EXHIBIT 10.1
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STOCK PURCHASE AGREEMENT
among
EPiC ENERGY RESOURCES, INC.
AND
PEARL INVESTMENT COMPANY
AND
THE SHAREHOLDERS OF PEARL INVESTMENT COMPANY
Dated as of August 31, 2007
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STOCK PURCHASE AGREEMENT
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This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
August 31, 2007 (the "Execution Date"), by EPiC ENERGY RESOURCES, INC., a
corporation organized under the laws of Colorado ("Purchaser" or "EPIC") and
PEARL INVESTMENT COMPANY, a Colorado corporation, ("PEARL"), and R. BRET
RHINESMITH ("Rhinesmith"), CURTIS L. GOOD ("Good") and PATRICK A. REDALEN
("Redalen") and, together PEARL, Rhinesmith, Good and Redalen shall be
collectively known as the "PEARL Parties" or "Seller". Each of EPIC, PEARL,
Rhinesmith, Good and Redalen also referred to individually as a "Party" or
collectively as the "Parties". Rhinesmith, Good and Redalen are sometimes
collectively referred to herein as the "Shareholders".
WITNESSETH
WHEREAS, the PEARL Parties desire to sell and assign to Purchaser and
Purchaser desires to purchase, and acquire from the PEARL Parties (as provided
herein), all of the PEARL Parties' right, title, and interest in and to one
hundred percent (100%) of the outstanding shares of PEARL (the "PEARL Common
Stock") on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
hereinafter set forth, and for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the Parties hereby
agree as follows:
ARTICLE 1
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Accounts Receivable" means (a) all trade accounts receivable and other
rights to payment from customers of any PEARL Group Member (as well as any
receivables due to PEARL from Rhinesmith, Redalen and Good) and the full benefit
of all security for such accounts or rights to payment, including all trade
accounts receivable representing amounts receivable in respect of goods shipped
or products sold or services rendered to customers of any PEARL Group Member,
(b) all other accounts or notes receivable of any PEARL Group Member and the
full benefit of all security for such accounts or notes and (c) any claim,
remedy or other right related to any of the foregoing.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act. It also means, with respect to a specified
Person, any other Person that directly or indirectly controls, is controlled by,
or is under common control with, such specified Person.
"Agreement" means this stock purchase agreement along with any
attachments, schedules and exhibits which are attached hereto and incorporated
herein. In the case of any conflict between the Agreement and any schedules,
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exhibits or attachments, the provisions of the Agreement shall take precedence
over any attachment or exhibit.
"Ancillary Agreements" have the meaning given in Section 4.2(c).
"Breach" means any breach of, or any inaccuracy in, any representation or
warranty or any breach of, or failure to perform or comply with, any covenant or
obligation, in or of this Agreement or any other Contract, or any event which
with the passing of time or the giving of notice, or both, would constitute such
a breach, inaccuracy or failure.
"Closing" has the meaning given in Section 2.6.
"Closing Date" has the meaning given in Section 2.5.
"Confidential Information" means any information concerning the
businesses and affairs of any PEARL Group Member that is proprietary in nature
and considered confidential by the Parties and not already generally available
to the public.
"Contracts" means any legally binding agreement, contract, lease,
consensual obligation, promise or undertaking (whether written or oral) of any
PEARL Group Member as of the Closing Date, including, but not limited, to those
Contracts listed on Schedule 4.12(a).
"Current Liabilities" means, as determined in accordance with GAAP (as
defined below):
(i) accounts payable and accrued Liabilities of all PEARL Group Members ;
(ii) Taxes payable by any PEARL Group Member relating to any period prior
to the Closing Date; and
(iii) all other Current Liabilities of any PEARL Group Member not described
above.
"Dollars" or "$" means U.S. dollars.
"Employee Plans" has the meaning set forth in Section 4.14(a).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Employment Agreements" has the meaning given in Section 2.6 (a).
"Encumbrance" means any pledge, lien (including without limitation Tax
lien), collateral assignment, security interest, mortgage, deed of trust, title
retention, conditional sale or other security arrangement, or any license, order
or charge, or any adverse claim of title, ownership or use, or agreement of any
kind restricting transfer.
"Environment" means 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,
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ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health, and Safety Requirements" means all federal, state,
local, and foreign statutes, regulations, and ordinances concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances, or wastes,
as such requirements are enacted and in effect on or prior to the Closing Date.
"Environmental Law" means any Legal Requirement that requires or relates
to:
(i) advising appropriate authorities, employees or the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits or other prohibitions and the
commencement of activities, such as resource extraction or
construction, that could have significant impact on the Environment;
(ii) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(iii) reducing the quantities, preventing the release or minimizing the
hazardous characteristics of wastes that are generated;
(iv) 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;
(v) protecting resources, species or ecological amenities;
(vi) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil or other potentially harmful
substances;
(vii) cleaning up pollutants that have been released, preventing the threat
of release or paying the costs of such cleanup or prevention; or
(viii) 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" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity that is treated as a single employer
with PEARL or any PEARL Group Member for purposes of Code ss. 414.
"Exchange Act" means the Securities Act of 1934, as amended.
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"Facility" or "Facilities" means any real property, leasehold or other
interest in real property currently owned or leased by a PEARL Group Member,
including the Tangible Personal Property used or operated by a PEARL Group
Member at the respective locations of the real property specified in Schedule
4.7
"Financial Statements" has the meaning given in Section 4.5.
"GAAP" means United States' generally accepted accounting principles as in
effect from time to time, consistently applied.
"Governing Documents" means with respect to any particular entity, (a) if
a corporation, the articles or certificate of incorporation and the bylaws; (b)
if a general partnership, the partnership agreement and any statement of
partnership; (c) if a limited partnership, the limited partnership agreement and
the certificate of limited partnership; (d) if a limited liability company, the
articles of organization and operating agreement; (e) if another type of Person,
any other charter or similar document adopted or filed in connection with the
creation, formation or organization of the Person; (f) all equity holders'
agreements, voting agreements, voting trust agreements, joint venture
agreements, registration rights agreements or other agreements or documents
relating to the organization, management or operation of any Person or relating
to the rights, duties and obligations of the equity holders of any Person; and
(g) any amendment or supplement to any of the foregoing.
"Governmental Body" means any state, municipal, local, national or
international body with jurisdiction over the Parties or the subject matter of
this Agreement.
"Governmental Authorization" means any consent, license, registration or
permit issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement.
"Indemnified Party" has the meaning given in Section 11.4.
"Indemnifying Party" has the meaning given in Section 11.4.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
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related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Interim Balance Sheet" has the meaning set forth in Section 4.5(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rulings and regulations promulgated thereunder.
"IRS" has the meaning set forth in Section 4.14(b).
"Knowledge" means, when referring to the knowledge of Seller, or any
similar phrase or qualification based on knowledge, (i) the actual knowledge of
any of the PEARL Parties, and (ii) the knowledge that any such person referenced
in clause (i) above, as a prudent business person, would have obtained in the
conduct of his or her business (as an employee of Seller) after making
reasonable inquiry and reasonable diligence with respect to the particular
matter in question.
"Legal Requirement" means any federal, state, provincial, territorial,
local, municipal, foreign, international, multinational or other constitution,
law, ordinance, code, regulation, statute or treaty.
"Liabilities" (or when used with reference to a single item described
below, "Liability") means debts, commissions, duties, fees, salaries,
performance or delivery penalties, liabilities, warranty liabilities (whether
implicit or explicit or whether granted orally or in writing) and obligations
(whether pecuniary or not, including without limitation obligations to perform
or forebear from performing acts or services), fines or penalties, whether
accrued or fixed, absolute or contingent, matured or un-matured, determined or
determinable, known or unknown, arising or existing anywhere in the world,
including without limitation those arising under any law, action or governmental
order, liabilities for Taxes and those arising under any contract, agreement,
arrangement, commitment or undertaking of any kind whatsoever (whether written
or oral, express or implied), including those arising under any contractual
obligation of a Party or any predecessor thereof.
"Material Change" means any effect or change that, taken as a whole, would
change the business prospects, operations, financial condition or assets of any
PEARL Group Member or the PEARL Parties, either positively or negatively. The
taking of any action contemplated by this Agreement and the Ancillary Agreements
contemplated hereby shall not be deemed to constitute a Material Change.
"Multiemployer Plan" has the meaning given in Section 4.14(a).
"Order" means any order, injunction, judgment, decree, ruling, assessment
or arbitration award of any Governmental Body or arbitrator.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
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"PEARL Group Members" means, collectively, each of Pearl Investment
Company, Pearl Development Company, LLC, Pearl Field Services, LLC, Pearl
Construction Company, LLC, Pearl Group Management, LLC, Pearl Process Systems,
LLC, Pearl Property Management, LLC., Pearl Aviation, LLC, and Pearl Development
Company (Australia) PTY LTD (or when used with reference to a single entity
described above, "PEARL Group Member").
"PBGC" has the meaning given in Section 4.14(b).
"Permitted Encumbrance" has the meaning given in Section 6.9.
"Person" means any natural person or legal entity, including without
limitation a joint venture, trust, association, joint stock company,
unincorporated organization, corporation, limited liability company, partnership
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Pre-Closing Tax Period" has the meaning set forth in Section 8.3(a).
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Purchase Price" has the meaning set forth in Section 2.4.
"Purchaser Group" has the meaning given in Section 7.8.
"Purchaser Indemnity" has the meaning given in Section 11.1.
"Related Person" means any individual related by blood, marriage or
adoption to any officer, director, or shareholder of Seller (each, a "Related
Person") in which any such Person owns any beneficial interest or is currently a
party to (and, during the three years preceding the date hereof, has been a
party to) any agreement, contract, commitment or transaction with Seller or has
any interest in any property, real or personal or mixed, tangible or intangible,
used in or in connection with the Seller's business.
"Seller Indemnity" has the meaning given in Section 11.1.
"Straddle Period" has the meaning given in Section 8.3(b).
"Subsidiaries" has the meaning given in Section 4.2(b).
"Tangible Personal Property" means all machinery, equipment, tools,
furniture, office equipment, computer hardware, supplies, materials, vehicles
and other items of tangible personal property of every kind owned or leased by
any PEARL Group Member (wherever located), together with any express or implied
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warranty by the manufacturers or sellers or lessors of any item or component
part thereof and all maintenance records and other documents relating thereto.
"Tax" (or "Taxes") means all taxes of any kind whatsoever (whether payable
directly or by withholding) assessed or imposed by any government or political
subdivision thereof (foreign or domestic), including without limitation
franchise, income, gross receipts, personal property, real property, ad valorem,
value added, sales, use, documentary, stamp, intangible personal property,
withholding or other taxes, together with any interest and penalties, additions
to tax or additional amounts with respect thereto imposed by any taxing
authority, duties, temporary or other import taxes, or penalties on unpaid or
non-declared taxes.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning given in Section 11.4.
Definitions Appearing Elsewhere in this Agreement. The terms used in this
Agreement which are defined in (a) the preface of this Agreement, (b) the
Witnesseth Section of this Agreement and (c) the further Sections of this
Agreement shall have the respective definitions therein ascribed to them.
ARTICLE 2
PURCHASE AND SALE
SECTION 2.1 Shares to Be Sold and Purchased. Subject to the terms and
conditions of this Agreement, the PEARL Parties shall, on the Closing Date,
sell, assign, transfer, convey and deliver to Purchaser and on the Closing Date
Purchaser shall purchase, acquire and receive from Seller, all outstanding
shares of the PEARL Common Stock, subject to the terms in this Agreement.
SECTION 2.2 Due Diligence. Purchaser has had ample opportunity to conduct a
complete review of all the PEARL Group Member's books and records. The scope and
conduct of this review shall be performed in accordance with the protocol
attached as Exhibit A.
SECTION 2.3 Pre-Purchase Notifications. Purchaser shall be responsible for
the Fees and all costs and submission of all regulatory filings related to any
required governmental or regulatory approvals. Seller shall cooperate with
Purchaser to complete such filings or applications at the reasonable request of
the Purchaser.
SECTION 2.4 Purchase Price. The purchase price (the "Purchase Price") for
the PEARL Common Stock will be made on the Closing Date as follows:
(a) Cash. The delivery by wire transfer of the amount of Eighteen Million
and No/100 Dollars ($18,000,000.00) to the trust account of McGloin,
Davenport, Severson & Snow, P.C. pursuant to the wiring instructions
set forth on said Exhibit B, attached hereto. Such proceeds shall be
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allocated among the Shareholders as set forth on Exhibit B.
(b) Purchase Stock. The delivery through the transfer agent of One Million
One Hundred Eighty Six Thousand Two Hundred Forty (1,186,240) shares
of stock in EPIC Energy Resources, Inc. Such Purchase Stock shall be
allocated as follows:
(i) 1,000,000 shares to Rhinesmith;
(ii) 126,928 shares to Redalen; and
(iii) 59,312 shares to Good.
SECTION 2.5 Closing. Subject to the terms and conditions of this Agreement,
all documents relating to the sale and purchase of the PEARL Common Stock and
all of the other closing deliveries required by Section 2.4 and Section 2.6
(other than delivery of the Cash portion of the Purchase Price) shall take place
at a closing at the offices of the Seller (the "Closing"). The date of the
closing shall be August 31, 2007 (the "Closing Date").
SECTION 2.6 Closing Deliveries. At the Closing, each of the following
parties shall deliver or cause to be delivered to the designated party or
parties all of the following, and in the case of executed agreements, documents
or instruments, in each case executed by the Party or a duly authorized
representative of the Party on such Party's behalf;
(a) The PEARL Parties shall deliver to Purchaser:
(i) endorsed share certificates or stock powers for 100% of the
outstanding shares of the PEARL Common Stock held by the PEARL
Parties;
(ii) resolutions of the board of directors of PEARL approving and
authorizing the execution, delivery and performance by it of this
Agreement and the Ancillary Agreements to which it is a party and
the consummation by it of the transactions described in this
Agreement and the Ancillary Agreements attached hereto as Exhibit
E;
(iii) Executed counterparts of Employment Agreements with each of the
key employees of the PEARL Group Members which Purchaser may
designate prior to Closing in substantially the form attached
hereto as Exhibit C (the "Employment Agreements").
(iv) Consents from third parties, including any governmental entity,
landlord or other person material to the business of any PEARL
Group Member and necessary, in the reasonable opinion of
Purchaser, for the consummation by Purchaser of the transactions
contemplated hereby; and
(v) all other items required to be delivered pursuant to the
provisions of this Agreement;
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(b) Purchaser shall deliver to Seller:
(i) all items required to be delivered pursuant to the provisions of
this Agreement;
(ii) resolutions of the board of directors of EPIC approving and
authorizing the execution, delivery and performance by it of this
Agreement and the Ancillary Agreements to which it is a party and
the consummation by it of the transactions described in this
Agreement and the Ancillary Agreements attached hereto as Exhibit
F; and
(iii) indemnification agreement substantially in the form attached
hereto as Exhibit G wherein EPIC agrees to indemnify, defend and
hold the Shareholders harmless from any claims or liabilities of
any type relating to any personal guaranties made by and of the
Shareholders for or on behalf of any PEARL Group Member.
SECTION 2.7 Trade Names. The PEARL Parties expressly represent and warrant
that the purchase of the PEARL Common Stock shall entitle Purchaser to have any
and all rights in and to the trade or brand names "Pearl" and all variations
thereof as currently used by any PEARL Group Member.
SECTION 2.8 Effective Date. The effective date of this transaction shall be
September 1, 2007 ("Effective Date").
ARTICLE 3
[FOR NOW LEFT BLANK INTENTIONALLY]
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PEARL PARTIES
As an inducement to Purchaser to enter into this Agreement, each of the
PEARL Parties represent and warrant to Purchaser that the statements contained
in Section 4.1 through Section 4.27 are correct and complete as of the Closing
Date:
SECTION 4.1 Existence and Good Standing.
(a) PEARL is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado. PEARL has all
requisite power and authority to own, lease and operate its assets and to
conduct its business as it is currently conducted, and is duly qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction in which its assets are owned, leased or operated by it or the
nature of the operation of its business requires it to qualify to transact
business as a foreign corporation. The jurisdictions in which PEARL is so
qualified are set forth on Schedule 4.1 hereto.
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(b) Pearl Development Company, LLC ("PDC") is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Colorado. PDC has all requisite power and authority to
own, lease and operate its assets and to conduct its business as it is
currently conducted, and is duly qualified to transact business as a
foreign limited liability company and is in good standing in each
jurisdiction in which its assets are owned, leased or operated by it or the
nature of the operation of its business requires it to qualify to transact
business as a foreign limited liability company. The jurisdictions in which
PDC is so qualified are set forth on Schedule 4.1 hereto.
(c) Pearl Field Services, LLC ("PFS") is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Colorado. PFS has all requisite power and authority to own, lease
and operate its assets and to conduct its business as it is currently
conducted, and is duly qualified to transact business as a foreign limited
liability company and is in good standing in each jurisdiction in which its
assets are owned, leased or operated by it or the nature of the operation
of its business requires it to qualify to transact business as a foreign
limited liability company. The jurisdictions in which PFS is so qualified
are set forth on Schedule 4.1 hereto.
(d) Pearl Construction Company, LLC ("PCC") is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Colorado. PCC has all requisite power and authority to
own, lease and operate its assets and to conduct its business as it is
currently conducted, and is duly qualified to transact business as a
foreign limited liability company and is in good standing in each
jurisdiction in which its assets are owned, leased or operated by it or the
nature of the operation of its business requires it to qualify to transact
business as a foreign limited liability company. The jurisdictions in which
PCC is so qualified are set forth on Schedule 4.1 hereto.
(e) Pearl Process Systems, LLC ("PPS") is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Colorado. PPS has all requisite power and authority to own, lease
and operate its assets and to conduct its business as it is currently
conducted, and is duly qualified to transact business as a foreign limited
liability company and is in good standing in each jurisdiction in which its
assets are owned, leased or operated by it or the nature of the operation
of its business requires it to qualify to transact business as a foreign
limited liability company. The jurisdictions in which PPS is so qualified
are set forth on Schedule 4.1 hereto.
(f) Pearl Property Management, LLC ("PPM") is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Colorado. PPM has all requisite power and authority to
own, lease and operate its assets and to conduct its business as it is
currently conducted, and is duly qualified to transact business as a
foreign limited liability company and is in good standing in each
jurisdiction in which its assets are owned, leased or operated by it or the
nature of the operation of its business requires it to qualify to transact
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business as a foreign limited liability company. The jurisdictions in which
PPM is so qualified are set forth on Schedule 4.1 hereto.
(g) Pearl Group Management, LLC ("PGM") is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Colorado. PGM has all requisite power and authority to own, lease
and operate its assets and to conduct its business as it is currently
conducted, and is duly qualified to transact business as a foreign limited
liability company and is in good standing in each jurisdiction in which its
assets are owned, leased or operated by it or the nature of the operation
of its business requires it to qualify to transact business as a foreign
limited liability company. The jurisdictions in which PGM is so qualified
are set forth on Schedule 4.1 hereto.
(h) Pearl Aviation, LLC ("PA") is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Colorado. PA has all requisite power and authority to own, lease
and operate its assets and to conduct its business as it is currently
conducted, and is duly qualified to transact business as a foreign limited
liability company and is in good standing in each jurisdiction in which its
assets are owned, leased or operated by it or the nature of the operation
of its business requires it to qualify to transact business as a foreign
limited liability company. The jurisdictions in which PA is so qualified
are set forth on Schedule 4.1 hereto.
(i) Pearl Development Company (Australia) PTY LTD (" Pearl Australia")
is a company duly organized, validly existing and in good standing under
the laws of Australia. Pearl Australia has all requisite power and
authority to own, lease and operate its assets and to conduct its business
as it is currently conducted, and is duly qualified to transact business as
a company and is in good standing in each jurisdiction in which its assets
are owned, leased or operated by it or the nature of the operation of its
business requires it to qualify to transact business as a foreign company.
The jurisdictions in which Pearl Australia is so qualified are set forth on
Schedule 4.1 hereto.
SECTION 4.2 Capitalization.
(a) The ownership of all of the stock in PEARL is accurately set forth
in Schedule 4.2(a) hereto. The entire authorized capital stock of PEARL
consists of one thousand (1,000) shares of stock, of which one thousand
(1,000) shares of stock are issued and outstanding. All of the stock listed
on Schedule 4.2(a) is duly authorized and has been issued in accordance
with the terms of the Governing Documents of PEARL. The stock on Schedule
4.2(a) represents the only issued stock PEARL. Except as set forth in
Schedule 4.2(a), there are no (i) outstanding securities convertible or
exchangeable into any stock or equity interests of PEARL; (ii) options,
warrants, calls, subscriptions or other rights, agreements or commitments
obligating PEARL to issue, transfer or sell any stock or equity interests
of PEARL; or (iii) voting trusts or other agreements or understandings to
which PEARL is a party or by which PEARL is bound with respect to the
voting, transfer or other disposition of any stock of PEARL. Except as set
forth on Schedule 4.2(a), PEARL is not a partner with, member of, or holder
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of any equity interest in any other Person. All of the capital stock of
Seller is held beneficially and of record by the Shareholders as set forth
on Schedule 4.2(a), free and clear of all Liens.
(b) Ownership of Stock. PEARL owns all of the outstanding capital
stock, membership or other ownership interests of PFS, PDC, PCC, PPS, PPM,
PGM, PA and Pearl Australia (collectively, the "Subsidiaries"). Except as
set forth in Schedule 4.2(b), all of the capital stock, membership or other
ownership interests of the Subsidiaries are duly authorized, have been
issued in accordance with the terms of their respective Governing Documents
and represent the only issued equity interests of the Subsidiaries. There
are no (i) outstanding securities convertible or exchangeable into any
equity interests of the Subsidiaries; (ii) options, warrants, calls,
subscriptions or other rights, agreements or commitments obligating any of
the Subsidiaries to issue, transfer or sell any equity interests of any of
the Subsidiaries; or (iii) voting trusts or other agreements or
understandings to which any of the Subsidiaries is a party or by which any
of the Subsidiaries is bound with respect to the voting, transfer or other
disposition of any equity interests of any of the Subsidiaries. Except as
set forth on Schedule 4.2(b), PEARL or any of the Subsidiaries are not a
partner with, member of, or holder of any equity interest in any other
Person.
(c) Due Authorization. The PEARL Parties have all requisite power and
authority to execute, deliver and perform this Agreement and all of the
other documents to be delivered pursuant to the terms of this Agreement
(the "Ancillary Agreements") to which it is a party and to consummate the
transactions described in this Agreement and the Ancillary Agreements. The
execution, delivery and performance by the PEARL Parties of this Agreement
and the Ancillary Agreements to which it is a party and the consummation by
the PEARL Parties of the transactions described in this Agreement and the
Ancillary Agreements have been or will be, prior to the Closing Date, duly
and validly authorized by all necessary corporate action on the part of
PEARL (assuming due authorization, execution and delivery by each other
party thereto), and no other company actions or proceedings on the part of
any PEARL Group Member are necessary to authorize the execution, delivery
and performance by the PEARL Parties of this Agreement and the Ancillary
Agreements to which it is a party or the transactions described in this
Agreement and the Ancillary Agreements. Each of Rhinesmith, Good and
Redalen have all requisite legal capacity to execute, deliver and perform
this Agreement and the Ancillary Agreements to which they are a party and
to consummate the transactions described in this Agreement and the
Ancillary Agreements. Each of the PEARL Parties has duly and validly
executed and delivered this Agreement and has duly and validly executed and
delivered the Ancillary Agreements to which it is a party. This Agreement
constitutes, and upon execution and delivery of (assuming due execution and
delivery thereof by all other Parties thereto) the Ancillary Agreements to
which each of the PEARL Parties is a party shall constitute, legal, valid
and binding obligations of each of the PEARL Parties, enforceable against
each of them in accordance with their terms, except as may be limited by
(a) applicable bankruptcy, insolvency, moratorium, reorganization or
13
similar Laws that affect creditors' rights generally; or (b) principles of
equity, including legal or equitable limitations on the availability of
specific remedies.
(d) No Conflicts. Except as set forth in Schedule 4.2(d), to the
Knowledge of the PEARL Parties, neither the execution and delivery of this
Agreement by any PEARL Party, nor the performance by any PEARL Party of
his, or its obligations hereunder, will (i) violate any statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
such PEARL Group Member or PEARL Party is subject to (or, if applicable,
any provision of his or its will, or other Governing Documents), (ii)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which such
PEARL Group Member or PEARL Party is a party or by which he, she, or it is
bound or to which any of his, her, or its assets are subject, or (iii)
result in the imposition or creation of a Lien upon or with respect to the
assets of any PEARL Group Member or PEARL Party. No PEARL Group Member or
PEARL Party is subject to, or a party to, any contract, instrument or other
commitment that would prevent the execution, delivery and performance by a
PEARL Group Member or PEARL Party of this Agreement, each Ancillary
Agreement to which it is a party and the consummation of the transactions
contemplated hereby. Except as set forth in Schedule 4.2(d), neither the
execution and delivery of this Agreement, Ancillary ----------------
Agreements nor the consummation of the transactions contemplated hereby
will, directly or indirectly (with or without notice or lapse of time), (a)
Breach (i) any provision of any of the Governing Documents of any PEARL
Group Member or (ii) any resolution adopted by the board of directors or
the shareholders of any PEARL Group Member; (b) Breach or give any
Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any
relief under any Legal Requirement or any Order to which any PEARL Group
Member or any of its assets, may be subject; (c) contravene, conflict with
or result in a violation or breach 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
any PEARL Group Member or that otherwise relates to any PEARL Group
Member's assets or to the business of any PEARL Group Member; (d) cause the
Purchaser to become subject to, or to become liable for the payment of, any
Tax not accrued for or reflected in the Financial Statements; (e) Breach
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 payment under, or to cancel, terminate or modify, any contract to which
any PEARL Group Member is a party; or (f) result in the imposition or
creation of any Encumbrance, other than a Permitted Encumbrance, upon or
with respect to any PEARL Group Member's assets.
(e) Brokerage. Except as disclosed in Schedule 4.2(e), there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on
any arrangement or agreement binding upon any PEARL Common Stock for which
any Party or their Affiliates could become liable.
14
(f) Securities Laws. The EPIC stock to be acquired by the Shareholders
pursuant to this Agreement is not being acquired with a view to, or
intention of, distribution in violation of the Securities Act of 1933, as
amended from time to time (the "Securities Act"), or any applicable state
securities laws, and the EPIC stock shall not be disposed of in
contravention of the Securities Act or any applicable state securities
laws. Each of Rhinesmith, Good and Redalen is an executive officer of
PEARL, is an "accredited investor" as that term is defined under the
Securities Act, is sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the EPIC stock. Each
of Rhinesmith, Good and Redalen understands that the EPIC stock has not
been registered under the Securities Act and therefore cannot be sold
unless subsequently registered under the Securities Act or unless an
exemption from such registration is available. Each of Rhinesmith, Good and
Redalen has had the opportunity to ask questions and receive answers
concerning the terms and conditions of the EPIC stock and full access to
such other information concerning Purchaser as he has requested. Each of
Rhinesmith, Good and Redalen has had the opportunity to review all
documents filed by EPIC with the Securities and Exchange Commission.
SECTION 4.3 Consents. Except as set forth in Schedule 4.3, no PEARL Group
Member or PEARL Party is required to give any notice to or obtain any consent
from any Person in connection with the execution and delivery of this Agreement,
the Ancillary Agreements, or the consummation or performance of any of the
transactions contemplated hereby.
SECTION 4.4 Accounts Receivable. All Accounts Receivable that are reflected
on the Interim Balance Sheet or on the accounting records of each PEARL Group
Member as of the Closing Date represent or will represent valid obligations
arising from sales actually made or services actually performed by such PEARL
Group Member in the Ordinary Course of Business. Each PEARL Group Member will
take reasonable steps to collect the Accounts Receivable in the Ordinary Course
of Business. To the PEARL Parties' knowledge, except to the extent paid prior to
the Closing Date, and except as set forth on Schedule 4.4, such Accounts
Receivables are or will be as of the Closing Date current and collectible net of
the respective reserves shown on the Interim Balance Sheet (which reserves are
adequate and calculated consistent with past practice). There is no contest,
claim, defense or right of setoff, other than returns in the Ordinary Course of
Business of such PEARL Group Member, under any Contract with any account debtor
of an Account Receivable relating to the amount or validity of such Account
Receivable. Except as set forth on Schedule 4.4, PEARL has previously provided
to Purchaser a complete and accurate list of all Accounts Receivable for each
PEARL Group Member as of the date of the Interim Balance Sheet, which list sets
forth the aging of each such Account Receivable. As of date of Closing, PEARL
will provide current Account Receivables, account payables and cash on hand
statements.
SECTION 4.5 Financial Statements. (a) Except as might be noted on the
attached Schedule 4.5, PEARL has previously provided to Purchaser a true and
correct copy of (i) an unaudited balance sheet for all PEARL Group Members
(other than Pearl Australia) at July 31, 2007, and the related statements of
income, shareholder's equity and cash flows for the period then ended ("Interim
Balance Sheet") and (ii) audited Financial Statements for all PEARL Group
Members (other than Pearl Australia) as of December 31st of each of 2005 and
15
2006 the (the financial statements described in clauses (i) and (ii) above are
collectively referred to as the "Financial Statements"). Except as noted on
Schedule 4.5 or in the Financial Statements and except for normal year-end
adjustments, the Financial Statements are complete and correct in all material
respects, were prepared in accordance with GAAP and present fairly, in all
material respects, the financial condition of the PEARL Group Members at the
respective dates thereof and the operating income of the PEARL Group Members for
the respective periods then ended. The PEARL Parties agree to send all
year-to-date financials through the Closing Date for each PEARL Group Member to
Purchaser as soon as they have been prepared.
(a) Except as disclosed in Schedule 4.5(a), no PEARL Group Member has
any Debt except as set forth in the Interim Balance Sheet.
(b) No PEARL Group Member has off-balance sheet arrangements, as
determined in accordance with GAAP except as set forth on Schedule 4.5.
SECTION 4.6 [Intentionally Left Blank]
SECTION 4.7 Real Property. Schedule 4.7 lists and describes briefly all
real property leased or subleased to any PEARL Group Member. The PEARL Parties
and the PEARL Group Members have delivered to the Purchaser correct and complete
copies of the leases and subleases listed in Schedule 4.7, each as amended to
date. With respect to each lease and sublease listed in Schedule 4.7, and any
amendment thereto:
(a) the lease or sublease, and any amendment thereto, is legal, valid,
binding, enforceable, and in full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on the same terms following the
consummation of the transactions contemplated hereby, except to the extent
that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights in general and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor
may be brought;
(c) no party to the lease or sublease is in material Breach or
default, and no event has occurred which, with notice or lapse of time,
would constitute a materialBreach or default or permit termination,
modification, or acceleration thereunder;
(d) no party to the lease or sublease has repudiated any provision
thereof;
(e) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(f) with respect to each sublease, no PEARL Party or PEARL Group
Member has taken any action that would cause the representations and
warranties set forth in this Agreement to be untrue or incorrect with
respect to the underlying lease;
16
(g) No PEARL Group Member has assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(h) to the best of PEARL Parties' Knowledge, to the extent approval of
any Governmental Body has been required in connection with any PEARL Group
Member's operation of a property it leases or subleases, such PEARL Group
Member has received all required approvals and has operated and maintained,
and conducted its operations on, the leased or subleased properties in
accordance with applicable laws, rules, and regulations; and
(i) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities.
SECTION 4.8 Absence of Certain Changes. Except as and to the extent set
forth in Schedule 4.8, since December 31, 2006, each PEARL Group Member has
conducted its business only in the Ordinary Course of Business and there has not
been any:
(a) change in any PEARL Group Member's authorized or issued capital
stock/membership interests, grant of any stock option or right to purchase
shares of capital stock of any PEARL Group Member or issuance of any
security convertible into such capital stock;
(b) amendment to the Governing Documents of any PEARL Group Member;
(c) payment (except in the Ordinary Course of Business) or increase by
any PEARL Group Member of any bonuses, salaries or other compensation to
any shareholder, director, officer or employee or entry into any
employment, severance or similar Contract with any director, officer or
employee;
(d) adoption of, amendment to or increase in the payments to or
benefits under, any Employee Plan;
(e) damage to or destruction or loss in excess of $50,000.00 to any
asset of any PEARL Group Member, whether or not covered by insurance;
(f) (other than any Agreement for Construction Services (hereinafter,
"MSA"), Technical Services Agreement (hereinafter, "TSA"), engineering and
accounting software, real estate leases and purchase orders entered into in
the Ordinary Course of Business), entry into, termination of or receipt of
notice of termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit or similar Contract to which any
PEARL Group Member is a party, or (ii) any Contract or transaction
involving a total remaining commitment by any PEARL Group Member of at
least $50,000.00;
(g) sale (other than sales in the Ordinary Course of Business), lease
or other disposition of any asset or property of any PEARL Group Member in
17
excess of $50,000 (including the Intellectual Property assets) or the
creation of any Encumbrance on any asset in excess of $50,000;
(h) cancellation or waiver of any claims or rights with a value to any
PEARL Group Member in excess of $25,000.00 outside the Ordinary Course of
Business;
(i) notification by any customer or supplier of discontinuance of or
material changes to the terms of its relationship with any PEARL Group
Member outside the Ordinary Course of Business;
(j) Material Change in the accounting methods used by any PEARL Group
Member;
(k) violation of any Environmental Law by any PEARL Group Member.
SECTION 4.9 No Material Change. Except as set forth in Schedule 4.9, since
December 31, 2006, there has not been any Material Change in the business,
assets, liabilities (contingent or otherwise), results of operations or
financial condition, of any PEARL Group Member, and no event has occurred or
circumstance exists that may result in such a Material Change.
SECTION 4.10 Litigation. Except as set forth in Schedule 4.10, there is no
pending or threatened Proceeding:
(a) by or against any PEARL Group Member or PEARL Party, or that
otherwise relates to or may materially adversely affect the business of, or
any of the assets owned or used by, any PEARL Group Member or PEARL Party;
or
(b) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, any of the
transactions contemplated herein.
(c) To the PEARL Parties' Knowledge, no event has occurred or
circumstance exists that is reasonably likely to give rise to or serve as a
basis for the commencement of any such Proceeding. The PEARL Parties have
delivered to the Purchaser copies of all pleadings, correspondence and
other documents relating to each Proceeding listed in Schedule 4.10. Except
as set forth on Schedule 4.10, to the PEARL Parties' Knowledge, there are
no other Proceedings listed or required to be listed in Schedule 4.10 that
could have an adverse effect on the business, operations, assets, condition
or prospects of any PEARL Group Member.
(d) Except as set forth in Schedule 4.10:
(i) there is no Order to which any PEARL Group Member, its
businesses or any of its assets are subject; and
(ii) no officer, director, agent or employee of any PEARL Group
Member is subject to any Order that prohibits such officer, director,
18
agent or employee from engaging in or continuing any conduct, activity
or practice relating to the business of any PEARL Group Member.
(e) Except as set forth in Schedule 4.10:
(i) Each PEARL Group Member is, and, at all times since December
31, 2004, has been in compliance with all of the terms and
requirements of each Order to which it or any of a PEARL Group
Member's assets is or has been subject;
(ii) No event has occurred or circumstance exists that is
reasonably likely to 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 any PEARL Group Member or any PEARL
Group Member's assets are subject; and
(iii) No PEARL Group Member has received, at any time since
December 31, 2004, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding any
actual or alleged violation of, or failure to comply with, any Order
to which any PEARL Group Member's assets is or has been subject.
SECTION 4.11 Intellectual Property. Schedule 4.11 attached hereto and made
a part hereof lists all patents, patent applications, trademarks, trademark
registrations or applications, trade names, service marks, copyrights, copyright
registrations or applications which are owned by PEARL Group Members.
(a) Except as set forth in Schedule 4.11(a), no PEARL Group Member has
granted any license under any of the Intellectual Property to any other
Person.
(b) Except for computer software used by PEARL (including specialized
software for accounting and engineering applications), and except as set
forth in Schedule 4.11(b), no PEARL Group Member requires a license or
right under or in respect of any intellectual property of any other Person
to conduct its business as it is presently conducted and no substantial
part of the business is carried on under the agreement or consent of any
other Person nor is there any agreement with any other Person which
significantly restricts the fields in which PEARL's business may be carried
on.
(c) Except as discussed in Schedule 4.11(c), no disclosure has been
made to any Person of the know-how or financial or trade secrets of any
PEARL Group Member, except properly and in the Ordinary Course of Business
or on condition that such disclosure is to be treated as being of a
confidential nature.
(d) To the best of the PEARL Parties' Knowledge, except as set forth
on Schedule 4.11(d):
19
(i) none of the processes currently used by a PEARL Group Member
or any of the properties, products or services currently sold by a
PEARL Group Member or any Intellectual Property infringes the
intellectual property rights of any other Person; and
(ii) neither the PEARL Group Members nor the PEARL Parties have
received any notice of adverse claim or threat of adverse claim by any
Person with respect thereto, and no basis exists for any such claim.
SECTION 4.12 Contracts.
(a) Schedule 4.12(a) contains an accurate and complete list, and the
PEARL Group Members have delivered to Purchaser or made available to
Purchaser to review accurate and complete copies (to the extent such are
memorialized in writing), of each of the following since December 31, 2006:
(i) each Contract between a PEARL Group Member and a Related
Person;
(ii) Except for contracts, license or other agreements relating
to computer software used by PEARL Group Members (including
specialized software for accounting and engineering applications), and
except for contracts or other agreements (including TSAs and MSAs)
entered into in the Ordinary Course of Business, each Contract that
involves performance of services or delivery of goods or materials by
a PEARL Group Member or to a PEARL Group Member, as the case may be,
(A) of an amount or value in excess of $75,000.00 and (B) that is not
cancelable with no more than 90 days notice;
(iii) each Contract (other than contracts for the acquisition of
motor vehicles by any PEARL Group Member) that was not entered into in
the Ordinary Course of Business and that involves expenditures or
receipts of a PEARL Group Member in excess of $20,000.00;
(iv) each Contract affecting the ownership of, leasing of, title
to, use of or any leasehold or other interest in any real or personal
property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate
payments of less than $20,000.00 and with a term of less than one
year);
(v) each Contract with any labor union or other employee
representative of a group of employees relating to wages, hours and
other conditions of employment;
(vi) each Contract (however named) involving a sharing of
profits, losses, costs or liabilities by a PEARL Group Member with any
other Person;
20
(vii) each Contract containing covenants that in any way purport
to restrict a PEARL Group Member's current business activity or limit
the freedom of a PEARL Group Member to engage in any line of business
or to compete with any Person;
(viii) each Contract providing for payments to or by any Person
based on sales, purchases or profits, other than direct payments for
goods or services;
(ix) each power of attorney of a PEARL Group Member that is
currently effective and outstanding;
(x) each Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express undertaking by a
PEARL Group Member to be responsible for consequential damages;
(xi) each Contract for capital expenditures in excess of
$50,000.00;
(xii) each Contract not denominated in U.S. dollars; and
(xiii) each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended by a
PEARL Group Member other than in the Ordinary Course of Business;
(b) Except as set forth in Schedule 4.12(b), Seller and its Affiliates
do not have or currently may not acquire any rights under any Contract of a
PEARL Group Member or any of a PEARL Group Member's assets.
(c) Except as set forth in Schedule 4.12(c):
(i) unless completed in the Ordinary Course of Business or
discharged due to the bankruptcy of a party thereto, each Contract
identified or required to be identified in Schedule 4.12(a) is in full
force and effect and is valid and enforceable in accordance with its
terms;
(ii) no Contract identified or required to be identified in
Schedule 4.12(a) is subject to cancellation or termination as a result
of the transactions contemplated herein; and
(iii) no Contract identified or required to be identified in
Schedule 4.12(a) will (to the best of PEARL's Knowledge) upon
completion or performance thereof have an adverse effect on a PEARL
Group Member.
(d) Except as set forth in Schedule 4.12(d):
(i) Each PEARL Group Member has, and at all times since December
31, 2004, has been, in compliance in all material respects with all
21
applicable terms and requirements of each Contract to which a PEARL
Group Member is a party;
(ii) each other Person that has or had any obligation or
liability under any Contract to which a PEARL Group Member is a party
is, and at all times since December 31, 2004, has been, in full
compliance with all applicable terms and requirements of such Contract
in all material respects;
(iii) to the best of the PEARL Parties' Knowledge, no event has
occurred or circumstance exists that (with or without notice or lapse
of time) may contravene, conflict with or result in a Breach of, or
give a PEARL Group Member or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or payment under, or to cancel, terminate or modify,
any Contract to which a PEARL Group Member is a Party;
(iv) no event has occurred or circumstance exists under or by
virtue of any Contract that (with or without notice or lapse of time)
would cause the creation of any Encumbrance affecting any of a PEARL
Group Member's assets; and
(v) no PEARL Group Member has given to or received from any other
Person, at any time since December 31, 2004, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible or potential material violation or material Breach of, or
material default under, any Contract to which a PEARL Group Member is
a Party.
(e) There are no renegotiations of, attempts to renegotiate or
outstanding rights to renegotiate any amounts paid or payable to a PEARL
Group Member under current or completed Contracts with any Person having
the contractual or statutory right to demand or require such renegotiation
and no such Person has made written demand for such renegotiation.
(f) Each Contract relating to the sale, design, manufacture or
provision of products or services by a PEARL Group Member has been entered
into in the Ordinary Course of Business of such PEARL Group Member and has
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.
SECTION 4.13 Customers and Suppliers. Except as set forth in Schedule 4.13,
since December 31, 2006, no major supplier or major customer has canceled or
otherwise terminated, or given notice of intent to cancel or otherwise
terminate, for any reason, its relationship with any PEARL Group Member.
22
SECTION 4.14 Employee Benefit Plans.SECTION 4.19
(a) Except as otherwise disclosed to Purchaser or previously provided
to Purchaser, set forth in Schedule 4.14(a) is a complete and correct list
of all "employee benefit plans" (foreign or domestic) as defined by Section
3(3) of ERISA or otherwise, all specified fringe benefit plans as defined
in Section 6039D of the Code, and all other bonus, incentive-compensation,
deferred-compensation, profit-sharing, stock-option,
stock-appreciation-right, stock-bonus, stock-purchase,
employee-stock-ownership, savings, savings plans (registered or
non-registered) severance, change-in-control, supplemental-unemployment,
layoff, salary-continuation, retirement, pension, health, life-insurance,
disability, accident, group-insurance, vacation, holiday, sick-leave,
fringe-benefit or welfare plan, and any other employee compensation or
benefit plan, agreement, policy, practice, commitment, contract or
understanding (whether qualified or nonqualified, currently effective or
terminated, written or unwritten) and any trust, escrow or other agreement
related thereto that (i) is maintained or contributed to by PEARL or any
other corporation or trade or business controlled by, controlling or under
common control with PEARL (within the meaning of Section 414 of the Code or
Section 4001(a)(14) or 4001(b) of ERISA) ("ERISA Affiliate") or has been
maintained or contributed to in the last four (4) years by PEARL or any
ERISA Affiliate, or with respect to which PEARL or any ERISA Affiliate has
or may have any liability, and (ii) provides benefits, or describes
policies or procedures applicable to any current or former director,
officer, employee or service provider of PEARL or any ERISA Affiliate, or
the dependents of any thereof, regardless of how (or whether) liabilities
for the provision of benefits are accrued or assets are acquired or
dedicated with respect to the funding thereof (collectively the "Employee
Plans"). Also set forth on Schedule 4.14(a) is a complete and correct list
of all ERISA Affiliates of PEARL during the last four (4) years.
(b) PEARL has delivered to the Purchaser true, accurate and complete
copies of (i) the documents comprising each Employee Plan (or, with respect
to any Employee Plan which is unwritten, a detailed written description of
eligibility, participation, benefits, funding arrangements, assets and any
other matters which relate to the obligations of each of PEARL or any ERISA
Affiliate); (ii) all trust agreements, insurance contracts or any other
funding instruments related to the Employee Plans; (iii) all rulings,
determination letters, no-action letters or advisory opinions from the U.S.
Internal Revenue Service ("IRS"), the U.S. Department of Labor, the Pension
Benefit Guaranty Corporation ("PBGC") or any other Governmental Body that
pertain to each Employee Plan and any open requests therefor; (iv) if
applicable, the most recent actuarial and financial reports (audited and/or
unaudited) and the annual reports filed with any Government Body with
respect to the Employee Plans during the current year and each of the three
preceding years; (v) if applicable, all collective bargaining agreements
pursuant to which contributions to any Employee Plan(s) have been made or
obligations incurred (including both pension and welfare benefits) by each
of PEARL or any ERISA Affiliate, and all collective bargaining agreements
pursuant to which contributions are being made or obligations are owed by
such entities; (vi) if applicable, all securities registration statements
filed with respect to any Employee Plan; (vii) if applicable, all contracts
23
with third-party administrators, actuaries, investment managers,
consultants and other independent contractors that relate to any Employee
Plan; and (viii) all summary plan descriptions, summaries of material
modifications and memoranda, employee handbooks and other written
communications regarding the Employee Plans.
(c) Except as disclosed in Schedule 4.14(c), full payment has been
made of all amounts that are required under the terms of each Employee Plan
to be paid as contributions with respect to all periods prior to and
including the last day of the most recent fiscal year of such Employee Plan
ended on or before the date of this Agreement and all periods thereafter
prior to the Closing Date.
(d) Neither PEARL nor any ERISA Affiliate has ever sponsored,
maintained or been required to contribute to a plan subject to Title IV of
ERISA, including a Multiemployer Plan.
(e) PEARL has, at all times, complied, and currently complies, in all
material respects with the applicable continuation requirements for its
welfare benefit plans, including (1) Section 4980B of the Code (as well as
its predecessor provision, Section 162(k) of the Code) and Sections 601
through 608, inclusive, of ERISA, which provisions are hereinafter referred
to collectively as "COBRA" and (2) any applicable state statutes mandating
health insurance continuation coverage for employees.
(f) The form of all Employee Plans is in compliance with the
applicable terms of ERISA, the Code, and any other applicable laws,
including the Americans with Disabilities Act of 1990, the Family Medical
Leave Act of 1993 and the Health Insurance Portability and Accountability
Act of 1996, and such plans have been operated in compliance with such laws
and the written Employee Plan documents. Neither PEARL nor any Fiduciary of
an Employee Plan has violated the requirements of Section 404 of ERISA. All
required reports and descriptions of the Employee Plans (including Internal
Revenue Service Form 5500 Annual Reports, Summary Annual Reports and
Summary Plan Descriptions and Summaries of Material Modifications) have
been (when required) timely filed with the IRS, the U.S. Department of
Labor or other Governmental Body and distributed as required, and all
notices required by ERISA or the Code or any other Legal Requirement with
respect to the Employee Plans have been appropriately given.
(g) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
IRS, and there are no circumstances that will or could result in revocation
of any such favorable determination letter. Each trust created under any
Employee Plan has been determined to be exempt from taxation under Section
501(a) of the Code, PEARL is not aware of any circumstance that will or
could result in a revocation of such exemption. Each Employee Welfare
Benefit Plan (as defined in Section 3(1) of ERISA) that utilizes a funding
vehicle described in Section 501(c)(9) of the Code or is subject to the
provisions of Section 505 of the Code has been the subject of a
notification by the IRS that such funding vehicle qualifies for tax-exempt
status under Section 501(c)(9) of the Code or that the plan complies with
Section 505 of the Code, unless the IRS does not, as a matter of policy,
24
issue such notification with respect to the particular type of plan. With
respect to each Employee Plan, no event has occurred or condition exists
that will or could give rise to a loss of any intended tax consequence or
to any Tax under Section 511 of the Code.
(h) There is no material pending or threatened Proceeding relating to
any Employee Plan, nor is there any basis for any such Proceeding. Neither
PEARL nor any Fiduciary of an Employee Plan has engaged in a transaction
with respect to any Employee Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject PEARL or Purchaser
to a Tax or penalty imposed by either Section 4975 of the Code or Section
502(l) of ERISA or a violation of Section 406 of ERISA. The transactions
contemplated hereby will not result in the potential assessment of a Tax or
penalty under Section 4975 of the Code or Section 502(l) of ERISA nor
result in a violation of Section 406 of ERISA.
(i) PEARL has maintained workers' compensation coverage as required by
applicable state, provincial, or territorial law through purchase of
insurance and not by self-insurance or otherwise except as disclosed to
Purchaser on Schedule 4.14(i).
(j) Except as required by Legal Requirements, the consummation of the
transactions contemplated hereby will not accelerate the time of vesting or
the time of payment, or increase the amount, of compensation due to any
director, employee, officer, former employee or former officer of PEARL.
There are no contracts or arrangements providing for payments that could
subject any person to liability for tax under Section 4999 of the Code.
(k) Except for the continuation coverage requirements of COBRA, PEARL
has no obligations or potential liability for benefits to employees, former
employees or their respective dependents following termination of
employment or retirement under any of the Employee Plans that are Employee
Welfare Benefit Plans.
(l) None of the transactions contemplated hereby will result in an
amendment, modification or termination of any of the Employee Plans. No
written or oral representations have been made to any employee or former
employee of PEARL promising or guaranteeing any employer payment or funding
for the continuation of medical, dental, life or disability coverage for
any period of time beyond the end of the current plan year (except to the
extent of coverage required under COBRA). No written or oral
representations have been made by PEARL to any employee or former employee
of PEARL concerning the employee benefits of the Purchaser.
SECTION 4.15 Compliance with Law.
(a) To the PEARL Parties' Knowledge, except as set forth in Schedule
4.15(a),
(i) the PEARL Group Members are, and at all times since December
31, 2004, have been, in compliance with each Legal Requirement that is
or was applicable to them or to the conduct or operation of its
25
business or the ownership or use of any of its assets in all material
respects;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by a PEARL Group Member of, or a failure on the part of a
PEARL Group Member to comply with, any Legal Requirement or (B) may
give rise to any obligation on the part of a PEARL Group Member to
undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) the PEARL Group Members have not received, at any time
since December 31, 2004, 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 a PEARL Group
Member to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Except for business licenses, sales and use tax licenses,
licensing or registrations to do business in foreign states, professional
registrations or licensing, and building permits, Schedule 4.15(b) contains
a complete and accurate list of each Governmental Authorization that is
held by a PEARL Group Member or that otherwise relate to a PEARL Group
Member's business or its assets. Each Governmental Authorization needed by
a PEARL Group Member for the conduct of its business is valid and in full
force and effect. Except as set forth in Schedule 4.15(b), to the Knowledge
of the PEARL Parties and PEARL Group Members:
(i) the PEARL Group Members are , and at all times since December
31, 2004, have been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or required
to be identified in Schedule 4.15(b);
(ii) no event has occurred or circumstance exists that may (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 or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation or termination of, or any
modification to, any Governmental Authorization needed by a PEARL
Group Member for the conduct of its business;
(iii) the PEARL Group Members have not received, at any time
since December 31, 2004, 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
26
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations necessary of the conduct of a PEARL
Group Member's business 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.
(c) To the PEARL Parties' Knowledge, the Governmental Authorizations
described in Section 4.15(b) and/or listed in Schedule 4.15(b) collectively
constitute all of the Governmental Authorizations necessary to permit the
PEARL Group Members to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to
permit the PEARL Group Members to own and use its assets in the manner in
which they currently own and use such assets.
SECTION 4.16 Taxes.
(a) Tax Returns Filed and Taxes Paid. The PEARL Group Members have
filed or caused to be filed on a timely basis all Tax Returns and all
reports with respect to Taxes that are or were required to be filed
pursuant to applicable Legal Requirements. All Tax Returns and reports
filed by the PEARL Group Members are true, correct and complete. To the
Knowledge of the PEARL Parties and the PEARL Group Members, the Seller and
PEARL, as the case may be, has paid, or made provision for the payment of,
all Taxes for which they are responsible that have or may have become due
for all periods covered by the Tax Returns or otherwise, or pursuant to any
assessment received by a PEARL Group Member, except such Taxes, if any, as
are listed in Schedule 4.16(a) and are being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
provided in the Interim Balance Sheet and the Financial Statements. Except
as provided in Schedule 4.16(a), none of the PEARL Parties or PEARL Group
Members are currently the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made or is expected to be
made by any Governmental Body in a jurisdiction where a PEARL Group Member
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Encumbrance on any of the assets that arose in
connection with any failure to pay any Tax, and no claims attributable to
Taxes which, if adversely determined, would result in any such Encumbrance.
(b) Delivery of Tax Returns and Information Regarding Audits and
Potential Audits. The Seller has delivered or made available to Purchaser
copies of, and Schedule 4.16(b) contains a complete and accurate copy of,
all federal, state, provincial, territorial, local, and foreign income Tax
Returns for the PEARL Group Members (other than Tax Returns for sales and
use taxes) filed since December 31, 2004. Schedule 4.16(b) contains a
complete and accurate list of all audits and pending Tax disputes. Neither
PEARL nor Seller expects any undisclosed deficiencies to be asserted with
respect to any such audit. All deficiencies proposed as a result of such
audits have been paid, reserved against, settled or are being contested in
good faith. The Seller has delivered, or made available to Purchaser,
copies of any examination reports, statements or deficiencies or similar
27
items with respect to such audits. Except as provided in Schedule 4.16(b),
no Governmental Body is likely to assess any additional taxes for any
period for which Tax Returns have been filed. Except as provided in
Schedule 4.16(b), there is no dispute or claim concerning any Taxes of a
PEARL Group Member claimed or raised by any Governmental Body. Except as
described in Schedule 4.16(b), no PEARL Group Member has been 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 a PEARL Group Member or for
which a PEARL Group Member may be liable.
(c) Post-Closing Tax Liabilities. To the PEARL Parties' Knowledge,
other than tax distributions described in Section 6.1, the unpaid Taxes of
a PEARL Group Member (i) will not, as of the Closing Date, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Interim Balance Sheet and (ii) will not exceed
that reserve as adjusted for passage of time through the Closing Date in
accordance with the past custom and practice of PEARL in filing its past
Tax Returns. Except as disclosed in Schedule 4.16(c), there exists no
proposed tax assessment or deficiency against a PEARL Group Member. Since
the date of the Interim Balance Sheet, PEARL has not incurred any liability
for Taxes arising from extraordinary gains or losses, as that term is used
in GAAP, outside the Ordinary Course of Business consistent with past
custom and practice. The Parties acknowledge that, as a Sub-S corporation,
PEARL will not have an income tax obligation at the entity level, as all
tax income and expense items are passed through to PEARL's shareholders and
reflected on such shareholders' personal tax returns.
(d) Transactions Affecting Post-Closing Tax Years. Except as disclosed
in Schedule 4.16(d), the PEARL Group Members will not be required to
include any item of income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any (i) voluntary or non-statutory change in
method of accounting for a taxable period ending on or prior to the Closing
Date, (ii) "closing agreement" as described in Code Section 7121 (or any
corresponding provision or similar provision of federal, state, local or
foreign income Tax law) executed on or prior to the Closing Date, (iii)
installment sale or open transaction disposition made on or prior to the
Closing Date, or (iv) prepaid amount received on or prior to the Closing
Date.
(e) Specific Potential Tax Liabilities and Tax Situations.
(i) Withholding. All Taxes that PEARL Group Members and PEARL
Parties was or are required by Legal Requirements to withhold, deduct
or collect prior to the Closing has been or will be duly withheld,
deducted and collected (or duly reflected or reserved against on
PEARL's financials as of the date of Closing) and, to the extent
required, will be paid to the proper Governmental Body or other
Person.
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(ii) Tax Sharing or Similar Agreements. There is no tax sharing
agreement, tax allocation agreement, tax indemnity obligation or
similar written or unwritten agreement or practice with respect to
Taxes (including any advance pricing agreement, closing agreement or
other arrangement relating to Taxes) that will require any payment by
a PEARL Group Member.
(iii) Consolidated Group. The PEARL Group Members (i) have not
been a member of an Affiliated Group (or any similar group defined
under a similar provision of federal, state, local or foreign law) and
(ii) have no liability for Taxes of any person (other than PEARL)
under ss.1.1502-6 of the Treasury Regulations (or any similar
provision of state, local or foreign law), as a transferee or
successor by contract or otherwise.
(iv) Listed Transactions. In the past four (4) years, the PEARL
Group Members have not participated in a transaction that has been
specifically identified by the IRS as a "listed" transaction for
purposes of ss.1.6011-4(b) of the Treasury Regulations and has not
disclosed any transactions to the IRS under any penalty amnesty
program.
(v) Golden Parachute Agreements. The PEARL Group Members are not
a party to any agreement, contract or plan that has resulted or could
result, separately or in the aggregate, in the payment of (i) any
"excess parachute payment" within the meaning of Code Section 280G (or
any corresponding provision of federal, state, local or foreign Tax
law) and (ii) any amount that will not be fully deductible as a result
of Code Section 162(m) (or any corresponding provision of state, local
or foreign Tax law).
(vi) Arrangement Constituting a Partnership. The PEARL Group
Members are not subject to any joint venture, partnership or other
arrangement or contract that is treated as a partnership for federal
or applicable state income tax purposes or for any other Tax purposes.
This representation shall exclude any limited liability company that
may be taxed as a partnership.
(vii) Tax Attributes. Schedule 4.16(e)(vii) sets forth the amount
of any net operating loss, net capital loss, unused investment,
foreign tax or other credit, or excess charitable contribution
allocable to any PEARL Group Member as of the Closing Date.
(viii) Substantial Understatement Penalty. The PEARL Group
Members have disclosed on its income Tax Returns all positions taken
therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662.
SECTION 4.17 Insurance
(a) PEARL has delivered to or made available to Purchaser for its
review:
29
(i) accurate and complete copies of all current policies of
insurance (and correspondence relating to coverage thereunder) which
it has on file to which a PEARL Group Member is a party or under which
a PEARL Group Member is covered, a list of which is included in
Schedule 4.17(a);
(ii) accurate and complete copies of all pending applications by
a PEARL Group Member for policies of insurance; and
(iii) any statement by the auditor of a PEARL Group Member's
Financial Statements or any consultant or risk management advisor with
regard to the adequacy of a PEARL Group Member's coverage or of the
reserves for claims.
(b) Except as set forth in Schedule 4.17(b), PEARL:
(i) does not have any self-insurance arrangement by or that
involves any PEARL Group Member, including any reserves established
thereunder;
(ii) does not have any Contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk; and
(iii) has complied with all obligations to provide insurance
coverage to third parties (for example, under leases or service
agreements) and has delivered to or made available to Purchaser for
its review the policy under which such coverage is provided.
(c) Except as set forth in Schedule 4.17(c), to the best of PEARL's
Knowledge:
(i) all policies of insurance to which a PEARL Group Member is a
party or that provide coverage to a PEARL Group Member:
a) are valid, outstanding and enforceable; and
b) are issued by an insurer that is reputable;
(ii) With respect to any policy of insurance, a PEARL Group
Member has not received (A) any refusal of coverage or any notice that
a defense will be afforded with reservation of rights or (B) any
notice of cancellation or any other indication that any policy of
insurance is no longer in full force or effect or that the issuer of
any policy of insurance is not willing or able to perform its
obligations thereunder;
(iii) With respect to any policy of insurance that a PEARL Group
Member, PEARL has paid or caused to be paid, or used best efforts to
confirm the payment by third parties of, all premiums due, and has
otherwise performed all of its obligations, under each such policy of
insurance to which it is a party or that provides coverage to a PEARL
Group Member; and
30
(iv) With respect to any policy of insurance, PEARL has given
notice to the insurer of all known material claims that may be insured
thereby for which a PEARL Group Member or any other applicable third
party has made a claim.
SECTION 4.18 Environmental Laws and Regulations.
(a) Except as set forth in Schedule 4.18, to PEARL's Knowledge:
(i) Each PEARL Group Member is, and at all times has been, in
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. PEARL has not received, nor has any
other Person for whose conduct PEARL is 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 Facility or other property
or asset (whether real, personal or mixed) in which the PEARL Group
Members have or 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 a
PEARL Group Member or any other Person for whose conduct it is or may
be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled
or received.
(ii) There are no pending or threatened claims, Encumbrance, 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 Facility or any
other property or asset (whether real, personal or mixed) in which a
PEARL Group Member has or had an interest.
(iii) PEARL does not expect, nor has any other Person for whose
conduct PEARL is 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 Facility or property or
asset (whether real, personal or mixed) in which a PEARL Group Member
has or had an interest, or with respect to any property or Facility to
which Hazardous Materials generated, manufactured, refined,
transferred, imported, used or processed by a PEARL Group Member or
any other Person for whose conduct it is or may be held responsible,
have been transported, treated, stored, handled, transferred,
disposed, recycled or received.
31
(iv) Neither of the PEARL Group Members, nor any other Person for
whose conduct PEARL is or may be held responsible has any
Environmental, Health and Safety Liabilities with respect to any
Facility or with respect to any other property or asset (whether real,
personal or mixed) in which a PEARL Group Member has or had an
interest or at any property geologically or hydrologically adjoining
any Facility or any such other property or asset.
(v) There are no Hazardous Materials present on or in the
Environment at any Facility or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in
barrels, aboveground or underground storage tanks, landfills, land
deposits, dumps, equipment (whether movable or fixed) or other
containers, either temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the Facility or such
adjoining property, or incorporated into any structure therein or
thereon, except in compliance with applicable Environmental Laws.
Neither of the PEARL Group Members nor any Person for whose conduct
PEARL is or may be held responsible, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to any
Facility or any other property or assets (whether real, personal or
mixed) in which a PEARL Group Member has or had an interest except in
full compliance with all applicable Environmental Laws.
(vi) There has been no Release or material threat of Release by a
PEARL Group Member, of any Hazardous Materials at or from any Facility
or at any other location where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or
processed from or by any Facility, or from any other property or asset
(whether real, personal or mixed) in which a PEARL Group Member has or
had an interest, or any geologically or hydrologically adjoining
property, whether by a PEARL Group Member or any other Person.
(vii) PEARL has delivered to Purchaser true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by PEARL pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning
compliance, by a PEARL Group Member or any other Person for whose
conduct it is or may be held responsible, with Environmental Laws.
SECTION 4.19 Products and Services. Schedule 4.19 sets forth all claims
asserted or threatened at any time during the past two years against any PEARL
Group Member in respect of personal injury, wrongful death or property damage
alleged to have resulted from products or services provided by a PEARL Group
Member, and all warranty claims with respect to any single product with a value,
individually or in the aggregate, in excess of $10,000.
SECTION 4.20 [RESERVED FOR FUTURE USE]
SECTION 4.21 [RESERVED FOR FUTURE USE]
32
SECTION 4.22 Brokers and Finders. Except as discussed in Schedule 4.22,
neither PEARL nor any of PEARL's officers, directors or employees has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the Transactions contemplated by
this Agreement, and the Purchaser shall not have any liability for any such fees
or commissions. To this end, the PEARL Parties agree to save, indemnify, defend
and hold Purchaser harmless from and against any claims or demands from anyone
claiming a fee or interest on this transaction.
SECTION 4.23 Disclosure.
(a) No representation or warranty or other statement made by the
Seller in this Agreement or otherwise in connection with the transactions
contemplated by this Agreement contains any untrue statement or omits to
state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading.
(b) The Seller has no Knowledge (whether actual or constructive) of
any fact that has specific application to any PEARL Group Member (other
than general economic or industry conditions) and that may materially
adversely affect the assets, liabilities, business, financial condition or
results of operations of a PEARL Group Member that has not been set forth
in this Agreement.
SECTION 4.24 Books and Records. The books of account and other financial
records of the PEARL Group Members, all of which have been made available to the
Purchaser, are complete and correctin all material respects and represent
actual, bona fide transactions and have been maintained in accordance with sound
business practices including the maintenance of an adequate system of internal
controls.
SECTION 4.25 Condition of Facilities.
(a) To the PEARL Parties' Knowledge, use of the Facilities for the
various purposes for which it is presently being used is permitted as of
right under all applicable zoning legal requirements and is not subject to
"permitted nonconforming" use or structure classifications. To the PEARL
Parties' Knowledge all improvements to the Facilities leased by a PEARL
Group Member or otherwise used in the Ordinary Course of Business by a
PEARL Group Member are in compliance with all applicable Legal
Requirements, including those pertaining to zoning and building, and are
accepted as is. To the PEARL Parties' Knowledge no part of any improvement
encroaches on any of the Facilities leased by a PEARL Group Member. To the
PEARL Parties' Knowledge, there is no existing or proposed plan to modify
or realign any street or highway or any existing or proposed eminent domain
proceeding that would result in the taking of all or any part of any
Facility or that would prevent or hinder the continued use of any Facility
as heretofore used in the conduct of the business of a PEARL Group Member.
(b) Each item of Tangible Personal Property is accepted as is. All
Tangible Personal Property owed by PEARL and used in the PEARL Group
Members' business is in the possession of the PEARL Group Members.
33
SECTION 4.26 No Undisclosed Liabilities. To the PEARL Parties' Knowledge,
except as set forth in Schedule 4.26, each PEARL Group Member has no Liability
except for Liabilities reflected or reserved against in the Interim Balance
Sheet and Current Liabilities incurred in the Ordinary Course of Business of
such PEARL Group Member since the date of the Interim Balance Sheet.
SECTION 4.27 Employees.
(a) Schedule 4.27(a) contains a complete and accurate list of the
following information for each key employee of the PEARL Group Members, as
designated in writing by Purchaser, including each employee on leave of
absence or layoff status: name; job title; date of hire; current
compensation paid or payable and any change in compensation since December
31, 2005; sick and vacation leave that is accrued but unused; and service
credited for purposes of vesting and eligibility to participate under any
Employee Plan, or any other employee or director benefit plan.
(b) The PEARL Group Members have no retired employees except as set
forth on Schedule 4.27(b).
(c) Schedule 4.27(c) contains a complete and accurate list of the
following information for each employee of the PEARL Group Members who has
been terminated or laid off, or whose hours of work have been reduced by
more than fifty percent (50%) by PEARL, in the six (6) months prior to the
date of this Agreement: (i) the date of such termination, layoff or
reduction in hours; (ii) the reason for such termination, layoff or
reduction in hours; and (iii) the location to which the employee was
assigned.
(d) To the PEARL Parties' Knowledge, each PEARL Group Member has not
violated the Worker Adjustment and Retraining Notification Act (the "WARN
Act") or any similar state or local Legal Requirement.
(e) To the PEARL Parties' Knowledge, no officer, director, employee or
contractor of a PEARL Group Member is bound by any Contract that purports
to limit the ability of such officer, director, employee, or contractor to
engage in or continue or perform any conduct, activity, duties or practice.
To the PEARL Parties' Knowledge no former or current employee of a PEARL
Group Member is a party to, or is otherwise bound by, any Contract that in
any way adversely affected, affects, or will affect the ability of a PEARL
Group Member or the Purchaser to conduct the business as heretofore carried
on by the PEARL Group Members.
(f) The employees of the PEARL Group Members are not entitled to
demand payment for any accrued but unused vacation time, except upon
termination.
(g) Except as disclosed in Schedule 4.27(g), each PEARL Group Member
has not, since December 31, 2006, directly or indirectly, made any increase
in the compensation or other benefits payable or to become payable to their
employees or any of them, other than general salary increases in the
ordinary course of business, consistent with past practice, or any increase
34
in the compensation or other benefits payable or to become payable to any
officer or director or any increase in the benefits provided under any of
its pension plans or other employee benefit plans.
(h) Except as set out in Schedules 4.27(a) or 4.27(g) or except as set
out in Schedule 4.27(h), which accurately sets out as of the date hereof,
the names, current salaries and job descriptions and lengths of employment
with a PEARL Group Member and any predecessor corporation, and the dates
and the amounts of the most recent increases in salaries, of all
individuals who are employed by a PEARL Group Member at such date on a full
or part-time basis, each PEARL Group Member is not a party to and are not
bound by any:
(i) written contract or commitment for the employment of any
employee, officer or agent, whether contracts of service or contracts
for services (excluding employment offer letters, and excluding
non-compete and work-for-hire agreements the PEARL Group Members
typically require to be signed by all employees);
(ii) oral contract or commitment for the employment of any
employee, officer or agent, whether contracts of service or contracts
for services, except for contracts of indefinite hire terminable by
the respective company without cause on reasonable notice;
(iii) contract or collective agreement with or commitment to any
labor union or employee association and each PEARL Group Member has
not conducted negotiations with respect to any future such contracts
or commitments and there are no current or threatened attempts to
organize or establish any labor union or employee association with
respect to each PEARL Group Member, and no trade union, council of
trade unions, employee bargaining agency or affiliated bargaining
agent:
a) holds bargaining rights with respect to any of the
employees of a PEARL Group Member by way of certification,
interim certification, voluntary recognition, designation or
successor rights; or
b) has applied to be certified as the bargaining agent of
any of the employees of a PEARL Group Member.
(iv) except as otherwise disclosed or previously provided to
Purchaser, bonus, pension, profit sharing, deferred compensation,
retirement, hospitalization, disability, insurance or similar plan or
practice, formal or informal, or policy with respect to any of their
employees or others.
(i) To the Pearl Parties' Knowledge, there are no allegations with
respect to any PEARL Group Member of unfair labor practices.
35
(j) Except as disclosed in Schedule 4.27(j), no employee of any PEARL
Group Member is on lay off, leave of absence, maternity or disability
leave.
(k) Except as disclosed in Schedule 4.27(k), each PEARL Group Member
does not owe any obligations to former employees.
(l) Except as disclosed in Schedule 4.27(l), there are no independent
contractors engaged by a PEARL Group Member as of the Closing Date set
forth on Schedule 4.27(l).
(m) All required employer contributions under any such plans or
policies have been made and no past service funding liabilities exist
thereunder.
(n) The amount of salaries, pensions, bonuses, and other remuneration
and fringe benefits of any nature, including vacation pay, severance pay
and unpaid earned wages of the directors, officers and employees of each
PEARL Group Member as of the Closing Date have been paid in full or accrued
consistent with the PEARL Group Member's accounting policies and there is
no outstanding overdue assessment, order, certificate, lien or judgment
regarding employment of any jurisdiction (foreign or domestic) in which the
PEARL Group Members carry on business or have employees.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows that the
statements contained in this Article 5 are correct and complete as of the
Closing Date with respect to itself:
SECTION 5.1 Incorporation, Authority and Binding Obligation. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of Colorado and has all necessary corporate power and authority to enter
into this Agreement, to carry out its obligations hereunder and consummate the
transactions contemplated hereby. This Agreement has been or will be duly
executed and delivered by Purchaser, and (assuming due authorization, execution
and delivery by each other party thereto) this Agreement constitutes legal,
valid and binding obligations of Purchaser enforceable against Purchaser in
accordance with their terms, except in the event of Purchaser's bankruptcy,
receivership, insolvency, or assignment for the benefit of creditors. Except as
otherwise provided herein, the Purchaser is not required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
Governmental Body in order to consummate the transactions contemplated by this
Agreement.
SECTION 5.2 No Conflict. To Purchaser's Knowledge, the execution, delivery
and performance of this Agreement by Purchaser does not and will not: (a)
violate or conflict with the certificate of incorporation or bylaws Governing
Documents of Purchaser; (b) conflict with or violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award applicable to
Purchaser; or (c) result in any breach of, or constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a breach
or default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any indenture, contract, agreement, lease,
36
license, permit, franchise or other instrument relating to any material assets
or properties to which Purchaser is a party or by which any of their/its
respective material assets or properties is bound or affected.
SECTION 5.3 Consents and Approvals. Purchaser shall obtain any required
consent, approval, authorization or other action by, or filing with or
notification to, any governmental or regulatory authority with respect to
Purchaser, except: (a) where failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would not
prevent or delay Purchaser from performing any of its material obligations under
this Agreement and (b) as may be necessary as a result of any facts or
circumstances relating solely to Seller. Aside from the governmental or
regulatory authority referenced in the preceding sentence, Purchaser is not
required to give any notice or to obtain any consent from any Person in
connection with the execution and delivery of this Agreement (or any ancillary
agreements contemplated hereunder), or the consummation or performance of any of
the transactions contemplated herein.
SECTION 5.4 Brokers. Any broker, finder or investment banker who may be
entitled to brokerage, finder's or other fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Purchaser or its Affiliates will be compensated by the
Purchaser.
SECTION 5.5 Due Diligence. In determining whether to purchase PEARL Common
Stock, while Purchaser places reliance upon the warranties and representations
of the PEARL Parties contained in this Agreement and any documents and
information delivered in connection therewith, Purchaser has relied upon its own
due diligence. Aside from the information set forth on the attached Schedules,
and in addition to the due diligence materials delivered or provided by Seller
to Purchaser, Purchaser acknowledges that it has had ample opportunity to access
and review the business and other records of the PEARL Group Members in order to
conduct its due diligence.
SECTION 5.6 Financing. Purchaser and Seller have entered into an escrow
agreement wherein Purchaser has thirty (30) days to complete all arrangements
necessary for financing this transaction.
SECTION 5.7 Compliance with Law. To Purchaser's Knowledge, since its
inception, Purchaser has been in substantial compliance with each Legal
Requirement (including compliance with Security Laws and the Internal Revenue
Code, specifically including compliance with all applicable provisions of the
Sarbanes-Oxley Act of 2002) that is or was applicable to them or to the conduct
or operation of its business or the ownership or use of any of its assets in all
material respects.
SECTION 5.8 Employee Benefit Plans. Purchaser has no Employee Benefit Plan.
SECTION 5.9 Litigation. There is no pending or threatened litigation
against Purchaser.
37
SECTION 5.10 Taxes.
(a) Tax Returns Filed and Taxes Paid. Purchaser has filed or caused to
be filed on a timely basis all Tax Returns and all reports with respect to
Taxes that are or were required to be filed pursuant to applicable Legal
Requirements. All Tax Returns and reports filed by Purchaser are true,
correct and complete in all material respects.
(b) Golden Parachute Agreements. Purchaser is not a party to any
agreement, contract or plan that has resulted or could result, separately
or in the aggregate, in the payment of (i) any "excess parachute payment"
within the meaning of Code Section 280G (or any corresponding provision of
federal, state, local or foreign Tax law) and (ii) any amount that will not
be fully deductible as a result of Code Section 162(m) (or any
corresponding provision of state, local or foreign Tax law).
SECTION 5.11 General/Miscellaneous.
(a) No representation or warranty or other statement made by the
Purchaser in this Agreement or otherwise in connection with the
transactions contemplated by this Agreement contains any materially untrue
statement or omits to state a material fact necessary to make any of them,
in light of the circumstances in which it was made, not misleading.
(b) No officer, director, employee or contractor of Purchaser is bound
by any Contract that purports to limit the ability of such officer,
director, employee, or contractor to engage in or continue or perform any
conduct, activity, duties or practice. No officer, director, employee or
contractor of Purchaser is a party to, or is otherwise bound by, any
Contract that in any way adversely affects, or will affect the ability of
PEARL or the Purchaser to conduct the business as heretofore carried on by
PEARL.
ARTICLE 6
ADDITIONAL COVENANTS
SECTION 6.1 Except for tax distributions to PEARL shareholders for PEARL
income prior to the Closing (which distributions Purchaser acknowledges PEARL
has the right to make and such shareholders have a right to receive in
accordance with PEARL's prior practice and which shall be equal to forty percent
of PEARL's income reportable on its final short-year federal S-Corp tax return,
hereinafter referred to as the "Tax Distributions"), all employer obligations of
PEARL with respect to the directors, officers and employees of the PEARL Group
Members for withholding tax, any pension plan, workers' compensation premiums,
contributions or remittances of any kind in all material respects which are then
due, have been paid in full or accrued as of the Closing Date. The Parties agree
that such Tax Distributions relate to the taxes owed for the 2007 tax period and
do not relate to taxes carried over from 2006, and such Tax Distributions shall
be made on or before November 15, 2007.
SECTION 6.2 Conduct of Business Assets Prior to the Closing. The PEARL
Group Members and PEARL Parties covenant and agree that, between the date of the
38
Interim Balance Sheet and the Closing Date, it will continue to conduct the
Business in the ordinary course and consistent with its past practice except for
actions expressly permitted by this Agreement
SECTION 6.3 [Intentionally Left Bank]
SECTION 6.4 Books and Records. If, in order to properly prepare documents
required to be filed with governmental authorities (including taxing
authorities) or its financial statements, it is necessary that either party
hereto or any successors be furnished with additional information relating to a
PEARL Group Member and such information is in the possession of the other Party
hereto, such Party agrees to use its reasonable efforts to furnish such
information to such other Party, at the cost and expense of the Party being
furnished such information.
SECTION 6.5 Remuneration. Except for remuneration paid to employees in the
usual and Ordinary Course of Business and made at current rates of remuneration,
no payments have been made or authorized since the date of the Interim Balance
Sheet by PEARL or to officers, directors or employees of a PEARL Group Member.
SECTION 6.6 SECTION 6.6 Compliance with the Foreign Corrupt Practices Act
and Export Control and Antiboycott Laws.
(a) Except as set forth on Schedule 6.6(a), to the PEARL Parties'
Knowledge, PEARL is in compliance with the Foreign Corrupt Practices Act
and the Export Control and Antiboycott Laws.
(b) Except as set forth in Schedule 6.6 (b), each PEARL Group Member
has made all payments to third parties by check, by credit card or by wire
transfer to such third party in the country in which the work was
performed.
(c) Each transaction is properly and accurately recorded on the books
and records of the PEARL Group Members in all material respects, and each
document upon which entries in the PEARL Group Member's books and records
are based is complete and accurate in all material respects. PEARL
maintains no off-the-books accounts and that PEARL's assets are used only
in accordance with PEARL's management directives.
(d) To the best of the PEARL Parties' Knowledge, each PEARL Group
Member has at all times been in compliance with all Legal Requirements
relating to export control and trade embargoes. No product sold or service
provided by a PEARL Group Member during the last five (5) years has been
directly sold to or performed in or on behalf of Cuba, Iraq, Iran, Ivory
Coast, Libya, North Korea, Rwanda, Sudan, or Syria.
(e) To the best of PEARL's Knowledge, except as set forth in Schedule
6.6 (e), each PEARL Group Member has not violated the antiboycott
prohibitions contained in 50 U.S.C. ss. 2401 et seq. or taken any action
that can be penalized under Section 999 of the Code. Except as set forth in
Schedule 6.6(e), during the last five (5) years, each PEARL Group Member
has not been a party to, is not a beneficiary under and has not performed
39
any service or sold any product under any Contract under which a product
has been sold directly to customers in Bahrain, Iraq, Kuwait, Lebanon,
Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates or the
Republic of Yemen.
SECTION 6.7 Relationships with Related Persons. Except as described in
Schedule 6.7, or except as otherwise disclosed to Purchaser, no Related Person
of any PEARL Group Member has, or since December 31, 2005, has had, any interest
in any Property used in or pertaining to PEARL's business. Neither PEARL nor any
Related Person of any PEARL Group Member owns, or since December 31, 2005, has
owned, of record or as a beneficial owner, an equity interest or any other
financial or profit interest in any Person that has (a) had business dealings or
a material financial interest in any transaction with a PEARL Group Member other
than business dealings or transactions disclosed in Schedule 6.7, each of which
has been conducted in the Ordinary Course of Business with such PEARL Group
Member at substantially prevailing market prices and on substantially prevailing
market terms or (b) engaged in competition with a PEARL Group Member with
respect to any line of the products or services of a PEARL Group Member (a
"Competing Business") in any market presently served by a PEARL Group Member,
except for ownership of less than one percent (1%) of the outstanding capital
stock of any Competing Business that is publicly traded on any recognized
exchange or in the over-the-counter market. Except to the extent set forth on
Schedule 6.7, no Related Person of a PEARL Group Member is a party to any
Contract with, or has any claim or right against, a PEARL Group Member.
SECTION 6.8 [Intentionally Left Blank]
SECTION 6.9 Title to Assets. Each PEARL Group Member has good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by them, located on its premises, or shown on the Interim Balance Sheet or
acquired after the date thereof, free and clear of all Encumbrances, except for
Permitted Encumbrances or properties and assets disposed of in the Ordinary
Course of Business since the date of the Interim Balance Sheet.
As used herein, the term "Permitted Encumbrances" shall include the
following:
(i) liens for taxes, assessments or governmental or
quasi-governmental charges that are not yet delinquent, provided that
the related liability is reflected on the Interim Balance Sheet ;
(ii) Encumbrances reflected in the Interim Balance Sheet or
created in the Ordinary Course of Business subsequent to the date of
the Interim Balance Sheet;
(iii) Encumbrances disclosed in Schedule 6.9;
(iv) zoning ordinances, conservation restrictions, building codes
and all other statutes, regulations and administrative enactments of
any federal, state or governmental or public authority having
jurisdiction over the property affected thereby;
40
(v) any matters to which a real property lease is subject or
subordinate;
(vi) Encumbrances that do not, individually or in the aggregate,
materially interfere with the present use by the PEARL Group Members
of the real property subject thereto or affected thereby; and
(vii) Encumbrances arising from or related to furniture,
fixtures, equipment or other property leased or purchased in the
ordinary course of business and which is subject to the Lessor's
ownership interest or a purchase money security interest, provided
that the related liability is reflected on the Interim Balance Sheet .
ARTICLE 7
PRE-CLOSING COVENANTS
The PEARL Group Members and PEARL Parties agree as follows with respect to
the period between the date of the Interim Balance Sheet and the Closing:
SECTION 7.1 General. Each of the Parties will use its commercially
reasonable efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Article 10 below).
SECTION 7.2 Notices and Consents. The Seller will cause PEARL and the PEARL
Group Members to give any notices to third parties, and will cause PEARL and the
PEARL Group Members to use its commercially reasonable efforts to obtain any
necessary third-party consents, that the Purchaser reasonably may request in
connection with the matters referred to herein. Each of the Parties will (and
the Seller will cause PEARL and the PEARL Group Members to) give any notices to,
make any filings with, and use its commercially reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies. Between the date of this Agreement and the Closing Date,
Seller will, and will cause PEARL and the PEARL Group Members to, (a) cooperate
with Purchaser with respect to all filings that Purchaser elects to make or is
required by Legal Requirements to make in connection with the transactions
contemplated hereby, and (b) cooperate with Purchaser in obtaining all consents
identified in Schedule 7.2.
SECTION 7.3 Operation of Business.
(a) The Seller will not cause or permit any PEARL Group Member to
engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business except:
(i) to the extent permitted or required by this Agreement; or
(ii) as consented to by the Purchaser.
41
(b) Without limiting the generality of the foregoing, the Seller shall
use its commercially reasonable efforts to preserve the goodwill of the
PEARL Group Member's customers, employees, suppliers and others with whom
the PEARL Group Members have business relations. Seller shall cause the
PEARL Group Members to continue to operate in the usual and ordinary course
(including with respect to the billing of work on process, the collection
of accounts receivable, and the payment of accounts payable and expenses),
and shall cause the PEARL Group Members to refrain, without the prior
consent of Purchaser, from any organizational or executive personnel
changes, including but not limited to the entering into of Employment
Agreements, the modification of existing Employment Agreements, or any
compensation increases, except as envisioned herein. In addition, without
consulting with Purchaser, the Seller will not cause or permit any PEARL
Group Member to (i) make any purchase or sale of inventory, machinery,
equipment, vehicles, buildings or other physical assets outside of the
Ordinary Course of Business; (ii) except as expressly provided in this
Agreement, pay any dividends, distributions, or other fees to its
shareholders, including directors' fees or bonuses, and shall permit no
cash distributions for any purpose outside the Ordinary Course of Business;
(iii) enter into any contract which materially adversely affects its
business, sales volume or marketing methods; (iv) shall maintain its cash
management, accounts receivable collection and accounts payable payment
practices in accordance with past custom and practice; or (iii) otherwise
engage in any practice, take any action, or enter into any transaction of
the sort described above.
SECTION 7.4 Preservation of Business. The Seller will use its commercially
reasonable efforts to cause the PEARL Group Members to keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors and licensors.
SECTION 7.5 Full Access. The Seller will permit, and the Seller will cause
the PEARL Group Members to permit, Representatives of the Purchaser to have full
access at all reasonable times and upon reasonable notice, and in a manner so as
not to interfere with the normal business operations of any PEARL Group Member
and the performance of the Seller's duties under this Agreement, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to any PEARL Group Member.
SECTION 7.6 Notice of Developments. Each Party will give written notice
within three days to the other Parties of any development causing a Breach of
any of the representations and warranties set out above.
SECTION 7.7 Exclusivity. Except as set forth in Schedule 7.7, prior to
termination of this Agreement in accordance with its terms, the Seller will not
(and will cause the PEARL Group Members not to) solicit, directly or through any
intermediary, offers for the PEARL Common Stock and all or substantially all of
the assets of PEARL, from any Person other than the Purchaser and its
Affiliates. If the Seller, PEARL or their respective Representatives receive an
unsolicited bona fide third-party offer to sell or otherwise acquire the PEARL
Common Stock or all or substantially all of PEARL's assets, the Purchaser shall
42
be given immediate notice of such offer and the Seller's sole response to such
offer shall be to notify the Person making such offer of the provisions of this
Agreement.
SECTION 7.8 Access and Investigation. Between the date of the Interim
Balance Sheet and the Closing Date, and upon reasonable advance notice received
from the Purchaser, PEARL has previously and shall continue (and the Seller
shall cause the PEARL Group Members to) (a) afford the Purchaser and its
Representatives and prospective lenders and their Representatives (collectively,
"Purchaser Group") access, during regular business hours, to any PEARL Group
Member's personnel, properties (including subsurface testing), and to documents
and other information reasonably requested in writing by Purchaser ("Due
Diligence"), such rights of access to be exercised in a manner that does not
unreasonably interfere with the operations of any PEARL Group Member; (b)
furnish Purchaser Group with copies of all such Due Diligence reasonably
requested; and (c) otherwise cooperate and assist, to the extent reasonably
requested by Purchaser, with Purchaser's investigation of the properties, assets
and financial condition related to PEARL. In addition, Purchaser shall have the
right to have the real property and Tangible Personal Property inspected by
Purchaser Group, at Purchaser's sole cost and expense, for purposes of
determining the physical condition and legal characteristics of the real
property and Tangible Personal Property. In the event subsurface or other
destructive testing is recommended by any of Purchaser Group, Purchaser shall be
permitted to have the same performed, at its own cost only after providing to
Seller adequate proof of insurance, copies of the necessary permits and any
indemnities required by Seller. Before conducting such activities, Purchaser
shall enter into a site access agreement with the owner of the real property
with respect to such testing.
ARTICLE 8
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
SECTION 8.1 General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement
(including compliance with any foreign or domestic regulatory requirements),
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as a Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under the terms
herein). The Seller acknowledges and agrees that from and after the Closing the
Purchaser will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the PEARL Group Members. It is also agreed that Seller may keep copies of any
such documents. After Closing, the Seller shall have access, at all reasonable
times, upon written notice to Purchaser, to all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
PEARL at its sole cost and expense, and such records shall not be destroyed
prior to the expiration of five years following the Closing Date, unless
otherwise agreed by the Parties.
SECTION 8.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
43
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving any PEARL Group Member, each of the other Parties
will cooperate with it and its counsel in the contest or defense, make available
its personnel, and provide such testimony and access to its books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under the terms set out
below).
SECTION 8.3 Tax Matters, Generally. The following provisions shall govern
the allocation of responsibility as between the Parties for certain tax matters
following the Closing Date:
(a) Shareholders shall defend and indemnify the Purchaser and hold
them harmless from and against, any loss, claim, liability, expense, or
other damage attributable to all Taxes (or the non-payment thereof) of
PEARL and any PEARL Group Member due and payable (but not accrued) prior to
the Closing Date for all taxable periods ending on or before the Closing
Date (the "Pre-Closing Tax Period"). The Purchaser and PEARL shall be
responsible for and shall defend, indemnify and hold the Seller harmless
from all Taxes (or the non-payment thereof) of PEARL for any taxable period
ending after the Closing Date and for all Taxes resulting from any action
taken by the Purchaser or PEARL after the Closing (including, without
limitation, actions taken outside the Ordinary Course of Business and
occurring on the Closing Date), unless such action is taken by the
Purchaser or PEARL to amend or correct the underpayment of Tax in a Tax
Return for a taxable period occurring on or prior to the Closing Date
(b) In the case of any taxable period that includes (but does not end
on) the Closing Date (a "Straddle Period"), the amount of any Taxes based
on or measured by income or receipts of PEARL for the portion through the
end of the Closing Date for any taxable period that includes (but does not
end on) the Closing Date shall be determined based on an interim closing of
the books as of the close of business on the Closing Date (and for such
purpose, the taxable period of any partnership or other pass-through entity
in which either Corporation holds a beneficial interest shall be deemed to
terminate at such time) and the amount of other Taxes of PEARL for a
Straddle Period that relates to the Pre-Closing Tax Period shall be deemed
to be the amount of such Tax for the entire taxable period multiplied by a
fraction the numerator of which is the number of days in the taxable period
ending on the Closing Date and the denominator of which is the number of
days in such Straddle Period.
SECTION 8.4 Confidentiality. All information related to this Agreement and
the transaction proposed in this Agreement as well as all other confidential
and/or proprietary information relating to the Intellectual Property Rights are
hereinafter referred to as "Confidential Information." The existing
Confidentiality Agreement between PEARL and EPIC is attached as Exhibit D. The
Seller will treat and hold as such all of the Confidential Information, and
refrain from using any of the Confidential Information except in connection with
this Agreement, and after the Closing Date deliver promptly to Purchaser or
destroy, at the request and option of Purchaser, all tangible embodiments (and
44
all copies) of the Confidential Information which are in its possession.
Notwithstanding the above, Seller is entitled to maintain such Confidential
Information that it reasonably needs, in its sole discretion, to respond to a
Governmental Body or to carry out any of its obligations under this Agreement.
In the event that the Seller is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that the Seller will notify the Purchaser promptly of
the request or requirement so that the Purchaser may seek an appropriate
protective order or waive compliance with the provisions of this Section. If, in
the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the Seller may
disclose the Confidential Information to the tribunal; provided, however, that
the disclosing Seller shall use its commercially reasonable best efforts to
obtain, at the reasonable request of Purchaser, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Purchaser shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure.
In addition, the Parties represent and warrant that the annexes attached to the
Confidentiality Agreement are accurate and complete and will be updated as
required by the Confidentiality Agreement. These Confidentiality obligations are
subject to the provisions of this Agreement.
SECTION 8.5 [LEFT INTENTIONALLY BLANK]
(a)
SECTION 8.6 Deceptive Trade Practices Act Waiver. The parties hereby waive
the provisions of the Texas Deceptive Trade Practices Act, Chapter 17,
Subchapter E, Sections 17.41 through 17.63, inclusive (other than Section
17.555, which is not waived), of the Texas Business Assets and Commerce Code. To
evidence their ability to grant such waiver, the Parties hereby represent and
warrant that they: (a) are in the business of seeking or acquiring, by purchase
or lease, goods or services for commercial or business use, (b) have assets of
$5,000,000.00 or more according to their most recent financial statements
prepared in accordance with generally accepted accounting principles, (c) have
knowledge and experience in financial and business matters that enable them to
evaluate the merits and risks of the transaction contemplated hereby, and (d)
are not in a significantly disparate bargaining position.
SECTION 8.7 Risk of Loss. Risk of loss for each of Seller's assets shall be
borne by Seller until the Closing Date.
SECTION 8.8 Retention Stock. Following the closing, EPIC will issue
3,313,760 shares of its common stock pursuant to its Stock Bonus Plan. The
shares will be registered by means of a registration statement on Form S-8. The
PEARL employees who will received these shares, the number of shares to be
received by each PEARL employee, and the time at which such shares will be
issued will be determined from time to time by Rhinesmith, or his designee. All
PEARL employees receiving such retention stock shall fully vest in such stock no
45
later than three (3) years after the Closing Date. The terms of this Section 8.8
shall survive the closing of the transaction contemplated by this Agreement.
ARTICLE 9
SALES AND USE TAXES
Sales and Use Taxes. Seller will be responsible for the payment of any and
all sales or use Taxes (if any) that may be incurred by Seller in connection
with the sale of the PEARL Common Stock contemplated by this Agreement.
Purchaser shall be responsible for the payment of any and all sales or use Taxes
(if any) that may be incurred by Purchaser in connection with the sale of the
PEARL Common Stock contemplated by this Agreement. Each of Purchaser and Seller
agree to cooperate in minimizing the amount of any such sales or use taxes,
determining the amount of such sales and use taxes that may be payable (if any)
and in the filing of all necessary documentation and all Tax returns, reports
and forms ("Returns") with respect to all such sales and use taxes, including
any available pre-Closing filing procedures.
ARTICLE 10
CONDITIONS TO THE CLOSING
SECTION 10.1 Conditions to Obligations of Seller. The obligations of Seller
to consummate the transactions contemplated by this Agreement will be subject to
the fulfillment (or written waiver by Purchaser), at or prior to the Closing, of
each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Purchaser contained in Article 4 of this Agreement will
be true and correct in all material respects as of the Closing (other than
such representations and warranties as are expressly made as of another
date);
(b) Compliance with Covenants. Each document required to be delivered
by Purchaser pursuant to this Agreement have been delivered and all of the
covenants contained in this Agreement to be complied with by Purchaser on
or before the Closing will have been complied with in all material
respects;
(c) No Adverse Order. No Governmental Body or other agency or
commission or United States or state court of competent jurisdiction will
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other Order (whether temporary, preliminary or
permanent) which is in effect and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
Parties will use their best efforts to have any such Order vacated on or
before the Termination Date (as defined in Article 12 hereof); and,
(d) No Litigation. No suit, claim, cause of action, arbitration,
investigation or other proceeding contesting, challenging or seeking to
alter or enjoin or adversely affect the sale and purchase of the PEARL
Common Stock or any other transaction contemplated hereby will be pending
or threatened and;
46
(e) Board Approval. Purchaser shall have received and delivered to
PEARL a resolution reflecting Board approval for this transaction
SECTION 10.2 Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement will be
subject to the fulfillment (or written waiver by Purchaser), at or prior to the
Closing, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the PEARL Group Members and PEARL Parties contained in
Article 4 of this Agreement will be true and correct in all material
respects as of the Closing Date (other than such representations and
warranties that are expressly made as of another date);
(b) Compliance with Covenants. Each document required to be delivered
by Seller or PEARL pursuant to this Agreement shall have been delivered and
all of the covenants contained in this Agreement to be complied with by
Seller on or before the Closing will have been complied with in all
material respects;
(c) Delivery of PEARL Common Stock. Seller will have delivered, and
Purchaser will have received, the PEARL Common Stock on or before the
Closing Date.
(d) No Order. No Governmental Body or other agency or commission or
United States or state court of competent jurisdiction will have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other Order (whether temporary, preliminary or permanent)
which is in effect and has the effect of making any of the transactions
contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
Parties will use their best efforts to have any such Order vacated on or
before the Termination Date (as defined in Article 12 hereof); and
(e) No Litigation. No suit, claim, cause of action, arbitration,
investigation or other proceeding contesting, challenging or seeking to
alter, enjoin or adversely affect the sale and purchase of the PEARL Common
Stock or any other transaction contemplated hereby will be pending or
threatened; and
(f) Backlog. As of the Closing Date, the PEARL Group Members shall use
best efforts (in the Ordinary Course of Business) to have contracts which
reflect profit margins consistent with the PEARL Group Members' Ordinary
Course of Business and prior bidding practices.
(g) Board Approval. PEARL shall have received and delivered to
Purchaser a resolution reflecting Board approval for this transaction.
(h) Material Change. Since the date of the Interim Balance Sheet there
has not been any Material Change in the assets, financial condition or
47
operations of any PEARL Group Member, except (i) changes in Ordinary Course
of Business, which changes have not in the aggregate been materially
adverse, and (ii) changes disclosed on Schedule 10.2.
(i) Funding. Purchaser shall have received financing for this
acquisition on terms acceptable to Purchaser, in its sole discretion.
(j) Audit of Financial Statements. The consolidated financial
statements of the PEARL Group Members for the past two fiscal years have
been audited by Ehrhardt, Keefe, Steiner & Hottman, P.C., which accounting
firm is satisfactory to the Purchaser.
ARTICLE 11
INDEMNIFICATION
SECTION 11.1 Loss Defined; Indemnities. For purposes of this Article 11,
the term "Loss" will mean and include any and all liability, loss, damage,
claim, expense, cost, fine, fee, penalty, breach, obligation or injury resulting
from any and all claims, actions, suits, demands, assessments, investigations,
judgments, awards, arbitrations or other proceedings. It is expressly understood
that "Loss" shall include special, attorney's fees, court costs and any direct
or consequential damages. As used in this Article 11, the term "Purchaser
Indemnity" means and includes Purchaser and any present or future officer,
director, employee, affiliate, stockholder or agent of Purchaser; and the term
"Seller Indemnity" means and includes Seller and any present or future officer,
director, employee, affiliate, stockholder or agent of Seller.
SECTION 11.2 Indemnification by Seller. Seller agrees, subject to the other
terms, conditions and limitations of this Agreement, to protect, defend, and
indemnify each Purchaser Indemnity against, and to hold each Purchaser Indemnity
harmless from, all Loss suffered or incurred by any Purchaser Indemnity arising
out of any material breach of any covenant, representation or warranty in
Article 4 or Article 6 of this Agreement or any covenant of Seller made herein.
SECTION 11.3 Indemnification by Purchaser. Purchaser agrees, subject to the
other terms, conditions and limitations of this Agreement, to protect, defend,
and indemnify each Seller and each Seller Indemnity against, and hold each
Seller and each Seller Indemnity harmless from, all Loss suffered or incurred by
any Seller or any Seller Indemnity arising out of a material breach of any
Purchaser representation or warranty in Article 5 of this Agreement.
SECTION 11.4 Procedures for Indemnification. As used herein, an
"Indemnified Party" means a party seeking indemnification for any Loss
(including, but not limited to attorneys fees) pursuant to Section 11.2 or 11.3
hereof, as applicable, and the term "Indemnifying Party" means the party who is
obligated to provide indemnification under Section 11.02 or 11.3, as applicable.
The Indemnified Party agrees to give the Indemnifying Party prompt written
notice of any event, or any claim, action, suit, demand, assessment,
investigation, arbitration or other proceeding by or in respect of a third party
(a "Third Party Claim") of which it has knowledge, for which such Indemnified
Party is entitled to indemnification under this Article 11. In the case of a
Third Party Claim, the Indemnifying Party will have the right to direct, through
48
counsel of its own choosing, the defense or settlement of any such Third Party
Claim at its own expense. In such case, the Indemnified Party may participate in
such defense, but in such case the expenses of the Indemnified Party will be
paid by the Indemnified Party. The Indemnified Party will promptly provide the
Indemnifying Party with access to the Indemnified Party's records and personnel
relating to any such Third Party Claim during normal business hours and will
otherwise cooperate with the Indemnifying Party in the defense or settlement of
such Third Party Claim, and the Indemnifying Party will reimburse the
Indemnified Party for all its reasonable out-of-pocket costs and expenses
incurred in providing such access, personnel and cooperation. Upon assumption of
the defense of any such Third Party Claim by the Indemnifying Party, the
Indemnified Party will not pay, or permit to be paid, any part of any claim or
demand arising from such Third Party Claim, unless the Indemnifying Party
consents in writing to such payment (which consent will not be unreasonably
withheld, delayed or conditioned) or unless a final judgment from which no
appeal may be taken by or on behalf of the Indemnified Party is entered against
the Indemnified Party for such liability. No such Third Party Claim may be
settled by the Indemnifying Party without the written consent of the Indemnified
Party, which consent will not be unreasonably withheld, delayed or conditioned.
If the Indemnifying Party fails to defend or fails to prosecute or withdraws
from such defense, then the Indemnified Party will have the right to undertake
the defense or settlement thereof, at the Indemnifying Party's expense. If the
Indemnified Party assumes the defense of such Third Party Claim pursuant to this
Section and proposes to settle such claim prior to a final judgment thereon or
to forgo appeal with respect thereto, then the Indemnified Party will give the
Indemnifying Party prompt written notice thereof and the Indemnifying Party will
have the right to participate in the settlement or assume or reassume the
defense of such Third Party Claim.
ARTICLE 12
TERMINATION, AMENDMENT AND WAIVER
SECTION 12.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of Seller and Purchaser;
(b) by either Seller or Purchaser if there will have been instituted,
pending or threatened (and not withdrawn) any action or proceeding by any
Governmental Body seeking to prohibit or limit Purchaser from exercising
all material rights and privileges pertaining to its ownership of the PEARL
Common Stock;
(c) by Purchaser, if the conditions set forth in Section 10.1 above
have not been complied with or performed in any respect and such
non-compliance or non-performance is not cured or eliminated (or by its
nature cannot be cured or eliminated) by Seller on or before the Closing
Date;
(d) by Seller, if the conditions set forth in Section 10.2 above have
not been complied with or performed in any respect and such non-compliance
or non-performance is not cured or eliminated (or by its nature cannot be
cured or eliminated) by Purchaser on or before the Closing Date.
49
(e) by Purchaser by giving written notice to the Seller (A) in the
event the Seller has committed a material Breach of any representation,
warranty or covenant contained in this Agreement in any material respect,
the Purchaser has notified the Seller of the Breach, and the Breach has
continued without cure for a period of 30 days after the notice of Breach
or (B) if the Closing shall not have occurred on or before the day that is
120 days following the Effective Date by reason of the failure of any
condition precedent under Section 10.1 hereof (unless the failure results
primarily from the Purchaser itself breaching any representation, warranty
or covenant contained in this Agreement); or
(f) by Seller by giving written notice to the Purchaser (A) in the
event the Purchaser has committed a material Breach of any representation,
warranty or covenant contained in this Agreement in any material respect,
the Seller has notified the Purchaser of the Breach, and the Breach has
continued without cure for a period of 30 days after the notice of Breach
or (B) if the Closing shall not have occurred on or before the day that is
120 days following the Effective Date by reason of the failure of any
condition precedent under Section10.2 hereof (unless the failure results
primarily from the Seller or PEARL itself breaching any representation,
warranty or covenant contained in this Agreement).
SECTION 12.2 Effect of Termination. In the event of termination in
accordance with Section 12.1 hereof, this Agreement will forthwith become void
and there will be no liability on the part of any party hereto except for (i)
the return by Purchaser of Confidential Information, and (ii) any indemnity and
other obligations that expressly survive the termination of this Agreement.
SECTION 12.3 Waiver. At any time prior to the Closing, any party hereto
may: (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver will be valid if set
forth in an instrument in writing signed by the party to be bound thereby.
ARTICLE 13
GENERAL PROVISIONS
SECTION 13.1 Expenses. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses,
whether or not Closing will have occurred.
SECTION 13.2 Notices. All notices, requests, claims, demands and other
communications hereunder will be in writing and will be given or made (and will
be deemed to have been duly given or made upon receipt) by delivery in person,
by courier service, by confirmed telecopy, or by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as will be specified by like
notice):
50
(a) if to Seller: with a copy to:
Mr. Pat Murray Mr. John Murray
Pearl Investment Company McGloin, Davenport, Severson & Snow, P.C.
7110 E. Jefferson Ave, Suite 300 1600 Stout Street, Suite 1600
Lakewood, Colorado 80235 Denver, Colorado 80202-3103
Telephone: 303-984-8090 Telephone: 303-863-9800
Facsimile: 303-984-8091 Facsimile: 303-571-1600
(b) if to Purchaser: with a copy to:
EPiC Energy Resources, Inc. Stibbs & Co., P.C.
10655 Six PinesDr., Suite 210 2441 High Timbers, Suite 210
The Woodlands, Texas 77380 The Woodlands, Texas 77380
Telephone: 281-419-3742 Telephone: 281-367-2222
Facsimile: 281-362-2704 Facsimile: 281-681-2330
(c) if to Rhinesmith
R. Bret Rhinesmith
70 Styx Road
Big Horn, WY 82833
(d) if to Redalen:
Patrick A. Redalen
10227 Rowlock Way
Parker, Colorado 80134
Telephone: 303-829-6221
(e) if to Good:
Curtis L. Good
1874 N. Heights Place
Sheridan, Wyoming 82801
Telephone: 307-752-7861
SECTION 13.3 Headings. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. In the event of a conflict between language or
amounts contained in the body of the Agreement and language or amounts contained
in the exhibits attached hereto, the language or amounts in the body of the
Agreement shall control.
SECTION 13.4 Severability. If any term or other provision of this Agreement
is held invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement will
51
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby be consummated as
originally contemplated to the greatest extent possible.
SECTION 13.5 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and undertakings with respect to the subject
matter hereof, both written and oral.
SECTION 13.6 Assignment. This Agreement shall not be assigned by either
party without the prior written consent of the non-assigning party; provided
however, that Purchaser may assign all or a portion of its rights and
obligations hereunder to one or more Affiliates of Purchaser, provided such
Affiliate agrees in writing to be bound by all of Purchaser's obligations under
this Agreement.
SECTION 13.7 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or will confer upon any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement, except for the indemnification rights of
Purchaser Indemnitees and Seller Indemnitees under Article 11 hereof.
SECTION 13.8 Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by both parties. Waiver of
any term or condition of this Agreement will only be effective if in writing and
will not be construed as a waiver of any subsequent breach or waiver of the same
term or condition, or a waiver of any other term or condition of this Agreement.
SECTION 13.9 Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of Colorado applicable to contracts
executed and performed entirely therein, without regard to the principles of
choice of law or conflicts or law of any jurisdiction.
SECTION 13.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
SECTION 13.11 Restriction on Disclosure of Agreement Terms. Neither party
shall publicly disclose or announce the subject matter of this Agreement,
including, but not limited to, the price being paid for the PEARL Common Stock
hereunder or the detailed terms and conditions of this Agreement (other than to
such party's employees, directors or advisors with a need to know such
information), without the other party's prior consent; provided however, that
notwithstanding the foregoing, a party may make such disclosures regarding this
52
Agreement, as it determines with the advice of its legal counsel, are required
under applicable laws and regulations or orders, decrees, inquiries or subpoenas
of any court or governmental body, Governmental Body, and in that case such
party will give the other party prior notice of its intention to make such
disclosure pursuant to this provision.
SECTION 13.12 Dispute Resolution. In the event of any dispute or
disagreement between Seller and Purchaser as to the interpretation of any
provision of this Agreement (or the performance of obligations hereunder), the
Parties shall promptly meet in a good faith effort to resolve the dispute.
Should such good faith effort fail to resolve the dispute and upon the written
request of Seller or Purchaser, the dispute shall be referred to the level of
President or Chief Executive Officer within each party's organization for
decision. If the officers do not agree upon a decision within thirty (30) days
after reference of the matter to them, each of the Seller and Purchaser shall be
free to pursue and exercise any and all legal rights and remedies available to
them. All claims, disputes or controversies arising out of, in connection with
or in relation to this Agreement, not otherwise resolved in accordance with the
foregoing provisions of this Section 13.12, and regardless of whether any such
claim, dispute or controversy is based or claimed to be based in whole or in
part on a claim by either Party of a Breach of this Agreement by the other Party
shall be decided by resort to arbitration utilizing a three neutral member panel
in accordance with the Commercial Rules of the American Arbitration Association.
The arbitration shall be held in Denver, Colorado. The decision of the
arbitrator shall be final, binding and enforceable in any court of competent
jurisdiction and the Parties agree that there shall be no appeal from the
arbitrators' decision. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. The right to arbitrate
shall survive the termination of the Agreement.
SECTION 13.13 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
53
IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be
executed as of the date first written above by their respective duly authorized
representatives.
"Seller" "Purchaser"
PEARL INVESTMENT COMPANY EPiC ENERGY RESOURCES, INC.
By: /s/ R. Bret Rhinesmith By: /s/ Rex P. Doyle
------------------------ ------------------------
Name: R. Bret Rhinesmith Name: Rex P. Doyle
------------------------ ------------------------
Title: President Title: Chairman and CEO
----------------------- -----------------------
/s/ R. Bret Rhinesmith
- ------------------------------------
R. Bret Rhinesmith, individually
/s/ Curtis L. Good
- ------------------------------------
Curtis L. Good, individually
/s/ Patrick A. Redalen
- ------------------------------------
Patrick A. Redalen, individually
54
List of Exhibits
A. Due Diligence List/Protocol
B. Wiring instructions to McGloin, Davenport, Severson and Snow, PC trust
account, and Purchase Price allocation among Shareholders
C. Form of Employment Agreement for key employees
D. Confidentiality Agreement between PEARL and EPIC
E. Board Resolution of PEARL
F. Board Resolution of EPIC
G. EPIC/Shareholder Indemnification Agreement
55
List of Schedules
-----------------
[Note: All of these will change]
Section
Schedule Title References
-------- ----- ----------
4.1 Corporation Organization 4.1
4.2(a) Capitalization 4.2(a)
4.2(b) Ownership of Stock 4.2(b)
4.2(d) Conflicts 4.2(d)
4.2(e) Brokerage 4.2(e)
4.3 Consents 4.3
4.4 Accounts Receivable 4.4
4.5 Financial Reports 4.5
4.5(a) Pearl Group Member Debt 4.5(a)
4.7 Real Property 4.7
4.8 Certain Changes 4.8
4.9 Material Changes 4.9
4.10 Litigation 4.10
4.11 Intellectual Property 4.11
4.11(a) Intellectual Property Licenses Granted 4.11(a)
4.11(b) Intellectual Property Licenses Required 4.11(b)
4.11(c) Disclosures of Information 4.11(c)
4.11(d) Infringement onto Intellectual Property of 4.11(d)
Others
4.12(a) Contracts 4.12(a)
4.12(b) Sellers Rights under Corporation Contracts 4.12(b)
4.12(c) Corporate Contracts Enforceability and 4.12(c)
Termination
4.12(d) Material Compliance with Contracts 4.12(d)
4.13 Customers and Suppliers 4.13
4.14(a) Employee Benefit Plans 4.14(a)
4.14(c) Payment under Employee Plans 4.14(c)
4.14(i) Worker's Compensation Coverage 4.14(j)
4.15(a) Compliance with Law 4.15(a)
4.15(b) Governmental Authorization 4.15(b),
4.15(c)
4.16(a) Tax Returns Filed and Taxes Paid 4.16(a),
4.16(b)
4.16(b) Delivery of Tax Returns 4.16(b)
4.16(c) Post-Closing Tax Liabilities 4.16(c)
4.16(d) Transactions Affecting Post-Closing Tax Years 4.16(d)
4.16(e)(vii) Tax Attributes 4.16(e)(vii)
4.17(a) Insurance 4.17(a)
4.17(b) Insurance Arrangements 4.17(b)
4.17(c) Insurance Claims 4.17(c)
4.18 Environmental Laws and Regulations
4.19 Products and Services 5.19
4.22 Brokers and Finders 4.22
56
4.26 Undisclosed Liabilities 4.26
4.27(a) Key Employee List 4.27(a)
4.27(b) Retired Employees 4.27(b)
4.27(c) Terminated Employees 4.27(c)
4.27(g) Increase in Compensation or Benefits 4.27(g)
4.27(h) Employee Contracts 4.27(h)
4.27(j) Employees on Leave 4.27(j)
4.27(k) Obligations to Former Employees 4.27(k)
4.27(l) Independent Contractors 4.27(l)
6.6(a) FCPA Compliance 6.6(a)
6.6(b) Payments to Third Parties 6.6(b)
6.6(e) Antiboycott Prohibitions 6.6(e)
6.7 Relationships with Related Persons 6.7
6.9 Encumbrances 6.9
7.2 Notices and Consents 7.2
7.7 Exclusivity 7.7
10.2 Material Change 10.2
57
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into effective as of September
1, 2007, by and between R. BRET RHINESMITH (`Rhinesmith"), PATRICK A. REDALEN
("Redalen") and CURTIS L. GOOD ("Good"), collectively referred to herein as the
"Sellers"), and EPIC ENERGY RESOURCES, INC., a Colorado corporation (hereinafter
referred to as "Purchaser"), and McGLOIN, DAVENPORT, SEVERSON AND SNOW,
Professional Corporation (hereinafter referred to as "Escrow Agent").
1. Pursuant to that Stock Purchase Agreement dated effective September 1,
2007 (the "Purchase Agreement"), arising out of a purchase of 100% of the issued
and outstanding common stock of Pearl Investment Company, a Colorado corporation
formerly known as Pearl Development Company (hereinafter, "PIC"), Sellers have
delivered to Escrow Agent stock power forms from each of the Sellers together
with all of the individual certificates that together represent 1,000 shares of
stock in PIC (collectively referred to as the "Stock"); and
2. In addition to the Stock, the Purchaser and Seller have also delivered
to Escrow Agent the documents described on Exhibit A, attached hereto, all of
which Sellers and Purchaser acknowledge are fully executed except as noted on
Exhibit A (the "Closing Documents").
3. In order to finalize the purchase of the Stock and otherwise finalize
the transaction contemplated by the Purchase Agreement, Purchaser shall deliver
to Escrow Agent the cash proceeds of the purchase consideration, consisting of
Eighteen Million Dollars ($18,000,000.00) (the "Proceeds"). Purchaser shall
cause the Proceeds to be wire transferred to the Escrow Agent's trust account no
later than September 30, 2007. The wiring instructions for Escrow Agent's trust
account is set forth on Exhibit B, attached hereto and incorporated herein by
this reference.
4. The Stock and the Closing Documents shall be held by Escrow Agent until
such time as the Proceeds are received as required in Paragraph 3 above, subject
to the further terms hereof.
5. The Proceeds, within a reasonable time after receipt by Escrow Agent,
shall be disbursed to Sellers. After the Proceeds are disbursed to Sellers,
Escrow Agent shall deliver the Closing Documents to the parties indicated on
Exhibit A, attached hereto.
6. In the event the Proceeds are not timely received by Escrow Agent for
any reason whatsoever, or in the event of any other breach under said Purchase
Agreement, either party may declare the entire transaction reflected by the
aforesaid Purchase Agreement void ab initio by written instruction to the Escrow
Agent, and Escrow Agent shall thereafter return the Stock to the Purchasers
along with any money received and shall return the Closing Documents to the
parties from whom each such document was received by Escrow Agent relating to
the Purchase Agreement.
7. These instructions may be supplemented, altered, amended, modified or
revoked by writing only, signed by all of the parties hereto, and approved by
55
the Escrow Agent, upon payment of any fees, costs and expenses incident thereto
(which fees, costs and expenses shall be paid by the Buyer and Sellers to their
respective attorneys).
8. No assignment, transfer, conveyance or hypothecation of any right,
title or interest in and to the subject matter of this Escrow shall be binding
upon the Escrow Agent unless written notice thereof shall be served upon the
Escrow Agent and all fees, costs and expenses incident thereto shall have been
paid and then only upon the. Escrow Agent's assent thereto in writing.
9. Any notice required or desired to be given by the Escrow Agent to any
party to this Escrow may be given by personal delivery thereof or mailing the
same addressed to such party at the address given below the signature of such
party or the most recent address of such party shown on the records of the
Escrow Agent, and notice so mailed shall for all purposes hereof be as effectual
as though served upon such party in person at the time of depositing such notice
in the mail.
10. The Escrow Agent shall not be liable for any act it may do or omit to
do hereunder as such agents, while acting in good faith and in the exercise of
its own best judgment, and any act done or omitted by them pursuant to the
advice of its own attorneys shall be conclusive evidence of such good faith.
11. The Escrow Agent shall be under no duty or obligation to ascertain the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver these instructions or any documents or papers
or payments deposited or called for hereunder and assume no responsibility or
liability for the validity or sufficiency of these instructions or any documents
or papers or payments deposited or called for hereunder.
12. No assignment, transfer, conveyance or hypothecation of any right,
title or interest in and to the subject matter of this escrow shall be binding
upon the Escrow Agent unless written notice thereof shall be served upon the
Escrow Agent and all fees, costs and expenses incident thereto shall have been
paid and then only upon the Escrow Agent's assent thereto in writing.
13. The Escrow Agent is hereby expressly authorized to disregard any and
all notices or warnings given by any of the parties hereto, or by any other
person, firm or corporation, excepting only orders or process of court, and is
hereby expressly authorized to comply with and obey any and all process, orders,
judgments or decrees of any court, and in case the Escrow Agent obeys or
complies with any such process, order, judgment or decree of any court, it shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such process,
order, judgment or decree be subsequently reversed, modified, annulled, set
aside or vacated, or found to have been issued or entered without jurisdiction.
14. In consideration of the acceptance of this escrow by the Escrow Agent,
the parties hereto agree, jointly and severally, for themselves, their heirs,
legal representatives, successors and assigns, to pay the Escrow Agent its
charges hereunder and to indemnify and hold Escrow Agent harmless as to any
liability by it incurred to any other person, firm or corporation by reason of
56
its having accepted the same, or its carrying out any of the terms hereof, and
to reimburse it for all its expenses, including, among other things, counsel
fees and court costs incurred in connection herewith; and the Escrow Agent shall
have a first and prior lien upon all deposits made hereunder to secure the
performance of such agreement of indemnity and the payment of its charges and
expenses, hereby expressly authorizing the Escrow Agent, in the event payment is
not received promptly from the undersigned, to deduct such charges and expenses,
without previous notice, from any funds deposited hereunder.
15. The Escrow Agent shall not be liable for the unenforceability of any
rights under any statute of limitations or by reason of laches in respect to the
instructions or any documents or papers deposited.
16. In the event of any dispute between the parties hereto as to the facts
of default, the validity or meaning of these instructions or any other fact or
matter relating to the transaction between the parties, the Escrow Agent is
instructed as follows:
A. That it may, in its sole and absolute discretion, deposit the
property described herein or so much thereof as remains in its hands with
the then Clerk, or acting Clerk, of the District Court of the City and
County of Denver, State of Colorado, and interplead the parties hereto,
and upon so depositing such property and filing its complaint in
interpleader, it shall be relieved of all liability under the terms hereof
as to the property so deposited, and furthermore, the parties hereto, for
themselves, their heirs, legal representatives, successors and assigns, do
hereby submit themselves to the jurisdiction of such Court and do hereby
appoint the then Clerk, or acting Clerk, of such Court as their agent for
the services of all process in connection with such proceedings. The
institution of any such interpleader action shall not impair the rights of
the Escrow Agent under this Agreement. In the event the Escrow Agent
elects to interplead as provided herein, the parties hereto acknowledge
that Escrow Agent shall have the right to represent Sellers and/or Pearl
in the interplead action, and each of the parties hereby waives any
conflicts that might or do arise relating to such representation by Escrow
Agent.
B. That it shall be under no obligation to act, except under process
or order of court, or until it has been adequately indemnified to its full
satisfaction, and shall sustain no liability for its failure to act
pending such process or court order of indemnification.
17. The provisions of these instructions shall be binding upon the legal
representatives, heirs, successors and assigns of the parties hereto.
18. This Agreement has been executed in counterparts, any fully executed
copy of which shall have the force and effect at law of an original.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures
effective as of the date first hereinabove set forth.
SELLERS: PURCHASER:
- ------- ---------
EPIC ENERGY RESOURCES, INC.
A Colorado corporation
By /s/ R. Bret Rhinesmith
----------------------
R. Bret Rhinesmith By: /s/ Rex P. Doyle
--------------------- -------------------------------
-------------------- Print Name: Rex P. Doyle
------------------------
By /s/ Patrick A. Redalen Print Title:Chairman and CEO
---------------------- ------------------------
Patrick A. Redalen
--------------------- Address: 10655 Six Pines Dr., Suite 210
--------------------- The Woodlands, TX 77380
By /s/ Curtis L. Good
----------------------
Curtis L Good
----------------------
----------------------
Escrow Agent:
- -------------
McGLOIN, DAVENPORT, SEVERSON AND SNOW
Professional Corporation
By /s/ John A. Murray
----------------------------
John A. Murray
1600 Stout Street, Suite 1600
Denver, Colorado 80202-3103
EXHIBIT A
Closing Documents
A. Executed Employment Agreements for R. Bret Rhinesmith, Curtis L. Good,
Patrick W. Murray and Mona Walker.
B. Executed Board Resolution of PEARL.
C. Executed Board Resolution of EPIC (full signatures to be provided after
Closing prior to funding).
D. Executed EPIC/Shareholder Indemnification Agreement.
E. Letter Agreement regarding failure to close.
F. Stock assignment froms executied by Rhinesmith, Redalen and Good to EPIC,
along with original stock certificates.
EXHIBIT B
WIRING INSTRUCTIONS TO
McGLOIN, DAVENPORT, SEVERSON and SNOW, P.C.
Trust Account
Bank Number: 102003206
Account Number: 30 90760
Name of Bank: COBIZ Bank, N.A.
Address: 821 17th Street
Denver, Colorado 80201
Phone: (303) 293-2265
Name on Account: McGloin, Davenport, Severson and Snow, PC
August 30, 2007
LETTER AGREEMENT
R. Bret Rhinesmith
70 Styx Road
Big Horn, Wyoming 82833
Dear Mr. Rhinesmith:
This letter will serve as an agreement by and between EPiC Energy
Resources, Inc. ("EPIC") and Pearl Investment Company ("PEARL"). The parties
acknowledge adequate consideration for entering into this agreement under the
following terms and conditions:
1) It is anticipated that the parties will close the stock transaction in
escrow on August 31, 2007 pursuant to the terms of the Escrow
Agreement, and the transaction is contingent upon EPIC receiving
acceptable funding.
2) Should the transaction not be released from escrow due solely to
EPIC's inability to obtain acceptable financing, then EPIC agrees that
it will grant the EPIC shares specified in the Stock Purchase
Agreement to the PEARL shareholders and it will also reimburse PEARL
half of their documented legal fees incurred in the failed
transaction.
3) Any dispute arising under this Letter Agreement shall be handled via
the arbitration process set out in the Stock Purchase Agreement.
Please indicate your agreement to the terms hereof by signing and returning
an original of this Letter Agreement to John Ippolito.
Best regards,
John S. Ippolito
President
/s/ R. Bret Rhinesmith
---------------------------
R. Bret Rhinesmith
President and CEO of Pearl Investment Company
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (the "First Amendment") is made
and entered into effective this 28th day of September, 2007, by and between EPiC
ENERGY RESOURCES, INC., a Colorado corporation ("EPiC"), PEARL INVESTMENT
COMPANY, a Colorado corporation ("Pearl"), R. BRET RHINESMITH ("Rhinesmith"),
PATRICK A. REDALEN ("Redalen"), and CURTIS L. GOOD ("Good"). Rhinesmith, Redalen
and Good are sometimes collectively referred to herein as the "Shareholders".
Pearl and the Shareholders are sometimes collectively referred to as the "PEARL
Parties" or "Sellers". The PEARL Parties and EPiC are sometimes collectively
referred to herein as the "Parties".
RECITALS
--------
WHEREAS, the Parties are parties to that certain Stock Purchase Agreement
dated August 31, 2007 (the "Purchase Agreement") wherein EPiC agreed to acquire
100% of the outstanding stock in Pearl from the Shareholders upon such terms and
conditions as set forth in said Purchase Agreement; and
WHEREAS, the Parties are also parties to that certain Escrow Agreement
dated effective September 1, 2007 (the "Escrow Agreement") by and between the
EPiC, each of the PEARL Parties, and McGloin, Davenport, Severson & Snow, PC
(the "Escrow Agent") wherein the closing documents required under the Purchase
Agreement were delivered to Escrow Agent to be held pursuant to the terms of the
Escrow Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement, the PEARL
Parties delivered into escrow with Escrow Agent all documents and instruments
required pursuant to Section 2.6(a) of the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement, EPiC delivered
into escrow with Escrow Agent the "Purchase Stock" as required under Section
2.5(b) of the Purchase Agreement, and EPiC was required, on or before September
30, 2007, to deliver to Escrow Agent's trust account via wire transfer the
amount of Eighteen Million Dollars ($18,000,000.00), which amount represented
the "cash" portion of the Purchase Price under the Purchase Agreement; and
WHEREAS, EPiC has requested that the PEARL Parties agree to extend the
date by which such Eighteen Million Dollars ($18,000,000.00) (the "Cash
Proceeds") are required to be paid under the Purchase Agreement and the Escrow
Agreement; and
WHEREAS, the PEARL Parties have agree to extend the deadline by which the
Cash Proceeds are required to be paid, subject to the terms and conditions set
forth herein.
NOW, THEREFORE, for and in consideration of the payment of the "Extension
Fee" (as hereinafter defined, the extension of the date the Cash Proceeds are
due and payable by EPiC to the PEARL Parties, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties agree as follows:
1. A capitalized term in this First Amendment shall have the meaning set
forth in the Purchase Agreement unless otherwise noted.
2. Section 2.4 of the Purchase Agreement is hereby amended and restated in
its entirety as follows:
2.4 Purchase Price. The purchase price (the "Purchase Price") for
the PEARL Common Stock will be made on the Closing Date (or other date as
expressly provided herein or in the Escrow Agreement, or as otherwise
agreed to in writing by the Parties) as follows:
(a) Cash. The delivery by wire transfer of the amount of
Eighteen Million and No/100 Dollars ($18,000,000.00) to the trust
account of McGloin, Davenport, Severson & Snow, P.C. (hereinafter,
"MDSS") pursuant to the wiring instructions set forth on said
Exhibit B, attached hereto. Such proceeds shall be received by MDSS
on or before October 30, 2007; provided if such proceeds are not
received via wire transfer by MDSS on or before September 30, 2007,
such $18 Million Dollar amount shall bear interest at the rate of
twelve percent (12%) per annum, compounded daily, for each and every
day after September 1, 2007 until the $18 million amount is paid in
full (the "Late Fee"), which Late Fee shall also be paid by
Purchaser to MDSS via wire transfer on or before October 30, 2007.
Such proceeds shall be allocated pro-rata among the Shareholders as
set forth on Exhibit B. If such $18 Million amount plus any
applicable Late Fees are not received on or before October 30, 2007,
either Sellers or Purchaser may declare Agreement void ab initio,
provided the Shareholders shall have the right to retain the
Purchase Stock described in Section 2.4(b) below in the event such
funds are not received on or before October 30, 2007,
notwithstanding the Agreement being deemed void ab initio.
(b) Purchase Stock. The delivery through the transfer agent of
One Million One Hundred Eighty Six Thousand Two Hundred Forty
(1,186,240) shares of stock in EPIC Energy Resources, Inc. Such
Purchase Stock shall be allocated as indicated as follows:
(i) 1,000,000 shares to Rhinesmith;
(ii) 126,928 shares to Redalen; and
(iii) 59,312 shares to Good.
Such Purchase Stock shall be immediately delivered to the
Shareholders, and shall be reflected on the corporate records of
EPiC as fully and validly issued and outstanding.
3. Upon execution of this Agreement, but in no event later than
close of business on Friday, September 28, 2007, Epic shall make or cause
to be made by wire transfer to Pearl a payment of an Extension Fee (the
"Extension Fee") consisting of Three Hundred Thousand Dollars
($300,000.00) and Three Hundred Thousand (300,000) shares of common stock
in EPiC Energy Resources, Inc.. The cash portion of the Extension Fee,
$300,000, shall be used freely by Pearl for working capital or other
business needs as Pearl deems appropriate, in Pearl's sole discretion.
EPiC will authorize the issuance through the transfer agent within 5
working days of Three Hundred Thousand (300,000) shares of restricted
common stock in EPiC Energy Resources, Inc to Pearl Investment Company. If
EPiC timely delivers the $18 Million Cash Proceeds (plus any applicable
2
Late Fee) to Escrow Agent on or before October 30, 2007, the cash portion
of such Extension Fee proceeds shall remain in Pearl and continued to be
used as working capital or other business needs and the Three Hundred
Thousand Shares issued to Pearl Investment Company will be cancelled.
However, if EPiC fails to timely deliver the Cash Proceeds (plus any
applicable Late Fee) to Escrow Agent on or before October 30, 2007 for any
reason, Pearl shall have the right to retain the entire Extension Fee,
including the restricted common shares and EPiC shall be deemed to have
waived any and all rights, title or interest whatsoever in and to the
Extension Fee or any and all rights, title or interest in and to any
property, assets, businesses or other rights acquired by Pearl with such
funds. In the event that EPiC fails to timely deliver the Cash Proceeds
(plus any applicable Late Fee) to Escrow Agent on or before October 30,
2007 for any reason, EPiC will file a registration statement on or before
June 30, 2008, to cause the Three Hundred Thousand Shares associated with
the Extension Fee to be free trading.
4. If EPiC fails to timely delivers the $18 Million Cash Proceeds (plus
any applicable Late Fee) to Escrow Agent on or before October 30, 2007 for any
reason, EPiC agrees to reimburse Pearl for fifty percent (50%) all of its
documented legal fees and costs incurred in relation to the Purchase Agreement
and the transaction relating thereto (the "Transaction Costs"). Pearl shall
provide written notice to EPiC of the amount of Transaction Costs applicable,
and EPiC shall reimburse Pearl for all such Transaction Costs within five (5)
business days from receipt of such written notice. Such amount shall incur
interest at eighteen percent (18%) until paid in full. In the event Pearl
retains an attorney and/or commences legal actions to collect such amount, EPiC
shall reimburse Pearl for its reasonable costs of collection, including
reasonable attorney's fees and court costs.
5. EPiC hereby acknowledges and agrees that, unless this Agreements is
void ab initio pursuant to Section 2.4 (a) of the Purchase Agreement (as amended
herein) or pursuant to the terms of the Escrow Agreement, EPiC shall be
obligated to make (or cause to be made) the tax distributions to the
Shareholders as provided in Section 6.1 of the Purchase Agreement.
6. EPiC and Pearl acknowledge that Pearl is contractually obligated to
make "change of control" payments to certain employees upon the closing of the
transaction contemplated by the Purchase Agreement. The employees entitled to
change in control payments, and the amount of each such payment, is set forth on
Exhibit A, attached hereto and incorporated herein by this reference (the
"Change in Control Payments"). EPiC hereby acknowledges and agrees that, unless
this Agreements is void ab initio pursuant to Section 2.4 (a) of the Purchase
Agreement (as amended herein) or pursuant to the terms of the Escrow Agreement,
EPiC shall be obligated to make (or cause to be made) the Change in Control
Payments on or before November 1, 2007.
7. The Parties shall amend the terms of the Escrow Agreement to be
consistent with the terms hereof.
8. All other terms and conditions of the Purchase Agreement not
specifically modified by this First Amendment are to remain in full force and
effect. The Purchase Agreement, as amended by this First Amendment, is hereby
ratified and confirmed.
3
9. This First Amendment may be executed in one or more counterparts, each
of which shall constitute an original. This First Amendment shall be effective
when the Parties shall each have executed at least one, but not necessarily the
same, counterpart of this First Amendment. Facsimile signatures shall be binding
as if they were originals.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the Parties have executed this First Amendment on the
dates set forth below, but effective on the date first above written.
"Seller" "Purchaser"
PEARL INVESTMENT COMPANY EPiC ENERGY RESOURCES, INC.
By: /s/ R. Bret Rhinesmith By: /s/ Rex P. Doyle
------------------------ ----------------------------
Name: R. Bret Rhinesmith Name: Rex P. Doyle
Title: Chief Executive Officer Title: Chief Executive Officer
/s/ R. Bret Rhinesmith
- --------------------------------
R. Bret Rhinesmith, individually
/s/ Curtis L. Good
- --------------------------------
Curtis L. Good, individually
/s/ Patrick A. Redalen
- --------------------------------
Patrick A. Redalen, individually
5
EXHIBIT A
TO
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
Change in Control Agreement
---------------------------
Upon the closing of the transaction contemplated by the Purchase
Agreement, the following Pearl employees are entitled to change of control
payments opposite such employee's name.
Pat Murray - $300,000
Mona Walker - $150,000
Kris Vollmer - $120,000
Cindy Rogers - $ 80,000
6
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Second Amendment")
is made and entered into effective this 4th day of December, 2007, by and
between EPiC ENERGY RESOURCES, INC., a Colorado corporation ("EPiC"), PEARL
INVESTMENT COMPANY, a Colorado corporation ("Pearl"), R. BRET RHINESMITH
("Rhinesmith"), PATRICK A. REDALEN ("Redalen"), and CURTIS L. GOOD ("Good").
Rhinesmith, Redalen and Good are sometimes collectively referred to herein as
the "Shareholders". Pearl and the Shareholders are sometimes collectively
referred to as the "PEARL Parties" or "Sellers". The PEARL Parties and EPiC are
sometimes collectively referred to herein as the "Parties".
RECITALS
WHEREAS, the Parties are parties to that certain Stock Purchase Agreement
dated August 31, 2007 (the "Stock Purchase Agreement"), as amended by that
certain First Amendment to Stock Purchase Agreement dated September 28, 2007
(the "First Amendment") (the Stock Purchase Agreement and the First Amendment
being collectively referred to herein as the "Purchase Agreement") wherein EPiC
agreed to acquire 100% of the outstanding stock in Pearl from the Shareholders
upon such terms and conditions as set forth in said Purchase Agreement; and
WHEREAS, pursuant to Paragraph 3 of the First Amendment, upon execution of
the First Amendment, EPiC paid to Pearl via wire transfer the Extension Fee
payment in the amount of Three Hundred Thousand Dollars ($300,000.00) (the
"Initial Extension Fee"), and delivered to Pearl Three Hundred Thousand
(300,000) shares of common stock in EPiC Energy Resources, Inc (the "Initial
Extension Stock").
WHEREAS, EPiC has requested that the PEARL Parties agree to extend the
Closing Date; and
WHEREAS, the PEARL Parties have agreed to extend the deadline by which the
cash portion of the Purchase Price is required to be paid, subject to the terms
and conditions set forth herein; and
WHEREAS, the Parties have agreed to otherwise amend the Purchase Agreement
and extend the Closing Date and Effective Date thereunder, subject to the terms
and conditions set forth herein.
NOW, THEREFORE, for and in consideration of Ten Dollars, in hand paid by
EPIC to Shareholders, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. A capitalized term in this Second Amendment shall have the meaning set
forth in the Purchase Agreement unless otherwise noted.
2. EPiC hereby acknowledges that Pearl shall have full right to retain the
Initial Extension Fee of $300,000, which funds shall be used freely by Pearl for
working capital or other business needs as Pearl deems appropriate, in Pearl's
sole discretion, and EPiC hereby waives any and all rights, title or interest
whatsoever in and to the Initial Extension Fee or any and all rights, title or
interest in and to any property, assets, businesses or other rights acquired by
Pearl with such funds. Further, EPiC hereby waives any and all rights, title or
interest in and to the Purchase Stock and the Initial Extension Stock, and the
Shareholders or Pearl (as applicable) shall have full rights relating to such
stock, subject to any SEC restrictions applicable thereto. As the Initial
Extension Stock was originally issued to PEARL; the Parties agree that
Rhinesmith has or will designate one or more parties to whom such stock shall be
transferred.
3. Section 2.4 of the Purchase Agreement is hereby amended and restated in
its entirety as follows:
2.4 Purchase Price. The purchase price (the "Purchase Price") for
the PEARL Common Stock will be made on the Closing Date (or other date as
expressly provided herein, or as otherwise agreed to in writing by the
Parties) as follows:
(a) Cash. The delivery by wire transfer of the amount of
Eighteen Million, Seven Hundred Twenty Thousand and No/100 Dollars
($18,720,000.00) (the "Cash Proceeds") to the trust account of
McGloin, Davenport, Severson & Snow, P.C. (hereinafter, "MDSS")
pursuant to the wiring instructions set forth on said Exhibit B,
attached hereto. Such proceeds shall be received by MDSS on or
before December 4, 2007. Such proceeds shall be allocated pro-rata
among the Shareholders as set forth on Exhibit B. If such Cash
Proceeds are not received on or before December 4, 2007, either
Sellers or Purchaser may declare Agreement void ab initio.
(b) Purchase Stock. The parties hereto acknowledge the prior
delivery through the transfer agent of One Million One Hundred
Eighty Six Thousand Two Hundred Forty (1,186,240) shares of stock in
EPIC Energy Resources, Inc. Such Purchase Stock was allocated as
follows:
(i) 1,000,000 shares to Rhinesmith;
(ii) 126,928 shares to Redalen; and
(iii) 59,312 shares to Good.
Rhinesmith, Redalen and Good shall retain such Purchase Stock
if Purchaser fails to close for any reason.
4. The last sentence of Section 2.5 is hereby amended and restated as
follows: "The date of the closing shall be December 4, 2007 (the "Closing
Date").
5. Section 2.8 of the Purchase Agreement is hereby amended and restated in
its entirety as follows:
2.8 Effective Date. The effective date of this transaction (that is,
the date on which the Pearl Stock shall be deemed to be transferred by the
Shareholders to Purchaser) shall be December 1, 2007 (the "Effective
Date").
2
6. EPiC shall provide, on or before December 4, 2007, proper and adequate
documentation to Pearl confirming that R. Bret Rhinesmith shall be entitled to
hold one (1) board seat for EPiC Energy Resources, Inc. This board seat shall be
on any controlling or advising group overseeing or directing the business of
EPiC whether the board is a Board of Directors, a Board of Advisors, or any
other board with advisory authority. This board seat shall have full voting and
membership rights and compensation rights as provided by EPiC to other board
seat holders.
7. Section 6.1 of the Purchase Agreement is hereby amended and restated as
follows:
SECTION 6.1 Except for tax distributions to PEARL shareholders for
PEARL income prior to the Closing (which distributions Purchaser
acknowledges PEARL has the right to make and such shareholders have a
right to receive in accordance with PEARL's prior practice and which shall
be equal to forty percent of PEARL's income reportable on its final
short-year federal S-Corp tax return, hereinafter referred to as the "Tax
Distributions"), all employer obligations of PEARL with respect to the
directors, officers and employees of the PEARL Group Members for
withholding tax, any pension plan, workers' compensation premiums,
contributions or remittances of any kind in all material respects which
are then due, have been paid in full or accrued as of the Closing Date.
The Parties agree that said Tax Distributions relate to the taxes owed for
the 2007 short-year tax period and do not relate to taxes carried over
from 2006, and such short-term tax return shall be due on February 15,
2008, subject to extension. The Tax Distributions shall be made to the
Shareholders within a reasonable time after the return has been filed. To
fund such Tax Distributions, EPiC shall, at closing, deposit $2.4 Million
dollars into MDSS's trust account, which funds shall be placed in an
interest-bearing account and shall be held by MDSS in escrow until the
short-year tax return for Pearl has been filed, and the actual amount of
the Tax Distribution has been determined. As such time, EPiC and Pearl
shall provide MDSS with written instructions setting forth the actual
amount of the Tax Distributions to be made, and Escrow Agent shall
distribute such amount to the Shareholders pro-rata based upon their
relative percentage of ownership in Pearl immediately prior to the closing
hereunder, and the balance (if any) shall be returned to EPIC within a
reasonable time thereafter. Notwithstanding the foregoing, at any time
after the $2.4 Million has been placed in escrow with MDSS and prior to
the date the Tax Distribution is made, the Shareholders and EPiC may agree
in writing to reduce the amount of funds to be held by MDSS in escrow
pending the Tax Distribution, and upon deliver to MDSS of such agreement
executed by the Shareholders and EPiC, MDSS shall release to EPIC any
amounts then in said escrow in excess of the reduced amount agreed upon by
the parties. Notwithstanding the foregoing, to the extent the amount of
funds held in escrow by MDSS hereunder is less than the actual amount of
the Tax Distributions, EPIC shall fund any remaining shortage within a
reasonable time after the amount of the Tax Distribution has been
determined.
8. EPiC and Pearl acknowledge that Pearl is contractually obligated to
make "change of control" payments to certain employees upon the closing of the
transaction contemplated by the Purchase Agreement. The employees entitled to
change in control payments, and the amount of each such payment, is set forth on
Exhibit 1, attached hereto and incorporated herein by this reference (the
"Change in Control Payments"). EPiC hereby acknowledges and agrees Pearl shall
be obligated to make (or cause to be made) the Change in Control Payments on or
before December 4, 2007.
9. Upon execution of this Agreement, but in no event later than close of
business on Monday, December 4, 2007, Epic shall cause Three Hundred Thousand
(300,000) shares of common stock in EPiC Energy Resources, Inc. to be issued to
the PEARL employees identified on Exhibit 2, attached hereto, each of which
employee receiving Seventy Five Thousand (75,000) of such shares. Such shares
shall be restricted, and each employee receiving such shares shall fully vest in
3
such shares on November 30, 2010 (at which time such shares shall become free
trading) provided such employee is still employed by PEARL on such date. If any
employee resigns his or her employment with PEARL prior to such date, the said
75,000 shares for such employee shall be immediately cancelled.
10. All other terms and conditions of the Purchase Agreement not
specifically modified by the First Amendment or this Second Amendment are to
remain in full force and effect. The Purchase Agreement, as amended by the First
Amendment and Second Amendment, is hereby ratified and confirmed. The terms of
this Second Amendment shall survive the termination of the Purchase Agreement or
the closing of the transaction contemplated by the Purchase Agreement.
11. This Second Amendment may be executed in one or more counterparts,
each of which shall constitute an original. This Second Amendment shall be
effective when the Parties shall each have executed at least one, but not
necessarily the same, counterpart of this Second Amendment. Facsimile signatures
shall be binding as if they were originals.
12. The Shareholders and Pearl (as applicable) shall have the right to
retain the Purchase Stock, the Initial Extension Fee and the Initial Extension
Stock if the Purchase Agreement is terminated, is deemed void ab initio, or if
the transaction contemplated by the Purchase Agreement fails to close for any
reason whatsoever.
13. Exhibit B to the Purchase Agreement is hereby replaced with the
attached "Exhibit B" that is set forth and attached hereto as Exhibit 3.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the Parties have executed this Second Amendment
on the dates set forth below, but effective on the date first above written.
"Seller" "Purchaser"
PEARL INVESTMENT COMPANY EPiC ENERGY RESOURCES, INC.
By: /s/ R. Bret Rhinesmith By: /s/ Rex P. Doyle
------------------------ ----------------------------
Name: R. Bret Rhinesmith Name: Rex P. Doyle
Title: Chief Executive Officer Title: Chief Executive Officer
/s/ R. Bret Rhinesmith
- --------------------------------
R. Bret Rhinesmith, individually
/s/ Curtis L. Good
- --------------------------------
Curtis L. Good, individually
/s/ Patrick A. Redalen
- --------------------------------
Patrick A. Redalen, individually
5
EXHIBIT 1
TO
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
Change in Control Agreement
---------------------------
Upon the closing of the transaction contemplated by the Purchase
Agreement, the following Pearl employees are entitled to change of control
payments opposite such employee's name.
Pat Murray - $300,000
Mona Walker - $150,000
Kris Vollmer - $120,000
Cindy Rogers - $ 80,000
6
EXHIBIT 2
TO
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
Employees to receive EPiC Shares
--------------------------------
(Each of the following shall receive 75,000 shares of EPiC Stock pursuant to
Section 9 above)
Kindra Snow-McGregor
Michael J. Kraft
Edward C. Relaford, Jr.
Larry W. Bridger
7
EXHIBIT 3
TO
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
(Replacement Exhibit B to Purchase Agreement)
Exhibit B
WIRING INSTRUCTIONS TO
McGLOIN, DAVENPORT, SEVERSON AND SNOW, P.C.
Trust Account
Bank Number: 102003206
Account Number: 30 90760
Name of Bank: COBIZ Bank, N.A.
Address: 821 17th Street
Denver, Colorado 80201
Phone: (303) 293-2265
Name on Account: McGloin, Davenport, Severson and Snow, PC
- -----------------------------------------------------------------
Cash Purchase Allocation Ownership % Value
- -----------------------------------------------------------------
R. Bret Rhinesmith @ 84.30% $15,780,960.00
Patrick Redalen @ 10.70% $ 2,003,040.00
Curtis Good @ 5.00% $ 936,000.00
- -----------------------------------------------------------------
Total Cash Allocation 100.00% $18,720,000.00
- -----------------------------------------------------------------
8