MEMBER INTEREST PURCHASE AGREEMENT

Exhibit 10.32

EXECUTION VERSION

 

MEMBER INTEREST PURCHASE AGREEMENT

 

By and Between

LUNA INNOVATIONS INCORPORATED

(Seller)

and

BAKER HUGHES OILFIELD OPERATIONS, INC.

(Buyer)

Covering the Acquisition of shares of Luna Energy LLC

December 17, 2004

TABLE OF CONTENTS

 

 

-i-

TABLE OF CONTENTS

(Continued)

 

 

-ii-

TABLE OF CONTENTS

(Continued)

 

 

-iii-

TABLE OF CONTENTS

(Continued)

 

 

 

-iv-

MEMBER INTEREST PURCHASE AGREEMENT

This MEMBER INTEREST PURCHASE AGREEMENT (the “ Agreement ”) is entered into this 17th day of December, 2004, by and between LUNA INNOVATIONS INCORPORATED, a Delaware corporation (“ Seller ”), and BAKER HUGHES OILFIELD OPERATIONS, INC ., a California corporation (“ Buyer ”).

W I T N E S S E T H :

W HEREAS , Seller is the record and beneficial owner of 15,000,000 Common Shares (defined below) of LUNA ENERGY, LLC , a Delaware limited liability company (the “ Company ”), which represents 60% of the issued and outstanding equity interests of the Company;

W HEREAS , Buyer is the record and beneficial owner of 10,000,000 Common Shares of the Company which represents 40% of the issued and outstanding equity interest of the Company;

W HEREAS , Seller and Buyer are parties to that certain Purchase and Sale Agreement dated February 19,2002 by and among Seller, Buyer and certain of their, respective affiliates (the “ Original Purchase Agreement ”), pursuant to which Buyer acquired its 10,000,000 Common Shares;

W HEREAS , Seller desires to sell and Buyer desires to buy Seller’s 15,000,000 Common Shares (the “ Seller Shares ”), subject to the terms and conditions of this Agreement;

N OW , T HEREFORE , in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATIONS

1.01 Definitions . Terms which are defined in Sections other than Article I of this Agreement, shall have the meanings attributed to them where defined. As used in this Agreement, the following terms shall have the meanings set forth below, unless the context otherwise requires:

“ Affiliate ” shall mean, with respect to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“ Applicable Law ” shall mean any applicable order, writ, injunction, decree, judgment, statute, ordinance, rule, code (including the Code) or regulation of any Governmental Authority.

“ Benefit Plan ” shall mean (a) any employee welfare benefit plan or employee pension benefit plan as defined in sections 3(1) and 3(2) of ERISA, including, but not limited to, a plan that provides retirement income or results in deferrals of income by employees for periods extending to their terminations of employment or beyond, and a plan that provides medical, surgical, or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment and (b) any other material employee benefit agreement or arrangement that is not an ERISA plan, including without limitation, any deferred compensation plan, incentive plan, bonus plan or arrangement, stock option plan, stock purchase plan, stock award plan, golden parachute agreement, severance pay plan, dependent care plan, cafeteria plan, employee assistance program, scholarship program, employment contract, retention incentive agreement, noncompetition agreement, consulting agreement, confidentiality agreement, vacation policy, or other similar plan or agreement or arrangement that has been sponsored, maintained or adopted by the Company at any time during the past three (3) years, or has been approved by the Company before this date but is not yet effective, for the benefit of directors, officers, employees or former employees (or their beneficiaries) of the Company, or with respect to which the Company may have any liability.

“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized by law to close.

“ Buyer Indemnified Part(ies) ” shall have the meaning specified in Section 8.01(a ).

“ Claim ” shall mean a dispute, claim, or controversy whether based on contract, tort, strict liability, statute or other legal or equitable theory (including any claim of fraud, misrepresentation or fraudulent inducement or any question of validity or effect of an agreement).

“ Claim Notice ” shall have the meaning set forth in Section 8.04 .

“ Closing ” shall have the meaning set forth in Section 2.04 .

“ Closing Date ” shall mean the time and date established for the Closing pursuant to Section 2.04 .

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

“ Combined IP ” shall mean the Company Owned IP, the Innovations Owned IP and the Third Party IP.

“ Commitments ” shall have the meaning set forth in Section 4.07 .

“ Common Shares ” shall have the meaning given such term in the Company Agreement.

 

-2-

“ Company Agreement ” shall mean that certain Second Amended and Restated Limited Liability Company Agreement dated February 19, 2002 by and between Seller and Buyer.

“ Company Owned IP ” shall mean the Intellectual Property owned by the Company.

“ Contracts ” shall mean all contracts, commitments, arrangements, agreements, leases or any other obligations, understandings, responsibilities, liabilities, costs and expenses of whatever kind and nature (whether written or oral).

“ Damages ” shall mean any and all obligations, liabilities, damages, fines, penalties, deficiencies, losses, Judgments, settlements, costs and reasonably incurred expenses, interest, bonding and appellate costs and attorneys’, accountants’, consultants’ and investigators’ reasonable fees and disbursements, in each case after the application of any and all amounts actually recovered by the Indemnified Party under insurance contracts or similar arrangements (but excluding self-insurance arrangements) except to the extent such amounts have been subrogated to an insurance carrier by the Person claiming indemnity.

“ Delaware Act ” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq .

“ Employee Options ” shall have the meaning set forth in Section 3.08 .

“ Environmental Claim ” shall mean any administrative, regulatory or judicial action, suit, order, demand, directive, Claim, lien, investigation, proceeding or written or oral notice of noncompliance or violation by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from (i) the presence or release of, or exposure to, any Hazardous Substances; or (ii) the failure to comply, with any Environmental Laws.

“ Environmental Laws ” shall mean any applicable legal requirement or common law relating to pollution, protection or cleanup of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health including CERCLA; RCRA; the Toxic Substance Control Act, 15 U.S.C. Section 2601 et seq .; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 et seq .; the Clean Water Act, 33 U.S.C. Section 1251 et seq .; the Safe Drinking Water Act, 42 U.S.C. Section 300F et seq .; the Clean Air Act, 42 U.S.C. Section 7401 et seq .; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq . and any other federal, state and local legal requirements, including those related to natural resources damages, relating to: (i) a release or the containment, removal, remediation, response, cleanup or abatement of a Hazardous Substance; (ii) the manufacture, generation, formulation, processing, labeling, distribution, introduction into commerce, use, treatment, handling, storage, or transportation of a Hazardous Substance; (iii) exposure of persons, including employees, to a Hazardous Substance; (iv) occupational safety or health matters; and (v) the physical structure or condition of a building,

 

-3-

facility, fixture or other structure, including, without limitation, those relating to the management, use, storage, disposal, cleanup or removal of asbestos, asbestos-containing materials, polychlorinated biphenyls or any other Hazardous Substance.

“ Environmental Permit ” shall mean any approval, registration, authorization, certificate, certificate of occupancy, consent, license, order, permit, variance or other similar authorization of any applicable Governmental Authority required by Environmental Laws in effect on or prior to the Closing for the current ownership, operation or use of the assets of the Company.

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ Field ” shall mean sensors for oil and gas exploration, production, transportation and refining.

“ Final Determination ” shall mean the first to occur of (a) a Judgment by a court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (b) a final and binding settlement or compromise with any Taxing Authority, including, but not limited to, a closing agreement under Section 7121 of the Code; or (c) any final disposition by reason of the expiration of all applicable statutes of limitations.

“ Governmental Authority ” shall mean any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions, including any court, department, commission, board, bureau, agency, instrumentality or administrative body.

“ Hazardous Substance ” shall mean any toxic substance or waste, pollutant, hazardous substance or waste, contaminant, special waste, industrial substance or waste, petroleum or petroleum-derived substance or waste, or any toxic or hazardous constituent of any such substance or waste including any substance regulated under or defined as hazardous by Environmental Laws.

“ Indemnified Party ” shall refer to the Person or Persons indemnified, or entitled, or claiming to be entitled to be indemnified, held harmless or defended pursuant to this Agreement including a Buyer Indemnified Party and a Seller Indemnified Party.

“ Indemnifying Party ” shall refer to the Party having the obligation to indemnify, hold harmless or defend pursuant to this Agreement.

“ Innovations Owned IP ” shall mean the Intellectual Property that is owned by the Seller.

“ Intellectual Property ” shall mean any or all of the following and all intellectual Property Rights therein, arising therefrom, or associated therewith, only insofar as each such item or Intellectual Property Right is applicable to or useable in the Field: (A) all United States and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisional, continuations and continuations-in-part thereof; (B) all inventions (whether patentable or not),

 

-4-

invention disclosures, improvements, works of authorship, trade secrets, proprietary information, know how, processes and technology; (C) all copyrights, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world; (D) all industrial designs and any registrations and applications therefor throughout the world; (E) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world; and (F) all tangible embodiments of the foregoing in this definition, including drawings, schematics, notebooks, instruction manuals and software (including both source code and object code).

“ Intellectual Property Rights ” shall mean all proprietary or other rights throughout the world only insofar as such right is applicable to or useable in the Field and provided under (A) patent law, (B) copyright law, (C) trademark and service mark law, (D) design patent or industrial design law, (E) semi-conductor chip or mask work law, (F) trade secret law, and (G) any other statutory provision, common law principle or principle of law under any jurisdiction hi the world that provides protective or other intellectual property rights in the Intellectual Property.

“ Judgments ” shall mean all judgments, orders, decisions, injunctions, decrees or awards of any federal, state, local or foreign court, arbitrator or administrative or Governmental Authority, bureau or agency.

“ Known ” “ Knowledge ” or “ To the Knowledge of ”or “ Within the knowledge of ” shall mean with respect to Seller, the actual knowledge after reasonable investigation and due inquiry of the individuals listed as “Seller Knowledge Individuals” on Schedule 1.01 A , and with respect to Buyer, the actual knowledge of the individuals listed as “Buyer Knowledge Individuals” on Schedule 1.01A .

“ Liens ” shall mean with respect to any property or other asset of any Person (or any revenues, income or profits of that Person therefrom) (in each case whether the same is consensual or nonconsensual or arises by contract, operation of law, legal process or otherwise), (a) any mortgage, lien, security interest, pledge, attachment, levy or other charge or encumbrance of any kind thereupon or in respect thereof or (b) any other arrangement under which the same is transferred, sequestered or otherwise identified with the intention of subjecting the same to, or making the same available for, the payment or performance of any liability in priority to the payment of the ordinary, unsecured creditors of that Person. For purposes of this Agreement, a Person will be deemed to own subject to a Lien any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease, synthetic lease or other title retention agreement relating to that asset.

“ Material Adverse Effect ” shall mean, with respect to any Person, a material adverse change in, or effect on, the business, financial condition or results of operations of such Person, taken as a whole on a consolidated basis with such Person’s subsidiaries; provided, that the effects of changes that are generally applicable to the industries or the economies of the countries in which such Person operates shall be excluded from such determination. In addition to the foregoing, the determination of the dollar value or impact of any change or event pursuant to the preceding sentence shall be

 

-5-

based solely on the actual dollar value of such change or effect, on a dollar-for-dollar basis, and (except as expressly provided in this Agreement) shall not take into account (i) any multiplier valuations, including any multiple based on earnings or other financial indicia or (ii) any consequential damages or other consequential valuation.

“ Non-Exclusive Identified Support Services ” shall mean support of Solomon financial reporting, including reasonable transitional use of the software, insurance/benefits continuation, network connections, internet services, exchange email service, maintenance of the Company’s website, file storage and backup, telecom, helpdesk, system and peripheral purchasing and security audits, facilities management, government compliance with hazardous and chemical waste requirements, lab training, safety training, facilities maintenance, communications, phone system and security monitoring and maintenance.

“ Obligations ” shall mean duties, liabilities and obligations, whether vested, absolute or contingent, primary or secondary, direct or indirect, known or unknown, asserted or unassorted, accrued or unaccrued, liquidated or unliquidated, due or to become due, and whether contractual, statutory or otherwise.

“ Party ” and “ Parties ” shall mean each of Seller and Buyer and collectively Seller and Buyer.

“ Person ” shall mean any individual, foreign or domestic general partnership, limited partnership, limited liability company, corporation, joint enterprise, trust, business trust, employee benefit plan, cooperative or association, and any heir, executor, administrator, legal representative, successor or assign thereof where the context so permits.

“ Prime Rate ” means, at the time any determination thereof is to be made, the fluctuating rate per annum of interest then reported in The Wall Street Journal as the “Prime Rate” (the base rate on corporate loans at large U.S. money center commercial banks), provided that, if the “Prime Rate” is reported as a range, the Prime Rate shall be the midpoint of the range. In the event that The Wall Street Journal ceases to report the Prime Rate, then “Prime Rate” shall mean the fluctuating interest rate per annum announced from time to time by Morgan Guaranty Trust Company of New York as its “prime rate” (or, if otherwise denominated, such bank’s reference rate for interest rate calculations on general commercial loans), which rate is not necessarily the lowest or best rate which such bank may at any time or from time to time charge any of its customers.

“ Related Agreements ” shall mean the agreements listed in Section 2.05 and any other agreements or documents executed in connection with or as required under this Agreement.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Seller Indemnified Party(ies )” shall have the meaning specified in Section 8.01(b ).

“ Seller Tax Threshold Amount ” shall have the meaning specified in Section 7.01 .

 

-6-

“ Taxes ” shall mean all United States federal, state, local or foreign income, profits, gross receipts, windfall profits, severance, real or personal property, intangible property, occupation, production, franchise, capital gains, employment, withholding, social security (or similar), disability, registration, stamp, payroll, goods and services, alternative or add-on minimum tax, or any other taxes, charges, fees, imposts, duties, levies, withholdings or other assessments imposed by any governmental entity, including environmental taxes imposed pursuant to Chapter 38 of the Code, and similar state laws, excise taxes, customs duties, utility, property, sales, use, value added, transfer and fuel taxes, or other like assessment or charge of any kind whatsoever, together with any interest, fines, penalties or additions to tax attributable to or imposed on or in respect thereof imposed by any Governmental Authority, whether or not disputed, including all applicable sales, use, excise, business, occupation or other tax, if any, relating to this or any other service, supply or operating agreement.

“ Taxing Authority ” shall mean, with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such Governmental Authority or subdivision.

“ Tax Return ” shall mean any return, declaration, report or similar statement required to be filed with respect to any Taxes (including any attached schedules) including any information return, claim for refund, amended return and declaration of estimated Tax.

“ Technology Amendment and Restatement ” shall have the meaning specified in Section 2.05(ii ).

“ Technology Agreement ” shall mean that certain Amended and Restated Technology Transfer and License Agreement dated February 19, 2002, by and among Seller, Buyer and the Company.

“ Third Party Claims ” shall have the meaning specified in Section 8.04 .

“ Third Party IP ” shall mean the Intellectual Property that is owned by a Person other than a Party or the Company.

“ Transfer Instrument ” shall have the meaning specified in Section 2.05(a)(i ).

“ Treasury Regulations ” shall mean the income tax regulations, including temporary regulations, promulgated under the Code, as those regulations may be amended from time to time. Any reference herein to a specific section of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute, proposed or final Treasury Regulation.

1.02 Interpretation . Unless expressly provided for elsewhere in this Agreement, this Agreement shall be interpreted in accordance with the following provisions:

(a) The headings of the Articles, Sections and subsections of this Agreement and the headings contained in the Exhibits and Schedules hereto are inserted for convenience of

 

-7-

reference only and shall not in any way define or affect the meaning, construction, or scope of any of the provisions hereof or thereof;

(b) Except where specifically stated otherwise, any reference to any statute, regulation, rule, or agreement shall be a reference to the same as amended, supplemented or re-enacted from time to time;

(c) Whenever the words “include,” “including,” or “includes” appear in this Agreement, they shall be read to be followed by the words “without limitation” or words having similar impart;

(d) A reference to any agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced, except to the extent prohibited by this Agreement or that other agreement or document;

(e) The words “hereof” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(f) All references to “day” or “days” shall mean calendar days unless specified as a “Business Day.”

ARTICLE II

SALE AND PURCHASE OF SELLER SHARES

2.01 Agreement to Sell and Purchase . In reliance upon the representations, warranties and covenants of Buyer, and on the terms and subject to the conditions herein set forth, Seller agrees that at Closing it will convey, transfer, sell and assign the Seller Shares to the Buyer, or its designee, free and clear of all Liens. In reliance upon the representations, warranties and covenants of Seller contained herein, and on the terms and subject to the conditions herein set forth, Buyer agrees that at Closing it will purchase from Seller the Seller Shares. In consideration of the sale to it of the Seller Shares, Buyer agrees to pay to Seller nine hundred ninety thousand dollars ($990,000) in cash at Closing (the “ Purchase Price ”).

2.02 Transfer of Seller Shares . At the Closing, Seller shall execute and deliver the Transfer Instrument to Buyer and shall execute and deliver any additional documents of transfer or conveyance that Buyer shall reasonably request Seller to execute to more effectively evidence the conveyance, sale, transfer and assignment of the Seller Shares to Buyer at the Closing.

2.03 Payment of Purchase Price . At the Closing, Buyer shall deliver nine hundred ninety thousand dollars ($990,000) in cash to Seller in immediately available funds by wire transfer to an account or accounts designated in writing by Seller at least three (3) Business Days prior to the Closing Date.

 

-8-

2.04 Place and Time . The consummation of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Fulbright & Jaworski L.L.P. at 1301 McKinney Avenue, Suite 5100, Houston, Texas 77010-3095, simultaneously with the execution of this Agreement, such date being herein called the “ Closing Date ”. At the Closing, all transactions contemplated by this Agreement to be consummated at the Closing shall be deemed to have occurred simultaneously.

2.05 Transactions and Deliveries at the Closing .

(a) At the Closing, Seller shall deliver or caused to be delivered to Buyer the following:

(i) an Assignment of Common Shares in the form of Exhibit A (the “ Transfer Instrument ”) to evidence the conveyance of the Seller Shares;

(ii) a Noncompetition and Confidentiality Agreement executed by Kent Murphy in the form of Exhibit B ;

(iii) a Resignation from the Board of Directors of the Company by Kent Murphy, Robert Martinet and Doug Juanarena all to be effective as of the Closing;

(iv) copies of the resolutions of Seller, certified as being correct and complete and then in full force and effect, authorizing the execution of this Agreement and the Related Agreements to which it is a party and the consummation of the transactions contemplated under this Agreement and the Related Agreements to which it is a party;

(v) certificates of incumbency and specimen signatures of the signatory officers of Seller;

(vi) a Good Standing Certificate issued by the Secretary of State for the State of Delaware in respect of Seller,

(vii) a short-form Good Standing Certificate issued by the Secretary of State for the State of Delaware in respect of the Company;

(viii) any other documents, instruments or agreements contemplated hereby or reasonably necessary or appropriate to consummate the transactions contemplated hereby; and

(ix) a certificate of non-foreign status dated as of the Closing Date, sworn under penalties of perjury and in form and substance required by the Treasury Regulations promulgated under Section 1445 of the Code, stating that Seller is not a “foreign person” as defined in Section 1445 of the Code.

(b) At the Closing, Buyer shall deliver to Seller:

(i) the Purchase Price;

 

-9-

(ii) copies of the resolutions of Buyer, certified as being correct and complete and then in full force and effect, authorizing the execution of this Agreement and the Related Agreements to which it is a party and the consummation of the transactions contemplated under this Agreement and the Related Agreements to which it is a party;

(iii) certificates of incumbency and specimen signatures of the signatory officers of Buyer; and

(iv) any other documents, instruments or agreements contemplated hereby or reasonably necessary or appropriate to consummate the transactions contemplated hereby.

(c) At the Closing, Seller and Buyer shall enter into the following agreements:

(i) a Bill of Sale to be executed by Seller and Buyer in the form of Exhibit C :

(ii) an Amended and Restated Technology Agreement in the form of Exhibit D (the “ Technology Amendment and Restatement ”);

(iii) a Mutual Release to be executed by Seller, Kent Murphy, Buyer and the Company in the form of Exhibit E ; and

(iv) a Supply Agreement related to specialty fiber to be in the form of Exhibit F .

ARTICLE III

REPRESENTATIONS AND WARRANTIES CONCERNING SELLER AND SELLER

SHARES, AND CERTAIN REPRESENTATIONS AND WARRANTIES CONCERNING

THE COMPANY

Seller represents and warrants to Buyer, as follows:

3.01 Organization and Standing . Seller (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (b) has all requisite power and authority to own, lease and operate all of its properties and assets and to carry on its business substantially as now being conducted and (c) is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification necessary, except where the failure to have such power or authority or to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect with respect to Seller.

 

-10-

3.02 Authority and Binding Obligations . Seller has the power and authority to execute and deliver this Agreement and the Related Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, as applicable. The execution, delivery and performance of this Agreement and the Related Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement has been, and at Closing the Related Agreements to which it is a party will be, duly executed and delivered by Seller and, assuming that this Agreement has been, and at Closing the Related Agreements to which it is a party will be, duly authorized, executed and delivered by Buyer, as applicable, this Agreement constitutes, and at Closing the Related Agreements to which it is a party will constitute, valid and binding agreements of Seller enforceable against Seller in accordance with their respective terms, except that (a) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and (b) enforcement of this Agreement and Related Agreements, including the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

3.03 Consents and Approvals; No Violations . Neither the execution and delivery by Seller of this Agreement or any Related Agreement nor the consummation by Seller of the transactions contemplated hereby and thereby, or the fulfillment and performance by Seller of its obligations hereunder and thereunder, respectively, will (a) conflict with or result in any breach of any provision of the applicable governing documents of Seller, (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or require any consent under, any indenture, mortgage, deed of bust, license, contract, lease, agreement or other instrument or obligation to which Seller is a party or by which it or any of its properties or assets may be bound, (c) violate any Applicable Law applicable to Seller or any of its properties or assets or (d) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Authority, except in the case of clauses (b), (c), and (d) of this Section 3.03 for any such violations, breaches, defaults, rights of termination, cancellation or acceleration or requirements that, individually or in the aggregate, would not have a Material Adverse Effect with respect to Seller.

3.04 Litigation .

(a) there is no Claim, action, suit, demand, proceeding, arbitration, grievance, citation, summons, subpoena or, to Seller’s Knowledge, any inquiry or investigation, of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending, or to Seller’s Knowledge, threatened against Seller involving or affecting the Seller Shares, and there are no Judgments outstanding against Seller involving or affecting the Seller Shares; and

(b) no Claim, action, suit, demand, proceeding, arbitration, grievance, citation, summons, subpoena or to Seller’s Knowledge any inquiry or investigation, of any nature, civil, criminal, regulatory or otherwise, in law or in equity, that is pending, or to Seller’s Knowledge,

 

-11-

threatened seeking to restrain or prohibit this Agreement, the Related Agreements or any agreement, instrument or transaction contemplated hereby or thereby, or to obtain damages, a discovery order or other relief in connection with this Agreement, the Related Agreements or the transactions contemplated hereby and thereby.

3.05 Title to the Seller Shares . Seller owns good and marketable title to the Seller Shares free and clear of any Liens. The Seller Shares constitute sixty percent (60%) of all of the issued and outstanding Common Shares of the Company. The Seller Shares have been duly authorized, and are validly issued and fully paid and non-assessable. Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to voting any of the Seller Shares except as provided pursuant to the Company Agreement. The Seller Shares represent Seller’s entire right, title and interest in and to the equity of the Company.

3.06 Brokers; Finders and Fees . Seller has not employed any investment banker, broker or finder or incurred any liability for any investment banking, financial advisory or brokerage fees, commissions or finders’ fees in connection with this Agreement or the transactions contemplated hereby.

3.07 Capitalization . The authorized capital of the Company consists of 29,000,000 Common Shares. All of the issued and outstanding Common Shares (i) have been duly authorized, and are validly issued, fully paid and nonassessable, (ii) are owned of record and beneficially by the shareholders and in the respective amounts as indicated on Schedule 3.07 and (iii) were issued in compliance with all Applicable Laws including the Securities Act. No Person other than Seller and Buyer has any record or beneficial interest in any Common Shares (other than the holders of the Employee Options) or any other limited liability company interests (as such term is defined in the Delaware Act) in the Company. The Company does not have outstanding any convertible securities, options (other than the Employee Options) or warrants. The Company and has not entered into any Contracts, and there are no restrictions by which it is bound directly or indirectly, to issue any additional Common Shares, membership interests or limited liability company interests (as such term is defined in the Delaware Act) or other securities.

3.08 Employee Options . Four million (4,000,000) Common Shares are reserved for issuance pursuant to the Company’s Option Plan. Schedule 3.08 is a true, correct and complete list of all options outstanding of the Company indicating the record holders thereof, the amount of vested Common Shares, the grant dates of the options and the exercise prices (collectively, the “ Employee Options ”). The Company has provided Buyer with true, correct and complete copies of all agreements and correspondence related to the Employee Options.

3.09 Intellectual Property .

(a) Identification and Ownership .

(i) Seller owns, legally and beneficially, free from all Liens, the Innovations Owned IP and has legally enforceable license rights for or otherwise possesses legally

 

-12-

enforceable rights to the Third Party IP used by Seller pursuant to a license, sublicense or other agreement, except to the extent that such enforceability may be limited by bankruptcy, insolvency or other laws affecting creditors’ rights and other laws of equity.

(ii) Schedule 3.09(ii ) lists all Innovations Owned IP for which an application has been filed with any Governmental Authority, including patents, trademarks/service marks and copyrights, issued or registered, or for which any application for issuance or registration thereof has been filed.

(iii) Schedule 3.09(a)(iii ) lists all licenses, sublicenses or other agreements as to which Seller is a party and pursuant to which Seller is authorized to use any Third Party IP.

(iv) Schedule 3.09(a)(iv ) lists all licenses, sublicenses or other agreements as to which the Company is a party and pursuant to which the Company is authorized to use any Innovations Owned IP or any Third Party IP licensed to Seller.

(v) Schedule 3.09(a)(v ) lists all trademarks, service marks and other trade designations that are Innovations Owned IP and not otherwise identified in Schedule 3.09(a)(ii ).

(vi) Except as set forth in Schedule 3.09(a)(vi ), Seller has, and at Closing will have, all rights necessary to grant the licenses and other rights granted to Baker Hughes under the Technology Amendment and Restatement in respect of the Innovations Owned IP and the Third Party IP licensed to Seller.

(vii) Seller has not granted any right, license or interest in or to any of the Combined IP that conflicts with the rights granted in the Technology Agreement.

(viii) All necessary documents and certificates in connection with the Innovations Owned IP listed in Schedule 3.09(a)(ii ), have been properly filed with the relevant patent, trademark, copyright or intellectual property offices of the countries where such rights are filed, or registered, or both.

(ix) No present or former employee or independent contractor of Seller or any of its Affiliates owns or to the Knowledge of Seller claims to own any of the Company Owned IP or Innovations Owned IP.

(x) Seller has secured a written assignment of the rights to any contribution from all independent contractors and employees who contributed to the creation of the Innovations Owned IP.

(xi) No Claim has been asserted, nor to the Knowledge of Seller are there any Claims that could be asserted, alleging that the licenses that have been granted to Seller or any of its Affiliates with respect to Third Party IP have been terminated or otherwise diminished.

(b) Validity and Enforceability

(i) The Innovations Owned IP is valid and enforceable, and has not been adjudged to be invalid or unenforceable in whole or in part.

 

-13-

(ii) Each license of the Third Party IP granted to Seller or any of its Affiliates is valid and enforceable, is binding on all parties to such license, and is in full force and effect.

(iii) No act or omission by Seller has taken place that may give rise to revocation, invalidation, unenforceability or non-renewal of any Company Owned IP or Innovations Owned IP or that might prejudice any application for the registration or grant of it.

(iv) No act or omission by Seller has taken place that constitutes, would constitute, or to the Knowledge of Seller, has been alleged to constitute a breach or permit termination of any of the licenses, sublicenses or other agreements related to the Third Party IP granted to Seller or any of its Affiliates.

(c) Violation of Combined IP .

(i) Seller has not brought, and is not aware of, any action, suit or proceeding against any third party for infringement, misappropriation or other violation of the Company Owned IP or the Innovations Owned IP or for breach of any license or agreement involving the Combined IP or made any allegation to this effect.

(ii) Except as set forth in Schedule 3.09(c)(ii ). there are no pending (with service of process having been made or written notice having been served on Seller), or, to Seller’s Knowledge, threatened Claims, suits, demands or actions against Seller affecting any of the Combined IP.

(iii) Seller has not entered into any agreement to defend, hold harmless or indemnify and does not otherwise owe a duty to defend, hold harmless or indemnify any entity against any charge of infringement or misappropriation of any of the Innovations Owned IP or Third Party IP licensed to Seller, other than hold harmless, defense or indemnification provisions with the Company, Buyer or their Affiliates arising in the ordinary course of business.

(iv) Seller has taken all commercially reasonable and appropriate steps to protect and preserve the confidentiality of any confidential information related to the Combined IP disclosed to it by a third party pursuant to an obligation of confidentiality.

(v) All software that is a part of the Innovations Owned IP or Third Party IP licensed to Seller, but not including any commercially available off-the-shelf software, used by the Company for its business is properly and validly licensed to or owned by the Company, and, if licensed, the Company has secured or obtained a sufficient number of licenses to cover all authorized use of such software by the Company.

 

-14-

(d) Other Existing IP Issues .

(i) Seller has the power and authority to license to Baker Hughes the Innovations Pre-Existing IP, Innovations Newly-Developed Technology and Innovations Background Technology (as such terms are defined in the Technology Amendment and Restatement) in the Field and the Innovations Third Party IP (as such term is defined in the Technology Amendment and Restatement) in the Field in accordance with the Technology Amendment and Restatement, to the extent Seller has rights to the Innovations Third Party IP (as such term is defined in the Technology Amendment and Restatement) as of the Closing Date, to be licensed pursuant to the Technology Amendment and Restatement.

(ii) Seller will not be, as a result of the execution and delivery of this Agreement or any of the documents contemplated hereby or thereby or the performance by Seller hereunder or thereunder, in breach of any license, sublicense or other agreement relating to the Combined IP.

3.10 Employee Benefits .

(a) Schedule 3.10(a ) contains a true, complete and accurate list and brief description of all Benefit Plans. Seller has made available to Buyer prior to Closing, as applicable, true, complete and correct copies of all plan documents, summary plan descriptions, financial statements, funding vehicles, agreements pursuant to which the Company may be obligated to indemnify any person, determination letters issued by the IRS and filings with all applicable Governmental Authorities for the past three (3) years relating to the Benefit Plans.

(b) (i) Each of the Benefit Plans complies with all Applicable Laws (including ERISA) and (ii) the Company has complied with all such laws and regulations in administering each of such plans.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES CONCERNING SELLER’S KNOWLEDGE

ABOUT CERTAIN MATTERS CONCERNING THE COMPANY

Seller represents and warrants to Buyer, to Seller’s Knowledge, as follows:

4.01 Organization and Standing . The Company (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, (b) has all requisite power and authority to own, lease and operate all of its properties and assets and to carry on its business substantially as now being conducted and (c) is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification necessary, except where the failure to have such power or authority or to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect with respect to Seller.

 

-15-

4.02 Authority and Binding Obligations . The Company has the power and authority to execute and deliver the Related Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby, as applicable. The execution, delivery and performance of the Related Agreements to which it is a party and the consummation of the transactions contemplated thereby have been duly authorized by all requisite corporate action on the part of the Company. At the Closing the Related Agreements to which the Company is a party will be, duly executed and delivered by the Company and, assuming that at the Closing the Related Agreements to which the Company is a party will be, duly authorized, executed and delivered by the other parties thereto, will constitute, valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms, except that (a) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and (b) enforcement of Related Agreements, including the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

4.03 Consents and Approvals; No Violations . Neither the execution and delivery by the Company of any Related Agreement nor the consummation by the Company of the transactions contemplated thereby, or the fulfillment and performance by the Company of its obligations thereunder, will (a) conflict with or result in any breach of any provision of the applicable governing documents of the Company, (b) result in a violation or breach of, or constitute (with or without due notice or lapse of tune or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or require any consent under, any indenture, mortgage, deed of trust, license, contract, lease, agreement or other instrument or obligation to which the Company is a party or by which it or any of its properties or assets may be bound, (c) violate any Applicable Law applicable to the Company or any of its properties or assets or (d) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Authority.

4.04 Litigation . There is no Claim, action, suit, demand, proceeding, arbitration, grievance, citation, summons, subpoena or any inquiry or investigation, of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending or threatened against or involving the Company and there are no Ju