ACQUISITIONAGREEMENT

EX-10.3 5 a05-1642_1ex10d3.htm EX-10.3

Exhibit 10.3

 

ACQUISITION AGREEMENT

 

 

THIS ACQUISITION AGREEMENT, dated as of January 20, 2004 (the “Agreement”), is by and among Particle Drilling, Inc., a Texas corporation (“Newco”), ProDril Partners L.L.C., a Texas limited liability company (“Parent”), ProDril Services Incorporated, a Texas corporation (“PSI”), Mr. Harry B. Curlett (“Stockholder”), an individual, CCORE Technology and Licensing, Ltd, a Texas limited partnership (“CCORE”) and Curlett Family Limited Partnership, Ltd., a Wyoming limited partnership (“CFLP”).

 

W I T N E S S E T H:

 

WHEREAS, the parties hereto have previously entered into that certain Acquisition Agreement dated September 10, 2003 (the “Original Acquisition Agreement”);

 

WHEREAS, pursuant to the Original Acquisition Agreement, it was contemplated that Newco would acquire substantially all of the assets of PSI for the consideration set forth therein;

 

WHEREAS, the Original Acquisition Agreement was terminated pursuant to its terms;

 

WHEREAS, the parties hereto desire to enter into this Agreement in order to consummate the transactions contemplated pursuant to the Original Acquisition Agreement;

 

WHEREAS, CFLP has licensed certain technology (the “CFLP Technology”) to CCORE pursuant to that certain Patent and Technology License Agreement dated March 1, 2000;

 

WHEREAS, CCORE has licensed to PSI certain of its technology, and has sublicensed to PSI the CFLP Technology, pursuant to that certain Patent and Technology License Agreement dated September 21, 1993 (as amended, the “CCORE License”);

 

WHEREAS, it has been proposed that the CCORE License be terminated and that a new license be entered into with Newco;

 

WHEREAS, Parent owns 100% of the stock of Newco;

 

WHEREAS, the Stockholder owns shares of the stock of PSI, and thus would derive a substantial benefit from the consummation of the transactions contemplated herein;

 

WHEREAS, it has been proposed that Parent and other investors capitalize Newco as set forth herein;

 

WHEREAS, Newco has loaned to PSI certain amounts pursuant to that certain Revolving Line of Credit Promissory Note in the original maximum principal amount of $350,000, and may (but is not obligated to) make additional advances pursuant thereto (the “Loan”);

 



 

WHEREAS, in order to induce Newco to make the Loan, CFLP assigned certain patents and patent rights to Newco pursuant to that certain Assignment and Assumption Agreement dated June 1, 2003 (the “Loan Technology Assignment”);

 

NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, agree as follows:

 

ARTICLE I

THE TRANSACTIONS

 

Section 1.1.  Sale by PSI.  Upon the terms and subject to the conditions set forth herein, at the Closing (as hereinafter defined) PSI will sell, transfer, assign, and convey to Newco good title in and to (a) the assets listed on Exhibit A (the “Assets”), free and clear of any lien, lease, or encumbrance, and (b) the tradename “ProDril Services” and any derivatives thereof, free and clear of any lien, lease, or encumbrance, pursuant to an assignment and assumption agreement in the form reasonably required by Newco.

 

Section 1.2.  The Licenses.  At or prior to the Closing, PSI and CCORE shall terminate the CCORE License pursuant to a termination agreement in the form reasonably required by Newco (the “Termination Agreement”) and CCORE, CFLP, PSI, ProDril Services International Limited, and the Stockholder shall enter into (i) a license agreement with Newco in the form of Exhibit B (the “New License Agreement”), and (ii) an Assignment and Assumption Agreement in the form of Exhibit C (the “Assignment”).

 

Section 1.3.  The Sales Price.  At the Closing, as consideration for the sale and transfer of the Assets and the execution of the Termination Agreement, Newco will (a) execute and deliver to PSI the royalty agreement set forth as Exhibit D (the “Royalty Agreement”), and (b) assume the payables and other liabilities of PSI specifically listed on Exhibit E (the “Assumed Liabilities”), pursuant to an assignment and assumption agreement in the form reasonably required by Newco.  Except for the assumption of the Assumed Liabilities at the Closing as provided pursuant to this Section, neither Newco nor Parent shall assume or be deemed to have assumed any debts or obligations of PSI.  PSI and Newco hereby agree that the present fair saleable value of the rights of PSI pursuant the Royalty Agreement is not less than $750,000; provided, however, that the foregoing stipulation set forth in this sentence shall not be considered a guaranty or warranty by Newco.

 

Section 1.4.  Agreement Not To Compete.  At the Closing, the Stockholder and PSI shall execute and deliver to Newco an Agreement Not To Compete in the form of Exhibit F.

 

Section 1.5.  Closing.  The closing (the “Closing”) of the transactions contemplated by this Agreement shall take place at the offices of Newco in Houston, Texas as promptly as practicable (but in any event within two business days) following the date on which the last of the conditions set forth in Article VII is fulfilled or waived, or at such other time and place as

 

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Newco and PSI shall agree. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date.”  At the Closing, each of the parties hereto shall take such actions required to be taken by it pursuant to the terms hereof at or before Closing.  The Transactions will be effective as of 12:01 am on the Closing Date (the “Effective Time”).

 

Section 1.6.  Taking of Necessary Action; Further Action.  Each of Parent, PSI and the Stockholder will take all such reasonable and lawful action as may be necessary or appropriate either before, at, or after the Closing in order to effectuate the transactions described in this Article (the “Transactions”) in accordance with this Agreement and as necessary or desirable to carry out the purposes of this Agreement and to vest Newco with full right, title and possession to the Assets and all rights intended to be conveyed by the New License Agreement or the Assignment.  Specifically, but not by way of limitation, PSI shall deliver to Newco all files, data, records and other information set forth in tangible form (whether written or electronic) which relates to the technology subject to the New License Agreement or the Assignment.

 

Section 1.7.  The Original Acquisition Agreement.  The parties acknowledge and ratify the termination of the Original Acquisition Agreement, and hereby release each other from any liability or obligation pursuant to or relating to the Original Acquisition Agreement, including but not limited to the circumstances surrounding the termination thereof.

 

ARTICLE II

REPRESENTATIONS AND

WARRANTIES OF PARENT AND NEWCO

 

Parent and Newco each represent and warrant to PSI as follows:

 

Section 2.1.  Organization and Qualification.  Parent is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas and Newco is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and each of them has the requisite power and authority to own, lease and operate its respective assets and properties and to carry on its respective businesses as they are now being conducted.

 

Section 2.2.  Authority; Non-Contravention; Approvals.

 

(a)                                  Parent and Newco each have full limited liability company and corporate (as the case may be) power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby. This Agreement has been approved by the Managers of Parent and the Board of Director of Newco, and no other limited liability company or corporate proceedings on the part of Parent or Newco are necessary to authorize the execution and delivery of this Agreement or the consummation by Parent and Newco of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Parent and Newco, and, assuming the due authorization, execution and delivery hereof by

 

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Stockholder, PSI, CCORE, and CFLP, constitutes a valid and legally binding agreement of each of Parent and Newco enforceable against each of them in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles.

 

(b)                                 The execution and delivery of this Agreement by each of Parent and Newco and the consummation by each of Parent and Newco of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or the Newco under any of the terms, conditions or provisions of (i) the respective charters or bylaws of Parent or the Newco, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to Parent or the Newco or any of their respective properties or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Parent or Newco is now a party or by which Parent or Newco or any of their respective properties or assets may be bound or affected.

 

(c)                                  No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by Parent or Newco or the consummation by Parent or Newco of the transactions contemplated hereby.

 

Section 2.3.  Brokers and Finders.  Parent or Newco have not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Parent or Newco to pay any finder’s fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby. There is no claim for payment by Parent or Newco of any investment banking fees, finder’s fees, brokerage or agent commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

 

Section 2.4.  Financials of Newco.  The pro forma balance sheet as of June 30, 2003 of Newco has been prepared in accordance with generally accepted accounting principles, consistently applied (except for the absence of footnote disclosures and for the absence of normal year-end audit adjustments which are not material in the aggregate) and fairly present the financial condition and result of operations of Newco.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF PSI AND THE SHAREHOLDER

 

PSI and the Stockholder jointly and severally represent and warrant to Parent and Newco that:

 

Section 3.1.  Organization and Qualification.  PSI is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  PSI is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the properties owned, leased, or operated by it or the nature of the business conducted by it makes such qualification necessary. True, accurate and complete copies of PSI’s Articles of Incorporation, as amended, and Bylaws, as in effect on the date hereof, including all amendments thereto, have heretofore been delivered to Newco.

 

Section 3.2.  Subsidiaries.  PSI does not own, any stock or other ownership interests in any other entity.

 

Section 3.3.  Authority; Non-Contravention; Approvals.

 

(a)                                  PSI has full corporate power and authority to execute and deliver this Agreement and, to consummate the transactions contemplated hereby.  This Agreement has been approved by all of the members of the Board of Directors of PSI, and other than the approval of the stockholders of PSI no other corporate proceedings on the part of PSI are necessary to authorize the execution and delivery of this Agreement or the consummation by PSI of the transactions contemplated hereby. This Agreement has been duly executed and delivered by PSI and Stockholder, and, assuming the due authorization, execution and delivery hereof by Parent and Newco, constitutes a valid and legally binding agreement of PSI and Stockholder, enforceable against PSI and Stockholder in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (b) general equitable principles.  PSI stipulates that is has not been subject to undue pressure or coercion in connection with negotiation or execution of this Agreement.

 

(b)                                 Except as set forth in the Disclosure Schedule, the execution and delivery of this Agreement by PSI and the Stockholder and the consummation by PSI and the Stockholder of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a

 

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default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of PSI under any of the terms, conditions or provisions of (i) the charter or bylaws of PSI, (ii) to the Knowledge of PSI, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to any of PSI or any of its properties or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, or any Operating Agreement (as defined in Section 5.23) to which PSI is now a party or by which PSI or its properties or assets may be bound or affected.

 

(c)                                  No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by PSI or the consummation by PSI of the transactions contemplated hereby.

 

Section 3.4.  Financial Statements.  PSI has furnished Parent and Newco with a balance sheet, income statement and statement of cash flow of PSI as of August 31, 2003, (collectively, the “Financial Statements”).  The Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied, and are accurate and complete (except for the absence of footnote disclosures and for the absence of normal year-end audit adjustments which are not material in the aggregate) and fairly present the financial condition and result of operations of PSI.  The fiscal 2003 budget and capital budget with respect to PSI previously furnished by PSI to Parent (a) are true and complete copies of PSI’s most recent internal budgets for fiscal 2003 and (b) were prepared by management of PSI in good faith and on a reasonable basis.  The Disclosure Schedule lists all intercompany transactions between or among PSI, CFLP, CCORE and/or the Stockholder since January 1, 2003.

 

Section 3.5.  Absence of Undisclosed Liabilities.  Except as disclosed in the disclosure schedule delivered by PSI to Newco (the “Disclosure Schedule”), PSI has not incurred any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except liabilities or obligations (a) which are provided for in the Financial Statements or reflected in the notes thereto, or (b) liabilities or obligations under this Agreement.

 

Section 3.6.  Absence of Certain Changes or Events.  Except as disclosed in the Disclosure Schedule, since December 31, 2002, to the Knowledge of PSI, the business of PSI has been conducted in the ordinary course of business consistent with past practices, and there has not been any event, occurrence, development or state of circumstances or facts which has had, or could reasonably be anticipated to have, individually or in the aggregate, a Material Adverse Effect.  Specifically, but not by way of limitation, since December 31, 2002 PSI has not engaged in any of the actions described in Section 5.1.  “Material Adverse Effect” means any event, occurrence, fact, condition, change, development or effect that is or could reasonably be

 

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anticipated to be materially adverse to the business, assets (including intangible assets), liabilities, financial condition, results of operations, properties (including intangible properties) or business prospects of PSI, as applicable, taken as a whole, which is not reflected in the August 31, 2003 Financial Statements of PSI.  “Knowledge” means the actual knowledge of PSI after reasonable inquiry of officers of PSI.

 

Section 3.7.  Tangible Assets.  PSI does not own any real property.  PSI leases the real property described in the Disclosure Schedule.  The Disclosure Schedule sets forth a list describing all trucks, automobiles, trailers, other titled vehicles, machinery, equipment, furniture, supplies, tools, and other tangible personal property (“Personal Property”) owned by PSI (the “Owned Assets”).  The Disclosure Schedule also sets forth a description of all real property or personal property leased by PSI or which is otherwise used by PSI but which is not owned by PSI (the “Leased Assets”).  Except as indicated in the Disclosure Schedule, the Owned Assets and the Leased Assets constitute all of the tangible property necessary for the conduct by PSI of its business as now conducted.  PSI has good and indefeasible title to all of the Owned Assets free and clear of all mortgages, liens, pledges, charges, or encumbrance of any nature whatsoever, except as indicated on the Disclosure Schedule.  All of the Owned Assets and the Leased Assets are in good, serviceable condition and fit for the particular purposes for which they are used in the business of PSI, subject only to normal maintenance requirements and wear and tear reasonably expected in the ordinary course of business.

 

Section 3.8.  Intellectual Property.  Subject to the terms of the CCORE License:

 

(a)                                  The Disclosure Schedule sets forth all of the following that are owned, licensed, or used by PSI (collectively, the “Intellectual Property Rights”): (i) patents, patent applications, and inventions and discoveries that may be patentable (collectively, “Patents”), (ii) all know-how, trade secrets, confidential and proprietary information, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets”), and (iii) trademarks, service marks, and trade names, and copyrights.

 

(b)                                 PSI has the right to freely use the Intellectual Property Rights and, except as indicated on the Disclosure Schedule, owns the Intellectual Property Rights, free of any lien or encumbrance.  The Disclosure Schedule describes any obligation of PSI to pay royalties or other compensation to third parties in exchange for the right to use any of the Intellectual Property Rights.  Other than as provided in the Loan Technology Assignment, PSI has not assigned, hypothecated or otherwise encumbered any of the Intellectual Property Rights.

 

(c)                                  PSI may freely assign or transfer all licenses that it has with third parties with respect to the Intellectual Property Rights.

 

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(d)                                 Except as indicated in the Disclosure Schedule, PSI has no knowledge of any infringement by any other person of any of the Intellectual Property Rights, and PSI has not entered into any agreement to indemnify any other party against any charge of infringement of any of the Intellectual Property Rights.  To the Knowledge of PSI, PSI has not and does not violate or infringe any intellectual property right of any other person, and PSI has not received any communication alleging that it violates or infringes the intellectual property rights of any other person.  PSI has not been sued for infringing any intellectual property right of another person.

 

(e)                                  All of the issued Patents relating to the dualjet technology are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.  No such Patent has been or is now involved in any interference, reissue, reexamination, or opposition Proceeding.  To the Knowledge of PSI, there is no patent or patent application of any Third Party which potentially interferes with any such Patent.  To the Knowledge of PSI, no such Patent is infringed or has been challenged or threatened in any way.

 

(f)            With respect to each Trade Secret, the documentation, if any, relating to such Trade Secret is current and accurate.  PSI has taken all reasonable precautions to protect the secrecy, confidentiality, and value of all Trade Secret (including the enforcement by PSI of a policy requiring each employee or contractor to execute proprietary information and confidentiality agreements substantially in the standard form of PSI and all current and former employees and contractors of PSI have executed such an agreement).  To PSI’s Knowledge, PSI has good title and an absolute right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Knowledge of PSI, have not been used, divulged, or appropriated either for the benefit of any person (other than PSI) or to the detriment of PSI.  To the Knowledge of PSI, no Trade Secret is subject to any adverse claim or has been challenged or threatened in any way or infringes any intellectual property right of any other person.

 

Section 3.9.  Employee Benefits.  The Disclosure Schedule contains a complete list of “employee welfare plans” (as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”)) currently maintained by PSI or any person or trade or business under common control with PSI, or in which active or former employees of PSI (collectively, the “Affected Employees”) currently participate (which plans are hereinafter referred to as “Welfare Plans”).  The Disclosure Schedule also contains a complete list of “employee pension benefit plans” as that term is defined in Section 3(2) of ERISA maintained by PSI or any person or trade or business under common control with PSI, or in which any such entity currently contributes or is required to contribute or in which Affected Employees currently

 

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participate (which plans are hereinafter referred to as “Pension Plans”).  Neither PSI nor any of the Affected Employees participate or have ever participated in any “multiemployer plan” (as that term is defined in Section 3(37) of ERISA).  The Welfare Plans and Pension Plans, and any other plans of the type described in the first two sentences of this Section previously applicable at any time to PSI, are collectively referred to as “Company Plans”.  PSI Plan is or was in compliance with the provisions of all applicable laws, rules and regulations, including, without limitation, ERISA and the Code.  None of the Pension Plans has incurred any “accumulated funding deficiency” (as defined in Section 412(a) of the Code).  PSI has not incurred any liability to the Pension Benefit Guaranty Corporation under Section 4062, 4063 or 4064 of ERISA, or any withdrawal liability under Title IV of ERISA with respect to any multiemployer plan.  The Disclosure Schedule describes all bonuses and other compensation which will be payable to any of the employees of PSI as a result of the consummation of the Transactions, and any obligation to pay severance payments.

 

Section 3.10.  Litigation.  Except as described in the Disclosure Schedule, there are no claims, suits, actions, or proceedings (a “Proceeding”) pending or, to the Knowledge of PSI, threatened against or relating to PSI, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator, including but not limited to any Proceeding relating to a claim or allegation that there has been any violation of applicable federal or state securities laws (“Securities Law”). Except as described in the Disclosure Schedule, PSI is not subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator.  The Disclosure Schedule sets forth a complete description of any prior Proceeding relating to PSI that has been settled, dismissed, or otherwise terminated.

 

Section 3.11.  No Violation of Law.  Except as indicated in the Disclosure Schedule, PSI is not in violation of and has not been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable Securities Law or Environmental Law) of any governmental or regulatory body or authority.  Except as disclosed in the Disclosure Schedule, as of the date of this Agreement, no investigation or review by any governmental or regulatory body or authority with respect to PSI is pending or to the Knowledge of PSI contemplated or threatened, nor has any governmental or regulatory body or authority indicated an intention to conduct the same. PSI has all permits (including without limitation Environmental Permits (as defined in Section 3.15)), licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted (collectively, the “Company Permits”). PSI is not in violation of the terms of any Company Permit.

 

Section 3.12.  Insurance Policies.  The Disclosure Schedule sets forth a true and accurate list and summary of current insurance coverage or information concerning any self insurance program with respect to PSI.  Except as indicated in the Disclosure Schedule, insurance policies providing such coverage will be outstanding and in full force and effect through the Closing Date.  Except as indicated in the Disclosure Schedule, PSI has not received notice from any current insurance carrier of the intention of such carrier (a) to discontinue any material insurance coverage afforded to PSI; or (b) to materially increase the premium costs of

 

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such insurance.  The types of insurance policies maintained by PSI and the coverage afforded by such policies with respect to the operations of PSI are, in the opinion of PSI, reasonable in light of the nature of the businesses conducted and the risks associated with such businesses.  No application by PSI for insurance or any bond has been denied for any reason.

 

Section 3.13.  Taxes.  All returns and reports, including, without limitation, information and withholding returns and reports (“Tax Returns”), of or relating to any foreign, federal, state or local tax, assessment or other governmental charge (“Taxes”) that are required to be filed on or before the Closing by or with respect to PSI has been or will be duly and timely filed.  All such tax returns were correct and complete in all respects and all Taxes, including interest and penalties, owed by PSI (as shown on such Tax Returns) have been paid.  PSI has not agreed to extend the statute of limitations for the collection of any Taxes.  There is no unpaid pending claim against PSI with respect to any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to PSI.  The total amounts set up as liabilities for current and deferred Taxes in the Financial Statements have been prepared in accordance with generally accepted accounting principles and are sufficient to cover the payment of all Taxes, including any penalties or interest thereon and whether or not assessed or disputed, that are, or are hereafter found to be, or to have been, due with respect to the operations of PSI through the periods covered thereby or the current life or use of their respective assets.  PSI has (and as of the Closing Date will have) made all deposits (including estimated tax payments for taxable years for which the consolidated federal income tax return is not yet due) required with respect to Taxes.  No waiver or extension of any statute of limitation as to any federal, local or foreign Tax matter has been given by or requested from PSI.  PSI has not filed consolidated income tax returns with any corporation for any taxable period which is not now closed by the applicable statute of limitations.

 

Section 3.14.  Labor Matters.  The Disclosure Schedule sets forth a list of the employees of PSI, or the employees of affiliated entities whose services are utilized by PSI, and indicates the compensation paid or payable to such employees with respect to the calendar year of 2003.  Except as set forth in the Disclosure Schedule, (a) there are no material controversies pending or, to the Knowledge of PSI, threatened between PSI or any of its affiliates on the one hand and any of its employees on the other, and (b) neither PSI nor any of its affiliates is a party to a collective bargaining agreement of other labor union contract applicable to any such employees, nor does PSI have any Knowledge of any activities or proceedings of any labor union to organize any such employees.

 

Section 3.15.  Environmental Matters.  Except as set forth in the Disclosure Schedule:

 

(a)                                  no notice, demand, request for information, citation, summons or order has been received, no complaint has been served, no penalty has been assessed, and no investigation, action, claim, suit, proceeding or review is pending or, to the Knowledge of PSI, is threatened by any governmental entity or other person with respect to PSI relating to or arising out of any Environmental Law (as defined below);

 

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(b)                                 To the Knowledge of PSI, PSI is and has been in compliance with all Environmental Laws and Environmental Permits (as defined below); and

 

(c)                                  there are no liabilities of or relating to PSI of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, arising under or relating to any Environmental Law and there are no facts, conditions, situations or set of circumstances which could reasonably be expected to result in or be the basis for any such liability.

 

For purposes of this Section, “PSI” shall include any entity which is, in whole or in part, a predecessor of PSI.  For purposes of this Agreement, (i) “Environmental Laws” means any and all laws, statutes, ordinances, rules, regulations, orders or determinations of any Governmental Authority (as defined below) pertaining to health or the environment currently in effect in any and all jurisdictions in which PSI owns property or conducts business, including without limitation, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and all other environmental conservation or protection laws, (ii) the term “Governmental Authority” includes the United States of America, as well as any other foreign jurisdiction or state, county, city and political subdivisions in which PSI owns property or conducts business, and any agency, department, commission, board, bureau or instrumentality of any of them that exercises jurisdiction over PSI, and (iii) “Environmental Permits” means all permits, licenses, certificates, registrations, identification numbers, applications, consents, approvals, variances, notices of intent, and exemptions necessary for the ownership, use and/or operation of any facility or operation of PSI to comply with requirements of Environmental Laws.

 

Section 3.16.  Material Contracts. The Disclosure Schedule lists all agreements, leases, commitments, contracts, undertakings or understandings to which PSI is a party, including but not limited to service agreements, manufacturing agreements, purchase or sale agreements, supply agreements, distribution or distributor agreements, real estate leases, purchase orders, customer orders and equipment rental agreements (the “Operating Agreements”).  Each Operating Agreement is a valid, binding and enforceable agreement of PSI and, to the Knowledge of PSI, the other parties thereto.  Except as indicated in the Disclosure Schedule, there has not occurred any breach or default under any Operating Agreement on the part of PSI or, to the Knowledge of PSI, any other parties thereto.  Except as indicated in the Disclosure Schedule, no event has occurred which with the giving of notice or the lapse of time, or both, would constitute a default under any Operating Agreement on the part of PSI, or, to the Knowledge of PSI, any of the other parties thereto.  There is no dispute between the parties to any Operating Agreement as to the interpretation thereof or as to whether any party is in breach or default thereunder, and no party to any Operating Agreement has indicated its intention to, or suggested it may evaluate whether to, terminate any Operating Agreement.

 

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Section 3.17.  Brokers and Finders.  PSI has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Parent, Newco, PSI or the Stockholder to pay any finder’s fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby.  There is no claim for payment by PSI of any investment banking fees, finder’s fees, brokerage or agent commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

 

Section 3.18.  Purchase for Own Account.  The rights under the Royalty Agreement to be acquired by PSI pursuant to the terms hereof (the “Rights”) are being or will be acquired by PSI for its own account and with no intention of distributing or reselling the Rights or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, or any state, without prejudice, however, to the rights of PSI at all times to sell or otherwise dispose of all or any part of the Rights under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act.  PSI represents that it is experienced in evaluating companies such as Newco and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to suffer the total loss of his investment.  PSI further represent that they have had the opportunity to ask questions of and receive answers from executive officers of Newco concerning the terms and conditions of the offering of Rights and to obtain additional information to the satisfaction of PSI.  PSI understands that the Rights will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act and that the reliance of Newco on such exemption is predicated in part on the representations of PSI set forth herein.

 

Section 3.19.  Solvency.

 

(a)                                  PSI will not be insolvent immediately after the Closing.  As used in this Section, insolvent means that the sum the debts and other probable liabilities of PSI exceed the present fair saleable value of the assets of PSI.  For purposes of this Section 3.19(a), it is assumed that the present fair saleable value of the rights to which PSI is entitled under the Royalty Agreement exceeds $750,000.

 

(b)                                 Immediately after giving effect to the consummation of the Transactions, PSI’s only significant asset will be its rights under the Royalty Agreement and PSI will have no Known liabilities, other than liabilities to persons or entities that have agreed in writing to defer payment until funds are available under the Royalty Agreement or otherwise.  Accordingly, immediately after giving effect to the consummation of the Transactions,  (i) PSI will be able to pay its Known liabilities as they become due in the usual course of its business, (ii) PSI will not have unreasonably small capital with which to conduct its present or proposed business (as it does not propose to engage in active business operations after Closing), and (iii)

 

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taking into account all pending and threatened litigation Known to PSI, final judgments against PSI in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, PSI will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered) as well as all Known liabilities of PSI.  The cash available to PSI, after taking into account all other anticipated uses of the cash, will be sufficient to pay promptly in accordance with their terms all Known liabilities.  For purposes of this Section 3.19, the term “Known liabilities” shall mean debts and judgments of PSI which (i) are now due and payable, (ii) will become due and payable after Closing with respect to which PSI has incurred a contractual obligation as of Closing, or (iii) PSI anticipates it will incur in the near term after Closing, including but not limited to amounts arising from pending and threatened litigation of PSI.

 

Section 3.20.  Disclosure.  No representation or warranty of PSI or the Stockholder set forth hereunder or in the schedules attached hereto or in any certificate delivered pursuant to Section 7.3(a) contains any untrue statement of the material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF CFLP AND CCORE

 

CCORE and CFLP, jointly and severally, represent and warrant to Newco and Parent as follows:

 

Section 4.1.  Organization and Qualification.  CCORE is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.  CFLP is a limited partnership duly organized, validly existing and in good standing under the laws of Wyoming and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.

 

Section 4.2.  Authority; Non-Contravention; Approvals.

 

(a)                                  CCORE and CFLP each has full partnership power and authority as the case may be to execute and deliver this Agreement and, to consummate the transactions.  This Agreement has been approved by the sole general partner of each of CCORE and CFLP and no other partnership proceedings on the part of CCORE and CFLP are necessary to authorize the execution and delivery of this Agreement or the consummation by CCORE and

 

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CFLP of the transactions contemplated hereby. This Agreement has been duly executed and delivered by CCORE and CFLP, and, assuming the due authorization, execution and delivery hereof by Parent, Newco, PSI, and the Stockholder, constitutes a valid and legally binding agreement of CCORE and CFLP, enforceable against CCORE and CFLP in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (b) general equitable principles.

 

(b)                                 Subject to the terms of the CCORE License, the execution and delivery of this Agreement by CCORE and CFLP and the consummation by CCORE and CFLP of the transactions contemplated hereby do not and will not violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of CCORE and CFLP under any of the terms, conditions or provisions of (i) the limited partnership agreements of CCORE and CFLP, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to CCORE and CFLP or any of their respective properties or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit or concession to which either CCORE and CFLP is now a party or by which CCORE or CFLP or any of their respective properties or assets may be bound or affected.

 

(c)                                  No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by CCORE or CFLP or the consummation by CCORE or CFLP of the transactions contemplated hereby.

 

Section 4.3.  Litigation.  There are no Proceedings pending or, to the Knowledge of CCORE or CFLP, threatened against or relating to either of CCORE and CFLP before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator, including but not limited to any Proceeding relating to a claim or allegation that there has been any violation of Securities Law.  Neither of CCORE and CFLP is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator.  The Disclosure Schedule sets forth a complete description of any prior Proceeding relating to CCORE and CFLP that has been settled, dismissed, or otherwise terminated.

 

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Section 4.4.  No Violation of Law.  Neither CCORE nor CFLP is in violation of or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable Securities Law or Environmental Law) of any governmental or regulatory body or authority.  No investigation or review by any governmental or regulatory body or authority with respect to CCORE or CFLP is pending or threatened, nor has any governmental or regulatory body or authority indicated an intention to conduct the same. CCORE and CFLP have all permits (including without limitation Environmental Permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted. CCORE and CFLP are not in violation of the terms of any such permits.

 

ARTICLE V

CONDUCT OF BUSINESS PENDING THE TRANSACTIONS

 

Section 5.1.  Conduct of Business of PSI.  Prior to the Effective Time, PSI shall operate its business in, and only in, the usual, regular and ordinary course of business in substantially the same manner as operated on the date of this Agreement.  Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, PSI will not:

 

(a)                                  Amend its charter or bylaws;

 

(b)                                 Merge or consolidate with or agree to merge or consolidate with, or purchase or agree to purchase all or substantially all of the assets of, or otherwise acquire any corporation, partnership, association or other business organization or division thereof;

 

(c)                                  Sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets;

 

(d)                                 Make or declare a dividend or other distribution to any of its stockholders, or redeem any of their stock;

 

(e)                                  Issue any capital stock or any rights to acquire any of its capital stock;

 

(f)                                    Enter into any contract relating to the Intellectual Property Rights;

 

(g)                                 Adopt, amend or terminate any Company Plan;

 

(h)                                 Amend or terminate any Operating Agreement;

 

(i)                                     Enter into any transaction or agreement with the Stockholder, CCORE, or CFLP, other than as contemplated pursuant to the Transactions;

 

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(j)            Enter into or modify any employment or severance agreement with any director, officer, or employee, or agree to increase the compensation of any officer, director or employee;

 

(k)           Make any capital expenditure; or

 

(l)            Incur any indebtedness other than the Loan.  As used in the preceding sentence, the term “indebtedness” does not include liability to vendors incurred in the ordinary course of PSI’s business.

 

Section 5.2.  Agreement of the Stockholder.  The Stockholder will not, prior to the Effective Time, (a) take any action which would cause PSI to violate the terms of Section 5.1, or (b) transfer any shares of the stock of PSI.

 

Section 5.3.  Business Organization.  Prior to the Effective Time, PSI and Stockholder shall use their commercially reasonable best efforts to (a) preserve intact the business organization of PSI, (b) keep available the services of the officers and employees of PSI, (c) preserve the good will of PSI, (d) maintain and keep the properties and assets of PSI in as good a repair and condition as presently exists, (e) maintain the rights of PSI with respect to the Intellectual Property Rights, and (f) maintain in full force and effect the insurance coverage of PSI.  If PSI does not have the financial resources to take any specific action required pursuant to this Section, PSI shall notify Newco in writing of such fact and shall request in writing an advance pursuant to the Loan in order to fund the taking of such action.  Newco, may, in its absolute discretion, make or decline to make the requested advance.

 

Section 5.4.  Appraisal Rights.  If PSI receives any notice from any of its shareholders electing to exercise their right (“Appraisal Rights”) to dissent from the Transactions pursuant to Article 5.11 of the Texas Business Corporation Act (the “TBCA”), it shall promptly notify Newco of such receipt, and shall thereafter comply with the instructions of Newco regarding the manner in which the proceedings relating to the exercise of the Appraisal Rights are conducted.  Newco may, but shall not be required to, loan to PSI the amounts required to fund the payment of any amounts payable by PSI in connection with the Appraisal Rights.

 

Section 5.5.  Acquisition Transactions.

 

(a)                                  After the date hereof and prior to the Closing or earlier termination of this Agreement, neither PSI nor the Stockholder will initiate, solicit, negotiate, encourage or provide confidential information to facilitate, and PSI or the Stockholder shall, and shall cause any officer, director or employee of any of PSI, or any attorney, accountant, investment banker, financial advisor or other agent retained by any of them to, not initiate, solicit, negotiate, encourage or provide non-public or confidential information to facilitate, any proposal or offer to acquire all or any substantial part of the business or properties of PSI, any capital stock of PSI, or any portion of the Intellectual Property Rights, whether by merger, purchase of assets,

 

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license, tender offer or otherwise, whether for cash, securities or any other consideration or combination thereof (an “Acquisition Transaction”).

 

(b)                                 Notwithstanding the provisions of paragraph (a) above, PSI may, in response to an unsolicited written proposal with respect to an Acquisition Transaction (“Acquisition Proposal”), furnish (subject to the execution of a confidentiality agreement substantially similar to the confidentiality provisions of the Confidentiality Agreement executed by Parent in connection herewith for the benefit of PSI (the “Company Confidentiality Agreement”)) confidential or non-public information concerning its business, properties or assets to any corporation, partnership, person or other entity or group (a “Potential Acquiror”) and negotiate with such Potential Acquiror if based upon advice of its outside legal counsel and financial advisors, the Board of Directors of PSI, determines in good faith that such action to provide such confidential or non-public information to such Potential Acquiror is necessary for the Board of Directors of PSI, to act in a manner which is consistent with its fiduciary duties to its stockholders; provided, however, that PSI is prohibited from providing to a Potential Acquiror any confidential or non-public information not previously furnished to Parent.  It is understood and agreed that negotiations conducted in accordance with this paragraph (b) shall not constitute a violation of Section 5.5 (a).

 

(c)                                  PSI shall immediately notify Parent after receipt of any Acquisition Proposal or any request for non-public information relating to PSI in connection with an Acquisition Proposal or for access to the properties, books or records of PSI by any person or entity that informs the Board of Directors of PSI that it is considering making, or has made, an Acquisition Proposal.  Such notice to Parent shall be made orally and in writing and shall indicate in reasonable detail the identity of the Potential Acquiror and the terms and conditions of such proposal, inquiry or contact.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

Section 6.1.  Stockholders’ Approvals.  Subject to the fiduciary duties of the Board of Directors of PSI under applicable law, PSI shall, as promptly as practicable, submit this Agreement and the Transactions for the approval and adoption by the holders of its common stock (the “PSI Stockholders’”) as required pursuant to the TBCA, at a meeting of stockholders (the “PSI Stockholders’ Approval”).  Such meeting of stockholders shall be held as soon as practicable, and shall be referred to herein as the “Stockholders’ Meeting.”  PSI shall provide written notice of the Stockholders’ Meeting to the PSI Stockholders, and conduct the Stockholders’ Meeting, in compliance with all applicable corporate law and Securities Law.  All notices to be provided to the PSI Stockholders with respect to the Stockholders’ Meeting or

 

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related to the Transactions shall be provided to Parent and Newco for their review at least two (2) business days before their transmittal.

 

Section 6.2.  Cooperation.  PSI shall afford to the Parent and Newco and their respective accountants, counsel, financial advisors and other representatives reasonable access during normal business hours throughout the period prior to the Effective Time to all of its properties, books, contracts, personnel, representatives of or contacts with governmental or regulatory authorities, agencies or bodies, commitments, and records (including, but not limited to, Tax Returns and any and all records or documents which are within the possession of governmental or regulatory authorities, agencies or bodies, and the disclosure of which PSI can facilitate or control) and, such parties as its representatives may reasonably request. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of PSI or with the performance of any of the employees of PSI.  No investigation pursuant to this Section shall affect any representation or warranty made by any party.

 

Section 6.3.  License Agreements.  At the Closing, the Stockholder, CCORE and CFLP shall execute and deliver to Newco the New License Agreement.

 

Section 6.4.  Expenses and Fees.

 

(a)                                  All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, unless otherwise agreed.

 

(b)                                 Notwithstanding (a) above, PSI agrees to pay to Parent (i) a fee equal to $100,000 plus (ii) all documentable out-of-pocket costs and expenses reasonably incurred by Parent and Newco in connection with this Agreement and the transactions contemplated hereby, including without limitation, all attorney’s fees, accountant’s fee and broker’s and investment banker’s fees incurred in connection with this Agreement and the transactions contemplated hereby, if (A) PSI terminates this Agreement pursuant to clause (v) of Section 9.1(a); (B) Parent terminates this Agreement pursuant to clause (iv) of Section 9.1(b); or (C) (1) Parent terminates this Agreement pursuant to clause (v) of Section 9.1(b) or PSI terminates this Agreement pursuant to clause (vi) of Section 9.1(a), and (2) on January 21, 2004 (if a vote has not earlier been held at the Stockholders’ Meeting), or at the time of such failure to so approve the Transactions or this Agreement, there shall exist or have been proposed an Acquisition Proposal.

 

                Section 6.5.  Agreement to Cooperate.

 

(a)                                  Subject to the terms and conditions herein provided, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all

 

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action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts to obtain all necessary, proper or advisable waivers, consents and approvals under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts to obtain all necessary or appropriate waivers, consents or approvals of third parties required in order to preserve material contractual relationships of PSI and to lift any injunction or other legal bar to the Transactions (and, in such case, to proceed with the Transactions as expeditiously as possible).

 

(b)                                 In the event any claim, action, suit, investigation or other proceeding by any governmental body or other person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, the parties hereto agree to cooperate and use their reasonable efforts to defend against and respond thereto; provided, however, that in the event any such claim, action, suit, investigation or other proceeding is commenced against PSI or any other party hereto by any governmental body or other person or other legal or administrative proceeding is commenced against PSI or Stockholder, Parent shall have the right, at its own expense, to participate therein, and PSI or Stockholder will not settle any such litigation without the consent of Parent, which consent will not be unreasonably withheld.

 

Section 6.6.  Public Statements.  The parties shall consult with each other prior to issuing any press release or any written public statement with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or written public statement without the consent of the other party, which consent shall not be unreasonably withheld.

 

Section 6.7.  Notification of Certain Matters.  Each of the Stockholder, PSI, Parent and Newco agrees to give prompt notice to each other of, and to use their respective reasonable best efforts to prevent or promptly remedy, (a) the occurrence or failure to occur or the impending or threatened occurrence or failure to occur, of any event which occurrence or failure to occur would be likely to cause any of its representations or warranties in this Agreement to be untrue or inaccurate in any material respect (or in all respects in the case of any representation or warranty containing any materiality qualification) at any time from the date hereof to the Effective Time and (b) any material failure (or any failure in the case of any covenant, condition or agreement containing any materiality qualification) on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.7 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

 

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Section 6.8.  Additional Financing.  Within a reasonable period of time following the Closing, Newco will use its reasonable best efforts to obtain the financing required to promptly and reasonably develop, complete, test, and commercially exploit the Intellectual Property Rights.  It is the present intention of Newco to obtain financing of between $10 million and $20 million in the form of equity, debt or lease financing as soon as practicable following the Closing.  Notwithstanding the foregoing, Newco will not be considered in breach of this provision if after Closing it implements an alternative financing plan, or is unsuccessful in the implementation of its financing plan.

 

Section 6.9.  Dissolution.  PSI will not dissolve or liquidate at any time after Closing without the consent of Newco, which consent may be given or withheld in its absolute and sole discretion; provided, however, that the consent of Newco to the dissolution and liquidation of PSI shall be granted if such dissolution and liquidation is necessary to prevent PSI from violating, or to enable PSI to cease violating, federal or state securities laws, provided further, however, that, notwithstanding the foregoing, no dissolution or liquidation of PSI shall be permitted if in the reasonable judgment of counsel to Newco it will thereby be considered to have issued securities to the PSI Stockholders.  After Closing, PSI will not, in connection with the issuance of any of its securities, refer to Newco or any financial or other information regarding Newco, without the written consent of Newco, which will not be unreasonably withheld.

 

Section 6.10.  Name Change.  At or prior to Closing, PSI will change its name to a name that does not include the word “ProDril.”

 

ARTICLE VII

CONDITIONS TO CLOSING

 

Section 7.1.  Conditions to Each Party’s Obligation to Effect the Transactions.  The respective obligations of each party to effect the Transactions shall be subject to the fulfillment or waiver, if permissible, at or prior to the Effective Time of the following conditions:

 

(a)                                  no preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the Transactions shall have been issued and remain in effect (each party agreeing to use its reasonable efforts to have any such injunction, order or decree lifted);

 

(b)                                 no action shall have been taken, and no statute, rule or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of the Transactions or make the consummation of the Transactions illegal;

 

(c)                                  all amounts payable as the result of the exercise of any Appraisal Rights shall have been paid with advances from Newco pursuant to Section 5.4;

 

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(d)                                 the partners of CCORE shall have approved its participation in the Transactions as required pursuant to the partnership agreement of CCORE and in accordance with applicable partnership law; and

 

(e)                                  The PSI Stockholders’ Approval shall have been obtained.

 

Section 7.2.  Conditions to Obligation of PSI to Effect the Transactions.  Unless waived by PSI, the obligation of PSI to effect the Transactions shall be subject to the fulfillment at or prior to the Effective Time of the following additional conditions:

 

(a)                                  Parent and Newco shall have performed in all material respects (or in all respects in the case of any agreement containing any materiality qualification) their agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of Parent and Newco contained in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) on and as of the date made and on and as of the Closing Date as if made at and as of such date, and PSI shall have received a certificate executed on behalf of Parent by the President or a Vice President of Parent and on behalf of Newco by the President and Chief Executive Officer or a Vice President of Newco to that effect.

 

(b)                                 Newco shall have issued securities in exchange for a consideration to Newco of at least $1,000,000, less the balance of any amounts loaned by Parent to PSI prior to the Effective Time.

 

(c)                                  Newco shall have paid the Patent Counsel Fees (as defined in Section 7.2).

 

Section 7.3.  Conditions to Obligations of Parent and Newco to Effect the Transactions.  Unless waived by Parent and Newco, the obligations of Parent and Newco to effect the Transactions shall be subject to the fulfillment at or prior to the Effective Time of the following additional conditions:

 

(a)                                  PSI, Stockholder, CFLP, and CCORE shall have performed in all material respects (or in all respects in the case of any agreement containing any materiality qualification) their agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of PSI, CFLP, CCORE and Stockholder contained in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) on and as of the date made and on and as of the Closing Date as if made at and as of such date, and Newco shall have received a certificate executed on behalf of PSI, CFLP, and

 

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CCORE by the chief executive officer of the respective entity, or its general partner, and also by the Stockholder individually, to that effect;

 

(b)           Since August 31, 2003, there shall have been no changes that constitute, and no event or events shall have occurred which have resulted in or constitute, a Material Adverse Effect (other than changes or events due to the lack of funds to meet PSI’s ongoing obligations which are promptly disclosed with advance written notice to Newco);

 

(c)           Parent shall have received a legal opinion, in form reasonably satisfactory to Parent concerning the enforceability of the agreements executed by PSI, CFLP, and CCORE at Closing and that this Agreement, and that manner of its adoption and approval by the directors of PSI and the PSI Stockholders comply with the requirements of the applicable corporate law;

 

(d)           The Stockholder shall have entered into an employment agreement with Newco in form reasonably satisfactory to Newco;

 

(e)           All third party consents required to the consummation of the Transactions described in the Disclosure Schedule relating to any permit, license or agreement shall have been obtained;

 

(f)            Newco shall have acquired substantially all of the assets of ProDril Services International Ltd pursuant to terms and conditions acceptable to Newco;

 

(g)           The holders of any of the indebtedness of PSI other than the Remaining Indebtedness which is not to be assumed by Newco pursuant to Section 1.3 shall have restructured or subordinated as required by Newco, in its sole and absolute discretion, to assure that such holders will not be able to successfully challenge the validity or effectiveness of the Transactions;

 

(h)           No Appraisal Rights shall have been exercised;

 

(i)            The holders of the equity securities of PSI that, on a fully diluted basis, are the equivalent of at least 65% of the common stock of PSI (after taking into account the conversion rights of preferred stock) shall have been voted in favor of the Transactions; and

 

(j)            The legal files relating to the Patents which were the subject of the Loan Technology Assignment shall have been released to Newco upon the payment of fees as provided pursuant to the Loan Technology Assignment (the “Patent Counsel Fees”).

 

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ARTICLE VIII

INDEMNIFICATION

 

Section 8.1.  Indemnification of Newco.  PSI, CCORE, CFLP, and the Stockholder each agree to jointly and severally indemnify Parent and Newco (including their respective officers, directors, employees and agents) against, and hold each of them harmless from and against, any and all claims, actions, causes of action, arbitrations, proceedings, losses, damages, liabilities, judgments and expenses (including, without limitation, reasonable attorneys’ fees) (“Indemnified Amounts”) incurred by the indemnified party as a result of (a) any error, inaccuracy, breach or misrepresentation in any of the representations and warranties made by or on behalf of CFLP, CCORE, the Stockholder, or PSI in this Agreement, (b) any violation or breach by the Stockholder, CFLP, CCORE, or PSI or default by the Stockholder, CFLP, CCORE or PSI under the terms of this Agreement or (c) any liabilities or obligations of PSI other than the Assumed Liabilities.  The indemnified party shall be entitled to recover its reasonable and necessary attorneys’ fees and litigation expenses incurred in connection with successful enforcement of its rights under this Section.

 

Section 8.2.  Indemnification of Companies.  Parent and Newco will indemnify PSI against, and hold it harmless from and against, any and all Indemnified Amounts incurred by PSI (and its officers, directors, employees, and agents) as a result of (a) any error, inaccuracy, breach or misrepresentation in any of the representations and warranties made by or on behalf of Parent or Newco in this Agreement, (b) any violation or breach by Parent or Newco of or default by Parent or Newco under the terms of this Agreement, and (c) the Assumed Liabilities.  PSI shall be entitled to recover their reasonable and necessary attorney’s fees and litigation expenses incurred in connection with successful enforcement of their rights under this Section.

 

Section 8.3.  Procedure.  The defense of any claim, action, suit, proceeding or investigation subject to indemnification under this Article shall be conducted by the indemnifying party.  If the indemnifying party fails to conduct such defense, the indemnified parties may retain counsel satisfactory to them and the indemnifying party shall pay all reasonable fees and expenses of such counsel for the indemnified parties promptly as statements therefor are received.  The party not conducting the defense will use reasonable efforts to assist in the vigorous defense of any such matter, provided that such party shall not be liable for any settlement of any claim effected without its written consent, which consent, however, shall not be unreasonably withheld.  Any indemnified party wishing to claim indemnification under this Article VIII, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the indemnifying party (but the failure so to notify a party shall not relieve such party from any liability which it may have under this Article VIII except to the extent such failure materially prejudices such party).  If the indemnifying party is responsible for the attorneys’ fees of the indemnified parties, then the indemnified parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more indemnified parties.

 

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Section 8.4.  Survival.  Except as set forth in the following sentence, the representations, warranties and indemnities set forth in this Agreement and in any certificate or instrument delivered in connection herewith shall be continuing and shall survive (subject to any applicable statute of limitations with respect to any claim by a third party) the Closing until the third anniversary of the Closing Date.  The period during which the representations and warranties survive pursuant to this section is referred to herein with respect to such representations and warranties as the “Survival Period”.  After the expiration of the applicable Survival Period, the representations and warranties shall thereafter terminate and be of no further force and effect unless a written notice asserting a claim shall have been made pursuant to this Article VIII within the Survival Period with respect to such matter.  Any claim for indemnification made during the Survival Period shall remain in effect for purposes of such indemnification notwithstanding such claim may not be resolved within the Survival Period.  The indemnification obligations under this Article VIII shall apply regardless of whether any suit or action results solely or in part from the active, passive or concurrent negligence of the indemnified party.  The rights of the parties to indemnification under this Article VIII shall not be limited due to any investigations heretofore or hereafter made by such parties or their representatives, regardless of negligence in the conduct of any such investigations.  The representations, warranties and covenants and agreements made by the parties shall not be deemed merged into any instruments or agreements delivered in connection with the Closing or otherwise in connection with the transactions contemplated hereby.  The sole remedy of a party hereto for any claims, actions, causes of action, arbitrations, proceedings, losses, damages, liabilities, judgments and expenses relating to the Transactions shall be indemnification under this Article VIII.

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.1.  Termination.  This Agreement may be terminated at any time prior to the Closing, as follows:

 

(a)           PSI shall have the right to terminate this Agreement:

 

(i)                                     if the representations and warranties of Parent and Newco shall fail to be true and correct in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) on and as of the date made or, except in the case of any such representations and warranties made as of a specified date, on and as of any subsequent date as if made at and as of the subsequent date and such failure shall not have been cured in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) within 30 days after written notice of such failure is given to Parent by PSI;

 

(ii)                                  if the Transactions are not completed by January 21, 2004 (provided that the right to terminate this Agreement under this

 

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Section 9.1(a)(ii) shall not be available to PSI if the failure of PSI to fulfill any obligation to Parent or Newco under or in connection with this Agreement has been the cause of or resulted in the failure of the Transaction to occur on or before such date);

 

(iii)                               if the Transactions are enjoined by a final, unappealable court order;

 

(iv)                              if Parent or Newco (a) fail to perform in any material respects any of their covenants (or in all respects in the case of any covenant containing any materiality qualification) in this Agreement, and (b) do not cure such default in all material respects (or in all respects in the case of any covenant containing any materiality qualification) within 30 days after written notice of such default is given to Parent and Newco by PSI;

 

(v)                                 if (a) PSI receives an offer from any third party (excluding any affiliate of PSI or any group of which any affiliate of PSI is a member) with respect to a merger, sale of substantial assets or other business combination involving PSI, (B) PSI’s Board of Directors determines in good faith that such offer constitutes an Acquisition Proposal which, if consummated pursuant to its terms, would result in a transaction more favorable to the PSI Stockholders than the Transactions (a “Superior Proposal”) and resolves to accept such Superior Proposal, and (C) PSI shall have given Parent two (2) days’ prior written notice of its intention to terminate this Agreement pursuant to this provision, provided that termination shall not be effective until such time as the payment required by Section 6.4(b) shall have been received by Parent; or

 

(vi)                              if the PSI Stockholders’ Approval shall not have been obtained by January 21, 2004.

 

(b)           Parent or Newco shall have the right to terminate this Agreement:

 

(i)                                     if the representations and warranties of PSI shall fail to be true and correct in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) on and as of the date made or, except in the case of any such representations and warranties made as of a specified date, on and as of any subsequent date as if made at and as of such subsequent date and such failure shall not have been cured in all material respects (or in all respects in the case of any representation or warranty containing any materiality qualification) within 30 days after written notice of such failure is given to PSI by Newco;

 

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(ii)                                  if the Transactions are not completed by January 21, 2004 (provided that the right to terminate this Agreement under this Section 9.1(b)(ii) shall not be available to Newco if the failure of Parent or Newco to fulfill any obligation to PSI under or in connection with this Agreement has been the cause of or resulted in the failure of the Transactions to occur on or before such date);

 

(iii)                               if PSI (a) fails to perform in any material respect (or in all respects in the case of any covenant containing any materiality qualification) any of its covenants in this Agreement, and (b) does not cure such default in all material respects (or in all respects in the case of any covenant containing any materiality qualification) within 30 days after notice of such default is given to PSI by Newco;

 

(iv)                              If the Board of Directors of PSI shall have (A) recommended to the PSI Stockholders to accept a Superior Proposal, or resolved to do so; or (B) withdrawn, modified or changed the recommendation of this Agreement or the Transactions in a manner adverse to Parent or Newco shall have resolved to do so, other than in connection with the exercise of the rights of PSI to terminate this Agreement under Section 9.1(a)(i) or 9.1(a)(iv) as a result of a material breach of a representation, warranty or covenant;

 

(v)                                 If the PSI Stockholders’ Approval shall not have been obtained by January 21, 2004;

 

(vi)                              If the holders of the equity securities of PSI that, on a fully diluted basis, are the equivalent of at least two-thirds of the common stock of PSI (after taking into account the conversion rights of preferred stock) shall not have been voted in favor of the Transactions on or before January 21, 2004; or

 

(c)                                  The Board of Directors of PSI, Newco, and Parent, mutually agree.

 

Section 9.2.  Effect of Termination.  In the event of termination of this Agreement by pursuant to the provisions of Section 9.1, this Agreement shall forthwith become void and there shall be no further obligations on the part of PSI, Parent, Newco, CCORE, CFLP or their respective officers or directors, or the Stockholder (except as set forth in this Section 9.2 and in Sections 6.4 and 9.9, all of which shall survive the termination).  Nothing in this Section 9.2 shall relieve any party from liability for any breach of this Agreement.

 

Section 9.3.  Remedies.  If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or

 

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misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding in addition to any other relief to which it or he may be entitled at law or equity.

 

Section 9.4.  Notices.  All notices, consents, demands or other communications required or permitted to be given pursuant to this Agreement shall be deemed sufficiently given: (i) when delivered personally during a business day to the appropriate location described below or telefaxed to the telefax number indicated below, or (ii) five (5) business days after the posting thereof by United States first class, registered or certified mail, return receipt requested, with postage fee prepaid and addressed:

 

If to Parent or Newco:

808 Travis Street

 

Suite 850

 

Houston, Texas 77002

 

Telefax No. (713) 224-6361

 

 

With a copy to:

Casey W. Doherty

 

Doherty, Doherty & Adams, L.L.P.

 

1717 St. James Place, Suite 520

 

Houston, Texas 77056

 

Telefax No. (713) 572-1001

 

 

If to PSI, CFLP, CCORE

 

or the Stockholder:

4239 Pat O’Hara Mountain Drive

 

Cody, Wyoming ###-###-####

 

Telefax No. (307) 587-2595

 

 

With a copy to:

Bill Stone

 

Scheef & Stone, L.L.P.

 

5956 Sherry Lane, Suite 1400

 

Dallas, Texas 75225

 

Telefax No. (214) 706-4242

 

Section 9.5.  Successors.  This Agreement shall be binding upon each of the parties upon their execution, and inure to the benefit of the parties hereto and their successors and assigns.

 

Section 9.6.  Severability.  In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement or any such other instrument.

 

Section 9.7.  Section Headings.  The section headings used herein are descriptive only and shall have no legal force or effect whatsoever.  Except to the extent the context specifically indicates otherwise, all references to articles and sections refer to articles and sections of this

 

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Agreement, and all references to the exhibits and schedules refer to exhibits and schedules attached hereto, each of which is made a part hereof for all purposes.

 

Section 9.8.  Gender.  Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall include the plural and conversely.

 

Section 9.9.  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, U.S.A., applicable to agreements and contracts executed and to be wholly performed there, without giving effect to the conflicts of law principles thereof.  Exclusive venue for any action brought hereunder shall lie in Harris County, Texas.

 

Section 9.10.  Multiple Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original.

 

Section 9.11.  Waiver.  Any waiver by either party to be enforceable must be in writing and no waiver by either party shall constitute a continuing waiver.

 

Section 9.12.  Entire Agreement.  This Agreement and the other agreements referred to herein set forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof.

 

Section 9.13.  No Assumption Against Draftsman.  Each party hereto has been represented by counsel with respect to the negotiation and drafting of this Agreement and all related documents.  Accordingly, each party agrees that ambiguities with respect to any language contained herein or therein shall not be resolved against the drafting party.

 

                IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first set forth above.

 

 

PARTICLE DRILLING, INC.

 

 

 

 

 

By:

/s/ Prentis Tomlinson

 

 

 

Prentis Tomlinson, Chief Executive Officer

 

 

 

 

 

 

 

PRODRIL PARTNERS LLC

 

 

 

 

 

 

 

By:

/s/ Prentis Tomlinson

 

 

 

Prentis Tomlinson, Chief Executive Officer

 

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PRODRIL SERVICES INCORPORATED

 

 

 

 

 

 

 

By:

/s/ Jack Bobo

 

 

 

Jack Bobo, Director

 

 

 

 

 

 

 

 

 

 

/s/ Harry B. Curlett

 

 

Harry B. Curlett

 

 

 

 

 

 

 

CCORE TECHNOLOGY AND LICENSING, LTD.,

 

a Texas Limited Partnership

 

 

 

 

By:

/s/ Harry B. Curlett

 

 

 

Harry B. Curlett, General Partner

 

 

 

 

 

 

 

CURLETT FAMILY LIMITED PARTNERSHIP, LTD.,

 

a Wyoming Limited Partnership

 

 

 

 

By:

Patriarch, LLC, a Wyoming Limited Liability

 

 

Company (its General Partner)

 

 

 

 

 

 

 

 

By:

/s/ Harry B. Curlett

 

 

 

 

Harry B. Curlett, Manager

 

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