AGREEMENT AND PLAN OF MERGER Among PLATINUM ENERGY RESOURCES, INC. PERMSUB, INC. MAVERICK ENGINEERING, INC. And Robert L. Kovar Services, LLC as Stockholder Representative March 18, 2008 TABLE OF CONTENTS

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

Table of Contents

(continued)

 

		Page
3.17	Taxes	21
3.18	Insurance Policies	22
3.19	Title to Real Property	22
3.20	Leased Property	22
3.21	Permits	22
3.22	Intellectual Property	23
3.23	Use of Assets	23
3.24	Related Party Transactions	24
3.25	Bank Accounts	24
3.26	Powers of Attorney	24
3.27	Names and Locations	24
3.28	Customers	24
3.29	Warranties	24
3.30	Brokers; Financial Advisors	24
3.31	Full Disclosure	25
ARTICLE 4	REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	25
4.1	Organization	25
4.2	Authority	25
4.3	Due Authorization, Enforceability, etc	25
4.4	No Breach or Conflict	25
4.5	Governmental Consents	25
4.6	Activities of Merger Sub	26
4.7	Certain Fees	26
4.8	Full Disclosure	26
ARTICLE 5	ADDITIONAL COVENANTS	26
5.1	Conduct of Business Pending the Closing	26
5.2	Inspection	28
5.3	Appropriate Action; Filings	29
5.4	Information Statement; Notice of Appraisal Rights; Certifications	29

Table of Contents

(continued)

 

		Page
5.5	Public Announcements	29
5.6	Post-Closing Further Assurances	30
5.7	Schedule Updates	30
5.8	No Solicitation	30
5.9	Environmental Permits	31
5.10	Notice of Material Developments	31
ARTICLE 6	SPECIAL PROVISIONS	31
6.1	Cash Flow Notes	31
6.2	Employment Agreement	31
6.3	Release of Guaranties	31
6.4	Dissenting Stockholders; Withholding Taxes	32
ARTICLE 7	CONDITIONS PRECEDENT TO CLOSING	32
7.1	Conditions Precedent to Obligations of Merger Sub and Parent	32
7.2	Conditions Precedent to Obligations of the Company	33
ARTICLE 8	INDEMNIFICATION	35
8.1	General Indemnification by Stockholders	35
8.2	General Indemnification by Parent	36
8.3	Survival of Indemnification Rights	36
8.4	Indemnification Procedures	36
8.5	Payment of Indemnity Claims	38
ARTICLE 9	TAX MATTERS	38
9.1	Tax Returns; Cooperation	38
ARTICLE 10	TERMINATION	40
10.1	Termination	40
10.2	Effect of Termination	41
ARTICLE 11	DEFINITIONS	41
ARTICLE 12	MISCELLANEOUS	49
12.1	Entire Agreement	49
12.2	No Waiver; Modifications in Writing	49
12.3	Communications	49

Table of Contents

(continued)

 

		Page
12.4	Costs and Expenses	51
12.5	Stockholder Representative	51
12.6	Counterparts	51
12.7	Binding Effect; No Assignment	51
12.8	Governing Law	52
12.9	Waiver of Jury Trial; Submission to Jurisdiction; Consent to Service of Process	52
12.10	Confidentiality	52
12.11	Severability of Provisions	52
12.12	Specific Performance	52
12.13	Headings; Exhibits and Schedules	53

Table of Contents

(continued)

 

3.7 Compliance with Laws. Except as set forth on Schedule 3.7, the Company and its Subsidiaries are in compliance in all material respects with all applicable Laws. Neither the Company nor any of its Subsidiaries has made any bribes, kickback payments, or other illegal payments of cash or other consideration, including illegal payments to customers or clients or employees of customers or clients. Except as set forth on Schedule 3.7, neither the Company nor any of its Subsidiaries has received any notice from or been charged by any Governmental Entity with any material violation of Laws.

 

3.8 Material Contracts.

 

(a) Set forth on Schedule 3.8 is a list, as of the date hereof, of each of the following agreements or instruments (whether written or oral) to which the Company or any of its Subsidiaries is a party or by which it or its respective properties are bound (collectively, the “Material Contracts”):

 

(i) mortgages, deeds of trust, indentures, loan or loan agreements, letters of credit, security agreements, notes or other instruments relating to the borrowing of money by or extension of credit (other than trade accounts payable incurred in the ordinary course of business) to the Company or any of its Subsidiaries;

 

(ii) contracts or commitments on the part of the Company or any of its Subsidiaries to lend money or extend credit (other than trade credit in the ordinary course of business) to or guarantee the obligations of any other Person;

 

(iii) any consulting agreement pursuant to which the Company and its Subsidiaries are obligated for amounts payable in excess of $10,000 and which cannot be terminated by the Company or one of its Subsidiaries upon 60 or fewer days notice and without any liability, penalty or premium, other than any liability relating to services rendered prior to the date of termination (which liability has been paid or adequately reserved for in accordance with GAAP applied on a basis consistent with past practice);

 

(iv) collective bargaining agreements;

 

(v) partnership, joint venture or joint development agreements;

 

(vi) any agreement for the license, transfer or sale of technology to or from the Company or any of its Subsidiaries (other than licenses to the Company or any of its Subsidiaries of non-customized, commercially-available software), where remaining payments to or by the Company and its Subsidiaries exceed $10,000;

 

(vii) any agreement with any customer of the Company or any of its Subsidiaries which customer accounted for revenues to the Company and its Subsidiaries of more than $100,000.00 for the year ended December 31, 2007;

(viii) employment agreements with any officer or other Person named as a “key employee” on Schedule 3.8(a)(viii); and

 

(ix) agreements not otherwise required to be listed on Schedule 3.8 which contain covenants of the Company or any of its Subsidiaries not to compete in any line of business or in any geographical area or prohibiting the Company or any of its Subsidiaries from providing goods or services to any Person or category of Persons.

 

(b) Each Material Contract is in full force and effect and is valid, binding and enforceable against the Company or one or more of its Subsidiaries and the other parties thereto, in each case in accordance with its terms. Except as set forth on Schedule 3.8(b), neither the Company nor any Subsidiary is in breach of or default under any Material Contract and there exists no event, occurrence, condition or act (including the consummation of the transactions contemplated by this Agreement) that, with notice or lapse of time or both, would constitute such a breach or default. No other party to any Material Contract is in default thereunder. The Company has made available to Parent true, complete and accurate copies of each written Material Contract and a summary of each oral Material Contract, together with all amendments and written waivers relating thereto.

 

3.9 Labor Matters. The Company has made available to Parent a complete list of the name and salary of each of the officers, directors and full-time salaried employees of the Company and its Subsidiaries as of October 31, 2007. Except as set forth on Schedule 3.9, (i) all persons employed by the Company and its Subsidiaries are employees at will, (ii) no executive or key employee of the Company or its Subsidiaries or any group of employees of the Company or its Subsidiaries have communicated to the Company any plans to terminate employment with the Company or its Subsidiaries (whether on account of the Merger or otherwise), (iii) the Company and its Subsidiaries have complied in all material respects with all laws relating to the employment of labor (including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and payment of social security and other Taxes), (iv) there are no strikes, lockouts, work stoppages, slowdowns, material arbitrations or grievances or other labor disputes pending or threatened against or involving the Company or any of its Subsidiaries, (v) none of the employees of the Company or any Subsidiary are members of any labor union, and neither the Company nor any Subsidiary is party to, otherwise bound by or threatened with, any labor or collective bargaining agreement, (vi) none of the employees of the Company are, to the knowledge of the Company, engaged in organizing any labor union or other employee group that is seeking recognition as a bargaining unit, and (vii) neither the Company nor any Subsidiary has incurred any liability under the WARN Act. Except as set forth on Schedule 3.9, the Company and its Subsidiaries have complied in all material respects with all federal, state and local statutes (including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Equal Pay Act, the Americans with Disabilities Act of 1990, ERISA, Section 4980B of the Code and all other statutes regulating the terms and conditions of employment), and all employee benefit plans between the Company and any employee.

 

3.10 Financial Statements. The Company has made available to Parent the following financial statements (collectively, the “Financial Statements”):

 

(a) the audited consolidated balance sheets, consolidated statements of income, consolidated statements of stockholders' equity and comprehensive income and statements of cash flows of the Company as of and for each of the fiscal years ended December 31, 2004, 2005 and 2006, which, except as disclosed therein or as set forth on Schedule 3.10, are true, complete and accurate in all material respects, have been prepared in accordance with GAAP applied on a consistent basis, without material modification of the accounting principles used in the preparation thereof, throughout the periods involved and consistent with prior periods and fairly present in all material respects the financial position, results of operations and cash flows of the Company as of the dates and for the years ended on such dates; and

 

(b) the unaudited Maverick Engineering, Inc. balance sheet, statement of income/statement of cash flows and related financial tables, as of and for the ten-month period ended October 31, 2007 (the “Balance Sheet Date”), shown on Schedule 3.10 are true, complete and accurate in all material respects, have been prepared in accordance with GAAP applied on a basis consistent with the financial statements described in Section 3.10(a), without material modification of the accounting principles used in the preparation thereof, and fairly present in all material respects the consolidated financial position, results of operations and cash flows of the Company and its Subsidiaries as of and for the ten-month period ended on the Balance Sheet Date, except for the absence of normal year-end adjustments (which amounts shall not, in the aggregate, be materially different than the amounts therefor in prior fiscal years except as and to the extent set forth on Schedule 3.10) and footnote disclosure.

 

3.11 No Undisclosed Liabilities. The Company and its Subsidiaries have no indebtedness, obligation or liability of any kind whatsoever other than those (i) reflected on or disclosed in the Financial Statements or the notes thereto, (ii) incurred in the ordinary course of business either prior to or since the Balance Sheet Date (none of which relate to a tort, infringement or violation of applicable Law or which arose from any Action or in violation of this Agreement or in breach of any representation/warranty under this Article 3), (iii) disclosed on Schedule 3.11, (iv) disclosed in this Agreement or any of the Schedules hereto or (v) incurred after the date of this Agreement and not prohibited by the terms of Section 5.1(b). Neither the Company nor any of its Subsidiaries is a party to any synthetic lease or similar arrangement or any off-balance sheet financing arrangement.

 

3.12 Capital Commitments. Schedule 3.12 sets forth a true, complete and accurate list of (a) all capital commitments and proposed capital expenditures included in the budget of the Company and its Subsidiaries for fiscal 2007 dated as of October 31, 2007 (which budget remains unchanged), in each case, together with the amount budgeted therefor (whether during fiscal 2007 or thereafter) and the corresponding year-to-date expenditure thereon, (b) any capital expenditures or capital commitments which were made by the Company since January 1, 2007 that are not included in the budget of the Company and its Subsidiaries for fiscal 2006, and (c) any capital commitments and capital expenditures of the Company and of its Subsidiaries for which the Company or any of its Subsidiaries is obligated that is not included in the disclosure set forth on Schedule 3.12 pursuant to clauses (a) and (b) of this sentence, in each case together with the amount budgeted therefor and the amount expended thereon as of the date hereof.

 

3.13 Absence of Changes, Since December 31, 2006, the Company and its Subsidiaries have not suffered any Material Adverse Effect. Since the Balance Sheet Date, except as set forth on Schedule 3.13, the Company and its Subsidiaries have operated their businesses only in the ordinary course and there has not been:

 

(a) any declaration, setting aside or payment of any dividend or distribution (cash or otherwise) in respect of any capital stock of the Company or any redemption, purchase or other acquisition of any capital stock or any securities convertible into or exchangeable or exercisable for shares of capital stock of the Company;

 

(b) any sale of the tangible assets by the Company or its Subsidiaries in excess of $10,000 except in the ordinary course of business;

 

(c) any licensing of any of the Company’s or its Subsidiaries’ Intellectual Property, except in the ordinary course of business;

 

(d) any loss or abandonment of any material Intellectual Property;

 

(e) any material damage, destruction or casualty loss to the Company’s or its Subsidiaries’ tangible assets;

 

(f) any increase in, or establishment of, any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase right or other employee benefit plan, or any other increase in the compensation payable to or to become payable to any officer, or key employee or consultant of the Company or its Subsidiaries, except in the ordinary course of business;

 

(g) any material change by the Company or its Subsidiaries in their accounting or Tax reporting principles, methods or policies;

 

(h) any settlement or compromise of an Action with respect to Taxes or surrender of a right to claim a refund of Taxes;

 

(i) any Action instituted by or against the Company or any of its Subsidiaries; or

 

(j) any action taken which, if taken after the date of this Agreement, would constitute a breach of Section 5.1(b) of this Agreement.

 

3.14 Governmental Consents. Except as set forth on Schedule 3.14, no order of or filing with, or notification to or consent, approval, authorization or permit from any Governmental Authority is required on the part of the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except those that the failure to make or obtain would not prevent the Company from performing its obligations under this Agreement in any material respect and would not, individually or in the aggregate, have a Material Adverse Effect.

3.15 Employee Benefit Matters.

 

(a) Schedule 3.15(a) contains a true, complete and accurate list of all deferred compensation, incentive compensation, pension, stock option, stock purchase, phantom stock, benefit, welfare, profit-sharing, retirement, disability, vacation, severance, disability, death benefit, hospitalization, insurance, incentive and other similar fringe or employee benefit plans, funds, programs or arrangements, whether written or oral, which (i) covers, is maintained for the benefit of, or relates to any or all current or former employees of the Company and any ERISA Affiliate and (ii) is not a Multi-Employer Plan (the “Employee Benefit Plans”).  No such Employee Benefit Plan is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company nor any ERISA Affiliate of the Company has any commitment to create any additional employee benefit plan or modify or change any existing Employee Benefit Plan other than as may be required by the express terms of this Agreement, such Employee Benefit Plan or applicable Law.

 

(b) Except as set forth in Schedule 3.15(b), with respect to each Employee Benefit Plan that has been qualified or is intended to be qualified under the Code or that is an “Employee Benefit Plan” within the meaning of Section 3(3) of ERISA, such Employee Benefit Plan has been duly approved and adopted by all necessary and appropriate action of the Company, and, with respect to each Employee Benefit Plan, the Company heretofore has made available to Parent, for the last three years for which such documents were prepared and/or filed, as appropriate and to the extent applicable, true, complete and accurate copies of each of the following documents:

 

(i) the Employee Benefit Plan and any amendments thereto;

 

(ii) the most recent annual report (including all Schedules attached thereto), independent accountant’s report, actuarial report, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87;

 

(iii) the Summary Plan Description and summaries of material modifications and all modifications thereto communicated to employees with respect thereto;

 

(iv) if the Employee Benefit Plan is funded through a trust or any third party funding vehicle, the trust or other funding agreement and the financial statements thereof;

 

(v) the most recent determination letter, or “prototype plan” sponsor opinion letter if applicable, received from the Internal Revenue Service with respect to each Employee Benefit Plan intended to qualify under Sections 401 and/or 501(c)(9) of the Code; and

 

(vi) if pending, favorable determination letter applications filed with the Internal Revenue Service, together with all attachments thereto and all subsequent correspondence and communications with regard to such application.

 

(c) Except as set forth in Schedule 3.15(c), with respect to the Employee Benefit Plans, all required contributions for all periods ending before the Closing have been or will be paid in full by the Closing. As of the date hereof, none of the Employee Benefit Plans which are subject to Title IV of ERISA has unfunded benefit liabilities, as defined in Section 4001(a)(16) of ERISA.

(d) Except as set forth in Schedule 3.15(d), with respect to each Employee Benefit Plan (i) no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) no action, suit, grievance, arbitration or other type of litigation, or claim with respect to the assets of any Employee Benefit Plan (other than routine claims for benefits made in the ordinary course of plan administration consistent with past practice for which plan administrative review procedures have not been exhausted) is pending or threatened or imminent against the Company, any ERISA Affiliate or any fiduciary, as such term is defined in Section 3(21) of ERISA (“Fiduciary”). To the knowledge of the Company, neither the Company, nor its directors, officers, employees or any Fiduciary has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of any such Plan.

 

(e) Except as set forth in Schedule 3.15(e), each of the Employee Benefit Plans is, and has been, operated in accordance with its terms and each of the Employee Benefit Plans, and the administration thereof is, and has been, in all material respects in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including but not limited to ERISA and the Code.

 

(f) The IRS has issued a favorable determination letter with respect to each Employee Benefit Plan intended to be “qualified” within the meaning of Section 401(a) of the Code or, in the case of a "prototype plan," the Company relies on a favorable opinion letter issued by the IRS, in each case which letter has not been revoked or modified, and no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder.

 

(g) Except as set forth in Schedule 3.15(g), no Employee Benefit Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any “pension plan,” (iii) benefits the full cost of which is borne by the employee (or his/her beneficiary) or (iv) Employee Benefit Plans that can be amended or terminated by the Company without consent. Except as set forth in Schedule 3.15(g), the Company does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of the Company.

 

(h) No person will be entitled to a “gross up” or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement.

(i) Schedule 3.15(i) sets forth all contracts, agreements, plans or arrangements covering any employee of the Company or its Subsidiaries containing “change of control,” “stay-put,” transition, retention, severance or similar provisions, all of which are in writing, have heretofore been duly approved by the Company, and true, complete and accurate copies of all of which are attached to such Schedule 3.15(i). Except as set forth in Schedule 3.15(i), there is no contract, agreement, plan or arrangement (oral or written) covering any employee of the Company that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code.

 

3.16 Environmental Matters. The operations of the Company and its Subsidiaries have been and are in full compliance with all Environmental Laws.

 

3.17 Taxes. Except as set forth in Schedule 3.17:

 

(a) The Company and each of its Subsidiaries is duly qualified as an “S” corporation for both federal and state income tax purposes. The Company and each of its Subsidiaries has duly filed all material Tax Returns (as defined below) relating to its activities required or due to be filed (with regard to applicable extensions) on or prior to the date hereof. All such Tax Returns are true, complete and accurate in all material respects and the Company has delivered to Parent true, complete and accurate copies of all such Tax Returns filed for it and its Subsidiaries within the three-year period prior to the date of this Agreement.

 

(b) Schedule 3.17 lists (i) all U.S. federal, state, local, and foreign income Tax Returns filed with respect to the Company and each Subsidiary for taxable periods ended on or after January 1, 2004, (ii) those Tax Returns that have been audited by any Governmental Authority, and (iii) those Tax Returns that currently are the subject of audit or in respect of which any notice of any audit, examination or proposed reassessment has been received by the Company or any Subsidiary.

 

(c) The Company and each Subsidiary has paid or made provision for the payment of all Taxes (as defined below) (whether or not shown on any Tax Return and whether or not any Tax Return was required) that are due for all periods ending on or before the date hereof, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and for which adequate reserves are reflected on the Financial Statements and which have been disclosed in writing to Parent. Without limiting the foregoing, the Company and each Subsidiary has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. There are no liens on any of the assets of the Company or any Subsidiary that arose in connection with any failure (or alleged failure) to pay any Tax, except for liens for Taxes not yet due. No claims for Taxes or assessments are being asserted or threatened against the Company or any of its Subsidiaries.

 

(d) There is no dispute or claim concerning any Tax liability of the Company or any Subsidiary either claimed or raised by any taxing authority in writing.

 

(e) Neither the Company nor any Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time within which to file a Tax Return which has not yet been filed by the Company or any Subsidiary or with respect to a Tax assessment, reassessment or deficiency.

(f) Except as set forth on Schedule 3.17(f), neither the Company nor any Subsidiary is a party to any joint venture, partnership, or other arrangement or contract that could be treated as a partnership for federal income tax purposes. Neither the Company nor any Subsidiary is a party to any Tax allocation or sharing agreement.

 

(g) All material elections with respect to Taxes affecting the Company or any Subsidiary are disclosed or attached to a Tax Return of the Company or such Subsidiary.

 

3.18 Insurance Policies. Schedule 3.18 sets forth a true and complete list of all insurance policies and binders (including coverage amounts, current annual premiums, type, carrier and term) maintained as of the date of this Agreement by or on behalf of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in default with respect to any obligation under any insurance policy maintained by them, and no insurance carrier has notified the Company or any Subsidiary that such carrier intends to cancel any such policy, reduce the coverage provided under such policy or to materially increase any insurance premiums, or that any such insurance policy will not be available in the future on substantially the same terms as currently in effect. Each such insurance policy is in full force and effect as of the date of this Agreement and, except as noted on Schedule 3.18, will remain in full force and effect immediately following the Closing. All premiums with respect to such policies have been paid when due. Any audit(s) by workers’ compensation policy insurer(s) or any Governmental Authority will not result in any liability for premium increases or changes for the current or any prior policy year(s).

 

3.19 Title to Real Property. The Company does not own any real property.

 

3.20 Leased Property. Schedule 3.20 sets forth a true, complete and accurate list, as of the date hereof, of each lease under which the Company or a Subsidiary of the Company is a lessee or lessor of (i) personal property which lease provides for aggregate future payments of more than $10,000 and may not be canceled upon 60 or fewer days notice and without liability, penalty or premium, and (ii) real property (irrespective of the amount of the rental) (the “Material Leases”). Each of the Material Leases is valid, binding and enforceable and in full force and effect. The Company has made available to Parent true, complete and accurate copies of all Material Leases and amendments thereto, if applicable, and such Material Leases have not been further amended or modified. Neither the Company nor any of its Subsidiaries, nor any other party to a Material Lease, is in default under any Material Lease, and there has not occurred any event which with notice or lapse of time or both would constitute a default under any Material Lease. Except as set forth on Schedule 3.20, the Merger will not (i) require the consent or waiver of any other party to a Material Lease, (ii) result in a default or breach under a Material Lease or (iii) otherwise cause a Material Lease to cease to be valid, binding, enforceable and in full force and effect on identical terms immediately following the Closing.

 

3.21 Permits. The Company or one of its Subsidiaries holds all licenses, franchises, permits, consents, registrations, certificates and other approvals issued by any Governmental Authority (individually, a “Permit” and, collectively, “Permits”) required for the conduct of the business of the Company and its Subsidiaries as now being conducted, except where the absence of such Permits would not have a Material Adverse Effect. Schedule 3.21 sets forth a list of all such Permits. All such Permits are in full force and effect and no Action is pending or threatened to modify, suspend, revoke, withdraw, terminate or otherwise limit any such Permits. The Company and each of its Subsidiaries has complied and is in compliance with the terms and conditions of each of its respective Permits.

3.22 Intellectual Property.

 

(a) Schedule 3.22 sets forth a true, complete and accurate list of all of the following that are owned by the Company or any of its Subsidiaries: (i) patented or registered Intellectual Property and pending patent applications and other applications for registration of Intellectual Property, (ii) all material unregistered trademarks, service marks and Internet domain names, (iii) all material computer software (other than commercially-available, off-the-shelf software purchased or licensed for a total cost of less than $10,000 per application) and (iv) except as set forth in Schedule 3.22(a)(iv), all licenses or similar agreements or arrangements to which the Company or any of its Subsidiaries is a party, either as licensee or licensor, for the Intellectual Property (excluding licenses for unmodified, commercially-available, off-the-shelf software purchased or licensed for a total cost of less than $10,000 per application).

 

(b) The Company and/or its Subsidiaries own and possess or have the right to use all Intellectual Property necessary for the operation of the businesses of the Company and its Subsidiaries as presently conducted.

 

(c)  Except as set forth on the attached Schedules 3.6, 3.8(a)(v) and (vi), or 3.22:

 

(i) the Company and its Subsidiaries have not received any claims asserting the invalidity, misuse or unenforceability of any of the Intellectual Property owned or used by the Company or any of its Subsidiaries,

 

(ii) the conduct of the Company’s businesses (including that of its Subsidiaries) does not infringe or misappropriate any Intellectual Property of other Persons,

 

(iii) no royalties, honorariums or fees are payable by the Company or any of its Subsidiaries to any Person by reason of the ownership or use of any Intellectual Property (other than commercially-available, off-the-shelf software purchased or licensed for a base cost of less than $10,000 and costs of less than $5,000 per additional application), and

 

(d) the transactions contemplated by this Agreement will not have a Material Adverse Effect on the Company’s or any of its Subsidiaries’ right, title or interest in and to the Intellectual Property listed on Schedule 3.22, and all of such Intellectual Property shall be owned or available for use by the Company on identical terms and conditions immediately after the Closing.

 

3.23 Use of Assets. The Company and its Subsidiaries own, have a valid leasehold interest in or have the valid and enforceable right to use, all assets, tangible or intangible, necessary for the conduct of their respective businesses as presently conducted.

3.24 Related Party Transactions. Except as set forth on Schedule 3.24, no officer, director, or Affiliate of the Company or any of its Subsidiaries, and no individual related by blood, marriage or adoption to any such individual, or any entity in which any such Person or individual owns a controlling beneficial interest (each such Person being referred to herein as a “Related Party”) (a) owns, directly or indirectly, any interest in (other than holdings that represent less than 5% of any class of securities of any publicly-traded company) or is an officer, director, employee, consultant of, lender to or borrower of or has the right to participate in profits of, any Person which is a competitor, lessor, lessee, customer or supplier of the Company; (b) owns, directly or indirectly, any tangible or intangible property used by the Company or any of its Subsidiaries in its business, or (c) is a party to any contract or agreement with the Company or its Subsidiaries.

 

3.25 Bank Accounts. Schedule 3.25 contains a true, complete and accurate list of the names and locations of all banks and other financial institutions and depositories at which the Company or any Subsidiary maintains accounts of any type or safe deposit boxes, the name of the bank or other financial institution or depository, the account number of each such account, the number of each such safe deposit box and the current authorized signatory or signatories on each such account or safe deposit box.

 

3.26 Powers of Attorney. Except as set forth on Schedule 3.26, no person holds a power of attorney to act on behalf of the Company or any Subsidiary.

 

3.27 Names and Locations. Except as set forth on Schedule 3.27, during the five (5) year period prior to the execution and delivery of this Agreement, neither the Company nor any of its Subsidiaries has used any name or names under which it has maintained records concerning its assets or otherwise conducted business. Except for goods in transit, rolling stock, and items (not consisting of inventory) with an individual value of less than $1,000, all of the tangible assets and properties of the Company and its Subsidiaries are located at the locations set forth on the attached Schedule 3.27.

 

3.28 Customers. Schedule 3.28 sets forth a list of the fifteen (15) largest customers of the Company and its Subsidiaries, showing the approximate total sales by the Company and its Subsidiaries to each such customer during the fiscal year ended December 31, 2007. No customer set forth on Schedule 3.28 has given any indication that it will (i) reduce the level of business which it does with the Company or such Subsidiary or (ii) terminate any agreement it may have with the Company or a Subsidiary, in each case, whether in connection with the Merger or otherwise.

 

3.29 Warranties. Except as set forth on Schedule 3.29, all services rendered by the Company and its Subsidiaries have been in conformity in all material respects with all applicable contractual commitments and all express warranties.

 

3.30 Brokers; Financial Advisors. Except as set forth on Schedule 3.30, no fees, commissions or similar payments are or will be payable by the Company or any of its Subsidiaries to any broker, finder, investment banker, bank or any similar Person with respect to the consummation of the transactions contemplated by this Agreement.

3.31 Full Disclosure. This Agreement and the Exhibits and Schedules hereto do not contain any untrue statement of fact with respect to the Company or any of its Subsidiaries, the Stockholders or the Stockholder Representative, or omit to state any fact necessary to make any such statements not misleading.

 

 

Parent and Merger Sub represent and warrant to the Company as follows:

 

4.1 Organization. Parent is a corporation validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation validly existing and in good standing under the laws of the State of Delaware.

 

4.2 Authority. Parent and Merger Sub each has all requisite power and authority to (a) execute, deliver and perform its obligations under this Agreement and (b) execute, deliver and perform its obligations under all other agreements and instruments to be executed and delivered by Parent or Merger Sub pursuant to or in connection with this Agreement.

 

4.3 Due Authorization, Enforceability, etc. This Agreement has been duly authorized by all requisite action, and constitutes the valid and binding obligation of Parent and Merger Sub, enforceable against them in accordance with its terms, and the Merger Escrow Agreement and all documents, agreements and instruments to be executed and delivered by Parent pursuant to this Agreement or the Merger Escrow Agreement will at Closing be executed by a duly authorized officer of Parent, and the Merger Escrow Agreement and other agreements will at Closing constitute valid and binding obligations of Parent, enforceable against it in accordance with its terms, in each case except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors' rights generally and by general principles of equity. The board of directors of Merger Sub, and of Parent, the sole stockholder of Merger Sub, have approved the execution, delivery and performance of this Agreement and all other agreements and instruments contemplated hereby to which Merger Sub or Parent is a party and the consummation of the Merger, in each case in accordance with applicable Law.

 

4.4 No Breach or Conflict. Except as set forth on Schedule 4.4, the execution and delivery by Parent and Merger Sub of this Agreement and the performance of their respective obligations under this Agreement, the Merger Escrow Agreement and all documents, agreements and instruments to be executed and delivered by Parent and Merger Sub pursuant hereto or thereto, the consummation of the transactions contemplated hereby and thereby, and compliance by Parent and Merger Sub with the terms and provisions hereof and thereof, do not and will not (a) violate any Law, (b) conflict with or result in any violation of the Organizational Documents of Parent or Merger Sub, or (c) violate or require the consent or waiver of any Person under any contract to which Parent or Merger Sub or any of their respective Subsidiaries is a party or by which any of them is bound

 

4.5 Governmental Consents. Except as set forth on Schedule 4.5, no order of or filing with, or notification to or consent, approval, authorization, or permit from any Governmental Authority is required on the part of Parent or Merger Sub in connection with the execution, delivery or performance by Parent or Merger Sub of this Agreement or the consummation of the transactions contemplated hereby.

4.6 Activities of Merger Sub. Merger Sub was formed solely for the purpose of entering into this Agreement and consummating the Merger and the other transactions contemplated hereby and has not engaged, and will not have engaged, prior to the Effective Time, in any business or operations or otherwise incurred any liability other than as contemplated by this Agreement.

 

4.7 Certain Fees. No fees or commissions are or will be payable by Parent or Merger Sub to any broker, finder, investment banker, bank or any similar Person with respect to the transactions contemplated by this Agreement.

 

4.8 Full Disclosure. This Agreement and the Exhibits and Schedules hereto do not contain any untrue statement of fact with respect to Parent or Merger Sub, or omit to state any fact necessary to make any such statements not misleading.

 

 

5.1 Conduct of Business Pending the Closing.

 

(a) Except as otherwise contemplated by this Agreement or with the prior consent of Parent (which consent will not be unreasonably withheld or delayed), during the period from the date hereof to and through the Closing Date, the Company shall and shall cause its Subsidiaries to conduct their respective businesses in the ordinary course of business, and to preserve the present business operations, organization and goodwill of the Company and its Subsidiaries.

(iii) effect any recapitalization, reclassification, stock split or like change in the capitalization of the Company or any of its Subsidiaries;

(iv) amend the Organizational Documents of the Company or any of its Subsidiaries;

 

 

(vi) except for the incurrence of trade accounts payable and accrued expenses in the ordinary course of business, borrow money or become the guarantor, surety, endorser or otherwise liable for any debt, obligation or liability of any other Person;

 

(vii) loan or advance any funds to any Person;

 

(viii) subject any of the properties or assets (whether tangible or intangible) of the Company or any of its Subsidiaries to any Encumbrance, except for Encumbrances arising in the ordinary course of business or by operation of Law;

 

(ix) sell, assign, transfer, convey, license, lease or otherwise dispose of any of the properties or assets (including, without limitation, the Intellectual Property) of the Company or any of its Subsidiaries, in each case other than in the ordinary course of business;

 

(x) acquire any properties or assets, other than in the ordinary course of business (including the repair or replacement of assets), or make or enter into commitments for capital expenditures;

 

(xi) enter into or amend any labor or collective bargaining agreement or, through negotiation or otherwise, make any commitment or incur any liability to any labor organization with respect to the Company or any of its Subsidiaries;

 

(xii) change its fiscal year or methods of accounting, except as required by GAAP applied on a basis consistent with past practice;

 

(xiii) make or revoke any election concerning Taxes or Tax Returns or change its Tax reporting principles, methods or policies, unless required by law or by its auditors consistent with the past practice of the Company;

 

(xiv) enter into any transaction with any Related Party;

 

(xv) enter into any merger or consolidation with any Person;

 

(xvii) replace, amend or otherwise modify (other than any decrease in amount) any loans or letters of credit currently in place; or

 

(xviii) agree to do any of the foregoing.

 

(d) Reference is made to that certain Shareholder Agreement respecting Maverick Engineering, Inc. dated as of December 1, 2002 among the Company and its shareholders (“Shareholder Agreement”). The Company and not fewer than two-thirds of its Stockholders shall cause such Shareholder Agreement to be terminated without liability or obligation on the part of the Company effective as of the Closing in accordance with the provisions of Section 12.3(a) thereof.

 

5.2 Inspection.

 

(a) Between the date of this Agreement and the Closing, the Company shall, and shall cause its Subsidiaries to, provide Parent, its counsel, accountants, and other representatives (collectively the “Representatives”), full access at all reasonable times to the premises, officers, personnel and advisors, and books and records (including, without limitation, financial records) of the Company and its Subsidiaries, allow such parties to make extracts and copies of such books and records (at Parent's sole expense) and provide Parent with such other information regarding the Company and its Subsidiaries as Parent shall reasonably request and which is reasonably available to the Company and its Subsidiaries; provided, however, that any such investigation shall be conducted (a) through a corporate officer designated by the Company and (b) in such a manner that does not unreasonably interfere with the operation of the business of the Company or its Subsidiaries. Neither Parent nor Merger Sub nor their respective Representatives shall contact any current or former employee, customer, contractor or supplier of the Company or any of its Subsidiaries in relation to the Merger without the prior consent of the Company (which consent shall not be unreasonably withheld or delayed). Any information provided by or on behalf of the Company or its Subsidiaries or ascertained by Parent, Merger Sub or any of their Affiliates pursuant to this Section 5.2 shall be subject to the terms of the Confidentiality Agreement.

 

(b) After the Effective Time, Parent and the Surviving Corporation shall make available to the Stockholder Representative, its counsel, accountants and other Representatives, such personnel of the Surviving Corporation and such books and records of the Company and the Surviving Corporation related to the period through the Closing Date as the Stockholder Representative shall reasonably request in connection with resolving any appraisal rights or any audit or Action related to Taxes and the preparation, review and verification of the Closing Net Working Capital Statement; provided, however, that such access shall be during normal business hours and in such a manner that does not unreasonably interfere with the operation of the business of the Surviving Corporation and its Subsidiaries. The Stockholder Representative, its counsel, accountants and other Representatives, shall have the right to copy such books and records (at their sole cost and expense) during normal business hours and upon reasonable prior notice to the Parent and the Surviving Corporation. The availability for inspection of such books and records may be conditioned upon execution of a customary form of confidentiality agreement.

5.3 Appropriate Action; Filings.

 

(a) Through the Closing Date, the Company and Parent will each cooperate with each other and use (and will cause their respective Subsidiaries to use) commercially reasonable efforts (i) as promptly as practicable, to take or to cause to be taken, all actions, and to do or to cause to be done all things reasonably necessary, proper or advisable on its part under this Agreement, applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, including without limitation the satisfaction of all conditions to Closing set forth in Article 7, (ii) to obtain promptly from any Governmental Authority or any other Persons any orders, Permits or consents required to be obtained by the Company or Parent or any of their respective Subsidiaries in connection with the authorization, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and (iii) to promptly make all other filings with Governmental Authorities, and thereafter make any other submissions to Governmental Authorities, in each case as may be required under applicable Law or reasonably necessary for the prompt consummation of the transactions contemplated hereby. Each Party will provide prompt notification to the other when any such action, order, Permit, consent, filing, application or notice is obtained, taken or made, as applicable.

 

 

5.5 Public Announcements. The initial press release with respect to the execution of this Agreement shall be a joint press release acceptable to Parent and the Company. Prior to the Closing Date, none of the Parties or any of their respective Affiliates shall issue any other press release or public statement concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other Parties, unless such disclosure is required by this Agreement or applicable Law; provided, however, that the Party intending to make any such required release shall give the other Parties prior written notice and shall use its reasonable efforts, consistent with such applicable Law, to consult with the other Parties with respect to the text thereof.

5.6 Post-Closing Further Assurances. The Company and Parent agree that from and after the Closing Date, each of them will, and will cause their respective Affiliates to, execute and deliver such further instruments of conveyance and transfer and take such other action as may reasonably be requested by any Party hereto to carry out the purposes and intents hereof.

 

 

5.8 No Solicitation.

 

(a) The Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its Subsidiaries to, directly or indirectly through another Person, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate, any inquiries or the making of any proposal which constitutes a proposal for a “New Acquisition Transaction” or (ii) participate in any discussions or negotiations regarding a proposal for a New Acquisition Transaction.

 

(b) Neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify in a manner adverse to Parent and Merger Sub, the approval or recommendation by such Board of Directors or such committee of the Merger or this Agreement, or (ii) cause or permit the Company to enter into any “New Acquisition Agreement”.

 

(c) In addition to the obligations of the Company set forth in Sections 5.8(a) and (b), the Company shall promptly advise Parent and Merger Sub orally, and promptly thereafter in writing, of any proposal for a New Acquisition Transaction received by the Company, the material terms and conditions of such proposal for a New Acquisition Transaction and the identity of the Person making such proposal for a New Acquisition Transaction, all of which information shall be kept confidential by Parent and Merger Sub.

 

(d) For purposes of this Agreement:

(i) “New Acquisition Transaction” means any transaction proposed by a third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or similar transaction, for consideration to the Company’s stockholders consisting of cash and/or securities, 50% or more of the shares of the Company’s capital stock then outstanding or all or a substantial portion of the assets of the Company.

 

(ii) “New Acquisition Agreement” means any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any New Acquisition Transaction.

 

5.9 Environmental Permits. If and to the extent applicable, the Company shall, and shall cause its Subsidiaries to, promptly file all materials required by Environmental Laws as a result of or in furtherance of the transactions contemplated hereunder, and all requests required or necessary for the transfer or re-issuance of Permits required to conduct the Company’s business. Parent shall cooperate reasonably with and support the Company with respect to the filing of any such materials.

 

5.10 Notice of Material Developments. Each Party shall give prompt written notice to the other Parties of (i) any material breach in any of its representations or warranties contained in Article 3 or Article 4, as the case may be, of which such Party becomes aware, (ii) any breach of any covenant or agreement hereunder by such Party of which such Party becomes aware, and (iii) any other material development affecting the ability of such Party to consummate the transactions contemplated by this Agreement in accordance with the terms hereof.

 

 

6.1 Cash Flow Notes. Each Cash Flow Note shall be in the form attached hereto as Exhibit D-1 (Exhibit D-2 for Robert L. Kovar). In determining the pre-tax net income of the Surviving Corporation for purposes of paragraph 3 of the Cash Flow Notes, there shall be an allocation of shared overhead items between the Surviving Corporation and Parent as provided in the attached Exhibit E.

 

6.2 Employment Agreement. At the Closing, Robert L. Kovar (“Kovar”), presently President of the Company, will enter into an Employment Agreement with Parent for two (2) positions: President of the Surviving Corporation and Chief Operating Officer of Parent, in the form attached hereto as Exhibit F (the “Kovar Employment Agreement”).

 

6.3 Release of Guaranties. Reference is made to those certain Guaranties dated April 29, 2005, made by Kovar and by Kovar Mineral Partners, L.P. (“KMP”) to Hibernia National Bank (now Capital One, N.A.), Houston, Texas (the “Bank”), guaranteeing certain obligations of the Company to the Bank as shown in the attached Exhibits G-1 and G-2 (the “Guaranties”).

 

(a) The Company hereby represents and warrants to Parent that, except for the outstanding balance on the Company’s revolving line of credit with the Bank (which will fluctuate from day to day but only in the ordinary course of business and consistent with prior practice), as of the Closing Date (i) the total obligations of the Company to the Bank will not exceed the amount thereof as at October 31, 2007, and (ii) neither the Company nor Kovar will be in breach of or default under the line of credit or the Guaranty, respectively.

 

(b) Based on the foregoing, Parent hereby agrees to take all commercially reasonable steps (but excluding the payment of any fees or other charges, the substitution of collateral or the discharge of the underlying indebtedness) to have the Bank release and discharge the Guaranties within six (6) months following the Closing; and in all events to indemnify and hold Kovar and KMP harmless against any and all liability under their respective Guaranty.

 

6.4 Dissenting Stockholders; Withholding Taxes. The Parties acknowledge that applicable Law (a) provides appraisal rights to stockholders who dissent from a merger (each a “Dissenting Stockholder”), and (b) may provide for withholding Taxes from the consideration payable to the Stockholders on consummation of the Merger; in order to protect the Surviving Corporation and Parent from any liability that may be incurred in the future arising out of (a) and/or (b) of this Section 6.4, it is agreed that any such liabilities shall constitute Indemnity Claims of Parent and the Surviving Corporation pursuant to Section 8.1, and that the Stockholder Representative may establish Holdbacks for the same as provided in Schedule 1.3.

 

 

7.1 Conditions Precedent to Obligations of Merger Sub and Parent. The obligations of Parent and Merger Sub to consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction or waiver of the following conditions at Closing:

 

(a) The representations and warranties made by the Company herein shall be true and correct as of the Closing with the same effect as though such representations and warranties had been made at and as of the Closing.

 

(b) The Company shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by it at or prior to the Closing.

 

(c) Parent shall have received a certificate certifying as to the satisfaction of the conditions in Sections 7.1(a) and (b), and that any exceptions to Section 3.5(c) shown on Schedule 3.5 have been removed so that Section 3.5(c) is complied with without exception, executed by the Chief Executive Officer of the Company and dated as of the Closing Date.

 

(d) Parent shall have received a certificate executed by the Secretary of the Company (or other appropriate officer) certifying, and attaching as exhibits thereto, the (i) good standing certificates of the Company and each Subsidiary from their respective jurisdiction of organization and each jurisdiction in which they are qualified to do business as a foreign entity, (ii) copies of the certificate of incorporation and bylaws of the Company and each Subsidiary as certified (in the case of the certificates of incorporation) by the Secretary of State of such jurisdiction and (iii) copies of the resolutions of the Company’s board of directors authorizing the execution, delivery and performance of this Agreement and the Merger Escrow Agreement and all documents, agreements and instruments executed and delivered pursuant hereto and thereto and the transactions contemplated hereby and thereby.

(e) No Action shall be pending or threatened wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent the performance of this Agreement and the Merger Escrow Agreement or the consummation of any of the transactions contemplated hereby or thereby or declare unlawful any of the transactions contemplated hereby or thereby, (ii) cause any of the transactions contemplated by this Agreement and the Merger Escrow Agreement to be rescinded following consummation, or (iii) result in a Material Adverse Effect.

 

(f) This Agreement shall have been duly adopted by the Company and by the Requisite Stockholder Approval.

 

(g) The Certificate of Merger shall have been executed by the Company.

 

(h) The Company shall have delivered to Parent the Per Share Closing Date Merger Consideration Certificate, and the parties shall have agreed to the Per Share Closing Date Merger Consideration.

 

(i) Parent shall have received a copy of the Merger Escrow Agreement in the form attached hereto as Exhibit H-1, fully executed by each party thereto and a copy of the Security Escrow Agreement in the form attached hereto as Exhibit H-2, fully executed by each party thereto.

 

(j) The Company shall have delivered to Parent a legal opinion from Walker Keeling & Carroll LLP, counsel to the Company, in the form attached hereto as Exhibit I.

 

(k) The Merger Escrow Agent shall have received and provided copies to Parent of executed Shareholder Transmittal Letters from Stockholders who hold at least 90% of the outstanding Shares in the aggregate.

 

(l) Parent shall have received the resignation of each officer and director of each Subsidiary of the Company, and of each officer and director of the Company, whose resignation as of the Effective Time has been requested in writing by Parent.

 

(m) The Company shall have delivered to Parent certified copies of the Stockholder Certifications signed by all of the Stockholders of the Company other than Govind Nadkarni, and the Warrant Holder Certifications signed by all of the holders of the Warrants.

 

(n) There shall not have occurred any Material Adverse Effect since the date of this Agreement.

 

7.2 Conditions Precedent to Obligations of the Company. The obligations of the Company to consummate the Merger and the other transactions contemplated hereunder are subject to the satisfaction or waiver of the following conditions at the Closing:

(a) The representations and warranties made by Parent herein shall be true and correct as of the Closing with the same effect as though such representations and warranties had been made at and as of the Closing.

 

(b) Parent and Merger Sub shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by it at or prior to the Closing.

 

(c) The Company shall have received a certificate certifying as to the satisfaction of the conditions set forth in Sections 7.2(a) and (b), executed by a duly authorized officer of Parent and Merger Sub and dated as of the Closing Date.

 

(d) The Company shall have received a certificate executed by the Secretary of Parent (or other appropriate officer) certifying, and attaching as exhibits thereto, the (i) good standing certificates of Parent and Merger Sub from their respective jurisdictions of organization and each jurisdiction in which they are qualified to do business as a foreign entity, (ii) copies of the certificate of incorporation and bylaws of Parent and Merger Sub as certified (in the case of the certificate of incorporation) by the Secretary of State of such jurisdiction and (iii) copies of the resolutions of Parent’s board of directors authorizing the execution, delivery and performance of this Agreement and the Merger Escrow Agreement and all documents, agreements and instruments executed and delivered pursuant hereto and thereto and the transactions contemplated hereby and thereby.

 

(e) No Action shall be pending or threatened wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent the performance of this Agreement and the Merger Escrow Agreement or the consummation of any of the transactions contemplated hereby or thereby or declare unlawful any of the transactions contemplated hereby or thereby, (ii) cause any of the transactions contemplated by this Agreement and the Merger Escrow Agreement to be rescinded following consummation, or (iii) result in a Material Adverse Effect.

 

(f) This Agreement shall have been duly adopted by Parent as the sole stockholder of Merger Sub.

 

(g) The Certificate of Merger shall have been executed by Merger Sub.

 

(h) The Company shall have received a copy of the Merger Escrow Agreement fully executed by each party thereto.

 

(i) Parent shall have delivered to the Company a legal opinion from Sills Cummis & Gross PC, counsel to Parent, in the form attached hereto as Exhibit J.

 

(j) Parent or Merger Sub shall have deposited with the Merger Escrow Agent the aggregate amounts of cash and notes set forth in Section 1.3(e), and the Merger Escrow Agent shall have effected the set asides, payments and deliveries provided for in Section 1.3(e).

 

(k) As a part of the Reserve, there shall have been established a Holdback (as that term is defined in Schedule 1.3) to allow holders of any Warrants not exercised prior to the Effective Time to exercise the same after the Effective Time (and before their expiration) with respect to the kind and amount of cash and other property that such holders would have been entitled to receive had they exercised such Warrants immediately before the Effective Time.

 

 

(a) any breach of any representation or warranty of the Company contained in this Agreement;

 

 

(c) any inaccurate or incomplete statement or information set forth in any Schedule, Updated Schedule or Exhibit to this Agreement, or any amendment to any of same, or set forth in any certificate delivered to Parent or Merger Sub pursuant to or in connection with this Agreement or any of the transactions contemplated herein.

 

(d) any liability of the Company incurred prior to the Closing Date but not shown on the Financial Statements or disclosed on Schedule 8.1(d);

 

(e) any liability of the Company, or of the Surviving Corporation or Parent respecting a liability of the Company, for any transaction, occurrence or other matter or thing whatsoever which occurred, or arose out of any of the foregoing which occurred, prior to the Closing;

 

(f) any amounts owed to Govind Nadkarni and expenses incurred in connection therewith as referenced in Section 8.4(b) not paid out of the Special Indemnity Fund;

 

(g) any amounts owed to the Company and/or Parent and/or the Surviving Corporation with respect to financing costs referenced in Section 1.3(e)(i)(C).

 

(h) any amounts (including without limitation litigation fees and expenses) owed to any Dissenting Stockholders who dissent from the Merger and prevail in an Action to be paid more per share than this Agreement provides for; and

(i) any Tax-Related Losses (as defined in Section 9.1).

 

 

(a) any breach of any representation or warranty of Parent or Merger Sub contained in this Agreement;

 

 

(c) any liability of Parent or Merger Sub incurred prior to the Closing Date; and

 

(d) any liability of the Company, or of the Stockholders respecting a liability of the Company, for any transaction, occurrence or other matter or thing whatsoever which occurs, or arises out of any of the foregoing which occurs, after the Closing.

 

Any claim made by any one or more of the Buyer Indemnified Parties against the Stockholders or by any one or more of the Seller Indemnified Parties against Parent, whether or not a Third-Party Claim (hereafter defined), shall be referred to herein as an “Indemnity Claim” and all such claims shall be referred to together herein as “Indemnity Claims.”

 

 

8.4 Indemnification Procedures.

 

(a) If any claim by any Buyer Indemnified Party against the Stockholders results from any actual or threatened Action by a third party (including a Governmental Authority) (a “Third-Party Claim”), Parent shall give the Stockholder Representative written notice thereof (together with a copy of such Third-Party Claim, process or other legal proceeding) promptly after becoming aware of such Third-Party Claim; provided, however, that the failure of Parent to give such notice shall not impair the rights of either Parent or the Surviving Corporation, except to the extent that the Stockholders are actually prejudiced by such failure to give notice. Such notice shall contain a description of such Third-Party Claim in such reasonable detail as may be available to Parent. The Stockholder Representative may elect to defend any Third-Party Claim through counsel chosen by it (which counsel shall be reasonably acceptable to Parent), and will cause the Stockholders to pay all expenses incurred in connection with the defense of any such Third-Party Claim. If the Stockholder Representative elects to defend a Third-Party Claim, then within ten (10) Business Days after receiving notice of such Third-Party Claim, the Stockholder Representative shall notify Parent of its intent to do so, and both Parent and the Surviving Corporation shall promptly make available to the Stockholder Representative and its counsel, accountants and other Representatives such books, records and other documents as well as access to officers and employees, as in each case are reasonably necessary, and shall otherwise cooperate and cause its officers, directors and employees to cooperate (including providing testimony) in the defense of such Third-Party Claim. Parent shall have the right to employ one law firm as counsel to either Parent or the Surviving Corporation or both, as applicable, in any Third-Party Claim or group of related Third-Party Claims (which firm shall be reasonably acceptable to the Stockholder Representative), at Parent’s sole cost and expense, to monitor the proceedings and report to Parent with respect thereto. If the Stockholder Representative elects to defend a Third-Party Claim, (i)  no compromise or settlement thereof may be effected by the Stockholder Representative without the consent of Parent (which shall not be unreasonably withheld) unless the sole relief provided is monetary damages that are paid in full by the Stockholders, and the Stockholder Representative shall have obtained a full and complete release of any and all claims against Parent and the Surviving Corporation with respect to such Third-Party Claim, and (ii)  neither Parent nor the Surviving Corporation shall be entitled to recovery from the Stockholders with respect to any compromise or settlement thereof effected by Parent or the Surviving Corporation without the consent of the Stockholder Representative unless the Stockholder Representative shall cease to defend in good faith against such claim. If the Stockholder Representative elects not to defend against a Third-Party Claim, or ceases to defend in good faith against a Third-Party Claim that it initially agreed to defend, then upon ten (10) Business Days prior written notice by the Surviving Corporation to the Stockholder Representative, either Parent or the Surviving Corporation may defend, compromise, and settle such Third-Party Claim and shall be entitled to full recovery therefor from the Stockholders; provided, that the Stockholder Representative may elect to participate in the defense of such claim through counsel selected by the Stockholder Representative (at the Stockholders’ sole cost and expense) and that no compromise or settlement may be entered into without the prior written consent of the Stockholder Representative (which shall not be unreasonably withheld). 

 

 

(b) Claims for payment of Appreciation Based Incentive Compensation and any other claims of any kind made by Govind Nadkarni against the Company and/or the Surviving Corporation and/or Parent (including, without limitation, any claims for attorney fees or other arbitration and litigation expenses) are referred to herein as the “Special Indemnity Claims.” The Stockholder Representative shall maintain control over any related negotiations, arbitration, litigation or settlement with Nadkarni relating to any Special Indemnity Claims (all costs and expenses thereof to be paid from the Special Indemnity Fund or the Reserve), provided that any settlement shall include a full and unconditional release of the Company, the Surviving Corporation and Parent. In addition to the Special Indemnity Fund and the Reserve, the Stockholders, through the Stockholder Representative, shall provide a full and unconditional indemnification to the Buyer Indemnified Parties for any liabilities and expenses (including without limitation attorneys fees and expenses) suffered or incurred by any of them relating to any Special Indemnity Claims. The Special Indemnity Fund escrow shall be released upon (or as a part of) a Final Resolution of all outstanding disputes with Nadkarni accompanied by an unconditional release by Nadkarni of all claims of any kind against the Company, the Surviving Corporation and Parent.

 

 

(c) In the event of any Action by any Buyer Indemnified Party to collect any amounts to which it is entitled pursuant to this Agreement, the Parties agree that such claims shall be filed and/or instituted against the Stockholders but served solely upon the Stockholder Representative, in its capacity as Stockholder Representative, which shall be sufficient to impose personal jurisdiction over each Stockholder; and the Stockholder Representative shall be responsible for promptly notifying all of the Stockholders of the assertion of any such Indemnity Claim(s).

 

8.5 Payment of Indemnity Claims. In the event that any Buyer Indemnified Party becomes entitled to indemnification from the Stockholders as provided in this Article 8, and any one or more of the Stockholders should fail to pay his share of such indemnification obligation within ten (10) days of his receipt of demand therefor by Parent and/or the Surviving Corporation, the Buyer Indemnified Parties shall realize their rights of indemnification through deduction of the appropriate amounts from the next amounts due under all or the applicable Cash Flow Notes, or the Prepayment Shortfall plus accrued but unpaid interest, as applicable, and the Stockholders shall remain personally liable to the Buyer Indemnified Parties, jointly but not severally, to the extent the then balance of the applicable Cash Flow Notes or the Prepayment Shortfall plus accrued but unpaid interest, as applicable, is insufficient to cover all such indemnification obligation(s). Any amount distributed to the Buyer Indemnified Parties or held back by Parent from amounts otherwise owed to the Stockholders shall be treated for federal, state and local tax purposes as a reduction in the aggregate Per Share Merger Consideration.

 

 

9.1 Tax Returns; Cooperation.

 

(b) Parent shall, with respect to any Tax Return which Parent is responsible under Section 9.1(a) for preparing and filing, make the Tax Return and related Tax work papers available for review by the Stockholder Representative. Parent shall deliver such Tax Return and related Tax work papers to the Stockholder Representative no later than thirty (30) Business Days before the due date for filing such Tax Return (including any extension thereof). If, within ten (10) Business Days of such delivery, the Stockholder Representative shall deliver to Parent a written statement describing the Stockholder Representative's objections to such Tax Return and all grounds therefor, and the parties are unable to resolve such objections within the fifteen (15) Business Day period prior to filing such Tax Return, such Tax Return shall be filed as prepared by Parent, and any remaining disputes with respect thereto shall be resolved by the Arbitrating Accounting Firm as provided in Section 9.1(c).

 

 

(c) The Arbitrating Accounting Firm shall be instructed to resolve any disputes referred to it pursuant to Section 9.1(b) within ten (10) Business Days after such referral. Such resolution shall be in favor of the party whose position the Arbitrating Accounting Firm concludes is supported by the “more substantial authority” with respect to each item in question. The resolution of disputes by the Arbitrating Accounting Firm shall be set forth in writing, shall state that there is “more substantial authority” for the position taken by the prevailing party, shall describe its comparison of substantial authority between the parties, and shall be conclusive and binding upon all parties; and the parties shall join in the execution and cooperate in the filing of any amended Tax Return as shall be necessary to implement such resolution. The fees and expenses of the Arbitrating Accounting Firm shall be apportioned by the Arbitrating Accounting Firm based on the degree to which each party's claims were unsuccessful and shall be paid by the parties in accordance with such determination. For example, if pursuant to this Section 9.1(c) the Stockholder Representative submitted an objection affecting the amount of Tax due in the amount of $10,000 and prevailed as to $4,500 of the amount, then Parent would bear 45% of the fees and expenses of the Arbitrating Accounting Firm and the Stockholders would bear 55% of the fees and expenses of the Arbitrating Accounting Firm.

 

(d) The Buyer Indemnified Parties shall be entitled to collect from the Stockholders the amount of any and all Damages, includi ng without limitation Taxes (whether or not resulting from or related to any tax audit, and regardless of whether such tax audit is disclosed on any Schedule hereto), attorneys’, accountants’ and experts’ fees and disbursements (all herein referred to as “Tax-Related Losses”) resulting from: (i) any claims by any taxing authority or amounts shown on any Tax Return, except for amounts included in the calculation of Closing Net Working Capital, for (A) any Taxes of the Company or the Surviving Corporation or their Subsidiaries allocable to any period ending on or prior to the Closing Date or allocable to any Straddle Period for the portion of the Straddle Period allocable to the Company or the Surviving Corporation or their Subsidiaries prior to the Closing Date and (B) any Taxes pursuant to Treasury Regulations Section 1.1502-6 or any analogous or similar state, local, or other foreign law or regulation, of the Company or the Surviving Corporation or their Subsidiaries or any corporation that is or was a member of an Affiliated Group of which the Company or any Subsidiary was or is a member prior to the Closing Date; (ii) any inaccuracy in or breach of any representation or warranty contained in Section 3.17; and (iii) any liability for withholding Taxes related to the Merger.

 

(e) Payment for Tax-Related Losses to any Buyer Indemnified Party under this Section 9.1 shall be made in accordance with the provisions of Article 8.

 

 

(f) Taxes for a Straddle Period shall be allocated as follows: any Tax based directly or indirectly on income or receipts and any credits, losses or deductions available with respect to any Tax, shall be allocated by assuming that the relevant taxable period ended on the Closing Date, and any other Tax shall be allocated based on a fraction, the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the total number of days in the taxable period. Any credit or refund resulting from an overpayment of Taxes for a Straddle Period shall be prorated based upon the method employed in this paragraph, taking into account the type of Tax to which the refund relates. All determinations necessary to effect the foregoing allocations shall be made in a manner consistent with the prior practice of the Company and the Subsidiaries.

 

(g) The Stockholder Representative and Parent shall provide each other with such cooperation and information as either of them reasonably may request of the other (and Parent shall cause the Company and the Surviving Corporation and their Subsidiaries to provide such cooperation and information) in filing any Tax Return, amended Tax Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with related work papers and documents relating to rulings or other determinations by taxing authorities. The Stockholder Representative and Parent shall make themselves (and their respective employees) reasonably available on a mutually convenient basis to provide explanations of any documents or information provided under this Section 9.1(g). Notwithstanding anything to the contrary herein, the Surviving Corporation shall retain all Tax Returns, work papers and all material records or other documents in its possession (or in the possession of its Affiliates) relating to Tax matters of the Company or the Surviving Corporation or their Subsidiaries for any taxable period that includes the date of the Closing and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions or (ii) six (6) years following the due date (without extension) for such Tax Returns. After such time, before the Surviving Corporation shall dispose of any such documents in its possession (or in the possession of its Affiliates), the Stockholder Representative and Parent shall be given an opportunity, after ninety (90) days prior written notice, to remove and retain all or any part of such documents as such party may select (at such party’s expense). Any information obtained under this Section 9.1(g) shall be kept confidential, except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting an audit or other proceeding.

 

(h) All tax-sharing agreements or arrangements with respect to the Company and its Subsidiaries shall be terminated as of the Closing Date, and after the Closing Date the Company and its Subsidiaries shall not be bound thereby or have any liability thereunder.

 

10.1 Termination. This Agreement may be terminated at any time prior to the Effective Time:

 

(a) by written agreement of Parent and the Company;

 

 

(b) by Parent or by the Company if the Closing has not occurred on or before April 30, 2008, provided the terminating Party is not in material breach of any of its representations, warranties or covenants under this Agreement;

 

(c) by Parent if the Company is in material breach of this Agreement and such breach has not been cured within fifteen (15) days following the delivery of a written notice by Parent to the Company which sets forth such material breach with particularity;

 

(d) by the Company if Parent or Merger Sub is in material breach of this Agreement and such breach has not been cured within fifteen (15) days following written notice by the Company to Parent which sets forth such material breach with particularity; or

 

(e) in the event either Party provides Updated Schedules disclosing a Material Adverse Effect which is not cured by such providing Party within the time period provided in Section 5.7, by the Party receiving such Updated Schedule(s).