provided in the following sentence, any other
Proceeding with respect to which indemnity may be sought under this
Section 8.3. The procedure described in Section 8.9 will apply to any
claim solely for monetary damages relating to a matter covered by this
Section 8.3. Upon consummation of this Agreement, Buyer agrees to
maintain or provide for comprehensive general liability insurance
coverage for the Company which will be at least as good or better than
the coverage provided by the Company's insurance, and provide that no
lapse of insurance coverage for liability matters will be allowed to
transpire as a result of this Agreement. It is expressly provided herein
that in the event the Seller discloses an environmental condition or
liability through the Disclosure Letter, the Indemnified Persons will
not be entitled to indemnification under this Agreement for the
liability relating to such disclosure. It is also expressly provided
herein that in the event the Seller specifically discloses an
environmental condition as liability through the Closing, the
Indemnified Persons will not be entitled to indemnification under this
Agreement for the environmental condition or liability relating to such
disclosure except for claims by Third Parties.
8.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller, and will pay to Seller
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
56
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
8.5 TIME LIMITATIONS
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or
before two (2) years from the Closing Date Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Section 3.3, 3.11, 3.13, or 3.19,
or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before two
(2) years from the Closing Date Seller notifies Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Seller. Notwithstanding any of the foregoing in this Section 8.5, the
indemnification pursuant to Section 8.2(d) hereof is not subject to any time
limitation hereunder.
8.6 LIMITATIONS ON AMOUNT--SELLER
(a) Seller will have no liability (for indemnification or otherwise)
with respect to the matters described in clause (a), clause (b) or, to
the extent relating to any failure to perform or comply prior to the
Closing Date, clause (c) of Section 8.2 until the total of all Damages
with respect to such matters exceeds $25,000.00, and then only for the
amount by which such Damages exceed $25,000.00. In no event shall the
aggregate indemnification to be provided by Seller pursuant to the
matters described in Section 8.2(a), (b), (c) and (e) exceed
$2,000,000.00. In the event Buyer makes a claim for indemnification
pursuant to clauses (a), (b), (c) or (e) of Section 8.2 and is entitled
to indemnification pursuant to the terms of this Article VIII, Buyer and
Seller agree that any such indemnification will be first set off against
amounts due under the Note, including principal and accrued interest,
and if such indemnification exceeds the amounts due under the Note, the
excess shall be paid in cash.
Seller agrees to pay all Damages and defend at Seller's cost the
matters described in clause (d) of Section 8.2 hereof, and to pay to
Buyer in cash any Damages for which Buyer may be entitled pursuant to
Section 8.2(d).
However, this Section 8.6 will not apply to any Breach of any of
Seller's representations and warranties of which Seller had Knowledge at
any time prior to the date on which such representation and warranty is
made or any intentional Breach by Seller of any covenant or obligation.
8.7 LIMITATIONS ON AMOUNT--BUYER
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Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 8.4 until the
total of all Damages with respect to such matters exceeds $25,000.00, and then
only for the amount by which such Damages exceed $25,000.00. In no event shall
the aggregate indemnification to be provided by Buyer pursuant to this Article
VIII exceed $5,000,000.00. However, this Section 8.7 will not apply to any
Breach of any of Buyer's representations and warranties of which Buyer had
Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional Breach by Buyer of any covenant or
obligation, and Buyer will be liable for all Damages with respect to such
Breaches.
8.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
Promptly after receipt by an indemnified party under Section 8.2,
8.4, or (to the extent provided in the last sentence of Section 8.3)
Section 8.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any
liability that it may have to any indemnified party, except to the
extent that the indemnifying party demonstrates that the defense of such
action is prejudiced by the indemnifying party's failure to give such
notice.
If any Proceeding referred to in Section 8.8(a) is brought against
an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless
the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding
and provide indemnification with respect to such Proceeding), to assume
the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Section 8 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation of
Legal Requirements or any violation of the rights of any Person and no
effect on any other claims that may be made against the indemnified
party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within ten days after the indemnified
party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying
party will be bound by any determination made in such Proceeding or any
compromise or settlement effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary
damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
58
Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).
8.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
8.10 RIGHT OF SET-OFF
Buyer will give written notice to Seller for a claim for indemnification
and set-off specifying the details and the basis for such right to
indemnification and set-off which it may be entitled under this Section 8
against amounts otherwise payable under the Promissory Note. Within ten (10)
days after receipt of notice by Seller, Seller must respond in writing to Buyer,
and either : (a) agree that Buyer's claim for indemnification and right to
set-off is valid, in which case Buyer will set-off such amount, or (b) dispute
such set-off, in which case the parties will arbitrate such dispute in
accordance with this Agreement and no set-off will occur unless and until a
final order authorizing such set-off is entered by the Arbitrator. If Seller
fails to respond in writing within ten (10) days to Buyer's written notice,
Seller shall be deemed to have agreed with Buyer's claim for indemnification and
Buyer may set-off against the Promissory Note. Neither the exercise of, nor the
failure to, exercise such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it.
9. GENERAL PROVISIONS
9.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Seller will pay all amounts payable to Dillard
Anderson Group in connection with this Agreement and the Contemplated
Transactions. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party. In addition, in the
event of dispute involving this Agreement, the party who defaulted under the
Agreement will pay the attorney's fees, expenses, court costs and expert's fees
of the non-defaulting party.
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9.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyer determines. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Seller shall,
and shall cause the Company to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person. Seller and Buyer
will consult with each other concerning the means by which the Company's
employees, customers, and suppliers and others having dealings with the Company
will be informed of the Contemplated Transactions, and Buyer will have the right
to be present for any such communication.
9.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Seller will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Company to maintain in
confidence, written information stamped "confidential" when originally furnished
by another party or the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
9.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller: Jens H. Mortensen, Jr.
12301 Rooth Road
McAllen, Texas 78504
With a copy to: J. W. Dyer
Dyer & Associates
3700 North Tenth Street, Suite 105
McAllen, Texas 78501
Facsimile No: (956) 686-6601
Buyer: Allis-Chalmers Corporation
8150 Lawndale
Houston, Texas 77012
Attn: Munawar H. Hidayatallah
Facsimile No: (713) 928-2903
with a copy to: Wilson, Cribbs, Goren & Flaum, P.C.
440 Louisiana, Suite 2200
Houston, TX 77002
Attn: Theodore F. Pound III
Facsimile No: (713) 229-8824
9.5 BINDING ARBITRATION
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On the request of any party hereto, whether made before or after the
institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between any of
the parties hereto in any way arising out of, pertaining to or in
connection with this Agreement (a "Dispute") shall be resolved by
binding arbitration in accordance with the terms hereof. In the event of
any Dispute, any party may serve written notice of such Dispute on any
other party and each party to such Dispute shall undertake in good faith
to resolve such Dispute. If the parties cannot agree to resolve such
Dispute within fifteen (15) days after such written notice, any party to
such Dispute may, by further written notice (the "Arbitration Notice")
to the other party, commence an arbitration proceeding by bringing the
Dispute to one arbitrator or to an arbitration panel selected as
provided below.
Arbitrators. Dispute shall be decided by a single arbitrator, unless
the parties cannot agree within ten (10) days on a single arbitrator, in
which case they shall choose an arbitration panel comprised of three
arbitrators, one arbitrator to be selected by the party who sent the
Arbitration Notice, a second arbitrator to be selected by the other
adverse party, and the third arbitrator (the "Independent Arbitrator")
who will be the Chairman of the arbitration panel, to be appointed by
the first two arbitrators. In the event the first two arbitrators fail
to agree on the appointment of the Independent Arbitrator within fifteen
(15) days, the Independent Arbitrator shall be appointed on request of
any party hereto by any state district court judge in Hidalgo or Harris
County, Texas. Whether there is one arbitrator or a panel, each
arbitrator shall be a third party and a business person knowledgeable in
the subject matter of the Dispute. In the event that any arbitrator
shall resign, be unable or otherwise fail to perform his or her duties,
each party shall immediately notify the other parties of such
resignation, inability or failure, and a replacement shall immediately
be selected by the party who selected such arbitrator in the instance,
or, if the arbitrator to be replaced is the Independent Arbitrator, then
the parties shall attempt in good faith to appoint a mutually agreeable
replacement Independent Arbitrator. If the parties fail to agree on such
replacement within fifteen (15) days, either party may request any state
district court judge in Hidalgo or Harris County, Texas to appoint such
replacement Independent Arbitrator.
Conduct of Arbitration. The arbitrator or the arbitration panel
shall conduct the arbitration in accordance with the Rules of
Arbitration of the American Arbitration Association then in effect,
except to the extent such rules are inconsistent with the provisions of
this Section 13. The parties shall prepare in writing a statement of
their positions, together with counterclaims, with supporting facts,
data, and affidavits, if any, and shall submit such statement to the
arbitrator, or arbitration panel within fifteen (15) days after
selection, but, in any event, within forty-five (45) days after service
of the Arbitration Notice. The arbitrator or the arbitration panel shall
give all parties the opportunity to make an oral presentation to the
arbitrator or the arbitration panel in the presence of the other party,
if either party so requests. The parties shall have, for a period of
one-hundred twenty (120) days after service of the Arbitration Notice
(the "Discovery Period"), all rights of discovery provided by the Texas
Rules of Civil Procedures then obtaining, except, unless otherwise
agreed, that all responses to discovery requests shall be served within
ten (10) days of such discovery request and no discovery request may be
served after the date ten (10) days before the termination of the
Discovery Period. The arbitrator or the arbitration panel shall assume
exclusive jurisdiction over the Dispute, may order interim equitable
relief (which shall be specifically enforceable as if it were a final
Award, as hereinafter defined), and shall be required to make a final
binding determination (the "Award"). The Award shall not be subject to
appeal to or review by any court or administrative body except as set
forth in Section 10(a) of the Federal Arbitration Act,
61
codified as 9 U.S.C.A. Section 10(a) (West Supp. 1997). The Award shall
determine (i) whether each party's obligations under this Agreement were
met, and (ii) what damages or remedies (which may include final
equitable reliefs) are due under the terms of this Agreement. In
addition, the arbitrator or the arbitration panel shall award recovery
of all costs and fees of arbitration to the prevailing party. The
agreement to arbitrate contained in this Section 13 shall be
specifically enforceable under the prevailing arbitration law, and shall
survive termination of this Agreement. Judgment upon the Award rendered
by the arbitrator or the arbitration panel may be entered in accordance
with applicable law in any court having jurisdiction therefor.
Arbitration shall, unless all the parties otherwise agree in writing,
take place in Houston, Texas.
9.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement. Buyer agrees to provide Seller with
copies of quarterly financial statements and audited year end financial
statements until the Note is paid in full.
9.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
9.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
Seller dated May 2, 2001) and constitutes (along with the documents referred to
in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
9.9 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, must relate only to
the representations and warranties in the Section of the Agreement to
which they expressly relate and not to any other representation or
warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with
respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
9.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding
62
in all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
9.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
9.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
9.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
ALLIS-CHALMERS CORPORATION
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Munawar H. Hidayatallah,
Chief Executive Officer
SELLER:
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Jens H. Mortensen, Jr., Individually
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Spouse of Jens H. Mortensen, Jr.
for sole purpose of conveying any
community property interest owned by her
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