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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 18, 2004
NATURAL GAS SERVICES GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 1-31398 75-2811855
(State or other jurisdiction (Commission File (IRS Employer
of Incorporation or organization) Number) Identification No.)
2911 South County Road 1260 Midland, Texas 79706
(Address of Principal Executive Offices) (Zip Code)
432-563-3974
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
On October 18, 2004, Natural Gas Services Group, Inc. entered into a
Stock Purchase Agreement with Screw Compression Systems, Inc., or "SCS", and the
stockholders of SCS. Under this agreement, Natural Gas Services Group agreed to
purchase from Paul D. Hensley, Tony Vohjesus and Jim Hazlett, the "selling
stockholders", all of the outstanding shares of capital stock of SCS.
SCS is a privately owned manufacturer of natural gas compressors, with
its principal offices located in Tulsa, Oklahoma.
The selling stockholders will receive, in proportionate shares (based
on their stock ownership of SCS), a total of $15 million, consisting of:
o $8 million in cash;
o promissory notes issued by Natural Gas Services in the
aggregate principal amount of $3 million bearing interest at
the rate of four percent (4.00%) per annum, maturing three
years from the date of closing and secured by a letter of
credit in the face amount of $2 million; and
o 609,576 shares of Natural Gas Services common stock valued at
$4 million, based on the average of the daily closing prices
of the common stock for the ninety consecutive trading days
ended April 28, 2004. All of the shares, upon issuance, will
be "restricted" securities within the meaning of Rule 144
under the Securities Act of 1933, as amended, and will bear a
legend to that effect.
Under terms of the agreement, for a period of two years following the
closing, the selling stockholders will have the right, subject to certain
limitations, to include or "piggyback" the 609,576 shares of common stock
received by them in the transaction in any registration statement filed by
Natural Gas Services with the Securities and Exchange Commission.
After the closing, SCS will be operated as a wholly owned subsidiary of
Natural Gas Services and the selling stockholders will continue in their present
positions with SCS under three-year employment agreements. In addition, at
closing, Paul D. Hensley will be appointed to fill a vacancy existing on the
Board of Directors of Natural Gas Services, to hold office until the next annual
meeting of stockholders of Natural Gas Services at which directors are elected,
and in connection with the next annual meeting of stockholders, Natural Gas
Services will nominate Paul D. Hensley for election as a director to serve for a
term the same as the class of directors then standing for election.
Natural Gas Services has agreed to pay to Karifico Consultants a
finder's fee in the amount of $150,000.
The agreement is subject to customary closing conditions, including the
approval by the American Stock Exchange of the common stock for listing on AMEX.
Closing under the agreement is scheduled to occur not later than December 6,
2004. The agreement may be terminated by the selling stockholders or Natural Gas
Services Group if the closing does not occur by December 6, 2004.
2
Natural Gas Services Group has no material relationship with SCS or the
selling stockholders other then with respect to the Stock Purchase Agreement.
The foregoing is a summary of the material features of the agreement.
This summary does not purport to be complete and is qualified in its entirety by
reference to the terms of the agreement, which is filed as Exhibit 10.1 to this
Current Report on Form 8-K, and incorporated herein by reference.
3
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits
The Exhibit listed below is filed as part of this Current Report on
Form 8-K.
Exhibit No. Description
----------- -----------
4.1 Stock Purchase Agreement, dated October 18,
2004, by and among Natural Gas Services
Group, Inc., Screw Compression Systems,
Inc., Paul D. Hensley, Jim Hazlett and Tony
Vohjesus
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Wallace C. Sparkman
------------------------------
Wallace C. Sparkman, President
Dated: October 20, 2004
5
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Stock Purchase Agreement, dated October 18, 2004, by
and among Natural Gas Services Group, Inc., Screw
Compression Systems, Inc., Paul D. Hensley, Jim
Hazlett and Tony Vohjesus
6
Exhibit 4.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
NATURAL GAS SERVICES GROUP, INC.
("BUYER"),
THE SHAREHOLDERS OF SCREW COMPRESSION SYSTEMS, INC.
("SELLERS"),
AND
SCREW COMPRESSION SYSTEMS, INC.
("COMPANY")
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS
1.1 Definitions...........................................................1
ARTICLE 2 - PURCHASE AND SALE
2.1 Purchase and Sale......................................................3
2.2 Payments on Closing; Post-Closing Adjustment...........................3
2.3 The Closing............................................................4
2.4 Deliveries.............................................................4
ARTICLE 3
[Intentionally Omitted]
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY
4.1 Organizations, Standing and Power......................................5
4.2 No Subsidiaries........................................................6
4.3 Capital Structure......................................................6
4.4 Title to Company Shares................................................7
4.5 Authorization; Enforceability..........................................7
4.6 Absence of Conflicting Agreement.......................................8
4.7 Title to Properties....................................................9
4.8 Condition of Properties................................................9
4.9 Contracts.............................................................10
4.10 No Default............................................................12
4.11 Intellectual Property.................................................12
4.12 Leases................................................................12
4.13 Financial Statements..................................................13
4.14 Absence of Certain Changes and Events.................................13
4.15 No Undisclosed Liabilities............................................15
4.16 No Litigation or Labor Disputes.......................................15
4.17 Taxes.................................................................15
4.18 Governmental Authorizations...........................................16
4.19 Insurance.............................................................16
4.20 Brokers...............................................................17
4.21 Bank Accounts.........................................................17
4.22 Employees.............................................................17
4.23 Employee Benefit Plans................................................17
4.24 Environmental Compliance..............................................19
4.25 Related Party Transactions............................................20
(i)
4.26 Real Properties.......................................................21
4.27 Labor Matters.........................................................22
4.28 Compliance with Laws; Permits.........................................23
4.29 Prospects; Outstanding Commitments; Customers and Suppliers...........24
4.30 Minute Books..........................................................24
4.31 Subchapter S Matters..................................................24
4.32 Absence of Certain Business Practices.................................24
4.33 Completeness of Disclosure............................................25
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1 Organization; Standing and Power......................................25
5.2 Capital Structure.....................................................25
5.3 Authority; Non-contravention..........................................26
5.4 SEC Documents.........................................................27
5.5 Absence of Material Adverse Change....................................28
5.6 No Default............................................................28
5.7 No Undisclosed Material Liabilities...................................28
5.8 Compliance with Laws; Permits.........................................28
5.9 Brokers...............................................................29
5.10 Litigation............................................................29
5.11 Financing.............................................................29
5.12 Tax Matters...........................................................29
5.13 Completeness of Disclosure............................................29
ARTICLE 6 - COVENANTS RELATING TO CONDUCT OF BUSINESS AND
ADDITIONAL AGREEMENTS
6.1 Conduct of Business of the Company....................................30
6.2 Access to Information.................................................32
6.3 Reasonable Efforts; Notification......................................34
6.4 Fees and Expenses.....................................................35
6.5 Public Announcements..................................................35
6.6 Agreement to Defend...................................................35
6.7 Nasdaq National Market................................................35
6.8 Payment of Indebtedness...............................................35
ARTICLE 7 - CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Purchase..........36
7.2 Conditions to Obligations of Buyer....................................36
7.3 Conditions to Obligations of the Company and the Sellers..............37
(ii)
ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER
8.1 Termination...........................................................38
8.2 Procedure for Termination, Amendment, Extension or Waiver.............39
8.3 Effect of Termination.................................................39
8.4 Amendment.............................................................39
8.5 Extension; Waiver.....................................................39
ARTICLE 9 - SPECIAL PROVISIONS AS TO CERTAIN MATTERS
9.1 No Negotiation........................................................40
9.2 Audited Financial Statements..........................................40
ARTICLE 10 - INDEMNIFICATION
10.1 Indemnification of Buyer..............................................40
10.2 Indemnification of Sellers............................................42
10.3 Remedies; Specific Performance........................................43
10.4 Survival..............................................................44
ARTICLE 11 - TAX MATTERS
11.1 Tax Periods Ending on or Before the Closing Date......................44
11.2 Tax Periods Beginning Before and Ending After the Closing Date........44
11.3 Cooperation on Tax Matters............................................44
11.4 Tax Sharing Agreements................................................45
11.5 Certain Taxes.........................................................45
11.6 Section 338(h)(10) Election...........................................45
ARTICLE 12 - GENERAL PROVISIONS
12.1 Survival of Representations and Warranties............................46
12.2 Survival of Covenants and Agreements..................................47
12.3 Interpretation........................................................47
12.4 Counterparts..........................................................47
12.5 Entire Agreement; No Third-Party Beneficiaries........................47
12.6 Governing Law.........................................................47
12.7 Assignment............................................................47
12.8 Enforcement of the Agreement..........................................47
12.9 Performance by Sub....................................................48
12.10 Severability..........................................................48
12.11 Joint Participation in Drafting.......................................48
12.12 Notices...............................................................48
(iii)
EXHIBITS
Exhibit A - Certain Officers of the Company
Exhibit B - Certain Officers of the Buyer
Exhibit C - Promissory Note
Exhibit D - Release
Exhibit E - Employment Agreement
Exhibit F - Stockholders' Agreement
Exhibit G - Opinion of Company's Counsel
Exhibit H - Opinion of Buyer's Counsel
SCHEDULES
Schedule 4.2 - Subsidiaries
Schedule 4.3 - Company Shares
Schedule 4.4 - Title to Company Shares
Schedule 4.6 - Conflicting Agreements
Schedule 4.7 - Title Defects
Schedule 4.8 - Condition of Properties
Schedule 4.9 - Material Contracts
Schedule 4.12 - Leases
Schedule 4.14 - Certain Changes and Events
Schedule 4.15 - Liabilities and Obligations
Schedule 4.16 - Litigation
Schedule 4.17 - Taxes
Schedule 4.19 - Insurance
Schedule 4.21 - Bank Accounts
Schedule 4.22 - Employees
Schedule 4.23 - Company Benefit Plans
Schedule 4.24 - Hazardous Materials
Schedule 4.25 - Related Party Transactions
Schedule 4.26 - Real Property
Schedule 4.27 - Labor Matters
Schedule 4.29 - Customers and Suppliers
(iv)
INDEX TO DEFINED TERMS
Section
------------
Affiliate........................................................ 1.1
Affiliated Group................................................. 1.1
Agreement........................................................ 1.1
Buyer............................................................ Introduction
Buyer Balance Sheet.............................................. 5.4
Buyer Balance Sheet Date......................................... 5.4
Buyer Charter Documents.......................................... 5.3
Buyer Common Stock............................................... 5.2(a)
Buyer Indemnitee or Buyer Indemnitees ........................... 10.1
Buyer Permits.................................................... 5.7
Buyer Stock Plans................................................ 5.2(a)
Closing.......................................................... 1.1
Closing Date..................................................... 1.1
Code............................................................. 1.1
Company.......................................................... Introduction
Company Balance Sheet............................................ 4.13
Company Balance Sheet Date....................................... 4.13
Company Benefit Plan............................................. 4.23
Company Charter Documents........................................ 4.5(a)
Company Permits.................................................. 4.28
Company Shares................................................... 4.3(b)
Company Stock Plans.............................................. 4.3(a)
Employer......................................................... 4.23
Employment Agreements............................................ 2.4(a)(iii)
Environmental Laws............................................... 1.1
ERISA............................................................ 4.23
Exchange Act..................................................... 5.3
Financial Statements............................................. 4.13
Governmental Entity.............................................. 4.5(a)
Hazardous Materials.............................................. 1.1
hereof, herein and hereunder..................................... 12.3
include, includes or including................................... 12.3
IRS.............................................................. 4.23(i)(B)
Knowledge........................................................ 1.1
Lien............................................................. 1.1
Material Adverse Effect or Material Adverse Change............... 1.1
Material Contracts............................................... 4.9(a)
Person .......................................................... 1.1
Promissory Notes................................................. 2.2(c)
Purchase......................................................... 2.1
Purchase Consideration........................................... 1.1
(v)
Real Property.................................................... 4.26(a)
SEC.............................................................. 5.3
SEC Documents.................................................... 5.4
Securities Act................................................... 5.2
Seller Indemnitee or Seller Indemnitees.......................... 10.2
Seller or Sellers................................................ Introduction
Sellers' Releases................................................ 2.4(a)(ii)
Stockholders' Agreement.......................................... 2.4(a)(iv)
subsidiary....................................................... 1.1
Tax or Taxes..................................................... 4.17(a)
Tax Return....................................................... 4.17(a)
338 Adjustment................................................... 11.6
(vi)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of October 18, 2004, is made
and entered by and among Paul D. Hensley, Jim Hazlett and Tony Vohjesus
(hereinafter referred to collectively as "Sellers" and individually as a
"Seller"), Screw Compression Systems, Inc., a Texas corporation (the "Company"),
and Natural Gas Services Group, Inc., a Colorado corporation ("Buyer").
WITNESSETH:
WHEREAS, Sellers own all of the issued and outstanding shares of the
capital stock of the Company; and
WHEREAS, Sellers are willing to sell to Buyer, and Buyer is willing to
purchase from Sellers, all of the issued and outstanding capital stock of the
Company, on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for purposes of this Agreement:
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person.
"Affiliated Group" means any affiliated group within the
meaning of Code ss.1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Agreement" means this Stock Purchase Agreement, together with
the Schedules and the Exhibits attached hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"Closing" means the actual transfer and delivery of the
documents transferring the Company Shares to Buyer, the payment of the Purchase
Consideration and the exchange and delivery by the parties of the other
documents and instruments contemplated by this Agreement.
1
"Closing Date" means, subject to the provisions of Section
8.1, December 6, 2004;
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Confidentiality Agreement" means that certain Confidentiality
Agreement, dated April 12, 2004, by and between the Company and Buyer.
"Environmental Laws" means all applicable foreign, federal,
state and local statutes, rules, regulations, ordinances, orders, decrees and
common law relating in any manner to pollution, protection of the environment or
the use, storage, treatment or disposal of Hazardous Materials.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials and substances, including
radioactive materials, regulated pursuant to any Environmental Laws.
"Knowledge" with respect to (i) Sellers and the Company means
the knowledge of each Seller and the knowledge of the Company's officers listed
in Exhibit A, after reasonable inquiry, and (ii) Buyer means the knowledge of
the officers of Buyer listed in Exhibit B, after reasonable inquiry.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, security interest, encumbrance, easement, claim, lien, lease
(including any capitalized lease) or charge of any kind, whether voluntarily
incurred or arising by operation of law or otherwise, affecting any assets or
property, including any agreement to give or grant any of the foregoing, any
conditional sale or other title retention agreement and the filing of or
agreement to give any financing statement with respect to any assets or property
under the Uniform Commercial Code of the State of Texas or comparable law of any
jurisdiction.
"Material Adverse Effect" or "Material Adverse Change" means,
when used in connection with any Person, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to result in
any change or effect) that is materially adverse to the business, properties,
assets, condition (financial or otherwise) or results of operations of that
Person and its subsidiaries, taken as a whole, except for such changes or
effects in general economic, capital market, regulatory or political conditions,
changes resulting from war or terrorism and changes that affect generally the
natural gas compressor industry and do not disproportionately affect such
Person.
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other entity.
"Purchase Consideration" means the aggregate price to be paid
by Buyer for the Company Shares held by Sellers, as provided for in Section 2.1.
2
a "subsidiary" of any Person means any corporation,
partnership, association, joint venture, limited liability company or other
entity in which such Person owns more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the election
of directors or other governing body of such other legal entity.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. At the Closing on the Closing Date, and upon all
of the terms and subject to all of the conditions of this Agreement, each Seller
shall sell, assign, convey, transfer and deliver to Buyer, and Buyer shall
purchase, all of Sellers' Company Shares, such sale and purchase transactions
being collectively referred to herein as the "Purchase". The Purchase
Consideration to be paid to Sellers as a group shall be $15,000,000.00, subject
to adjustment as provided for in Section 2.2(d).
2.2 Payments on Closing; Post-Closing Adjustment. At the Closing on the
Closing Date, Buyer shall, in consideration for good and marketable title to the
Company Shares, free and clear of all Liens, charges, encumbrances and
restrictions of any kind, pay the Purchase Consideration to Sellers as follows:
(a) Cash Consideration - Buyer shall deliver to each Seller by wire
transfer in immediately available federal funds the amount set forth opposite
such Seller's name below:
Paul D. Hensley $ 5,600,000
Jim Hazlett $ 800,000
Tony Vohjesus $ 1,600,000
-----------
Total $ 8,000,000
(b) Stock Consideration - Buyer shall deliver to each Seller a
certificate evidencing the number of shares of Buyer Common Stock set forth
opposite such Seller's name below:
Paul D. Hensley 426,829
Jim Hazlett 60,976
Tony Vohjesus 121,951
-----------
Total 609,756
(c) Note Consideration - Buyer shall deliver to each Seller a
promissory note in the form of Exhibit C (the "Promissory Notes"), with
appropriate insertions, in the principal amount set forth opposite such Seller's
name below:
Paul D. Hensley $ 2,100,000
Jim Hazlett $ 300,000
Tony Vohjesus $ 600,000
-----------
Total $ 3,000,000
3
(d) Post-Closing Adjustment - If Buyer elects to make a Section
338(h)(10) election under the Code pursuant to Section 11.6, Buyer shall, to the
extent required by Section 11.6(b), make a 338 Adjustment payment promptly after
the determination of such amount, in immediately available funds, to the Sellers
in proportion to their ownership of the Company Shares and the Purchase
Consideration shall be deemed to have increased accordingly.
2.3 The Closing. The Closing of the transactions contemplated by this
Agreement shall take place at 11:00 a.m., local time on the Closing Date, at the
offices of John L. Shafer III, 5918 E. 31st Street, Tulsa, Oklahoma 74135, or at
such other time and place as the parties might hereafter mutually agree in
writing.
2.4 Deliveries. At the Closing on the Closing Date:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Company Shares, duly
endorsed (or accompanied by duly executed stock powers);
(ii) releases in the form of Exhibit D executed by Sellers
(collectively, the "Sellers' Releases");
(iii) employment agreements in substantially the form of
Exhibit E, with appropriate insertions mutually agreeable to Sellers,
Robert Scott and Buyer, executed by Sellers and Robert Scott
(collectively, the "Employment Agreements");
(iv) a stockholders' agreement in the form of Exhibit F,
executed by Sellers (the "Stockholders' Agreement");
(v) a certificate executed by each Seller representing and
warranting to Buyer that, except as otherwise stated in such
certificate, each of Sellers' representations and warranties in this
Agreement was accurate in all respects as of the date of this Agreement
and is accurate in all material respects as of the Closing Date as if
made on the Closing Date, except that representations and warranties
that are by their express provisions made as of a specific date need be
true and correct only as of such specific date; and
(vi) if so requested by Buyer before the Closing Date, the
written resignations of all officers and members of the Board of
Directors of the Company.
(b) Buyer will deliver or cause to be delivered to Sellers:
(i) the payments set forth in Section 2.2(a);
(ii) the Promissory Notes;
(iii) the share certificates described in Section 2.2(b);
4
(iv) a certificate executed by Buyer to the effect that,
except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement is accurate in all
material respects as of the Closing Date as if made on the Closing
Date;
(v) the Employment Agreements, executed by Buyer;
(vi) the Stockholders' Agreement, executed by Buyer; and
(vii) as security for the Buyer's payment and performance of
the Promissory Notes, irrevocable standby letters of credit issued by
Western National Bank, Midland, Texas, for Buyer's account and
otherwise being in a form mutually agreeable to Sellers and Buyer. Each
letter of credit shall designate one Seller as beneficiary thereof and
shall be in the face amount set forth opposite such Seller's name
below:
Paul D. Hensley $ 1,400,000
Jim Hazlett 200,000
Tony Vohjesus 400,000
-----------
Total $ 2,000,000
ARTICLE 3
[Intentionally omitted]
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
SELLERS AND THE COMPANY
Sellers and the Company, jointly and severally, represent and warrant
to Buyer that the statements contained in this Article 4 are true, correct and
complete as of the date of this Agreement.
4.1 Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business or in good
standing (individually or in the aggregate) would not have, or would not
reasonably be likely to have, a Material Adverse Effect on the Company. The
Company has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. Complete and correct copies of the certificate and articles of
incorporation, as amended, and the bylaws, as amended, of the Company as in
effect on the date of this Agreement have been previously delivered by Sellers
to Buyer.
5
4.2 No Subsidiaries. Except as set forth in Schedule 4.2, (a) the
Company has no subsidiaries, and does not own, directly or indirectly, any
capital stock or other ownership, participation or equity interest in any
corporation, partnership, limited liability company, association, joint venture
or other entity , and (b) there are no outstanding contractual obligations or
commitments of the Company to acquire or make any investment in any shares of
capital stock or other ownership, participation or equity interest in any
corporation, partnership, limited liability company, association, joint venture
or other entity.
4.3 Capital Structure.
(a) As of the date hereof, the authorized capital stock of the
Company consists of 200,000 shares of common stock, no par value. At the close
of business on October 15, 2004, 100,000 shares of common stock were issued and
outstanding. No shares of common stock were held by the Company in its treasury.
The Company has no outstanding stock options, stock appreciation rights, phantom
units, profit participation or similar rights with respect to the Company. No
shares of capital stock or other equity or voting securities of the Company are
reserved for issuance or are outstanding. All of the issued and outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable and have not been issued in violation of any
preemptive rights or in violation of state or federal securities laws, and there
are no preemptive rights with respect thereto. No capital stock has been issued
by the Company since the Company Balance Sheet Date. Except as set forth above,
as of the date hereof there are no outstanding or authorized securities,
options, warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which the Company is a party, or by
which it is bound, obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, any shares of capital stock or other equity or
voting securities of, or other ownership interests in, the Company or obligating
the Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. Except
as set forth in Schedule 4.3, there are not as of the date of this Agreement and
there will not be at the Closing Date any shareholder agreements, voting trusts
or other agreements or understandings to which the Company is a party or by
which it is bound relating to the voting of any shares of the capital stock of
the Company.
(b) The shares of capital stock of the Company held by Sellers
(the "Company Shares") in the amounts set forth in Schedule 4.3 constitute all
of the issued and outstanding shares of capital stock or other ownership
interests of the Company. Except for the purchase and sale of the Company Shares
pursuant to this Agreement, there are no outstanding claims, options or other
rights of any Person to purchase from Sellers, and no contracts or commitments
providing for the granting of rights to acquire, any of the Company Shares.
Except as disclosed on Schedule 4.3, there are no claims pending or, to the
Knowledge of Sellers and the Company, threatened, against the Company or any
Seller that concern or affect title to the Company Shares, or that seek to
compel the issuance of capital stock or other securities of the Company.
(c) There are no outstanding obligations in connection with
the redemption by the Company of any of the previously issued and outstanding
shares of capital stock of the Company.
6
4.4 Title to Company Shares. Each Seller has legal, beneficial and
record title to the Company Shares set forth opposite such Seller's name on
Schedule 4.4, free and clear of any and all Liens, restrictions, options, voting
trusts or agreements, proxies, encumbrances, claims or charges of any kind
whatsoever (except as set forth in Section 4.3) and are validly issued, fully
paid and nonassessable. Sellers have or will have at the Closing physical
custody of the certificates evidencing all of the Company Shares. At Closing,
Buyer will acquire good and defensible title to the Company Shares, free and
clear of any and all Liens, restrictions, options, voting trusts or agreements,
proxies, encumbrances, claims or charges of any kind.
4.5 Authorization; Enforceability.
(a) The Company has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
effect relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
The execution and delivery of this Agreement by the Company do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both ) under, or give rise
to a right of termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under, or result in
the creation of any Lien on any of the properties or assets of the Company
under, any provision of (i) the articles of incorporation or bylaws of the
Company, each as amended through the date hereof (the "Company Charter
Documents"), (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease, or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or its properties or assets or (iii) subject to
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or its properties or assets, other
than in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not have,
or would not reasonably be likely to have, a Material Adverse Effect on the
Company and would not, or would not reasonably be likely to, materially impair
the ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, including local authorities (a
"Governmental Entity"), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby.
7
(b) The execution, delivery and performance of this Agreement
and all of the agreements, documents and instruments required under this
Agreement by Sellers and the consummation by Sellers of the transactions
contemplated hereby and thereby (including the sale, transfer, assignment and
delivery of the Company Shares), are within the power, legal rights, legal
capacity and authority of Sellers. This Agreement is, and the other agreements,
documents and instruments required by this Agreement will be, when executed and
delivered by Sellers, the valid and binding obligations of Sellers, enforceable
against Sellers in accordance with their terms, except as (i) such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws or judicial decisions now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
4.6 Absence of Conflicting Agreements. Except as set forth in Schedule
4.6, neither the execution, delivery or performance of this Agreement by Sellers
or the Company, nor the consummation of the transactions contemplated hereby
does or will, after the giving of notice, or the lapse of time or both, or
otherwise:
(a) subject to receipt of any necessary third party consents,
conflict with, result in a breach of, constitute a default, or give rise to a
right of termination under the certificate and articles of incorporation or
bylaws of the Company, any federal, state or local law, statute, ordinance, rule
or regulation applicable to the Company or Sellers, or any court or
administrative order or process, or any contract, agreement, arrangement,
commitment or plan to which Sellers or the Company is a party or by which
Sellers or the Company is bound;
(b) result in the creation of any Lien upon any of the Company
Shares, or the assets, business and properties of the Company;
(c) subject to receipt of any necessary third party consents,
terminate, amend or modify, or give any party the right to terminate, amend,
modify, abandon or refuse to perform any contract, agreement, arrangement,
commitment or plan to which the Company is a party or by which it is bound;
(d) accelerate or modify, or give any party the right to
accelerate or modify, the time within which, or the terms under which, any
duties or obligations are to be performed, or any rights or benefits are to be
received, under any contract, agreement, arrangement, commitment or plan to
which the Company is a party or by which it is bound; or
(e) to the Knowledge of Sellers and the Company, require the
consent, waiver, approval, permit, license, clearance or authorization of, or
any declaration or filing with, any court or public agency or other authority,
including the U.S. Environmental Protection Agency or other federal or state
environmental protection agency.
8
4.7 Title to Properties. The Company has good and defensible title to,
or valid leasehold interests in, all of its material properties and assets (and
a fee simple estate in all owned real property), including all properties and
assets (tangible and intangible) reflected in the Company Balance Sheet, except
for (i) such properties and assets as are no longer used or useful in the
conduct of its businesses or as have been disposed of in the ordinary course of
business, (ii) defects in title set forth on Schedule 4.7, (iii) such
imperfections of title, easements, rights of way and similar matters and
failures of title as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or materially interfere with the
Company's use of such assets or properties, (iv) Liens for current Taxes not yet
due and payable or which are being contested in good faith by appropriate
proceedings (and which have been sufficiently accrued or reserved against in the
Company Balance Sheet), (v) Liens of carriers, warehousemen, mechanics,
laborers, materialmen, landlords, vendors, workmen and operators arising by
operation of law in the ordinary course of business or by a written agreement
existing as of the date hereof for sums not yet due or being contested in good
faith by appropriate proceedings, (vi) Liens, easements, rights-of-way,
restrictions, servitudes, permits, conditions, covenants, exceptions,
reservations and other similar encumbrances incurred in the ordinary course of
business or existing on property not materially impairing the value of the
assets of the Company or interfering with the ordinary conduct of the business
of the Company or rights to any of its assets, and (vii) Liens incurred in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation (other than ERISA)
for sums not yet due, which would not, individually or in the aggregate, result
in a Material Adverse Effect on the Company. All such assets and properties,
other than assets and properties in which the Company has leasehold interests,
are free and clear of all Liens, other than those (i) set forth in Schedule 4.7
and (ii) Liens, that, in the aggregate, do not and will not materially interfere
with the ability of the Company to conduct business as currently conducted or as
reasonably expected to be conducted. Except as set forth in Schedule 4.7, none
of the Company's properties, assets or business are subject to any restrictions
with respect to the transferability thereof.
4.8 Condition of Properties. To the Knowledge of Sellers and the
Company, except as set forth in Schedule 4.8, all properties and assets owned or
utilized by the Company are in good operating condition and repair, free from
any defects (except such minor defects as do not interfere with the use thereof
in the conduct of the normal operations of the Company), ordinary wear and tear
excepted, and have been maintained consistent with prudent industry practice. No
other assets or properties are needed to permit the Company to carry on its
business as conducted during the preceding 12 months and as proposed to be
conducted. To the Knowledge of Sellers and the Company, except as set forth in
Schedule 4.8, all buildings, plants and other structures owned or otherwise
utilized by the Company are in good condition and repair, ordinary wear and tear
excepted, and have no structural defects or defects affecting the plumbing,
electrical, sewerage, or heating, ventilating or air conditioning systems
(except such minor defects as do not significantly interfere with the use
thereof in the conduct of the normal operations of the Company) and are suitable
and adequate for the purposes for which they are presently being used.
9
4.9 Contracts.
(a) Schedule 4.9 is a true, correct and complete list of all
contracts of the categories described below (whether written or oral), including
all amendments thereto, existing as of the date of this Agreement to which the
Company is a party or by which any of the properties, business or assets of the
Company is bound or is materially affected ("Material Contracts"):
(i) any note, agreement, mortgage, indenture, security
agreement, and other instrument relating to the borrowing of
money or evidence of credit for the deferred purchase price of
property, or the direct or indirect guarantee by the Company
of any such indebtedness or deferred purchase price in excess
of $50,000.00;
(ii) any lease of real property or material personal property
providing for annual payments by the Company under any such
lease or group of related leases in excess of $50,000.00;
(iii) any agreement that has a term of one year or more and/or
provides for future payments in excess of $50,000.00 that is
not terminable (without penalty) on no more than one month's
notice;
(iv) any management, employment and consulting agreement or
other contract for personal services that is not terminable on
no more than one month's notice without penalty;
(v) any agreement providing for severance pay, collective
bargaining agreements, and labor contracts;
(vi) any surety, performance and maintenance bond in excess of
$50,000.00;
(vii) any plan, contract or arrangement providing for bonuses,
pensions, deferred compensation, retirement plan payments,
profit sharing, incentive pay, or for any other employee
benefit plan;
(viii) any brokerage or finder's agreement obligating the
Company to make a payment thereunder;
(ix) any agreement that restricts the right of the Company to
engage in any place in any line of business;
(x) any contract, commitment, agreement or arrangement between
the Company and any Affiliate thereof;
10
(xi) any contract or agreement relating to the sale, lease or
other disposition of any of the properties, business or assets
of the Company having a value, individually or in the
aggregate, in excess of $50,000.00;
(xii) any contract, commitment, or agreement that involves
commodity or interest rate swaps, floors, caps, collars,
futures, options or other similar transactions; and
(xiii) any obligation currently outstanding affecting any of
the properties, business or assets of the Company which
requires a single or series of related future expenditures in
the aggregate in excess of $50,000.00.
(b) Sellers and the Company have provided Buyer with access to
true, correct and complete copies of all written Material Contracts and all
amendments, modifications and supplements thereto, and have provided Buyer with
accurate descriptions of all oral Material Contracts, including the parties
thereto, the value of the goods and services to be provided thereunder and the
financial obligations of the parties thereunder.
(c) To the Knowledge of Sellers and the Company, as of the
date of this Agreement, the Company's relationships are generally satisfactory
with its suppliers who are material to the conduct of the Company's business.
(d) As of the date of this Agreement, the Company does not
have outstanding any powers of attorney with any Person, except that the Company
has granted its power of attorney to Jim Burwell, a true and correct copy of
which has been provided to Buyer.
(e) Each of the Material Contracts to which the Company is a
signatory has been duly executed by the Company and to the Knowledge of Sellers
and the Company, as of the date of this Agreement, the Company is not in breach
of any Material Contract.
(f) The Company has performed in all material respects each
material term, covenant and condition of each of the Material Contracts to which
it is a party or by which it is bound, and, to the Knowledge of Sellers and the
Company, no material event of default on the part of any other party thereto
exists under any of the Material Contracts. The Company is current on all
payment obligations under all Material Contracts to which it is a party or by
which it is bound.
(g) To the Knowledge of Sellers and the Company, no event has
occurred under any of the Material Contracts that would constitute a material
default thereunder on the part of any other party thereto.
(h) Each of the Material Contracts is valid, binding,
enforceable and in full force and effect, unimpaired by any acts or omissions of
the Company or its officers, directors and agents, and constitutes the legal and
binding obligation of the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
11
effect relating to creditors' rights generally, and (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
4.10 No Default. The Company is not in default, breach or violation
(and, to the Knowledge of Sellers and the Company, no event has occurred which,
with notice or the lapse of time or both, would constitute a default or
violation) of any term, condition or provision of (i) the Company Charter
Documents; (ii) any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Company is now a party or by which the
Company or any of its properties, business or assets is bound; or (iii) any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, except in the case of clauses (ii) and (iii) for defaults or violations
which in the aggregate would not have a Material Adverse Effect on the Company.
4.11 Intellectual Property. The Company owns, or is licensed or
otherwise has the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs ("Intellectual Property
Rights") which are material to the condition (financial or otherwise) or conduct
of the business and operations of the Company. To the Knowledge of Sellers and
the Company, (i) the use of Intellectual Property Rights by the Company in its
current operations does not infringe on the Intellectual Property Rights of any
Person, subject to such claims and infringements as do not, in the aggregate,
give rise to any liability on the part of the Company which could have a
Material Adverse Effect on the Company, and (ii) no Person is, in any manner
that could have a Material Adverse Effect on the Company, infringing on any
Intellectual Property Right of the Company. No claims are pending or, to the
Knowledge of Sellers and the Company, threatened that the Company is infringing
or otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property Right.
4.12 Leases.
(a) The leases described on Schedule 4.12 constitute all of
the lease agreements between the Company and third Persons affecting the
Company's real property, material personal property or relating to the operation
of the business of the Company. The Company and Sellers have furnished true and
complete copies of each of the leases to Buyer, including any and all
amendments, supplements or modifications thereto.
(b) The Company has performed in all material respects each
material term, covenant and condition of each of the leases to which it is a
party or which is required to be performed by it at or before the date hereof,
and no material event of default on the part of the Company and, to the
Knowledge of Sellers and the Company, on the part of any other party thereto,
exists under any lease.
(c) Each of the leases is legal, valid, binding, enforceable
and in full force and effect, unimpaired by any acts or omissions of the Company
and constitutes the legal and binding obligation of the Company in accordance
with its terms, except (i) such enforcement may be subject to bankruptcy,
12
insolvency, reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditors' rights generally and
(ii) the remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(d) To the Knowledge of Sellers and the Company, there is no
law, ordinance, regulation or requirement in existence, including any
Environmental Law or the Americans with Disabilities Act of 1990, as amended,
which would require any expenditure to remediate, remedy, remove, modify or
improve any of the real property that is the subject of any lease in order to
bring it into compliance therewith.
(e) There are no leasing commissions or similar payments due,
arising out of, resulting from or with respect to any lease which are owed by
the Company, except to the extent accrued on the Company Balance Sheet.
(f) The Company has not assigned, transferred, conveyed,
mortgaged, or deeded in trust any interest in the leases.
(g) The Company has not subordinated its interest under any of
the leases to any third party, mortgagee or otherwise.
(h) The Company enjoys peaceful and undisturbed possession
under all leases.
4.13 Financial Statements. The Company and Sellers have provided to
Buyer true and complete copies of (i) the unaudited balance sheets of the
Company as of December 31, 2001, 2002 and 2003, and the related unaudited
statements of operations and changes in stockholders' equity for the three
fiscal years then ended and (ii) the unaudited balance sheet of the Company and
the related unaudited statements of operations for the seven-month period ended
July 31, 2004 (collectively, the "Financial Statements"). The Financial
Statements (i) have been prepared in accordance with generally accepted
accounting principles (except for certain balance sheet classifications, and
certain required reports and all footnote disclosures have been omitted) on a
basis consistent throughout the periods covered thereby; (ii) present fairly, in
all material respects, the financial condition of the Company as of the dates
thereof and the results of its operations for the periods then ended (subject to
normal year-end audit adjustments); and (iii) are consistent with the books and
records of the Company, which books and records are true, correct and complete
in all material respects. For purposes of this Agreement, "Company Balance
Sheet" means the balance sheet as of July 31, 2004, and "Company Balance Sheet
Date" means July 31, 2004.
4.14 Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.14, since the Company Balance Sheet Date, the Company has conducted
its business only in the ordinary course consistent with past practices and
there has not been:
(a) any event, occurrence, circumstance or development that
has had, or has been reasonably likely to have, a Material Adverse Effect with
respect to the Company;
13
(b) any default on the part of the Company under any
indebtedness of the Company, or any event which with the lapse of time or the
giving of notice, or both, would constitute such a default;
(c) any issuance, sale or other disposal of any capital stock
or other equity security of the Company, or any grant of options, warrants or
other rights to obtain any of its capital stock;
(d) (A) any contract or agreement entered into by the Company
on or prior to the date hereof relating to any material acquisition or
disposition of any assets or business, or (B) any modification, amendment,
assignment, termination or relinquishment by the Company of any contract,
license or other right (including any insurance policy naming it as a
beneficiary or loss payable payee) that reasonably would be likely to have a
Material Adverse Effect on the Company, in each case other than transactions,
commitments, contracts or agreements in the ordinary course of business
consistent with past practices and those contemplated by this Agreement;
(e) any amendment made or authorized to the Company Charter
Documents;
(f) any increase in compensation paid, payable or to become
payable by the Company to any of its officers, directors or employees, or any
material change in personnel policies or benefits, outside of the ordinary
course of business consistent with past practices;
(g) any creation or assumption by the Company of any security
interest or other Lien imposed upon any material assets of the Company;
(h) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a Material Adverse
Effect on the Company;
(i) any commitment to or liability to any labor organization
which represents, or proposes to represent, employees of the Company;
(j) any sale, assignment, lease or other transfer or
disposition of any of the assets or properties of the Company, except in the
ordinary course of business or in connection with the acquisition of similar
property or assets or retirements of assets in the ordinary course of business
consistent with past practices;
(k) any write down of the value of, or write off as
uncollectible, any asset or accounts receivable of the Company;
(1) any declaration, setting aside or payment, directly or
indirectly, of any cash or non-cash dividend or other cash or non-cash
distribution in respect of any of the securities of the Company, or any direct
or indirect redemption, purchase or other acquisition of any securities of the
Company or agreement to do so;
(m) any material change in the Company's accounting methods,
principles or practices;
14
(n) any amendment of any term of any outstanding security of
the Company that would materially increase the obligations of the Company under
such security;
(o) any making of any loan, advance or capital contribution to
or material investment in any Person by the Company other than loans, advances,
capital contributions or investments, in each case not exceeding $10,000.00; or
(p) (A) any incurrence or assumption by the Company of any
indebtedness for borrowed money other than under existing credit facilities (or
any renewals, replacements or extensions thereof that do not materially increase
the commitments thereunder) or otherwise by the Company in the ordinary course
of business consistent with past practices, or (B) any guaranty, endorsement or
other incurrence or assumption of liability, whether directly, contingently or
otherwise, by the Company for the obligations of any other Person, other than in
the ordinary course of business consistent with past practice.
4.15 No Undisclosed Liabilities. The Company has no debt, liability or
obligation of any kind, whether accrued, absolute, contingent, inchoate,
determined, determinable or otherwise, except for (i) liabilities or obligations
which, individually or in the aggregate would not have a Material Adverse Effect
on the Company, (ii) liabilities or obligations under this Agreement or incurred
in connection with the transactions contemplated hereby, (iii) liabilities or
obligations disclosed in Schedule 4.15; (iv) liabilities or obligations
disclosed in the Financial Statements; and (v) liabilities or obligations
arising in the ordinary course of business after the Balance Sheet Date and
which do not have a Material Adverse Effect on the Company.
4.16 No Litigation. Except as disclosed on Schedule 4.16, there is no
suit, action, proceeding or investigation presently pending or, to the Knowledge
of Sellers or the Company, threatened against or affecting the Company that has
had or could reasonably be expected to have a Material Adverse Effect on the
Company or prevent, hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company which has had, or which, insofar as
reasonably can be foreseen, in the future could have, any such effect.
4.17 Taxes.
(a) Except as set forth in Schedule 4.17, the Company has timely filed
(taking into account any extensions) all Tax Returns required to be filed by it
on or before the date of this Agreement and has timely paid or deposited all
Taxes and estimated Taxes which are required to be paid or deposited on or
before such date. Each of the Tax Returns filed by the Company is accurate and
complete in all material respects and has been completed in all material
respects in accordance with applicable laws, regulations and rules. The Company
Balance Sheet reflects an adequate reserve for all Taxes for which the Company
may be liable for all taxable periods and portions thereof through the date
thereof. The Company has not waived any statute of limitations in respect of
Taxes of the Company. No material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company, no requests for waivers of the time to
assess any such Taxes have been granted or are pending, and there are no Tax
15
Liens upon any assets of the Company (except for liens for ad valorem Taxes not
yet delinquent and other Taxes not yet due and payable). There are no current
examinations of any Tax Return of the Company being conducted by any
Governmental Entity and there are no settlements of any prior examinations which
could reasonably be expected to adversely affect any taxable period for which
the statute of limitations has not run. The Company is not a party to a Tax
allocation agreement, Tax sharing agreement, Tax indemnity agreement, Tax
partnership agreement or similar agreement or arrangement. The Company has
complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and has in all
respects timely withheld from employee wages and paid over such taxes to the
appropriate Governmental Entity. As used herein, "Tax" or "Taxes" shall mean all
taxes of any kind, including those on or measured by or referred to as federal,
state, local or foreign income, gross receipts, property, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, alternative or added
minimum, employment, estimated, excise, transfer, severance, stamp, occupation,
premium, value added, or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity. As used herein, "Tax Return" shall mean any return, report,
statement or information required to be filed with any Governmental Entity with
respect to Taxes.
(b) No amount that could be paid (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement to any Person who is properly characterized as a "disqualified
individual" (as such term is defined by the IRS in proposed Treasury Regulation
section 1.280G-1) under any employment, severance or termination agreement,
other compensation arrangement or other Company Benefit Plan currently in effect
would be characterized as an "excess parachute payment" (as such term is defined
in section 280G(b)(1) of the Code).
(c) The Company has not filed a consent under Code ss.341(f) concerning
collapsible corporations. The Company is not and has never been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal 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. The Company (i) is not a member of
an Affiliated Group filing a consolidated federal income Tax Return (other than
a group the common parent of which is the Company) or (ii) has no liability for
the Taxes of any Person (other than the Company) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
4.18 Governmental Authorizations. The Company holds, and on the Closing
Date will hold, all the necessary, regular and valid licenses and authorizations
from any Governmental Entity required to own its properties and assets and
operate its business, and each such authorization is validly issued and in full
force and effect.
4.19 Insurance. The Company has in full force and effect the liability
and casualty insurance, errors and omissions insurance, workers compensation,
life insurance and employee fidelity insurance insuring the properties,
16
business, assets, employees and officers and/or directors of the Company as
described in Schedule 4.19. The Company is not in default in any material
respect with respect to such insurance policies, and the Company has not failed
to give any notice or present any claim under any policies in due and timely
fashion.
4.20 Brokers. Neither Sellers nor the Company has any obligation or
liability to pay any fees or commission to any broker, finder, agent or similar
Person, with respect to the transactions contemplated by this Agreement.
4.21 Bank Accounts. All bank or other financial institution accounts of
the Company are described in Schedule 4.21, and such Schedule also lists all
Persons with check writing authority on behalf of the Company.
4.22 Employees. Schedule 4.22 is a true and complete list of all
employees of the Company showing each of their names and their current annual
base salary rates. Except as set forth in Schedule 4.22, the employment of all
employees of the Company is terminable at will by the Company without any
penalty or severance obligations incurred by the Company. Schedule 4.22 also
includes all employees of the Company who are on annual leave pursuant to the
Family and Medical Leave Act of 1993.
4.23 Employee Benefit Plans. As used in this Section 4.23, the term
"Employer" shall mean the Company as defined in the preamble of this Agreement
and any member of a controlled group or affiliated service group, as defined in
sections 414(b), (c), (m) and (o) of the Code, or section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") of which the
Company is a member. As used in this Agreement, "Company Benefit Plan" shall
mean (1) any employee welfare benefit plan or employee pension benefit plan as
defined in sections 3(1) and 3(2) of ERISA, including a plan that provides
retirement income or results in deferrals of income by employees for periods
extending to their terminations of employment or beyond, and a plan that
provides medical, surgical or hospital care benefits or benefits in the event of
sickness, accident, disability, death or unemployment, and (2) any other
employee benefit agreement or arrangement that is not an ERISA plan, including
any deferred compensation plan, incentive plan, bonus plan or arrangement, stock
option plan, stock purchase plan, stock award plan, golden parachute agreement,
severance pay plan, dependent care plan, flexible benefit plan, cafeteria plan,
employee assistance program, scholarship program, employment contract, retention
incentive agreement, noncompetition agreement, consulting agreement,
confidentiality agreement, vacation policy, or other similar plan or agreement
or arrangement that has been maintained by, participated in, or contributed to
by the Employer at any time during the three-year period ending on the date of
this Agreement, or with respect to which the Employer may have any liability.
(i) Schedule 4.23 contains a complete and correct list of all Company
Benefit Plans. With respect to each Company Benefit Plan, except as
disclosed in Schedule 4.23, to the extent applicable: (A) the plan is
in compliance with the Code and ERISA, including all reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA;
(B) the appropriate Form 5500 has been timely filed for each year of
its existence or a "top-hat" statement was timely filed with the
Department of Labor pursuant to Department of Labor Regulation section
17
2520.104-23; (C) there has been no transaction described in section 406
or section 407 of ERISA or section 4975 of the Code unless exempt under
section 408 of ERISA or section 4975 of the Code, as applicable; (D)
the bonding requirements of section 412 of ERISA have been satisfied;
(E) there is no issue pending nor any issue resolved adversely to the
Employer which may subject the Employer to the payment of a penalty,
interest, tax or other amount; (F) each Company Benefit Plan can be
unilaterally terminated or amended by the Employer on no more than 90
days notice; (G) all contributions or other amounts payable by the
Employer as of the Closing Date with respect to each Company Benefit
Plan have either been paid or accrued in the Employer's most recent
financial statements; and (H) no notice has been given or received by
the Employer of an increase or proposed increase in the cost of the
plan. There are no pending or, to the Knowledge of Sellers and the
Company, threatened or anticipated claims (other than routine claims
for benefits), actions, arbitrations, audits, investigations or suits
by, on behalf of, against or relating to any Company Benefit Plan or
their related trusts. With respect to each Company Benefit Plan, the
Company has provided to Buyer, to the extent required by ERISA, true
and correct copies of each of the following documents:
(A) the Company Benefit Plan and any amendments
thereto (or if the Company Benefit Plan is not a written
agreement, a description thereof);
(B) the three most recent annual Form 5500 reports
filed with the Internal Revenue Service ("IRS");
(C) a written summary of the legal basis for an
exemption from the obligation to file annual Form 5500
reports, if such an exemption has been claimed by the Company;
(D) the most recent summary plan description and
summaries of material modifications thereof; and
(E) the funding agreement, if any, that provides for
the funding of the Company Benefit Plan. (ii) Neither the
Company nor any entity (whether or not incorporated) that was
at any time during the six years before the date of this
Agreement treated as a single employer together with the
Company under section 414 of the Code or section 4001 of ERISA
has ever maintained, had any obligation to contribute to or
incurred any liability with respect to a pension plan that is
or was subject to the provisions of Title IV of ERISA or
section 412 of the Code. During the last six years, the
Employer has not maintained, had an obligation to contribute
to or incurred any liability with respect to a voluntary
employees beneficiary association that is or was intended to
satisfy the requirements of section 501(c)(9) of the Code. No
plan, arrangement or agreement with any one or more employees
18
will cause the Employer to have liability for severance pay as
a result of the transactions contemplated by this Agreement,
except as disclosed in Schedule 4.23. Except as disclosed in
Schedule 4.23, the Employer does not provide employee
benefits, including, without limitation, death,
post-retirement medical or health coverage (whether or not
insured) or contribute to or maintain any employee benefit
plan which provides for benefit coverage following termination
of employment except as is required by section 4980B(f) of the
Code or other similar applicable statute, nor has it made any
representations, agreements, covenants or commitments to
provide that coverage. Any employee benefit plan that is
disclosed on Schedule 4.23 has, at all times since its
inception, provided that the sponsor of the plan has the right
to amend and terminate the plan at any time without the
consent of any party and no statements have been made to plan
participants or their dependents that would lead such persons
to reasonably conclude the plan may not be amended or
terminated without their consent. All Company Benefit Plans
that are group health plans have been operated in material
compliance with section 4980B(f) of the Code.
(iii) Except as set forth in Schedule 4.23, the Company does
not maintain or contribute to, and has not maintained or
contributed to for the three-year period ending on the date of
this Agreement, a pension plan that is intended to qualify
under Section 401(a) of the Code or a pension plan described
in section 3(2) of ERISA. Any pension plan described in
section 3(2) of ERISA previously maintained by the Company was
terminated in accordance with ERISA and the Code.
(iv) Except as set forth in Schedule 4.23, the transactions
contemplated by this Agreement, either alone or in conjunction
with another event (such as termination of employment) will
not accelerate the time of payment of any contribution to a
Company Benefit Plan, accelerate vesting under a Company
Benefit Plan, increase the amount of compensation directly or
indirectly due any Person from the Employer, or increase the
cost of any Company Benefit Plan.
4.24 Environmental Compliance. Except as disclosed in Schedule 4.24,
and except to the extent that the inaccuracy of any of the following,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, to the Knowledge of Sellers and the Company:
(a) the Company has complied in all material respects with all
Environmental Laws, and there is no existing action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice filed, commenced or,
to the Knowledge of Sellers and the Company, threatened against the Company
which: (i) asserts or alleges that the Company violated any Environmental Laws;
(ii) asserts or alleges that the Company is required to clean up, remove or take
remedial or other response action due to the disposal, depositing, discharge,
leaking or other release of any Hazardous Materials; or (iii) asserts or alleges
that the Company is required to pay all or a portion of the cost of any past,
present or future cleanup, removal or remedial or other response action which
arises out of or is related to the disposal, depositing, discharge, leaking or
other release of any Hazardous Materials; (b) without limiting the generality of
the foregoing, to the Knowledge of Sellers and the Company, each of the Company
19
and its Affiliates has obtained and been in compliance in all material respects
with all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables which are
contained in, Environmental Laws;
(c) no Person has caused or permitted Hazardous Materials to be stored,
deposited, treated, recycled or disposed of on, under or at any real property
owned, leased, used or occupied by the Company which Hazardous Materials, if
known to be present, would require cleanup, removal or some other remedial
action under any Environmental Laws;
(d) there are not now, nor have there previously been, tanks or other
facilities on, under, or at the real property which contained any Hazardous
Materials which, if known to be present in soils or ground water, would require
cleanup, removal or some other remedial action under Environmental Laws;
(e) there are no conditions existing currently which would subject the
Company to damages, penalties, injunctive relief or cleanup costs under any
Environmental Laws or which require cleanup, removal, remedial action or other
response pursuant to Environmental Laws by the Company;
(f) the Company is not subject to any judgment, order or citation
related to or arising out of any Environmental Laws and is not, and has not
been, named or listed as a potentially responsible party by any Governmental
Entity in a matter related to or arising out of any Environmental Laws;
(g) there are no agreements with any Person pursuant to which the
Company would be required to defend, indemnify, hold harmless, or otherwise be
responsible for any violation by or other liability or expense of such Person,
or alleged violation by or other liability or expense of such Person, arising
out of any Environmental Law; and
(h) the Company has provided Buyer copies of all environmental audits,
assessments or other evaluations, if any, of the Company or any of its assets,
properties or business operations.
4.25 Related Party Transactions. Except as set forth on Schedule 4.25,
there are no currently existing business arrangements, other than employment
between the Company and any of Sellers, officers or directors of the Company nor
any of their respective Affiliates and there are no continuing obligations owing
from the Company to any third Person created by any of Sellers, officers or
directors of the Company nor any of their Affiliates. None of Sellers, officers
or directors of the Company, nor any of their respective Affiliates owns any
material asset, tangible or intangible, which is used in the operation of the
business of the Company.
20
4.26 Real Properties.
(a) Schedule 4.26 lists all real property owned, leased or occupied by
the Company (the "Real Property"), including the legal description of all land,
and all encumbrances thereon, and sets forth a description of all plants,
buildings or other structures located thereon. There are now in full force and
effect, to the extent legally required, duly issued certificates of occupancy
permitting the Real Property and improvements located thereon to be legally used
and occupied as the same are now constituted, and the business activities of the
Company thereon are, in all material respects, consistent with and permitted
under, and not in default of, applicable zoning ordinances, restrictive
covenants or other restrictions. To the Knowledge of Sellers and the Company,
there is not:
(i) any claim of adverse possession or prescriptive rights
involving any of the Real Property;
(ii) any structure located on any Real Property which encroaches on
or over the boundaries of neighboring or adjacent properties;
or
(iii) any structure of any other Person which encroaches on or over
the boundaries of any of such Real Property.
To the Knowledge of Sellers and the Company, no public improvements have been
commenced and none are planned which in either case may result in special
assessments against or otherwise materially adversely affect any Real Property.
To the Knowledge of Sellers and the Company, no portion of any of the Real
Property has been used as a landfill or for storage or landfill of hazardous or
toxic materials. Except as set forth on Schedule 4.26, to the Knowledge of
Sellers and the Company, there are no:
(i) proposed increases in assessed valuations of any Real
Property;
(ii) orders requiring repair, alteration or correction of any
existing condition affecting any Real Property or the systems
or improvements thereto;
(iii) conditions or defects which could give rise to an order of the
sort referred to in clause (ii) above;
(iv) aboveground or underground storage tanks located on the Real
Property;
(v) wells located on the Real Property;
(vi) pending or proposed modifications of zoning or similar laws
affecting the Real Property; or
21
(vii) structural, mechanical, or other defects of material
significance affecting any of the Real Property.
(b) No Condemnation or Expropriation. Neither the whole nor any portion
of the Real Property is subject to any order to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Entity with or without
payment of compensation therefor, nor to the Knowledge of Sellers and the
Company has any such condemnation, expropriation or taking been proposed.
(c) Utilities. All utilities, including telephone, sewer and water,
electricity and gas necessary for the use of the Real Property, as currently
used by the Company, are available, connected and operational.
4.27 Labor Matters. Except as disclosed on Schedule 4.27,
(a) the Company is not a party to any collective bargaining agreement
or other material contract or agreement with any labor organization or other
representative of employees nor is any such contract being negotiated;
(b) there is no material unfair labor practice charge or complaint
pending nor, to the Knowledge of Sellers and the Company, threatened with regard
to employees of the Company;
(c) there is no labor strike, labor dispute, grievance, claim for
unfair labor practices, collective bargaining disputes, material slowdown,
material work stoppage or other material labor controversy in effect, or, to the
Knowledge of Sellers and the Company, threatened against the Company;
(d) to the Knowledge of Sellers and the Company, as of the date hereof
there are no campaigns being conducted to solicit cards from the employees of
the Company to authorize representation by any labor organization;
(e) the Company is not a party to, and is not otherwise bound by, any
consent decree with any Governmental Entity relating to employees or employment
practices of the Company;
(f) the Company has not incurred any liability under, and the Company
has complied in all material respects with, the Worker Adjustment Retraining
Notification Act;
(g) the Company is in compliance with all applicable agreements,
contracts and policies relating to employment, employment practices, wages,
hours and terms and conditions of employment of the employees, except where the
failure to be in compliance with each such agreement, contract and policy would
not, either singly or in the aggregate, have a Material Adverse Effect on the
Company;
22
(h) there is no complaint, lawsuit or proceeding pending or to the
Knowledge of Sellers and the Company, threatened in any forum by any
Governmental Entity, by or on behalf of any present or former employee, any
applicant for employment or any classes of the foregoing alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship against the
Company pending, or, to the
Knowledge of Sellers and the Company, threatened, that has, or would have a
Material Adverse Effect on the Company;
(i) there is no ongoing or pending proceeding or investigation under,
and the Company has not received any notice of a violation of, the Occupational
Safety and Health Act of 1970 and the regulations promulgated thereunder;
(j) the Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, except for non-compliance that
does not have, and would not have, a Material Adverse Effect on the Company; and
(x) to the Knowledge of Sellers and the Company, there is no proceeding, claim,
suit, action or governmental investigation pending or threatened, in respect of
which any current or former director, officer, employee or agent of the Company
is or may be entitled to claim indemnification from the Company (A) pursuant to
the Company Charter Documents, (B) as provided in any indemnification agreement
to which the Company is a party or (C) pursuant to applicable law that, in any
such case, has or would have a Material Adverse Effect on the Company; and
(k) there are no worker's compensation claims pending or, to the
Knowledge of Sellers and the Company, threatened against the Company other than
claims (A) which are fully covered by insurance or (B) for which adequate
accruals have been made in the Company Balance Sheet.
4.28 Compliance with Laws; Permits. The Company holds all required,
necessary or applicable federal, state, provincial, local or foreign permits,
licenses, variances, exemptions, orders, franchises and approvals of all
Governmental Entities, except where the failure to so hold would not have a
Material Adverse Effect on the Company (the "Company Permits"). The Company is
in compliance with the terms of the Company Permits, except where the failure to
so comply would not have a Material Adverse Effect on the Company. The Company
has not received notice of any revocation or modification of any of the Company
Permits, the revocation or modification of which would have a Material Adverse
Effect on the Company. The Company has not violated or failed to comply with any
statute, law, ordinance, regulation, rule, permit or order of any Governmental
Entity, or any arbitration award or any judgment, decree or order of any
Governmental Entity, applicable to the Company or its business, assets or
operations, except for violations and failures to comply that could not,
23
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. To the Knowledge of Sellers and the Company,
there is no reason the Company (or its successors) would not be able to renew
without material expense any of its permits, licenses, or other authorizations
required to conduct and use any of the Company's current or planned operations.
To the Knowledge of Sellers and the Company, no investigation or review by any
Governmental Entity with respect to the Company is threatened, other than those
the outcome of which would not have a Material Adverse Effect on the Company.
4.29 Prospects; Outstanding Commitments; Customers and Suppliers.
(a) Sellers and the Company have no Knowledge of, nor have any of them
been informed of, any existing or anticipated changes in the policies of the
customers, suppliers or others with whom the Company transacts business that
could affect the availability of materials, or supplies, in any material
respect, or of any legislation or regulation, that will have a Material Adverse
Effect on the Company. As of the date of this Agreement, Sellers and the Company
have no Knowledge of any proposed or contemplated changes in the employment
status of any members of management or key employees of the Company.
(b) All outstanding commitments of the Company for the delivery of
goods or the performance of services were made on an arms' length basis, and to
the Knowledge of Sellers and the Company there are no facts or circumstances
that could have a Material Adverse Effect with respect thereto.
(c) Schedule 4.29 contains a listing, based on dollar volumes, of the
top ten customers of and the top ten suppliers to the Company for the year ended
December 31, 2003. No such customer or supplier has advised the Company or any
Seller that the amount of business presently being conducted between any such
customer or supplier and the Company will be materially reduced in the future.
4.30 Minute Books. The minute books of the Company, as previously made
available to Buyer, contain complete and accurate records of all meetings and
accurately reflect all other corporate action of the shareholders and board of
directors of the Company. The stock certificate books and stock transfer ledgers
of the Company are true and complete.
4.31 Subchapter S Matters. The Company (i) has made an effective, valid
and binding S election pursuant to Section 1362 of the Code, (ii) has maintained
its status as an S Corporation pursuant to Section 1361 of the Code without
lapse or interruption, and (iii) has made and continuously maintained elections
similar to the federal S election in each state or local jurisdiction where the
Company does business or is required to file a tax return to the extent such
states or jurisdictions permit such elections. The Company neither is nor will
or can be subject to the built-in gains tax under Section 1374 of the Code or
any similar corporate level tax imposed on the Company by any taxing authority.
To the Knowledge of Sellers and the Company, the Company has no Tax item,
election, agreement or adjustment which will accelerate or trigger income or
deferred deductions of the Company solely as a result of termination of the
Company's status as an S Corporation.
24
4.32 Absence of Certain Business Practices. Neither the Company nor any
officer, employee or agent of the Company has, directly or indirectly, within
the past five years, given or agreed to give any gift or similar benefit to any
customer, supplier, government employee or other Person who is or may be in a
position to help or hinder the business of the Company (or to assist the Company
in connection with any actual or proposed transaction) which (i) might subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
Material Adverse Effect on the assets, business or operations of the Company as
reflected in the Financial Statements, or (iii) if not continued in the future,
might materially adversely effect the assets, business operations or prospects
of the Company or which might subject the Company to suit or penalty in a
private or governmental litigation or proceeding.
4.33 Completeness of Disclosure. No statement of material fact by
Sellers or the Company contained in this Agreement and no written statement of
material fact furnished or to be furnished by Sellers or the Company to Buyer
pursuant to or in connection with this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein contained not
misleading.
Disclosure of any fact in any provision of this Agreement or in any Schedule to
which reference is made herein shall constitute disclosure thereof for the
purposes of all other provisions and Schedules.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and Sellers as follows:
5.1 Organization; Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under laws of the State of
Colorado and is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business or in good
standing (individually or in the aggregate) would not have, or would not
reasonably be likely to have, a Material Adverse Effect on Buyer. Buyer has all
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted.
5.2 Capital Structure.
(a) As of the date hereof, the authorized capital stock of Buyer
consists of 30,000,000 shares of common stock, par value $.01 per share (the
"Buyer Common Stock"), and 5,000,000 shares of preferred stock, par value $.01
per share. At the close of business on October 12, 2004 (i) 6,068,269 shares of
common stock were issued and outstanding and no shares of preferred stock were
25
issued and outstanding; (ii) 69,000 shares of Buyer Common Stock were reserved
for issuance by Buyer pursuant to options or stock awards granted under the
following plans:
Plan Shares Reserved
---- ---------------
Natural Gas Services Group, Inc. 69,000
1998 Stock Option Plan
(collectively, the "Buyer Stock Plans"); (iii) 70,000 shares of Buyer Common
Stock were reserved for issuance pursuant to options or stock awards not yet
granted under the Buyer Stock Plans; (iv) 2,468,871 shares of Buyer Common Stock
were reserved for issuance pursuant to outstanding warrants; and (v) no shares
of Buyer Common Stock were held by Buyer in its treasury. Buyer has no
outstanding stock appreciation rights, phantom units, profit participation or
similar rights with respect to Buyer. The outstanding Buyer Common Stock is
listed on the American Stock Exchange. Except as set forth above, no shares of
capital stock or other equity or voting securities of Buyer are reserved for
issuance or are outstanding. All of the issued and outstanding shares of capital
stock of Buyer are, and all shares of the Buyer Common Stock issuable upon the
exercise of stock options, stock awards or warrants will be when issued
thereunder, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. At the date of this Agreement, no capital
stock has been issued by Buyer since the Buyer Balance Sheet Date, other than
(i) Buyer Common Stock issued pursuant to options or warrants outstanding on or
prior to such date in accordance with their terms at such date and (ii) 649,574
shares of Buyer Common Stock issued to CBarney Investments, Ltd. and Mark X
Energy Company. Except as provided in Section 9.6 of that certain Securities
Purchase Agreement, dated July 20, 2004, between CBarney Investments, Ltd. and
Buyer, and except for options described above and warrants described above, as
of the date hereof there are no outstanding or authorized securities, options,
warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which Buyer or any of its
subsidiaries is a party, or by which any of them is bound, obligating Buyer or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, Buyer or any of its subsidiaries
or obligating Buyer or any of its subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. There are not as of the date of this Agreement and
there will not be at the Closing Date any shareholder agreements, voting trusts
or other agreements or understandings to which Buyer is a party or by which it
is bound relating to the voting of any shares of the capital stock of Buyer.
(b) The shares of Buyer Common Stock issued as part of the Purchase
Consideration (i) will, when issued, be duly authorized, validly issued, fully
paid and nonassessable shares of Buyer Common Stock, and not subject to any
preemptive rights created by statute, the Buyer Charter Documents, or any
agreement to which Buyer is a party or is bound, (ii) will be issued in reliance
upon certain exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"), and exemptions from registration and
qualification requirements under all applicable state "Blue Sky" securities
laws, and (iii) will be "restricted" securities within the meaning of Rule 144
under the Securities Act.
26
5.3 Authorization; Enforceability. Buyer has the requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Buyer. This Agreement has been duly executed and delivered by Buyer and
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
judicial decisions now or hereafter in effect relating to creditors' rights
generally and (ii) the remedy of specific performance and injunctive relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The execution and delivery of this
Agreement by Buyer do not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of a
material benefit under, or result in the creation of any Lien on any of the
properties or assets of Buyer or any of its subsidiaries under, any provision of
(i) the articles of incorporation or bylaws of Buyer, each as amended through
the date hereof (the "Buyer Charter Documents"), or any provision of the
comparable organizational documents of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, or other agreement,
instrument, permit, concession, franchise or license applicable to Buyer or any
of its subsidiaries or their respective properties or assets, or (iii) subject
to governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to Buyer or any of its subsidiaries or their
respective properties or assets, other than, in the case of clause (ii), any
such conflicts, violations, defaults, rights or Liens that individually or in
the aggregate would not have, or would not reasonably be likely to have, a
material adverse effect on Buyer and would not, or would not reasonably be
likely to, materially impair the ability of Buyer to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Buyer or the consummation by Buyer of the
transactions contemplated hereby, except for (i) filings in connection, or in
compliance, with the provisions of the Securities Act, (ii) the filing with the
Securities and Exchange Commission (the "SEC") of such reports under Section 13
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may
be required in connection with this Agreement and the transactions contemplated
hereby, and (iii) the filing with the American Stock Exchange of an application
for the listing of the shares of Buyer Common Stock to be issued to Sellers.
5.4 SEC Documents. Buyer has filed on a timely basis all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 2003 (such documents, together with all exhibits and schedules
thereto and documents incorporated by reference therein, collectively referred
to herein as the "SEC Documents"). As of their respective dates, the SEC
27
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Buyer included in the SEC Documents comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Buyer and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
the interim financial statements, to normal year-end audit adjustments). There
is no liability or obligation of any kind, whether accrued, absolute,
determined, determinable or otherwise, of Buyer or any subsidiary of Buyer that
is required by generally accepted accounting principles to be reflected or
reserved against or otherwise disclosed in the most recent financial statements
of Buyer included in the SEC Documents which is not so reflected or reserved
against that individually or in the aggregate would have a Material Adverse
Effect on Buyer. For purposes of this Agreement, "Buyer Balance Sheet" means the
balance sheet as of June 30, 2004, set forth in Buyer's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2004, and "Buyer Balance Sheet Date" means
June 30, 2004.
5.5 Absence of Material Adverse Change. Since the Buyer Balance Sheet
Date, there has been no Material Adverse Change in the business, assets,
operations or condition, financial or otherwise, of Buyer and its subsidiaries,
taken as a whole.
5.6 No Default. Buyer is not in default, breach or violation (and no
event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of (i)
the Buyer Charter Documents; (ii) any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Buyer is now a party or by
which Buyer or any of its properties, business or assets is bound; or (iii) any
order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer, except in the case of clauses (ii) and (iii) for defaults or violations
which in the aggregate would not have a Material Adverse Effect on Buyer.
5.7 No Undisclosed Liabilities. Buyer has no debt, liability or
obligation of any kind, whether accrued, absolute, contingent, inchoate,
determined, determinable or otherwise (and there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against Buyer giving rise to any such debt, liability or
obligation), except for (i) liabilities or obligations which, individually or in
the aggregate would not have a Material Adverse Effect on Buyer; (ii)
liabilities or obligations under this Agreement or incurred in connection with
the transactions contemplated hereby; or (iii) liabilities or obligations (A)
disclosed or provided for in the Buyer Balance Sheet or (B) disclosed in the SEC
Documents filed with the SEC prior to the date of this Agreement.
28
5.8 Compliance with Laws; Permits. Buyer and its subsidiaries hold all
required, necessary or applicable federal, state, provincial, local or foreign
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities, except where the failure to so hold would not have a
Material Adverse Effect on Buyer (the "Buyer Permits"). Buyer and its
subsidiaries are in compliance with the terms of the Buyer Permits, except where
the failure to so comply would not have a Material Adverse Effect on Buyer.
Neither Buyer nor any of its subsidiaries has received notice of any revocation
or modification of any of the Buyer Permits, the revocation or modification of
which would have a Material Adverse Effect on Buyer. Neither Buyer nor any of
its subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, permit or order of any Governmental Entity, or any
arbitration award or any judgment, decree or order of any Governmental Entity,
applicable to Buyer or any of its subsidiaries or their respective businesses,
assets or operations, except for violations and failures to comply that could
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on Buyer. To the Knowledge of Buyer, there is no reason Buyer
would not be able to renew without material expense any of its permits,
licenses, or other authorizations required to conduct and use any of Buyer's
current or planned operations. To the Knowledge of Buyer, no investigation or
review by any Governmental Entity with respect to Buyer or any of its
subsidiaries is threatened, other than those the outcome of which would not have
a Material Adverse Effect on Buyer.
5.9 Brokers. Buyer has not employed and has no obligation or liability
to pay any fees or commissions to any broker, finder, agent or similar Person,
with respect to the transactions contemplated by this Agreement, except that
Buyer has employed and will be solely responsible for the payment of brokerage
fees, commissions and any finder's fees to Karifico Consultants, Karifico and
R.J. Fisher.
5.10 No Litigation. There is no suit, action, proceeding or
investigation presently pending or, to the Knowledge of Buyer, threatened
against or affecting Buyer or any of its subsidiaries that has had or could
reasonably be expected to have a Material Adverse Effect on Buyer or prevent,
hinder or materially delay the ability of Buyer to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against Buyer
or any of its subsidiaries which has had, or which, insofar as reasonably can be
foreseen, in the future could have, any such effect.
5.11 Financing. Buyer has or will have at Closing sufficient funds
available on hand and under existing financing facilities to pay to each holder
of Company Shares at the Closing Date the cash portion of the Purchase
Consideration and to perform all of its other obligations under this Agreement.
5.12 Taxes. Buyer has timely filed all federal, state, local and other
Tax Returns required to be filed under applicable law, except as individually or
in the aggregate would not have a Material Adverse Effect on Buyer. All such Tax
29
Returns were true and correct in all material respects when filed. Buyer has
paid all required Taxes (including any additions to Taxes, penalties and
interest related thereto) due and payable on or before the date hereof, except
as individually or in the aggregate would not have a Material Adverse Effect on
Buyer.
5.13 Completeness of Disclosure. No statement of material fact by Buyer
contained in this Agreement and no written statement of material fact furnished
or to be furnished by Buyer to Sellers pursuant to or in connection with this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements herein or therein contained not misleading.
Disclosure of any fact in any provision of this Agreement or in any Schedule to
which reference is made herein shall constitute disclosure thereof for the
purposes of all other provisions or Schedules.
ARTICLE 6
COVENANTS RELATING TO CONDUCT OF BUSINESS
AND ADDITIONAL AGREEMENTS
6.1 Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of this
Agreement to the Closing Date (except as otherwise specifically contemplated by
the terms of this Agreement), the Company shall, and Sellers shall cause the
Company to, carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as conducted at the date hereof, and, to the
extent consistent therewith, use all reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with the
Company, in each case consistent with past practice, to the end that their
goodwill and ongoing businesses shall be unimpaired to the fullest extent
possible at the Closing Date. Without limiting the generality of the foregoing,
and except as otherwise expressly contemplated by this Agreement, prior to the
Closing Date the Company will not, and Sellers will not, without the prior
written consent of Buyer, permit or allow the Company to:
(i) (A) declare, set aside or pay any dividends on, or make
any other distributions (other than distributions to the Sellers for
amounts not exceeding their respective U.S. federal income tax
liabilities) in respect of, any of its capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any
other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
30
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any of its capital stock or any securities convertible into,
or any rights, warrants or options to acquire, any such capital stock;
(iii) amend the Company Charter Documents;
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
stock, or other ownership interests in, or assets of, or by any other
manner, any business or any corporation, partnership, association,
joint venture, limited liability company or other entity or division
thereof, or (B) any assets that would be material, individually or in
the aggregate, to the Company, except purchases of supplies and
inventory in the ordinary course of business consistent with past
practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or
otherwise encumber or dispose of any of its properties or assets,
except (A) in the ordinary course of business consistent with past
practice or (B) other transactions involving not in excess of
$100,000.00 in the aggregate;
(vi) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except
for (1) working capital borrowings under revolving credit facilities
incurred in the ordinary course of business, and (2) indebtedness
incurred to refund, refinance or replace indebtedness for borrowed
money outstanding on the date hereof, or (B) make any loans, advances
or capital contributions to, or investments in, any other person, other
than employees of the Company in the ordinary course of business
consistent with past practice;
(vii) make or incur capital expenditures in the aggregate in
excess of $400,000.00;
(viii) make any material election relating to Taxes or settle
or compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms of liabilities reflected or reserved
against in, or contemplated by, the Company Balance Sheet;
(x) waive the benefits of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which the
Company is a party;
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(xi) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any accounting principle used by it, except for
changes conforming to regulations promulgated by the Financial
Accounting Standards Board;
(xiv) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements
or compromises: (A) of litigation where the amount paid in settlement
or compromise does not exceed $50,000.00, or (B) in consultation and
cooperation with Buyer, and, with respect to any such settlement, with
the prior written consent of Buyer;
(xv) (A) enter into any new, or amend any existing, severance
agreement or arrangement, deferred compensation arrangement or
employment agreement with any officer, director or employee, except
that, the Company may hire additional employees to the extent deemed by
its management to be in the best interests of the Company; provided,
that the Company may not enter into any employment or severance
agreement or any deferred compensation arrangement with any such
additional employees; (B) adopt any new incentive, retirement or
welfare benefit arrangements, plans or programs for the benefit of
current, former or retired employees or amend any existing Company
Benefit Plan (other than amendments required by law or to maintain the
tax qualified status of such plans under the Code); (C) grant any
increases in employee compensation, other than in the ordinary course
or pursuant to promotions, in each case consistent with past practice
(which shall include normal individual periodic performance reviews and
related compensation and benefit increases and bonus payments
consistent with past practices); or (D) grant any stock options or
stock awards; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements. During the period from
the date of this Agreement to the Closing Date, the Company shall not adopt or
amend (except as may be required by law) any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement (including any Company Benefit Plan) for the benefit of any person,
increase the compensation or fringe benefits of any person, or, except as
provided in an existing Company Benefit Plan or in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any person or pay any benefit not required by any existing plan,
arrangement or agreement.
(c) Other Actions. During the period from the date of this
Agreement to the Closing Date, neither the Company nor any Seller shall take any
32
action that would, or that could reasonably be expected to, result in any of the
representations and warranties of the Company and Sellers set forth in this
Agreement becoming untrue in any material respect.
6.2 Access to Information.
(a) Subject to the terms of the Confidentiality Agreement and
Section 6.2(c), during the period from the date hereof to the Closing Date:
(i) The Company and Sellers shall, and shall cause each of
their respective officers, employees, counsel, financial advisors and
other representatives to, afford to Buyer, and to Buyer's accountants,
counsel, financial advisors and other representatives, reasonable
access to the Company's properties, books, contracts, commitments and
records for the purpose of conducting such inspections and evaluations,
including environmental inspections and assessments, as Buyer deems
appropriate, and, during such period, the Company and Sellers shall,
and shall cause each of their respective officers, employees, counsel,
financial advisors and other representatives to, furnish promptly to
Buyer,
(A) a copy of each report, schedule, registration
statement and other document filed by the Company during such
period pursuant to the requirements of federal or state
securities laws; and
(B) all other information concerning its business,
properties, financial condition, operations and personnel as
Buyer may from time to time reasonably request so as to afford
Buyer a reasonable opportunity to make at its sole cost and
expense such review, examination and investigation of the
Company as Buyer may reasonably desire to make. The Company
and Sellers agree to advise Buyer of all material developments
with respect to the Company and its assets and liabilities.
(ii) The Company and Sellers agree to request Tullius Taylor
Sartain & Sartain, LLP to permit Buyer's accountants to review and
examine the work papers of Tullius Taylor Sartain & Sartain, LLP with
respect to the Company, and the Company and Sellers will furnish to
Buyer such financial and operating data and other information with
respect to the business and properties of the Company as Buyer shall
from time to time reasonably request.
(iii) The Company and Sellers shall notify Buyer promptly of
any notices from or investigations by Governmental Entities relating to
the Company's business or assets or the consummation of the Purchase.
Buyer shall notify the Company and Sellers promptly of any notices from
or investigations by Governmental Entities that could materially affect
Buyer's consummation of the Purchase.
(b) Subject to Section 6.2(c), during the period from the date
hereof to the Closing Date:
33
(i) The Buyer shall, and shall cause each of its officers,
employees, counsel, financial advisors and other representatives to,
afford to Seller, and to Sellers' accountants, counsel, financial
advisors and other representatives, reasonable access to the Buyer's
properties, books, contracts, commitments and records for the purpose
of conducting such inspections and evaluations, including environmental
inspections and assessments, as Sellers deem appropriate, and, during
such period, Buyer shall, and shall cause each of its officers,
employees, counsel, financial advisors and other representatives to,
furnish promptly to Sellers,
(A) a copy of each report, schedule, registration
statement and other document filed by Buyer during such period
pursuant to the requirements of federal or state securities
laws; and
(B) all other information concerning its business,
properties, financial condition, operations and personnel as
Sellers may from time to time reasonably request so as to
afford Sellers a reasonable opportunity to make at their sole
cost and expense such review, examination and investigation of
Buyer as Sellers may reasonably desire to make. Buyer agrees
to advise Sellers of all material developments with respect to
Buyer and its assets and liabilities.
(c) Except as required by law, each of the Company, Sellers
and Buyer shall, and shall cause their respective directors, officers,
employees, accountants, counsel, financial advisors and representatives and
affiliates to: (i) hold in confidence, unless compelled to disclose by judicial
or administrative process, or, in the opinion of its counsel, by other
requirements of law, all nonpublic information concerning the other party
furnished in connection with the transactions contemplated by this Agreement
until such time as such information becomes publicly available (otherwise than
through the wrongful act of such Person), (ii) not release or disclose such
information to any other Person, except in connection with this Agreement to its
auditors, attorneys, financial advisors, other consultants and advisors, and
(iii) not use such information for any competitive or other purpose other than
with respect to its consideration and evaluation of the transactions
contemplated by this Agreement. Any investigation by any party of the assets and
business of the other party and its subsidiaries shall not affect any
representations and warranties hereunder, any conditions to the obligations of
either party or either party's right to terminate this Agreement as provided in
Article 8.
(d) In the event of the termination of this Agreement, each
party promptly will deliver to the other party (and destroy all electronic data
reflecting the same) all documents, work papers and other material (and any
reproductions or extracts thereof and any notes or summaries thereto) obtained
by such party or on its behalf from such other party or its subsidiaries as a
result of this Agreement or in connection therewith so obtained before or after
the execution hereof.
6.3 Reasonable Efforts; Notification.
(a) Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, except to the extent otherwise provided
in this Section 6.3, each of the parties agrees to use commercially reasonable
34
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Purchase, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement; provided, however, that neither
the Company nor Buyer shall be under any obligation to take any action to the
extent that the Board of Directors of such party shall conclude in good faith,
after consultation with and based upon the written advice of their respective
outside legal counsel (which advice in each case need not constitute an
opinion), that such action would cause a breach of that Board of Directors'
fiduciary obligations under applicable law. In connection with and without
limiting the foregoing, each of the Company and Buyer and its respective Board
of Directors shall (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Purchase, (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Purchase, take all action necessary to
ensure that the Purchase may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Purchase, and (iii) cooperate with each other
in the arrangements for refinancing any indebtedness of, or obtaining any
necessary new financing for, the Company and Buyer.
(b) Notification. The Company shall give prompt notice to
Buyer, and Buyer shall give prompt notice to the Company, of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any material respect or (ii) the failure by it to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations or warranties or
covenants or agreements of the parties or the conditions to the obligations of
the parties hereunder.
6.4 Fees and Expenses. Except as provided in Section 9.2, all fees and
expenses incurred in connection with the Purchase, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Purchase is consummated.
6.5 Public Announcements. The Company and Sellers, on the one hand, and
Buyer, on the other hand, will consult with each other before issuing any press
release or otherwise making any public statements with respect to the
35
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from shareholders, respond to inquiries
from financial analysts and media representatives in a manner consistent with
its past practice and make such disclosure as may be required by applicable law
or by obligations pursuant to any listing agreement with the American Stock
Exchange without prior consultation to the extent such consultation is not
reasonably practicable. The parties agree that the initial press release or
releases to be issued in connection with the execution of this Agreement shall
be mutually agreed upon prior to the issuance thereof.
6.6 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal administrative proceeding is commenced that questions the validity
or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
6.7 American Stock Exchange. Buyer shall use its reasonable best
efforts to list on the American Stock Exchange, upon official notice of
issuance, the 609,756 shares of Buyer Common Stock to be issued in connection
with the Purchase.
6.8 Payment of Indebtedness. Sellers will cause all indebtedness owed
to the Company by any Seller or any Affiliate of any Seller to be paid in full
prior to Closing.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Purchase. The
respective obligations of each party to effect the Purchase are subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Approvals. All authorizations, consents, orders or approvals of, or
declarations or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Agreement shall have been filed, shall have
occurred or shall have been obtained.
(b) American Stock Exchange Listing. The Buyer Common Stock issuable in
the Purchase shall have been authorized for listing on the American Stock
Exchange, upon official notice of issuance.
7.2 Conditions to Obligations of Buyer. The obligations of Buyer to
effect the Purchase are subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by Buyer:
36
(a) Obligations. The Company and Sellers shall have performed
in all material respects all obligations to be performed by them under this
Agreement at or prior to the Closing Date.
(b) Representations and Warranties. All of the representations
and warranties of the Company and Sellers contained in this Agreement
(considered collectively) and each of the representations and warranties of the
Company and Sellers contained in this Agreement (considered individually) shall
be true and correct in all material respects (disregarding for these purposes
any exceptions or supplemental disclosures contained in the certificate
delivered to Buyer pursuant to Section 2.4(a)(v) and disregarding any
materiality qualifications contained therein) as of the date of this Agreement
and as of the Closing Date as if made on and as of such date; provided, that
such representations and warranties that are by their express provisions made as
of a specific date need be true and correct only as of such specific date.
(c) Third Party Consents. All required authorizations,
consents or approvals of any third party, the failure of which to obtain would
have a Material Adverse Effect on Buyer, assuming the Purchase had taken place,
shall have been obtained.
(d) Material Adverse Change. There shall not have occurred a
Material Adverse Change to the Company.
(e) Absence of Proceedings. No claim, suit, action or other
proceeding shall be pending or threatened before or by any court, Governmental
Entity, arbitrator or other Person against any of the parties to this Agreement
(i) with respect to the transactions contemplated by this Agreement with the
object of challenging or preventing the Closing, and no other proceedings shall
be pending with such object or to collect damages from Buyer on account thereof,
(ii) which would materially and adversely affect the Company Shares or the
assets, property, operations, result of operations, financial condition, or
prospects of the Company, and (iii) there shall not have been made or threatened
by any Person (other than Sellers to the extent consistent with the matters set
forth in Section 4.4) any claim asserting that such Person (a) is the holder or
the beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity or ownership interest
in, the Company, or (b) is entitled to all or any portion of the Purchase
Consideration payable for the Company Shares. Without limiting the generality of
the foregoing, no suit, action or other proceeding shall be pending before any
court or Governmental Entity in which it is sought to restrain or prohibit, or
obtain damages or other relief in connection with, this Agreement or the
consummation of the transactions contemplated hereby.
(f) Deliveries at Closing. Sellers shall have delivered, or
caused to be delivered, to Buyer, the documents, properly executed and dated as
of the Closing Date, required by Section 2.4(a).
(g) Audited Financial Statements. The Company shall have
37
received the audited financial statements in accordance with and as required by
Section 9.2, together with an accountant's report on such financial statements
which shall be unqualified in all respects.
(h) Legal Opinion. Buyer shall have received an opinion of
counsel to the Company substantially to the effect set forth in Exhibit G.
(i) Certifications. The Company shall have furnished Buyer
with a certified copy of a resolution or resolutions duly adopted by the Board
of Directors of the Company approving this Agreement and consummation of the
transactions contemplated hereby.
(j) Additional Documents. Buyer shall have been furnished with
such certificates, documents and opinions as they may reasonably request.
7.3 Condition to Obligations of the Company and Sellers. The
obligations of the Company and Sellers to effect the Purchase are subject to
satisfaction of the following conditions, any or all of which may be waived in
whole or in part by the Company and Sellers:
(a) Obligations. Buyer shall have performed in all material
respects all obligations to be performed by it under this Agreement at or prior
to the Closing Date.
(b) Representations and Warranties. All of the representations
and warranties of Buyer contained in this Agreement (considered collectively)
and each of the representations and warranties of Buyer contained in this
Agreement (considered individually) shall be true and correct in all material
respects (disregarding for these purposes any materiality qualifications
contained therein) as of the date of this Agreement and as of the Closing Date
as if made on and as of such date; provided, that such representations and
warranties that are by their express provisions made as of a specific date need
be true and correct only as of such specific date.
(c) Material Adverse Change. There shall not have occurred a
Material Adverse Change to Buyer.
(d) Absence of Proceedings. No claim, suit, action or other
proceeding shall be pending or threatened before or by any court, Governmental
Entity, arbitrator or other Person against any of the parties to this Agreement
with respect to the transactions contemplated by this Agreement with the object
of challenging or preventing the Closing, and no other proceedings shall be
pending with such object or to collect damages from Sellers on account thereof.
(e) Deliveries at Closing. Buyer shall have delivered, or
caused to be delivered, to Sellers, the documents, properly executed and dated
as of the Closing Date, required by Section 2.4(b).
(f) Legal Opinion. The Company shall have received an opinion
of counsel to Buyer substantially to the effect set forth in Exhibit H.
(g) Certifications. Buyer shall have furnished the Company
38
with certified copies of resolutions duly adopted by the board of directors of
Buyer approving this Agreement and the consummation of the Purchase and the
transactions contemplated hereby.
(h) Additional Documents. The Company and Sellers shall have
been furnished with such certificates, documents and opinions as it may
reasonably request.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may, by written notice given prior to
the Closing, be terminated at any time:
(a) by mutual written consent of Sellers and Buyer;
(b) without liability on the part of any party hereto (unless
occasioned by reason of failure of one of the parties hereto to perform its
obligations or a default of its representations and warranties hereunder), by
either Buyer or Sellers, if the transactions contemplated hereby are not
consummated on or before the Closing Date;
(c) by Buyer, if Sellers or the Company materially breach or
default in the performance of any of their representations, warranties,
covenants or obligations hereunder, and either (i) such breach or default in
performance shall not have been cured or waived within thirty (30) days after
written notice thereof from Buyer to Sellers; or (ii) Sellers shall not have
provided reasonable assurance satisfactory to Buyer that such breach or default
will be cured on or before the Closing Date;
(d) by Sellers, if Buyer shall materially breach or default in
performance of any of its representations, warranties, covenants or obligations
hereunder, and either (i) such breach or default in performance shall not have
been cured or waived within thirty (30) days after notice thereof from Sellers
to Buyer; or (ii) Buyer shall not have provided reasonable assurance
satisfactory to Sellers that such breach or default will be cured on or before
the Closing Date;
(e) by Buyer, if any of the conditions set forth in Section
7.1 or Section 7.2 shall not have been fulfilled by the Closing Date in any
material respect or if satisfaction of such condition is or becomes impossible
(unless the nonfulfillment results primarily from Buyer itself breaching any
representation or warranty or failing to perform any covenant or agreement
contained in this Agreement) and Buyer has not waived such condition on or prior
to the Closing;
(f) by Sellers, if any of the conditions set forth in Section
7.1 or Section 7.3 shall not have been fulfilled by the Closing Date in any
material respect or if satisfaction of such condition is or becomes impossible
39
(unless the nonfulfillment results primarily from the Company or Sellers
themselves breaching any representation or warranty or failing to perform any
covenant or agreement contained in this Agreement) and Sellers have not waived
such condition on or prior to the Closing.
8.2 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.4 or an extension or waiver pursuant to Section
8.5 shall, in order to be effective, require in the case of the Company or
Buyer, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
8.3 Effect of Termination. In the event of termination of this
Agreement by either Sellers or Buyer as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, without any further liability or
obligation on the part of Sellers, the Company or Buyer, or any director,
officer, employee or shareholder thereof, other than the confidentiality
provisions of Sections 6.2(b) and 6.2(c) and the provisions of Sections 4.20,
5.8, 6.4, 8.3, 9.1 and Article 12; provided, however, that any such termination
shall not limit or relieve a party's liability or obligation for damages
suffered by the other party hereto as a result of such party's breach of any
representation, warranty or covenant in this Agreement.
8.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties.
8.5 Extension; Waiver. At any time on or prior to the Closing Date, the
parties may (a) extend the time for the performance of any of the obligations or
the other acts of the other parties, (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 agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision or
breach of this Agreement, whether or not similar, unless otherwise expressly
provided. The failure of any party to this Agreement to assert any of his or its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
ARTICLE 9
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
9.1 No Negotiation. Provided that Buyer is not in default hereunder,
from the date of this Agreement until the earlier date of the Closing or the
termination of this Agreement pursuant to Section 8.1, Sellers will not, and
will cause the Company and its officers, directors, employees, agents,
Affiliates and other representatives not to, directly or indirectly, solicit,
40
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to, or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than Buyer) relating
to any transaction involving the sale of the business or all or substantially
all of the assets of the Company, or any of the capital stock of the Company, or
any merger, consolidation, business combination, or similar transaction
involving the Company.
9.2 Audited Financial Statements. Promptly after the execution of this
Agreement by all parties hereto, the Company shall engage an independent
accounting firm meeting the requirements of Article 2 of Regulation S-X under
the Securities Act and who shall otherwise be reasonably satisfactory to Buyer.
The Company shall engage such independent accountants for the purpose of
authorizing and retaining such firm to conduct, in accordance with generally
accepted auditing standards, an audit of the Company's financial statements
which shall be prepared in accordance with and satisfy the requirements of Item
2.01 of Form 8-K and Regulation S-X as now or hereafter in effect. All fees and
expenses attributable to the audit of the Company's financial statements shall
be paid by Buyer; provided, however, Sellers will pay and reimburse Buyer
one-half of such fees and expenses if there is no Closing under this Agreement
as a result of a Seller's or the Company's breach of Section 9.1 or as a result
of any other material breach of this Agreement by Sellers or the Company.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification of Buyer. Subject to Section 10.1(d), Sellers
agree, jointly and severally, to defend, indemnify and hold harmless Buyer, the
Company, and their respective successors and assigns (individually a "Buyer
Indemnitee," and collectively the "Buyer Indemnitees") from, against, and in
respect of the following:
(a) any and all losses, damages, deficiencies or liabilities
caused by, resulting or arising from, or otherwise relating to: (i) any breach
of the representations and warranties of Sellers or the Company contained in
this Agreement or in any instrument, certificate or affidavit delivered by or on
behalf of Sellers or the Company at the Closing in accordance with this
Agreement; or (ii) any failure by either Sellers or the Company to perform or
otherwise fulfill or comply with (X) if this Agreement shall have been
terminated, Section 6.3, Section 9.1 or any other covenant, undertaking,
agreement or obligation to be performed, fulfilled or complied with by Sellers
or the Company prior to or in connection with the Closing or (Y) if the Closing
shall occur, any covenant, undertaking or other agreement or obligation of
Sellers under this Agreement to be performed, fulfilled or otherwise complied
with by Sellers after the Closing; and
(b) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, interest, penalties, costs and
expenses, including reasonable attorneys' fees, incurred by the Buyer
Indemnitees in connection with investigating, defending, settling or prosecuting
any action, suit, proceeding or claim against Buyer hereunder, incident to any
of the items referred to in Section 10.1(a); provided, that, if any action,
suit, proceeding, claim, liability, demand or assessment shall be asserted
against any Buyer Indemnitee in respect of which such Buyer Indemnitee proposes
41
to demand indemnification, such Buyer Indemnitee shall notify Sellers thereof
within a reasonable period of time after assertion thereof, and such notice
shall include copies of all suit, service and claim documents and all other
relevant documents in the possession of the Buyer Indemnitee and an explanation
of the Buyer Indemnitee's contentions and defenses with as much specificity and
particularity as the circumstances permit; provided, further, that the failure
of the Buyer Indemnitee to give such notice or provide such documentation shall
not relieve Sellers of their obligations under this Section 10.1, if Sellers
shall not have been prejudiced thereby (and then solely to the extent thereof).
Subject to rights of or duties to any insurer or other third Person having
liability therefor, Sellers shall have the right within ten (10) days after
receipt of such notice to assume in writing the control of the defense,
compromise or settlement of any such action, suit, proceeding, claim, liability,
demand, or assessment, including, at their own expense, employment of counsel;
provided further, however, that, if Sellers shall have exercised their right to
assume such control, the Buyer Indemnitee may, in its sole discretion and at its
sole expense, employ counsel to represent it (in addition to counsel employed by
Sellers) in any such matter, and in such event counsel selected by Sellers shall
be required to cooperate with such counsel of the Buyer Indemnitee in such
defense, compromise or settlement for the purpose of informing and sharing
information with such Buyer Indemnitee. So long as Sellers are defending in good
faith any such claim or demand asserted by a third Person against the Buyer
Indemnitee, the Buyer Indemnitee shall not settle or compromise such claim or
demand. If Sellers have assumed the defense of any such claim or demand, then
they shall not consent to the entry of judgment or enter into any settlement
without the prior written consent of the Buyer Indemnitee, which consent shall
not be unreasonably withheld. The Buyer Indemnitee shall make available to
Sellers or their agents all records and other materials in the Buyer
Indemnitee's possession reasonably required by them for their use in contesting
any third party claim or demand.
(c) Upon notice to Sellers specifying in reasonable detail the
basis for such set-off, any indemnification obligation of Sellers hereunder may,
at the option of Buyer, be set-off and applied against the outstanding balance
of the Promissory Notes due to the affected Sellers, in the amount of such claim
for indemnification, as if such indemnification claim had resulted in a
reduction of the Purchase Consideration and therefore of the principal balance
of the Promissory Notes as of the Closing Date. The exercise of such right of
set-off by Buyer in good faith, whether or not ultimately determined to be
justified, will not constitute an event of default under the Promissory Notes.
Neither the exercise of nor the failure to exercise such right of set-off will
constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
(d) Breaches of representations and warranties contained in
Sections 4.4, 4.5(b) and 4.6 (as related solely to the Sellers and not to the
Company) shall be subject only to several indemnification by the respective
Sellers who shall have made and breached such representations and warranties.
10.2 Indemnification of Sellers. Buyer agrees to defend, indemnify and
hold harmless Sellers and their respective successors and assigns (individually
a "Seller Indemnitee," and collectively the "Seller Indemnitees") from, against
and in respect of the following:
42
(a) any and all losses, damages, deficiencies or liabilities
caused by, resulting or arising from or otherwise relating to (i) any breach of
the representations and warranties of Buyer contained in this Agreement or in
any instrument, certificate or affidavit delivered by or on behalf of Buyer at
the Closing in accordance with this Agreement; (ii) any failure by Buyer to
perform or otherwise fulfill or comply with: (X) if this Agreement shall have
been terminated, Section 6.3 or any other covenant, undertaking, agreement or
obligation to be performed, fulfilled or complied with by Buyer prior to or in
connection with the Closing; or (Y) if the Closing shall occur, any covenant,
undertaking or other agreement or obligation hereunder to be performed,
fulfilled or otherwise complied with by Buyer after the Closing or (iii) any
obligation or liability with respect to the operation of the Company by Buyer
after the Closing;
(b) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, interest, penalties, costs and
expenses, including reasonable attorneys' fees, incurred by the Seller
Indemnities in connection with investigating, defending, settling or prosecuting
any action, suit, proceeding or claim against any Seller Indemnitee hereunder,
incident to any of the items referred to in Section 10.2(a); provided, that, if
any action, suit, proceeding, claim, liability, demand or assessment shall be
asserted against any Seller Indemnitee in respect of which such Seller
Indemnitee proposes to demand indemnification, such Seller Indemnitee shall
notify Buyer thereof within a reasonable period of time after assertion thereof,
and such notice shall include copies of all suit, service and claim documents,
all other relevant documents in the possession of the Seller Indemnitee and an
explanation of the Seller Indemnitee's contentions and defenses with as much
specificity and particularity as the circumstances permit; provided, further,
that the failure of the Seller Indemnitee to give such notice or provide such
documentation shall not relieve Buyer of its obligations under this Section 10.2
if Buyer shall not have been prejudiced thereby (and then solely to the extent
thereof). Subject to rights of or duties to any insurer or other third Person
having liability therefor, Buyer shall have the right within ten (10) days after
receipt of such notice to assume the control of the defense, compromise or
settlement of any such action, suit, proceeding, claim, liability, demand, or
assessment, including, at its own expense, employment of counsel; provided,
that, if Buyer shall have exercised its right to assume such control, the Seller
Indemnitee may, in its sole discretion and at its sole expense, employ counsel
to represent it (in addition to counsel employed by Buyer) in any such matter,
and in such event counsel selected by Buyer shall be required to cooperate with
such counsel of the Seller Indemnitee in such defense, compromise or settlement
for the purpose of informing and sharing information with such Seller
Indemnitee. So long as Buyer is defending in good faith any such claims or
demands asserted by a third Person against the Seller Indemnitee, the Seller
Indemnitee shall not settle or compromise such claim or demand. If Buyer has
assumed the defense of any such claim or demand, then it shall not consent to
43
the entry of judgment or enter into any settlement without the prior written
consent of the Seller Indemnitee (which consent shall not be unreasonably
withheld). The Seller Indemnitee shall make available to Buyer or its agents all
records and other materials in the Seller Indemnitee's possession reasonably
required by it for its use in contesting any third party claim or demand.
10.3 Remedies; Specific Performance.
(a) The indemnification provisions of this Article 10 are in
addition to, and not in lieu or in derogation of, any other rights or remedies
any party may have at law or in equity for a breach of any representations,
warranties or covenants contained in this Agreement.
(b) Each of the parties to this Agreement acknowledges and
agrees that Buyer would be damaged irreparably if any of the covenants of
Sellers under this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties hereto agrees
that Buyer shall be entitled to an injunction or injunctions to prevent breaches
of the covenants set forth in this Agreement by Sellers and to enforce
specifically this Agreement and the terms and provisions hereof in any competent
court having jurisdiction over the parties, in addition to any other remedy to
which it may be entitled, at law or in equity.
(c) No Buyer Indemnitee or Seller Indemnitee shall be entitled
to seek indemnification under this Article 10 with respect to any loss, damage,
deficiency or liability ("Claim"), unless such Indemnitee notifies the
indemnifying party of such Claim in writing within 24 months after the Closing
Date.
(d) If the total amount of all Claims which the Buyer
Indemnitees collectively have the right to assert against Sellers (determined
without regard to any materiality qualification contained in any representation
or warranty giving rise to such Claim) under this Article 10 ("Buyer Claims")
does not exceed an amount equal to one percent of the Purchase Consideration
(the "Basket"), then Sellers shall have no obligation under this Article 10 with
respect to any such Claim. If the total amount of all Buyer Claims exceeds the
Basket, then Sellers' obligations under this Article 10 shall be limited to the
amount by which the aggregate amount of all Buyer Claims exceeds the Basket.
(e) Except as otherwise provided in this Section 10.3(e), in
the absence of fraud or willful misconduct on the part of any of Sellers, the
total amount of Sellers' obligations with respect to Buyer Claims shall be
limited to an aggregate maximum amount equal to 10 percent of the Purchase
Consideration. The total amount of any Seller's obligations with respect to
Buyer Claims shall be limited to an aggregate maximum amount equal to 10 percent
of the Purchase Consideration received by such Seller. The liability of Sellers
with respect to Buyer Claims shall be pro rata among Sellers, based on their
respective shares of the Purchase Consideration. Notwithstanding anything in
this Section 10.3(e) or elsewhere in this Agreement to the contrary, in no event
shall Sellers' obligations be limited in any manner with respect to Buyer Claims
arising out of or attributable to a breach of Section 4.4.
(f) Notwithstanding any provision of this Agreement to the
contrary, Buyer's and Sellers' sole remedy for any breach of any of the
44
provisions of Article 4 (excluding, however, Section 4.4) or 5 shall be to
exercise their rights under this Article 10, which shall be subject to the
procedures and limitations set forth in this Article 10, excluding however, any
cause of action for specific performance.
10.4 Survival. Notwithstanding any other provision to the contrary in
this Agreement, this Article 10 shall survive termination of this Agreement for
the period set forth in Section 10.3(c).
ARTICLE 11
TAX MATTERS
The following provisions shall govern the allocation of responsibility
as between Buyer, on the one hand, and Sellers and the Company, on the other
hand, for certain Tax matters following the Closing Date:
11.1 Tax Periods Ending on or Before the Closing Date. The Company
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns, reports and other informational statements and documentation for the
Company for all periods ending on or prior to the Closing Date, which are
required to be filed on, before or after the Closing Date. Sellers shall permit
Buyer (with respect to Tax Returns filed after the date hereof and before the
Closing Date) or Buyer and the Company shall permit Sellers (with respect to Tax
Returns filed after the Closing Date) to review and comment on each such Tax
Return described in the preceding sentence prior to filing. The Company shall
pay or cause to be paid any Taxes owed by the Company for all periods ending on
or before the Closing Date, whether or not such Taxes are shown as owed on the
appropriate Tax Returns.
11.2 Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. Buyer shall permit Sellers to review and comment
on each such Tax Return.
11.3 Cooperation on Tax Matters.
(a) Buyer, the Company and Sellers shall reasonably cooperate,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Article 11 and any audit, litigation
or other proceeding with respect to Taxes for which the other party shall have
45
liability therefor under this Agreement. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees reasonably available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder. The Company shall retain all books and records with respect to Tax
matters pertinent to the Company relating to any Tax period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Sellers, any extensions thereof) of the respective
Tax periods, and to abide by all record retention agreements entered into with
any taxing authority.
(b) Buyer, the Company and Sellers further agree, upon
request, to use their commercially reasonable efforts to obtain any certificate
or other document from any Governmental Entity or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the transactions contemplated hereby).
(c) Buyer, the Company and Sellers further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
11.4 Tax Sharing Agreements. Sellers shall cause the Company to
terminate as of the Closing all tax sharing agreements or similar agreements
with respect to or involving the Company, and as of the Closing Date and
thereafter, the Company shall not be bound thereby or have any liability under
any such agreement or arrangement.
11.5 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes incurred in connection with this Agreement
shall be paid by Sellers when due, and Sellers will, at their own expense, file
all necessary Tax returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and fees,
and, if required by applicable law, Buyer will join in the execution of any such
Tax Returns and other documentation.
11.6 Section 338(h)(10) Election.
(a) Following the Closing, and if requested by Buyer in its sole
discretion, Sellers will timely file with Buyer an election under Section
338(h)(10) of the Code, electing to treat the acquisition of the Company Shares
as an asset purchase. Sellers agree to execute and deliver to Buyer any
documents required to be executed by Sellers in connection with such election.
(b) In accordance with the provisions of Section 2.2(d) Buyer shall pay
to Sellers an amount (the "338 Adjustment") which shall be equal to the sum of
(i) the difference between the total federal and state income taxes payable by
Sellers and the Company as a result of the sale of the Company Shares and the
amount of such federal and state income taxes that Sellers and the Company would
have paid but for the Section 338(h)(10) election made pursuant to the terms of
this Agreement, and (ii) a gross up amount equal to the federal and state income
taxes payable by Sellers as a result of their receipt of the 338 Adjustment. The
amount of federal and state taxes that are actually paid and that would have
been paid shall be calculated using the highest applicable marginal rates.
(c) Sellers shall, at their expense, prepare and file the final "S"
corporation, short period Tax Return for the Company for the period from January
1, 2004, to the Closing Date (the "Final Return"). Sellers shall provide to
46
Buyer a draft of the Final Return along with the Sellers' calculation of the
amount of the 338 Adjustment and supporting document for such calculations, no
later than 120 days following Closing.
(d) The total Purchase Consideration paid for the Company Shares, as
described in Section 2.1, shall for purposes of the 338(h)(10) election be
allocated among the assets of the Company including contracts in progress based
on a fair market value balance sheet of the Company as of the Closing Date with
any excess purchase price being allocated to the Company's goodwill. Within 90
days after the Closing Date, Buyer will provide Sellers with a statement of the
allocation of the Purchase Consideration. Sellers and Buyer will jointly be
responsible for preparing and filing all documents and materials, including the
statement pursuant to Section 1060 of the Code (the "Allocation Statement"),
necessary in connection with the making of the 338(h)(10) election, and any
similar elections under state or local law. Sellers and Buyer will file all
reports and returns filed with any Governmental Entity (including the IRS) in a
manner consistent with the 338(h)(10) election, the valuation of the assets
determined as provided above in the Allocation Statement.
(e) If the actual federal, state and local taxes payable by Sellers as
a result of the sale of the Company Shares are ultimately determined to be
greater than the amount of the 338 Adjustment then Buyer shall pay to the
Sellers the sum of (i) the amount of such difference, and (ii) the gross amount
equal to all federal, state, and local taxes payable by Sellers as a result of
their receipt of the amount as calculated under clauses (i) and (ii) of this
subparagraph (e). If the Sellers' actual taxes are ultimately determined to be
less than the amount of the 338 Adjustment, then Sellers shall pay to Buyer the
excess of the 338 Adjustment previously paid to Sellers over the amount the 338
Adjustment would have been if the Sellers' taxes had been as finally determined.
Sellers agree to furnish Buyer with a calculation of the revised 338 Adjustment
amount and supporting evidence of any final determination of the Sellers' actual
taxes within thirty (30) days after same has occurred, and payment shall be made
under this paragraph within thirty (30) days after the information is furnished
to Buyer.
ARTICLE 12
GENERAL PROVISIONS
12.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties hereto (other than the Company)
contained in this Agreement shall survive the Closing and shall continue in full
force and effect for the period set forth in Section 10.3(c). Any claims with
respect to the foregoing sentence under Section 10.1 and Section 10.2 must be
asserted in writing with reasonable particularity by the party making such
claims within the applicable survival period. The representations and warranties
of the Company shall not survive the Closing.
12.2 Survival of Covenants and Agreements. The respective covenants and
agreements of the parties contained in this Agreement shall survive the Closing
47
without limitation as to time. Any claims as to a breach of a covenant or
agreement under Article 10 or Article 11 must be asserted in writing with
reasonable particularity by the party making such claim.
12.3 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The words
"hereof', "herein" and "hereunder" and similar terms refer to this Agreement as
a whole and not to any particular provision of this Agreement, unless the
context otherwise requires. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
12.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
12.5 Entire Agreement; No Third-Party Beneficiaries. The
Confidentiality Agreement and this Agreement (including the Exhibits and
Schedules hereto and the documents and instruments referred to herein) (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) are not intended to confer upon any Person other
than the parties any rights or remedies hereunder.
12.6 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
12.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Buyer may
assign its rights to purchase the Company Shares, but not any of its obligations
under this Agreement, to one of its Affiliates. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
12.8 Enforcement of the Agreement. The parties agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court in the United States having
competent jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
12.9 Performance by Company. Sellers hereby agree to cause the Company
to comply with its obligations under this Agreement.
48
12.10 Severability. If any one or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
12.11 Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement and the other
ancillary documents. As such, the language used herein and therein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
12.12 Notices. All notices, requests, demands, claims and other
communications required or permitted to be given hereunder shall be in writing
and shall be given by (a) personal delivery (effective upon delivery), (b)
facsimile (effective on the next day after transmission), (c) recognized
overnight delivery service (effective on the next day after delivery to the
service), or (d) registered or certified mail, return receipt requested and
postage prepaid (effective on the third day after being so mailed), in each case
addressed to the intended recipient as set forth below:
If to Buyer:
Natural Gas Services Group, Inc.
2911 S. County Road 1260
Midland, Texas 79706
Attention: Wallace C. Sparkman
Facsimile: (432) 563-5567
With a copy (which shall not constitute notice) to:
Lynch, Chappell & Alsup
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attention: Thomas W. Ortloff
Facsimile: (432) 683-8346
49
If to Sellers:
Paul D. Hensley
3005 N. 15th Street
Broken Arrow, Oklahoma 74012
With a copy (which shall not constitute notice) to:
John L. Shafer III
5918 E. 31st Street
Tulsa, Oklahoma 74135
Facsimile: (918) 627-5782
Tony Vohjesus
5863 E. Hunter Lane
Claremore, Oklahoma 74019
With a copy (which shall not constitute notice) to:
John L. Shafer III
5918 E. 31st Street
Tulsa, Oklahoma 74135
Facsimile: (918) 627-5782
Jim Hazlett
10601 E. County Road, Apt. #104
Midland, Texas 79706
With a copy (which shall not constitute notice) to:
John L. Shafer III
5918 E. 31st Street
Tulsa, Oklahoma 74135
Facsimile: (918) 627-5782
Any party may change his or its address for receiving notices by giving written
notice of such change to the other parties in accordance with this Section
12.12.
50
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Wallace C. Sparkman
-----------------------------
Wallace C. Sparkman, President
SCREW COMPRESSION SYSTEMS, INC.
By: /s/ Paul D. Hensley
-----------------------------
Paul D. Hensley, President
/s/ Paul D. Hensley
--------------------------------
Paul D. Hensley, individually
/s/ Tony Vohjesus
--------------------------------
Tony Vohjesus, individually
/s/ Jim Hazlett
--------------------------------
Jim Hazlett, individually
51
Schedule 4.2
Subsidiaries
None, except with respect to the interest acquired by the Company in the
SCS-Jalex Joint Venture (the "Joint Venture"). The Company now owns all
interests in the Joint Venture. However, the assets and liabilities of the Joint
Venture are in the process of being consolidated with the financial statements
of the Company.
Schedule 4.3
Company Shares
--------------
Shares of capital stock of the Company held by Sellers:
1. Paul D. Hensley. . . . . . . . . . . . . . 70,000 shares
2. Jim Hazlett. . . . . . . . . . . . . . . . 10,000 shares
3. Tony Vohjesus. . . . . . . . . . . . . . . 20,000 shares
-------
Total issued and outstanding shares 100,000
Schedule 4.4
Title to Company Shares
-----------------------
Title to shares of capital stock of the Company is held by Sellers, as follows:
1. Paul D. Hensley. . . . . . . . . . . . . . 70,000 shares
2. Jim Hazlett. . . . . . . . . . . . . . . . . . 10,000 shares
3. Tony Vohjesus. . . . . . . . . . . . . . . 20,000 shares
-------
Total issued and outstanding shares 100,000
Schedule 4.6
Conflicting Agreements
----------------------
None, except for such matters as may be contained in the miscellaneous
agreements referred to in the Schedules to this Stock Purchase Agreement.
Schedule 4.7
Title Defects
-------------
None, except for such matters as are shown on Fidelity National Title Insurance
Company, Owner's Policy No. 1312-242720, effective March 8, 2002, naming Screw
Compression Systems, Inc. as the Insured.
Schedule 4.8
Condition of Properties
-----------------------
None.
Schedule 4.9
Material Contracts
------------------
1. Promissory Note, dated December 31, 2003, in the original principal amount of
$61,379.00, made by Screw Compression Systems, Inc. payable to the order of Paul
D. Hensley.
2. Promissory Note, dated June 30, 2004, in the original principal amount of
$158,349.00, made by Screw Compression Systems, Inc. payable to the order of
Paul D. Hensley.
3. Promissory Note, dated December 31, 2003, in the original principal amount of
$29,360.00, made by Screw Compression Systems, Inc. payable to the order of Tony
Vohjesus.
4. Promissory Note, dated June 30, 2004, in the original principal amount of
$27,757.00, made by Screw Compression Systems, Inc. payable to the order of Tony
Vohjesus.
5. Promissory Note, dated June 9, 2004, in the original principal amount of
$27,632.78, made by Tony Vohjesus payable to the order of Screw Compression
Systems, Inc.
6. Promissory Note, dated September 7, 2000, in the original principal amount of
$1,000,000, made by Screw Compression Systems, Inc. payable to the order of
Security Bank, Tulsa, Oklahoma and maturing on September 1, 2004, together with:
(1) Loan Agreement dated September 7, 2000
(2) Guaranty Agreement dated September 7, 2000 from Marget E.
Hensley
(3) Acknowledgment of Co-Guarantor from Marget E. Hensley
(4) Guaranty Agreement dated September 7, 2000 from Paul D.
Hensley
(5) Security Agreement dated September 7, 2000 between Screw
Compression Systems, Inc. and Security Bank (covering
accounts, inventory, equipment, fixtures, general intangibles,
farm products, proceeds)
(6) Security Agreement dated September 7, 2000 between Screw
Compression Systems, Inc. and Security Bank (covering $200,000
certificate of deposit)
(7) UCC-1 financing statement filed with the County Clerk of
Rogers County, Oklahoma naming Screw Compression Systems, Inc.
as debtor and Security Bank as secured party (covering
accounts, inventory, equipment)
(8) UCC-1 financing statement filed with the County Clerk of
__________ County, Oklahoma naming Screw Compression Systems,
Inc. as debtor and Security Bank as secured party (covering
accounts, inventory, equipment)
(9) UCC-1 financing statement filed with the County Clerk of
__________ County, Oklahoma naming Screw Compression Systems,
Inc. as debtor and Security Bank as secured party (covering
accounts, inventory, equipment)
(10) Agreement to Provide Insurance
(11) Commercial Extension Agreement dated September 2, 2003
extending maturity date of note from September 1, 2003 to
September 1, 2004, together with:
(12) Corporate Borrowing Resolutions for meeting of September 7,
2000
(13) Corporate Extension Agreement dated August 31, 2004, extending
maturity to September 1, 2005 (Note No. 71887).
7. Real Estate Mortgage with Power of Sale dated September 28, 2001, securing a
note in the original principal amount of $656,000.00, executed by Screw
Compression Systems, Inc., a Texas Corporation, as Mortgagor, in favor of
Security Bank, Mortgagee, as shown of record in the Office of the County Clerk
of Rogers County, Oklahoma, filed on October 4, 2001 at 2:04 o'clock p.m., and
recorded in Book 1322 at Page 601; as modified by Modification of Mortgage
executed by Screw Compression Systems, Inc., a Texas Corporation, in favor of
Security Bank, securing a note in the original principal amount of
$1,520,000.00, dated February 27, 2002, filed March 8, 2002, and recorded in
Book 1361 at page 43.
8. Agreement for Conditional Sale of Equipment, dated July 20, 2004, between
Screw Compression Systems, Inc. and Valerus Compression Services, LP, together
with:
a) Promissory Note, dated July 20, 2004, in the original
principal amount of $118,225.00, made by Valerus Compression
Services, LP, to the order of Screw Compression Systems, Inc.,
together with related Security Agreement, UCC-1, and
Collateral Assignment;
b) Promissory Note, dated August 1, 2004, in the original
principal amount of $118,225.00, made by Valerus Compression
Services, LP, to the order of Screw Compression Systems, Inc.,
together with related Security Agreement, UCC-1, and
Collateral Assignment;
c) Promissory Note, dated August 1, 2004, in the original
principal amount of $118,225.00, made by Valerus Compression
Services, LP, to the order of Screw Compression Systems, Inc.;
and,
d) Promissory Note, dated August1, 2004, in the original
principal amount of $118,225.00, made by Valerus Compression
Services, LP, to the order of Screw Compression Systems, Inc.;
9. Lease Agreement between The City of Tulsa-Rogers County Port Authority, as
Lessor, and King Finishes & Metal Fabricating, Inc., as Lessee, dated June 1,
1999, filed June 21, 1999, recorded in Book 1177 at Page 0561, in the Office of
the Rogers County Clerk; assigned by said Lessee (with the consent of said
Lessor) on September 28, 2001, in favor of Screw Compression Systems, Inc., as
Assignee, now the Lessee, covering the leased premises located in Rogers County,
Oklahoma, at 5725 Bird Creek Avenue, Catoosa, Oklahoma.
10. Master Services Agreement between Screw Compression Systems, Inc. and Ocean
Energy, Inc.
11. Defined Contribution Prototype Plan and Trust - Non-standardized 401(k)
Profit Sharing Plan
12. Purchase Orders with Warren CAT previously disclosed to Buyer.
13. Potential acquisition of approximate thirty percent (30%) interest in
equipment company being formed, as previously disclosed to and consented to by
Buyer.
14. Any additional such matters referred to in any other Schedule annexed to
this Stock Purchase Agreement.
Schedule 4.12
Leases
------
1. Lease Agreement between The City of Tulsa-Rogers County Port Authority,
as Lessor, and King Finishes & Metal Fabricating, Inc., as Lessee,
dated June 1, 1999, filed June 21, 1999, recorded in Book 1177 at Page
0561, in the Office of the Rogers County Clerk; assigned by said Lessee
(with the consent of said Lessor) on September 28, 2001, in favor of
Screw Compression Systems, Inc., as Assignee, now the Lessee, covering
the leased premises located in Rogers County, Oklahoma, at 5725 Bird
Creek Avenue, Catoosa, Oklahoma.
2. Expired Lease (primary term expired on 12/21/2003), now a
month-to-month tenancy, between the Fisk Trust, as Landlord, and Screw
Compression Systems, Inc., as Tenant, covering office and warehouse
space, at 900 W. Pinion St., Farmington, New Mexico.
3. Month-to-month tenancy, between VIP Unlimited, as Landlord, and Screw
Compression Systems, Inc., as Tenant, covering sales office, at 1004 N.
Big Spring, Suite 104, Midland, Texas.
4. Month-to-month tenancy, between Wayne Vanaman, as Landlord, and Screw
Compression Systems, Inc., as Tenant, covering residential condominium
at 8524 N. 125 East Ave., Owasso, Oklahoma.
5. Sub-Lease Agreement between Industrial Leasing Company, a Missouri LLC,
as Landlord, and Screw Compression Systems, Inc., as Tenant, dated June
4, 2004, covering the leased premises (office and warehouse) located in
Rogers County, Oklahoma, at 5725 Bird Creek Avenue, Catoosa, Oklahoma.
Schedule 4.14
Certain Changes or Events
-------------------------
1. Purchase Orders with Warren CAT previously disclosed to Buyer.
2. Potential acquisition of approximate thirty percent (30%) interest in
equipment company being formed, as previously disclosed to and
consented to by Buyer.
3. Liquidation of CD No. 6494 and distribution of proceeds of $450,000.00
to Sellers, regarding advance to pay accrued income tax liability of
Sellers.
Schedule 4.15
Liabilities and Obligations
---------------------------
1. Accrued but undetermined liability for gross receipts - compensatory
taxes (sales/use taxes) owed to the State of New Mexico.
2. Accrued liability for balance of insurance premiums in the amount of
$114,660.00, together with finance charges, financed with Premium
Financing Specialists, Inc.
Schedule 4.16
Litigation
----------
(1) Joe Cisneros, Plaintiff vs. Screw Compression Systems, Inc., and
Paul D. Hensley, Defendants; 238th Judicial District Court of Midland County,
Texas, Cause No. CV43086.
(2) Screw Compression Systems, Inc., Plaintiff, vs. Badger Production
Services, L.L.C., a Wyoming limited liability company; and RTG Operating &
Measurement, Inc., a Wyoming corporation, Defendants; District Court of Rogers
County, State of Oklahoma, Case No. CJ 2002-272.
(3) Asserted/threatened claim (unfiled) of ex-employee terminated on
July 29, 2004.
Schedule 4.17
Taxes
-----
Potential liability for gross receipts - compensatory tax owed to State of New
Mexico for which a liability has been carried on the Company Balance Sheet.
Schedule 4.19
Insurance
Type of Policy Effective Dates/Coverage Insurance Company
-------------- ------------------------ -----------------
1. Commercial Gen. Liability 9/30/04-05 Arch Specialty Ins. Co.
$1,000,000 per Occur.
$2,000,000 Aggregate
2. Commercial Auto Policy 9/30/04-05 Chubb Group of Ins. Cos.
3. Commercial Auto Policy 9/30/04-05 Chubb Group of Ins. Cos.
(Texas)
4. Workers Compensation 9/30/04-05 CompSource (Okla)
Coverage 10/10/04-05 Texas Mutual (Texas)
10/17/04-05 NM Mutual (New Mexico)
5. Umbrella Liability 9/30/04-05 St. Paul Excess Ins. Co.
Coverage $7,000,000 per Occur. (increased from $4,000,000)
$7,000,000 Aggregate
6. Property Coverage 9/28/04-05 Chubb Group of Ins. Cos.
Building-5725 Bird Creek $2,500,000
Contents (Blanket) $4,000,000
5725 Bird Creek, Catoosa, OK
5757 Bird Creek, Catoosa, OK
1004 N. Big Spring, Midland, TX
900 W. Pinion, Farmington, NM
7. Fidelity Bond (401(k) Plan) 9/19/03-06 Travelers Ins. Co.
Schedule 4.21
Bank Accounts
-------------
Bank Accounts at Security Bank, Tulsa, Oklahoma
Account Description Account Number
- -------------------------------- --------------
1. CD 6494
2. CD 6495
3. Checking - Operating 1007289
4. Checking - Money Market 1007351
5. Loans - Building 800456092490
6. Loans - Vehicle 800456091572
7. Line of Credit 800456085624
Persons with check writing authority on behalf of the Company:
Paul Hensley and Tony Vohjesus
Schedule 4.22
Employees
---------
As previously delivered to Buyer.
Schedule 4.23
Company Benefit Plans
---------------------
1. Screw Compression Systems Premium Only Plan (Section 125 Plan)
2. Screw Compression Systems, Inc. 401(k) Plan (401(k) Plan)
Schedule 4.24
Hazardous Materials
-------------------
None, except with respect to Section 4.24(d), there are above ground storage
tanks and containers/drums for storage of oil, used oil, paint materials/paint
waste/paint solvents, and paint booth filters, none of which require cleanup,
removal or other remedial action.
Schedule 4.25
Related Party Transactions
--------------------------
None, except for the Promissory Notes referred to in Paragraphs 1-5 of Schedule
4.9 of this Stock Purchase Agreement.
Schedule 4.26
Real Property
-------------
For interests in real properties see Schedule 4.12 Leases.
In addition, the lease described in Schedule 4.12, to-wit:
Lease Agreement between The City of Tulsa-Rogers County Port Authority, as
Lessor, and King Finishes & Metal Fabricating, Inc., as Lessee, dated June 1,
1999, filed June 21, 1999, recorded in Book 1177 at Page 0561, in the Office of
the Rogers County Clerk; assigned by said Lessee (with the consent of said
Lessor) on September 28, 2001, in favor of Screw Compression Systems, Inc., as
Assignee, now the Lessee,
covers the leased premises located in Rogers County, Oklahoma, at 5725 Bird
Creek Avenue, Catoosa, Oklahoma, more particularly described on Exhibit "1" to
this Schedule 4.26,
and such leasehold is encumbered by the following mortgage:
Real Estate Mortgage with Power of Sale dated September 28, 2001, securing a
note in the original principal amount of $646,000.00, executed by Screw
Compression Systems, Inc., a Texas corporation, as Mortgagor, in favor of
Security Bank, Mortgagee, as shown of record in the Office of the County Clerk
of Rogers County, Oklahoma, filed on October 4, 2001 at 2:04 o'clock p.m., and
recorded in Book 1322 at Page 601; as modified by Modification of Mortgage
executed by Screw Compression Systems, Inc., a Texas corporation, in favor of
Security Bank, securing a note in the original principal amount of
$1,520,000.00, dated February 27, 2002, filed March 8, 2002, and recorded in
Book 1361 at page 43.
EXHIBIT "1"
To Schedule 4.26
----------------
A tract of land that is part of the SW/4 of Section 5 and the SE/4 of
Section 6, T-20-N, R-15E, Rogers County, Oklahoma, said tract of land being more
particularly described as follows, to-wit:
Starting at the Southwest corner of said Section 5; thence, due North
for 1179.56'; thence due East for 126.34' to the 'Point of Beginning' of said
tract of land; thence N 36(0) 59' 43" W for 570.42'; thence N 53(0) 00' 17" E
for 481.39'; thence S 36(0) 59' 43" E for 570.42'; thence S 53(0) 00' 17" W for
481.39' to the 'Point of Beginning' of said tract of land. Said tract of land
being 6.30 acres.
Schedule 4.27
Labor Matters
-------------
None, except with respect to Section 4.27(h), see Schedule 4.16 Litigation, item
3.
Schedule 4.29
Customers and Suppliers
CUSTOMERS
1. XTO
2. KCI
3. Amoco
4. Oxy
5. Greene Energy
6. Stephens Productions
7. Midland Air
8. NA/ Not Material
9. NA/ Not Material
10. NA/ Not Material
SUPPLIERS
1. Warren Cat
2. Air-X Hemphill
3. F W Murphy
4. Arrow Specialties
5. Stiebel
6. Frick
7. Cooler Service Co.
8. BLM
9. Keltec
10. Lewis Industries
EXHIBIT A
Certain Officers of the Company
Paul D. Hensley
Tony Vohjesus
Jim Hazlett
Robert Scott
EXHIBIT B
Certain Officers of Buyer
Wallace C. Sparkman
Earl Wait
EXHIBIT C
PROMISSORY NOTE
$_____________ Midland, Texas __________, 2004
FOR VALUE RECEIVED, in the manner, on the dates and in the amounts
herein stipulated, Natural Gas Services Group, Inc. (the "Maker"), a Colorado
corporation with principal offices at 2911 S. County Road 1260, Midland, Texas
79706, promises to pay to the order of ___________________, an individual
residing at _______________________________ ("Payee"), at his address in the
City of Tulsa, Tulsa County, Oklahoma, in lawful money of the United States of
America, the sum of _____________________________ ($__________), together with
interest on the outstanding principal balance hereof (calculated on the basis of
actual days elapsed in a year consisting of 365 days) from date until maturity
at a rate equal to four percent (4.00%) per annum.
Principal on this Promissory Note (this "Note") shall be due and
payable in three equal annual installments as follows:
(1) $____________ shall be due and payable on ____________ 15,
2005; $__________ shall be due and payable on __________ 15, 2006; and
(2) one final installment of all remaining unpaid principal
shall be due and payable in full on _______ 15, 2007.
Accrued and unpaid interest on the unpaid principal balance of this
Note shall be due and payable on the same dates as, but in addition to, the
installments of principal.
Subject to the prior written consent of Payee, Maker may, but shall not
be obligated to, make principal payments on this Note:
(1) in shares (only whole shares) of Buyer Common Stock valued
at the Cash Equivalent Amount Per Share for the purposes of determining
the number of shares of Buyer Common Stock to be issued; or
(2) by combination of cash and such shares.
"Cash Equivalent Amount Per Share" means the average of the daily
closing prices of Buyer Common Stock on the American Stock Exchange for the
twenty consecutive trading days commencing thirty trading days before the due
date of any principal payment.
All past due principal on this Note shall bear interest at the rate of
ten percent (10%) per annum until such sums have been paid; provided, however,
that in no event shall interest on this Note ever be charged or paid at a rate
greater than the maximum nonusurious rate permitted by applicable federal or
Texas law from time to time in effect, whichever shall permit the higher lawful
rate (the "Highest Lawful Rate"). Interest shall be computed on the basis of the
actual number of days elapsed in a year composed of 365 or 366 days, as the case
may be. At all such times, if any, as Chapter One ("Chapter One") of the Texas
Credit Code shall establish the Highest Lawful Rate, the Highest Lawful Rate
shall be the "indicated rate ceiling" (as defined in Chapter One ) from time to
time in effect.
If, for any reason whatever, the interest paid or received on this note
shall exceed the Highest Lawful Rate, the owner or holder of this note shall
refund to the payor or, at the option of such owner or holder, credit against
the principal of this note such portion of said interest as shall be necessary
to cause the interest actually paid and retained on this note to equal the
Highest Lawful Rate. All sums paid or agreed to be paid to the holder or holders
hereof for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of this note.
Maker may prepay this Note in whole or in part at any time and from
time to time without the payment of any premium or fee. All prepayments hereon
shall be applied to the installments of principal in inverse order of their
maturities.
This Note is one of the Promissory Notes referred to in the Stock
Purchase Agreement, dated of even date herewith, by and among Screw Compression
Systems, Inc., a Texas corporation, __________, __________, Payee and Maker (the
"Agreement"), and is subject to the terms and conditions of such Agreement.
Reference is made to the Agreement for a statement of the rights, remedies,
powers, privileges, benefits, duties and obligations of Maker and Payee under
the Agreement. Capitalized terms used herein which are defined in the Agreement
shall have such defined meanings unless otherwise defined herein.
Payment of this Note is secured by that certain Irrevocable Standby
Letter of Credit, dated _________, 2004, in the face amount of
_________________________ Dollars, issued by Western National Bank, Midland,
Texas, naming Payee as beneficiary. Reference is made to the Letter of Credit
for a statement of the nature and extent of the security and the rights and
obligations of the Maker and Payee thereunder.
Time is of the essence of this Note. If Maker fails to pay when due any
installment of principal and such failure to pay continues for a period of five
days after Maker's receipt of written notice from Payee, the holder of this Note
may, at such holder's option, declare the entirety of the indebtedness evidenced
hereby immediately due and payable and exercise any other available remedies,
and failure to exercise any remedy shall not constitute a waiver at any other
time.
If this Note or any installment or part hereof is not paid when due,
whether at maturity or by acceleration, or if it is collected through a
bankruptcy, probate or other court proceeding, whether before or after maturity,
the undersigned agrees to pay all costs and expenses of collection, including,
but not limited to, reasonable attorneys' fees, incurred by the holder hereof.
Maker waives notice (including, but not limited to, notice of protest,
notice of dishonor, notice of intent to accelerate and notice of acceleration),
demand, presentment for payment, protest, diligence in collecting or bringing
suit and the filing of suit for the purpose of fixing liability.
EXECUTED to be effective as of the date and year first written above.
NATURAL GAS SERVICES GROUP, INC.
By:______________________________
Wallace C. Sparkman, President
EXHIBIT D
RELEASE
This Release is being executed and delivered in accordance with Section
2.4(a)(ii) of the Stock Purchase Agreement, dated as of _____________, 2004 (the
"Agreement"), among Screw Compression Systems, Inc., a Texas corporation (the
"Company"), Paul D. Hensley, Jim Hazlett and Tony Vohjesus (Paul Hensley, Jim
Hazlett and Tony Vohjesus, each a "Seller"), and Natural Gas Services Group,
Inc., a Colorado corporation ("Buyer"). Capitalized terms used in this Release
which are defined in the Agreement shall have such defined meanings unless
otherwise defined herein.
Buyer has acquired, or will acquire simultaneously with the execution
of this Release, all of the issued and outstanding capital stock of the Company
pursuant to the terms of the Agreement.
Each Seller acknowledges that the execution and delivery of this
Release is a condition to Buyer's obligation to purchase the outstanding capital
stock of the Company pursuant to the Agreement and that Buyer is relying on this
Release in consummating such purchase.
Each Seller, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound,
in order to induce Buyer to purchase the outstanding capital stock of the
Company pursuant to the Agreement, hereby agrees as follows:
Each Seller, on behalf of himself and each of his Affiliates and his
individual family members (collectively, the "Related Persons"), hereby releases
and forever discharges Buyer, the Company and each of their respective past,
present and future directors, officers, employees, agents, consultants, advisors
or other representatives (collectively, the "Representatives") and their
respective Affiliates, stockholders, controlling persons, subsidiaries,
successors and assigns (individually, a "Releasee" and collectively,
"Releasees") from any and all claims, demands, proceedings, causes of action,
orders, obligations, contracts, agreements, debts and liabilities whatsoever,
whether known or unknown, suspected or unsuspected, both at law and in equity,
which each Seller or any of his respective Related Persons now has, has ever had
or may hereafter have against the respective Releasees arising on account of or
out of any matter, cause or event occurring contemporaneously with or prior to
the Closing Date, including, but not limited to, any rights to indemnification,
contribution or reimbursement from the Company, whether pursuant to the
Company's organizational documents, contract or otherwise and whether or not
relating to claims pending on, or asserted after, the Closing Date; provided,
however, that nothing contained herein shall operate to release any obligations
of Buyer arising under the Agreement or any obligation of the Company which has
been disclosed in Exhibit A to this Release.
Each Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against any Releasee, based upon any
matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, each Seller, jointly and severally, shall indemnify
and hold harmless each Releasee from and against all loss, liability, claim,
damage (including incidental and consequential damages) or expense (including
costs of investigation and defense and reasonable attorney's fees) whether or
not involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of Sellers or any of their
Related Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any claim or demand
against any Releasee which claim or demand arises directly or indirectly from,
or in connection with, any assertion by or on behalf of Sellers or any of their
Related Persons against such third party of any claims or other matters
purported to be released pursuant to this Release.
If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release shall
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Texas without regard
to principles of conflicts of law.
IN WITNESS WHEREOF, each of the undersigned have executed and delivered
this Release this _____ day of _______________, 2004.
_______________________________________
Paul D. Hensley
_______________________________________
Jim Hazlett
_______________________________________
Tony Vohjesus
Exhibit A
to
Release
-------
EXHIBIT E
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of _________,
2004, is between Natural Gas Services Group, Inc., a Colorado corporation (the
"Company"), and __________________, an individual residing in Tulsa, Oklahoma
(the "Employee").
WHEREAS, the Company has acquired, or will acquire simultaneously with
the execution of this Agreement, all of the issued and outstanding shares of
capital stock of Screw Compression Systems, Inc., a Texas corporation, pursuant
to the terms of that certain Stock Purchase Agreement (the "Purchase
Agreement"), dated as of _____________, 2004, among Screw Compression Systems,
Inc., _____________________, _______________________, Employee, and the Company;
WHEREAS, it is a condition to consummation of the transactions
contemplated by the Purchase Agreement that Employee and the Company enter into
an employment agreement on the terms and conditions hereinafter set forth;
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Employee hereby agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
Employee agrees to enter the employ of the Company, upon the terms and subject
to conditions herein provided.
2. Term. The employment of the Employee shall be for a period (referred
to herein as the "Employment Term") commencing on the date of this Agreement and
ending on the earlier of (i) _____________, 2007; (ii) the effective date of any
"Fundamental Change" with respect to the Company; or (iii) the date of
termination of Employee's employment pursuant to Section 5 hereof.
For purposes hereof, a "Fundamental Change" shall occur with respect to
the Company on the effective date of any dissolution, merger, consolidation,
sale of all or substantially all of the Company's assets, recapitalization or
any other type of transaction which results in at least 50% of the Company's
common stock being changed into, or exchanged for, different securities of the
Company, as applicable, or other securities or interests in other persons or
entities.
3. Position and Duties.
(a) Position. During the Employment Term, the Employee shall serve as
____________ of the Company. In such capacity, the Employee shall have such
duties, functions, responsibilities, and authority customarily appertaining to
the position of __________ of a corporation; subject, however, to applicable
restrictions imposed by the bylaws of the Company and to the directives of the
Board of Directors of the Company.
(b) Duties. During the Employment Term, the Employee shall devote his
full time, skill and attention, and his best efforts during normal business
hours to, and in furtherance of, the business and affairs of the Company and its
subsidiaries and affiliates (collectively, the "Related Parties"); except for
usual, ordinary and customary periods of vacation and absence due to illness or
other disability; provided, however, that Employee may, subject to the Company's
code of ethics and conflict of interest policies as in effect from time to time,
devote reasonable periods of time in connection with the following activities,
if such activities do not materially interfere with the performance of
Employee's duties and services hereunder and do not consume more than 10% of
Employee's working hours:
(i) serving as a director or a member of a committee of any
organization, if serving in such capacity does not involve any conflict
with the business of the Related Parties and such organization is not
in competition in any manner whatsoever with the business of the
Related Parties;
(ii) fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
(iv) managing his personal investments so long as such
investment activities do not constitute an actual or potential conflict
of interest with the business of the Related Parties and comply with
the provisions in Section 6.
4. Compensation and Related Matters.
(a) Base Salary. The Company shall pay to Employee a base salary at the
rate of not less than $________ per annum. This base salary may be reviewed
periodically and increases in such base salary may be granted at the sole
discretion of the Compensation Committee of the Board of Directors of the
Company.
(b) Benefits. Employee shall, during the Employment Term, be eligible
to participate in such insurance, medical and other employee benefit plans of
the Company which may be in effect, from time to time, to the extent such plans
are generally available to executive officers of the Company.
(c) Professional Organization Dues. During the Employment Term, the
Company shall pay the initiation fees and periodic dues for membership in any
professional organizations in which Employee is currently a member, or which are
otherwise approved by the Board of Directors of the Company or the Compensation
Committee of the Board, and the Company shall pay all charges and expenses,
including reasonable travel expenses, incurred by Employee in connection with
membership in such organizations.
(d) Vacations. Employee shall be entitled to take such vacations as he
may desire, with pay, provided that such vacations do not interfere with the
performance of his duties and services hereunder.
(e) Expenses. Employee will be reimbursed for reasonable expenses
incurred in the performance of his duties and services hereunder and in
furtherance of the business of the Related Parties upon presentation by Employee
of an itemized account, accompanied by appropriate receipts satisfactory to the
Company, in substantiation of such expenses.
5. Termination of Employment.
(a) Employee's employment hereunder:
(i) shall automatically terminate upon the occurrence of any
of the following: (A) the mental or physical incapacity or inability of
Employee to perform his duties for a consecutive period of one hundred
twenty (120) days or a non-consecutive period of one hundred eighty
(180) days during any twelve month period; (B) the death of the
Employee; or (C) the voluntary resignation or retirement of Employee;
and
(ii) may be terminated by the Company, at any time, for
"cause", which shall mean by reason of any of the following: (A)
Employee's conviction of, or plea of nolo contendere to, any felony or
to any crime or offense causing substantial harm to any of the Related
Parties (whether or not for personal gain) or involving acts of theft,
fraud, embezzlement, moral turpitude or similar conduct; (B)
malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of any of
the Related Parties' funds, (2) embezzlement, or (3) fraudulent or
willful and material misrepresentations or concealments on any written
reports submitted to any of the Related Parties, (C) material failure
to perform the duties of Employee's employment or material failure to
follow or comply with the reasonable and lawful written directives of
the Board of Directors of the Company, provided, however, that Employee
shall have been informed, in writing, of such material failure and
given a period of not more than 60 days to remedy same; or (D) a
material breach by Employee of the provisions of this Agreement
(including, without limitation, any breach of Section 3(b) of this
Agreement).
(b) Upon any termination of Employee's employment pursuant to this
Section 5, all obligations of the Company under this Agreement shall terminate.
6. Business Opportunities and Intellectual Property; Personal
Investments; Covenant not to Compete; Confidentiality. Employee acknowledges
that in the course of his employment by the Company and performance of services
on behalf of the Related Parties he will become privy to various business
opportunities, economic and trade secrets and relationships of the Related
Parties. Therefore, in consideration of this Agreement and the consummation of
the Transaction, Employee hereby agrees as provided below in this Section 6.
(a) Business Opportunities and Intellectual Property. The Employee:
(i) shall promptly disclose to the Company all business
opportunities (including, without limitation, those relating to the
business of manufacturing, fabricating, selling, leasing and
maintaining of natural gas compressors or the design and manufacture of
natural gas flare systems, components and ignition systems) developed
by Employee during the Employment Term, or originated by any third
party and brought to the attention of Employee during the Employment
Term, together with information relating thereto (herein collectively
called "Business Opportunities");
(ii) shall promptly disclose to the Company any ideas,
inventions, discoveries, processes, designs, methods, substances,
articles, computer programs and improvements, whether or not patentable
or copyrightable (all of the foregoing being hereinafter collectively
called "Intellectual Property"), which the Employee discovers,
conceives, invents, creates or develops, alone or with others, during
the Employment Term, if such discovery, conception, invention, creation
or development (A) occurs in the course of the Employee's employment
with the Company, or (B) occurs with the use of any of the Related
Parties' time, materials or facilities, or (C) in the opinion of the
Board of Directors of the Company, relates or pertains in any way to
the Related Parties' purposes, activities or affairs;
(iii) hereby assigns and agrees to assign to the Company and
its successors, assigns or designees, all of the Employee's right,
title and interest in and to all Business Opportunities and
Intellectual Property that the Employee is obligated to disclose to the
Company pursuant hereto; and
(iv) acknowledges and agrees that all Business Opportunities
and Intellectual Property constitute the exclusive property of the
Company and accordingly agrees that other than Employee's investment in
the Company, Employee will not (directly or indirectly through any
family members), and will not permit any of his controlled affiliates
to, (A) invest or otherwise participate alongside the Related Parties
in any Business Opportunities, (B) invest or otherwise participate in
any business or activity relating to a Business Opportunity, regardless
of whether any of the Related Parties ultimately participates in such
business or activity, or (C) use for any purpose other than on behalf
of the Related Parties, any information pertaining to Business
Opportunities.
(b) Personal Investments. Employee agrees that during the Employment
Term and the Noncompetition Period, Employee (whether in his own name or in the
name of any family members or made by Employee's controlled affiliates) will not
make any investments with or in any person or entity (other than the Company)
which relates to the business of manufacturing, fabricating, selling, leasing
and maintaining of natural gas compressors or the design and manufacture of
natural gas flare systems, components and ignition systems.
(c) Confidentiality Obligations. Employee agrees that during the
Employment Term and the Noncompetition Period, Employee will not use, publish,
disseminate or otherwise disclose, directly or indirectly, to any person other
than the Related Parties and their respective officers, directors and employees,
any Business Opportunities, Intellectual Property and any other information
heretofore or hereafter acquired, developed or used by any of the Related
Parties relating to their business or their operations, properties, prospects,
employees, customers, consultants, vendors, joint venture partners or
co-investors which constitutes proprietary or confidential information of any of
the Related Parties ("Confidential Information"), including, without limitation,
any Confidential Information contained in any customer files, contract files,
production records, maintenance records, reports and related data, memoranda,
notes, records, drawings, manuals, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents relating to the business
of the Related Parties (collectively, the "Related Parties' Business Records"),
but excluding any Confidential Information which has become part of common
knowledge or understanding in the natural gas compressor industry or otherwise
in the public domain (other than from disclosure by Employee in violation of
this Agreement), provided, however, this paragraph (c) shall not be applicable
to the extent Employee is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge after
Employee requests that such Confidential Information be preserved.
(d) Non-Compete Covenant. Employee agrees that during the Employment
Term, Employee will not:
(i) engage or participate in any manner, whether directly or
indirectly through any family member or as an employee, employer,
consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lendor, lessor or in any
other individual or representative capacity, in any business activity
that relates to (A) the business of manufacturing, fabricating,
selling, leasing and maintaining of natural gas compressors, (B) the
design and manufacture of natural gas flare systems, components and
ignition systems, (C) installing and servicing flare stacks and related
ignition and control devices or (D) in any other business or activity
related to the natural gas compressor industry that is in competition
in any manner whatsoever with the business of any of the Related
Parties within a 700 mile radius of Tulsa, Oklahoma; provided that,
this shall not preclude Employee from:
(A) making investments in securities of oil and gas
companies and natural gas compressor companies which are
registered on a national stock exchange, if the aggregate
amount owned by Employee and all family members and affiliates
does not exceed one percent of such company's outstanding
securities; or
(B) maintaining his personal investments (whether in
his own name or in the name of any family members) (including,
without limitation, his investments in the following
controlled affiliates of Employee: ________________________),
if such personal investments and controlled affiliates do not
engage in any business activity that relates to the business
of manufacturing, fabricating, selling, leasing and
maintaining of natural gas compressors, or the design and
manufacture of natural gas flare systems, components and
ignition systems, or the installation and servicing of flare
stacks and related ignition and control devices; or
(ii) solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding ninety
(90) days was an employee) of any of the Related Parties or any other
person who is under contract with or rendering services to any of the
Related Parties, to terminate his or her employment by, or contractual
relationship with, such person or to refrain from extending or renewing
the same (upon the same or new terms) or to refrain from rendering
services to or for such person or to become employed by or to enter
into contractual relations with any Persons other than such person or
to enter into a relationship with a competitor of any of the Related
Parties.
(e) For purposes of this Agreement, the term "Noncompetition Period"
means the period commencing on the date Employee ceases to be employed hereunder
and ending on the second anniversary of such date.
(f) The invalidity or non-enforceability of this Section 6 in any
respect shall not affect the validity or enforceability of this Section 6 in any
other respect or of any other provision of this Agreement. If any provision of
this Section 6 shall be held invalid or unenforceable by a court of competent
jurisdiction by reason of the geographic or business scope or the duration
thereof, such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest extent
permitted by law, this Agreement shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly drafted
so as not to be invalid or unenforceable.
(g) Employee acknowledges that the Company's remedy at law for any
breach of the provisions of this Section 6 is and will be insufficient and
inadequate and that the Company shall be entitled to equitable relief, including
by way of temporary and permanent injunction, in addition to any remedies the
Company may have at law.
(h) The provisions of this Section 6 shall survive termination of this
Agreement.
(i) The representations and covenants contained in this Section 6 on
the part of the Employee will be construed as ancillary to and independent of
any other provision of this Agreement, and the existence of any claim or cause
of action of the Employee against the Company or any of the other Related
Parties or any officer, director or shareholder of the Company or any of the
other Related Parties, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the covenants of
the Employee contained in this Section 6. In addition, the provisions of this
Section 6 shall continue to be binding upon the Employee in accordance with
their terms, notwithstanding the termination of the Employee's employment
hereunder for any reason.
(j) The parties to this Agreement agree that the limitations contained
in this Section 6 with respect to time, geographical area and scope of activity
are reasonable. However, if any court shall determine that the time,
geographical area or scope of activity of any restriction contained in this
Section 6 is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
7. Business Records. The Employee agrees to promptly deliver to the
Company, upon termination of his employment hereunder, or at any other time when
the Company so requests, all of the Related Parties' Business Records (and all
copies thereof and therefrom). The Employee confirms that all of the Related
Parties' Business Records (and all copies thereof and therefrom) constitute the
exclusive property of the Company and the other Related Parties. The obligation
of confidentiality set forth in Section 6 shall continue notwithstanding the
Employee's delivery of any such documents to the Company. Notwithstanding the
foregoing provisions of this Section 7 or any other provision of this Agreement,
the Employee shall be entitled to retain any written materials received by the
Employee in his capacity as a shareholder of the Company. The provisions of this
Section 7 shall continue in effect notwithstanding termination of the Employee's
employment hereunder for any reason.
8. Divisibility of Agreement. If any term, condition or provision of
this Agreement is for any reason rendered void, all remaining terms, conditions
and provisions shall remain and continue as valid and enforceable obligations of
the parties hereto.
9. Notices. Any notices or other communications required or permitted
to be sent hereunder shall be in writing and shall be duly given if personally
delivered or sent postage pre-paid by certified or registered mail, return
receipt requested, as follows:
(a) If to Employee:
(b) If to the Company:
Natural Gas Services Group, Inc.
2911 S. County Road 1260
Midland, Texas 79706
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
10. Complete Agreement. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto and all
oral or written employment agreements or arrangements between the Company (and
any of its subsidiaries) and Employee. This Agreement may not be altered or
amended except by a writing, duly executed by the party against whom such
alteration or amendment is sought to be enforced.
11. Assignment. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall lease
or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
COMPANY:
NATURAL GAS SERVICES GROUP, INC.
By:______________________________
Wallace C. Sparkman, President
EMPLOYEE:
_________________________________
EXHIBIT F
Stockholders' Agreement
-----------------------
Natural Gas Services Group, Inc.
2911 South County Road 1260
Midland, Texas 79706
Gentlemen:
Natural Gas Services Group, Inc. ("NGSG "), a Colorado corporation, is
issuing an aggregate of 609,756 shares of its common stock, par value $.01 per
share (the "Restricted Securities"), to Paul Hensley, Jim Hazlett and Tony
Vohjesus (collectively, the "Sellers" and each individually, a "Seller") as
partial consideration for NGSG's purchase (the "Purchase") of all of the issued
and outstanding shares of capital stock of Screw Compression Systems, Inc., a
Texas corporation, from Sellers pursuant to the Stock Purchase Agreement, dated
as of , 2004 (the "Purchase Agreement"). The undersigned understands that the
issuance is being made pursuant to exemptions from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and pursuant
to exemptions from the registration and other requirements of applicable state
securities laws. In order to induce NGSG to consummate the Purchase, Sellers
have executed and delivered this Stockholders' Agreement (this "Agreement") to
NGSG.
1. Representations, Warranties and Covenants of Each Seller. Each Seller,
severally and not jointly, hereby represents, warrants and covenants to NGSG as
follows:
a. Such Seller is acquiring the Restricted Securities for his own
account for investment purposes only, and not with a view to, or for resale in
connection with, any distribution other than in compliance with the registration
requirements under the Securities Act or the securities laws of any state or
pursuant to an exemption therefrom.
b. Such Seller understands that (A) the Restricted Securities (1) have
not been registered under the Securities Act or any state securities laws, (2)
will be issued in reliance upon an exemption from the registration and
prospectus delivery requirements of the Securities Act and state securities laws
for an offer and sale of securities not involving a public offering which relate
to private purchases and (3) may not be sold, transferred or otherwise disposed
of without satisfaction of certain conditions, including registration under, or
the availability of an exemption from registration under, the Securities Act and
applicable state securities laws, and (B) such Seller must therefore bear the
economic risk of such investment indefinitely unless a subsequent disposition
thereof is registered under the Securities Act and applicable state securities
laws or is exempt therefrom. Such Seller further understands that such
exemptions depend upon, among other things, the nature of the investment intent
of the undersigned expressed herein.
c. Such Seller has been furnished by NGSG all information (or provided
access to all information) regarding the business and financial condition of
NGSG, the attributes of the Restricted Securities and the merits and risks of an
investment in the Restricted Securities which such Seller has requested to
evaluate an investment in the Restricted Securities. Specifically, the
undersigned acknowledges that such Seller has had an opportunity to review NGSG
's Annual Report on Form 10-KSB for the year ended December 31, 2003 and
Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31, 2004
and June 30, 2004 and the other SEC Documents (as defined in the Purchase
Agreement).
d. Such Seller is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act, and he, or those persons
retained by him, has knowledge, skill and experience in financial, business and
investment matters relating to an investment of the same nature as the
Restricted Securities and is capable of evaluating the merits and risks of such
investment and protecting himself in connection with the Purchase and an
investment in the Restricted Securities. Such Seller has, to the extent deemed
necessary by him retained, at his own expense, and relied upon, appropriate
professional advice regarding the investment, tax and legal merits and
consequences of an investment in the Restricted Securities. Such Seller has
examined the SEC Documents, or caused the same to be examined, by his
representatives to the extent he deems necessary or appropriate. Such Seller has
not received any legal, business, tax or other advice from NGSG, its counsel or
other representatives.
e. Such Seller acknowledges that (i) it has been called to his
attention that his investment in the Restricted Securities involves risk and
(ii) he understands that the Restricted Securities to be issued in the Purchase
will be an illiquid investment, subject to any future registration pursuant to
this Agreement.
f. No person or entity, other than NGSG, has been authorized to give
any information or to make any representations on behalf of NGSG in connection
with the Purchase, and, if given or made, such information or representations
have not been relied upon by such Seller as having been made or authorized by
NGSG. The only representations, warranties and information made by NGSG in
connection with the Purchase are those contained in the Purchase Agreement and
the SEC Documents.
g. NGSG has provided such Seller the opportunity to ask questions of,
and receive answers from, NGSG concerning the Purchase and the Restricted
Securities and to obtain any appropriate additional information necessary to the
investment decision being made by him in connection with the Purchase and the
Restricted Securities.
h. Such Seller acknowledges that he has been advised that:
IN MAKING AN INVESTMENT DECISION REGARDING THE RESTRICTED SECURITIES,
HE MUST RELY ON HIS OWN EXAMINATION OF NGSG AND THE TERMS OF THE PURCHASE,
INCLUDING THE MERITS AND RISKS INVOLVED.
THE RESTRICTED SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY.
THE RESTRICTED SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY SET FORTH IN THIS
AGREEMENT.
The foregoing representations and warranties and undertakings are made
by and on behalf of each Seller with the intent that they be relied upon by NGSG
in determining each Seller's suitability as an investor. Each Seller hereby
agrees that such representations and warranties shall survive his purchase of
the Restricted Securities.
2. Standstill. Unless waived in writing by NGSG from time to time, during the
period commencing on the Closing Date and ending on the third anniversary
thereof, neither Sellers nor any of their respective affiliates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) will:
(a) acquire or agree, offer, seek or propose to acquire (or request
permission to do so), ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of any assets or businesses or any additional securities issued by
NGSG, or any rights or options to acquire such ownership (including from a third
party), or
(b) contest any election of directors by the stockholders of NGSG, or
(c) otherwise act, alone or in concert with others, to induce or
attempt to induce any other person to initiate any stockholder proposal or a
tender offer for any voting secutrites of NGSG, or
(d) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
3. Restrictions on Transferability; Registration Rights.
The Restricted Securities shall not be transferable except upon the
conditions specified in this Section 3; provided that, notwithstanding any other
provision of this Section 3, each Seller shall have the right to transfer any
Restricted Securities upon the prior written consent of NGSG. Each transferee
shall be subject to the same transfer restrictions imposed on Sellers by this
Agreement. All rights and obligations of Sellers set forth in this Section 3
will inure to the benefit of and be binding upon any transferee of the
Restricted Securities.
3.1 Restrictive Legend. Unless and until otherwise permitted by this
Section 3, each certificate for Restricted Securities issued under the Purchase
Agreement, and each certificate for any Restricted Securities issued to any
subsequent permitted transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and may be reoffered and
sold only if registered pursuant to the provisions of said Securities
Act or if an exemption from registration is available."
3.2 Notice of Proposed Transfers. Prior to any transfer or attempted
transfer of any Restricted Securities (other than pursuant to Rule 144 under the
Securities Act or registration of the Restricted Securities under the Securities
Act), the Seller of such Restricted Securities shall give written notice to NGSG
of such Seller's intention to effect such transfer. Each such notice (i) shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall contain an undertaking by the Seller giving such notice to
furnish such other information as may be required, to enable counsel to render
the opinions referred to below, and (ii) shall designate the counsel for the
Seller giving such notice. Such Seller shall obtain the services of counsel
described below at his own expense. The Seller giving such notice shall submit a
copy thereof to the counsel designated in such notice. If in the opinion of such
counsel, which is reasonably satisfactory to NGSG, the proposed transfer of such
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act, NGSG shall, within ten business days after
delivery of such opinion to NGSG, so notify the Seller of such Restricted
Securities and such Seller shall thereupon be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
such Seller to NGSG. Each certificate evidencing the Restricted Securities thus
to be transferred (and each certificate evidencing any untransferred balance of
the Restricted Securities) shall bear the restrictive legend set forth in
Section 3.1.
3.3 Piggy-Back Registration Rights.
(a) Registration Initiated by NGSG. If NGSG shall determine to register
any shares of common stock of NGSG (other than a registration relating to stock
options or employee benefit plans, any dividend reinvestment plan, or the
acquisition or purchase by or combination by merger or otherwise of NGSG of or
with another company or business entity or partnership), whether or not for sale
for its own account, NGSG will:
(i) promptly give to Sellers written notice thereof (which
shall include (to the extent known) a list of the jurisdictions in
which NGSG intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Restricted Securities specified
in a written request or requests, made within 20 days after receipt of
such written notice from NGSG, by Sellers, except as set forth in
Section 3.3(b) below.
(b) Underwriting. If the registration of which NGSG gives notice to
Sellers is for a registered public offering involving an underwriting, NGSG
shall so advise Sellers as a part of the written notice given pursuant to
Section 3.3(a)(i). In such event, the right of each Seller to registration
pursuant to this Section 3.3 shall be conditioned upon each such Seller's
participation in such underwriting and the inclusion of each such Seller's
Restricted Securities in the underwriting to the extent provided herein. A
Seller proposing to distribute shares of his Restricted Securities through such
underwriting (together with NGSG and the other holders (if any) distributing
their securities through such underwriting) shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by NGSG. Notwithstanding any other provision of this Section
3.3, if the lead managing underwriter determines, in good faith, that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of shares of Restricted Securities to be
included in the registration and underwriting to the extent such underwriter
deems necessary. NGSG shall so advise Sellers, and the number of shares of
Restricted Securities that may be included in the registration and underwriting
shall be reduced to the number which the underwriter is willing to include in
the registration. If a Seller disapproves of the terms of any such underwriting,
such Seller may elect to withdraw therefrom by written notice to NGSG and the
underwriter.
(c) Expenses of Registration by the Company. NGSG shall bear all
expenses incurred in connection with each registration, qualification or
compliance pursuant to this Section 3.3, including, without limitation, all
registration, filing and qualification fees, printing expenses, audit fees, fees
and disbursements of counsel for NGSG and counsel for the underwriters, if any
(unless any such underwriter pays such counsel fees) and reasonable fees and
disbursements of one special counsel for Sellers (but excluding underwriter's
commissions, fees and expenses allocable to the Restricted Securities of Sellers
and fees of independent accountants, if any, for Sellers, which commissions,
fees and expenses and fees of accountants shall be borne pro rata (by share) by
Sellers and any other offeror employing such accountants in such requested
registration).
(d) Limitations on Registration. NGSG's obligation to effect a
registration under Section 3.3(a) shall expire two years from the date of
consummation of the Purchase. Notwithstanding any provision to the contrary in
this Section 3.3, NGSG shall not be obligated to take any action to effect any
such registration, qualification or compliance pursuant to Section 3.3 on more
than two occasions; provided, however, only registrations which actually include
all of the Restricted Securities of Sellers requested to be included shall be
counted for this purpose.
(e) Assignability and Assumption. The registration rights granted to
Sellers in this Section 3.3 may be assigned in whole or in part by the holder
thereof in connection with any transfer of Restricted Securities provided that
(i) the assignor provides NGSG with written notice of such assignment, and (ii)
the assignee of such rights agrees in writing to be bound by the terms and
conditions of this Section 3. In the event of a partial assignment, the holders
of Restricted Securities shall possess the rights granted in this Section 3.3
pro rata in accordance with the number of shares of Restricted Securities
beneficially owned by each of them and each such holder shall be entitled to
receive a copy of all notices provided for in this Agreement and to exercise
such part of the rights so granted.
3.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by NGSG pursuant to this Agreement pursuant
to which Restricted Securities of Sellers are included therein, NGSG will keep
Sellers advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
NGSG will:
(a) keep such registration, qualification or compliance effective for a
period of at least 120 days or until Sellers have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as Sellers from time to time may reasonably request;
(c) list such Restricted Securities on each securities exchange (if
any) on which the common stock of NGSG is listed; and
(d) provide to Sellers and their special counsel a reasonable
opportunity to review in advance the registration statement and all amendments
thereto.
3.5 Indemnification.
(a) NGSG shall, if Restricted Securities held by Sellers or any other
holder of Restricted Securities are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify Sellers
and each other holder of Restricted Securities, each of their officers and
directors, and each person controlling any of Sellers or other holder of
Restricted Securities, with respect to each registration, qualification or
compliance which has been effected pursuant to Section 3.3, and each
underwriter, if any, and each person who controls any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements not misleading, and will
reimburse Sellers and each other holder of Restricted Securities, each of their
officers and directors, and each person controlling any of Sellers or other
holder of Restricted Securities, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided that NGSG will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to NGSG by Sellers or other holder of Restricted
Securities or underwriter specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such party and shall survive the subsequent transfer of shares of
common stock of NGSG by the seller thereof and the transfer of any shares of
common stock of NGSG which were the subject of such registration, qualification
or listing.
(b) Each of the Sellers and each other holder of Restricted Securities,
severally and not jointly, will, if Restricted Securities held by such Seller or
other holder of Restricted Securities are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify
NGSG, each of its directors and officers, each legal counsel and independent
accountants of NGSG, each underwriter, if any, of NGSG's securities covered by
such registration statement, each person who controls NGSG or such underwriter
within the meaning of the Securities Act, and each other holder of common stock
of NGSG registering securities of NGSG in such registration, each of its
officers and directors and each person controlling such holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse NGSG, such holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to NGSG by such Seller or other
holder of Restricted Securities specifically for use therein; provided; however,
that (i) the obligations of each Seller and each other holder of Restricted
Securities hereunder shall be limited to an amount equal to the proceeds to such
Seller or each other holder of Restricted Securities sold as contemplated herein
and (ii) the indemnity for untrue statements or omissions described above shall
not apply if Sellers or other holder of Restricted Securities providing such
written information provide NGSG with such additional written information prior
to the effectiveness of the registration as is required to make the previously
supplied written information true and complete, together with a description in
reasonable detail of the information previously supplied which was untrue or
incomplete.
(c) Each person entitled to indemnification under this Section 3.5 (the
"Indemnified Person") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Person has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Person (whose approval shall not
unreasonably be withheld), and the Indemnified Person may participate in such
defense at such person's expense, and provided further that the failure of any
Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Party of any obligations it may have otherwise than on account of
this Section 3.5. After notice from the Indemnifying Party to the Indemnified
Person of its election to assume the defense of such claim or litigation, the
Indemnifying Party will not be liable to such Indemnified Person for any legal
or other expenses subsequently incurred by such Indemnified Person in connection
with the defense thereof other than reasonable costs of investigation, unless
the Indemnifying Party abandons the defense of such claim or litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Person, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Person
of a release from all liability in respect to such claim or litigation.
(d) The indemnification required by this Section 3.5 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
3.6 Information by Sellers and Other Holders. Sellers or other holders
of Restricted Securities included in any registration shall furnish to NGSG such
information regarding Sellers or other holders and the distribution proposed by
Sellers or other holders as NGSG may reasonably request in writing, and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
4. Appointment and Nomination for Director. Paul D. Hensley shall be appointed
to fill the vacancy existing on the Board of Directors at the date hereof, to
hold office until the next annual stockholders' meeting at which directors are
elected, and in connection with the next annual meeting of stockholders, NGSG
will nominate Paul D. Hensley for election as a director to serve for a term the
same as the class of directors then standing for election.
5. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, notwithstanding principles of conflicts of
laws.
(b) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, and may be amended only by a
writing executed by all parties hereto.
(c) This Agreement and the representations and warranties contained
herein shall be binding upon the heirs, executors, legal representatives,
administrators, successors and permitted assigns of the undersigned.
IN WITNESS WHEREOF, Sellers have executed this Stockholders' Agreement this ___
day of _________________, 2004.
[LIST SELLERS]
________________________________
________________________________
Printed Name of Seller
Address of Seller:
________________________________
________________________________
________________________________
Accepted and Agreed to this ____ day of _____________, 2004:
NATURAL GAS SERVICES GROUP, INC.
By:_____________________________
Name:________________________
Title:_______________________
EXHIBIT G
(i) The incorporation, existence, and good standing of the Company are
as stated in the Agreement; the authorized Company Shares are as stated in the
Agreement; all outstanding Company Shares are duly and validly authorized and
issued, fully paid and non-assessable and have not been issued in violation of
any preemptive right of shareholders.
(ii) The Company has the requisite corporate power and authority to
execute, deliver and perform the Agreement, and the Agreement has been duly
authorized, executed and delivered by the Company, and (assuming the due and
valid authorization, execution and delivery by Buyer) constitutes the legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the enforcement
of creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
(iii) The execution and performance by the Company of the Agreement
will not violate the Company Charter Documents and will not violate, result in a
breach of, or constitute a default under, any material lease, mortgage,
contract, agreement, instrument, law, rule, regulation, judgment, order or
decree known to such counsel to which the Company is a party or to which it or
any of its properties or assets may be bound.
(iv) The Board of Directors of the Company has taken all action
required by the Texas Business Corporation Act and the Company Charter Documents
to authorize the execution and delivery of the Agreement and the transactions
contemplated thereby.
(v) Sellers have the power and authority to execute, deliver and
perform the Agreement, and the Agreement has been duly executed and delivered by
Sellers, and (assuming the due and valid authorization, execution and delivery
by Buyer) constitutes the legal, valid and binding agreement of Sellers
enforceable against Sellers in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(vi) The execution and performance by Sellers of the Agreement will not
violate, result in a breach of, or constitute a default under, any material
lease, mortgage, contract, agreement, instrument, law, rule, regulation,
judgment, order or decree known to such counsel to which any Seller is a party
or to which any Seller or any Seller's properties or assets may be bound.
(vii) To the knowledge of such counsel, there are no actions, suits or
proceedings, pending or threatened against or affecting the Company, by any
Governmental Entity which seek to restrain, prohibit or invalidate the
transactions contemplated by the Agreement.
(vii) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which has not
been obtained is required on behalf of the Company for consummation of the
transactions contemplated by the Agreement.
In rendering such opinion, counsel for the Company and Sellers may rely
as to matters of fact upon the representations of Sellers and of officers of the
Company contained in any certificate delivered to such counsel and certificates
of public officials.
EXHIBIT H
(i) The incorporation, existence, and good standing of Buyer are as
stated in the Agreement; the authorized shares of Buyer Common Stock are as
stated in the Agreement.
(ii) Buyer has taken all action required by Colorado law and the
organizational documents to approve the Purchase and to authorize the execution
and delivery of the Agreement and the transactions contemplated hereby.
(iii) Buyer has the requisite corporate power and authority to execute,
deliver and perform the Agreement, and the Agreement has been duly authorized,
executed and delivered by Buyer, and (assuming the due and valid authorization,
execution and delivery by Sellers and the Company) constitutes the legal, valid
and binding agreement of Buyer enforceable against Buyer in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws of general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law).
(iv) The execution and performance by Buyer of the Agreement will not
violate Buyer Charter Documents and will not violate, result in a breach of, or
constitute a default under, any material lease, mortgage, contract, agreement,
instrument, law, rule, regulation, judgment, order or decree known to such
counsel to which Buyer or any of its subsidiaries is a party or to which they or
any of their properties or assets may be bound.
(v) To the knowledge of such counsel, there are no actions, suits or
proceedings, pending or threatened against or affecting Buyer or any of its
subsidiaries, by any Governmental Entity which seek to restrain, prohibit or
invalidate the transactions contemplated by the Agreement.
(vi) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which has not
been obtained is required on behalf of Buyer for consummation of the
transactions contemplated by the Agreement.
(vii) The shares of Buyer Common Stock that will be issued pursuant to
the Agreement have been duly authorized and, when issued and delivered in
accordance with the terms and conditions of the Agreement will be validly
issued, fully paid and non-assessable.
In rendering such opinion, counsel for Buyer may rely as to matters of
fact upon the representations of officers of Buyer contained in any certificate
delivered to such counsel and certificates of public officials.