INDIAN FIRE & SAFETY ASSET PURCHASE AGREEMENT

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                                                            DXP ENTERPRISES, INC.,

 

                                                     INDIAN FIRE AND SAFETY, INC.,

 

                                                            LONE WOLF RENTAL, LLC

 

                                                                        and

 

                                                  THE OTHER PARTIES NAMED HEREIN

 

                                                           Dated as of October 18, 2007

 

 

 

 

 

 

This ASSET PURCHASE AGREEMENT (the “ Agreement ”) dated as of October 18, 2007, by and among DXP Enterprises, Inc., a <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Texas corporation (“ Purchaser ”), Indian Fire & Safety, Inc., a New Mexico corporation (“ IFS ”), Lone Wolf Rental, LLC, a New Mexico limited liability company (“ LWR ”), James Spurgeon, an individual residing at 192 FM 2828 Medina, Texas 78055 (“ Executive ”), Danae Spurgeon, an individual residing at 192 FM 2828 Medina, Texas 78055, Chris Spurgeon, an individual residing in Denver City, Texas, and The Bonnie Lee Spurgeon Irrevocable Trust, a trust organized under the laws of the State of New Mexico.  Each of IFS, LWR and Executive are sometimes alternatively referred to individually herein as a “ Seller ” and collectively as “ Sellers ”.  Each of Executive, Danae Spurgeon, Chris Spurgeon and The Bonnie Lee Spurgeon Irrevocable Trust are sometimes alternatively referred to individually herein as an “ Owner ” and collectively as “ Owners ”.

 

W I T N E S S E T H:

 

WHEREAS , Sellers presently conduct the Business;

 

WHEREAS , Sellers desire to sell, transfer and assign to Purchaser, and Purchaser desires to acquire and assume from Sellers, all of the Purchased Assets and Assumed Liabilities, all as more specifically provided herein;

 

WHEREAS , Owners, directly or indirectly, own all of the outstanding shares of capital stock of IFS and membership interests of LWR and, as a result thereof, it is in the best interest of each Owner to execute this Agreement inasmuch as each Owner will derive substantial direct and indirect benefits from the sale, transfer and assignment contemplated by this Agreement; and

 

WHEREAS , certain terms used in this Agreement are defined in Section 1.1 ;

 

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

 

 

1.1              Certain Definitions .

 

For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1 :

 

“ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “ control ” (including the terms “ controlled by ” and

 

“ under common control with ”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

 

“ Agreed Principles ” means the accounting principles set forth on Schedule 3.3 for determination of Net Working Capital of the Business.

 

“ Business ” means the businesses and operations of IFS and LWR, including the provision of safety services and related products and rental of equipment to the oil and gas drilling industry and the ancillary businesses and operations relating thereto.

 

“ Business Day ” means any day of the year on which national banking institutions in Houston, Texas are open to the public for conducting business and are not required or authorized to close.

 

“ Cash ” means cash and cash equivalents of the Business on hand and in deposit accounts as of the opening of business on the Closing Date, plus checks presented for payment prior to such time but not yet credited to deposit accounts minus checks drawn against deposit accounts prior to such time not yet presented for payment.

 

“ Closing Real Property Leases ” means the leases, in the form of Exhibits E-1 and E-2 , to be executed and delivered, and fully effective, as of the Closing Date, with Purchaser as tenant and Little Wolf, LLC as lessor thereunder, for all of the interests in real property currently used, occupied or held for use in connection with the Sellers’ operation of the Business.

 

“ Closing Working Capital ” means the Net Working Capital of the Business determined as of the open of business on the Closing Date.

 

“ COBRA ” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

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

 

“ Contract ” means any contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, license, commitment or other arrangement, understanding or undertaking, commitment or obligation.

 

“ Current Assets ” means the accounts receivable, inventory and prepaid expenses of the Business (as set forth in the “Working Capital Asset Accounts” on Schedule 3.3 ), excluding Cash and any deferred tax assets (if any).

 

“ Current Liabilities ” means the accounts payable and other current liabilities of the Business (as set forth in the “Work Capital Liability Accounts” on Schedule 3.3 ), excluding any liabilities paid on the Closing Date pursuant to this Agreement.

 

“ Documents ” means all files, documents, instruments, papers, books, reports, records, tapes, microfilms, photographs, letters, budgets, forecasts, ledgers, journals, lists of past, present and/or prospective customers, supplier lists, regulatory filings, operating data and plans, technical documentation (design specifications, functional requirements, operating instructions, logic manuals, flow charts, etc), user documentation (installation guides, user manuals, training materials, release notes, working papers, etc.), marketing documentation (sales brochures, flyers, pamphlets, web pages, etc.), and other similar materials related to the Business and the Purchased Assets, in each case whether or not in electronic form.

 

“ EBITDA ” means for any twelve (12) month period ending December 31, the sum of:  (a) the net income (or loss), on a cash basis, of the Business excluding extraordinary items, (b) provisions for taxes based on income of the Business, (c) total interest expense of the Business with respect to indebtedness held by or for the benefit of the Business, (d) to the extent that net income of the Business has been reduced thereby, depreciation expense, and (e) to the extent that net income for the Business has been reduced thereby, amortization expense, all as determined in accordance with GAAP; provided , however , that such sum will be reduced by a reasonable fair market lease charge as determined in good faith by Purchaser for such applicable period for any capital equipment acquired by the Business after the Closing so long as such capital equipment was acquired by the Executive on behalf of the Business or otherwise without the objection of the Executive.

 

“ Employee ” means all individuals (including common law employees, independent contractors and individual consultants), as of the date hereof, who are employed or engaged by IFS and/or LWR in connection with the Business, together with individuals who are hired in respect of the Business after the date hereof.

 

“ Environmental Costs and Liabilities ” means, with respect to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person or in response to any violation of Environmental Law, whether known or unknown, accrued or contingent, to the extent based upon, related to, or arising under or pursuant to any Environmental Law, Environmental Permit, order or agreement with any Governmental Body or other Person, which relates to any environmental, health or safety condition, violation of Environmental Law or a Release or threatened Release of Hazardous Materials.

 

“ Environmental Law ” means any Law in any way relating to the protection of human health and safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq. ), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq. ), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq. ), the Clean Water Act (33 U.S.C. § 1251 et seq. ), the Clean Air Act (42 U.S.C. § 7401 et seq. ), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq. ), and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq. ), as each has been or may be amended and the regulations promulgated pursuant thereto.

 

“ Environmental Permit ” means any Permit required by Environmental Laws for the operation of the Business.

 

“ ERISA ” means the Employment Retirement Income Security Act of 1974, as amended.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, amended.

 

“ Excluded Contract ” means the Contract described with respect to subsection (i) of Schedule 5.12(a) .

 

“ Former Employee ” means all individuals (including common law employees, independent contractors and individual consultants) who were employed or engaged by IFS and/or LWR in connection with the Business but who are no longer so employed or engaged on the date hereof.

 

“ Furniture and Equipment ” means all furniture, fixtures, furnishings, equipment, vehicles, leasehold improvements, and other tangible personal property owned or used in the conduct of the Business, including all artwork, desks, chairs, tables, Hardware, copiers, telephone lines and numbers, telecopy machines and other telecommunication equipment, cubicles and miscellaneous office furnishings and supplies.

 

“ GAAP ” means generally accepted accounting principles in the United States.

 

“ Governmental Body ” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether foreign, federal, state, or local, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private).

 

“ Hardware ” means any and all computer and computer-related hardware, including, but not limited to, computers, file servers, facsimile servers, scanners, color printers, laser printers and networks.

 

“ Hazardous Material ” means any substance, material or waste that is regulated, classified, or otherwise characterized under or pursuant to any Environmental Law as “hazardous,” “toxic,” “pollutant,” “contaminant,” “radioactive,” or words of similar meaning or effect, including petroleum and its by-products, asbestos, polychlorinated biphenyls, radon, mold or other fungi and urea formaldehyde insulation.

 

“ Indebtedness ” of any Person means, without duplication, (i) the principal, accreted value, accrued and unpaid interest, prepayment and redemption premiums or penalties (if any), unpaid fees or expenses and other monetary obligations in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business) (other than the current liability portion of any indebtedness for borrowed money); (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (v) all obligations of such Person under interest rate or currency swap transactions (valued at the termination value thereof); (vi) the liquidation value, accrued and unpaid  dividends and prepayment or redemption premiums and penalties (if any), unpaid fees or expense and other monetary obligations in respect of any and all redeemable preferred stock of such Person; (vii) all obligations of the type referred to in clauses (i) through (vi) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations; and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by (or for which the holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).

 

“ Independent Valuation Firm ” means an independent valuation firm mutually agreeable to Purchaser and the Executive.

 

“ Intellectual Property ” means all right, title and interest in or relating to intellectual property, whether protected, created or arising under Law, including:  (i) all patents and applications therefor, including all continuations, divisionals, and continuations-in-part thereof and patents issuing thereon, along with all reissues, reexaminations and extensions thereof (collectively, “ Patents ”); (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, corporate names, trade styles, logos and other source or business identifiers and general intangibles of a like nature, together with the goodwill associated with any of the foregoing, along with all applications, registrations, renewals and extensions thereof (collectively, “ Marks ”); (iii) all Internet domain names; (iv) all copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith, along with all reversions, extensions and renewals thereof (collectively, “ Copyrights ”); (iv) trade secrets (“ Trade Secrets ”); (v) all other intellectual property rights arising from or relating to Technology, and (vi) all Contracts granting any right relating to or under the foregoing.

 

“ Intellectual Property Licenses ” means (i) any grant by any of the Sellers to another Person of any right relating to or under the Purchased Intellectual Property and (ii) any grant by another Person to any of the Sellers of any right relating to or under any third Person’s Intellectual Property used or held for use in connection with the conduct or operation of the Business.

 

“ IRS ” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of Treasury.

 

“ Knowledge of Sellers ” means the actual knowledge, after due inquiry, of each of the Executive and the officers and directors of IFS and the manager of LWR.

 

“ Law ” means any foreign, federal, state or local law (including common law), statute, code, ordinance, rule, regulation, Order or other requirement.

 

“ Legal Proceeding ” means any judicial, administrative or arbitral actions, suits, mediations, investigations, inquiries, proceedings or claims (including counterclaims) by or before a Governmental Body.

 

“ Liability ” means any debt, loss, damage, adverse claim, fines, penalties, liability or obligation (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or determinable, disputed or undisputed, liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability or otherwise), and including all costs and expenses relating thereto (including all fees, disbursements and expenses of legal counsel, experts, engineers and consultants and costs of investigation).

 

“ Lien ” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever.

 

“ Material Adverse Effect ” means a material adverse effect on (i) the historical or near-term or long-term projected business, assets, properties, results of operations, condition (financial or otherwise) or prospects of IFS and LWR or of the Business; (ii) the value of the Purchased Assets or a material increase in the amount of Assumed Liabilities; or (iii) a material adverse effect on the ability of any of the Sellers or Owners to consummate the transactions contemplated by this Agreement or perform their obligations under this Agreement or the Seller Documents.

 

“ Net Working Capital ” means the Current Assets of the Business reduced by the Current Liabilities of the Business, in each case as determined in accordance with the Agreed Principles.  Attached hereto as part of Schedule 3.3 is a schedule showing Net Working Capital as of May 31, 2007 after giving effect to adjustments (if any) required in the Agreed Principles.

 

“ Order ” means any order, injunction, judgment, doctrine, decree, ruling, writ, assessment or arbitration award of a Governmental Body.

 

“ Ordinary Course of Business ” means the ordinary and usual course of normal day-to-day operations of the Business, as conducted by Sellers, through the date hereof consistent with past practice.

 

“ Permits ” means any approvals, authorizations, consents, licenses, permits or certificates of a Governmental Body.

 

“ Permitted Exceptions ” means (i) statutory liens for current Taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, provided an appropriate reserve has been established therefor in the Financial Statements; (ii) mechanics’, carriers’, workers’ and repairers’ Liens arising or incurred in the Ordinary Course of Business that are not material to the Purchased Assets so encumbered and that are not resulting from a breach, default or violation of any Contract or Law; (iii) zoning, entitlement and other land use and environmental regulations by any Governmental Body, provided that such regulations have not been violated; and (iv) title of a lessor under a capital or operating lease.

 

“ Person ” means any individual, corporation, limited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.

 

“ Purchased Contracts ” means all of the Contracts attributable or otherwise related to the Business, other than the Excluded Contract.

 

“ Purchased Intellectual Property ” means all Intellectual Property owned by any of the Sellers related to or used in connection with the Business.

 

“ Purchased Technology ” means all Technology owned by any of the Sellers related to or used in connection with the Business.

 

 “ Release ” means any release, spill, emission, leaking, pumping, pouring, injection, deposit, dumping, emptying, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any property.

 

“ Remedial Action ” means all actions including any capital expenditures undertaken to (i) clean up, remove, treat or in any other way address any Hazardous Material; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care; or (iv) to correct a condition of noncompliance with Environmental Laws.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ SEC ” means the United States Securities and Exchange Commission.

 

“ Software ” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons; and (iv) all documentation, including user manuals and other training documentation related to any of the foregoing.

 

“ Target Working Capital ” means Net Working Capital of an amount of $881,783.83.

 

“ Tax ” or “ Taxes ” means (i) any and all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever; (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i); and (iii) any liability in respect of any items described in clauses (i) and/or (ii) payable by reason of Contract, assumption, transferee liability, operation of law, Treasury Regulation section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under law) or otherwise.

 

“ Taxing Authority ” means the IRS and any other Governmental Body responsible for the administration of any Tax.

 

“ Tax Return ” means any return, report or statement required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, com­bined, consolidated or unitary returns for any group of entities that includes any of Sellers or any of their respective Affiliates.

 

“ Technology ” means, collectively, all Software, information, designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by or relate to, or are used in connection with the foregoing.

 

“ WARN ” means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and the rules and regulations promulgated thereunder.

 

1.2              Terms Defined Elsewhere in this Agreement .  For purposes of this Agreement, the following terms have meanings set forth in the sections indicated:

 

1.3              Other Definitional and Interpretive Matters .

 

(a)                Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

 

Calculation of Time Period .  When calculating the period of time before which, within which or following which, any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded.  If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.

 

Dollars .  Any reference in this Agreement to $ shall mean U.S. dollars.

 

Exhibits/Schedules .  The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.  All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

 

Gender and Number .  Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.

 

Headings .  The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.  All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.

 

Herein .  The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

 

Including .  The word “ including ” or any variation thereof means (unless the context of its usage requires otherwise) “including, but not limited to,” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.

 

(b)               The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

 

Article II

PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES

 

2.1              Purchase and Sale of Assets .  On the terms and subject to the conditions set forth in this Agreement, at the Closing Purchaser shall purchase, acquire and accept from Sellers, and Sellers shall sell, transfer, assign, convey and deliver to Purchaser all of Sellers’ right, title and interest in, to and under the Purchased Assets, free and clear of all Liens except for Permitted Exceptions.  “ Purchased Assets ” shall mean all of the business, assets, properties, contractual rights, goodwill, going concern value, rights and claims of any (or any combination) of the Sellers related to the Business, wherever situated and of whatever kind and nature, real or personal, tangible or intangible, whether or not reflected on the books and records of any of the Sellers (other than the Excluded Assets), including each of the following assets:

 

(a)                all accounts receivable (including those set forth in Schedule 2.1(a)) of Sellers relating to or in respect of the Business;

 

(b)               all inventory (including those items set forth in Schedule 2.1(b) ) used or held for use in the Business;

 

(c)                all tangible personal property (including those items set forth in Schedule 2.1(c) ) used or useful in the Business, including Furniture and Equipment, other than such tangible personal property which is an Excluded Asset;

 

(d)               all deposits (including customer deposits and security for rent, electricity, telephone or otherwise) and prepaid charges and expenses, including any prepaid rent, of Sellers relating to or in respect of the Business;

 

(e)                the Purchased Intellectual Property and the Purchased Technology;

 

(f)                 all rights of Sellers under the Purchased Contracts, including all claims or causes of action with respect to the Purchased Contracts;

 

(g)                all Documents that are related to the Business, including Documents relating to products, services, marketing, advertising, promotional materials, Purchased Intellectual Property, personnel files for Transferred Employees and all files, customer files and documents (including credit information), supplier lists, records, literature and correspondence, but excluding personnel files for Employees of Sellers who are not Transferred Employees;

 

(h)                  all Permits, including Environmental Permits, used by any of the Sellers in the Business (which includes all Permits necessary to conduct the Business as currently conducted) and all rights, and incidents of interest therein;

 

(i)                 all supplies owned by any of the Sellers and used or held for use in connection with the Business;

 

(j)               all rights of Sellers under non-disclosure or confidentiality, non-compete, or non-solicitation agreements with Former Employees, Employees and agents of any of the Sellers or with third Persons to the extent relating to the Business or the Purchased Assets (or any portion thereof);

 

(l)                  all rights of Sellers under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors to the extent relating to products sold or services provided to Sellers and affecting any Purchased Assets;

 

(l)              all third-party property and casualty insurance proceeds, and all rights to third-party property and casualty insurance proceeds, in each case to the extent received or receivable in respect of the Business; and

 

(m)                all goodwill and other intangible assets associated with the Business, including the goodwill associated with the Purchased Intellectual Property and the personal goodwill associated with the Executive.

 

2.2              Excluded Assets .  Nothing herein contained shall be deemed to sell, transfer, assign or convey the Excluded Assets to Purchaser, and Sellers shall retain all right, title and interest to, in and under the Excluded Assets.  “ Excluded Assets ” shall mean each of the following assets:

 

(a)                Cash;

 

(b)               the Excluded Contract;

 

(c)                all minute books, organizational documents, stock registers and such other books and records of IFS and LWR as pertain to ownership, organization or existence of such of the Sellers and duplicate copies of such records as are necessary to enable Sellers to file Tax Returns; and

 

(d)               those assets listed or otherwise specifically described on Schedule 2.2(d) .

 

     2.3       Assumption of Liabilities .  On the terms and subject to the conditions set forth in this Agreement, at the Closing Purchaser shall (or shall cause its designated Affiliate or Affiliates to) assume, effective as of the Closing, the following liabilities of Sellers (collectively, the “ Assumed Liabilities ”):

 

(f)                 all Liabilities of Sellers under the Purchased Contracts that arise out of or relate to the period from and after the Closing Date;

 

(g)                all trade accounts payable and other similar accrued Liabilities of the Sellers as of the Closing Date arising in the Ordinary Course of Business prior to such date;

 

(h)                all Liabilities for Transfer Taxes; and

 

(i)                  those Liabilities listed or otherwise specifically described on Schedule 2.3(d) .

 

2.4              Excluded Liabilities .  Purchaser will not assume or be liable for any Excluded Liabilities.  Sellers shall timely perform, satisfy and discharge in accordance with their respective terms all Excluded Liabilities.  “ Excluded Liabilities ” shall mean all Liabilities of any (or any combination) of the Sellers arising out of, relating to or otherwise in respect of the Business before the Closing Date, other than the Assumed Liabilities, and all other Liabilities of Sellers, including the following Liabilities:

 

(a)                all Liabilities (other than those specifically assumed pursuant to Section 2.3(b) ) in respect of any products sold and/or services performed by Sellers in the conduct and operation of the Business before the Closing Date;

 

(b)               all Environmental Costs and Liabilities, to the extent arising out of or otherwise related to (i) the ownership or operation by any of the Sellers of (A) the Seller Properties (or any condition thereon) prior to the Closing Date (including (i) the Release or continuing Release (if existing as of the Closing) of any Hazardous Material, regardless of by whom or (ii) any noncompliance with Environmental Laws), (B) the Business prior to the Closing Date, (C) the Excluded Assets or any other real property formerly owned, operated, leased or otherwise used by any of the Sellers or (ii) from the offsite transportation, storage disposal, treatment or recycling of Hazardous Material generated by and taken offsite by or on behalf of any of the Sellers prior to and through the Closing Date;

 

(c)                except to the extent specifically provided in Article VIII , all Liabilities arising out of, relating to or with respect to (i) the employment or performance of services, or termination of employment or services by any of the Sellers or any of their respective Affiliates of any individual on or before the Closing Date, (ii) workers’ compensation claims against any of the Sellers that relate to the period on or before the Closing Date, irrespective of whether such claims are made prior to or after the Closing or (iii) any Employee Benefit Plan;

 

(d)               all Liabilities arising out of, under or in connection with Contracts of any of the Sellers that are not Purchased Contracts and, with respect to Purchased Contracts,

 

(e)                Liabilities in respect of a breach by or default accruing under such Contracts with respect to any period prior to Closing;

 

(f)                 all Liabilities arising out of, under or in connection with any Indebtedness of Sellers (other than such Indebtedness specifically assumed pursuant to Section 2.3(d) );

 

(g)                all Liabilities for (i) Taxes of Sellers, (ii) Taxes that relate to the Purchased Assets or the Assumed Liabilities for taxable periods (or portions thereof) ending on or before the Closing Date, including, without limitation, Taxes allocable to Sellers pursuant to Section 11.2 and the obligations in respect of payroll and sales taxes as of the Closing Date, and (iii) payments under any Tax allocation, sharing or similar agreement;

 

(h)                all Liabilities in respect of any pending or threatened Legal Proceeding, or any claim arising out of, relating to or otherwise in respect of (i) the operation of the Business to the extent such Legal Proceeding or claim relates to such operation prior to the Closing Date, (ii) any Excluded Asset, or (iii) the accident involving Justin S. Dudenhoeffer, then an employee of IFS, in Andrews County, Texas on August 24, 2007;

 

(i)                  all Liabilities of any (or any combination) of the Sellers based upon, attributable to or arising under this Agreement; and

 

(j)                 all Liabilities relating to any dispute with any client or customer of the Business existing as of the Closing Date or based upon, relating to or arising out of events, actions, or failures to act prior to the Closing Date.

 

2.5              Further Conveyances and Assumptions; Consent of Third Parties .

 

(a)                From time to time following the Closing and except as prohibited by Law, each of Sellers shall, or shall cause their respective Affiliates to, make available to Purchaser such data in personnel records of Transferred Employees as is reasonably necessary for Purchaser to transition such Employees into Purchaser’s records.

 

(b)               From time to time following the Closing, each of Sellers and Purchaser shall, and shall cause their respective Affiliates to, execute, acknowledge and deliver all such further conveyances, notices, assumptions, releases and aquittances and such other instruments, and shall take such further actions, as may be necessary or reasonably appropriate to assure fully to Purchaser and its respective successors or assigns, all of the properties, rights, titles, interests, estates, remedies, powers and privileges intended to be conveyed to Purchaser under this Agreement and the Seller Documents and to assure fully to each of the Sellers and their respective Affiliates and their successors and assigns, the assumption of the liabilities and obligations intended to be assumed by Purchaser under this Agreement and the Seller Documents, and to otherwise make effective the transactions contemplated hereby and thereby.  Purchaser shall reimburse Sellers promptly for any out-of-pocket costs and expenses incurred by Sellers in performing their obligations under this Section 2.5(b) upon presentation by Sellers to Purchaser of invoices or other reasonably documented evidence thereof.

 

(c)                Nothing in this Agreement nor the consummation of the transactions contemplated hereby shall be construed as an attempt or agreement to assign any Purchased Asset, including any Contract, Permit, certificate, approval, authorization or other right, which by its terms or by Law is nonassignable without the consent of a third party or a Governmental Body or is cancelable by a third party in the event of an assignment (“ Nonassignable Assets ”) unless and until such consent shall have been obtained.  Each of Sellers shall, and shall cause their respective Affiliates to, use its best efforts to cooperate with Purchaser at its request in endeavoring to obtain such consents promptly.  To the extent permitted by applicable Law, in the event consents to the assignment thereof cannot be obtained, such Nonassignable Assets shall be held, as of and from the Closing Date, by the applicable Seller or the applicable Affiliate of any such Seller in trust for Purchaser and the covenants and obligations thereunder shall be performed by Purchaser in such Seller’s or such Affiliate’s name and all benefits and obligations existing thereunder shall be for Purchaser’s account.  Each of the Sellers shall take or cause to be taken such actions in its name or otherwise as Purchaser may reasonably request so as to provide Purchaser with the benefits of the Nonassignable Assets and to effect collection of money or other consideration that becomes due and payable under the Nonassignable Assets, and each of the Sellers or the applicable Affiliate of any such Seller shall promptly pay over to Purchaser all money or other consideration received by it in respect of all Nonassignable Assets.  As of and from the Closing Date, each of the Sellers on behalf of itself and its Affiliates authorizes Purchaser, to the extent permitted by applicable Law and the terms of the Nonassignable Assets, at Purchaser’s expense, to perform all the obligations and receive all the benefits of such Seller or its Affiliates under the Nonassignable Assets and appoints Purchaser its attorney-in-fact to act in its name on its behalf or in the name of the applicable Affiliate of such Seller and on such Affiliate’s behalf with respect thereto.  Purchaser shall reimburse Sellers promptly for any out-of-pocket costs and expenses incurred by Sellers in performing their obligations under this Section 2.5(c) upon presentation by Sellers to Purchaser of invoices or other reasonably documented evidence thereof.

 

2.6              [Intentionally omitted].

 

2.7              Purchase Price Allocation .  Purchaser and the Sellers have prepared an initial written statement, in the form of a copy of Form 8594 and any exhibits thereto as attached hereto as Schedule 2.7 (the “ Asset Acquisition Statement ”) allocating the Total Consideration among the Purchased Assets.  Purchaser shall prepare and deliver to Sellers from time to time revised copies of the Asset Acquisition Statement (the “ Revised Statements ”) so as to report any matters on the Asset Acquisition Statement that need updating (including purchase price adjustments, if any, pursuant to Article III hereof).  The Total Consideration paid by Purchaser for the Purchased Assets shall be allocated in accordance with the Asset Acquisition Statement or, if applicable, the last Revised Statements, provided by Purchaser to Sellers, and all income Tax Returns and reports filed by Purchaser and Sellers shall be prepared consistently with such allocation.  For purposes of this Section 2.7 , the Purchased Assets include the covenant not to compete as set forth in Section 7.6 .

 

2.8              Right to Control Payment .  Purchaser shall have the right, but not the obligation, to make any payment due from any of the Sellers with respect to any Excluded Liabilities which are not paid by an applicable Seller within five (5) Business Days following written request for payment from Purchaser; provided , however , that if such applicable Seller advises Purchaser in writing during such five (5) Business Day period that a good faith payment dispute exists or such Seller has valid defenses to non-payment with respect to such Excluded Liability, then Purchaser shall not have the right to pay such Excluded Liability.  Each of the Sellers agrees to reimburse Purchaser promptly and in any event within five (5) Business Days following written notice of such payment by Purchaser for the amount of any payment made by Purchaser pursuant to this Section 2.8 .

 

2.9              Proration of Certain Expenses .  Subject to Section 11.2 with respect to Taxes, all expenses and other payments in respect of all rents and other payments (including any prepaid amounts) due under any leases constituting part of the Purchased Assets shall be prorated between the Sellers, on the one hand, and Purchaser, on the other hand, as of the Closing Date.  The Sellers shall be responsible for all rents (including any percentage rent, additional rent and any accrued tax and operating expense reimbursements and escalations), charges and other payments of any kind accruing during any period under any such leases up to and including the Closing Date.  Purchaser shall be responsible for all such rents, charges and other payments accruing during any period under such leases after the Closing Date.  Purchaser shall pay the full amount of any invoices received by it and shall submit a request for reimbursement to Sellers for the Sellers’ share of such expenses and Sellers shall pay the full amount of any invoices received by it and Purchaser shall reimburse Sellers for Purchaser’s share of such expenses.

 

2.10          Receivables .  Each of the Sellers shall provide reasonable assistance to Purchaser in the collection of accounts receivable.  If any of the Sellers shall receive payment in respect of accounts receivable that are included in the Purchased Assets, then any such Seller shall promptly forward such payment to Purchaser.

 

 

3.1              Consideration .  The aggregate consideration for the Purchased Assets shall be (a) an amount in cash equal to $6,000,000 (subject to adjustment as provided in Section 3.3(a) below, the “ Cash Payment ”), (b) a promissory note in the form of Exhibit A in an original principal amount of $3,000,000 (subject to adjustment as otherwise provided herein, the “ Purchase Note ”, and together with the Cash Payment, but subject to adjustment as otherwise provided herein, the “ Purchase Price ”), (c) the rights to the payments as provided under Section 3.4 (the “ Earnout Rights ”) and (d) the assumption of the Assumed Liabilities (together with the Purchase Price and the Earnout Rights, the “ Total Consideration ”).

 

3.2              Payment of Purchase Price .  On the Closing Date, Purchaser shall (a) pay the Cash Payment to Sellers, which shall be paid by wire transfer of immediately available funds into an account designated by the Executive in writing not fewer than three Business Days prior to the Closing Date and (b) deliver to the Executive the duly executed Purchase Note.

 

3.3              Purchase Price Adjustment .

 

(a)                Closing Date Purchase Price Adjustment .

 

(i)                  Not later than three Business Days prior to the Closing Date, Sellersshall provide Purchaser with an estimated balance sheet of the Business as of the open of business on the Closing Date (the “ Estimated Closing Balance Sheet ”) and a statement of the estimated Closing Working Capital, derived from the Estimated Closing Balance Sheet (“ Estimated Closing Working Capital ”).  The Estimated Closing Working Capital shall be prepared by the Sellers in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation and accrual methodologies (subject, in each case, to determination and compliance with the Agreed Principles) that were used in the preparation of the Business’s Financial Statements for the most recent fiscal year end as if such Estimated Closing Working Capital were being prepared as of a fiscal year end.

 

(ii)                If Estimated Closing Working Capital is less than Target Working Capital, then the Cash Payment portion of the Purchase Price payable at Closing will be decreased by an amount equal to such difference between Estimated Closing Working Capital and Target Working Capital.  If Estimated Closing Working Capital is more than Target Working Capital, then the Cash Payment portion of the Purchase Price payable at Closing will be increased by an amount equal to twenty-five percent (25%) of such difference.

 

(b)               Post-Closing Date Purchase Price Adjustment .

 

(i)                  No later than ninety (90) days after the Closing Date, Purchaser shall cause to be prepared the closing statement (the “ Closing Statement ”), which shall set forth therein Purchaser’s calculation of Closing Working Capital.  Purchaser shall cause a copy of the Closing Statement to be delivered to the Executive on behalf of the Sellers.

 

(ii)                If the Executive (on behalf of the Sellers) disagrees with Purchaser’s calculation of Closing Working Capital set forth in the Closing Statement, the Executive may, within twenty (20) days after delivery of the Closing Statement, cause a notice to be delivered to Purchaser disagreeing with such calculation and setting forth the Sellers’ calculation of such amount.  Any such notice of disagreement shall specify those items or amounts as to which the Sellers disagree, and the Sellers shall be deemed to have agreed with all other items and amounts contained in the Closing Statement and the calculation of Closing Working Capital delivered pursuant to Section 3.3(b)(i) .

 

(iii)               If a notice of disagreement shall be duly delivered pursuant to Section 3.3(b)(ii) , Purchaser and the Executive (on behalf of the Sellers) shall, during the fifteen (15) days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Working Capital, which amount shall not be less than the amount thereof shown in Purchaser’s calculation delivered pursuant to Section 3.3(b)(i) nor more than the amount thereof shown in the Sellers’ calculation delivered pursuant to Section 3.3(b)(ii) .  If the parties so resolve all disputes, the computation of Closing Working Capital, as amended to the extent necessary to reflect the resolution of the dispute, shall be conclusive and binding on the parties.  If during such period, Purchaser and the Executive are unable to reach an agreement, they shall promptly thereafter cause the Independent Valuation Firm to review this Agreement and the disputed items or amounts for the purpose of calculating Closing Working Capital (it being understood that in making such calculation, the Independent Valuation Firm shall be functioning as an expert and not as an arbitrator).  In making such calculation, the Independent Valuation Firm shall consider only those items or amounts in the Closing Statement and Sellers’ calculation of Closing Working Capital as to which Purchaser and Sellers have disagreed.  The Independent Valuation Firm shall deliver to Purchaser and the Executive, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Independent Valuation Firm), a report setting forth such calculation.  Such report shall be final and binding upon Purchaser and Sellers and judgment may be entered to enforce such report in any court of competent jurisdiction.  All proceedings conducted by the Independent Valuation Firm shall take place in Midland, Texas.  The fees, costs and expenses of the Independent Valuation Firm shall be allocated to and borne by Purchaser, on the one hand, and Sellers, on the other hand, based on the inverse of the percentage that the Independent Valuation Firm’s determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Independent Valuation Firm.  For example, should the items in dispute total in amount to $1,000 and the Independent Valuation Firm awards $600 in favor of the Sellers’ position, 60% of the costs of its review would be borne by Purchaser and 40% of the costs would be borne by Sellers.

 

(iv)                Purchaser and Sellers shall, and shall cause their respective representatives to, cooperate and assist in the preparation of the Closing Statement and the calculation of Closing Working Capital and in the conduct of the review referred to in this Section 3.3(b) , including the making available to the extent necessary of books, records, work papers and personnel.

 

(v)              If the Final Working Capital is less than Estimated Closing Working Capital, then the Purchase Price shall be further decreased by reduction of the principal amount payable (and any interest accruing with respect to such principal) under the Purchase Note in an amount equal to the amount by which Estimated Closing Working Capital exceeds Final Working Capital.  Any reduction of the principal amount of the Purchase Note as provided in the immediately preceding sentence shall be applied to such payments of principal thereunder in reverse chronological order for the installments thereof.  If the Final Working Capital exceeds the amount of Estimated Closing Working Capital, then the Purchase Price shall be increased by an aggregate amount determined as follows:  (x) with respect to any amount of such Final Working Capital that is equal to or less than Target Working Capital, the Purchase Price shall be increased by an amount equal to such excess (as a dollar-for-dollar increase) and (y) with respect to any amount of such Final Working Capital that is more than Target Working Capital, the Purchase Price shall be increased by an amount equal to twenty-five percent (25%) of such excess.  Purchaser shall pay the amount of increase (if any) in the Purchase Price as determined pursuant to the immediately preceding sentence promptly (but no later than five (5) Business Days after final determination of any such applicable amount) by wire transfer of immediately available funds into an account designated by the Executive.  “ Final Working Capital ” means Closing Working Capital (i) as shown in Purchaser’s calculation delivered pursuant to Section 3.3(b)(i) if no notice of disagreement with respect thereto is duly delivered pursuant to Section 3.3(b)(ii) ; or (ii) if such a notice of disagreement is delivered, (A) as agreed by Purchaser and the Executive pursuant to Section 3.3(b)(iii) or (B) in the absence of such agreement, as shown in the Independent Valuation Firm’s calculation delivered pursuant to Section 3.3(b)(iii) ; provided , however , that in no event shall Final Working Capital be more than the Sellers’ calculation of Closing Working Capital delivered pursuant to Section 3.3(b)(ii) or less than Purchaser’s calculation of Closing Working Capital delivered pursuant to Section 3.3(b)(i) .

 

3.4              Seller’s Earn Out .  In addition to the Purchase Price, Purchaser shall pay to the Executive as additional consideration for the purchase of his personal goodwill (as part of the Purchased Assets) additional earn-out amounts as set forth on Schedule 3.4 hereto.

 

 

4.1              Closing Date .  The consummation of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities provided for in Article II hereof (the “ Closing ”) shall take place at the offices of Maddox, Holloman & Kirksey, P.C., located at 205 East Bender, Suite 150, Hobbs, New Mexico 88240 (or at such other place as the parties may designate in writing) at 10:00 a.m. (New Mexico time) on a date to be specified by the parties (the “ Closing Date ”), which date shall be no later than the third Business Day after satisfaction or waiver of the conditions set forth in Article IX (other than conditions that by their nature are to be satisfied at Closing, but subject to the satisfaction or waiver of those conditions at such time), unless another time, date or place is agreed to in writing by the parties hereto.

 

4.2              Termination of Agreement .  This Agreement may be terminated prior to the Closing as follows:

 

(a)                at the election of Sellers, on the one hand, or Purchaser, on the other hand, on or after October 31, 2007 (such date, the “ Termination Date ”), if the Closing shall not have occurred by the close of business on such date, provided that the terminating party is not in material default of any of its obligations hereunder;

 

(b)               by mutual written consent of Sellers and Purchaser;

 

(c)                by written notice from Purchaser to Sellers that there has been an event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances has had or could reasonably be expected to have a Material Adverse Effect;

 

(d)               by written notice from Purchaser, if any of the Sellers shall have breached or failed to perform any of their respective representations, warranties, covenants or agreements set forth in this Agreement, or if any representation or warranty of any of the Sellers shall have become untrue, in either case such that the conditions set forth in Section 9.1(a) or 9.1(b) would not be satisfied and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within ten (10) days following receipt by Sellers of notice of such breach from Purchaser; or

 

(e)                by written notice from Sellers, if Purchaser shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, or if any representation or warranty of Purchaser shall have become untrue, in either case such that the conditions set forth in Section 9.2(a) or 9.2(b) would not be satisfied and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within ten (10) days following receipt by Purchaser of notice of such breach from Sellers.

 

4.3              Procedure Upon Termination .  In the event of termination and abandonment by Purchaser or Sellers, or both, pursuant to Section 4.2 hereof, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the purchase of the Purchased Assets hereunder shall be abandoned, without further action by Purchaser or Sellers.

 

4.4              Effect of Termination .  In the event that this Agreement is validly terminated as provided herein, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to Purchaser or Sellers; provided , however , that (a) the obligations of the parties set forth in Articles X and XII hereof shall survive any such termination and shall be enforceable hereunder and (b) nothing in this Section 4.4 shall relieve Purchaser, Sellers or Owners of any liability for a breach of this Agreement prior to the effective date of such termination.

 

 

Each of the Sellers, jointly and severally, hereby represents and warrants to Purchaser that (and, for purposes of Sections 5.1 , 5.2 and 5.3 below, each of the Owners also represents and warrants to Purchaser as set forth therein):

 

5.1              Organization and Good Standing .  IFS is a corporation duly organized, validly existing and in good standing under the laws of the State of New Mexico and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted and as currently proposed to be conducted.  LWR is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Mexico and has all requisite limited liability company power and authority to own, lease and operate its properties and to carry on its business as now conducted and as currently proposed to be conducted.  Each of IFS and LWR is duly qualified or authorized to do business and is in good standing under the laws of each jurisdiction in which it owns or leases real property and each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization.  Sellers have delivered to Purchaser true, complete and correct copies of IFS’s and LWR’s respective certificate of incorporation and by-laws and comparable organizational documents as in effect on the date hereof.  Neither IFS nor LWR owns, directly or indirectly, any capital stock or equity securities of any Person.  The Owners represent and warrant that all of the outstanding shares of capital stock of IFS and LWR are owned of record and beneficially, directly or indirectly (as the case may be), by the Owners as set forth on Schedule 5.1 and, except as set forth on Schedule 5.1 , there is no existing option, warrant, call, right or Contract to which any of the Sellers or the Owners is a party requiring, and there are no securities of either IFS or LWR outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock or other equity securities of IFS or LWR, respectively.

 

5.2              Authorization of Agreement .

 

(a)                IFS and LWR each have all requisite power, authority and legal capacity to execute and deliver this Agreement and has all requisite power, authority and legal capacity to execute and deliver each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by such Seller in connection with the  transactions contemplated by this Agreement (together with the Owner Documents, the “ Seller Documents ”), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and each of the Seller Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by all requisite organizational action on the part of IFS and LWR.  This Agreement has been, and each of the Seller Documents will be at or prior to the Closing, duly and validly executed and delivered by IFS and LWR and (assuming the due authorization, execution and delivery by Purchaser) this Agreement constitutes, and each of the Seller Documents when so executed and delivered will constitute, legal, valid and binding obligations of IFS and LWR enforceable against each of them.

 

(b)               Each of the Owners represents and warrants that:  (i) such Owner has all requisite authority and legal capacity to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by such Owner in connection with the consummation of the transactions contemplated by this Agreement (the “ Owner Documents ”), and to consummate the transactions contemplated hereby and thereby, (ii) the execution, delivery and performance of this Agreement and each of the Owner Documents, and the consummation of the transactions contemplated hereby and thereby, has been duly authorized and approved by all required action on the part of such Owner, (iii) this Agreement has been, and each of the Owner Documents will be at or prior to the Closing, duly and validly executed and delivered by such Owner and (iv) assuming due authorization, execution and delivery by Purchaser, this Agreement constitutes, and each of the Owner Documents when so executed and delivered will constitute, legal, valid and binding obligations of such Owner, enforceable against such Owner in accordance with its terms.

 

5.3              Conflicts; Consents of Third Parties .

 

(a)                Each of the Sellers and the Owners represents and warrants that, except as set forth on Schedule 5.3(a) , none of the execution and delivery by any of the Sellers or the Owners of this Agreement or the Seller Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by Sellers or Owners with any of the provisions hereof or thereof will conflict with, or result in any violation or breach of, or conflict with or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or give rise to any obligation of Seller or Owner to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Liens upon any of the properties or assets of any Seller or Owner under any provision of (i) with respect to IFS, LWR and The Bonnie Lee Spurgeon Irrevocable Trust, the certificate of incorporation and by-laws and comparable organizational documents (as applicable) thereof; (ii) any Contract or Permit to which any of the Sellers or Owners is a party or by which any of the properties or assets of any of the Sellers or Owners are bound; (iii) any Order applicable to any of the Sellers or Owners or by which any of the properties or assets of any of the Sellers or Owners are bound; or (iv) any applicable Law.

 

(b)               Each of the Sellers and the Owners represents and warrants that, no consent, waiver, approval, Permit or authorization of or filing with, or notification to, any Person or Governmental Body is required on the part of any Seller or Owner in connection with (i) the execution and delivery of this Agreement or the Seller Documents, the compliance by any of the Sellers or Owners with any of the provisions hereof and thereof, the consummation of the transactions contemplated hereby and thereby or the taking by any of the Sellers or Owners of any other action contemplated hereby or thereby, or (ii) the continuing validity and effectiveness immediately following the Closing of any Contract or Permit of the Business, except as set forth on Schedule 5.3(b) .

 

5.4              Financial Statements.

 

(a)                Sellers have delivered to Purchaser copies of (i) the balance sheets of IFS as at March 31, 2007, 2006 and 2005 and the related statements of income of IFS for the years then ended, (ii) the balance sheets of LWR as at December 31, 2006 and 2005 and the related statements of income of LWR for the years then ended, (iii) the balance sheet of IFS as at June 30, 2007 and the related statement of income of IFS for the three-month period then ended, and (iv) the balance sheet of LWR as at June 30, 2007 and the related statement of income of LWR for the six-month period then ended (such financial statements are referred to herein as the “ Financial Statements ”).  Each of the Financial Statements is complete and correct in all material respects, has been prepared in accordance with GAAP consistently applied (except (A) for such exceptions as noted on Schedule 5.4(a) and (B) with respect to interim financial statements, for normal recurring year-end adjustments that, individually or in the aggregate, would not be material) without modification of the accounting principles used in the preparation thereof throughout the periods presented and presents fairly in all material respects the financial position, results of operations and cash flows of the Business as at the dates and for the periods indicated.

 

For the purposes hereof, the balance sheets of each of IFS and LWR as at March 31, 2007 and December 31, 2006, respectively, are collectively referred to as the “ Balance Sheet ” and March 31, 2007 and December 31, 2006, as applicable in respect of IFS’s and LWR’s respective fiscal year-end date, are referred to as the “ Balance Sheet Date .”

 

(b)                Sellers make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Business’s assets.  Sellers maintain systems of internal accounting controls sufficient to provide reasonable assurances that:  (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the actual levels at reasonable intervals and appropriate action is taken with respect to any differences.

 

(c)               Sellers have established and maintain controls and procedures with respect to the Business designed to ensure that material information relating to the Business is made known to the Business’s principal executive officer and its principal financial officer during the respective applicable financial presentation periods and, to the Knowledge of Sellers, such controls and procedures are effective in timely alerting such principal executive officer and principal financial officer to material information required to be included in such financial presentation.

 

5.5              No Undisclosed Liabilities .  The Business does not have any Liabilities other than those (i) based up, attributable to or arising under Contracts that are not due and have not arisen in respect of any breach of or default under any provision thereof, (ii) specifically reflected in, fully reserved against or otherwise described in the Balance Sheet or the notes thereto, (iii) incurred in the Ordinary Course of Business since the Balance Sheet Date, or (iv) that are immaterial to the Business.

 

5.6              Title to Purchased Assets; Sufficiency .  Sellers own and have good title to the Purchased Assets, free and clear of all Liens other than Permitted Exceptions.  The Purchased Assets constitute all of the properties and assets used in or held for use in the Business, except as set forth on Schedule 5.6 , and are sufficient for Purchaser to conduct the Business from and after the Closing Date without interruption and in the Ordinary Course of Business, as it has been conducted by Sellers.

 

5.7              Absence of Certain Developments .  Except as expressly contemplated by this Agreement or as set forth on Schedule 5.7 , since the Balance Sheet Date, (i) Sellers have conducted the Business only in the Ordinary Course of Business and (ii) there has not been any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or could reasonably be exp