exv10w33



 






Exhibit 10.33




STOCK PURCHASE AGREEMENT




     This Stock Purchase Agreement (“Agreement”) is made as of December 20, 2005, by and between
Allis-Chalmers Energy Inc., a Delaware corporation (“Buyer”) and Joe Van Matre, an individual
resident in Lafayette, Louisiana (“Seller”).



R E C I T A L S




     Seller desires to sell, and Buyer desires to purchase, all of the issued and outstanding
shares (“Shares”) of capital stock of Specialty Rental Tools Inc., a Louisiana corporation
(“Company”), for the consideration and on the terms set forth in this Agreement.



AGREEMENT




     The parties, intending to be legally bound, agree as follows:



1. DEFINITIONS




     For purposes of this Agreement, the following terms have the meanings specified or referred to
in this Section 1:




“Applicable Contract”—any Contract (a) under which Company has or may
acquire any rights, (b) under which Company has or may become subject to any
obligation or liability, or (c) by which Company or any of the assets owned or used
by it is or may become bound.




“Balance Sheet”—as defined in Section 3.4.




“Best Efforts”—the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that obligation
to take actions that would result in a materially adverse change in the benefits to
such Person of this Agreement and the Contemplated Transactions.




“Breach”—a “Breach” of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any inaccuracy
in or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision, or (b) any valid claim (by any
Person) or other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and the term
“Breach” means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.



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“Breakup Fee”—as defined in Section 7.8.




“Buyer”—as defined in the first paragraph of this Agreement.




“Closing”—as defined in Section 2.3.




“Closing Date”—the date and time as of which the Closing actually takes
place.




“Code”—the Internal Revenue Code of 1986, as amended.




“Company”—as defined in the Recitals of this Agreement.




“Consent”—any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).




“Contemplated Transactions”—all of the transactions contemplated by this
Agreement, including:




     (a) the sale of the Shares by Seller to Buyer;




     (b) the execution, delivery, and performance of the Employment Agreement, Lease
Agreement and the Seller’s Release;




     (c) the performance by Buyer and Seller of their respective covenants and
obligations under this Agreement; and




     (d) Buyer’s acquisition and ownership of the Shares and exercise of control
over the Company.




“Contract”—any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally binding.




“Contribution”—as defined in Section 2.7.




“Damages”—as defined in Section 10.2.




“Disclosure Letter”—the disclosure letter delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.




“Employment Agreement”—as defined in Section 2.4(a)(iii).




“Encumbrance”—any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first refusal,
or restriction of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.



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“Environment”—soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental medium or
natural resource.




“Environmental, Health, and Safety Liabilities”—any cost, damages, expense,
liability, obligation, or other responsibility arising from or under Environmental
Law or Occupational Safety and Health Law and consisting of or relating to:




(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);




(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;




(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions (“Cleanup”) required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or




(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.




The terms “removal,” “remedial,” and “response action,” include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended (“CERCLA”).




“Environmental Law”—any Legal Requirement that requires or relates to:




(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;




(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;



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(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;




(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;




(e) protecting resources, species, or ecological amenities;




(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;




(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or




(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.




“ERISA”—the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.




“Facilities”—any real property, leaseholds, or other interests currently or
formerly owned or operated by the Company and any buildings, plants, structures, or
equipment (including motor vehicles, tank cars, and rolling stock) currently or
formerly owned or operated by the Company.




“GAAP”—generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other financial
statements referred to in Section 3.4(b) were prepared.




“Governmental Authorization”—any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made available
by or under the authority of any Governmental Body or pursuant to any Legal
Requirement.




“Governmental Body”—any:




(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;




(b) federal, state, local, municipal, foreign, or other government;



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(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any
court or other tribunal);




(d) multi-national organization or body; or




(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of
any nature.




“Hazardous Activity”—the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other use
of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities
or any part thereof into the Environment, and any other act, business, operation, or
thing that increases the danger, or risk of danger, or poses an unreasonable risk of
harm to persons or property on or off the Facilities, or that may affect the value
of the Facilities or the Company.




“Hazardous Materials”—any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous, radioactive,
or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law,
including any admixture or solution thereof, and specifically including petroleum
and all derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.




“HSR Act”—the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.




“Intellectual Property Assets” —as defined in Section 3.22.




“Interim Balance Sheet”—as defined in Section 3.4.




“IRC”—the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any successor
law.




“IRS”—the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.




“Knowledge”—an individual will be deemed to have “Knowledge” of a
particular fact or other matter if such individual is actually aware of such fact or
other matter.;




A Person (other than an individual) will be deemed to have “Knowledge” of a
particular fact or other matter if any individual who is serving, or who has at any
time



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served, as a director, officer, partner, executor, or trustee of such Person (or in
any similar capacity) has, or at any time had, Knowledge of such fact or other
matter.




“Lease Agreement”—as defined in Section 2.4(a)(v).




“Legal Requirement”—any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.




“Make Whole Amount”—as defined in Section 2.6




“Occupational Safety and Health Law”—any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including those
promulgated or sponsored by industry associations and insurance companies), designed
to provide safe and healthful working conditions.




“Order”—any award, decision, injunction, judgment, order, ruling, subpoena,
or verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.




“Ordinary Course of Business”—an action taken by a Person will be deemed to
have been taken in the “Ordinary Course of Business” only if:




(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such
Person;




(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority); and




(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person
or group of Persons exercising similar authority), in the ordinary course of
the normal day-to-day operations of other Persons that are in the same line
of business as such Person.




“Organizational Documents”—(a) the articles or certificate of incorporation
and the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and the
certificate of limited partnership of a limited partnership; (d) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any amendment to any of the foregoing.



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“Person”—any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity or
Governmental Body.




“Plan”—as defined in Section 3.13.




“Proceeding”—any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.




“Related Person”—with respect to a particular individual:




(a) each other member of such individual’s Family;




(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual’s Family;




(c) any Person in which such individual or members of such individual’s
Family hold (individually or in the aggregate) a Material Interest; and




(d) any Person with respect to which such individual or one or more members
of such individual’s Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).




With respect to a specified Person other than an individual:




(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;




(b) any Person that holds a Material Interest in such specified Person;




(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);




(d) any Person in which such specified Person holds a Material Interest;




(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and




(f) any Related Person of any individual described in clause (b) or (c).




For purposes of this definition, (a) the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, (iii) any other natural person who is
related to



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the individual or the individual’s spouse within the second degree, and (iv) any
other natural person who resides with such individual, and (b) “Material Interest”
means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of voting securities or other voting interests
representing at least 10% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 10% of the outstanding
equity securities or equity interests in a Person.




“Release”—any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.




“Representative”—with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.




“Section 338(h)(10) Elections”—as defined in Section 2.5.




“Securities Act”—the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.




“Seller”—as defined in the first paragraph of this Agreement.




“Seller’s Release”—as defined in Section 2.4.




“Shares”—as defined in the Recitals of this Agreement.




“Subsidiary”—with respect to any Person (the “Owner”), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation’s or other Person’s board of directors or similar
governing body, or otherwise having the power to direct the business and policies of
that corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are held
by the Owner or one or more of its Subsidiaries; when used without reference to a
particular Person, “Subsidiary” means a Subsidiary of the Company.




“Tax”—any income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental, windfall profit,
customs, vehicle, airplane, boat, vessel or other title or registration, capital
stock, franchise, employees’ income withholding, foreign or domestic withholding,
social security, unemployment, disability, real property, personal property, sales,
use, transfer, value added, alternative, add-on minimum and other tax, fee,
assessment, levy, tariff, charge or duty of any kind whatsoever and any interest,
penalty, addition or additional amount thereon imposed, assessed or collected by or
under the authority of



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any Governmental Body or payable under any tax-sharing agreement or any other
Contract.




“Tax Return”—any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax or
in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.




“Threat of Release”—a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.




“Threatened”—a claim, Proceeding, dispute, action, or other matter will be
deemed to have been “Threatened” if any demand or statement has been made (orally or
in writing) or any notice has been given (orally or in writing), or if any other
event has occurred or any other circumstances exist, that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action, or other matter
is likely to be asserted, commenced, taken, or otherwise pursued in the future.



2. SALE AND TRANSFER OF SHARES; CLOSING





2.1 SHARES



            Subject to the terms and conditions of this Agreement, at the Closing, Seller will sell and
transfer the Shares to Buyer, and Buyer will purchase the Shares from Seller.




2.2 PURCHASE PRICE



            The purchase price (the “Purchase Price”) for the Shares will be $83,600,000 which includes
the Make Whole Amount which represents additional Purchase Price.




2.3 CLOSING



            The purchase and sale (the “Closing”) provided for in this Agreement will take place at the
offices of Buyer at 5075 Westheimer, Suite 890, Houston, Texas 77056 at 10:00 a.m. (local time) on
the earliest date following January 2, 2006, and when all the conditions precedent of Seller and
Buyer as described in Sections 7 and 8 of this Agreement have been satisfied or at such other time
and place as the parties may agree. Subject to the provisions of Section 9, failure to consummate
the purchase and sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.



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2.4 CLOSING OBLIGATIONS



            At the Closing:



            (a) Seller will deliver to Buyer:




(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;




(ii) release in the form of Exhibit 2.4(a)(ii) executed by Seller
(collectively, “Seller’s Release”);




(iii) employment agreement in the form of Exhibit 2.4(a)(iii), executed by
Seller (“Employment Agreement”);




(iv) a certificate executed by Seller representing and warranting to Buyer
that each of Seller’s representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing Date (giving
full effect to any supplements to the Disclosure Letter that were delivered
by Seller to Buyer prior to the Closing Date in accordance with Section
5.5);




(v) a lease agreement in the form of Exhibit 2.4(a)(v) executed by Seller on
the real property and buildings operated by the Company in Broussard,
Louisiana (“Lease Agreement”); and




(vi) an affidavit stating that the Seller’s United States taxpayer
identification number and that the Seller is not a foreign person pursuant
to Section 1445(b)(2) of the Code.



            (b) Buyer will deliver to Seller:




(i) the amount of $83,600,000 by wire transfer to an account specified by
Seller;




(ii) a certificate executed by Buyer representing and warranting to Seller
that each of Buyer’s representations in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects as
of the Closing Date as if made on the Closing Date;




(iii)the Employment Agreement executed by Buyer; and




(iv)the Lease Agreement executed by the Company.



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2.5 SECTION 338 (h)(10) ELECTION



            If Buyer decides in its sole discretion to make a Section 338(h)(10) Election pursuant to the
Code with respect to the sale and purchase of Shares under this Agreement, Seller and Buyer agree
to join in making the election under Section 338(h)(10) (and any corresponding elections under
state, local or foreign tax law) (collectively, the “Section 338(h)(10) Elections”) with respect to
the purchase and sale of the Shares of the Company to Buyer.




2.6 ADDITIONAL PURCHASE PRICE FOR 338(h)(10) ELECTIONS



            In making the Section 338(h)(10) Elections, Buyer will include in payment to Seller an amount
of $6,000,000 as additional Purchase Price (“Make Whole Amount”). The Make Whole Amount represents
incremental Taxes payable by Seller as a result of the Section 338(h)(10) Elections and additional
Taxes payable by Seller as a result of consideration paid to Seller for such incremental Taxes
payable. The Make Whole Amount shall be treated as additional Purchase Price by both Seller and
Buyer in accordance with Section 5.9(d). Following the Section 338(h)(10) Elections, in the event
that the Make Whole Amount is less than the incremental Taxes incurred by Seller as a result of the
Section 338(h)(10) Elections, then Buyer will pay to Seller within ten days following
determination, such additional incremental Taxes (and additional Taxes as a result of consideration
paid). Following the Section 338(h)(10) Elections, in the event that the Make Whole Amount is more
than the incremental Taxes payable by Seller (and additional Taxes as a result of consideration
paid) as a result of the Section 338(h)(10) Elections, then Seller shall pay to Buyer the
difference in such amount and the Make Whole Amount within ten days of such determination.




2.7 CONTRIBUTION TO COMPANY



            As additional consideration for this Agreement, Buyer and Seller have agreed that, at Closing,
Buyer shall contribute to the Company $12,400,000 less an amount equal to Company’s cash on hand on
the Closing Date (“Contribution”) for the payment on the Closing Date by the Company of bonuses and
commissions to certain employees and non-employees of the Company. The Contribution by Buyer
together with the cash of the Company on hand on the Closing Date shall be used exclusively for the
payment by the Company of said bonuses and commissions in such amounts, the total of which shall
not exceed $12,400,000, and to the individuals selected by Seller in his sole discretion.



3. REPRESENTATIONS AND WARRANTIES OF SELLER





Seller represents and warrants to Buyer as follows:




3.1 ORGANIZATION AND GOOD STANDING



            (a) Part 3.1 of the Disclosure Letter contains a complete and accurate list for the Company of
its name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each stockholder and the number of
shares held by each). The Company is a corporation duly organized, validly existing, and in good
standing



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under the laws of its jurisdiction of incorporation, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the properties and assets that
it purports to own or use, and to perform all its obligations under Applicable Contracts. The
Company is duly qualified to do business as a foreign corporation and is in good standing under the
laws of each state or other jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it, requires such qualification.




            (b) Seller has delivered to Buyer copies of the Organizational Documents of the Company, as
currently in effect.




3.2 AUTHORITY; NO CONFLICT



          (a) This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable
against Seller in accordance with its terms. Upon the execution and delivery by Seller of the
Employment Agreement and the Seller’s Release (collectively, the “Seller’s Closing Documents”), the
Seller’ Closing Documents will constitute the legal, valid, and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms. Seller has the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the
Seller’s Closing Documents and to perform their obligations under this Agreement and the Seller’s
Closing Documents.



          (b) Except as set forth in Part 3.2 of the Disclosure Letter, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of time):




     (i) contravene, conflict with, or result in a violation of (A) any provision of
the Organizational Documents of the Company, or (B) any resolution adopted by the
board of directors or the stockholders of the Company;




     (ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or Seller, or any of the assets owned
or used by the Company, may be subject;




     (iii) contravene, conflict with, or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is held
by the Company or that otherwise relates to the business of, or any of the assets
owned or used by the Company;




     (iv) cause Buyer or the Company to become subject to, or to become liable for
the payment of, any Tax other than as a result of the Company no longer being a
Subchapter S corporation;



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     (v) cause any of the assets owned by the Company to be reassessed or revalued
by any taxing authority or other Governmental Body;




     (vi) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or




     (vii) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.


Except as set forth in Part 3.2 of the Disclosure Letter, neither Seller or the Company is or will
be required to give any notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.





3.3 CAPITALIZATION



               The authorized equity securities of the Company consist of 10,000 shares of common stock, no
par value, of which 225 shares are issued and outstanding and constitute the Shares. Seller is and
will be on the Closing Date the record and beneficial owner and holder of all the Shares, free and
clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of Company. All of the outstanding equity securities
of the Company have been duly authorized and validly issued and are fully paid and nonassessable.
There are no Contracts relating to the issuance, sale, or transfer of any equity securities or
other securities of the Company. None of the outstanding equity securities or other securities of
the Company was issued in violation of the Securities Act or any other Legal Requirement. The
Company does not own, or have any Contract to acquire, any equity securities or other securities of
any Person or any direct or indirect equity or ownership interest in any other business.




3.4 FINANCIAL STATEMENTS



               Seller has delivered to Buyer: (a) audited consolidated balance sheets of the Company as at
December 31 in each of the years 2002 through 2003, and the related audited consolidated statements
of income, changes in stockholders’ equity, and cash flow for each of the fiscal years then ended,
together with the report thereon of UHY Mann Frankfort Stein & Lipp, independent certified public
accountants, (b) an audited consolidated balance sheet of the Company as at December 31, 2004
(including the notes thereto, the “Balance Sheet”), and the related consolidated statements of
income, changes in stockholders’ equity, and cash flow for the fiscal year then ended, together
with the report thereon of UHY Mann Frankfort & Stein, independent certified public accountants,
and (c) an audited consolidated balance sheet of the Company as at September 30, 2005 (the “Interim
Balance Sheet”) and the related audited consolidated statements of income, changes in stockholders’
equity, and cash flow for the 9 months then ended, including in each case the notes thereto
together with the report thereon of UHY Mann Frankfort Stein & Lipp, independent certified public



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accountants. Such financial statements and notes fairly present the financial condition and
the results of operations, changes in stockholders’ equity, and cash flow of the Company as at the
respective dates of and for the periods referred to in such financial statements, all in accordance
with GAAP, subject, in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be materially adverse)
and the absence of notes (that, if presented, would not differ materially from those included in
the Balance Sheet); the financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved. No financial statements
of any Person other than the Company are required by GAAP to be included in the consolidated
financial statements of the Company.





3.5 BOOKS AND RECORDS



               The books of account, minute books, stock record books, and other records of the Company, all
of which have been made available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices and the requirements of Section 13(b)(2) of the Securities
Exchange Act of 1934, as amended (regardless of whether or not the Company is subject to that
Section), including the maintenance of an adequate system of internal controls. The minute books of
the Company contain accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of
the Company, and no meeting of any such stockholders, Board of Directors, or committee has been
held for which minutes have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of the Company.




3.6 TITLE TO PROPERTIES; ENCUMBRANCES



               Part 3.6 of the Disclosure Letter contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by Company. The Company owns (with good and marketable
title in the case of real property, subject only to the matters permitted by the following
sentence) all the properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that they purport to own, including all of the properties and assets reflected in the
Balance Sheet and the Interim Balance Sheet (except for assets held under capitalized leases
disclosed or not required to be disclosed in Part 3.6 of the Disclosure Letter and personal
property sold since the date of the Balance Sheet and the Interim Balance Sheet, as the case may
be, in the Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet (except for personal property
acquired and sold since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice). All material properties and assets reflected in the Balance Sheet
and the Interim Balance Sheet are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to all such properties and assets,
(a) mortgages or security interests shown on the Balance Sheet or the Interim Balance Sheet as
securing specified liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b) mortgages or security
interests incurred in connection with the purchase of



14









 




property or assets after the date of the Interim Balance Sheet (such mortgages and security
interests being limited to the property or assets so acquired), with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a default) exists, (c) liens
for current taxes not yet due, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts from the value or
impairs the use of the property subject thereto, or impairs the operations of the Company, and (ii)
zoning laws and other land use restrictions that do not impair the present or anticipated use of
the property subject thereto. All buildings, plants, and structures owned or leased by the Company
in Broussard, Louisiana lie wholly within the boundaries of the real property leased by the Company
in Broussard, Louisiana and do not encroach upon the real property of, or otherwise conflict with
the real property rights of, any other Person.





3.7 CONDITION AND SUFFICIENCY OF ASSETS



               The buildings, plants, structures, and equipment of the Company are structurally sound, are in
good operating condition and repair, and are adequate for the uses to which they are being put, and
none of such buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in nature or cost. The
building, plants, structures, and equipment of the Company are sufficient for the continued conduct
of the Company’s businesses after the Closing in substantially the same manner as conducted prior
to the Closing.




3.8 ACCOUNTS RECEIVABLE



               All accounts receivable of the Company that are reflected on the Balance Sheet or the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date (collectively, the
“Accounts Receivable”) represent or will represent valid obligations arising from sales actually
made or services actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible
net of the respective reserves shown on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of the Closing Date,
will not represent a greater percentage of the Accounts Receivable as of the Closing Date than the
reserve reflected in the Interim Balance Sheet represented of the Accounts Receivable reflected
therein and will not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any set-off, within ninety days after the day on which
it first becomes due and payable. There is no contest, claim, or right of set-off, other than
returns in the Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable. Part 3.8 of the
Disclosure Letter contains a complete and accurate list of all Accounts Receivable as of the date
of the Interim Balance Sheet, which list sets forth the aging of such Accounts Receivable.



15









 






3.9 INVENTORY



               All inventory of the Company, whether or not reflected in the Balance Sheet or the Interim
Balance Sheet, consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheet or the Interim Balance
Sheet or on the accounting records of the Company as of the Closing Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market on a first in, first
out basis. The quantities of each item of inventory (whether raw materials, work-in-process, or
finished goods) are not excessive, but are reasonable in the present circumstances of the Company.




3.10 NO UNDISCLOSED LIABILITIES



               Except as set forth in Part 3.10 of the Disclosure Letter, the Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheet
or the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business
since the respective dates thereof.




3.11 TAXES



               (a) The Company has filed properly or timely caused to be filed all Tax Returns that are or
were required to be filed by or with respect to it, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Seller has delivered or made available to
Buyer copies of, and Part 3.11 of the Disclosure Letter contains a complete and accurate list of,
all such Tax Returns filed since 2001. The Seller and the Company have timely paid or will pay, or
made provision for the payment of, all Taxes with respect to the Company in respect of periods or
portions thereof beginning prior to and ending on or prior to the Closing Date, or pursuant to any
assessment received by Seller or the Company, except such Taxes, if any, as are listed in Part 3.11
of the Disclosure Letter and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Balance Sheet and the Interim
Balance Sheet. No item of income or gain reported by the Company for financial accounting purposes
in any pre-Closing period is required to be included in taxable income of the Company for a
post-Closing period.



               (b) The United States federal and state income Tax Returns of the Company subject to such
Taxes have been audited by the IRS or relevant state tax authorities or are closed by the
applicable statute of limitations for all taxable years through 2001. Part 3.11 of the Disclosure
Letter contains a complete and accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each audit. All deficiencies proposed
as a result of such audits have been paid, reserved against, settled, or, as described in Part 3.11
of the Disclosure Letter, are being contested in good faith by appropriate proceedings. Part 3.11
of the Disclosure Letter describes all adjustments to the Tax Returns filed by the Company or any
group of corporations including the Company for all taxable years since 2001, and the resulting
deficiencies proposed by the IRS. Except as described in Part 3.11 of the Disclosure Letter,
neither Seller or the



16









 




Company has given or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other Person) of any statute of limitations relating to the
payment of Taxes of the Company or for which the Company may be liable.




               (c) The charges, accruals, and reserves with respect to Taxes on the respective books of the
Company are adequate (determined in accordance with GAAP) and are at least equal to the Company’s
liability for Taxes. There exists no proposed tax assessment against the Company except as
disclosed in the Balance Sheet or in Part 3.11 of the Disclosure Letter. No consent to the
application of Section 341(f)(2) of the Code has been filed with respect to any property or assets
held, acquired, or to be acquired by the Company. All Taxes that the Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.



               (d) All Tax Returns filed by (or that include on a consolidated basis) the Company are true,
correct, and complete. There is no tax sharing agreement that will require any payment by the
Company after the date of this Agreement. During the consistency period (as defined in Section
338(h)(4) of the Code with respect to the sale of the Shares to Buyer), the Company or target
affiliate (as defined in Section 338(h)(6) of the Code with respect to the sale of the Shares to
Buyer) has not sold or will sell any property or assets to Buyer or to any member of the affiliated
group (as defined in Section 338(h)(5) of the Code) that includes Buyer. Part 3.11 of the
Disclosure Letter lists all such target affiliates.



               (e) The Company is an S corporation as defined in the Code Section 1361 and has been treated
in a similar manner for purposes of the income tax laws for all states in which it has been subject
to taxation where such treatment is legally available, and the Company is not and has not been
subject to either the built-in gains tax under Code Section 1374 or the passive income tax under
Code Section 1375. Part 3.11(e) of the Disclosure Letter lists all the states and localities with
respect to which the Company is required to file any corporate income or franchise tax returns and
sets forth whether the Company is treated as the equivalent of an S corporation by or with respect
to each such state or locality. The Company has properly filed Tax Returns with and paid and
discharged any liabilities for Taxes in any states or localities in which it is subject to Tax.
Neither Seller or the Company knows or has reason to believe, after consultation with tax counsel,
that the Buyer’s acquisition of the Company’s capital stock pursuant to this Agreement would not
qualify as a “qualified stock purchase” within the meaning of Section 338 of the Code and the
Treasury Regulations thereunder, as to which an election properly may be made under Section
338(h)(10). The Company has no operations or activities outside of the United States.



               (f) Seller and the Company have disclosed on their federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.



               (g) The disallowance of a deduction under Code Section 162(m) for employee remuneration will
not apply to any amount paid or payable by Seller under any contractual arrangement currently in
effect.



17









 






3.12 NO MATERIAL ADVERSE CHANGE



               Since the date of the Balance Sheet, there has not been any material adverse change in the
business, operations, properties, prospects, assets, or condition of Company, and no event has
occurred or circumstance exists that may result in such a material adverse change.




3.13 EMPLOYEE BENEFITS



               The Seller has delivered to the Buyer a true, correct and complete list (which is set forth on
Part 3.13 of the Disclosure Letter) of all employee benefit plans of the Company, including all
written employment agreements and all other agreements or arrangements that could obligate the
Company or any affiliate of the Company to make any severance, change-of-control or other, similar
payments and all deferred compensation agreements, together with true, correct and complete copies
of such plans, agreements and any trusts related thereto, and classifications of employees covered
thereby. Except for the employee benefit plans, if any, described on Part 3.13 of the Disclosure
Letter, the Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an “employee pension benefit plan,” and the Company does not have any
obligation to contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as, for example, and
without limitation, any individual retirement account or annuity, any “excess benefit plan” (within
the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
“ERISA”) or any non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term “employee pension benefit plan” shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any
employee pension benefit plan, nor is the Company required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing the terms and
conditions of employment of any of the Company’s employees, other than the plans set forth on Part
3.13 of the Disclosure Letter. The Company is not now, nor as a result of its past activities can
it reasonably be expected to become, liable to the Pension Benefit Guaranty Corporation (other than
for premium payments) or to any multi employer employee pension benefit plan under the provisions
of Title IV of ERISA. All employee benefit plans listed in Part 3.13 of the Disclosure Letter and
the administration thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all other applicable
federal, state and local statutes, ordinances and regulations. All accrued contribution
obligations of the Company or any subsidiary with respect to any plan listed in Part 3.13 of the
Disclosure Letter have either been fulfilled in their entirety or are fully reflected on the
Unaudited Balance Sheets of the Company.



               Compliance with the Code and ERISA. All employee benefit plans listed in Part 3.13
of the Disclosure Letter that are intended to qualify under Section 401(a) of the Code (the
“Qualified Plans”) are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are included as part of
Part 3.13 of the Disclosure Letter. To the Seller’s Knowledge, except as disclosed in Part 3.13 of the
Disclosure Letter, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not limited to,
actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of



18









 




Part 3.13 of the Disclosure Letter.
No plan listed in Part 3.13 of the Disclosure Letter, or the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. To the
Sellers’ Knowledge, no employee benefit plan listed in Part 3.13 of the Disclosure Letter has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section
302(1) of ERISA; and the Company has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service, or (ii) any liability to the Pension Benefit Guaranty
Corporation (other than for premium payments). In addition:





          (i) there have been no terminations or discontinuance of contributions to any
Qualified Plan without notice to and approval by the Internal Revenue Service;




          (ii) no plan listed in Part 3.13 of the Disclosure Letter that is subject to
the provisions of Title IV of ERISA has been terminated;




          (iii) there have been no “reportable events” (as that phrase is defined in
Section 4043 of ERISA) with respect to employee benefit plans listed in Part 3.13 to
the Disclosure Letter;




          (v) the Company has not incurred liability under Section 4062 of ERISA; and




          (vi) no circumstances exist pursuant to which the Company could reasonably be
expected to have any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multi employer plan or the Pension Benefit Guaranty
Corporation under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory Lien to secure payment of
any such liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any time was, a
member of a “controlled group” (as defined in Section 412(n)(6)(B) of the Code) that
includes the Company (“Controlled Group”).


The transactions contemplated by this Agreement together with any amounts paid or payable by the
Company or any member of the Controlled Group have not resulted in and will not result in payments
to “disqualified individuals” (as defined in Section 280G(c) of the Code) of the Company or any
member of the Controlled Group which, individually or in the aggregate will constitute “excess
parachute payments” (as defined in Section 280G(b) of the Code) resulting in the imposition of the
excise tax under Section 4999 of the Code or the disallowance of deductions under Section 280G of
the Code.





3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS



          (a) Except as set forth in Part 3.14 of the Disclosure Letter:



19









 






          (i) the Company is, and at all times since January 1, 2005, has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its assets;




          (ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation by the Company of, or
a failure on the part of the Company to comply with, any Legal Requirement, or (B)
may give rise to any obligation on the part of the Company to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature; and




          (iii) the Company has not received, at any time since January 1, 2005, any
notice or other communication (whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any Legal Requirement, or (B) any actual,
alleged, possible, or potential obligation on the part of the Company to undertake,
or to bear all or any portion of the cost of, any remedial action of any nature.



          (b) Part 3.14 of the Disclosure Letter contains a complete and accurate list of each
Governmental Authorization that is held by the Company or that otherwise relates to the business
of, or to any of the assets owned or used by, the Company. Each Governmental Authorization listed
or required to be listed in Part 3.14 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 3.14 of the Disclosure Letter:





     (i) the Company is, and at all times since January 1, 2005, has been, in full
compliance with all of the terms and requirements of each Governmental Authorization
identified or required to be identified in Part 3.14 of the Disclosure Letter;




     (ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter,
or (B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter;




     (iii) the Company has not received, at any time since January 1, 2005 any
notice or other communication (whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and



20









 






     (iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Part 3.14 of the
Disclosure Letter have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with respect
to such Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.


The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter collectively
constitute all of the Governmental Authorizations necessary to permit the Company to lawfully
conduct and operate its business in the manner it currently conduct and operates such business and
to permit the Company to owns and use its assets in the manner in which they currently owns and use
such assets.





3.15 LEGAL PROCEEDINGS; ORDERS



               (a) Except as set forth in Part 3.15 of the Disclosure Letter, there is no pending Proceeding:




          (i) that has been commenced by or against the Company or that otherwise relates
to or may affect the business of, or any of the assets owned or used by, the
Company; or




          (ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated Transactions.


To the Knowledge of Seller and the Company, (1) no such Proceeding has been Threatened, and (2) no
event has occurred or circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Seller has delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part 3.15 of the
Disclosure Letter. The Proceedings listed in Part 3.15 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or prospects of the
Company.




               (b) Except as set forth in Part 3.15 of the Disclosure Letter:




          (i) there is no Order to which any of the Company, or any of the assets owned
or used by the Company, is subject;




          (ii) Seller is not subject to any Order that relates to the business of, or any
of the assets owned or used by, the Company; and




          (iii) no officer, director, agent, or employee of the Company is subject to any
Order that prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of the
Company.



               (c) Except as set forth in Part 3.15 of the Disclosure Letter:



21









 






          (i) the Company is, and at all times since January 1, 2005 has been, in full
compliance with all of the terms and requirements of each Order to which it, or any
of the assets owned or used by it, is or has been subject;




          (ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Company, or any of the assets
owned or used by the Company, is subject; and




          (iii) the Company has not received, at any time since January 1, 2005, any
notice or other communication (whether oral or written) from any Governmental Body
or any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is or has been subject.




3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS



               Except as set forth in Part 3.16 of the Disclosure Letter, since the date of the Balance
Sheet, the Company has conducted its business only in the Ordinary Course of Business and there has
not been any:



               (a) change in the Company’s authorized or issued capital stock; grant of any stock option or
right to purchase shares of capital stock of the Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or declaration or payment of
any dividend or other distribution or payment in respect of shares of capital stock other than
distribution to Seller of all funds in Company’s short-term investment account in the amount of
$8,270,000 plus earnings through Closing, which distribution Buyer expressly approves;



               (b) amendment to the Organizational Documents of the Company;



               (c) payment or increase by the Company of any bonuses, salaries, or other compensation to any
stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry
into any employment, severance, or similar Contract with any director, officer, or employee;



               (d) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for
or with any employees of the Company;



               (e) damage to or destruction or loss of any asset or property of the Company, whether or not
covered by insurance, materially and adversely affecting the properties, assets, business,
financial condition, or prospects of the Company, taken as a whole;



22









 





               (f) entry into, termination of, or receipt of notice of termination of (i) any license,
distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii)
any Contract or transaction involving a total remaining commitment by or to Company of at least
$100,000;



               (g) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other
disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien
or other encumbrance on any material asset or property of the Company, including the sale, lease,
or other disposition of any of the Intellectual Property Assets;



               (h) cancellation or waiver of any claims or rights with a value to the Company in excess of
$100,000;



               (i) material change in the accounting methods used by the Company; or



               (j) agreement, whether oral or written, by the Company to do any of the foregoing.




3.17 CONTRACTS; NO DEFAULTS



               (a) Part 3.17(a) of the Disclosure Letter contains a complete and accurate list, and Seller
have delivered to Buyer true and complete copies, of:




          (i) each Applicable Contract that involves performance of services or delivery
of goods or materials by the Company of an amount or value in excess of $100,000;




          (ii) each Applicable Contract that involves performance of services or delivery
of goods or materials to the Company of an amount or value in excess of $100,000;




          (iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of the Company in excess of
$100,000;




          (iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other interest in, any real or
personal property (except personal property leases and installment and conditional
sales agreements having a value per item or aggregate payments of less than $100,000
and with terms of less than one year);




          (v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements



23









 






with current or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual Property Assets;




          (vi) each collective bargaining agreement and other Applicable Contract to or
with any labor union or other employee representative of a group of employees;




          (vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the Company
with any other Person;




          (viii) each Applicable Contract containing covenants that in any way purport to
restrict the business activity of the Company or any Affiliate of the Company or
limit the freedom of the Company or any Affiliate of the Company to engage in any
line of business or to compete with any Person;




          (ix) each Applicable Contract providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments for goods;




          (x) each power of attorney that is currently effective and outstanding;




          (xi) each Applicable Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by the Company to be
responsible for consequential damages;




          (xii) each Applicable Contract for capital expenditures in excess of $100,000;




          (xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by the Company other than in the
Ordinary Course of Business; and




          (xiv) each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.


Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining commitment of the
Company under the Contracts, and the Company’s office where details relating to the Contracts are
located.





(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:




          (i) neither Seller (and no Related Person of Seller) has or may acquire any
rights under, and neither Seller has or may become subject to any obligation or
liability under, any Contract that relates to the business of, or any of the assets
owned or used by, the Company; and



24









 






          (ii) no officer, director, agent, employee, consultant, or contractor of the
Company is bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A) engage in or continue
any conduct, activity, or practice relating to the business of the Company, or (B)
assign to the Company or to any other Person any rights to any invention,
improvement, or discovery.




(c) Except as set forth in Part 3.17(c) of the Disclosure Letter, each Contract identified or
required to be identified in Part 3.17(a) of the Disclosure Letter is in full force and effect and
is valid and enforceable in accordance with its terms.




(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:




          (i) the Company is, and at all times since January 1, 2005, has been, in full
compliance with all applicable terms and requirements of each Contract under which
the Company has or had any obligation or liability or by which such Acquired Company
or any of the assets owned or used by the Company is or was bound;




          (ii) each other Person that has or had any obligation or liability under any
Contract under which the Company has or had any rights is, and at all times since
January 1, 2005, has been, in full compliance with all applicable terms and
requirements of such Contract;




          (iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in a violation or breach
of, or give the Company or other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and




          (iv) the Company has not given to or received from any other Person, at any
time since January 1, 2005, any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or potential violation or breach
of, or default under, any Contract.



               (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to the Company under current or completed
Contracts with any Person and, to the Knowledge of Seller and the Company, no such Person has made
written demand for such renegotiation.



               (f) The Contracts relating to the sale, design, manufacture, or provision of products or
services by the Company have been entered into in the Ordinary Course of Business and have been
entered into without the commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of any Legal
Requirement.



25









 






3.18 INSURANCE



          (a) Seller has delivered to Buyer:




          (i) true and complete copies of all policies of insurance to which Company is a
party or under which the Company, or any director of the Company, is or has been
covered at any time within the 5 years preceding the date of this Agreement;




          (ii) true and complete copies of all pending applications for policies of
insurance; and




          (iii) any statement by the auditor of the Company’s financial statements with
regard to the adequacy of such entity’s coverage or of the reserves for claims.



          (b) Part 3.18(b) of the Disclosure Letter describes:




          (i) any self-insurance arrangement by or affecting the Company, including any
reserves established thereunder;




          (ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by the Company; and




          (iii) all obligations of the Company to third parties with respect to insurance
(including such obligations under leases and service agreements) and identifies the
policy under which such coverage is provided.



          (c) Part 3.18(c) of the Disclosure Letter sets forth, by year, for the current policy year and
each of the 3 preceding policy years:




          (i) a summary of the loss experience under each policy;




          (ii) a statement describing each claim under an insurance policy for an amount
in excess of $50,000, which sets forth:




               (A) the name of the claimant;




               (B) a description of the policy by insurer, type of insurance, and
period of coverage; and




               (C) the amount and a brief description of the claim; and




          (iii) a statement describing the loss experience for all claims that were
self-insured, including the number and aggregate cost of such claims.



26









 





          (d) Except as set forth on Part 3.18(d) of the Disclosure Letter:




          (i) All policies to which the Company is a party or that provide coverage to
Seller, the Company, or any director or officer of the Company:




               (A) are valid, outstanding, and enforceable;




               (B) are issued by an insurer that is financially sound and reputable;




               (C) taken together, provide adequate insurance coverage for the assets
and the operations of the Company for all risks to which the Company is
normally exposed;




               (D) are sufficient for compliance with all Legal Requirements and
Contracts to which the Company is a party or by which any of them is bound;




               (E) will continue in full force and effect following the consummation
of the Contemplated Transactions; and




               (F) do not provide for any retrospective premium adjustment or other
experienced-based liability on the part of the Company.




          (ii) Neither Seller or the Company has received (A) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights, or (B) any
notice of cancellation or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or that the issuer of any
policy is not willing or able to perform its obligations thereunder.




          (iii) The Company has paid all premiums due, and has otherwise performed all of
its respective obligations, under each policy to which the Company is a party or
that provides coverage to Company or director thereof.




          (iv) The Company has given notice to the insurer of all claims that may be
insured thereby.




3.19 ENVIRONMENTAL MATTERS



               Except as set forth in Part 3.19 of the Disclosure Letter:



               (a) The Company is, and at all times has been, in full compliance with, and has not been and
is not in violation of or liable under, any Environmental Law. Neither Seller or the Company has
any basis to expect, nor has any of them or any other Person for whose conduct they are or may be
held to be responsible received, any actual or Threatened order, notice, or other communication
from (i) any Governmental Body or private citizen acting in the public interest, or



27









 




(ii) the current or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual or Threatened
obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with
respect to any of the Facilities or any other properties or assets (whether real, personal, or
mixed) in which Seller or the Company has had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Seller, the Company, or any other Person for whose conduct they are
or may be held responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.




               (b) There are no pending or, to the Knowledge of Seller and the Company, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and
Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other properties and assets (whether real, personal, or
mixed) in which Seller or the Company has or had an interest.



               (c) Neither Seller or the Company has Knowledge of any basis to expect, nor has any of them or
any other Person for whose conduct they are or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure
to comply with any Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any
of the Facilities or any other properties or assets (whether real, personal, or mixed) in which
Seller or the Company had an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by
Seller, the Company, or any other Person for whose conduct they are or may be held responsible,
have been transported, treated, stored, handled, transferred, disposed, recycled, or received.



               (d) Neither Seller or the Company, or any other Person for whose conduct they are or may be
held responsible, has any Environmental, Health, and Safety Liabilities with respect to the
Facilities or to the Knowledge of Seller and the Company, with respect to any other properties and
assets (whether real, personal, or mixed) in which Seller or the Company (or any predecessor), has
or had an interest, or at any property geologically or hydrologically adjoining the Facilities or
any such other property or assets.



               (e) There are no Hazardous Materials present on or in the Environment at the Facilities or at
any geologically or hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the Facilities or such adjoining property, or incorporated
into any structure therein or thereon. Neither Seller, the Company, any other Person for whose
conduct they are or may be held responsible, or to the Knowledge of Seller and the Company, any
other Person, has permitted or conducted, or is aware of, any Hazardous Activity conducted with
respect to the Facilities or any other properties or assets (whether real,



28









 




personal, or mixed) in which Seller or the Company has or had an interest except in full
compliance with all applicable Environmental Laws.




               (f) There has been no Release or, to the Knowledge of Seller and the Company, Threat of
Release, of any Hazardous Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used,
or processed from or by the Facilities, or from or by any other properties and assets (whether
real, personal, or mixed) in which Seller or Company has or had an interest, or to the Knowledge of
Seller and the Company any geologically or hydrologically adjoining property, whether by Seller,
the Company, or any other Person.



               (g) Seller have delivered to Buyer true and complete copies and results of any reports,
studies, analyses, tests, or monitoring possessed or initiated by Seller or the Company pertaining
to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Seller, the Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.




3.20 EMPLOYEES



               (a) Part 3.20 of the Disclosure Letter contains a complete and accurate list of the following
information for each employee or director of the Company, including each employee on leave of
absence or layoff status: employer; name; job title; current compensation paid or payable and any
change in compensation since January 1, 2005; vacation accrued; and service credited for purposes
of vesting and eligibility to participate under the Company’s pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan or any Director Plan.



               (b) No employee or director of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, non-competition, or proprietary rights
agreement, between such employee or director and any other Person (“Proprietary Rights Agreement”)
that in any way adversely affects or will affect (i) the performance of his duties as an employee
or director of the Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Seller or the Company by any such employee or director. To
Seller’s Knowledge, no director, officer, or other key employee of the Company intends to terminate
his employment with the Company.



               (c) Part 3.20 of the Disclosure Letter also contains a complete and accurate list of the
following information for each retired employee or director of the Company, or their dependents,
receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance coverage, and other
benefits.




29










 






     3.21 LABOR RELATIONS; COMPLIANCE



          Since January 1, 2005, the Company has not been and is not a party to any collective
bargaining or other labor Contract. Since January 1, 2005, there has not been, there is not
presently pending or existing, and to Seller’s Knowledge there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any Proceeding against or
affecting the Company relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any
comparable Governmental Body, organizational activity, or other labor or employment dispute against
or affecting any of the Company or its premises, or (c) any application for certification of a
collective bargaining agent. No event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any employees by the
Company, and no such action is contemplated by the Company. The Company has complied in all
respects with all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant closing. The Company
is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing Legal Requirements.




     3.22 INTELLECTUAL PROPERTY



          (a) Intellectual Property Assets—The term “Intellectual Property Assets”
includes:





     (i) the name “Specialty Rental Tools Inc.”, all fictional business names,
trading names, registered and unregistered trademarks, service marks, and
applications (collectively, “Marks”);




     (ii) all patents, patent applications, and inventions and discoveries that may
be patentable (collectively, “Patents”);




     (iii) all copyrights in both published works and unpublished works
(collectively, “Copyrights”);




     (iv) all rights in mask works (collectively, “Rights in Mask Works”); and




     (v) all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and blue
prints (collectively, “Trade Secrets”); owned, used, or licensed by the Company as
licensee or licensor.



          (b) Agreements—Part 3.22(b) of the Disclosure Letter contains a complete and accurate
list and summary description, including any royalties paid or received by the Company, of all
Contracts relating to the Intellectual Property Assets to which the Company is a party or by which
the Company is bound, except for any license implied by the sale of a product and perpetual,
paid-up




30









 




licenses for commonly available software programs with a value of less than $1,000 under
which the Company is the licensee. There are no outstanding and, to Seller’s Knowledge, no
Threatened disputes or disagreements with respect to any such agreement.




          (c) Know-How Necessary for the Business





     (i) The Intellectual Property Assets are all those necessary for the operation
of the Company’s businesses as they are currently conducted. The Company is the
owner of all right, title, and interest in and to each of the Intellectual Property
Assets, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to use without payment to a
third party all of the Intellectual Property Assets.




     (ii) Except as set forth in Part 3.22(c) of the Disclosure Letter, all former
and current employees of the Company have executed written Contracts with one or
more of the Company that assign to one or more of the Company all rights to any
inventions, improvements, discoveries, or information relating to the business of
the Company. No employee of the Company has entered into any Contract that restricts
or limits in any way the scope or type of work in which the employee may be engaged
or requires the employee to transfer, assign, or disclose information concerning his
work to anyone other than one or more of the Company.



          (d) Patents





     (i) Part 3.22(d) of the Disclosure Letter contains a complete and accurate list
and summary description of all Patents. One or more of the Company is the owner of
all right, title, and interest in and to each of the Patents, free and clear of all
liens, security interests, charges, encumbrances, entities, and other adverse
claims.




     (ii) All of the issued Patents are currently in compliance with formal legal
requirements (including payment of filing, examination, and maintenance fees and
proofs of working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days after the
Closing Date.




     (iii) No Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To Seller’s Knowledge, there is no
potentially interfering patent or patent application of any third party.




     (iv) To Seller’s Knowledge no Patent is infringed or has been challenged or
threatened in any way. To Seller’s Knowledge none of the products manufactured and
sold, nor any process or know-how used, by the Company infringes or is alleged to
infringe any patent or other proprietary right of any other Person.



31









 






     (v) All products made, used, or sold under the Patents have been marked with
the proper patent notice.



          (e) Trademarks





     (i) Part 3.22(e) of Disclosure Letter contains a complete and accurate list and
summary description of all Marks. The Company is the owner of all right, title, and
interest in and to each of the Marks, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims.




     (ii) All Marks that have been registered with the United States Patent and
Trademark Office are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety days
after the Closing Date.




     (iii) No Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to Seller’s Knowledge, no such action is Threatened with the
respect to any of the Marks.




     (iv) To Seller’s Knowledge, there is no potentially interfering trademark or
trademark application of any third party.




     (v) To Seller’s Knowledge no Mark is infringed or has been challenged or
threatened in any way. To Seller’s Knowledge none of the Marks used by the Company
infringes or is alleged to infringe any trade name, trademark, or service mark of
any third party.




     (vi) All products and materials containing a Mark bear the proper federal
registration notice where permitted by law.



          (f) Copyrights





     (i) Part 3.22(f) of the Disclosure Letter contains a complete and accurate list
and summary description of all Copyrights. The Company is the owner of all right,
title, and interest in and to each of the Copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse claims.




     (ii) All the Copyrights have been registered and are currently in compliance
with formal legal requirements, are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within ninety days after the
date of Closing.



32









 






     (iii) To Seller’s Knowledge, no Copyright is infringed or has been challenged
or threatened in any way. To Seller’s Knowledge none of the subject matter of any
of the Copyrights infringes or is alleged to infringe any copyright of any third
party or is a derivative work based on the work of a third party.




     (iv) All works encompassed by the Copyrights have been marked with the proper
copyright notice.



          (g) Trade Secrets





     (i) With respect to each Trade Secret, the documentation relating to such Trade
Secret is current, accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without reliance on the knowledge or
memory of any individual.




     (ii) Seller and the Company have taken all reasonable precautions to protect
the secrecy, confidentiality, and value of their Trade Secrets.




     (iii) The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to Seller’s Knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person (other than one or
more of the Company) or to the detriment of the Company. To Seller’s Knowledge, no
Trade Secret is subject to any adverse claim or has been challenged or threatened in
any way.



     3.23 CERTAIN PAYMENTS



          Since January 1, 2004, neither the Company nor any director or officer of the Company, nor to
Seller’s Knowledge any agent, employee or any other Person associated with or acting for or on
behalf of the Company, has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of the Company or any
Affiliate of the Company, or (iv) in violation of any Legal Requirement, (b) established or
maintained any fund or asset that has not been recorded in the books and records of the Company.




     3.24 DISCLOSURE



          (a) No representation or warranty of Seller in this Agreement and no statement in the
Disclosure Letter omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.




33









 








          (b) No notice given pursuant to Section 5.5 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.




          (c) There is no fact known to either Seller that has specific application to either Seller or
the Company (other than general economic or industry conditions) and that materially adversely
affects or, as far as Seller can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company (on a consolidated basis)
that has not been set forth in this Agreement or the Disclosure Letter.




     3.25 RELATIONSHIPS WITH RELATED PERSONS



          Except as set forth in Part 3.25 of the Disclosure Letter, neither Seller nor any Related
Person of Seller or of the Company has, or since January 1, 2005, has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the Company’s business. No Seller or any Related Person of Seller or of the Company
is, or since has owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company [other than business dealings or
transactions conducted in the Ordinary Course of Business with the Company at substantially
prevailing market prices and on substantially prevailing market terms], or (ii) engaged in
competition with Company with respect to any line of the products or services of the Company (a
“Competing Business”) in any market presently served by the Company except for less than two
percent of the outstanding capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in Part 3.25 of the
Disclosure Letter, neither Seller nor any Related Person of Seller or of the Company is a party to
any Contract with, or has any claim or right against, the Company.




     3.26 BROKERS OR FINDERS



          Seller and their agents have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this
Agreement.




4. REPRESENTATIONS AND WARRANTIES OF BUYER




     Buyer represents and warrants to Seller as follows:



     4.1 ORGANIZATION AND GOOD STANDING



          Buyer is a corporation duly organized, validly existing, and in good standing under the laws
of the State of Delaware.




34









 








     4.2 AUTHORITY; NO CONFLICT



          (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the
Employment Agreement (collectively, the “Buyer’s Closing Documents”), the Buyer’s Closing Documents
will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer’s Closing Documents and to perform
its obligations under this Agreement and the Buyer’s Closing Documents.




          (b) Except as set forth in Schedule 4.2, neither the execution and delivery of this Agreement
by Buyer nor the consummation or performance of any of the Contemplated Transactions [by Buyer]
will give any Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:





     (i) any provision of Buyer’s Organizational Documents;




     (ii) any resolution adopted by the board of directors or the stockholders of
Buyer;




     (iii) any Legal Requirement or Order to which Buyer may be subject; or




     (iv) any Contract to which Buyer is a party or by which Buyer may be bound.


Except as set forth in Schedule 4.2, Buyer is not and will not be required to obtain any Consent
from any Person in connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.




     4.3 INVESTMENT INTENT



          Buyer is acquiring the Shares for its own account and not with a view to their distribution
within the meaning of Section 2(11) of the Securities Act.




     4.4 CERTAIN PROCEEDINGS



          There is no pending Proceeding that has been commenced against Buyer and that challenges, or
may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions. To Buyer’s Knowledge, no such Proceeding has been Threatened.




     4.5 BROKERS OR FINDERS



          Buyer and its officers and agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in





35









 







connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due
by or through Buyer as a result of the action of Buyer or its officers or agents.




5. COVENANTS OF SELLER PRIOR TO CLOSING DATE




     5.1 ACCESS AND INVESTIGATION



          Between the date of this Agreement and the Closing Date, Seller will, and will cause the
Company and its Representatives to, (a) afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, “Buyer’s Advisors”) full and free access to the
Company’s personnel, properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Buyer and Buyer’s Advisors with copies of all such contracts,
books and records, and other existing documents and data as Buyer may reasonably request, and (c)
furnish Buyer and Buyer’s Advisors with such additional financial, operating, and other data and
information as Buyer may reasonably request.




     5.2 OPERATION OF THE BUSINESSES OF THE COMPANY



          Between the date of this Agreement and through and including the Closing Date Seller or the
Company, as applicable, will:





     (a) conduct the business of the Company only in the Ordinary Course of Business;




     (b) use his Best Efforts to preserve intact the current business organization of the Company,
keep available the services of the current officers, employees, and agents of the Company, and
maintain the relations and good will with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with the Company;




     (c) confer with Buyer concerning operational matters of a material nature;




     (d) otherwise report periodically to Buyer concerning the status of the business, operations,
and finances of the Company;




     (e) Company will pay off all bank debt to Iberia Bank or other notes payable up to a maximum
of $3,600,000, excluding notes on vehicles;




     (f) Company will make a profit sharing plan contribution for 2005, at Company’s expense, not
to exceed $200,000 and, thereafter, terminate the plan;




     (g) Company will pay the bonuses and commissions from the Contribution as described in Section
2.7;




     (h) Company will pay Tax resulting from the Company’s income and earnings (S corporation flow
through) for 2005 and short-year 2006 of $5,400,000;



36









 






     (i) Company will pay to Seller the short term investment account of the Company of
approximately $8,270,000 plus accrued interest, provided, however, the Company shall not contribute
any additional amounts to such account; and




     (j) maintain the Accounts Receivable and accounts payable in the Ordinary Course of Business
and not allow any material adverse change in the Accounts Receivable or accounts payable.



     5.3 NEGATIVE COVENANT



          Except as otherwise expressly permitted by this Agreement, in particular Section 5.2, between
the date of this Agreement and the Closing Date, Seller will not, and will cause the Company not
to, without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or events listed in
Section 3.16 is likely to occur.




     5.4 REQUIRED APPROVALS



          As promptly as practicable after the date of this Agreement, Seller will, and will cause the
Company to, make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions (including all filings under the HSR Act). Between the
date of this Agreement and the Closing Date, Seller will, and will cause the Company to, (a)
cooperate with Buyer with respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b) cooperate with Buyer
in obtaining all consents identified in Schedule 4.2 (including taking all actions requested by
Buyer to cause early termination of any applicable waiting period under the HSR Act).




     5.5 NOTIFICATION



          Between the date of this Agreement and the Closing Date, the Seller will promptly notify Buyer
in writing if Seller or the Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller’s representations and warranties as of the date of this
Agreement, or if Seller or the Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated by this Agreement)
cause or constitute a Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Disclosure Letter if the Disclosure Letter were
dated the date of the occurrence or discovery of any such fact or condition, Seller will promptly
deliver to Buyer a supplement to the Disclosure Letter specifying such change. During the same
period, the Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of
Seller in this Section 5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.




37









 








     5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS



          Except as expressly provided in this Agreement, Seller will cause all indebtedness owed to the
Company by Seller or any Related Person of Seller to be paid in full prior to Closing.




     5.7 NO NEGOTIATION



          Until such time, if any, as this Agreement is terminated pursuant to Section 9, Seller will
not, and will cause the Company and each of their Representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited inquiries or proposals
from, any Person (other than Buyer) relating to any transaction involving the sale of the business
or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital
stock of the Company, or any merger, consolidation, business combination, or similar transaction
involving the Company.




     5.8 BEST EFFORTS



          Between the date of this Agreement and the Closing Date, Seller and Buyer will use their Best
Efforts to cause the conditions in Sections 7 and 8 to be satisfied.




     5.9 TAX MATTERS



          Seller will and will cause the Company to:





     (a) Post-Closing Tax Returns. Cause all Taxes attributable to the Section 338(h)(10)
Elections to be considered allocable to the taxable period or portion thereof ending on the Closing
Date and payable by Seller. To the extent permitted by applicable law, Seller shall include any
income, gain, loss, deduction or other Tax items for such periods on his Tax Returns in a manner
consistent with the Schedule K-1’s furnished to Seller with respect to the Company. The Buyer
shall prepare (or cause to be prepared) and file (or cause to be filed) each Tax Return required to
be filed by the Company after the Closing Date for a taxable period beginning after the Closing
Date.




     (b) Section 338(h)(10) Election. Join with the Buyer in making Section 338(h)(10) Elections
with respect to the sale and purchase of the Shares under this Agreement, if the Buyer, in its sole
discretion, decides to make such elections. The Seller and Buyer shall cooperate fully with each
other and make available to each other such Tax data and other information as may be reasonably
required by the Buyer in order to decide whether to make the Section 338(h)(10) Elections.




     (c) Preparation and filing of documents related to Section 338(h)(10) Elections. If the Buyer
decides to make the Section 338(h)(10) Elections, the Buyer shall give the Seller notice of its
decision to make the Section 338(h)(10) Elections, and the Parties shall cooperate fully with each
other and make available to each other such Tax data and other information as may be reasonably
required by the Buyer or the Seller in order to timely file, preserve or perfect the Section
338(h)(10) Elections. Buyer shall be responsible for the preparation and filing of all forms and documents necessary for making or
perfecting the



38









 




Section 338(h)(10) Elections (collectively, “Section 338 Forms”). Buyer shall
provide the Section 338 Forms to the Seller for execution and shall advise the Seller in writing of
those actions that Buyer reasonably considers necessary and appropriate for the Seller to take to
effect, preserve, or perfect timely the Section 338(h)(10) Elections. The Seller agrees to take
such actions so reasonably advised by Buyer. The Sellers agree to execute and deliver to the Buyer
the Section 338 Forms provided by the Buyer for execution not later than ten (10) business days
after any such forms are provided by Buyer for execution, and take timely such other actions as may
be necessary to effect, preserve, or perfect timely the Section 338(h)(10) Elections.




          (d) Purchase Price Allocation. The parties agree that the consideration to be paid pursuant
to Section 2.2 and Section 2.5 of this Agreement and other items properly includible in the deemed
sales price of the assets of the Company pursuant to the Section 338(h)(10) Elections shall be
allocated, for Tax purposes, among the assets of the Company in a manner consistent with the
provisions of Section 338 and Section 1060 of the Code and all regulations promulgated thereunder,
and the Seller and Buyer shall fully cooperate in making the allocation of such consideration and
other items properly included in the deemed sales price. The Buyer shall prepare IRS Form 8883 for
inclusion with the federal income Tax Return of the Company ending on the Closing Date and any
similar allocation required under state, local, or foreign law (collectively, “IRS Form 8883”).
The Buyer shall permit the Seller’s representative to review and comment on IRS Form 8883. The
Company, the Seller and the Buyer agree to report this transaction for federal Tax purposes as a
valid election under Section 338(h)(10) and in accordance with IRS Form 8883 as ultimately filed,
and shall not take any position or action inconsistent therewith upon examination of any Tax
Return, in any refund claim, in any litigation, investigation or otherwise; provided, however, that
if, in any audit of any Tax Return of the Seller, the Company or the Buyer by a Government Body,
the fair market values are finally determined to be different from IRS Form 8883, as adjusted, the
Buyer, the Company and the Seller may (but shall not be obligated to) take any position or action
consistent with the fair market values as finally determined in such audit.




          (e) Tax Certificate. Upon request, use reasonable efforts to obtain any certificate or other
documents from any Governmental Body or any other Person as may be necessary to mitigate, reduce or
eliminate any Taxes that could be imposed pursuant to the Section 338(h)(10) Elections.




6. COVENANTS OF BUYER PRIOR TO CLOSING DATE




     6.1 APPROVALS OF GOVERNMENTAL BODIES



          As promptly as practicable after the date of this Agreement, Buyer will, and will cause each
of its Related Persons to, make all filings required by Legal Requirements to be made by them to
consummate the Contemplated Transactions (including all filings under the HSR Act). Between the
date of this Agreement and the Closing Date, Buyer will, and will cause each Related Person to,
cooperate with Seller with respect to all filings that Seller are required by Legal Requirements to
make in connection with the Contemplated Transactions, and (ii) cooperate with Seller in obtaining





39









 







all consents identified in Part 3.2 of the Disclosure Letter; provided that this Agreement will not require Buyer to dispose of or make
any change in any portion of its business or to incur any other burden to obtain a Governmental
Authorization.




     6.2 PAYMENT OF CERTAIN FEES AND EXPENSES



          Buyer agrees to pay all fees and expenses associated with (i) compliance with the HSR Act,
(ii) preparation of the Balance Sheet, the Interim Term Balance Sheet and other financial
statements and reports by UHY Mann Frankfort Stein & Lipp or others, (iii) any auditing or testing
work performed by UHY Mann Frankfort Stein and Lipp or others, (iv) any environmental testing and
the Phase I environmental report, and (v) the Section 338(h)(10) Elections and compliance therewith
including legal and accounting fees of Seller related thereto.




7. CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE




     Buyer’s obligation to purchase the Shares and to take the other actions required to be taken
by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part):



     7.1 ACCURACY OF REPRESENTATIONS



          (a) All of Seller’s representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement, and must be accurate
in all material respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Letter.




          (b) Each of Seller’s representations and warranties in Sections 3.3, 3.4, 3.12, and 3.24 must
have been accurate in all respects as of the date of this Agreement, and must be accurate in all
respects as of the Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Disclosure Letter.




     7.2 SELLER’ PERFORMANCE



          (a) All of the covenants and obligations that Seller are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been duly performed and complied
with in all material respects.




          (b) Each document required to be delivered pursuant to Section 2.4 must have been delivered,
and each of the other covenants and obligations in Sections 5.4 and 5.8 must have been performed
and complied with in all respects.




40









 








     7.3 CONSENTS



          Each of the Consents identified in Part 3.2 of the Disclosure Letter, and each Consent
identified in Schedule 4.2, must have been obtained and must be in full force and effect.




     7.4 ADDITIONAL DOCUMENTS



          Each of the following documents must have been delivered to Buyer:




          (a) an opinion of Perret Doise, A Professional Law Corporation, dated the Closing Date, in the
form reasonably satisfactory to Buyer;




          (b) estoppel certificate executed on behalf of Seller or JEVM, L.L.C. as to real property
leased by the Company from Seller or JEVM, L.L.C., dated as of the Closing Date, each in the form
of Exhibit 7.4(b); and




          (c) such other documents as Buyer may reasonably request for the purpose of (i) enabling its
counsel to provide the opinion referred to in Section 8.4(a), (ii) evidencing the accuracy of any
of Seller’s representations and warranties, (iii) evidencing the performance by Seller of, or the
compliance by Seller with, any covenant or obligation required to be performed or complied with by
Seller, (iv) evidencing the satisfaction of any condition referred to in this Section 7, or (v)
otherwise facilitating the consummation or performance of any of the Contemplated Transactions.




     7.5 NO PROCEEDINGS



          Since the date of this Agreement, there must not have been commenced or Threatened against
Buyer, or against any Person affiliated with Buyer, any Proceeding (a) involving any challenge to,
or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any
of the Contemplated Transactions.




     7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS



          There must not have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest in, any of the
Company, or (b) is entitled to all or any portion of the Purchase Price payable for the Shares.




     7.7 NO PROHIBITION



          Neither the consummation nor the performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time), materially contravene, or
conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable Legal




41









 










Requirement or Order, or (b) any Legal
Requirement or Order that has been published, introduced, or otherwise proposed by or before any
Governmental Body.




     7.8 FINANCING



          Buyer shall have obtained on terms and conditions satisfactory to it all of the financing
Buyer needs in order to consummate the Contemplated Transactions. In the event that Buyer is
unable to obtain the necessary financing prior to January 31, 2006, then Buyer shall pay to Seller
an amount equal to $1,500,000 in cash (“Breakup Fee”) by wire transfer of immediately available
funds to an account designated by Seller, provided, however, that Seller shall not be entitled to
the Breakup Fee if Seller materially Breaches any provision of the Agreement or fails to satisfy
any of the conditions in Section 7 of this Agreement and such Breach or failure is the cause of
Buyer’s inability to obtain financing. The Breakup Fee shall be the sole and exclusive remedy of
the Seller in the event Buyer is unable to obtain financing and the parties have agreed that such
Breakup Fee shall constitute liquidation damages.




8. CONDITIONS PRECEDENT TO SELLER’ OBLIGATION TO CLOSE




     Seller’ obligation to sell the Shares and to take the other actions required to be taken by
Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller, in whole or in part):



     8.1 ACCURACY OF REPRESENTATIONS



          All of Buyer’s representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must have been accurate in
all material respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date.




     8.2 BUYER’S PERFORMANCE



          (a) All of the covenants and obligations that Buyer is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been performed and complied
with in all material respects.




          (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant
to Section 2.4 and must have made the cash payments required to be made by Buyer pursuant to
Sections 2.4(b)(i) and 2.4(b)(ii).




     8.3 NO INJUNCTION



          There must not be in effect any Legal Requirement or any injunction or other Order that (a)
prohibits the sale of the Shares by Seller to Buyer, and (b) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement.




42









 








     8.4 ADDITIONAL DOCUMENTS



          Each of the following documents must be delivered to Seller:




          (a) an opinion of General Counsel to Buyer, dated the Closing Date, in the form of Exhibit
8.4(a); 




          (b) such other documents as Seller may reasonably request for the purpose of (i) enabling
their counsel to provide the opinion referred to in Section 7.4(a), (ii) evidencing the accuracy of
any representation or warranty of Buyer, (iii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation required to be performed or complied with by
Buyer, (ii) evidencing the satisfaction of any condition referred to in this Section 8, or (v)
otherwise facilitating the consummation of any of the Contemplated Transactions.




     8.5 NO PROHIBITION



          Neither the consummation nor the performance of any of the Transactions will, directly or
indirectly (with or without notice or lapse of time), materially contravene or conflict with, or
result in a material violation of, or cause Seller to suffer any material adverse consequence
under, (a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or Order that
has been published, introduced, or otherwise proposed by or before any Governmental Body.




9. TERMINATION




     9.1 TERMINATION EVENTS



          This Agreement may, by notice given prior to or at the Closing, be terminated:




          (a) by either Buyer or Seller if a material Breach of any provision of this Agreement has been
committed by the other party and such Breach has not been waived;




          (b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or becomes impossible (other than through
the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived
such condition on or before the Closing Date; or (ii) by Seller, if any of the conditions in
Section 8 has not been satisfied of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Seller to comply with their obligations under
this Agreement) and Seller have not waived such condition on or before the Closing Date;




          (c) by mutual consent of Buyer and Seller; or




          (d) by either Buyer or Seller if the Closing has not occurred (other than through the failure
of any party seeking to terminate this Agreement to comply fully with its obligations




43









 







under this
Agreement) on or before January 31, 2006, or such later date as the parties may agree upon.




     9.2 EFFECT OF TERMINATION



          Each party’s right of termination under Section 9.1 is in addition to any other rights it may
have under this Agreement or otherwise, and the exercise of a right of termination will not be an
election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further
obligations of the parties under this Agreement will terminate, except that the obligations in
Sections 11.1 and 11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party’s obligations under this Agreement is not satisfied as a result
of the other party’s failure to comply with its obligations under this Agreement, the terminating
party’s right to pursue all legal remedies will survive such termination unimpaired.




10. INDEMNIFICATION; REMEDIES




     10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE



          All representations, warranties, covenants, and obligations in this Agreement, the Disclosure
Letter, the supplements to the Disclosure Letter, the certificate delivered pursuant to Section
2.4(a)(iv), and any other certificate or document delivered pursuant to this Agreement will survive
the Closing. The right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by any investigation
conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of any representation or
warranty, or on the performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or other remedy based on such representations,
warranties, covenants, and obligations.




     10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER



          Subject to the limitations contained in Sections 10.5 and 10.6, Seller will indemnify and hold
harmless Buyer, the Company, and their respective Representatives, stockholders, controlling
persons, and affiliates (collectively, the “Indemnified Persons”) for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense and reasonable
attorneys’ fees) or diminution of value, whether or not involving a third-party claim
(collectively, “Damages”), arising, directly or indirectly, from or in connection with:




          (a) any Breach of any representation or warranty made by Seller in this Agreement (without
giving effect to any supplement to the Disclosure Letter, the Disclosure Letter,




44









 







the supplements to
the Disclosure Letter, or any other certificate or document delivered by Seller pursuant to this
Agreement;




          (b) any Breach of any representation or warranty made by Seller in this Agreement as if such
representation or warranty were made on and as of the Closing Date without giving effect to any
supplement to the Disclosure Letter, other than any such Breach that is disclosed in a supplement
to the Disclosure Letter and is expressly identified in the certificate delivered pursuant to
Section 2.4(a)(iv) as having caused the condition specified in Section 7.1 not to be satisfied;




          (c) any Breach by Seller of any covenant or obligation of Seller in this Agreement;




          (d) any product shipped or manufactured by, or any services provided by, the Company prior to
the Closing Date;




          (e) any matter disclosed in Part 3.15 of the Disclosure Letter; or




          (f) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by any such Person with Seller
or the Company (or any Person acting on their behalf) in connection with any of the Contemplated
Transactions.




     10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER— ENVIRONMENTAL
MATTERS



          In addition to the provisions of Section 10.2, and subject to the limitations set forth in
Sections 10.5 and 10.6, Seller will indemnify and hold harmless Buyer, the Company, and the other
Indemnified Persons for, and will pay to Buyer, the Company, and the other Indemnified Persons the
amount of, any Damages (including costs of cleanup, containment, or other remediation) arising,
directly or indirectly, from or in connection with:




          (a) any Environmental, Health, and Safety Liabilities arising out of or relating to: (i) (A)
the ownership, operation, or condition at any time on or prior to the Closing Date of the
Facilities or any other properties and assets (whether real, personal, or mixed and whether
tangible or intangible) in which Seller or the Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities at any time on or prior to the
Closing Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever located, that
were, or were allegedly, generated, transported, stored, treated, Released, or otherwise handled by
Seller or the Company or by any other Person for whose conduct they are or may be held responsible
at any time on or prior to the Closing Date, or (B) any Hazardous Activities that were, or were
allegedly, conducted by Seller or the Company or by any other Person for whose conduct they are or
may be held responsible; or




45









 








          (b) any bodily injury (including illness, disability, and death, and regardless of when any
such bodily injury occurred, was incurred, or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of Seller or the
Company or any other Person for whose conduct they are or may be held responsible, in any way
arising from or allegedly arising from any Hazardous Activity conducted or allegedly conducted with
respect to the Facilities or the operation of the Company prior to the Closing Date, or from
Hazardous Material that was (i) present or suspected to be present on or before the Closing Date on
or at the Facilities (or present or suspected to be present on any other property, if such
Hazardous Material emanated or allegedly emanated from any of the Facilities and was present or
suspected to be present on any of the Facilities on or prior to the Closing Date) or (ii) Released
or allegedly Released by Seller or the Company or any other Person for whose conduct they are or
may be held responsible, at any time on or prior to the Closing Date.



Buyer and Seller will be entitled to jointly control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect to which indemnity
may be sought under this Section 10.3. The procedure described in Section 10.8 will apply to any
claim solely for monetary damages relating to a matter covered by this Section 10.3.




     10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER



          Subject to the limitations of Section 10.7, Buyer will indemnify and hold harmless Seller, and
will pay to Seller the amount of any Damages (including costs of cleanup, containment, or other
remediation) arising, directly or indirectly, from or in connection with:




          (a) any Breach of any representation or warranty made by Buyer in this Agreement or in any
certificate delivered by Buyer pursuant to this Agreement;




          (b) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement;




          (c) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such Person with Buyer (or
any Person acting on its behalf) in connection with any of the Contemplated Transactions; 




          (d) any Environmental, Health, and Safety Liabilities arising out of or relating to: (i) (A)
the operation, or condition of the Facilities after the Closing Date, or (B) any Hazardous
Materials or other contaminants that are present at the Facilities after the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, located on the Facilities, that are, or are
allegedly, generated, transported, stored, treated, Released, or otherwise handled by Buyer or the
Company or by any other Person for whose conduct they are or may be held responsible at any time
after the Closing Date, or (B) any Hazardous Activities that are, or are allegedly, conducted by
Buyer or the Company at the Facilities or by any other Person for whose conduct they are or may be
held responsible after the Closing Date;




46









 








          (e) any bodily injury (including illness, disability, and death, and regardless of when any
such bodily injury (including illness, disability, and death, and regardless of when any such
bodily injury occurred, was incurred, or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of Buyer or the Company
or any other Person for whose conduct they are or may be held responsible, in any way arising from
or allegedly arising from any Hazardous Activity conducted or allegedly conducted with respect to
the Facilities or the operation of the Company after the Closing Date, or from Hazardous Material
that are (i) present or suspected to be present after the Closing Date on or at the Facilities (or
present or suspected to be present on any other property, if such Hazardous Material emanated or
allegedly emanated from the Facilities and are present or suspected to be present on any of the
Facilities after the Closing Date) or (ii) Released or allegedly Released by Buyer or the Company
or any other Person for whose conduct they are or may be held responsible, at any time after the
Closing Date.




          The indemnification provided by Buyer to Seller in Sections 10.4(d) and (e) shall in no way
negate or relieve Seller from the indemnification provided to Buyer under Section 10.3 hereof for
any matter of which Seller had Knowledge or which was caused by Seller or the Company prior to the
Closing Date.




     10.5 TIME LIMITATIONS



          If the Closing occurs, Seller will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be performed and complied
with prior to the Closing Date, other than those in Sections 3.3, 3.11, 3.13, or 5.9 unless on or
before January 2, 2008, Buyer notifies Seller of a claim specifying the factual basis of that claim
in reasonable detail to the extent then known by Buyer; a claim with respect to Section 3.3, 3.11,
3.13, or 5.9 or a claim for indemnification or reimbursement not based upon any representation or
warranty or any covenant or obligation to be performed and complied with prior to the Closing Date,
may be made on or before January 15, 2011.




          If the Closing occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be performed and complied
with prior to the Closing Date, unless on or before January 2, 2008, Seller notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the extent then known by
Seller, provided, however, Buyer’s obligations to Seller under the Section 338(h)(10) Elections may
be made on or prior to January 15, 2011.




     10.6 LIMITATIONS ON AMOUNT—SELLER



          Seller will have no liability (for indemnification or otherwise) with respect to the matters
described in clause (a), clause (b), to the extent relating to any failure to perform or comply
prior to the Closing Date, clause (c), or clause (d) of Section 10.2 until the total of all Damages
with respect to such matters exceeds $150,000, and then, only for Damages in excess of $150,000.
In no event shall the aggregate indemnification to be provided by Seller for claims under Section
10.2(a)-



47









 




(d) exceed the amount of $15,000,000, provided, however, with respect to claims resulting
from any Breach of any representation or warranty set forth in Sections 3.3, 3.11, 3.13, or from any Breach of any covenant or warranty
in Section 5.9 hereof, the obligation of Seller to pay Damages under Section 10.2 shall be limited
to the amount of the Purchase Price in Section 2.2. However, this Section 10.6 will not apply to
claims of which Seller had Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional breach by Seller of any covenant or obligation.




     10.7 LIMITATIONS ON AMOUNT—BUYER



          Buyer will have no liability (for indemnification or otherwise) with respect to the matters
described in Section 10.4 until the total of all Damages with respect to such matters exceeds
$150,000, and then, only for Damages in excess of $150,000. In no event shall the aggregate
indemnification to be provided by Buyer pursuant to the matters described in Section 10.4 exceed
$15,000,000. However, this Section 10.7 will not apply to any Breach of any of Buyer’s
representations and warranties of which Buyer had Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional Breach by Buyer of any covenant or
obligation, and Buyer will be liable for all Damages with respect to such Breaches. The additional
Purchase Price due to Seller, if any, under Section 2.6 hereof shall not be subject to this Section
10.7.




     10.8 PROCEDURE FOR INDEMNIFICATION—THIRD PARTY CLAIMS



          (a) Promptly after receipt by an indemnified party under Section 10.2, 10.4, or (to the extent
provided in the last sentence of Section 10.3) Section 10.3 of notice of the commencement of any
Proceeding against it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying
party’s failure to give such notice.




          (b) If any Proceeding referred to in Section 10.8(a) is brought against an indemnified party
and it gives notice to the indemnifying party of the commencement of such Proceeding, the
indemnifying party will, unless the claim involves Taxes, be entitled to participate in such
Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that joint representation would
be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and provide indemnification
with respect to such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the indemnifying party
will not, as long as it diligently conducts such defense, be liable to the indemnified party under
this Section 10 for any fees of other counsel or any other expenses with respect to the defense of
such Proceeding, in each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party
assumes the defense of a





48









 







Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified
party’s consent unless (A) there is no finding or admission of any violation of Legal Requirements
or any violation of the rights of any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is monetary damages that are paid
in full by the indemnifying party; and (iii) the indemnified party will have no liability with
respect to any compromise or settlement of such claims effected without its consent. If notice is
given to an indemnifying party of the commencement of any Proceeding and the indemnifying party
does not, within ten days after the indemnified party’s notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the indemnifying party
will be bound by any determination made in such Proceeding or any compromise or settlement effected
by the indemnified party.




          (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there
is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than
as a result of monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld).




          (d) Seller hereby consent to the non-exclusive jurisdiction of any court in which a Proceeding
is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree
that process may be served on Seller with respect to such a claim anywhere in the world.




     10.9 PROCEDURE FOR INDEMNIFICATION—OTHER CLAIMS



          A claim for indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.




11. GENERAL PROVISIONS




     11.1 EXPENSES



          Except as otherwise expressly provided in this Agreement, each party to this Agreement will
bear its respective expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Buyer will pay all amounts payable to its
investment banker in connection with this Agreement and the Contemplated Transactions. Buyer will
pay all of the HSR Act filing fee and all expenses associated therewith. Buyer and Seller will each
pay their own expenses related to the Contemplated Transaction. In the event of termination of





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this Agreement, the obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.




     11.2 PUBLIC ANNOUNCEMENTS



          Any public announcement or similar publicity with respect to this Agreement or the
Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer and
Seller mutually determines. Unless consented to by the other, in advance or required by Legal
Requirements, prior to the Closing Seller and Buyer shall, and shall cause the Company to, keep
this Agreement strictly confidential and may not make any disclosure of this Agreement to any
Person. Seller and Buyer will consult with each other concerning the means by which the Company’s
employees, customers, and suppliers and others having dealings with the Company will be informed of
the Contemplated Transactions, and Seller and Buyer will have the right to be present for any such
communication.




     11.3 CONFIDENTIALITY



          Between the date of this Agreement and the Closing Date, Buyer and Seller will maintain in
confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and
the Company to maintain in confidence, any written, oral, or other information obtained in
confidence from another party or the Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information is already known to such party or to others not bound by
a duty of confidentiality or such information becomes publicly available through no fault of such
party, (b) the use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the Contemplated Transactions,
or (c) the furnishing or use of such information is required by [or necessary or appropriate in
connection with] legal proceedings.




          If the Contemplated Transactions are not consummated, each party will return or destroy as
much of such written information as the other party may reasonably request. Whether or not the
Closing takes place, Seller waives, and will upon Buyer’s request cause the Company to waive, any
cause of action, right, or claim arising out of the access of Buyer or its representatives to any
trade secrets or other confidential information of the Company except for the intentional
competitive misuse by Buyer of such trade secrets or confidential information.




     11.4 NOTICES



          All notices, consents, waivers, and other communications under this Agreement must be in
writing and will be deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other parties):




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	Seller:

	 	Joe Van Matre
	 

	 	201 Rivergate Drive
	 

	 	Lafayette, LA 70508
	 
	 	 
	with a copy to:

	 	Henry C. Perret, Jr.
	 

	 	Perret Doise, APLC
	 

	 	P. O. Drawer 3408
	 

	 	Lafayette, LA 70502
	 

	 	Facsimile: (337) 262-9001
	 

	 	Email: hperret@perretdoise.com
	 
	 	 
	 

	 	and to
	 
	 	 
	 

	 	James J. Adams
	 

	 	1030 Lafayette Street
	 

	 	Lafayette, LA 70501
	 

	 	Facsimile: (337) 234-0375
	 

	 	Email: fouadam@earthlink.net
	 
	 	 
	Buyer:

	 	Allis-Chalmers Energy Inc.
	 

	 	5075 Westheimer, Suite 890
	 

	 	Houston, Texas 77056
	 

	 	Attention: Theodore F. Pound III
	 

	 	Facsimile: (713) 369-0555
	 

	 	Email: tpound@alchenergy.com






     11.5 JURISDICTION; SERVICE OF PROCESS



          Any action or proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against any of the parties in the courts of the State of
Texas, County of Harris, or, if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of Texas, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.




     11.6 FURTHER ASSURANCES



          The parties agree (a) to furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c) to do such other acts and things,
all as the other party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.




     11.7 WAIVER



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          The rights and remedies of the parties to this Agreement are cumulative and not alternative.
Neither the failure nor any delay by any party in exercising any right, power, or privilege under
this Agreement or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that may be given by a
party will be applicable except in the specific instance for which it is given; and (c) no notice
to or demand on one party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.




     11.8 ENTIRE AGREEMENT AND MODIFICATION



          This Agreement supersedes all prior agreements between the parties with respect to its subject
matter (including the Letter of Intent between Buyer and Seller dated September 21, 2005) and
constitutes (along with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its subject matter.
This Agreement may not be amended except by a written agreement executed by the party to be charged
with the amendment.




     11.9 DISCLOSURE LETTER



          In the event of any inconsistency between the statements in the body of this Agreement and
those in the Disclosure Letter (other than an exception expressly set forth as such in the
Disclosure Letter with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.




     11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS



          Neither party may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Buyer may assign any of its rights under this Agreement to any
Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.




     11.11 SEVERABILITY



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          If any provision of this Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.




     11.12 SECTION HEADINGS, CONSTRUCTION



          The headings of Sections in this Agreement are provided for convenience only and will not
affect its construction or interpretation. All references to “Section” or “Sections” refer to the
corresponding Section or Sections of this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless otherwise expressly
provided, the word “including” does not limit the preceding words or terms.




     11.13 TIME OF ESSENCE



          With regard to all dates and time periods set forth or referred to in this Agreement, time is
of the essence.




     11.14 GOVERNING LAW



          This Agreement will be governed by the laws of the State of Texas without regard to conflicts
of laws principles.




     11.15 COUNTERPARTS



          This Agreement may be executed in one or more counterparts, each of which will be deemed to be
an original copy of this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.




[Remainder of page intentionally left blank.]




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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
first written above.



	 	 	 	 	 
	BUYER:	 	ALLIS-CHALMERS ENERGY INC.,
	 	 	a Delaware corporation
	 
	 	 	 	 
	 	 	By:       /s/ Munawar H. Hidayatallah
	 	 	 
	 

	 	 	 	Munawar H. Hidayatallah
	 

	 	 	 	Chairman and Chief Executive Officer
	 
	 	 	 	 
	SELLER:	 	JOE VAN MATRE
	 
	 	 	 	 
	 	 	/s/ Joe Van Matre
	 	 	 






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