Document:

Unassociated Document

 

SHARE EXCHANGE AGREEMENT

 

This SHARE EXCHANGE AGREEMENT (this “Agreement”), dated as of January __, 2012, is by and among American Strategic Minerals Corporation, a Nevada corporation (the “Parent”), American Strategic Minerals Corporation, a Colorado corporation (the “Company”), and the shareholders of the Company (each a “Shareholder” and collectively the “Shareholders”).  Each of the parties to this Agreement is individually referred to herein as a “Party” and collectively as the “Parties.”

 

BACKGROUND

The Company has One Hundred Thousand (100,000) shares of common stock (the “Company Shares”) outstanding, all of which are held by the Shareholders.  The Shareholders have agreed to transfer the Company Shares in exchange for (i) an aggregate of Ten Million (10,000,000) newly issued shares of common stock, par value $0.0001 per share, of the Parent, (after giving effect to a forward split, by way of a dividend of an additional 0.362612612 shares of Parent common stock for each one share of common stock outstanding (the “Parent Stock”) such split having been authorized by the Board of Directors of the Parent on November 25, 2011 and approved by FINRA on December 13, 2011 (the “Forward Split”) and (ii) warrants to purchase an aggregate of Six Million (6,000,000) shares of the Parent’s Common Stock at a per share exercise price of $0.50 (the “Parent Warrants”) issuable to certain Shareholders as further consideration to enter into this Agreement, the receipt and sufficiency of which is hereby acknowledged.

 

The exchange of Company Shares for Parent Stock is intended to constitute a reorganization within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as may be available under the Code.

 

The Board of Directors of each of the Parent and the Company has determined that it is desirable to affect this plan of reorganization and share exchange.

 

AGREEMENT

NOW THEREFORE, for good and valuable consideration the receipt and sufficiency is hereby acknowledged, the Parties hereto intending to be legally bound hereby agree as follows:

 

ARTICLE I

 

Exchange of Shares

 

SECTION 1.01.                                (a)           Exchange by the Shareholders.  At the Closing (as defined in Section 1.02), the Shareholders shall sell, transfer, convey, assign and deliver to the Parent all of the Company Shares free and clear of all Liens in exchange for (i) an aggregate of Ten Million (10,000,000) shares of Parent Stock, after giving effect to the Forward Split and (ii) Parent Warrants to purchase an aggregate of Six Million (6,000,000) shares of the Parent’s common stock, issuable to certain shareholders and in such amounts as set forth on Exhibit A, attached hereto.

 

  

 

  

 

SECTION 1.02.                                Closing.  The closing (the “Closing”) of the transactions contemplated by this Agreement (the “Transactions”) shall take place at such location to be determined by the Company and Parent, commencing upon the satisfaction or waiver of all conditions and obligations of the Parties to consummate the Transactions contemplated hereby (other than conditions and obligations with respect to the actions that the respective Parties will take at Closing) or such other date and time as the Parties may mutually determine (the “Closing Date”).

 

ARTICLE II

 

Representations and Warranties of the Shareholders

 

Each Shareholder individually, hereby represents and warrants to the Parent, as follows:

 

SECTION 2.01.                                Good Title.  The Shareholder is the record and beneficial owner, and has good and marketable title to its Company Shares, with the right and authority to sell and deliver such Company Shares to Parent as provided herein.  Upon registering of the Parent as the new owner of such Company Shares in the share register of the Company, the Parent will receive good title to such Company Shares, free and clear of all liens, security interests, pledges, equities and claims of any kind, voting trusts, shareholder agreements and other encumbrances (collectively, “Liens”).

 

SECTION 2.02.                                Power and Authority.  All acts required to be taken by the Shareholder to enter into this Agreement and to carry out the Transactions have been properly taken.  This Agreement constitutes a legal, valid and binding obligation of the Shareholder, enforceable against such Shareholder in accordance with the terms hereof.

 

SECTION 2.03.                                No Conflicts.  The execution and delivery of this Agreement by the Shareholder and the performance by the Shareholder of his obligations hereunder in accordance with the terms hereof: (i) will not require the consent of any third party or any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (“Governmental Entity”) under any statutes, laws, ordinances, rules, regulations, orders, writs, injunctions, judgments, or decrees (collectively, “Laws”); (ii) will not violate any Laws applicable to such Shareholder; and (iii) will not violate or breach any contractual obligation to which such Shareholder is a party.

 

SECTION 2.04.                                No Finder’s Fee.  The Shareholder has not created any obligation for any finder’s, investment banker’s or broker’s fee in connection with the Transactions that the Company or the Parent will be responsible for.

 

SECTION 2.05.                                Purchase Entirely for Own Account.  The Parent Stock and, in certain instances, the Parent Warrants, proposed to be acquired by the Shareholder hereunder will be acquired for investment for his own account, and not with a view to the resale or distribution of any part thereof, and the Shareholder has no present intention of selling or otherwise distributing the Parent Stock, the Parent Warrants and the shares of Parent’s common stock issuable upon exercise of the Parent Warrants, except in compliance with applicable securities laws.

 

  

2

  

 

SECTION 2.06.                                Available Information.  The Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Parent.

 

SECTION 2.07.                                Non-Registration. The Shareholder understands that the Parent Stock, the Parent Warrants and the shares of Parent’s common stock issuable upon exercise of the Parent Warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and, if issued in accordance with the provisions of this Agreement, will be issued by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Shareholder’s representations as expressed herein.

 

SECTION 2.08.                                Restricted Securities. The Shareholder understands that the Parent Stock and the Parent Warrants are characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Shareholder pursuant hereto, the Parent Stock and the Parent Warrants would be acquired in a transaction not involving a public offering.  The Shareholder further acknowledges that if the Parent Stock and the Parent Warrants are issued to the Shareholder in accordance with the provisions of this Agreement, such Parent Stock and Parent Warrants may not be resold without registration under the Securities Act or the existence of an exemption therefrom.  The Shareholder represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

SECTION 2.09.                                Legends.  It is understood that the Parent Stock, the Parent Warrants and the common stock issuable upon exercise of the Parent Warrants will bear the following legend or another legend that is similar to the following:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

and any legend required by the “blue sky” laws of any state to the extent such laws are applicable to the securities represented by the certificate so legended.

 

  

3

  

 

SECTION 2.10.                                Accredited Investor.  The Shareholder is an “accredited investor” within the meaning of Rule 501 under the Securities Act and the Shareholder was not organized for the specific purpose of acquiring the Parent Stock or the Parent Warrants.

 

SECTION 2.11                                Shareholder Acknowledgment.  Each of the Shareholders acknowledges that he or she has read the representations and warranties of the Company set forth in Article III herein and such representations and warranties are, to the best of his or her knowledge, true and correct as of the date hereof.

ARTICLE III

 

Representations and Warranties of the Company

 

The Company may previously have provided to the Parent a Disclosure Schedule (the “Company Disclosure Schedule”). The Company represents and warrants to the Parent, except as set forth in the Company Disclosure Schedule, regardless of whether or not the Company Disclosure Schedule is referenced with respect to any particular representation or warranty, as follows:

 

SECTION 3.01.                                Organization, Standing and Power.  The Company is duly incorporated or organized, validly existing and in good standing under the laws of the State of Colorado and has the corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the Company, a material adverse effect on the ability of the Company to perform its obligations under this Agreement or on the ability of the Company to consummate the Transactions (a “Company Material Adverse Effect”).  The Company is duly qualified to do business in each jurisdiction where the nature of its business or its ownership or leasing of its properties make such qualification necessary, except where the failure to so qualify would not reasonably be expected to have a Company Material Adverse Effect.  The Company has delivered to the Parent true and complete copies of the articles of incorporation and bylaws of the Company, each as amended to the date of this Agreement (as so amended, the “Company Charter Documents”).

 

  

4

  

 

SECTION 3.02.                                Capital Structure.  The authorized share capital of the Company consists of One Hundred Thousand (100,000) shares of common stock with One Hundred Thousand (100,000) shares outstanding and 0 shares of preferred stock authorized.    No shares or other voting securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of the Company are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of its state of incorporation, the Company Charter Documents or any Contract (as defined in Section 3.04) to which the Company is a party or otherwise bound.  There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Shares may vote (“Voting Company Debt”).  Except as otherwise set forth herein, as of the date of this Agreement, there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company is a party or by which the Company is bound (i) obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares or other equity interests in, or any security convertible or exercisable for or exchangeable into any shares or capital stock or other equity interest in, the Company or any Voting Company Debt, (ii) obligating the Company to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the shares or capital stock of the Company.

 

SECTION 3.03.                                Authority; Execution and Delivery; Enforceability.  The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions.  The execution and delivery by the Company of this Agreement and the consummation by the Company of the Transactions have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Transactions.  When executed and delivered, this Agreement will be enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general applicability as to which the Company is subject.

 

SECTION 3.04.                                No Conflicts; Consents.

 

(a)           The execution and delivery by the Company of this Agreement does not, and the consummation of the Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company under any provision of (i) the Company Charter Documents, (ii) any material contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument (a “Contract”) to which the Company is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 3.04(b), any material judgment, order or decree (“Judgment”) or material Law applicable to the Company or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

 

(b)           Except for required filings with the Securities and Exchange Commission (the “SEC”) and applicable “Blue Sky” or state securities commissions, no material consent, approval, license, permit, order or authorization (“Consent”) of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to the Company in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions.

 

  

5

  

 

SECTION 3.05.                                Taxes.

 

(a)           The Company has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.  All Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

(b)           If applicable, the Company has established an adequate reserve reflected on its financial statements for all Taxes payable by the Company (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements.  No deficiency with respect to any Taxes has been proposed, asserted or assessed against the Company, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.

 

(c)           For purposes of this Agreement:

 

“Taxes” includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts.

 

“Tax Return” means all federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.

 

SECTION 3.06.                                Benefit Plans.  The Company does not have or maintain any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, share ownership, share purchase, share option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company (collectively, “Company Benefit Plans”).  As of the date of this Agreement there are no severance or termination agreements or arrangements between the Company and any current or former employee, officer or director of the Company, nor does the Company have any general severance plan or policy.

 

SECTION 3.07.                                Litigation.  There is no action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, or any of its properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility (“Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Parent Stock or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect.  Neither the Company nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

 

  

6

  

 

SECTION 3.08.                                Compliance with Applicable Laws.  The Company is in compliance with all applicable Laws, including those relating to occupational health and safety and the environment, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.  This Section 3.08 does not relate to matters with respect to Taxes, which are the subject of Section 3.05.

 

SECTION 3.09.                                Brokers; Schedule of Fees and Expenses.  Except for those brokers as to which the Company and Parent shall be solely responsible, no broker, investment banker, financial advisor or other person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company.

 

SECTION 3.10.                                Contracts.  Except as disclosed in the Company Disclosure Schedule, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole.  The Company is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

 

SECTION 3.11.                                Title to Properties.  The Company does not own any real property.  The Company has sufficient title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses.  All such assets and properties, other than assets and properties in which the Company has leasehold interests, are free and clear of all Liens other than those Liens that, in the aggregate, do not and will not materially interfere with the ability of the Company to conduct business as currently conducted.

 

SECTION 3.12.                                Reserved.

 

SECTION 3.13.                                Insurance.  The Company does not hold any insurance policy.

 

SECTION 3.14.                                Transactions With Affiliates and Employees.  Except as set forth in the Company Disclosure Schedule, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

  

7

  

 

SECTION 3.15.                                Application of Takeover Protections.  The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s charter documents or the laws of its state of incorporation that is or could become applicable to the Shareholders as a result of the Shareholders and the Company fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Parent Stock and the Shareholders’ ownership of the Parent Stock.

 

SECTION 3.16.                                No Additional Agreements.  The Company does not have any agreement or understanding with the Shareholder with respect to the Transactions other than as specified in this Agreement.

 

SECTION 3.17.                                Investment Company.  The Company is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

SECTION 3.18.                                Disclosure.  The Company confirms that neither it nor any person acting on its behalf has provided the Shareholders or their respective agents or counsel with any information that the Company believes constitutes material, non-public information, except insofar as the existence and terms of the proposed transactions hereunder may constitute such information and except for information that will be disclosed by the Parent under a current report on Form 8-K filed no later than four (4) business days after the Closing.  The Company understands and confirms that the Parent will rely on the foregoing representations and covenants in effecting transactions in securities of the Parent.  All disclosure provided to the Parent regarding the Company, its business and the Transactions, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

SECTION 3.19.                                Absence of Certain Changes or Events.  Except in connection with the Transactions and as disclosed in the Company Disclosure Schedule, from December 31, 2011 to the date of this Agreement, the Company has conducted its business only in the ordinary course, and during such period there has not been:

 

(a)           any change in the assets, liabilities, financial condition or operating results of the Company, except changes in the ordinary course of business that have not caused, in the aggregate, a Company Material Adverse Effect;

 

(b)           any damage, destruction or loss, whether or not covered by insurance, that would have a Company Material Adverse Effect;

 

(c)           any waiver or compromise by the Company of a valuable right or of a material debt owed to it;

 

  

8

  

 

(d)           any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Company Material Adverse Effect;

 

(e)           any material change to a material Contract by which the Company or any of its assets is bound or subject;

 

(f)           any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and does not materially impair the Company’s ownership or use of such property or assets;

 

(g)           any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

 

(h)           any alteration of the Company’s method of accounting or the identity of its auditors;

 

(i)           any declaration or payment of dividend or distribution of cash or other property to the Shareholders or any purchase, redemption or agreements to purchase or redeem any Company Shares;

 

(j)           any issuance of equity securities to any officer, director or affiliate; or

 

(k)           any arrangement or commitment by the Company to do any of the things described in this Section.

 

SECTION 3.20.                                Foreign Corrupt Practices.  Neither the Company, nor, to the Company’s knowledge, any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

ARTICLE IV

 

Representations and Warranties of the Parent

 

The Parent represents and warrants as follows to the Shareholders and the Company, that, except as set forth in the reports, schedules, forms, statements and other documents filed by the Parent with the SEC and publicly available prior to the date of the Agreement (the “Parent SEC Documents”), or in a Disclosure Schedule delivered by the Parent to the Company and the Shareholders (the “Parent Disclosure Schedule”):

 

  

9

  

 

SECTION 4.01.                                Organization, Standing and Power.  The Parent is duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the Parent, a material adverse effect on the ability of the Parent to perform its obligations under this Agreement or on the ability of the Parent to consummate the Transactions (a “Parent Material Adverse Effect”).  The Parent is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary and where the failure to so qualify would reasonably be expected to have a Parent Material Adverse Effect.  The Parent has delivered to the Company true and complete copies of the articles of incorporation of the Parent, as amended to the date of this Agreement (as so amended, the “Parent Charter”), and the Bylaws of the Parent, as amended to the date of this Agreement (as so amended, the “Parent Bylaws”).

 

SECTION 4.02.                                Subsidiaries; Equity Interests.  Except for Verve Holdings, Inc. or as set forth in the Parent SEC Documents, the Parent does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

 

SECTION 4.03.                                Capital Structure.  The authorized capital stock of the Parent consists of Two Hundred Million (200,000,000) shares of common stock, par value $0.0001 per share, and Fifty Million (50,000,000) shares of preferred stock, par value $0.0001 per share, of which (i) 12,269,144 shares of Parent Stock are issued and outstanding (after giving effect to the Forward Split but before giving effect to the issuances to be made at Closing and certain cancellations or outstanding Parent Stock), (ii) no shares of preferred stock are outstanding, and (iii) no shares of Parent Stock or preferred stock are held by the Parent in its treasury.  No other shares of capital stock or other voting securities of the Parent were issued, reserved for issuance or outstanding.  All outstanding shares of the capital stock of the Parent are, and all such shares that may be issued prior to the date hereof will be when issued, duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the Nevada Revised Statutes, the Parent Charter, the Parent Bylaws or any Contract to which the Parent is a party or otherwise bound.  There are no bonds, debentures, notes or other indebtedness of the Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent Stock may vote (“Voting Parent Debt”).  Except in connection with the Transactions, as of the date of this Agreement, there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Parent is a party or by which it is bound (i) obligating the Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Parent or any Voting Parent Debt, (ii) obligating the Parent to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of the Parent.  As of the date of this Agreement, there are no outstanding contractual obligations of the Parent to repurchase, redeem or otherwise acquire any shares of capital stock of the Parent.   The Parent is not a party to any agreement granting any security holder of the Parent the right to cause the Parent to register shares of the capital stock or other securities of the Parent held by such security holder under the Securities Act.  The stockholder list provided to the Company is a current stockholder list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of the Parent Stock as at the Closing.

 

  

10

  

 

SECTION 4.04.                                Authority; Execution and Delivery; Enforceability.  The execution and delivery by the Parent of this Agreement and the consummation by the Parent of the Transactions have been duly authorized and approved by the Board of Directors of the Parent and no other corporate proceedings on the part of the Parent are necessary to authorize this Agreement and the Transactions. This Agreement constitutes a legal, valid and binding obligation of the Parent, enforceable against the Parent in accordance with the terms hereof.

 

SECTION 4.05.                                No Conflicts; Consents.

 

(a)           The execution and delivery by the Parent of this Agreement, does not, and the consummation of Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of the Parent under, any provision of (i) the Parent Charter or Parent Bylaws, (ii) any material Contract to which the Parent is a party or by which any of its properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 4.05(b), any material Judgment or material Law applicable to the Parent or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.

 

(b)           No Consent of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to the Parent in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions, other than the (A) filing with the SEC of reports under Sections 13 and 16 of the Exchange Act, and (B) filings under state “blue sky” laws, as each may be required in connection with this Agreement and the Transactions.

 

SECTION 4.06.                                SEC Documents; Undisclosed Liabilities.

 

(a)           The Parent has filed all Parent SEC Documents since January 5, 2012, pursuant to Sections 13 and 15 of the Exchange Act, as applicable (the “Parent SEC Documents”).

 

  

11

  

 

(b)           As of its respective filing date, each Parent SEC Document complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Document, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  Except to the extent that information contained in any Parent SEC Document has been revised or superseded by a later filed Parent SEC Document, none of the Parent SEC Documents contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of Parent as of the dates thereof and the results of its operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

(c)           Except as set forth in the Parent SEC Documents, the Parent has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a balance sheet of the Parent or in the notes thereto.  The Parent Disclosure Schedule sets forth all financial and contractual obligations and liabilities (including any obligations to issue capital stock or other securities of the Parent) due after the date hereof.  As of the date hereof, all liabilities of the Parent have been paid off and shall in no event remain liabilities of the Parent, the Company or the Shareholders following the Closing.

 

SECTION 4.07.                                Information Supplied.  None of the information supplied or to be supplied by the Parent for inclusion or incorporation by reference in any SEC filing or report contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

 

SECTION 4.08.                                Absence of Certain Changes or Events.  Except as disclosed in the filed Parent SEC Documents or in the Parent Disclosure Schedule, from the date of the most recent audited financial statements included in the filed Parent SEC Documents to the date of this Agreement, the Parent has conducted its business only in the ordinary course, and during such period there has not been:

 

(a)           any change in the assets, liabilities, financial condition or operating results of the Parent from that reflected in the Parent SEC Documents, except changes in the ordinary course of business that have not caused, in the aggregate, a Parent Material Adverse Effect;

 

(b)           any damage, destruction or loss, whether or not covered by insurance, that would have a Parent Material Adverse Effect;

 

(c)           any waiver or compromise by the Parent of a valuable right or of a material debt owed to it;

 

  

12

  

 

(d)           any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Parent, except in the ordinary course of business and the satisfaction or discharge of which would not have a Parent Material Adverse Effect;

 

(e)           any material change to a material Contract by which the Parent or any of its assets is bound or subject;

 

(f)           any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

 

(g)           any resignation or termination of employment of any officer of the Parent;

 

(h)           any mortgage, pledge, transfer of a security interest in, or lien, created by the Parent, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Parent’s ownership or use of such property or assets;

 

(i)           any loans or guarantees made by the Parent to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

 

(j)           any declaration, setting aside or payment or other distribution in respect of any of the Parent’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Parent;

 

(k)           any alteration of the Parent’s method of accounting or the identity of its auditors;

 

(l)           any issuance of equity securities to any officer, director or affiliate, except pursuant to existing Parent stock option plans; or

 

(m)           any arrangement or commitment by the Parent to do any of the things described in this Section 4.08.

 

SECTION 4.09.                                Taxes.

 

(a)           The Parent has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file, any delinquency in filing or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.  All Taxes shown to be due on such Tax Returns, or otherwise owed, has been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.

 

  

13

  

 

(b)           The most recent financial statements contained in the Parent SEC Documents reflect an adequate reserve for all Taxes payable by the Parent (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements.  No deficiency with respect to any Taxes has been proposed, asserted or assessed against the Parent, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.

 

(c)           There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of the Parent.  The Parent is not bound by any agreement with respect to Taxes.

 

SECTION 4.10.                                Absence of Changes in Benefit Plans.  From the date of the most recent audited financial statements included in the Parent SEC Documents to the date of this Agreement, there has not been any adoption or amendment in any material respect by Parent of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of Parent (collectively, “Parent Benefit Plans”).  As of the date of this Agreement there are not any employment, consulting, indemnification, severance or termination agreements or arrangements between the Parent and any current or former employee, officer or director of the Parent, nor does the Parent have any general severance plan or policy.

 

SECTION 4.11.                                ERISA Compliance; Excess Parachute Payments.  The Parent does not, and since its inception never has, maintained, or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other Parent Benefit Plan for the benefit of any current or former employees, consultants, officers or directors of Parent.

 

SECTION 4.12.                                Litigation.  Except as disclosed in the Parent SEC Documents, there is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Parent Stock or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Parent Material Adverse Effect.  Neither the Parent nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

 

SECTION 4.13.                                Compliance with Applicable Laws.  Except as disclosed in the Parent SEC Documents, the Parent is in compliance with all applicable Laws, including those relating to occupational health and safety, the environment, export controls, trade sanctions and embargoes, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.  Except as set forth in the Parent SEC Documents, the Parent has not received any written communication during the past two years from a Governmental Entity that alleges that the Parent is not in compliance in any material respect with any applicable Law.  The Parent is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Parent Material Adverse Effect.

 

  

14

  

 

SECTION 4.14.                                Contracts.  Except as disclosed in the Parent SEC Documents, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Parent taken as a whole.  The Parent is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect.

 

SECTION 4.15.                                Title to Properties.  The Parent has good title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses.  All such assets and properties, other than assets and properties in which the Parent has leasehold interests, are free and clear of all Liens and except for Liens that, in the aggregate, do not and will not materially interfere with the ability of the Parent to conduct business as currently conducted.  The Parent has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect.  The Parent enjoys peaceful and undisturbed possession under all such material leases.

 

SECTION 4.16.                                Intellectual Property.  The Parent owns, or is validly licensed or otherwise has the right to use, all Intellectual Property Rights which are material to the conduct of the business of the Parent taken as a whole.  The Parent Disclosure Schedule sets forth a description of all Intellectual Property Rights which are material to the conduct of the business of the Parent taken as a whole.  No claims are pending or, to the knowledge of the Parent, threatened that the Parent is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right.  To the knowledge of the Parent, no person is infringing the rights of the Parent with respect to any Intellectual Property Right.

 

SECTION 4.17.                                Labor Matters.  There are no collective bargaining or other labor union agreements to which the Parent is a party or by which it is bound.  No material labor dispute exists or, to the knowledge of the Parent, is imminent with respect to any of the employees of the Parent.

 

SECTION 4.18.                                Transactions With Affiliates and Employees.  Except as set forth in the Parent SEC Documents, none of the officers or directors of the Parent and, to the knowledge of the Parent, none of the employees of the Parent is presently a party to any transaction with the Parent or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Parent, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

  

15

  

 

SECTION 4.19.                                Application of Takeover Protections.  The Parent has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Parent’s charter documents or the laws of its state of incorporation that is or could become applicable to the Shareholders as a result of the Shareholders and the Parent fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Parent Stock and the Shareholders’ ownership of the Parent Stock.

 

SECTION 4.20.                                No Additional Agreements.  The Parent does not have any agreement or understanding with the Shareholders with respect to the Transactions other than as specified in this Agreement.

 

SECTION 4.21.                                Investment Company.  The Parent is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

SECTION 4.22.                                Disclosure.  The Parent confirms that neither it nor any person acting on its behalf has provided any Shareholder or its respective agents or counsel with any information that the Parent believes constitutes material, non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information and except for information that will be disclosed by the Parent under a current report on Form 8-K filed after the Closing.  All disclosure provided to the Shareholders regarding the Parent, its business and the transactions contemplated hereby, furnished by or on behalf of the Parent (including the Parent’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

SECTION 4.23.                                Certain Registration Matters.  Except as specified in the Parent SEC Documents or the Parent Disclosure Schedules, the Parent has not granted or agreed to grant to any person any rights (including “piggy-back” registration rights) to have any securities of the Parent registered with the SEC or any other governmental authority that have not been satisfied.

 

SECTION 4.24.                                Listing and Maintenance Requirements.  The Parent is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Parent Stock on the trading market on which the shares of Parent Stock are currently listed or quoted.  The issuance and sale of the shares of Parent Stock under this Agreement does not contravene the rules and regulations of the trading market on which the Parent Stock are currently listed or quoted, and no approval of the stockholders of the Parent is required for the Parent to issue and deliver to the Shareholders the Parent Stock contemplated by this Agreement.

 

  

16

  

 

ARTICLE V

 

Deliveries

 

SECTION 5.01.                                Deliveries of the Shareholders.

 

(a)           Concurrently herewith the Shareholders are delivering to the Parent this Agreement executed by the Shareholders.

 

(b)           At or prior to the Closing, the Shareholders shall deliver to the Parent:

 

	
  

	
(i)

	
certificates representing its Company Shares; and

 

	
  

	
(ii)

	
this Agreement which shall constitute a duly executed share transfer power for transfer by the Shareholders of their Company Shares to the Parent (which Agreement shall constitute a limited power of attorney in the Parent or any officer thereof to effectuate any Share transfers as may be required under applicable law, including, without limitation, recording such transfer in the share registry maintained by the Company for such purpose).

 

SECTION 5.02.                                Deliveries of the Parent.

 

(a)           Concurrently herewith, the Parent is delivering to the Shareholders and to the Company, a copy of this Agreement executed by the Parent.

 

(b)           At or prior to the Closing, the Parent shall deliver to the Company:

 

	
  

	
(i)

	
a certificate from the Parent, signed by its Secretary or Assistant Secretary certifying that the attached copies of the Parent Charter, Parent Bylaws and resolutions of the Board of Directors of the Parent and of the stockholders of the Parent approving this Agreement and the transactions contemplated hereunder, are all true, complete and correct and remain in full force and effect;

 

	
  

	
(ii)

	
a letter of resignation of the sole officer and director of Parent from all offices and directorships he holds with the Parent;

 

	
  

	
(iii)

	
evidence of the election of George Glasier, David Andrews, David Rector, Joshua Bleak, Kyle Kimmerle and Stuart Smith as the directors of the Parent effective upon the Closing;

 

	
  

	
(iv)

	
evidence of the election of George Glasier as President and Chief Executive Officer, Michael Moore as Vice President and Chief Operating Officer and Kathleen Glasier as Secretary of the Parent effective upon the Closing;

 

	
  

	
(v)

	
such pay-off letters and releases relating to liabilities as the Company shall require in order to result in the Parent having no liabilities at Closing and such pay-off letters and releases shall be in form and substance satisfactory to the Company; and

 

  

17

  

 

	
  

	
(vi)

	
if requested, the results of UCC, judgment lien and tax lien searches with respect to the Parent, the results of which indicate no liens on the assets of the Parent.

 

(c)           Promptly following the Closing, the Parent shall deliver to the Shareholders, certificates representing the new shares of Parent Stock issued to the Shareholders set forth on Exhibit A and the Parent Warrants, issued to those Shareholders and in such amounts as indicated on Exhibit A.

 

SECTION 5.03.                                Deliveries of the Company.

 

(a)           Concurrently herewith, the Company is delivering to the Parent this Agreement executed by the Company.

 

(b)           At or prior to the Closing, the Company shall deliver to the Parent a certificate from the Company, signed by its Secretary or Assistant Secretary certifying that the attached copies of the Company’s Charter Documents and resolutions of the Board of Directors of the Company approving this Agreement and the Transactions, are all true, complete and correct and remain in full force and effect.

 

ARTICLE VI

 

Conditions to Closing

 

SECTION 6.01.                                Shareholders and Company Conditions Precedent.  The obligations of the Shareholders and the Company to enter into and complete the Closing is subject, at the option of the Shareholders and the Company, to the fulfillment on or prior to the Closing Date of the following conditions.

 

(a)           Representations and Covenants. The representations and warranties of the Parent contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.  The Parent shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Parent on or prior to the Closing Date.  The Parent shall have delivered to the Shareholder and the Company, a certificate, dated the Closing Date, to the foregoing effect.

 

(b)           Litigation.  No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Company or the Shareholders, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Parent or the Company.

 

  

18

  

 

(c)           No Material Adverse Change.  There shall not have been any occurrence, event, incident, action, failure to act, or transaction since October 31, 2011 which has had or is reasonably likely to cause a Parent Material Adverse Effect.

 

(d)           Post-Closing Capitalization.  At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of capital stock of the  Parent, on a fully-diluted basis, shall be as described in the Parent SEC Documents.

 

(e)           SEC Reports.  The Parent shall have filed all reports and other documents required to be filed by Parent under the U.S. federal securities laws through the Closing Date.

 

(f)           OTCBB Quotation.  The Parent shall have maintained its status as a Company whose common stock is quoted on the Over-the-Counter Bulletin Board and Parent shall not have received any notice that any reason shall exist as to why such status shall not continue immediately following the Closing.

 

(g)           Deliveries.  The deliveries specified in Section 5.02 shall have been made by the Parent.

 

(h)           No Suspensions of Trading in Parent Stock; Listing.  Trading in the Parent Stock shall not have been suspended by the SEC or any trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material information regarding the Parent) at any time since the date of execution of this Agreement, and the Parent Stock shall have been at all times since such date listed for trading on a trading market.

 

(i)           Satisfactory Completion of Due Diligence.  The Company and the Shareholders shall have completed their legal, accounting and business due diligence of the Parent and the results thereof shall be satisfactory to the Company and the Shareholders in their sole and absolute discretion.

 

(j)           Employment Agreements.  The board of directors of the Parent shall have approved an employment agreement with George Glasier to serve as President and Chief Executive Officer of the Parent, in form and substance satisfactory to George Glasier.

 

SECTION 6.02.                                Parent Conditions Precedent.  The obligations of the Parent to enter into and complete the Closing are subject, at the option of the Parent, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by the Parent in writing.

 

(a)           Representations and Covenants.  The representations and warranties of the Shareholders and the Company contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.  The Shareholders and the Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Shareholders and the Company on or prior to the Closing Date.  The Company shall have delivered to the Parent, if requested, a certificate, dated the Closing Date, to the foregoing effect.

 

  

19

  

 

(b)           Litigation.  No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Parent, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Parent.

 

(c)           No Material Adverse Change.  There shall not have been any occurrence, event, incident, action, failure to act, or transaction since December 31, 2011 which has had or is reasonably likely to cause a Company Material Adverse Effect.

 

(d)           Deliveries.  The deliveries specified in Section 5.01 and Section 5.03 shall have been made by the Shareholders and the Company, respectively.

 

(e)           Post-Closing Capitalization.  At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of the Company, on a fully-diluted basis, shall be described in the Company Disclosure Schedule.

 

(f)           Satisfactory Completion of Due Diligence.  The Parent shall have completed its legal, accounting and business due diligence of the Company and the results thereof shall be satisfactory to the Parent in its sole and absolute discretion.

 

ARTICLE VII

 

Covenants

 

SECTION 7.01.                                Public Announcements.  The Parent and the Company will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press releases or other public statements with respect to the Agreement and the Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchanges.

 

SECTION 7.02.                                Fees and Expenses.  All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses, whether or not this Agreement is consummated.

 

SECTION 7.03.                                Continued Efforts.  Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the Transactions, and (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date.

 

  

20

  

 

SECTION 7.04.                                Exclusivity.  Each of the Parent and the Company shall not (and shall not cause or permit any of their affiliates to) engage in any discussions or negotiations with any person or take any action that would be inconsistent with the Transactions and that has the effect of avoiding the Closing contemplated hereby.  Each of the Parent and the Company shall notify each other immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.

 

SECTION 7.05.                                Filing of 8-K and Press Release.  The Parent shall file, no later than four (4) business days of the Closing Date, a current report on Form 8-K and attach as exhibits all relevant agreements with the SEC disclosing the terms of this Agreement and other requisite disclosure regarding the Transactions.

 

SECTION 7.06.                                Access.  Each Party shall permit representatives of any other Party to have full access to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to such Party.

 

SECTION 7.07.                                Preservation of Business.  From the date of this Agreement until the Closing Date, the Company and the Parent shall operate only in the ordinary and usual course of business consistent with their respective past practices (provided, however, that Parent shall not issue any securities without the prior written consent of the Company), and shall use reasonable commercial efforts to (a) preserve intact their respective business organizations, (b) preserve the good will and advantageous relationships with customers, suppliers, independent contractors, employees and other persons material to the operation of their respective businesses, and (c) not permit any action or omission that would cause any of their respective  representations or warranties contained herein to become inaccurate or any of their respective covenants to be breached in any material respect.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01.                                Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

If to the Parent, to:

American Strategic Minerals Corporation

 c/o ____________

________________________________

If to the Company, to:

American Strategic Minerals Corporation

27745 West Fifth Avenue

Nucla, CO 81424-0326

If to the Shareholders at the addresses set forth in Exhibit A hereto.

 

  

21

  

 

SECTION 8.02.                                Amendments; Waivers; No Additional Consideration.  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company, Parent and the Shareholders.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.

 

SECTION 8.03.                                Replacement of Securities.  If any certificate or instrument evidencing any Parent Stock or Parent Warrants, as the case may be, is mutilated, lost, stolen or destroyed, the Parent shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefore, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Parent of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Parent Stock or Parent Warrant, as the case may be.  If a replacement certificate or instrument evidencing any Parent Stock or  Parent Warrant is requested due to a mutilation thereof, the Parent may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

SECTION 8.04.                                Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Shareholders, Parent and the Company will be entitled to specific performance under this Agreement.  The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

SECTION 8.05.                                Limitation of Liability.  Notwithstanding anything herein to the contrary, each of the Parent and the Company acknowledge and agree that the liability of the  Shareholders arising directly or indirectly, under any transaction document of any and every nature whatsoever shall be satisfied solely out of the assets of the Shareholders, and that no trustee, officer, other investment vehicle or any other affiliate of the Shareholders or any investor, shareholder or holder of shares of beneficial interest of the Shareholders shall be personally liable for any liabilities of the Shareholders.

 

SECTION 8.06.                                Interpretation.  When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

 

SECTION 8.07.                                Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions contemplated hereby is not affected in any manner materially adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that Transactions contemplated hereby are fulfilled to the extent possible.

 

  

22

  

 

SECTION 8.08.                                Counterparts; Facsimile Execution.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties.  Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.

 

SECTION 8.09.                                Entire Agreement; Third Party Beneficiaries. This Agreement, taken together with the Company Disclosure Schedule and the Parent Disclosure Schedule, (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the Transactions and (b) are not intended to confer upon any person other than the Parties any rights or remedies.

 

SECTION 8.10.                                Governing Law.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Nevada, without reference to principles of conflicts of laws.  Any action or proceeding brought for the purpose of enforcement of any term or provision of this Agreement shall be brought only in the Federal or state courts sitting in Nevada, and the parties hereby waive any and all rights to trial by jury.

 

SECTION 8.11.                                Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of the other Parties.  Any purported assignment without such consent shall be void.  Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

 

  

23

  

 

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

 

The Parent:

AMERICAN STRATEGIC MINERALS CORPORATION (Nevada)

 

By: ________________________

Name:  Andrew Uribe

Title:  Chief Executive Officer and Chief Financial Officer

 

The Company:

AMERICAN STRATEGIC MINERALS CORPORATION (Colorado)

 

By:______________________

Name: Kathleen Glasier

Title: President and Chief Executive Officer

[Signature Page to Share Exchange Agreement]

 

  

24

  

 

The undersigned Shareholders execute and deliver this Agreement for the sole purpose of agreeing to the terms of Article I (Exchange of Shares), Article II (Representations and Warranties of the Shareholders), Section 5.01 (Deliveries of the Shareholders), Section 6.01 (Shareholders and Company Conditions Precedent, but only as to the Shareholders), Article VII (Covenants), and Article VIII (Miscellaneous).

The Shareholders:

Kathleen A Glasier and George E. Glasier

Number of Shares: 27,000

 

________________________________

________________________________

B-Mining Company

________________________________

By:

Title:

Number of Shares: 15,550

 

Carla Rosas Zepeda

Number of Shares: 1,000

 

________________________________

 

Andrews Mining LLC

________________________________

By:

Title:

Number of Shares: 10,000

 

Andrews Mining LLC

________________________________

By:

Title:

Number of Shares: 3,600

 

  

25

  

 

Name:  Michael Thompson

Number of Shares: 13,600

 

________________________________

 

Name:  Kyle Kimmerle

Number of Shares: 7,000

 

________________________________

 

Name:  David Kimmerle

Number of Shares: 13,850

________________________________

Name:  Charles Kimmerle

Number of Shares: 1,537

________________________________

Name:  Sara Kimmerle

Number of Shares: 6,863

________________________________

 

  

26

  

 

EXHIBIT A

Shareholders of American Strategic Minerals Corporation (Colorado)

	
 

 

 

 

Name and Address of Shareholder

	
 

 

Tax ID Number of Shareholder  (if Applicable)

	
 

Number of Company Shares Being Exchanged

	
 

Number of Shares of Parent Stock to be Received by Shareholder

	
 

 

Number of Warrants, if applicable

	
Kathleen A. Glasier and George E. Glasier

	  	
27,000

	
2,700,000

	
1,200,000

	
B-Mining Company

	  	
15,550

	
1,555,000

	
1,200,000

	
Carla Rosas Zepeda

	  	
1,000

	
100,000

	
--

	
Andrews Mining LLC

	  	
10,000

	
1,000,000

	
600,000

	
Andrews Mining LLC

	  	
3,600

	
360,000

	
600,000

	
Michael Thompson

	  	
13,600

	
1,360,000

	
1,200,000

	
Kyle Kimmerle

	  	
7,000

	
700,000

	
1,200,000

	
David Kimmerle

	  	
13,850

	
1,385,000

	
--

	
Charles Kimmerle

	  	
1,537

	
153,700

	
--

	
Sara Kimmerle

	  	
6,863

	
686,300

	
--

	
TOTAL

	  	
100,000

	
10,000,000

	
6,000,000

 

 

27exhibit10_1.htm

Exhibit 10.1

 

SEVERANCE AGREEMENT

 

THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (“Agreement”) is made and entered into as of  September 23, 2011, by and between LUFKIN INDUSTRIES, INC., a Texas corporation (the “Company”) and Claude D. Hay of Chambersburg, Pennsylvania (the “Executive”).

 

WHEREAS, the Company currently employs the Executive as Vice President & General Manager, Power Transmission Division of the Company; and

 

WHEREAS, the board of directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to provide certain terms and conditions of the Executive’s employment upon the occurrence of a “Change in Control”, as defined below; and

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other consideration mutually acknowledged, the Company and the Executive (the “Parties”) agree as follows:

 

1.           Term.

 

The term of this Agreement (the “Term”) shall commence on the date first set forth above (the “Start Date”), and shall continue through September 23, 2013; provided, however, that on September 23, 2012 and on each succeeding September 23, the Term shall automatically extend for one calendar year, unless either party gives written notice to the contrary at least sixty (60) days prior to the date the Agreement would otherwise be extended. Notwithstanding the above, if the Executive’s employment terminates for any reason prior to a Change in Control then, except as provided in Section 2(c), this Agreement shall terminate.

 

2.           Employment.

 

(a)           If, during the Term, a Change in Control occurs while the Executive is employed by the Company, the Company shall continue to employ the Executive, and the Executive shall remain in employment with the Company, subject to this Agreement, for the period commencing on the Effective Date (as defined below) and ending on the earlier of (A) the second anniversary of such date, or (B) the first day of the month coinciding with or next following the Executive’s “normal retirement age” under the U.S. Social Security Act, as amended from time to time (the “Protection Period”).

 

(b)           For purposes of this Agreement, the Effective Date shall be the date on which occurs the earliest of the following events, each of which is hereinafter referred to as a “Change in Control”:

 

(i)           any “person,” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an executive benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company) together with its “Affiliates” and “Associates”, as such term is defined in Rule 12b-2 of the Exchange Act, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company’s common stock or of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors;

 

(ii)           during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

 

(iii)           the shareholders of the Company approve a merger or consolidation of the Company with any other company other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 65% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no “person” (as hereinabove defined) acquires more than 25% of the combined voting power of the Company’s then outstanding securities; or

 

(iv)           the shareholders of the Company adopt a plan of complete liquidation of the Company or approve an agreement for the sale, exchange or disposition by the Company of “all or a significant portion of the Company’s assets,” which for this purpose shall mean a sale or other disposition transaction or series of related transactions involving assets of the Company or any subsidiary (including the stock of any subsidiary) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than 35% of the fair market value of the Company (as hereinafter defined).  For purposes of the preceding sentence, the “fair market value of the Company” shall be the aggregate market value of the outstanding shares of common stock of the Company (on a fully diluted basis) plus the aggregate market value of the Company’s other outstanding equity securities.  The aggregate market value of the shares of common stock of the Company shall be determined by multiplying the number of shares of the Company’s common stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement with respect to the transaction or series of related transactions (the “Transaction Date”) by the market value per share immediately preceding the Transaction Date or by such other method as the Board shall reasonably determine is appropriate.  The aggregate market value of any other equity securities of the Company shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of the shares of common stock of the Company or by such other method as the Board shall reasonably determine is appropriate.

 

(c)           If within one year prior to the date on which a Change in Control occurs, the Executive’s employment with the Company is terminated by the Company other than for Cause or by the Executive in a way which if occurring after a Change in Control would constitute Good Reason (as defined in Section 4.4(b) of this Agreement), and it is reasonably demonstrated that such termination or effect (1) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control, then both the Change in Control and the Effective Date shall be deemed to have occurred on the date immediately prior to such termination of employment and the Executive’s rights shall be as determined under Section 4.4 below on such basis.

 

3.           Terms of Employment.

 

(a)           Position and Duties.

 

(i)           During the Protection Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date, or any office or location less than thirty-five (35) miles from such location.

 

(ii)           During the Protection Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.  During the Protection Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an executive of the Company in accordance with this Agreement.  It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto), subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

 

(b)           Compensation.

 

(i)           Base Salary.  During the Protection Period, the Executive shall receive a base salary (“Base Salary”) at a monthly rate (payable not less frequently than monthly) at least equal to the highest monthly base salary paid or payable to the Executive by the Company during the thirty-six month period immediately preceding the month in which the Effective Date occurs.  During the Protection Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key executives of the Company and its subsidiaries.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.  Base Salary shall not be reduced after any such increase.

 

(ii)           Annual Bonus.  In addition to Base Salary, the Executive shall be awarded, for each fiscal year during the Protection Period, an annual bonus (an “Annual Bonus”) in cash at least equal to the highest bonus payable to the Executive from the Company and its subsidiaries in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs.  The Annual Bonus for each fiscal year during the Protection Period shall be paid in the form of a lump sum cash payment on the last day of the fiscal year to which the Annual Bonus relates; provided, however, if calculation of the amount of the Annual Bonus by the last day of the fiscal year is not administratively practicable due to events beyond the control of the Company, such Annual Bonus shall be paid during the first taxable year of the Executive in which calculation is administratively practicable.

 

(iii)           Incentive, Savings and Retirement Plans.  In addition to Base Salary and Annual Bonus payable as hereinafter provided, the Executive shall be entitled to participate during the Protection Period in all incentive, savings and retirement plans, practices, policies and programs applicable to other key executives of the Company and its subsidiaries, and in each case, providing benefits which are the economic equivalent to those currently in effect or as subsequently amended.  Such plans, practices, policies and programs, in the aggregate, shall provide the Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by the Company for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

(iv)           Welfare Benefit Plans.  During the Protection Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries, at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

(v)           Expenses.  During the Protection Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

(vi)           Fringe Benefits.  During the Protection Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

(vii)           Office and Support Staff.  During the Protection Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its subsidiaries at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

(viii)           Vacation.  During the Protection Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its subsidiaries as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries.

 

4.           Termination of Employment.

 

The Executive’s employment is subject to termination during the Protection Period only as provided in this Section 4.  The provisions of this Section 4 are subject to, among others, the provisions of Section 22 of this Agreement.

 

4.1           Death or Disability.

 

(a)           In General.  If the Executive’s employment is terminated due to his death or total disability, as determined under the Company’s applicable long-term disability plan, this Agreement shall terminate without further obligation under this Agreement to the Executive or, in the case of the Executive’s death, to the Executive’s legal representatives, other than those obligations accrued or earned and vested (if applicable) by the Executive as of the date of termination of employment (the “Termination Date”), including, for this purpose the Executive’s (i) Accrued Base Salary, (ii) Accrued Annual Bonus, (iii) Accrued Vacation Pay, and (iv) Other Vested Benefits (all of which terms are defined below) (collectively, “Accrued Obligations”).  All such Accrued Obligations, excluding Other Vested Benefits, shall be paid to the Executive or, in the event of the Executive’s death, to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Termination Date.  All Other Vested Benefits shall be paid in accordance with the terms of the plan or arrangement defining Executive’s rights therein without any change or modification by this Agreement.  Anything in this Agreement to the contrary notwithstanding, the Executive, or the Executive’s family as appropriate, shall be entitled to receive welfare and other benefits (in addition to the Accrued Obligations) at least equal to the most favorable benefits provided by the Company and any of its subsidiaries under all plans, programs, practices and policies relating to disability or family death benefits, as applicable, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect on the date of the Executive’s disability or death with respect to other key executives of the Company and its subsidiaries and their families.

 

(b)           Certain Terms.  For purposes of this Agreement:

 

(i)           “Accrued Base Salary” means the Executive’s accrued and unpaid Base Salary through the Termination Date determined at the Highest Base Salary Rate.

 

(ii)           “Accrued Annual Bonus” means the product of (A) the Annual Bonus, if any, paid to the Executive for the last full fiscal year preceding the Termination Date, and (B) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date, and the denominator of which is 365.

 

(iii)           “Accrued Vacation Pay” means an amount equal to the value of the Executive’s accrued and unused paid vacation leave through the Termination Date determined at the Highest Base Salary Rate.

 

(iv)           “Highest Base Salary Rate” means the highest annual rate of Base Salary in effect at any time during the period beginning 90 days prior to the Effective Date and ending with the Termination Date.

 

(v)           “Other Vested Benefits” means Executive’s accrued and vested rights to any nonqualified deferred compensation (including all interest and earnings, as applicable) previously unpaid.

 

4.2           Termination by the Company for Cause.

 

If the Company terminates the Executive’s employment for Cause (as defined below), the Executive shall be entitled under this Agreement only to payment of his Accrued Base Salary, which amount shall be paid in a lump sum in cash within thirty (30) days of the Termination Date.  Any other benefits to which Executive and/or his dependents or beneficiaries are entitled shall be determined in accordance with the plans, programs, practices and policies of the Company and applicable law.

 

For purposes of this Agreement, the term “Cause” shall mean:

 

(i)           an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

 

(ii)           repeated violations by the Executive of the Executive’s obligations under Section 3 of this Agreement which are demonstrably willful and deliberate on the Executive’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company; or

 

(iii)           the conviction of the Executive of, or plea of nolo contendere by the Executive to, a felony.

 

The Executive must be notified in writing of any termination of his employment for Cause, which writing shall set forth in reasonable detail the facts and circumstances relied upon therefor.  The Executive will then have the right, within ten days of receipt of such notice, to file a written request for review.  In such case, the Executive will be given the opportunity to be heard, personally or by counsel, by the members of the Board who are not then executives of the Company (the “Independent Directors”) and a majority of the Independent Directors must thereafter confirm that such termination is for Cause.  If the Independent Directors do not provide such confirmation, the termination shall be treated as a termination by the Company without Cause.

 

           4.3           Termination by the Executive.

 

The Executive may terminate his employment at any time, in which case, except as otherwise provided in Sections 4.4 and 4.5 below, the Executive shall be entitled only to his Accrued Obligations as of the Termination Date.  The Accrued Obligations, excluding Other Vested Benefits, shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Termination Date.  All Other Vested Benefits shall be paid in accordance with the terms of the plan or arrangement defining Executive’s rights therein without any change or modification by this Agreement.  Any other benefits to which Executive and/or his dependents or beneficiaries are entitled shall be determined in accordance with the plans, programs, practices and policies of the Company and applicable law.

 

	
  

	
4.4

	
Termination of the Executive for Good Reason; Termination by the Company without Cause.

 

(a)           In General.  In the event the Executive’s employment is terminated during the Protection Period (i) by the Executive for Good Reason (as defined below), or (ii) by the Company without Cause, then:

 

(i)           the Company shall pay to the Executive in a lump sum in cash within thirty (30) days after the Termination Date the aggregate of the following amounts:

 

A.           the Executive’s Accrued Base Salary;

 

B.           the product of (x) the Annual Bonus paid to the Executive for the last full fiscal year (if any) ending during the Protection Period or, if higher, the Annual Bonus paid to the Executive for the last full fiscal year prior to the Effective Date (as applicable, the “Recent Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date and the denominator of which is 365; and

 

C.           the product of (x) 2.00 and (y) the sum of (i) the Highest Base Salary and (ii) the Recent Bonus;

 

(ii)           Other Vested Benefits, if any, shall be paid in accordance with the terms of the plan or arrangement defining Executive’s rights therein without any change or modification by this Agreement.  Any other benefits to which Executive and/or his dependents or beneficiaries are entitled shall be determined in accordance with the plans, programs, practices and policies of the Company and applicable law;

 

(iii)           the Company shall pay to the Executive in cash within thirty (30) days after the Termination Date a lump sum retirement benefit equal to the difference between (a) the actuarial equivalent of the benefit the Executive would receive under all retirement plans if he remained employed by the Company at the compensation level provided for in Section 3 of this Agreement (and continued to vest in such benefits) for the remainder of the Protection Period, and (b) the actuarial equivalent of his benefit, if any, actually accrued and vested under the Company’s plans; and

 

(iv)           for the remainder of the Protection Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies as described in Section 3 of this Agreement if the Executive’s employment had not been terminated, including health insurance and life insurance, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key executives of the Company and its subsidiaries and their families.  For purposes of eligibility for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Protection Period, to have retired on the last day of such period and to have satisfied all conditions for eligibility for all such retiree benefits.

 

(b)           Good Reason.  For purposes of this Agreement, Good Reason means any one of the following shall have occurred and not been corrected within ten (10) days following written notice to the Company:

 

(i)           the Executive reports to someone other than the chief executive officer of the Company;

 

(ii)           the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Company or any affiliate which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(iii)           any failure by the Company to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(iv)           the Company’s requiring the Executive to be based at any office or location other than that described in Section 3 hereof, except for travel reasonably required in the performance of the Executive’s responsibilities;

 

(v)           any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

 

(vi)           any failure by the Company to comply with and satisfy Section 10(c) of this Agreement.

 

For purposes of this Section 4.4(b), any good faith determination of “Good Reason” made by the Executive shall be final and binding upon the Parties.

 

(c)           Termination Under Section 2(c).  If this Section 4.4 applies to a termination of the Executive’s employment by virtue of the provisions of Section 2(c), the lump sum amounts described in Section 4.4(a)(i) and (iii) shall not be paid at the times prescribed above, but instead shall be paid as follows:

 

(i)           If the Change in Control that invokes Sections 2(c) and 4.4 constitutes a “change in control event” within the meaning of Treas. Reg. §1.409A-1(i)(5), the lump sum amounts described in Section 4.4(a)(i) and (iii) shall be paid at the time of such Change in Control, subject to Section 22.

 

(ii)           In all other cases, the lump sum amounts described in Section 4.4(a)(i) and (iii) shall be paid during the 30-day period beginning on the first anniversary of the Termination Date.

 

	
  

	
4.5

	
Termination by the Executive Following the First Anniversary of the Protection Period.

 

In the event that the Executive remains in the employ of the Company on the first day of the month coinciding with or next following the first anniversary of the Effective Date (the “Anniversary Date”), then the Executive may elect the provisions of this Section 4.5 by delivering a notice of termination within the period commencing on the Anniversary Date and ending thirty (30) days after the Anniversary Date (the “Window Period”), resigning as a director if applicable, and officer, and terminating his employment.  If the Company receives such notice of termination from the Executive within the Window Period, then the Executive shall be entitled to the same compensation, benefits and other remuneration as described in Section 4.4 applicable to a termination by the Company without Cause.

 

5.           Confidential Information.

 

The Executive shall not, at any time, except in good faith in the performance of his duties for the Company, divulge any trade secrets or other proprietary or confidential information concerning the accounts, business or affairs of the Company, which shall have been obtained by the Executive during the Executive’s employment by the Company and which shall not be or become public knowledge other than by acts of the Executive in violation of this Agreement (except such information as is required by law or legal process to be divulged, in which case he shall give the Company prompt notice of such required disclosure and use his reasonable best efforts, in cooperation with the Company, to defend against any such required disclosure).  However, in no event shall an asserted violation of the provisions of this Section 5 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

 

6.           Indemnification.

 

6.1           If at any time the Executive is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, the Company shall indemnify the Executive and hold him harmless against reasonable expenses (including attorneys’ fees), judgments, fines, penalties, amounts paid in settlement and other liabilities actually and reasonably incurred by him in connection with such action, suit or proceeding to the full extent permitted by law.

 

6.2           Expenses (including attorneys’ fees) incurred by the Executive in appearing at, participating in, or defending any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, shall be paid by the Company at reasonable intervals in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by the Executive to repay such amounts if it shall ultimately be determined that he is not entitled to be indemnified.

 

6.3           All claims for indemnification under this Agreement shall be asserted and resolved as follows:

 

(i)           The Executive (a) shall promptly notify the Company of any third-party claim or claims asserted against him (“Third Party Claim”) that could give rise to a right of indemnification under this Agreement and (b) shall transmit to the Company a written notice (“Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any), and the basis of his request for indemnification under this Agreement.

 

(ii)           Within thirty (30) days after receipt of any Claim Notice (“Election Period”), the Company shall notify the Executive (a) whether the Company disputes its potential liability to the Executive under this Section 6 with respect to such Third Party Claim and (b) whether the Company desires, at its sole cost and expense, to defend the Executive against such Third Party Claim by any appropriate proceedings, which proceedings shall be prosecuted diligently by the Company to a final conclusion or settled at the discretion of the Company in accordance with this subsection 6.3(ii).  The Company shall have full control of such defense and proceedings, including any compromise or settlement thereof.  The Executive is hereby authorized, at the Company’s sole cost and expense (but only if he is actually entitled to indemnification hereunder or if the Company assumes the defense with respect to the Third Party claim), to file, during the Election Period, any motion, answer or other pleadings which he shall deem necessary or appropriate to protect his interests or those of the Company and not prejudicial to the Company.  If requested by the Company, the Executive agrees, at the Company’s sole cost and expense, to cooperate with the Company and its counsel in contesting any Third Party Claim that the Company elects to contest, including without limitation, through the making of any related counterclaim against the person asserting the Third Party Claim or any cross-complaint against any person.  The Executive may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Company pursuant to this Section 6.3 and the Company shall bear his costs and expenses with respect to such participation.

 

(iii)           If the Company fails to notify the Executive within the Election Period that the Company elects to defend the Executive pursuant to subsection 6.3(ii), or if the Company elects to defend the Executive pursuant to subsection 6.3(ii) but fails to diligently and promptly prosecute or settle the Third Party Claim, then the Executive shall have the right to defend, at the sole cost and expense of the Company, the Third Party Claim.  The Executive shall have full control of such defense and proceedings; provided, however, that the Executive may not enter into, without the Company’s consent, which shall not be unreasonably withheld, any compromise or settlement of such Third Party Claim. Notwithstanding the foregoing, if the Company has delivered a written notice to the Executive to the effect that the Company disputes its potential liability to the Executive under this Section 6, and if such dispute is resolved in favor of the Company by final, nonappealable order of a court of competent jurisdiction, the Company shall not be required to bear the costs and expenses of the Executive’s defense pursuant to this Section 6 or of the Company’s participation therein at the Executive’s request, and the Executive shall reimburse the Company promptly in full for all costs and expenses of such litigation.  The Company may participate in, but not control, any defense or settlement controlled by the Executive pursuant to this Section 6.3(iii), and the Company shall bear its own costs and expenses with respect to such participation.

 

(iv)           The indemnification provided by this Section 6 shall apply whether or not the negligence of a party is alleged or proved.

 

6.4           To the extent that the Company’s obligations under this Section 6 fail to qualify under the exception from deferred compensation under Treas. Reg. §1.409A-1(b)(10), then those obligations failing to so qualify shall instead become the obligations to reimburse the Executive for the costs, expenses and other amounts described in this Section 6 and/or incurred by Executive, subject to the limitations and requirements of Section 22(iii) of this Agreement.

 

7.           Non-exclusivity of Rights.

 

Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its subsidiaries.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Termination Date shall be payable in accordance with such plan, policy, practice or program.

 

8.           Full Settlement.

 

The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement.  The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

 

9.           Certain Additional Payments by the Company.

 

9.1           If any payments or benefits received or to be received by Executive (whether pursuant to the terms of this Agreement or any other plan or agreement with the Company, any person whose actions results in a Change in Control or any person affiliated with the Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, the “Total Payments”) are determined to result in the imposition of excise tax under section 4999 of the Code or any similar excise tax under the Code or under state or local statute (the “Excise Tax”), the Company shall pay Executive an additional amount (such amount in the aggregate, the “Gross-Up Amount,” and each payment thereof, or all such payments together, the “Gross-Up Payment”) intended to compensate or reimburse Executive for the Excise Tax resulting from the Total Payments and for the federal, state and local income tax, employment tax and Excise Tax on the Gross-Up Payment.  The purpose of this subsection 9.1 is to place Executive in the same economic position Executive would have been in had the Total Payments not been subject to the Excise Tax.  For theses purposes:

 

(i)           the Total Payments, which will consist of those amounts as constituting “parachute payments” (within the meaning of section 280G(b)(2) of the Code after giving effect to Section 280G(b)(4)(A));

 

(ii)           the value of any non-cash benefits or any deferred payment or benefit to be taken into account in determining the Total Payments;

 

(iii)           the amount of the Total Payments to be treated as “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code, all reductions thereof for amounts representing “reasonable compensation for personal services” (within the meaning of Section 280G(b)(4) of the Code) in excess of the “base amount” (within the meaning of Section 280G(b)(3) of the Code) allocable to such “reasonable compensation for personal services” and all reductions by or for all such other amounts as are not subject to the Excise Tax;

 

(iv)           the amount of the Excise Tax; and

 

(v)           the Gross-Up Amount and each Gross-Up Payment with respect thereto (which in the aggregate, shall equal the Gross-Up Amount),

 

shall be determined by the accounting firm which was the Company’s independent auditor immediately prior to the Change in Control (the “Auditor”) which determinations shall be subject to approval by written legal opinion (which may be subject to and reflect assumptions, exceptions and standards of certainly normal and reasonable for legal opinions of this type) of tax counsel (the “Tax Counsel”) selected by the Auditor and approved by the Executive as acceptable, which approval of Tax Counsel by the Executive shall be timely and not unreasonably withheld.

 

9.2           A Gross-Up Payment shall be paid by the Company to the Executive (or for the Executive, if and to the extent the Gross-Up Payment is determined to be subject to tax withholding), by no later than the earlier of (i) each date as of which Excise Tax under Section 4999 of the Code is paid or is payable, whichever comes first; and (ii) each date as of which any portion of the Total Payments resulting in the Excise Tax are paid or otherwise provided (excluding dates, but not the amounts of, Total Payments paid or provided other than on, as of or properly with respect to, an event or time that constitutes a permissible payment event under Treas. Reg. §1.409A-3) so as to then become properly includable in Executive’s gross income for federal income tax purposes; provided, however, that notwithstanding any contrary provision hereof (other than Section 22, if applicable), if and to the extent that any amount owed hereunder by the Company to the Executive constitutes a “reimbursement of expenses” within the meaning of Treas. Reg. §1.409A-3(i)(1)(iv) or a “tax gross-up payment” within the meaning of Treas. Reg. §1.409A-3(i)(1)(v), such amounts shall be paid by no later than the end of the Executive’s taxable year following the taxable year in which the amount being reimbursed was paid.

 

9.3           As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the Gross-Up Amount and the aggregate of all Gross-Up Payments made as of any point in time as determined by the Auditor to be due to (or on behalf of) the Executive will be lower than the Gross-Up Amount actually due (“Underpayment”).  In the event that the Executive thereafter is required to make a payment of any additional Excise Tax, the Auditor shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive as an additional Gross-Up Payment, which shall be paid to or for the Executive (as applicable) on the date the Excise Tax is paid or payable by the Executive (whichever comes first), or as soon thereafter as the calculation of the amount of such additional Gross-Up Payment shall be administratively practicable, but in all events, no later than the end of the Executive’s taxable year next following the Executive’s taxable year in which the related taxes are remitted to the taxing authority.

 

9.4           In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Amount and the Gross-Up Payments paid, the Executive shall repay to the Company, within ten (10) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment benefit being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes), plus interest on the amount of such repayment at 120 percent of the rate provided in Section 1274(b)(2)(B) of the Code.  In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment, the existence or amount of, which cannot be determined at the time of the payment of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined, but no later than the end of the calendar year following the calendar year in which the taxes related to the additional Gross-Up Payment and other amounts are remitted.

 

9.5           If the Executive duly reports Total Payments for purposes of the Excise Tax in a proper and timely manner in accordance with the information, if any, as reported to the Executive by the Company on IRS Form W-2, and timely pays the resulting Excise Tax, if any, and incurs any penalty and/or interest attributable to any inaccuracy or delinquency in the Company’s reporting to the Executive of the Total Payments for Excise Tax purposes, the Company shall reimburse the Executive for all such penalty and interest on the date(s) such amounts are paid by the Executive, or within 10 days thereafter.  In addition, at the time of each such reimbursement of penalty and interest, the Company shall simultaneously pay the Executive a “tax gross-up payment” within the meaning of Treas. Reg. §1.409A-3(i)(1)(v) to reimburse or compensate the Executive for all of the federal, state and local income tax, employment tax and Excise Tax on the reimbursement and on the tax gross-up payment itself.  The amount of such tax-gross up payment shall be determined in the same manner as prescribed above for the determination of the Gross-Up Amount and the Gross-Up Payments on Excise Tax.

 

9.6           Executive and the Company shall each reasonably cooperate with the other relative to any administrative or judicial proceedings concerning the existence or amount of liability for the Excise Tax.

 

10.           Successors.

 

(a)           This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

 

(b)           This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

 

(c)           The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

11.           Withholding.

 

Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive, his spouse, his estate or beneficiaries, shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation.  In lieu of withholding such amounts in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied.

 

12.           Effect of Severance Agreement.

 

This Agreement contains the entire agreement between the Parties concerning the rights and obligations of the Executive upon a Change in Control and supersedes all prior agreements, understandings, discussions, negotiations, and undertakings, whether written or oral, between the Parties with respect thereto.

 

13.           Amendments and Waivers.

 

This Agreement may not be modified or amended except by a writing signed by both Parties.  A Party may waive compliance by the other Party with any term or provision of this Agreement, or any part thereof, provided that the term or provision, or part thereof, is for the benefit of the waiving Party.  Any waiver shall be limited to the facts or circumstances giving rise to the noncompliance and shall not be deemed either a general waiver or modification with respect to the term or provision, or part thereof, being waived, or as to any other term or provision of this Agreement, nor shall it be deemed a waiver of compliance with respect to any other facts or circumstances then or thereafter occurring.

 

14.           Mediation and Legal Actions.

 

If a dispute arises out of or related to this Agreement or its breach and if the dispute cannot be settled through direct discussions, then the Company and the Executive agree first to endeavor to settle the dispute in an amicable manner by mediation, under the applicable provisions of Sec. 154.001 et seq. Texas Civil Practices & Remedies Code, as supplemented by the mediation rules of the American Arbitration Association, before having recourse to any other proceeding or forum.  If any Party to this Agreement brings legal action to enforce the terms of this Agreement against another Party to this Agreement and prevails in such legal action, the other Party, in addition to the remedy or relief obtained in such legal action, shall be liable for the expenses incurred by the successful Party in such legal action, including costs of court and the fees and expenses of counsel.

 

15.           Notices.

 

Any notice given hereunder shall be in writing and shall be deemed given when delivered personally or by courier, or five days after being mailed, certified or registered mail, duly addressed to the Party concerned at the address indicated below or at such other address as such Party may subsequently provide:

 

	 To the Company:	 	 Lufkin Industries, Inc.
	 	 	 601 South Raquet
	 	 	 Lufkin, Texas 75901
	 	 	 Attn: Secretary
	 	 	 
	 To the Executive:	 	 Claude D. Hay
	 	 	 3390 Shinnecock Drive
	 	 	 Chambersburg, Pennsylvania 17202

 

16.           Severability.

 

In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

 

17.           Survivorship.

 

The respective rights and obligations of the Parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

 

18.           References.

 

References in this Agreement to the Executive shall be deemed to refer to his legal representative or, where appropriate, to his beneficiary or beneficiaries in the event of the Executive’s death or a judicial determination of his incompetence.

 

19.           Governing Law.

 

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Texas without reference to the principles of conflicts of law.

 

20.           Headings.

 

The headings of paragraphs contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

 

21.           Counterparts.

 

This Agreement may be executed in one or  more counterparts.

 

22.           Compliance with Code Section 409A.

 

This Agreement is intended to comply with the requirements of Section 409A of the Code and, as a result, this Agreement shall be construed, interpreted and operated in a manner that will ensure such compliance.  Without limiting the scope of the preceding provisions of this Section 22, the following provisions shall apply:

 

(i)           All references in this Agreement to the termination of Executive’s employment with Company shall mean and shall be deemed to occur if and when a termination of employment that constitutes a “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued thereunder has occurred.

 

(ii)           To the extent that Executive is a specified employee, as defined in Treas. Reg. §1.409A-1(i), and any stock of the Company or of any affiliate is publicly traded on an established securities market or otherwise, no payment or benefit that is subject to Section 409A of the Code (including payments and benefits subject to other provisions of this Section 22) shall be made under this Agreement on account of the Executive’s separation from service with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code, before the date that is the first day of the month that occurs six months after the date of Executive’s separation from service (or, if earlier, the date of death of Executive or any other date permitted under Section 409A of the Code).  The foregoing delay shall not apply to any payment or benefit hereunder if and to the extent such payment or benefit constitutes, pursuant to Treas. Reg. §1.409A-1(b)(9)(iii), separation pay payable or to be provided only upon an involuntary separation from service, does not exceed two times the lesser of the Executive’s annual Salary at the rate then in effect or the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code in the year in which the Executive has a separation from service, and is paid no later than the last day of the second year following the year in which the involuntary separation from service occurs.  In addition, any noncash benefit to be provided under this Agreement that is described in, and subject to the delay of, the first sentence of this Section 22(ii), such benefit shall be made available to the Executive during that six month period, but only upon the full and timely payment in cash by Executive to the Company of the fair and arms’ length value of such benefit, which payments shall be reimbursed by the Company to the Executive after the delay described above and otherwise in accordance with Section 22(iii).

 

(iii)           To the extent that any amount or benefit hereunder is includable in gross income for federal income tax purposes and constitutes or is treated hereunder as a reimbursement or in-kind benefit received or to be received by Executive, such reimbursement or in-kind benefit shall be administered consistent with the following additional requirements as set forth in Treas. Reg. §1.409A-3(i)(1)(iv):  (1) Executive’s eligibility for or receipt of benefits or reimbursements in one year will not affect Executive’s eligibility for or the amount of benefits or reimbursements in any other year, (2) any reimbursement of eligible expenses will be made on or before the last day of the year following the year in which the expense was incurred, (3) Executive’s right to benefits or reimbursement is not subject to liquidation or exchange for another benefit, and (4) the right to reimbursement of expenses incurred or to the provision of benefits in kind shall terminate ten (10) years from the Executive’s termination of employment.

 

(iv)           To the extent that any payment or benefit to be received by Executive hereunder is to be offset hereunder, such offset may occur only if it would not result in an impermissible acceleration under Section 409A of the Code.

 

(v)           To the extent that any benefit in kind or coverages to be provided under this Agreement either cannot be provided without contravening the requirements of applicable law because the Executive has ceased to be employed by the Company, or would subject the Executive to additional income taxes under Section 409A of Code, the Company shall not provide such benefit in kind or coverage, but shall in lieu thereof pay an amount equal to the Company’s cost (determined as of the date on which Executive’s coverage terminated) of providing such benefit for the period such benefit or coverage was otherwise required under this Agreement, and such amount shall be payable in equal, periodic installments at the same regular intervals at which Executive’s Salary would be payable under the normal Company’s payroll practices and procedures commencing with the first payroll date on or immediately after the Executive’s benefit in kind or coverage terminates.

 

(vi)           Each right to benefits in kind over a period of time that would be treated as a series of installment payments, and/or each right to payments in respect of such benefits and Section 22(v), shall at all times be treated as a right to a series of separate payments.

  

  

  

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above.

	  	
LUFKIN INDUSTRIES, INC.

	  	  	  
	  	
By:

	  
	  	  	  
	  	  
	  	
Claude D. Hay

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00201-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00201-of-00352.parquet"}]]