Document:

Exhibit
10.1

 

EXECUTIVE
EMPLOYMENT AGREEMENT

 

THIS
AGREEMENT is made
and entered into this the 30th day of May, 2008 (the “Execution Date”), by and between JOE’S JEANS INC., a Delaware corporation (the “Company”), and MARC B. CROSSMAN  (“Executive”).

 

W I T N E
S S E T H:

 

WHEREAS, Executive and the Company deem it to be
in their respective best interests to enter into an agreement providing for the
Company’s continued employment of Executive pursuant to the terms herein
stated;

 

NOW,
THEREFORE, in
consideration of the premises and the mutual promises and agreements contained
herein, it is hereby agreed as follows:

 

1.             Effective Date.  Executive’s
employment under this Agreement shall be effective as of the 1st day
of December, 2007 (the “Effective
Date”).

 

2.             Position and Duties.

 

(a)           As of the Effective Date, Executive shall serve as
President and Chief Executive Officer for the “Term of Employment” (as herein defined
below).  In this capacity, Executive
shall devote substantially all of his business time, efforts and attention to
the performance of his duties, subject to (b) below.  Executive shall have the duties,
responsibilities and authority customarily incident to such offices and
positions and to such other services commensurate with such positions as may be
agreed to by Executive and the Company’s Board of Directors (the “Board”).  Executive shall in his capacity as an
employee and officer of the Company be responsible to and obey the reasonable
and lawful directives of the Board consistent with this Agreement and shall
report directly to the Board.

 

(b)           Executive shall devote substantially all of his
business time and attention to such duties, except for sick leave, reasonable
vacations, and excused leaves of absences as more particularly provided herein,
provided that so long as this does not interfere to any substantial extent with
Executive’s duties, Executive may manage his personal investments, be involved
in charitable and professional activities and serve on for profit boards and
advisory committees, provided that nothing in this Section 2(b) shall
override Executive’s obligations in Section 7 hereof.  It is hereby acknowledged and agreed that
Executive currently serves on the boards of the following entities:  Joe’s Jeans Inc., Regent’s Secret Inc. and
Woodford Industries Inc.

 

(c)           Notwithstanding any provision of this
Agreement to the contrary, Executive shall not cause or (to the extent in
Executive’s control) allow Company to take any of the following actions unless
and until such action has been specifically approved by the Board (in writing
or at a Board meeting):

 

 

(i)            Make or commit to make any individual
capital expenditure having a cost in excess of one hundred thousand dollars
($100,000) or capital expenditures in any year having an aggregate cost that
exceeds five hundred thousand dollars ($500,000) except as provided in a Budget
approved by the Board;

 

(ii)           hire or terminate or amend the terms of
employment of any officer of the Company, or any employee of the Company
earning in excess of two hundred and fifty thousand dollars ($250,000) per
year, or enter into any employment or consulting agreements for a term in
excess of 365 days.

 

(iii)          Execute
or enter into any contract or purchase order (whether for services, for
inventory, supplies or other goods used in Company’s operations or otherwise,
but excluding capital expenditures referred to in paragraph (a) above)
that obligates Company to pay in excess of two hundred fifty thousand dollars
($250,000) except as provided in a Budget approved by the Board;

 

(iv)          Make, or cause or permit to be made, any
change in the marketing strategy or pricing practices of Company from those
previously approved by the Board that could reasonably be expected to have a
material effect on Company’s revenues or net income for any calendar quarter or
calendar year;

 

(v)           Acquire the business of any other entity
or individual, whether by purchase of assets, acquisition of equity securities,
merger or otherwise.

 

3.             Compensation.

 

(a)           Base Salary.  The Company
shall pay to Executive during the Term of Employment a rate of not less than
Four Hundred Twenty-Nine Thousand Three Hundred dollars ($429,300) per year,
payable in accordance with the Company’s normal payroll practices, and agrees
that such salary shall be reviewed at least annually, beginning with a review
on or around the first anniversary of the Effective Date; provided however,
that Executive’s Base Salary shall not be decreased at any time during the Term
of Employment.  (Executive’s annual
salary, as set forth above or as it may be increased from time to time as set
forth herein, shall be referred to hereinafter as “Base Salary.”)

 

(b)           Performance Bonus.  Executive
shall be eligible to receive an annual discretionary bonus (“Bonus”), targeted at
50% of Executive’s Base Salary, the achievement of such Bonus to be based on
the satisfaction of criteria and performance standards as established in
advance and agreed to by Executive and the Compensation Committee of the Board
with respect to each 12 month period under this Agreement; provided, however,
that the Bonus to be paid within 12 months from the Effective Date of this
Agreement shall be based upon subjective performance criteria at the discretion
of the Compensation Committee of the Board. 
The Bonus, if any, should be paid no later than 60 days following the
conclusion of such annual 12 month period.

 

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(c)           Annual Long Term Incentive Compensation. 
Executive shall be eligible to participate in the Company’s 2004 Stock
Incentive Plan (“Plan”) and that any equity
grant shall be subject to the terms and conditions of the Plan and the
applicable award agreement reflecting such grant.  Notwithstanding the forgoing, for each 12
month period under this Agreement from the Effective Date, Executive shall be
eligible for a grant of restricted common stock or restricted common stock
units with an equivalent fair market value of 100% of Executive’s then current
Base Salary.

 

(d)           Additional Payment.  Upon
execution of this Agreement, Executive shall be entitled to an additional
payment equal to a pro-rata amount of Executive’s Base Salary he would have
otherwise received between the Execution Date and the Effective Date of this
Agreement.

 

4.             Benefits During the Term of Employment.

 

(a)           Executive shall be eligible to participate in any
life, health and long-term disability insurance programs, pension and
retirement programs, stock and other equity or non-equity incentive
compensation programs, and other fringe benefit programs made available to
senior executive employees of the Company from time to time (subject, in the
case of life, health and long-term disability insurance programs, to his
qualifying under the terms of the insurance coverage), at a level commensurate with
his position, and Executive shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by the Company’s Board of
Directors.  In addition, Executive shall
be entitled to receive a separate long term disability insurance policy in
addition to the standard one offered to other employees as a fringe benefit.

 

(b)           Executive shall be allowed four weeks of vacation with
pay and leaves of absence with pay on the same basis as other senior executive
employees of the Company.

 

(c)           The Company shall reimburse Executive for reasonable
business expenses incurred in performing Executive’s duties and promoting the
business of the Company, including, but not limited to, reasonable
entertainment expenses, travel and lodging expenses, following presentation of
documentation in accordance with the Company’s business expense reimbursement
policies.

 

(d)           In the event of a
relocation of the primary place of employment by the Company at less than 50
miles but more than 25 miles from Executive’s place of employment as of the
Effective Date (or such later place of employment as to which he agrees in
writing to relocate), then the Board shall offer to Executive a relocation
package consistent with relocation packages offered to other executives in
similarly situated positions.

 

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(e)           The Company shall pay or reimburse
Executive up to two thousand dollars ($2,000) for his attorney’s legal fees and
expenses for review of this Agreement and related documents.

 

(f)            The Company shall keep in effect, throughout the Term
of Employment, a $1,000,000 term life insurance policy for Executive (subject
to Executive’s continued eligibility therefor at a reasonable cost) under which
Executive shall be entitled to designate the beneficiaries. Upon termination of
employment for any reason, Executive shall assume payment for such policy as of
the date of termination.

 

(g)           The Company shall keep in effect, throughout the Term
of Employment, a disability insurance policy to cover Executive in the event of
a disability, as defined under such policy or plan (subject to Executive’s
continued eligibility therefor at a reasonable cost) under which Executive
shall be entitled to designate the beneficiaries.  Upon termination of employment for any
reason, Executive shall assume payment for such policy as of the date of
termination.

 

5.             Term; Termination of Employment.

 

As used herein, the
phrase “Term of
Employment” shall mean the period ending on November 30,
2009 (the “Expiration Date”); provided,
however, that as of (i) the Expiration Date and (ii) if applicable,
the end of any Renewal Period (as defined below), the Term of Employment shall
automatically be extended for additional two year periods (each a “Renewal Period”) unless either the
Company or Executive provides 180 days’ prior written notice to the
contrary.  If employment ends as a result
of a notice of nonrenewal by either party, the cessation shall be treated as a
contract expiration for purposes of Sections 5 and 6 and not as a termination
without Cause or resignation for Good Reason; provided,
however, that in the event of a Change in Control (as defined
herein), the Expiration Date (or if the Company is in any Renewal Period, then
the expiration date of such Renewal Period) shall reset to be the date which is
two years’ following the date that the Change in Control was consummated.  Notwithstanding the foregoing, the Term of
Employment shall expire on the first to occur of the following:

 

(a)           Termination by the Company.

 

(i)            Notwithstanding anything to the contrary in this
Agreement, whether express or implied, the Company may, at any time, terminate
Executive’s employment for any or no reason by giving Executive at least 90
days’ advance written notice of the effective date of termination.  Nothing in this section prevents the Company
from removing Executive from service during the period, if any, between notice
and effectiveness.

 

(ii)           “Cause”
shall mean:

 

(I)            conviction
of an offense involving an act of dishonesty, fraud or any other act of moral
turpitude under the provisions of any Federal, State or local laws or
ordinances, or using alcohol, narcotics or illegal drugs to such an extent that
it repeatedly materially adversely affects Executive’s performance hereunder;

 

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(II)           substantial
and willful failure to perform specific and lawful written directives of the
Board;

 

(III)         willful and knowing violation of any rules or
regulations of any governmental or regulatory body that is materially injurious
to the financial condition of the Company;

 

(IV)         conviction
of or plea of guilty or nolo contendere to a felony or an act of moral
torpitude; or

 

(V)           a material breach of the terms and conditions of this
Agreement.

 

provided, however, that with regard to subclauses (II) or
(V) above, Executive may not be terminated for Cause unless and until the
Board has given him reasonable written notice of their intended actions and
specifically describing the alleged events, activities or omissions giving rise
thereto and with respect to those events, activities or omissions for which a
cure is possible, 30 days to cure such breach; and provided further, however,
that for purposes of determining whether any such Cause is present, no act or
failure to act by Executive shall be considered “willful” if done or omitted to be done
by Executive in good faith and in the reasonable belief that such act or
omission was in the best interest of the Company and/or required by applicable
law.

 

(iii)          For
purposes of this Agreement (in particular Section 6), “Disability” shall
mean that as a result of Executive’s incapacity due to physical or mental
illness (as determined in good faith by a physician acceptable to the Company
and Executive), (x) Executive shall have been absent from the full-time
performance of his duties with the Company for 120 consecutive days during any
12 month period or (y) if a physician acceptable to the Company and
Executive advises the Company that it is likely that Executive will be unable
to return to the full-time performance of his duties for 120 consecutive days
during the succeeding 12 month period. 
In the event of Disability following the expiration of the 120
consecutive day period set forth in (x) or the determination by a
physician in (y) above, then Company may immediately terminate Executive’s
employment as set forth in Section 6(a).

 

(b)           Termination by Executive.

 

(i)            Notwithstanding anything to the contrary
in this Agreement, whether express or implied, the Executive may terminate his
employment with the Company at any time without Good Reason upon at least 30
days’ advance written notice of his intention to terminate his employment
hereunder and with Good Reason upon at least 90 days’ advanced written notice
of his intention to terminate his employment hereunder.

 

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(ii)           “Good Reason” shall mean the occurrence of any
of the following events, provided that the Executive gives written notice of
his intent to resign pursuant to such event within 90 days following such
occurrence and provided that such event is not fully corrected within 30 days
following written notification by Executive to the Company that he intends to
terminate his employment hereunder for one of the reasons set forth below:

 

(I)            a material breach by the Company of any provision of
the Employment Agreement including, but not limited to, the assignment to
Executive of any duties inconsistent with Executive’s position as President and
CEO, the removal of Executive in such positions, a material change in title of
Executive, or a material adverse alteration in the nature or status of
Executive’s responsibilities; provided,
however, Executive shall not be
entitled to terminate pursuant to this clause (I) in the event Executive
is still serving as the head of a corporate division with a substantially
similar title and whose operations are substantially similar to the Company’s
operations immediately prior to Executive’s decision to terminate employment;

 

(II)           a requirement that he relocate his primary place of
employment by more than 50 miles from his place of employment as of the
Effective Date (or such later place of employment as to which he agrees in
writing to relocate); or

 

(III)         a material reduction in Executive’s then current Base
Salary.

 

Executive
must actually terminate his employment within 30 days following the Company’s
failure to cure the applicable event to be treated as resigning for Good
Reason.  Furthermore, for a period of six
months following resignation for Good Reason, Executive shall make himself
reasonably available to the Company and/or its Board for consultation at a
mutually agreeable hourly rate.

 

6.             Salary and Benefits Upon Termination.

 

(a)           Accrued Amounts
and Rights.  In the event
of termination of employment, Executive shall receive all regular Base Salary due up
to the date of termination, any accrued but unused vacation (if and to the
extent consistent with the Company’s policies), any incurred but unreimbursed
business expenses, and if it has not previously been paid to Executive,
Executive shall be paid any Bonus due to Executive for any fiscal year ending
prior to the effective date of such termination, any Bonus for the period in
which termination occurred, prorated for the partial period, any rights under
any benefit or equity plan, program or practice and his rights to
indemnification and directors and officers liability insurance (the “Accrued Amounts and Rights”).  For purposes of this Section 6, “Base Salary” shall mean
Executive’s regular rate of pay at the time of termination and shall not
include bonus or incentive plans, overtime pay, relocation allowances or the
value of any other benefits for which Executive may be eligible and shall be
before any deferrals.  Nothing in this
Agreement shall be construed as giving 

 

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Executive any additional
rights relating to options other than those described in this Agreement or the
respective grants.  Executive’s
right to severance benefits, if any, shall be governed by the terms of this
Agreement.  Section 6
provides the sole and exclusive agreement concerning severance benefits for
Executive in the event of a termination and replaces any and all prior plans,
policies and practices relating to severance pay that may exist now or may have
existed in the past, but does not revise any option or other equity plans or
arrangements.

 

(b)           Further Effect of
Termination on Board and Officer Positions.  If Executive’s employment ends for any
reason, Executive agrees that he will cease immediately to hold any and all
officer or director positions he then has with the Company or any subsidiary,
absent a contrary direction from the Board (which may include either a request
to continue such service or a direction to cease serving upon notice without
regard to whether his employment has ended), except to the extent that
Executive reasonably and in good faith determines that ceasing to serve as a
director would breach his fiduciary duties to the Company.  Executive hereby irrevocably appoints the
Company to be his attorney to execute any documents and do anything in his name
to effect his ceasing to serve as a director and officer of the Company and any
subsidiary, should he fail to resign following a request from the Company to do
so.  A written notification signed by a
director or duly authorized officer of the Company that any instrument,
document or act falls within the authority conferred by this clause will be
conclusive evidence that it does so.

 

(c)           Responsibility for Benefits. 
The Company will pay the entire cost of all benefits provided under
Sections 6(a) and 6(d)(i) of this Agreement, solely from its general
assets.  The benefits made available by
those provisions are “unfunded.”

 

(d)           Payment of Benefits

 

(i)            In the event Executive’s employment is (I) terminated
by the Company other than for Cause (and excluding Disability and death) or (II) terminated
by the Executive for Good Reason or (III) terminated by the Company within
18 months following a Change in Control (as defined below) and other than for
Cause (and excluding Disability and death) or (IV) the Executive
terminates employment within 18 months following a Change in Control and for
Good Reason, Executive shall receive the following severance benefits upon his
satisfaction of the condition in subsection (e) hereof and subject to
subsection (g) hereof: an amount equal to 24 months of the Executive’s
prior year’s Base Salary and Bonus (together with, if the termination is by the
Company, a payment of base salary with respect to the positive difference, if
any, between 60 and the days of advance notice given by the Company), paid in
installments over a 12 month period in accordance with the regular payroll
timing, with payment to begin on the payroll date next following or coinciding
with the date 60 days after employment ends; provided,
however, that any amounts due after December 31,
2008 shall, to the extent permitted by Section 409A of the Internal
Revenue Code of 1986 (the “Code”) and
after compliance with subjection (e) hereof and at the election of the
Company, be paid in a single lump sum on the later of the first business day of
January 

 

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2009 or the 60th
day after employment ends. 
Notwithstanding the foregoing, if the Company has the required funds to
pay the benefits under this Section 6(d) in a single lump sum
payment, then the Company shall elect to pay such amount in the single lump sum
payment.  If Executive’s employment is
terminated by reason of (III) or (IV) above, then Executive shall be
entitled to a lump sum payment provided that the conditions above are met.

 

(ii)           In the event Executive’s employment is terminated
(whether by the Company or by Executive) as described in subsection (d)(i) above
or by death or Disability, the Executive and his spouse and dependents shall be
entitled to continue to be covered by the Company’s group medical plan as
described in Section 4(a) hereof as provided under COBRA continuation
requirements (if applicable) and the Company will pay the premiums for such
coverage for the shorter of the first 24 months of such coverage or his period
of COBRA eligibility (whichever is shorter).

 

(e)           Conditions to Receipt of Benefits. 
Upon the occurrence of an event described in Section 6(d) above,
Executive will be eligible for severance benefits hereunder only if Executive
executes and delivers to the Company a Settlement Agreement and Release of the
Company in a form prepared by the Company, which will include a general release
of known and unknown claims, a return of Company Property, nondisparagement and
a requirement to cooperate regarding any future litigation, as set forth in Exhibit 1 attached hereto.

 

(f)            Termination Events Not Covered. 
Except as specifically set forth in this Agreement, the Company shall
not pay Executive severance benefits under this Agreement if:

 

(i)            Executive dies during the term of his employment;

 

(ii)           Executive’s employment is terminated for Cause or
Disability, as defined herein;

 

(iii)          Executive terminates his employment with Company for a
reason other than Good Reason as defined herein; or

 

(iv)          Executive revokes his agreement to release the Company
from any and all claims related to his employment pursuant to the Settlement
Agreement and Release executed in satisfaction of Section 6(e) hereof.

 

(g)           Tax Treatment; Section 409A. 
Executive’s severance benefits shall be subject to mandatory
withholding, including federal, state and local income taxes, as well as FICA
and withholding for applicable insurance premiums.  If and to the extent any portion of any
payment, compensation or other benefit provided to Executive in connection with
his “separation from service” as determined under Section 409A of Code is
determined to constitute “nonqualified deferred compensation” within the
meaning of Code Section 409A and the Employee is a specified employee as
defined in Code Section 

 

8

 

409A(a)(2)(B)(i), as
determined by the Company in accordance with its procedures, by which
determination Executive hereby agrees that he is bound, such portion of the
payment, compensation or other benefit shall not be paid before the day that is
six months plus one day after the date of separation from service (the “New Payment Date”), except as Section 409A
may then permit.  The aggregate of any
payments that otherwise would have been paid to Executive during the period
between the date of separation from service and the New Payment Date shall be
paid to Executive in a lump sum on such New Payment Date, and any remaining
payments will be paid on their original schedule.  For purposes of this Agreement, each amount
to be paid or benefit to be provided shall be construed as a separate
identified payment for purposes of Section 409A, and any payments
described in Section 6 that are due within the “short term deferral period”
as defined in Section 409A shall not be treated as deferred compensation
unless applicable law requires otherwise. 
Neither the Company nor Executive shall have the right to accelerate or
defer the delivery of any such payments or benefits except to the extent
specifically permitted or required by Section 409A.  This Agreement is intended to comply with the
provisions of Section 409A and the Agreement shall, to the extent
practicable, be construed in accordance therewith.  Terms defined in the Agreement shall have the
meanings given such terms under Section 409A if and to the extent required
to comply with Section 409A. 
Notwithstanding the foregoing, to the extent that the Agreement or any
payment or benefit hereunder shall be deemed not to comply with Section 409A,
then neither the Company, the Board nor its or their designees or agents shall
be liable to Executive or any other person for any actions, decisions or
determinations made in good faith.

 

(h)           Parachute
Treatment.  The Company
will make the payments under or referenced by this Agreement without regard to
whether the deductibility of such payments (or any other payments or benefits)
would be limited or precluded by Section 280G of the Code and without
regard to whether such payments would subject Executive to the federal excise
tax levied on certain “excess parachute payments” under Section 4999 of
the Code; provided, however,
that if the Total After-Tax Payments (as defined below) would be increased by
the reduction or elimination of any payment and/or other benefit (including any
vesting of equity compensation) under this Agreement or otherwise in connection
with a covered Change In Control, then the amounts payable will be reduced or
eliminated as follows: (i) first, by reducing or eliminating any cash
payments or other benefits (other than the vesting of the options) and (ii) second,
by reducing or eliminating the vesting of the equity that occurs as a result of
an event covered by Section 280G of the Code, to the extent necessary to
maximize the Total After-Tax Payments. 
The Company’s independent, certified public accounting firm will
determine whether and to what extent payments or vesting under this Agreement
are required to be reduced in accordance with the preceding sentence. If there
is an underpayment or overpayment under this Agreement (as determined after the
application of this paragraph), the amount of such underpayment or overpayment
will be immediately paid to Executive or refunded by Executive, as the case may
be, with interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.  For purposes of this
Agreement, “Total After-Tax Payments” means
the total of all “parachute payments” (as that term is defined in Section 280G(b)(2) of
the Code) made to or for the benefit of Executive (whether made under the Agreement
or otherwise), after reduction for all applicable federal taxes (including,
without limitation, the tax described in Section 4999 of the Code).

 

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(i)            For purposes of this
Agreement, “Change in Control” of the Company
means the occurrence of one of the following events:

 

(a)           individuals who, on the Effective Date,
constitute the Board (the “Incumbent Directors”)
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the Effective Date whose
election or nomination for election was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination) shall
be an Incumbent Director; provided, however, that no individual
initially elected or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to directors or as a result
of any other actual or threatened solicitation of proxies by or on behalf of
any person other than the Board shall be an Incumbent Director;

 

(b)           any “person” (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (the “Exchange Act”)
and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is
or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company’s then
outstanding securities eligible to vote for the election of the Board (the “Company
Voting Securities”); provided, however, that an event described
in this paragraph (b) shall not be deemed to be a Change in Control if any
of following becomes such a beneficial owner: 
(A) the Company or any majority-owned subsidiary (provided, that
this exclusion applies solely to the ownership levels of the Company or the
majority-owned subsidiary), (B) any tax-qualified, broad-based employee
benefit plan sponsored or maintained by the Company or any majority-owned
subsidiary, (C) any underwriter temporarily holding securities pursuant to
an offering of such securities, or (D) any person pursuant to a
Non-Qualifying Transaction (as defined in paragraph (c));

 

(c)           the consummation of a merger,
consolidation, statutory share exchange or similar form of corporate
transaction involving the Company or any of its subsidiaries that requires the
approval of the Company’s stockholders, whether for such transaction or the
issuance of securities in the transaction (a “Business
Combination”), unless immediately following such Business
Combination: (A) 50% or more of the total voting power of (x) the
corporation resulting from such Business Combination (the “Surviving
Corporation”), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented
by Company Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which
such Company Voting 

 

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Securities were
converted pursuant to such Business Combination), and such voting power among
the holders thereof is in substantially the same proportion as the voting power
of such Company Voting Securities among the holders thereof immediately prior
to the Business Combination, or (B) no person (other than any employee
benefit plan (or related trust) sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of more than 50% of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (C) at least a majority of the members of the board of directors of
the Parent Corporation (or if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were
Incumbent Directors at the time of the Board’s approval of the execution of the
initial agreement providing for such Business Combination (any Business
Combination which satisfies all of the criteria specified in (A), (B) and (C) above
shall be deemed to be a “Non-Qualifying Transaction”);
or

 

(d)           Stockholder approval of a liquidation or
dissolution of the Company, unless the voting common equity interests of an
ongoing entity (other than a liquidating trust) are beneficially owned,
directly or indirectly, by the Company’s shareholders in substantially the same
proportions as such shareholders owned the Company’s outstanding voting common
equity interests immediately prior to such liquidation and such ongoing entity
assumes all existing obligations of the Company under this Agreement.

 

Notwithstanding the foregoing, a Change in Control of
the Company shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 50% of the Company Voting Securities as a
result of the acquisition of Company Voting Securities by the Company which
reduces the number of Company Voting Securities outstanding; provided, that,
if after such acquisition by the Company such person becomes the beneficial
owner of Company Voting Securities that increases the percentage of outstanding
Company Voting Securities beneficially owned by such person, a Change in
Control of the Company shall then occur.

 

7.             Confidentiality; Non-Competition; Solicitation of
Clients and Solicitation of Employees.

 

(a)           During the Term of Employment and at all times
thereafter, Executive shall not, except as he deems necessary or desirable in
good faith discretion to perform his duties hereunder or as required by
applicable law, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company. 
“Confidential
Information” shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not available to the general public or generally known in the industry and that
was learned by Executive in the course of his employment by the Company,
including (without limitation) (i) any proprietary knowledge, trade
secrets, ideas, processes, formulas, developments, designs, techniques, data,
formulae, and client and customer lists and all papers, resumes, records
(including 

 

11

 

computer records), (ii) information
regarding plans for research, development, new products, marketing and selling,
business plans, budgets and unpublished financial statements, licenses, prices
and costs, suppliers and customers, (iii) information regarding the skills
and compensation of other employees of Company, and (iv) the documents
containing such Confidential Information. 
Executive’s rolodex and similar address books shall not be deemed
Confidential Information if and to the extent they contain only the names and
contact information he has personally used while employed (or acquired prior to
employment hereunder) and no other information that would otherwise be
Confidential Information.  Upon the
termination of employment for any reason whatsoever, Executive shall promptly
deliver to the Company all documents, slides, computer tapes and disks (and all
copies thereof) containing any Confidential Information.

 

(b)           Executive agrees and understands that Company has received,
and in the future will receive, from third parties confidential or proprietary
information (“Third
Party Information”) subject to a duty on Company’s part to
maintain the confidentiality of such information and to use it only for certain
limited purposes.  During the term of
Executive’s employment and thereafter, Executive will hold Third Party
Information in the strictest of confidence and will not disclose (to anyone
other than Company personnel who Executive in good faith determines need to
know such information in connection with their work for Company), or use,
except in connection with his duties for Company, Third Party Information
unless required by legal process.

 

(c)           Executive, without the prior written consent of
Company, will not at any time, during the Term of Employment and so long
thereafter as Executive is an employee of Company (such period, the “Restricted Period”), directly or
indirectly:  (i) compete with
Company in any manner within the United States or within any other country, territory
or possession where Company operates (collectively the aforementioned
geographic areas are hereinafter referred to as the “Territory”);
(ii) be employed by or serve as an employee, agent, officer,
representative, director of, or as a consultant to any individual, firm,
partnership, corporation, association, enterprise, organization, or other
entity, person or business that competes with Company in any manner within the
Territory; provided, however, that, without limitation of the
foregoing, Executive may serve on the board of directors of Regent’s Secret
Inc. and Woodford Industries Inc.; or (iii) acquire or own in any manner
any interest in, or loan any amount to, any individual, firm, partnership,
corporation, association, enterprise, organization, or other entity, person, or
business that competes with Company in any manner within the Territory, except
the Executive may own equity or debt interests in Regent’s Secret Inc. and
Woodford Industries Inc. or up to one percent (1%) of any class of issued and
outstanding securities of a competitive corporation whose shares are regularly
traded on a national securities exchange or on the over-the-counter market.

 

(d)           During the Restricted Period and a two-year period
following the expiration of the Restricted Period, Executive will not (i) solicit
any of Company’s employees to join a business competitive with Company, or (ii) induce
or attempt to induce any Company employee to terminate his or her employment
for the purpose of becoming employed by Executive or a third party.

 

12

 

(e)           During the Restricted
Period and a two-year period following the expiration of the Restricted Period,
Executive will not use any confidential information of the Company (other than
the identity of its customers) or of any customer of the Company to solicit any
customer or supplier of Company, or any company that refers customers to
Company, to withdraw, curtail or divert any of that third party’s business from
Company or to acquire or obtain from a third party any goods or services that
are competitive with the goods and services offered by Company.

 

(f)            Nothing in this Section 7
shall limit Executive’s right, after the Restricted Period, to own, manage,
operate, control, participate in, or otherwise carry on, directly or indirectly
(whether as owner, lender, director, officer, employee, principal, agent,
independent contractor or otherwise) a business that competes with Company’s
business, and general advertising not directed at Company’s employees or
customers shall not be deemed to violate this Section 7.  Executive further agrees that, during the
Restricted Period, he will not, directly or indirectly, knowingly assist or
encourage any other person in carrying out, directly or indirectly, any
activity that would be prohibited by the above provisions of this Section 7
if such activity were carried out by Executive, either directly or indirectly,
and Executive agrees that he will not, directly or indirectly, knowingly induce
any employee of Company to carry out, directly or indirectly, any such
activity.

 

8.             Return of Company
Documents.  In the event Executive
leaves the employment of Company for whatever reason, Executive agrees to
deliver to Company any and all notes, memoranda, devices, software, databases
and documents, together with all copies thereof, and any other material
containing or disclosing any Third Party Information or Confidential
Information of Company promptly upon the request of the Company.

 

9.             Taxes.  All payments to be made to Executive under
this Agreement will be subject to any applicable withholding of federal, state
and local income and employment taxes.

 

10.           Miscellaneous.  This Agreement shall also be subject to the
following miscellaneous considerations:

 

(a)           Executive and the
Company each represent and warrant to the other that he or it has the
authorization, power and right to deliver, execute, and fully perform his or
its obligations under this Agreement in accordance with its terms.

 

(b)           This Agreement contains
a complete statement of all the arrangements between the parties with respect
to Executive’s employment by the Company. 
This Agreement can only be changed or modified pursuant to a written
instrument duly executed by each of the parties hereto.  Executive acknowledges that no
representation, promise or inducement has been made other than as set forth in
the Agreement, and that he does not enter into this Agreement in reliance upon
any representation, promise or inducement not set forth herein.  The Agreement supersedes all prior and
existing negotiations, agreements and understandings of any kind with respect
to the subject matter and contains all of the terms and provisions of the
agreement between Executive and the Company with respect to the subject matter
hereof.  Any representation, promise or
condition, whether written or oral, not specifically incorporated herein, shall
be of no binding effect.

 

13

 

(c)           If any provision of
this Agreement or any portion thereof is declared invalid, illegal, or
incapable of being enforced by any court of competent jurisdiction, the
remainder of such provisions and all of the remaining provisions of this
Agreement shall continue in full force and effect.

 

(d)           This Agreement shall be
governed by and construed in accordance with the internal, domestic laws of the
State of California.

 

(e)           The Company may assign
this Agreement to any parent of the Company that owns all of the stock of the
Company.  The Company shall assign this
Agreement to any successor (whether by merger, consolidation, purchase or
otherwise) of all or substantially all of the stock, assets or business of the
Company and this Agreement shall be binding upon and inure to the benefit of
such successors and assigns, and the Company shall cause such successor
promptly delivers to Executive a written assumption of the obligations
hereunder.  Except as expressly provided
herein, Executive may not sell, transfer, assign, or pledge any of his rights
or interests pursuant to this Agreement, provided that any amounts due
hereunder shall, upon Executive’s death, be paid to his estate unless Executive
has designated a beneficiary therefor in accordance with any applicable plan.

 

(f)            Any rights of
Executive hereunder shall be in addition to any rights Executive may otherwise
have under benefit plans of the Company to which he is a party or in which he
is a participant, including, but not limited to, any Company-sponsored employee
benefit plans.  Provisions of this
Agreement shall not in any way abrogate Executive’s rights under such other
plans.

 

(g)           For the purpose of this
Agreement, notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
personally or by email or by overnight service or delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the Company at its executive office or the Executive at the
address on the records of the Company; provided that all notices to the Company
shall be directed to the attention of the Chairman of the Board of Directors
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.

 

(h)           Section headings
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

 

14

 

(i)            Failure to insist upon
strict compliance with any of the terms, covenants, or conditions hereof shall
not be deemed a waiver of such term, covenant, or condition, nor shall any
waiver or relinquishment of, or failure to insist upon strict compliance with,
any right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.

 

(j)            This Agreement may be
executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.

 

11.           Legal and Equitable
Remedies.  Because the Executive’s
services are personal and unique, and because the Executive will have access to
and become acquainted with Confidential Information of Company, Company will
have the right to enforce this Agreement and any of its provisions by
injunction, specific performance or other equitable relief in any court of
competent jurisdiction, without prejudice to any other rights and remedies that
Company may have for a breach of this Agreement.

 

12.           Survival of
Provisions.  The executory provisions
of this Agreement will survive the termination of this Agreement or the
assignment of this Agreement by Company to any successor in interest or other
assignee.  For this purpose, executory
provisions include but are not limited to the medical coverage described in Section 4(a) (other
than in the event of a termination for Cause).

 

13.           Indemnification.  The Executive shall be indemnified to the
fullest extent permitted by law with regard to actions or inactions taken as an
officer or director of the Company or any affiliate or as a fiduciary of any
benefit plan.  The Executive shall be
covered by directors and officers liability insurance with regard to the
foregoing to the highest extent of any other officer or director both during
his service to the Company and thereafter while any liability may exist.

 

Signatures on Page Following

 

15

 

IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the day and year first
above written.

 

 

	
  EXECUTIVE

  	
  JOE’S JEANS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
     /s/
  Marc Crossman

  	
   

  	
  By:

  	
  /s/Kent Savage

  
	
  Name:

  	
  Marc Crossman

  	
  Name:

  	
  Kent Savage

  
	
   

  	
  Title:

  	
  Chairman, Compensation and
  Stock

  
	
   

  	
   

  	
  Option Committee

  
					

 

16

 

Exhibit 1

 

GENERAL RELEASE

 

THIS
GENERAL RELEASE (this “Release”)
is entered into effective as of
                                ,
200  , (the “Effective Date”)
by and between Joe’s Jeans Inc., a Delaware corporation, having its principal
offices at 5901 S. Eastern Avenue, Commerce, California, 90040 (the “Company”), and Marc B. Crossman (“Executive”), with reference to the
following facts:

 

RECITALS

 

A.            The parties entered into an Executive
Employment Agreement, dated with an effective date as of December 1, 2007
(the “Employment  Agreement”), pursuant to which the
parties agreed that upon the occurrence of certain conditions, Executive would
become eligible for certain termination payments (as provided for in Section 6
of the Employment Agreement) in exchange for Executive’s release of the Company
from all claims which Executive may have against the Company as of the
termination date.  Capitalized terms not
otherwise defined herein shall have the respective meanings ascribed to them in
the Employment Agreement.  Executive
acknowledges that the consideration recited in this Release is in addition to
anything to which Executive may otherwise be entitled.

 

B.            The parties desire to dispose of, fully and
completely, all claims, which Executive may have against the Company, in the
manner set forth in this Release.

 

AGREEMENT

 

1.             Executive
waives and releases Company and its partners, officers, directors,
shareholders, agents, employees, attorneys, successors, assigns, affiliates,
related organizations and related employee benefit plans (collectively referred
to herein as “Releasees”) with respect to
any and all claims, rights, and causes of action, known or unknown, that
Executive may have or claim to have had against any of them, based on any act,
occurrence, or omission from the beginning of time to and including the date
this Release was executed, including, but not limited to, any and all claims,
rights, and causes of action arising out of or in any way connected with
Executive’s employment with, or termination of employment from the Company, and
arising under federal, state and/or local laws such as Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the California
Fair Employment and Housing Act, the California Labor Code, the California
Constitution, and ERISA, and the common law (hereinafter referred to as “the Released Claims”).  Notwithstanding the foregoing, this Release
shall not apply to (i) any claims for any amounts which shall be paid to
Executive following the execution hereof pursuant to the terms of Section 6
of the Employment Agreement; (b) any claims for indemnification under Section 13
of the Employment Agreement; (c) claims of the Executive as a stockholder
or optionholder of the Company or otherwise relating to or arising out of any
agreements relating thereto or to the acquisition of any shares, options or
other equity interests in the Company; and (d) claims under any employee
benefit plan (other than for wages and bonuses to the extent they may be
considered an employee benefit plan) of the Company (collectively, the “Surviving Claims”).

 

17

 

2.             Executive promises not to file any law suits
in any court or any demand for arbitration against any of the Releasees with
respect to the Released Claims.  Executive affirms that, except for the
Surviving Claims,  Executive has been
paid and/or has received all leave (paid or unpaid), compensation, wages,
commissions, vacation pay, severance pay, bonuses, commissions, reimbursements,
benefits, and other monies to which Executive may have been entitled and that,
except for the termination payments, no other leave (paid or unpaid),
compensation, wages, commissions, vacation pay, severance pay, bonuses,
commissions, reimbursements, benefits, and/or other monies are due
Executive.  Executive also
acknowledges that the termination payment is in excess of any payment to which
Executive otherwise was entitled.

 

3.             Executive acknowledges that Executive is
familiar with and understands the provision of Section 1542 of the
California Civil Code, which provides as follows:

 

“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.”

 

Being
aware of that Code Section, Executive expressly waives and relinquishes any rights
or benefits Executive may have thereunder, as well as any other state or
federal statutes or common law principles of similar effect.

 

4.             A.            Executive warrants that neither Executive,
nor anyone acting on Executive’s behalf, has filed any claim, charge or action
against any of the Releasees with respect to any of the Released Claims.

 

B.            Nothing in this Release shall affect (i) Executive’s
rights, if any, to indemnification under Labor Code Section 2802, (ii) Executive’s
rights to file claims for workers’ compensation or unemployment insurance
benefits, or (iii) Executive’s rights to file charges of discrimination
with any state or federal administrative agency alleging violations of state or
federal anti-discrimination laws, with the understanding and agreement that
Executive may not accept any money or anything of economic value as a result of
having filed such charges.  Finally,
Executive agrees that, if any of the Released Claims are brought on Executive’s
behalf or for Executive’s benefit in a court or administrative agency,
Executive waives and agrees not to accept any award of money or other damages
as a result of such claim.

 

5.             This Release is executed voluntarily and
without any duress or undue influence. 
Executive acknowledges he has read this Release and executed it with his
full and free consent.  No provision of
this Release shall be construed against any party by virtue of the fact that
such party or its counsel drafted such provision or the entirety of this
Release.

 

18

 

6.             This Release is made and entered into in the
State of California and accordingly the rights and obligations of the parties
hereunder shall in all respects be construed, interpreted, enforced and
governed in accordance with the laws of the State of California as applied to
contracts entered into by and between residents of California to be wholly
performed within California, without regard to conflicts of law principles.

 

7.             Executive is hereby advised to consult with
an attorney prior to executing this Release. 
Executive is hereby advised that Executive has 21 calendar days to
consider whether to sign this Release before signing it and that Executive has
7 calendar days to revoke the Release subsequent to the time Executive signed
it.  Accordingly, unless Executive has
timely revoked acceptance of this Release, this Release shall become effective
the eighth day after the date of Executive’s signature.

 

8.             If any part, term or provision of this
Release is found to be illegal or invalid, such illegality or invalidity shall
not affect the validity of the remainder of the Release.  This Release constitutes the entire agreement
and understanding concerning the matters addressed herein and replaces all
prior discussions and agreements, and may only be modified by a writing signed
by all of the parties.

 

9.             Any party who asserts
that there exists any dispute, controversy or claim arising out of or relating
to this Agreement or the employment relationship (including claims of
discrimination, wrongful termination, tort claims and claims based on any
statutory or constitutional provision), may only do so by final and binding
arbitration in accordance with the then current employment dispute rules of
the American Arbitration Association.  The
arbitration will be conducted in Los Angeles County, California, before and
subject to the administrative procedures of JAMS Endispute.  The arbitrator will be a neutral, experienced
arbitrator who is a retired judge and licensed to practice law in California.  The arbitrator will be jointly selected by
the parties or, if necessary, designated by JAMS Endispute in accordance with
its procedures.  Executive and the
Company each knowingly waives the right to a jury trial in a court of law with
respect to claims subject to arbitration. 
All fees of the arbitrator will be paid by the Company.  All other costs and expenses associated with
the arbitration, such as attorneys’ fees and witness’ fees, will be paid by the
party that incurs those costs and expenses, except to the extent that a party
is entitled to recover those costs or expenses under applicable law.  The arbitrator will have the power to
summarily adjudicate claims and/or enter summary judgment in appropriate cases
and to apply any applicable statutes of limitation, and the decision of the
arbitrator will be final and binding and may be confirmed in court.  The arbitrator’s decision will be in
writing.  A petition to compel
arbitration or to confirm, modify or vacate an arbitration award may be brought
pursuant to applicable federal or California state arbitration statutes, or
both.  Subject to the provisional
remedies, if any, provided for under applicable state or federal law, which
either party may pursue in court, arbitration will be the exclusive remedy for
resolving any such arbitrable disputes, and the decision of the arbitrator will
be final and binding on all parties,

 

19

 

subject to review only in
accordance with applicable state or federal law.  The decision of the arbitrator may be reduced
to an enforceable court judgment by the prevailing party in the arbitration,
and the Federal Arbitration Act (FAA) will govern this paragraph.

 

 

	
  Dated:
                              ,
  200

  	
   

  
	
   

  	
  Executive

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated:
                              ,
  200

  	
   

  
	
   

  	
  Company

  

 

20Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT
(this “Agreement”) is entered into
as of May 30, 2008, by and among KEY ENERGY SERVICES, LLC,
a Texas limited liability company (“Buyer”) and
E. KENT TOLMAN, NITA TOLMAN,
RONALD D. JONES and MELINDA JONES (collectively, the “Shareholders”).

 

W I T N E S S E T H:

 

WHEREAS, the Shareholders collectively own all of the
issued and outstanding capital stock (the “Company Shares”)
of HYDRA-WALK INC., an Oklahoma
corporation (the “Company”);

 

WHEREAS, the Company is engaged in the business of
manufacturing and leasing pipe-handling equipment and providing pipe-handling
services to the oil and gas industry (the “Business”);

 

WHEREAS, the Shareholders desire to sell to Buyer, and
Buyer desires to purchase from the Shareholders, all of the Company Shares.

 

NOW, THEREFORE, in consideration of the premises and
of the mutual covenants and agreements herein contained, the parties hereto
hereby agree as follows:

 

ARTICLE 1

PURCHASE AND SALE

 

1.1.          Purchase
and Sale of the Company Shares.

 

(a)           Purchase and Sale.  Subject to the terms and conditions of this
Agreement, on the date hereof, the Shareholders agree to sell and convey to
Buyer, free and clear of all Encumbrances (as defined in Section 1.2(f) hereof),
and Buyer agrees to purchase and accept from the Shareholders, all of the
Company Shares.  In consideration of the
sale of the Company Shares, Buyer shall pay to the Shareholders a purchase
price of $9,850,000.00 plus the Outstanding Vehicle Loan Balances in cash,
reduced or increased, as the case may be, on a dollar-for-dollar basis by the
amount, if any, by which Closing Working Capital (estimated as set forth in Section 1.1(d) hereof)
is less than or more than, respectively, $1,100,000.00 (such amount, as finally
determined pursuant to Section 1.1(d), the “Purchase
Price”).  For purposes of
this Agreement, “Closing Working Capital”
means (i) the aggregate amount of current assets of the Company on the
Closing Date (herein defined) minus (ii) the aggregate amount of current
liabilities of the Company, in each case determined on the Closing Date on a
basis prepared in all material respects in accordance with generally accepted
accounting principles. For purposes of this Agreement, “Outstanding
Vehicle Loan Balances” means (i) fifty percent (50%) of the
amount outstanding on the Closing Date of loans obtained prior to January 31,
2008 to acquire vehicles for the Company and (ii) all of the outstanding 

 

 

amount, up to a maximum of $100,000.00, of loans on four vehicles,
identified as #50, #51, #52, and #53, obtained for the Company after January 31,
2008.  Notwithstanding the foregoing, in
no event shall the Outstanding Vehicle Loan Balances be paid by Buyer unless
and until the Shareholders pay off in full all loans obtained to acquire
vehicles and provide Buyer with evidence of such payoff and release of any
liens relating thereto.

 

(b)           Payment of Purchase Price.  The Purchase Price shall be allocated among
the Shareholders (for payment purposes) as set forth on Schedule 1.1(b) hereto.

 

(c)           Allocation of Purchase Price.  The Purchase Price shall be allocated among
the Company’s net assets for tax purposes. 
The final determination of the tax allocation of the Purchase Price
shall be based on a third-party appraisal that Buyer shall obtain from Ernst &
Young, LLP within ninety (90) days after the Closing Date and in accordance
with relevant tax and accounting guidelines. 
Upon receipt of such third-party appraisal, Buyer shall deliver a copy
to the Shareholders for their review and comment.  If the Shareholders have any comments, they
shall notify Buyer within ten (10) days of Buyer’s delivery, and Buyer and
the Shareholders shall meet within ten (10) days of the Shareholders’
delivery of comments in order to attempt to resolve any disagreements.  If Buyer and the Shareholders are unable to
resolve all disagreements within such 10-day period, then the dispute will be
resolved by an independent accounting firm or valuation firm mutually agreed to
by the Shareholders and Buyer, whose resolution shall be binding and
enforceable against the parties thereto. 
The parties shall instruct such firm to resolve such disputes by making
its determination within thirty (30) days after its engagement.  All of the fees and expenses of such firm
pursuant to this subpart (c) shall be paid by the Shareholders; provided,
however, if the value allocated to any particular class of assets is increased
or decreased by an amount greater than twenty five percent (25%) of the total
amount attributable to such class of assets, then the fees and expenses shall
be apportioned equally between Buyer and the Shareholders by such independent
accounting firm or valuation firm.

 

(d)           Purchase Price Adjustment.

 

(i)            The
Purchase Price paid at the Closing (herein defined) was preliminarily
calculated in accordance with Section 1.1(a) as if
Shareholders’ estimate of Closing Working Capital were the actual amount of
Closing Working Capital.  The Purchase
Price as so estimated is referred to as the “Estimated
Purchase Price.”

 

(ii)           No
later than sixty (60) days following the Closing Date, Buyer shall deliver to
the Shareholders a statement (the “Final Closing Statement”),
setting forth its good faith calculation of (i) Closing Working Capital,
prepared in all material respects in accordance with generally accepted
accounting principles, and (ii) the Purchase Price calculated as if Buyer’s
calculation of Closing Working Capital were the actual amount of Closing
Working Capital.

 

(iii)          Buyer shall, upon the Shareholders’ written
request, promptly make available to the Shareholders (i) a copy of all
work papers, financial 

 

2

 

information and any other books and records utilized by Buyer in the
preparation of the Final Closing Statement, and (ii) all personnel,
including accounting personnel, of Buyer involved in the preparation of the
Final Closing Statement.  The
Shareholders shall notify Buyer in writing no later than thirty (30) days
following the Shareholders’ receipt of the Final Closing Statement from Buyer
that it accepts the Final Closing Statement or that there is a dispute as to an
item or items reflected thereon.  Such
notice shall set forth the Shareholders’ objections, if any, to the Final
Closing Statement in reasonable detail. 
The failure by Shareholders to give Buyer such notice within such period
shall be deemed to constitute the Shareholders’ acceptance of the Final Closing
Statement.  The parties shall use
commercially reasonable efforts to resolve any such dispute.

 

(iv)          If,
despite the use of commercially reasonable efforts, such dispute cannot be
resolved by the parties within thirty (30) days after the Shareholders give
notice of such dispute, the dispute will be resolved by Hein & Associates
LLP, or if such firm is unable or unwilling to service in such capacity, by an
independent accounting firm mutually agreed to by the Shareholders and Buyer,
whose resolution shall be binding and enforceable against the parties thereto.  The parties shall instruct such independent
accountant to resolve such disputes by making its determination within thirty
(30) days after its engagement.  All of
the fees and expenses of such independent accountant pursuant to this subpart (iv) shall
be apportioned between Buyer and the Shareholders by such independent
accountant based upon the inverse proportion of the disputed amounts resolved
in favor of such party (i.e., so that the prevailing party bears a lesser, or
no, amount of such fees, costs and expenses).

 

(v)           If
the Purchase Price as finally determined pursuant to this Section (i) is
less than the Estimated Purchase Price, the Shareholders shall pay to Buyer an
amount equal to the shortfall, or (ii) is more than the Estimated Purchase
Price, Buyer shall pay to the Shareholders an amount equal to the excess.  Any such payment pursuant to the preceding
sentence shall be made by wire transfer of immediately available U.S. funds, to
an account designated by Buyer or the Shareholders, as the case may be, on the
later of (x) the second (2nd) business day after acceptance by
the Shareholders of the Final Closing Statement or (y) the second (2nd)
business day following resolution (as contemplated in this Section) of any
dispute concerning the Final Closing Statement.

 

(e)           Earn-out.  In addition to the Purchase Price, the
Shareholders shall be paid amounts, in the aggregate, not to exceed
$2,000,000.00 (collectively, the “Earn-out”)
over the period commencing on the Closing Date and expiring twenty-five (25)
months after the last day of the month in which the Closing occurs, in
accordance with the provisions set forth on Schedule 1.1(e) hereto.

 

1.2.          Closing.  Consummation of the transactions contemplated
by this Agreement (the “Closing”)
shall have taken place prior to or contemporaneously with the execution of this
Agreement at the offices of the Shareholders’ counsel.  The
date and time on which the Closing actually occurs is herein called the “Closing Date”.

 

3

 

(a)           At
the Closing, the Shareholders, at their sole cost and expense, have delivered
or caused to be delivered to Buyer the following:

 

(i)            Duly
and validly issued certificates representing all of the Company Shares owned
beneficially or of record by the Shareholders, each such certificate to be duly
endorsed in blank and in good form for transfer, or accompanied by stock powers
duly executed in blank sufficient and in good form to properly transfer such
Company Shares to Buyer;

 

(ii)           Agreement
by E. Kent Tolman and Nita Tolman not to compete with Buyer in the Business (“Tolman Non-Compete Agreement”), in
form and substance satisfactory to Buyer, and pursuant to which E. Kent Tolman
and Nita Tolman shall be paid $75,000.00;

 

(iii)          Agreement by Ronald D. Jones and Melinda
Jones not to compete with Buyer in the Business (“Jones
Non-Compete Agreement”), in form and substance satisfactory to
Buyer, and pursuant to which Ronald D. Jones and Melinda Jones shall be paid
$75,000.00;

 

(iv)          Evidence
satisfactory to Buyer that no assets relating to the Company, including,
without limitation, any Intellectual Property (herein defined), trade names and
Permits (herein defined) are held in the name of any of the Shareholders or of
any other person other than the Company;

 

(v)           Originals
of any Intellectual Property, Permits or other assets, to the extent requested
by Buyer;

 

(vi)          Evidence
satisfactory to Buyer of (A) the termination of that certain Assignment
dated on or about July 18, 2000, by E. Kent Tolman and Ronald D. Jones, as
clarified and amended by that certain Addendum to Assignment Agreement Between
E. Kent Tolman and Ronald D. Jones and Hydra-Walk, Inc. Dated December 31,
2007 (collectively, the “Royalty Agreement”),
whereby E. Kent Tolman and Ronald D. Jones were entitled to certain rights
relating to one or more of the Patents (herein defined), and (B) the full
and unrestricted ownership of the Patents by the Company, notwithstanding the
termination of the Royalty Agreement;

 

(vii)         Evidence satisfactory to Buyer that the Company
has given all notices necessary to terminate, within thirty (30) days after the
Closing Date, or as soon thereafter as practical, (A) all real property
leases under which the Company was the tenant (including, without limitation,
those leases relating to the Company’s facilities in Wilburton, Oklahoma and
Rawlins, Wyoming), and (B) all arrangements pursuant to which machinery,
transportation equipment, tools, and other equipment of the Company were stored
or allowed to remain on the property of others;

 

(viii)        Evidence satisfactory to Buyer of the
termination of any agreements, whether oral or written, between the Company and
any affiliate or 

 

4

 

other entity under common control with the Company (collectively, “Inter-Company Agreements”) other
than agreements between the Company and T & T Forklift, Inc. (“T&T”) pursuant to which (A) the
Company uses space and phone, electrical, and other related utilities at
T&T’s facilities in Lyndsay, Oklahoma for office and administrative
purposes (the “Office Agreement”), which
Office Agreement shall continue for thirty (30) days after the Closing Date for
transition purposes, and (B) T&T furnishes a forklift and operator
from time-to-time at the Company’s request (the “Services
Agreement”), which Services Agreement shall be replaced within
thirty (30) days after the Closing Date with a written master services
agreement in form acceptable to Buyer and T&T on commercially reasonable
terms;

 

(ix)           Consents
from any and all third parties deemed necessary, in Buyer’s sole discretion, to
the consummation of the transactions contemplated under this Agreement;

 

(x)            Evidence
satisfactory to Buyer that the Company has conveyed to HYPROP, LLC,
an Oklahoma limited liability company (the “New
Shareholder Entity”), the Company’s owned real property located
in Lindsay, Oklahoma and in Elk City, Oklahoma (collectively, the “Owned Real Property”) by quitclaim
deeds in form and substance satisfactory to Buyer, such quitclaim deeds including
or being accompanied by a full release of the Company from liability
(environmental or otherwise) by the New Shareholder Entity.  The Owned Real Property shall be described
and appropriately designated as excluded assets on Schedule 1.2(a) hereto.  The Shareholders hereby represent and warrant
that they have caused all Encumbrances relating to the Owned Real Property to
be either released or transferred to the New Shareholder Entity, in either case
fully releasing the Company from any liability relating to such Encumbrances
(provided, however, that the first mortgage lien relating to the portion of the
Owned Real Property located in Lindsay, Oklahoma shall be released within ten
[10] business days after the Closing);

 

(xi)           Lease
(the “Lindsay Real Property Lease”)
by and between Buyer (or an affiliate thereof) and the New Shareholder Entity,
in form and substance satisfactory to Buyer, by which Buyer leases the portion
of the Owned Real Property located in Lindsay, Oklahoma from the New
Shareholder Entity;

 

(xii)          Lease (the “Elk
City Real Property Lease”) by and between Buyer (or an affiliate
thereof) and the New Shareholder Entity, in form and substance satisfactory to
Buyer, by which Buyer leases the portion of the Owned Real Property located in
Elk City, Oklahoma from the New Shareholder Entity (the Lindsay Real Property
Lease and the Elk City Real Property Lease collectively being referred to
herein as the “Real Property Leases”);

 

(xiii)         Evidence satisfactory to Buyer of the transfer
and conveyance by the Company of all of the excluded assets set forth on Schedule
1.2(a) hereto;

 

5

 

(xiv)        Evidence satisfactory to Buyer that the
Shareholders have caused the Company to make distributions to the Shareholders
of (i) all cash and cash equivalents of the Company (except for $50,000.00
to meet current payroll and operating expenses relating to the Business for a
period of fifteen [15] days, which $50,000.00 shall be included in the
calculation of Closing Working Capital) and (ii) two (2) of the
Company’s vehicles (collectively, the “Pre-Closing Distribution
Assets”).  The Pre-Closing
Distribution Assets shall be described and appropriately designated as excluded
assets on Schedule 1.2(a) hereto. 
The Shareholders hereby represent and warrant that the two (2) vehicles
to be distributed to the Shareholders are vehicles presently owned and operated
as of the date of this Agreement and that such vehicles will not be subject to
any notes payable incurred on or after January 31, 2008 and were not
purchased on or after January 31, 2008. 
The Shareholders hereby further represent and warrant that they have
caused all Encumbrances relating to the Pre-Closing Distribution Assets to be
either released or transferred to the applicable Shareholders, in either case
fully releasing the Company from any liability relating to such Encumbrances,
and the Shareholders shall deliver evidence satisfactory to Buyer of such
payment and release; and

 

(xv)         The
written resignation of each of the officers and directors of the Company.

 

(b)           At
the Closing, Buyer, at its sole cost and expense, shall deliver or cause to be
delivered to the Shareholders the following:

 

(i)            Wire
transfers to the accounts designated by each of the Shareholders, or cashier’s
checks made out to each of the Shareholders, or any combination thereof, in the
aggregate amount of the Estimated Purchase Price, allocated and adjusted as
provided in this Agreement;

 

(ii)           The
Tolman Non-Compete Agreement;

 

(iii)          The Jones Non-Compete Agreement;

 

(iv)          The
Lindsay Real Property Lease;

 

(v)           The
Elk City Real Property Lease; and

 

(vi)          Offers
of employment for E. Kent Tolman and B.J. Tolman as set forth on Schedule
1.2(b) hereto.

 

(c)           At
the Closing, the Shareholders and Buyer shall execute and deliver to one
another all other documents, instruments and agreements as required under this
Agreement.

 

(d)           At
the Closing, the Shareholders shall pay (i) the cost of releasing all
Encumbrances, recording such releases, and shall deliver evidence satisfactory
to Buyer of such payment and release; (ii) all transfer taxes (including,
without limitation, any 

 

6

 

documentary stamps and intangible taxes, if any); (iii) charges
for legal and other professional services provided to the Shareholders; and (iv) any
other expenses stipulated to be paid by the Shareholders under the provisions
of this Agreement.

 

(e)           At
the Closing, Buyer shall pay (i) charges for legal and other professional
services provided to Buyer; and (ii) any expenses stipulated to be paid by
Buyer under the provisions of this Agreement.

 

(f)            Upon
transfer to Buyer by the Shareholders of the Company Shares at the Closing,
Buyer will own the Company Shares and the Company free and clear of all liens,
security interests, pledges, mortgages, deeds of trust, claims, rights of first
refusal, options, charges, restrictions or conditions to transfer or
assignment, liabilities, obligations, privileges, equities, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances
of any kind or nature whatsoever, state or federal, recorded or unrecorded
(collectively, “Encumbrances”), except for
trade payables incurred in the ordinary course of business, other obligations
incurred in the ordinary course of business not in excess of $100.00, and those
Encumbrances set forth on Schedule 1.2(f) hereto.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

 

2.1.          Representations
and Warranties of the Shareholders.  Each of the Shareholders, jointly and
severally, represents and warrants to Buyer as follows:

 

(a)           Organization and Standing.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oklahoma,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary.

 

(b)           Agreements Authorized and its Effect on Other
Obligations.  Each of the
Shareholders has the legal capacity and requisite power and authority to enter
into, and perform its obligations under this Agreement and all other agreements
contemplated herein to which they are a party. 
This Agreement and all such other agreements are valid and binding
obligations of each of the Shareholders that are a party thereto, enforceable
against each of the Shareholders that are a party thereto in accordance with
their terms.  The execution, delivery and
performance of this Agreement and such other agreements by each of the
Shareholders that are a party thereto will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default under
(i) the Articles of Incorporation or Bylaws of the Company or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Company or any of the Shareholders is a party or by
which the Company or any of the Shareholders or their respective properties are
bound.

 

7

 

(c)           Capitalization.  The authorized capitalization of the Company
consists of ten thousand (10,000) shares of common stock, $1.00 par value (“Common Stock”), of which, as of the
date hereof, ten thousand (10,000) shares are issued and outstanding and held
beneficially and of record by the Shareholders. 
On the date hereof, the Company does not have any outstanding options,
warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock.  All issued and outstanding shares of Common
Stock are validly issued, fully paid and non-assessable and are not subject to
preemptive rights.  None of the outstanding
shares of Common Stock is subject to any voting trusts, voting agreement or
other agreement or understanding with respect to the voting thereof, nor is any
proxy in existence with respect thereto. 
The Company Shares represent all of the issued and outstanding shares of
Common Stock.

 

(d)           Ownership of the Company Shares.  The Shareholders hold good and valid title to
the Company Shares set forth opposite their names on Schedule 1.1(b) hereto,  free and clear of all Encumbrances.  The Shareholders possess full authority and
legal right to sell, transfer and assign the Company Shares to Buyer, free and
clear of all Encumbrances.  Upon transfer
to Buyer by the Shareholders of the Company Shares, Buyer will own the Company
Shares free and clear of all Encumbrances. 
There are no claims pending or, to the knowledge of any of the Shareholders,
threatened, against the Company or any of the Shareholders that concern or
affect title to the Company Shares, or that seek to compel the issuance of
capital stock or other securities of the Company.

 

(e)           No Subsidiaries.   There is no corporation, partnership, joint
venture, business trust or other legal entity in which the Company, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of the outstanding voting securities.

 

(f)            Financial Statements.  The Shareholders have delivered to Buyer (i) copies
of the Company’s unaudited balance sheet as of December 31, 2007 (the “12/31/07 Balance Sheet”) and related
statements of income, which are an integral part of such statements
(collectively, the “2007 Financial Statements”),
as at and for the twelve (12) months ended as of December 31, 2007; and (ii) copies
of the Company’s unaudited balance sheet as of March 31, 2008 (the “3/31/08 Balance Sheet”) and related
statements of income, which are an integral part of such statements (the “Interim Financial Statements”), as
at and for the three (3) months ended as of March 31, 2008 (the “Balance Sheet Date”).  Attached as Schedule 2.1(f) are
true and complete copies of the 12/31/07 Balance Sheet and the 3/31/08 Balance
Sheet.  As used herein, the 2007
Financial Statements and the Interim Financial Statements shall collectively be
referred to as the “Financial Statements”.  The Financial Statements are accurate and
complete in all material respects, are derived from the books and records of
the Company (which are accurate and complete in all material respects), present
fairly the financial condition of the Company as of the dates and for the
periods indicated and have been prepared in all material respects in accordance
with generally accepted accounting principles. 
The accounts receivable reflected in the 3/31/08 Balance Sheet, or which
have been thereafter acquired by the Company, have been collected or are
collectible at the aggregate recorded 

 

8

 

amounts thereof less applicable reserves noted on the 3/31/08 Balance
Sheet, which reserves are adequate.

 

(g)           Liabilities.  The Company does not have any liabilities or
obligations, either accrued, absolute or contingent, nor do any of the
Shareholders have any knowledge of any potential liabilities or obligations of
the Company, other than those (i) reflected or reserved against in the
3/31/08 Balance Sheet or (ii) incurred in the ordinary course of business
since the Balance Sheet Date that would not materially adversely affect the
value and conduct of the business of the Company.

 

(h)           Additional Company Information.  Attached as Schedule 2.1(h) hereto
are true, complete and correct lists of the following items:

 

(i)            Real Estate.  All real property and structures thereon, not
otherwise transferred or conveyed in accordance with this Agreement, that are
owned, leased or subject to a contract of purchase and sale, or lease
commitment, by the Company, with a description of the nature and amount of any
Encumbrances thereon;

 

(ii)           Machinery and Equipment.  All machinery, transportation equipment,
tools, equipment, furnishings, and fixtures owned, leased or subject to a
contract of purchase and sale, or lease commitment, by the Company, with a
description of the nature and amount of any Encumbrances thereon;

 

(iii)          Vehicles.  Other than the Pre-Closing Distribution
Assets, all vehicles owned or leased by the Company, with a description of each
such vehicle, including its vehicle identification number, and with a
description of the nature and amount of any Encumbrances thereon;

 

(iv)          Inventory.  All inventory items or groups of inventory
items owned by the Company, excluding raw materials and work in process, which
raw materials and work in process are valued on the 3/31/08 Balance Sheet,
together with the amount of any Encumbrances thereon;

 

(v)           Insurance.  All insurance policies or bonds currently
maintained by the Company, including title insurance, life insurance and key man
insurance policies, with respect to the Company or the Shareholders, including
those covering the Company’s properties, machinery, equipment, fixtures,
employees and operations, as well as listing of any premiums, deductibles or
retroactive adjustments due or pending on such policies or any predecessor
policies;

 

(vi)          Contracts.  All contracts, including any Inter-Company
Agreements or leases under which the Company is lessor or lessee, which are to
be performed in whole or in part after the date hereof;

 

(vii)         Employee Plans.  All bonus, incentive compensation, equity
compensation, deferred compensation, profit-sharing, retirement, pension,
employee stock ownership, medical and other welfare, group insurance, death 

 

9

 

benefit, severance, vacation or other employee benefit or fringe
benefit plans, contracts, policies, arrangements or trust agreements maintained
or contributed to by the Company, or having been so maintained or contributed
to within six (6) years of the Closing Date (collectively, “Employee Plans”);

 

(viii)        Salaries.  The names and salary rates of all present
employees of the Company, and, to the extent existing on the Closing Date, all
arrangements with respect to any bonuses to be paid to them from and after the
Closing Date;

 

(ix)           Bank Accounts.  The name of each bank in which the Company
has an account, the account balances as of the Closing Date (subject to
distribution of the Pre-Closing Distribution Assets) and the names of all
persons authorized to draw thereon;

 

(x)            Employee Agreements.  Any collective bargaining agreements of the
Company with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all employment
and consulting and severance agreements of the Company;

 

(xi)           Intellectual Property.  All patents, patent applications, trademarks
and service marks (including registrations and applications therefor), internet
domain (including email and website), trade names, copyrights and written
know-how, confidential information, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively, the “Intellectual Property”) used by the
Company.  The Intellectual Property
includes, without limitation, (i) that
certain United States Patent Number 6,533,519 B1 issued March 18, 2003; (ii) that
certain United States Patent Number 6,719,515 B2 issued April 13, 2004;
and (iii) that certain United
States Patent Number 6,969,223 B2 issued November 29, 2005 (collectively,
the “Patents”);

 

(xii)          Trade Names.  All trade names, assumed and fictitious names
used or held by the Company, whether and where such names are registered and
where used;

 

(xiii)         Licenses and Permits.  All permits, authorizations, certificates,
approvals, registrations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, licenses and other rights of every kind and character
(collectively, the “Permits”) of the Company
under which it conducts its business;

 

(xiv)        Promissory Notes.  All long-term and short-term promissory
notes, installment contracts, loan agreements, credit-agreements, and any other
agreements of the Company relating thereto or with respect to collateral
securing the same;

 

(xv)         Guaranties.  All indebtedness, liabilities and commitments
of others and as to which the Company is a guarantor, endorser, co-maker,
surety, or accommodation maker, or is contingently liable therefor and all
letters of credit, whether stand-by or documentary, issued by any third party;

 

10

 

(xvi)        Environment.  All environmental permits,
approvals, certifications, licenses, registrations, orders and decrees
applicable to current operations conducted by the Company and all environmental
audits, assessments, investigations and reviews conducted by the Company within
the last five years or otherwise in the Company’s possession on any property
owned, leased or used by the Company.

 

(i)            No Defaults. 
The Company is not in default in any obligation or covenant on its part
to be performed under any obligation, lease, contract, order, plan or other
arrangement.

 

(j)            Absence of Certain Changes and
Events.  Other than as a result of the transactions
contemplated by this Agreement, since the Balance Sheet Date, there has not
been:

 

(i)            Financial Change.  Any
material adverse change in the financial condition, backlog, operations,
assets, liabilities or business of the Company;

 

(ii)           Property Damage. 
Any material damage, destruction, or loss to the business or properties
of the Company (whether or not covered by insurance);

 

(iii)          Dividends.  Any declaration, setting
aside, or payment of any dividend or other distribution in respect of the
Company Shares, or any direct or indirect redemption, purchase or any other
acquisition by the Company of any such stock (except for the Owned Real
Property and the Pre-Closing Distribution Assets);

 

(iv)          Labor Disputes. 
Any labor or employment dispute of whatever nature; or

 

(v)           Other Material Changes. 
Any other event or condition known to any of the Shareholders particularly
pertaining to and adversely affecting the operations, assets or business of the
Company.

 

(k)           Taxes. 
All federal, state and local income, value added, sales, use, franchise,
gross revenue, turnover, excise, payroll, property, employment, customs, duties
and any and all other tax returns, reports, and estimates have been filed with
appropriate governmental agencies, domestic and foreign, by the Company for
each period for which any such returns, reports, or estimates were due (taking
into account any extensions of time to file before the date hereof); all such
returns are true and correct; the Company has only done business in Oklahoma,
Texas and Wyoming; all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by the Company; and the tax provision reflected in the 3/31/08 Balance
Sheet is adequate, in all material respects in accordance with generally
acceptable accounting principles, to cover liabilities of the Company at the
date thereof for all taxes, including, but not limited to, interest and
penalties, and additions to taxes of any character whatsoever applicable to the
Company or its assets or business.  No
waiver of any statute of limitations executed by the Company with respect to
any income or 

 

11

 

other tax is in effect for any period. 
The income tax returns of the Company have not been examined by the
Internal Revenue Service (“IRS”) or
the taxing authorities of any other jurisdiction.  There are no tax liens on any assets of the
Company except for taxes not yet currently due.

 

(l)            Intellectual Property.

 

(i)            Ownership. 
The Company is the sole and exclusive owner of licenses to use all
Intellectual Property that are either useful to the business of the Company or
that are useful for the rendering of any services rendered by the Company and
the use or sale of any equipment or products used or sold by the Company,
including the Patents and all such Intellectual Property listed in Schedule 2.1(h) hereto.  The Intellectual Property is owned by the
Company free and clear of any Encumbrance (including, without limitation, the
Royalty Agreement, which shall have been terminated at or prior to the
Closing).  Neither the Shareholders nor
the Company has received any notice or claim (whether written, oral, or
otherwise) challenging the Company’s or the Shareholders’ ownership of any of
the Intellectual Property (in whole or in part) or suggesting that any other
person has any claim of legal or beneficial ownership with respect thereto, nor
to the knowledge of the Shareholders is there a reasonable basis for any claim
that the Company does not own the Intellectual Property.  The Shareholders have the unrestricted right
to transfer all of their right, title, and interest to the Intellectual
Property to the Company or to Buyer without impairing or limiting any rights
therein.

 

(ii)           Validity and Enforceability. 
The Intellectual Property is valid, enforceable, and subsisting, without
qualification, limitation, or restriction thereon or on the use thereof.  Neither the Shareholders nor the Company has
received any notice of any claim (written, oral, or otherwise) challenging or
questioning the validity or enforceability of any of the Intellectual Property
or indicating an intention on the part of any person to bring a claim that any
of the Intellectual Property is invalid or unenforceable or has been misused.

 

(iii)          Patents.  The Patents have not been and are now not
involved in any interference, reissue, or reexamination proceeding, and, to the
knowledge of the Shareholders, no such action is or has been threatened.  There are no facts or circumstances which if
known would have barred issuance of the Patents, including, without limitation,
there being no relevant prior art of which the Shareholders are aware that was
not disclosed during the prosecution of the application(s) for the Patents
but which, if such prior art had been disclosed, may have affected the
prosecution thereof or the scope of the patent claims ultimately granted in
respect thereof.  The Patents and the
other Intellectual Property are sufficient for the Company or a third party on
the Company’s behalf to manufacture, sell, rent, lease, otherwise distribute, and
practice the Company’s products and the services associated therewith, as
currently conducted or planned to be conducted. 
There are no intellectual property rights of any third party interfering
with or necessary for such activities.

 

12

 

(iv)          Trade Secrets. 
The Shareholders and the Company have taken all reasonable steps in
accordance with standard industry practices to maintain the confidentiality of
any confidential information and trade secrets in the Intellectual Property
(the “Proprietary Information”),
and the Company has and enforces a policy requiring each of its employees,
consultants, and contractors to enter into (and all such persons have executed)
agreements that require the reasonable protection and non-disclosure of the
Proprietary Information.   None of the
Proprietary Information has been disclosed, nor is the Company (or the
Shareholders) under any obligation (contractual or otherwise) to disclose the
Proprietary Information.  To the knowledge
of the Shareholders, (A) no such agreement or undertaking has been
breached, and (B) there has been no disclosure of the Proprietary
Information such that the Company may not enforce rights in the Proprietary
Information.

 

(v)           Maintenance. 
Neither the Shareholders nor the Company has taken any action or failed
to take any action (including, without limitation, the manner in which the
Company has conducted its business or used or enforced or failed to use or
enforce any of the Intellectual Property) that would result in abandonment,
cancellation, forfeiture, relinquishment, invalidation, or unenforceability of
the Intellectual Property.  The Patents,
together with the trademark reflected on Schedule 2.1(l) hereto
(the “Trademark”), are the only
Intellectual Property registered with any governmental agency.  The Patents and the Trademark have been
registered and obtained in accordance with all applicable legal
requirements.  The Company has timely
paid all filing, examination, issuance, post registration, and maintenance
fees, annuities, and the like associated with the Patents, the Trademark and
any other Intellectual Property through the Closing Date.

 

(vi)          Licenses. 
Neither the Shareholders nor the Company has granted to any other person
any licenses, agreements not to sue or similar rights in or to any Intellectual
Property.

 

(vii)         No Infringement.  To the
Shareholders’ knowledge, (A) neither the Shareholders nor the Company has
infringed, misappropriated, or conflicted with the intellectual property rights
of others in connection with the use by the Company of the Intellectual
Property or otherwise in connection with the Company’s operation of its
business, nor has either the Shareholders or the Company received any notice of
such infringement, misappropriation, or conflict with such intellectual
property rights of others; (B) none of the Intellectual Property or the
products and services associated therewith, as currently conducted or planned
to be conducted, are subject to or have been subject to any pending or
threatened challenge or claim or demand of infringement, misappropriation,
violation, dilution, or unauthorized use, and there is no basis upon which any
such claim could be made; and (C) no third party is misappropriating,
infringing, diluting, or violating any Intellectual Property.  No Intellectual Property is subject to any
outstanding order, judgment, decree, stipulation, or agreement restricting the
use thereof by the Shareholders or the Company or restricting the sale, 

 

13

 

transfer, assignment, or licensing by the Shareholders, the Company, or
their successors or assigns.

 

(m)          Title to and Condition of Assets. 
The Company has good, indefeasible and marketable title to all its
properties, interests in properties and assets, real and personal, reflected in
the 3/31/08 Balance Sheet or in Schedule 2.1(h) hereto (except for
the Owned Real Property, the Pre-Closing Distribution Assets and any other
excluded assets set forth on Schedule 1.2(a) hereto), free and
clear of any Encumbrance of any nature whatsoever, except Encumbrances
reflected in the 3/31/08 Balance Sheet or in Schedule 1.2(f) hereto.  All leases pursuant to which the Company
leases (whether as lessee or lessor) any real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing default or event of default, or event that with notice or lapse of
time, or both, would constitute a default by the Company and in respect to which
the Company has not taken adequate steps to prevent a default from
occurring.  The buildings and premises of
the Company that are used in its business are in good operating condition and
repair, subject only to ordinary wear and tear. 
All machinery, vehicles, transportation equipment, tools and other major
items of equipment of the Company are in good operating condition and in a
state of good maintenance and repair, ordinary wear and tear excepted, and are
free from any known defects except as may be repaired by routine
maintenance.  All such assets conform to
all applicable laws governing their use. 
The Company has not violated any law, statute, ordinance, or regulation
relating to any such assets, nor has any notice of such violation been received
by the Company or any of the Shareholders, except such as have been fully
complied with.

 

(n)           Contracts. 
All contracts, leases, plans or other arrangements to which the Company
is a party, by which it is bound or to which it or its assets are subject are
in full force and effect, and constitute valid and binding obligations of the
Company.  Other than the Office Agreement
and the Services Agreement, there are no Inter-Company Agreements.  The Company is not and, to the knowledge of
any of the Shareholders, no other party to any such contract, lease, plan or
other arrangement is in default thereunder, and no event has occurred which
(with or without notice, lapse of time, or the happening of any other event)
would constitute a default thereunder. 
No contract has been entered into on terms that could reasonably be
expected to have an adverse effect on the Company.  None of the Shareholders have received any
information that would cause the Company or the Shareholders to conclude that
any customer of the Company will (or is likely to) cease doing business with
the Company (or its successors) as a result of the consummation of the
transactions contemplated hereby.

 

(o)           Licenses and Permits. 
The Company possesses all Permits necessary under law or otherwise for
the Company to conduct its business as now being conducted and to construct,
own, operate, maintain and use its assets in the manner in which they are now
being constructed, operated, maintained and used, including all such Permits
listed in Schedule 2.1(h) hereto (collectively, the “Required Permits”).  Each of the Required Permits and the Company’s
rights with respect thereto is valid and subsisting, in full force and effect,
and enforceable by the Company subject to administrative powers of regulatory
agencies having jurisdiction, and will continue in full force and effect after
the Closing Date.  The Company is in
compliance in all respects with the terms of each of 

 

14

 

the Required Permits.  None of
the Required Permits have been, or to the knowledge any of the Shareholders, is
threatened to be, revoked, canceled, suspended or modified.

 

(p)           Litigation. 
There is no suit, action, or legal, administrative, arbitration, or
other proceeding or governmental investigation pending to which the Company is
a party or, to the knowledge of any of the Shareholders, might become a party
which particularly affects the Company or its assets, nor is any change in the
zoning or building ordinances directly affecting the real property or leasehold
interests of the Company pending or, to the knowledge of any of the
Shareholders, threatened.

 

(q)           Environmental Compliance.

 

(i)            Environmental Conditions. 
There are no environmental conditions or circumstances, including,
without limitation, the presence or release of any Substance of Environmental
Concern, on any property presently or previously owned, leased, operated, or
used by the Company, or on any property to which any Substance of Environmental
Concern or waste generated by the Company’s operations or use of its assets was
transported or disposed of, which would have a material adverse effect on the
business or business prospects of the Company. 
The term “Substance of Environmental Concern”
means any gasoline, petroleum (including crude oil or any fraction thereof),
petroleum product, polychlorinated biphenyls, ureaformaldehyde insulation,
asbestos, pollutant, contaminant, radiation and any other substance of any
kind, whether or not any such substance is defined as toxic or hazardous under
any Environmental Law (as defined in Section 2.1(q)(iii) hereof),
that is regulated pursuant to or could give rise to liability under any
Environmental Law;

 

(ii)           Permits, Etc.  The Company
has and, within the period of all applicable statutes of limitations, has had
in full force and effect all environmental Permits required to conduct its
operations, and is, and within the period of all applicable statutes of
limitations has been, operating in compliance thereunder.

 

(iii)          Compliance.  The Company’s operations and
use of its assets are, and within the period of all applicable statutes of
limitations have been, in compliance with applicable Environmental Law.  “Environmental Law”
as used herein means any and all laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, and other legally enforceable requirements
(including, without limitation, common law) of the United States, or any state,
local, municipal or other governmental authority, or quasi-governmental
authority, regulating, relating to, or imposing liability or standards of
conduct concerning protection of the environmental or of human health, or
employee health and safety as from time to time have been or are now in effect;

 

(iv)          Environmental Claims. 
No notice has been received by the Company or any of the Shareholders
from any entity, governmental agency or individual regarding any existing,
pending or threatened investigation, inquiry, enforcement action, litigation,
or liability, including, without limitation, any claim 

 

15

 

for personal injury, injury to property, remedial obligations, response
costs or contribution, relating to any Environmental Law;

 

(v)           Enforcement. 
The Company and, to the knowledge of any of the Shareholders, any
predecessor of the Company or other party acting on behalf of the Company, have
not entered into or agreed to any consent, decree, order, settlement or other
agreement, nor are they subject to any judgment, decree, order or other
agreement, in any judicial, administrative, arbitral, or other forum, relating
to compliance with or liability under any Environmental Law;

 

(vi)          Liabilities. 
The Company has not assumed or retained, by contract or operation of
law, any liabilities of any kind, fixed or contingent, known or unknown, under
any Environmental Law.

 

(vii)         Renewals.  None of the Shareholders know of any reason
the Company (or its successors) would not be able to renew without material
expense any of the permits, licenses, or other authorizations required pursuant
to Environmental Law to conduct and use any of the Company’s current or planned
operations; and

 

(viii)        Asbestos and PCBs.  No material
amounts of friable asbestos currently exist on any property owned, leased,
operated, or used by the Company, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical equipment owned or
being used by the Company in its operations or on its properties.

 

(r)            Compliance with Other Laws. 
The Company is not in violation of or in default with respect to, or in
alleged violation of or alleged default with respect to, the Occupational
Safety and Health Act (29 U.S.C. §§651 et seq.) as
amended, or any other applicable law or any applicable rule, regulation, or any
writ or decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any report required
to be filed with any governmental commission, board, bureau, agency or
instrumentality.

 

(s)           Employee Plans. 
The Shareholders have delivered to Buyer copies of each of the Employee
Plans (as defined in Section 2.1(h)(vii) hereof) and any
associated trust agreements, all amendments thereto, respective summary plan
descriptions, Forms 5500 filed for the most recent three plan years, most
recent reports, and all IRS determination letters and other correspondence from
governmental entities that have been received with respect to such Employee
Plans.  Except as identified in Schedule
2.1(h), the Company does not currently sponsor, maintain or contribute to,
and has not at any time sponsored, maintained or contributed to, any Employee
Plan that is subject to any of the provisions of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), in
which any of its employees are or were participants (whether on an active or
frozen basis).  Each Employee Plan (as
identified in Section 2.1(h)(vii) hereof) has been
administered and operated in compliance with its governing documents and all
applicable federal and state law (including, where applicable, ERISA and the
Code).  

 

16

 

Each Employee Plan set forth in Schedule 2.1(h) fully
complies currently, and has fully complied in the past, in form and operation,
with the applicable provisions of ERISA, the Code and other applicable laws,
including, without limitation, all qualification and reporting and disclosure
requirements of the Code and ERISA.  Each
Employee Plan that is an employee pension benefit plan (as described in Section 3(2) of
ERISA) (i) meets, and has met, in all respects, the requirements of a “qualified
plan” under Section 401(a) of the Code whose income is exempt from
taxation under Section 501(a) of the Code, (ii) has received a
currently effective favorable determination letter from the IRS and (iii) nothing
has occurred since the date of such determination letter that could adversely
affect such qualification.  Also, with
respect to each Employee Plan, the Company and any other party in interest have
not engaged in any prohibited transaction or any violation of its fiduciary
duties to such plan.  All contributions
required to be made to each Employee Plan under the terms of such Employee
Plan, ERISA or other applicable law have been timely made and there are no
delinquent contributions as of the Closing Date. None of the Employee Plans (A) is
a “multiemployer plan” (as defined in Section 3(37) of ERISA), (B) is
a defined benefit pension plan subject to Title IV of ERISA, (C) is a “voluntary
employees’ beneficiary association” within the meaning of Code Section 501(c)(9),
(D) provides for self-funded medical or other health benefits or provides
for medical or other insurance benefits to current or future retired employees
or former employees of the Company (other than as required for group health
plan continuation coverage under Code Section 4980B (“COBRA”)
or applicable state law), or (E) obligates the Company to pay any benefits
solely as a result of a change in control of the Company.  During the six (6) years preceding the
Closing Date, (x) no under-funded pension plan subject to Section 412
of the Code has been transferred out of the Company, (y) the Company has
not participated in or contributed to, or had an obligation to contribute to,
any multiemployer plan and has no withdrawal liability with respect to any
multiemployer plan, and (z) the Company has not maintained any pension
plan subject to Title IV of ERISA.  Other
than routine claims for benefits, there are no claims, lawsuits or regulatory
actions that have been asserted, instituted or threatened against any Employee
Plan or any Employee Plan fiduciary. 
There is no matter pending with respect to any of the Employee Plans
before any governmental agency or authority.

 

(t)            Labor Issues. 
The Company has not engaged in any unfair labor practices.  None of the Shareholders is aware of any
pending or threatened dispute with any of its existing or former employees.  There are no employment discrimination
charges or lawsuits pending against the Company, and none of the Shareholders
is aware of any threatened charge or lawsuit. 
There are no Company employees performing active uniformed military
service with respect to whom the Company is, or may be, obligated under the
Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), 38 U.S.C. §§ 4301-4334.

 

(u)           Investigations; Litigation. 
No investigation or review by any governmental entity with respect to
the Company or any of the transactions contemplated by this Agreement is pending
or, to the knowledge of any of the Shareholders, threatened, nor has any
governmental entity indicated to the Company or any of the Shareholders  an intention to conduct the same, and there
is no action, suit or proceeding pending or, to the knowledge of any of the
Shareholders, threatened against or affecting the Company at 

 

17

 

law or in equity, or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
that either individually or in the aggregate, does or is likely to result in
any material adverse change in the financial condition, properties or business
of the Company.

 

(v)           Absence of Certain Business
Practices.  Neither the Company nor any officer, employee
or agent of the Company, nor any other person acting on its behalf, has
directly or indirectly, within the past five (5) years, given or agreed to
give any gift or similar benefit to any customer, supplier, government employee
or other person who is or may be in a position to help or hinder the business
of the Company (or to assist the Company in connection with any actual or
proposed transaction) that might subject the Company to any damage or penalty
in any civil, criminal or governmental litigation or proceeding.

 

(w)          No Untrue Statements. 
The Company has made available to Buyer true, complete and correct
copies of all contracts, documents concerning all litigation and administrative
proceedings, licenses, permits, insurance policies, lists of suppliers and
customers, and records relating principally to the Company’s assets and
business, and such information covers all commitments and liabilities of the
Company relating to its business or its assets. 
This Agreement and the agreements and instruments to be entered into in
connection herewith do not include any untrue statement of a material fact or
omit to state any material fact or omit to state any material fact necessary to
make the statements made herein and therein not misleading in any material
respect.

 

(x)            Consents and Approvals. 
No consent, approval or authorization of, or filing or registration
with, any governmental or regulatory authority, or any other person or entity
other than the Shareholders, is required to be made or obtained by the Company
or any of Shareholders in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.

 

(y)           Finder’s Fee. 
All negotiations relative to this Agreement and the transactions
contemplated hereby, have been carried on by the Shareholders and their counsel
directly with Buyer and its counsel, without the intervention of any other
person in such manner as to give rise to any valid claim against any of the parties
hereto for a brokerage commission, finder’s fee or any similar payments.  Notwithstanding the foregoing, GK Jones &
Company, L.L.C. and Gregory Jones (collectively “GK
Jones”) have asserted a lien upon, and entitlement to,
$1,000.000.00 of the Purchase Price being paid to Ronald D. Jones and Melinda
Jones under this Agreement.  Ronald D.
Jones and Melinda Jones deny that GK Jones is entitled to the payment of any
money by them and deny that GK Jones has any claim to a portion of Purchase
Price.  Notwithstanding anything to the
contrary contained in this Agreement, to address this issue, $1,000.000.00 of
the Purchase Price payable to Ronald D. Jones and Melinda Jones (the “Escrowed Amount”) shall initially be
withheld by Buyer for a period not to exceed ten (10) business days after
the Closing Date.  During this period,
Ronald D. Jones and Melinda Jones and Buyer will enter into an escrow agreement
with Wells Fargo Bank, N.A. in a form substantially similar to the escrow agreement
attached hereto as Schedule 2.1(y), establishing an escrow account (the “Escrow Account”) to hold the
Escrowed Amount 

 

18

 

and earn interest to be paid to Ronald D. Jones and Melinda Jones.  Within two (2) business days after the
establishment of the Escrow Account, Buyer shall deposit the Escrowed Amount
into the Escrow Account.  The Escrowed
Amount shall be distributable to Ronald D. Jones and Melinda Jones upon: (i) a
final, non-appealable order that GK Jones does not have a claim to any portion
of the Purchase Price; or (ii) a written release by GK Jones of any claim
to the Purchase Price and any Encumbrances against the Company, any of the
Company’s assets or the Company Shares in any way arising under or otherwise
relating to such claim by GK Jones; provided the Escrowed Amount will also be
distributable as otherwise directed by a court of competent jurisdiction.  All fees and expenses relating to the
establishment and administration of the Escrow Account shall be paid by Ronald D.
Jones and Melinda Jones.

 

(z)            Sufficiency of Assets. 
The tangible personal property assets of the Company listed on Schedule
2.1(h) hereto are sufficient for the continued conduct of the Business
after the Closing in substantially the same manner as the Business was
conducted prior to the Closing, other than for the use of phones and other
related equipment pursuant to the Office Agreement and the use of forklifts
pursuant to the Services Agreement. 
Buyer acknowledges that the properties leased by the Company in Rawlins,
Wyoming and Wilburton, Oklahoma may continue for a period of up to thirty (30)
days after the Closing Date but will thereafter terminate.

 

(aa)         S Corporation Matters. 
The Company filed a properly executed Form 2553 with the IRS to
elect under Subchapter S of the Code to be an “S corporation” within the
meaning of Section 1361 of the Code. 
The Company’s “S corporation” election became effective on January 1,
2001, and the Company was at all times from and including January 1, 2001,
an “S corporation” within the meaning of Section 1361 of the Code (and an “S
corporation” for all applicable state and local income tax purposes).

 

(bb)         Customers.  Schedule
2.1(bb) hereto sets forth (i) a list of the top twenty (20) customers
of the Company for the twelve (12) month period ending on the Balance Sheet
Date and (ii) the gross sales by the Company attributable to each of such
customers for such period.  There are
written contracts with those customers listed beside the master service
agreements set forth on Schedule 2.1(h) hereto.  Since the Balance Sheet Date, none of the
customers listed on Schedule 2.1(bb) has cancelled or terminated,
or made threats that are perceived as credible about its intention to cancel or
terminate, its business relationship with the Company.  The Company is not currently obligated to
share any cost savings or reduction with any third party pursuant to any
contract or agreement.

 

(cc)         Factoring of Receivables;
Reserves.  Since March 4, 2008, the Company has not
factored any of its accounts receivable into cash or cash equivalents; and the
Company currently maintains adequate reserves to cover any non-collectible
accounts receivable.

 

2.2.          Representations and Warranties Regarding New
Shareholder Entity.  Each of the Shareholders who
shall own an interest in the New Shareholder Entity as of the Closing Date,
jointly and severally, represents and warrants to Buyer as follows:

 

19

 

(a)           Organization and Good Standing. 
The New Shareholder Entity is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary.

 

(b)           Agreement Authorized and its
Effect on Other Obligations.  The Real
Property Leases have been duly and validly authorized by all necessary
corporate action on the part of the New Shareholder Entity, and the Real
Property Leases constitute valid and binding obligations of the New Shareholder
Entity, enforceable in accordance with their terms.  The execution, delivery and performance of
the Real Property Leases by the New Shareholder Entity will not conflict with
or result in a violation of breach of any term or provision of, or constitute a
default under (i) the governing documents of the New Shareholder Entity,
or (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the New Shareholder Entity or any of its
property is bound.

 

(c)           Consents and Approvals. 
No consent, approval or authorization of, or filing of a registration
with, any governmental or regulatory authority, or any other person or entity
is required to be made or obtained by the New Shareholder Entity in connection
with the execution, delivery or performance of the Real Property Leases or the
consummation of the transactions contemplated thereby.

 

(d)           Investigations; Litigation. 
No investigation or review by any governmental entity with respect to
the New Shareholder Entity in connection with any of the transactions
contemplated by the Real Property Leases is pending or, to the best of the
applicable Shareholders’ knowledge, threatened, nor has any governmental entity
indicated to the New Shareholder Entity an intention to conduct the same.  There is no action, suit or proceeding
pending or, to the applicable Shareholders’ knowledge, threatened against or
affecting the New Shareholder Entity by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which either individually or in the aggregate, does or is likely to result in
any material adverse change in the financial condition, properties or
businesses of the New Shareholder Entity.

 

2.3.          Representations and Warranties of Buyer. 
Buyer represents and warrants to each of the Shareholders as follows:

 

(a)           Organization and Good Standing. 
Buyer is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Texas, has full requisite
corporate power and authority to carry on its business as it is currently
conducted, and to own and operate the properties currently owned and operated
by it, and is duly qualified or licensed to do business and is in good standing
as a foreign corporation authorized to do business in all jurisdictions in
which the character of the 

 

20

 

properties owned or the nature of the business conducted by it would
make such qualification or licensing necessary.

 

(b)           Agreement Authorized and its
Effect on Other Obligations.  The
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Buyer, and this
Agreement is a valid and binding obligation of Buyer enforceable in accordance
with its terms.  The execution, delivery
and performance of this Agreement by Buyer will not conflict with or result in
a violation of breach of any term or provision of, or constitute a default
under (i) the governing documents of Buyer, or (ii) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to which
Buyer or any of its property is bound.

 

(c)           Consents and Approvals. 
No consent, approval or authorization of, or filing of a registration
with, any governmental or regulatory authority, or any other person or entity
is required to be made or obtained by Buyer in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.

 

(d)           Investigations; Litigation. 
No investigation or review by any governmental entity with respect to
Buyer in connection with any of the transactions contemplated by this Agreement
is pending or, to the best of Buyer’s knowledge, threatened, nor has any
governmental entity indicated to Buyer an intention to conduct the same.  There is no action, suit or proceeding
pending or, to the Buyer’s knowledge, threatened against or affecting Buyer by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which either individually or in the
aggregate, does or is likely to result in any material adverse change in the
financial condition, properties or businesses of Buyer.

 

2.4.          Survival of Representations and Warranties. 
The representations and warranties set forth herein shall be true as of
the date of this Agreement and the Closing Date and shall survive the Closing
as set forth herein.  All representations
and warranties relating to ownership (including, without limitation, ownership
of the Company or any of the underlying Company assets) or authority of the
Shareholders to enter into any of the transactions contemplated by this
Agreement shall survive indefinitely. 
All representations and warranties relating to taxes, environmental
matters, employee benefits or other employment matters shall survive, in each
case, for thirty (30) days after the expiration of the applicable statute of
limitations for such matters.  All other
representations and warranties shall survive for a period of two (2) years
from and after the Closing Date.

 

ARTICLE 3

ADDITIONAL AGREEMENTS

 

3.1.          Further Assurances. 
From time to time, as and when requested by any party hereto, any other
party hereto shall execute and deliver, or cause to be executed and delivered,
such documents and instruments and shall take, or cause to be taken, such
further or other actions as may be reasonably necessary to effectuate the
transactions contemplated hereby.

 

21

 

3.2.          Public Announcements. 
Except as mutually agreed, neither Buyer, the Shareholders, the
individuals nor any of their respective affiliates or agents shall issue any
press release or public announcement regarding the execution of this Agreement
or the transactions contemplated thereby. 
The Shareholders hereby consent to Buyer’s issuance of a press release
announcing the completion of the transactions contemplated by this Agreement.

 

3.3.          Buyer’s Tax Election. 
Buyer will conduct a valuation of the Company Shares for purposes of
allocating the Purchase Price.  Buyer and
the Shareholders agree to make a Section 338(h)(10) election under
the Code with respect to the acquisition of the Company Shares.  The Shareholders agree to pay all taxes in
connection with the transactions contemplated under this Agreement, including,
without limitation, any taxes generated under Section 338(h)(10) or Section 1374
of the Code and any other federal, state or local taxes.

 

3.4.          Environmental Assessments and Cleanup. 
Buyer may conduct such Phase I Environmental Assessments with respect to
the Owned Real Property and any other real property listed on Schedule 2.1(h) hereof
as it deems prudent.  In addition, Buyer
may conduct Phase II Environmental Assessments with respect to any such real
property where Phase II assessments are reasonably determined by Buyer to be
appropriate.  All of the costs for
conducting such environmental assessments shall be deducted from the Purchase
Price.

 

3.5.          Participation in Buyer Employee Benefit Plans. 
Effective as of the day after the Closing Date (or as soon thereafter as
practicable), Buyer shall cause each employee of the Company, if and to the
extent eligible, to be provided with coverage under each employee benefit plan,
program, policy or arrangement of Buyer or any of its affiliates on the same
terms and conditions as other similarly situated Buyer employees, except that
certain carryover service shall be provided as set forth below.  Buyer shall cause the insurance carriers and
benefit plan administrators or trustees of Buyer or its affiliates to: (i) recognize
service with the Company (and any predecessor) prior to Closing (“Prior Service”) for purposes of
eligibility to enroll in the welfare plans of Buyer and its affiliates (e.g.
its life, medical, dental, accident, disability, flexible spending and similar
benefit plans), and (ii) provide each such Company employee with credit
under its medical and dental plans for payments made under the corresponding
plan or employee benefit program in satisfying any deductible or out-of-pocket
limit requirements.  Buyer shall
recognize Prior Service for all Company employees for purposes of eligibility
and vesting under the Buyer’s 401(k) plan. 
Buyer shall recognize Prior Service for all Company employees for
purposes of determining entitlement to vacation and sick leave as employees
under applicable vacation and sick leave policies of Buyer.  Buyer shall recognize Prior Service for
purposes of determining entitlement to and the amount of any severance benefits
which may be payable by Buyer to any Company employee.  The parties shall cooperate to cause the
Company to terminate its Employee Plans, or take other mutually agreed action
with respect thereto, as soon as reasonably practical after the Closing.

 

3.6.          Non-Circumvention by Shareholders.

 

(a)           The Shareholders acknowledge and agree
that (i) the Company possesses confidential and proprietary documentation
and information essential to the successful conduct and the benefit of the
Business, including, without limitation, the Intellectual Property and the
Proprietary Information; (ii) such Intellectual Property and Proprietary 

 

22

 

Information are invaluable; and (iii) any use, disclosure or other
communication by the Shareholders of such Intellectual Property or Proprietary
Information (other than as expressly permitted by this Agreement) will result
in irreparable damage and harm to the Company and to Buyer.

 

(b)           The Shareholders shall not negotiate or
participate in any transaction involving the Intellectual Property or
Proprietary Information without the prior written consent of Buyer.  Any contact, negotiation, participation or
transaction involving the Intellectual Property or Proprietary Information not
permitted by this Agreement (each, a “Circumvention Event”)
shall constitute a default and a material breach of this Agreement.

 

(c)           The Shareholders accept full
responsibility and liability for their respective agents, brokers, principals
and other related third parties to maintain confidentiality relating to any and
all of the Intellectual Property and Proprietary Information.  Therefore, each Shareholder expressly
covenants not to commit (or permit another person to commit) a Circumvention
Event in any present, pending or future transaction.

 

(d)           The provisions of this Section shall
be subject and subordinate to the terms and conditions of the Tolman
Non-Compete Agreement and the Jones Non-Compete Agreement.  To the extent that there is any conflict
between the terms of this Section and the terms of such agreements, the
Tolman Non-Compete Agreement or the Jones Non-Compete Agreement (as applicable)
shall control.

 

3.7.          Operation of the Business. 
Buyer shall support the Business after the Closing Date as it does each
of its other divisions.  Buyer shall make
available sufficient capital investment to meet the demands of the Earn-out
program, subject to investment return, market conditions, and other requirements
that Buyer uses with each of its other divisions.  In the event that capital investment is
curtailed to an amount insufficient to support the Earn-out program as
reasonably determined by Buyer, the Earn-out targets, threshold, and payout
factors (as set forth on Schedule 1.1(e) hereto) will be adjusted
to align with the adjusted capital investment. 
The Shareholders acknowledge and accept that Buyer may merge the Company
with and into Buyer, may re-name the Business, or any part or product thereof,
and may generally change any part of the branding or marketing strategy or
altogether re-brand or re-market the Business, or any part or product thereof,
in each case at such time and in such manner and to such extent (and with or
without notice to any party) as Buyer may determine in its sole discretion.  The Shareholders further acknowledge and
agree that the Business shall be managed in compliance with the policies and
practices of the Buyer and its affiliates and as any other division of Buyer
and its affiliates.

 

ARTICLE 4

INDEMNIFICATION

 

4.1.          Indemnification by the Shareholders. 
In addition to any other remedies available to Buyer under this
Agreement, or at law or in equity, the Shareholders hereby indemnify Buyer, the
Company, their affiliates and their respective officers, directors, employees,
agents and 

 

23

 

stockholders (collectively, the “Buyer
Indemnified Parties”) against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable fees and expenses of attorneys, consultants and experts
(collectively, the “Damages”) that the Buyer
Indemnified Parties shall incur or suffer, which arise, result from or relate
to any breach by any of the Shareholders (or the failure of any of the
Shareholders to perform) their respective representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument delivered to Buyer by any of the Shareholders under
this Agreement (including, without limitation, a Circumvention Event).  The liability of the Shareholders under this Section is
joint and several.  In addition, Buyer
shall be entitled to Damages from the Shareholders equal to the amount by which
any non-collectible accounts receivable exceed the Company’s reserves relating
to such accounts receivable. 
Notwithstanding anything to the contrary contained in this Agreement,
Buyer shall have the right, at its sole option, to offset any Damages
against (a) the amount by which the actual Purchase Price (as finally
determined pursuant to Section 1.1(d) hereof) exceeds the Estimated
Purchase Price and (b) the Earn-out. 
The Shareholders’ total aggregate liability under this indemnity shall
be limited to $5,000,000.00.  Except for
Damages equal to (i) the amount by which any non-collectible accounts
receivable exceed the Company’s reserves relating to such accounts receivable, (ii) the
amount of any Encumbrances on the Company Shares or (iii) the amount of
any liability relating to any Encumbrances on the Owned Real Property, in each
case for which no deductible shall apply, the Shareholders shall have no
obligation to indemnify Buyer until the total Damages incurred by the Company
or Buyer exceed a deductible amount of $50,000.00.

 

4.2.          Indemnification by Buyer. 
In addition to any other remedies available to the Shareholders under
this Agreement, or at law or in equity, Buyer shall indemnify, defend and hold
harmless each of the Shareholders against and with respect to any and all
Damages that such indemnitees shall incur or suffer, which arise, result from
or relate to any breach of, or failure by Buyer to perform any of its
representations, warranties, covenants or agreements in this Agreement or in
any schedule, certificate, exhibit or other instrument furnished or delivered
to either of the Individuals by or on behalf of Buyer under this Agreement.

 

4.3.          Indemnification Procedure. 
If any party hereto discovers or otherwise becomes aware of an
indemnification claim arising under Sections 4.1 or 4.2 of this Agreement, such
indemnified party shall give written notice to the indemnifying party,
specifying such claim, and may thereafter exercise any remedies available to such
party under this Agreement; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. 
Further, promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to Sections 4.1 or 4.2
hereof, such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations hereunder, to the extent the indemnifying
party is not materially prejudiced thereby. 
In case any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with 

 

24

 

counsel reasonably satisfactory to such indemnified
party, and after such notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
unless the indemnifying party has failed to assume the defense of such claim
and to employ counsel reasonably satisfactory to such indemnified person.  An indemnifying party who elects not to assume
the defense of a claim shall not be liable for the fees and expenses of more
than one counsel (which may comprise multiple attorneys) in any single
jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim or with respect to claims separate but similar or related
in the same jurisdiction arising out of the same general allegations.  Notwithstanding any of the foregoing to the
contrary, the indemnified party will be entitled to select its own counsel and
assume the defense of any action brought against it if the indemnifying party
fails to select counsel reasonably satisfactory to the indemnified party, the
expenses of such defense to be paid by the indemnifying party.  No indemnifying party shall consent to entry
of any judgment or enter into any settlement with respect to a claim without
the consent of the indemnified party, which consent shall not be unreasonably
withheld, or unless such judgment or settlement includes as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability with respect to such claim.  An indemnified party may consent to entry of
any judgment or enter into any settlement of any such action, the defense of
which has been assumed by an indemnifying party, which judgment or settlement
such indemnified party determines to be reasonable in its good faith judgment,
without the consent of such indemnifying party; provided, however, that the
indemnified party shall provide reasonable notice to the indemnifying party of
such judgment or settlement.

 

4.4.          Limitation on Damages. 
Notwithstanding any provision of the contrary contained herein, each of
the parties to this Agreement hereby waives any right to recover special,
punitive or exemplary damages for any claim asserted against the other.  Noting in this Section shall limit the
availability of equitable remedies, such as specific performance, to enforce
the provisions of this Agreement.

 

ARTICLE 5

MISCELLANEOUS

 

5.1.          Survival of Representations, Warranties and
Covenants.  All representations, warranties, covenants
and agreements made by the parties hereto shall survive the Closing,
notwithstanding any investigation made by or on behalf of any of the parties
hereto.  All statements contained in any
certificate, schedule, exhibit or other instrument delivered pursuant to this
Agreement shall be deemed to have been representations and warranties by the
respective party or parties, as the case may be, and shall also survive
indefinitely despite any investigation made by any party hereto or on its
behalf.

 

5.2.          Entirety.  This
Agreement (including any schedules, exhibits or other attachments hereto)
embodies the entire agreement among the parties with respect to the subject
matter hereof, and all prior agreements between the parties with respect
thereto are hereby superseded in their entirety.

 

25

 

5.3.          Counterparts.  Any number of
counterparts of this Agreement may be executed and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together
shall constitute but one instrument.

 

5.4.          Notices and Waivers.  Any
notice or waiver to be given to any party hereto shall be in writing and shall
be delivered by courier, sent by facsimile transmission or first class
registered or certified mail, postage prepaid, return receipt requested:

 

If to Buyer:

 

Key Energy Services, LLC

1301 McKinney Street, Suite 1800

Houston, Texas 77010

Attn:  General Counsel

Facsimile: (713) 651-4559

 

With a copy to:

 

Liskow &
Lewis, P.C.

1001 Fannin, Suite 1800

Houston, Texas 77002

Attn:  Marilyn Maloney

Facsimile: (713) 651-2908

 

If to any
Shareholder:

 

E. Kent Tolman

Hydra-Walk, Inc.

110 George Brown Avenue

Lindsay, Oklahoma 73052

Facsimile: (405) 756-1215

 

With copies to:

 

Donald B. Nevard

Derryberry &
Naifeh

4800 N. Lincoln Blvd.

Oklahoma City, OK 73105

Facsimile: (405) 528-6462

 

Ronald D. Jones

700 Lola Avenue

Lindsay, OK 73052

rdj2659@yahoo.com

 

Robert Harrison

P.O. Box 336

Lindsay, OK 73052

rth@oriok.net

 

26

 

Any communication so addressed and mailed by
first-class registered or certified mail, postage prepaid, with return receipt
requested, shall be deemed to be received on the third business day after so
mailed, and if delivered by courier or facsimile to such address, upon delivery
during normal business hours on any business day.

 

5.5.          Captions and Headings. 
The captions and headings contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section, or paragraph hereof.

 

5.6.          Successors and Assigns. 
This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the successors and assigns of the parties hereto.

 

5.7.          Severability.  If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants and restrictions shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.

 

5.8.          Applicable Law.  This
Agreement shall be governed by and construed and enforced in accordance with
the applicable laws of the State of Texas.

 

[SIGNATURE
PAGE FOLLOWS]

 

27

 

IN WITNESS WHEREOF, the Shareholders have executed
this Agreement, and the Buyer has caused this Agreement to be signed in its
corporate name by its duly authorized representative, all as of the day and
year first above written.

 

 

BUYER:

 

	
   

  	
  KEY ENERGY SERVICES, LLC,

  
	
   

  	
  a Texas limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Don D. Weinheimer

  	
   

  
	
   

  	
   

  	
  Don D. Weinheimer, Vice
  President

  	
   

  

 

 

SHAREHOLDERS:

 

 

	
   

  	
  /s/ E. Kent Tolman

  	
   

  	
  /s/ Ronald D. Jones

  
	
   

  	
  E. KENT TOLMAN

  	
   

  	
  RONALD D. JONES

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Nita Tolman

  	
   

  	
  /s/ Melinda Jones

  
	
   

  	
  NITA TOLMAN

  	
   

  	
  MELINDA JONES

  

 

 

LIST OF SCHEDULES:

 

	
  Schedule 1.1(b)

  	
  Ownership of Company
  Shares; Allocation of Purchase Price

  
	
  Schedule 1.1(e)

  	
  Earn-out

  
	
  Schedule 1.2(a)

  	
  Excluded Assets

  
	
  Schedule 1.2(b)

  	
  Offers of Employment

  
	
  Schedule 1.2(f)

  	
  Permitted Encumbrances

  
	
  Schedule 2.1(f)

  	
  12/31/07 Balance Sheet
  and 3/31/08 Balance Sheet

  
	
  Schedule 2.1(h)

  	
  List of Company Assets

  
	
  Schedule 2.1(l)

  	
  Trademark

  
	
  Schedule 2.1(y)

  	
  Escrow Agreement

  
	
  Schedule 2.1(bb)

  	
  Customer List

  

 

28

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