STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

among

John C. Nicholas,

Rotating Machinery Technology, Inc.

and

Lufkin Industries, Inc.

July 1, 2009

 

 

TABLE OF CONTENTS

 

 

SELLER DISCLOSURE SCHEDULE

 

 

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of July 1, 2009, by and among ROTATING MACHINERY TECHNOLOGY, INC., a New York corporation (the “ Company ”), John C. Nicholas (the “ Seller ”) and LUFKIN INDUSTRIES, INC., a Texas corporation (“ Lufkin ”).  Each of the Seller, the Company and Lufkin is sometimes referred to herein as a “ Party ,” and they are sometimes collectively referred to herein as the “ Parties .”

R E C I T A L S :

WHEREAS , the Seller owns 100% of the outstanding capital stock the Company; and

 

WHEREAS , the Seller   desires to sell such capital stock to Lufkin, and Lufkin desires to purchase the same, all upon the terms and subject to the conditions set forth herein; and

 

WHEREAS , as a condition to consummating the transactions contemplated by this Agreement, Lufkin wishes to enter into an employment agreement with the Seller;

 

NOW, THEREFORE , in consideration of the premises and the respective representations, warranties, covenants and agreements contained herein, and other good and valuable consideration, the legal sufficiency of which are herby acknowledged, the Parties agree as follows, intending to be legally bound:

ARTICLE 1

DEFINITIONS

1.1   Defined Terms»

 

As used in this Agreement and the Seller Disclosure Schedules, capitalized terms shall have the meanings set forth below or set forth in the sections of this Agreement referenced below:

 

“ AAA ” has the meaning given such term in Section 9.9(a) .

 

“ AAA Rules ” has the meaning given such term in Section 9.9(a) .

 

“ Affiliate ” means, with respect to any specified Person, any officer or director of such specified Person or any other Person that directly or indirectly controls, is controlled by or is under common control with such specified Person.

 

“ Agreement ” has the meaning given such term in the preamble of this Agreement.

 

“ Arbitration Notice ” has the meaning given such term in Section 9.9(b) .

 

“ Arbitrator ” has the meaning given such term in Section 9.9(c) .

 

“ Arbitrator List ” has the meaning given such term in Section 9.9(c) .

 

“ Bankruptcy Law ” means any applicable federal or state bankruptcy, insolvency, reorganization or other similar law.

 

“ Benefit Plan ” means any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical, dependent care, cafeteria, employee assistance, scholarship or other plan, program, arrangement or understanding (whether or not covered under Section 3(3) of ERISA and whether or not legally binding), or any nonqualified deferred compensation plan (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder), maintained in whole or in part, contributed to, or required to be contributed to by the Company or any ERISA Affiliate for the benefit of any present or former officer, employee, director or independent contractor of the Company or any ERISA Affiliate within six years prior to the Closing Date.

 

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

 

“ Capital Stock ” means any and all shares, interests, participations or other equivalents, however designated, of corporate stock or other equity participations in the Company, including, but not limited to, the Class A Stock and Class B Stock, and any rights, warrants or options to acquire an equity interest in the Company.

 

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

 

“ Claims ” has the meaning given such term in Section 8.4(b) .

 

“ Class A Stock ” has the meaning given such term in Section 4.2 .

 

“ Class B Stock ” has the meaning given such term in Section 4.2 .

 

“ Closing ” has the meaning given such term in Section 2.1(b) .

 

“ Closing Date ” has the meaning given such term in Section 2.1(b) .

 

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

 

“ Company ” has the meaning given such term in the preamble to this Agreement.

 

“ Company Bylaws ” means the By-Laws, dated November 4, 1986, of the Company.

 

“ Company Charter ” means the Certificate of Incorporation, filed December 1, 1986, of the Company, as amended by the Certificate of Amendment, filed September 23, 1994, and the Certificate of Amendment, filed October 18, 1995.

 

“ Company Credit Facilities ” means the Loan Modification Agreement, and related loan and collateral agreements, between the Company and KeyBank National Association, dated September 26, 2005, and the Loan Agreement, and related loan and collateral agreements, between the Company, the U.S. Small Business Administration and KeyBank National Association (as applicable), dated September 26, 2005.

 

“ Company Financial Statements ” has the meaning given such term in Section 4.6 .

 

“ Company Material Adverse Effect ” means a Material Adverse Effect on the Company.

 

“ Company Material Contract ” has the meaning given such term in Section 4.14(a) .

 

“ Company’s Knowledge ” means the Knowledge of the Seller.

 

“ Consulting Agreement ” has the meaning given such term in Section 6.2(d) .

 

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

 

“ Copyrights ” has the meaning given such term in Section 4.11(e)(ii) .

 

“ Debt Obligation ” means any contract, agreement, indenture, note or other instrument relating to the borrowing of money, any capitalized lease obligation, any obligation properly classified as indebtedness or debt under GAAP or any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person (other than the endorsement of negotiable instruments for deposit or collection in the ordinary course of business), and shall specifically include any loans or advances to or from the Seller or his Affiliates.

 

“ Deductible ” has the meaning given such term in Section 8.3(b) .

 

“ Deficit ” has the meaning given such term in Section 6.8(e) .

 

“ Disputes ” has the meaning given such term in Section 9.9(a) .

 

“ Distributed Assets ” has the meaning given such term in Section 6.7 .

 

“ Distributed Real Property ” means the Facility and all other real property previously owned by the Company, set forth and described on Schedule 6.7 hereto, title to which has been contributed by the Company to Newco prior to the execution of this Agreement as described in Section 6.7 .

 

“ Employment Agreement ” means the employment agreement between the Seller and Lufkin, effective as of the Closing Date.

 

“ Encumbrances ” has the meaning given such term in Section 2.1(a) .

 

“ Environmental, Health and Safety Laws ” means all Laws relating to (a) emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, including into ambient air, soil, sediments, land surface or subsurface, buildings or facilities, surface water, groundwater, publicly-owned treatment works, or septic systems, (b) emissions of greenhouse gasses, (c) the generation, treatment, storage, disposal, use, handling, manufacturing, recycling, transportation or shipment of Hazardous Materials, (d) occupational health and safety or (e) the pollution of the environment, solid waste handling, treatment or disposal, reclamation or remediation activities, or protection of environmentally sensitive areas.

 

“ Environmental Liabilities ” means any and all Losses (including remediation, removal, response, abatement, clean-up, investigative and/or monitoring costs and any other related costs and expenses) incurred or imposed (a) pursuant to any agreement, order, notice, requirement, responsibility, directive (including directives embodied in Environmental, Health and Safety Laws), injunction, judgment or similar document (including a settlement) arising out of, in connection with or under Environmental, Health and Safety Laws, or (b) pursuant to any claim by a Governmental Entity or other Person for personal injury, property damage, damage to natural resources, remediation or similar costs or expenses incurred or asserted by such Governmental Entity or Person pursuant to Law and arising out of or in connection with a release, as such term is defined in Environmental, Health and Safety Laws, of Hazardous Materials.

 

“ Environmental Permit ” means any permit, license, approval, registration, identification number or other authorization with respect to the Company under any Environmental, Health and Safety Law.

 

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

 

“ ERISA Affiliate ” means any entity that is required to be aggregated with the Company or any Subsidiary of the Company under Section 414 of the Code.

 

“ Escrow Account ” means the bank account designated pursuant to the Escrow Agreement.

 

“ Escrow Agent ” means JPMorgan Chase Bank, National Association.

 

“ Escrow Agreement ” means the escrow agreement, dated as of the Closing Date, among the Seller, Lufkin and the Escrow Agent.

 

“ Escrow Amount ” has the meaning given such term in Section 2.2(b) .

 

“ Estimated Non-Cash Working Capital ” means the Non-Cash Working Capital of the Company as of the Closing, as calculated by the Seller in good faith.

 

“ Excess ” has the meaning given such term in Section 6.8(e) .

 

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

 

“ Facility ” means the building and land located at 4181 Bolivar Road, Wellsville, New York.

 

“ GAAP ” means United States generally accepted accounting principles applied on a consistent basis.

 

“ Governmental Entity ” means any national, state or local government, any subdivision thereof, any arbitrator, court, administrative or regulatory agency, commission, department, board, bureau, body or other government authority or instrumentality, or any entity or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“ Hazardous Material ” means (a) any substance or material that is listed, defined or otherwise designated as a hazardous substance under any Environmental, Health and Safety Law, (b) petroleum and any petroleum product, (c) radioactive material (including any naturally occurring radioactive material), urea formaldehyde, asbestos-containing materials in any form or condition and polychlorinated biphenyls in any form or condition, and (d) any other chemical, pollutant, contaminant, material, substance or waste that is regulated by any Governmental Entity under any Environmental, Health and Safety Law.

 

“ Indemnitee ” has the meaning given such term in Section 8.3(e) .

 

“ Indemnitor ” has the meaning given such term in Section 8.4(a) .

 

“ Intellectual Property ” has the meaning given such term in Section 4.11(e) .

 

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

 

“ Knowledge ” – an individual will be deemed to have “Knowledge” of a particular fact or other matter if (a) such individual is actually aware of such fact or other matter or (b) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the ordinary course of fulfilling his or her duties as an employee, officer and/or director.

 

“ Law ” means any applicable federal, state, municipal, local or foreign statute, code, law, ordinance, rule, regulation, permit, consent, approval, license, order, judgment, writ, injunction or decree enacted, adopted, issued or promulgated by any Governmental Entity.

 

“ Lease Agreement ” means a lease agreement executed by Newco and Lufkin granting Lufkin or one of its Subsidiaries a lease with respect to the Facility.

 

“ License ” and “ Licenses ” have the meanings given to such terms in Section 4.12 .

 

“ License Agreement ” means a license agreement executed by the Seller and Lufkin granting Lufkin the right to use the software known as XLPocket and XLTltpad.

 

“ Litigation ” has the meaning given to such term in Section 3.8 .

 

“ Losses ” has the meaning given to such term in Section 8.1 .

 

“ Lufkin ” has the meaning given such term in the preamble to this Agreement.

 

“ Lufkin Indemnitees ” has the meaning given such term in Section 8.1 .

 

“ Lufkin Material Adverse Effect ” means a Material Adverse Effect on Lufkin and its subsidiaries, taken as a whole.

 

“ Lufkin Subsidiary ” means a consolidated subsidiary of Lufkin.

 

“ Marks ” has the meaning given to such term in Section 4.11(e)(iii) .

 

“ Material Adverse Effect ” means, with respect to any Person, a material adverse effect on the business, operations, assets, properties, prospects or material customer relationships of such Person, but shall not include (a) an effect generally affecting the economy or the financial, securities or credit markets in the U.S. or elsewhere in the world, unless such effect disproportionately affects the business, operations, assets, properties, prospects or material customer relationships of such Person relative to other participants in its industry or (b) an effect to the extent resulting from the announcement of the execution of this Agreement or the pendency of the transactions contemplated hereby, provided that this clause (b) shall not diminish the effect of, and shall be disregarded for the purposes of, any representations or warranties herein.

 

“ Newco ” means P&N Bolivar Road Properties LLC, a New York limited liability company, 100% of the equity interests in which have been distributed by the Company to the Seller prior to the execution of this Agreement as described in Section 6.7 .

 

“ Nicholas Guaranty ” has the meaning given such term in Section 6.9 .

 

“ Non-Cash Working Capital ” means current assets less the sum of (a) cash on hand and (b) current liabilities, in each case calculated in accordance with GAAP.  It is understood and agreed that for purposes of the calculation of Non-Cash Working Capital of the Company, (i) any bonuses payable to employees of the Company at or following the Closing shall be deemed to be, and counted as, current liabilities of the Company, and (ii) current liabilities of the Company shall exclude (x) tax liabilities incurred as a result of the transfer of the Distributed Real Property, (y) the current portion of long-term liabilities, and (z) state tax liability for jurisdictions other than the State of New York.

 

“ Party ” and “ Parties ” have the meanings given to such terms in the preamble to this Agreement.

 

“ Patents ” has the meaning given such term in Section 4.11(e)(i) .

 

“ PBGC ” has the meaning given to such term in Section 4.16(c) .

 

“ Pension Plans ” has the meaning given such term in Section 4.16(a) .

 

“ Permitted Encumbrances ” means (a) Encumbrances for Taxes, assessments or other governmental charges not yet due and payable or which are being contested in good faith; (b) pledges or deposits of money securing statutory obligations under workmen’s compensation, unemployment insurance, social security or public liability laws or similar legislation (excluding Encumbrances under ERISA); (c)(i) inchoate or unperfected workers’, mechanics or similar liens arising in the ordinary course of business, and (ii) choate and perfected workers’, mechanics or similar liens arising in the ordinary course of business that are being contested in good faith and do not exceed $50,000 in the aggregate at any one time, so long as such Encumbrances attach only to equipment, fixtures and real estate; (d) carrier’s, warehousemen’s, suppliers’ or other similar possessory liens arising in the ordinary course of business and securing liabilities that are not yet due or, if past due, are being contested in good faith and do not exceed $50,000 in the aggregate at any time, so long as such Encumbrances attach only to inventory; (e) zoning restrictions, easements, licenses or other restrictions on the use of any real estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value or marketability of such real estate; and (f) liens under the Company Credit Facilities and equipment financing liens incurred in the ordinary course of business consistent with past practice, including with respect to Intech Funding Corp.

 

“ Person ” means a natural person, corporation, company, partnership, joint stock company, joint venture, association, limited liability company, trust, bank, trust company, Governmental Entity or other entity or organization.

 

“ Prospective Customer ” has the meaning given such term in Section 6.2(b) .

 

“ Purchase Price ” has the meaning given such term in Section 2.2 .

 

“ Released Parties ” and “ Released Party ” have the meanings given such term in Section 6.3(a) .

 

“ Restricted Period ” has the meaning given such term in Section 6.2(a) .

 

“ RMT Obligations ” means the Company Credit Facilities, the Company’s obligations to Intech Funding Corp. pursuant to that certain Equipment Lease Agreement between the Company and Intech Funding Corp., dated on or about August 25, 2006, and the Company’s obligations  under the Promissory Note, dated June 1, 2008, in favor of James M. Byrne, in the original principal amount of $25,309.93, and the Promissory Note, dated June 1, 2008, in favor of Community Savings Bank, N.A. as custodian for James M. Byrne Investment Retirement Account (IRA), in the original principal amount of $77,690.93.

 

“ Seller ” has the meaning given such term in the preamble to this Agreement.

 

“ Seller Disclosure Schedules ” means the disclosure schedules of even date herewith delivered to Lufkin by the Seller.

 

“ Seller Indemnitees ” has the meaning given such term in Section 8.2 .

 

“ Significant Subsidiary ” means any Subsidiary that would be deemed a “significant subsidiary” within the meaning of Rule 1-02 under Regulation S-X promulgated by the United States Securities and Exchange Commission.

 

“ Stock ” means 100% of the Capital Stock of the Company.

 

“ Subsidiary ” means, with respect to any Person, any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred), are held by such Person or one or more of its Subsidiaries.

 

“ Tax ” and “ Taxes ” have the meanings given such terms in Section 4.17 .

 

“ Tax Contest or Disclosure ” has the meaning given such term in Section 6.4(c) .

 

“ Tax Returns ” has the meaning given such term in Section 4.17 .

 

“ Treasury Regulations ” means the regulations promulgated by the United States Treasury Department under the Code.

 

“ Voluntary Disclosure ” has the meaning given such term in Section 6.4(a)(iii) .

 

“ Welfare Plans ” has the meaning given such term in Section 4.16(a) .

 

1.2   References, Construction and Titles»

 

(a)   All references in this Agreement to Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement, unless expressly provided otherwise. Titles appearing at the beginning of any Article, Section, subsection or other subdivision of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or subdivision unless expressly so limited. The words “this Article” and “this Section,” and words of similar import, refer only to the Article or Section hereof in which such words occur.

 

(b)   The word “or” is not exclusive, and the word “including” (in its various forms) means including without limitation. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

 

(c)   The Parties have participated jointly in negotiating and drafting this Agreement. In the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision(s) of this Agreement.

 

(d)   Provisions hereof referring to delivery of documents by one Party to another Party prior to the date hereof shall be deemed to refer to either actual physical delivery of such documents or the making of such documents available for review in a data room or computer based virtual data room at least three Business Days prior to the date hereof.

ARTICLE 2

PURCHASE AND SALE

2.1   Agreement to Sell and to Purchase»

 

(a)   On the Closing Date, upon the terms and subject to the conditions contained herein, the Seller shall transfer, sell, assign and convey to Lufkin, and Lufkin shall purchase from the Seller, the Stock, free and clear of any pledges, restrictions on transfer, proxies and voting or other agreements, liens, claims, charges, mortgages, security interests or other legal or equitable encumbrances, limitation or restrictions of any nature whatsoever (“ Encumbrances ”).

 

(b)   Subject to the conditions set forth in this Agreement, the closing of such sale and purchase (the “ Closing ”) shall take place at the offices of the Company on the date of the execution hereof or at such other time, date and place as the Parties shall mutually agree upon (the “ Closing Date ”).  Failure to consummate the transactions contemplated hereby on such date shall not result in a termination of this Agreement or relieve any Party of any obligation hereunder.  Title to, ownership of and control over the Stock shall pass to Lufkin at the Closing.

 

2.2   Consideration»

 

In consideration of the transfer to Lufkin of the Stock, Lufkin shall pay to the Seller $6,155,770.03 (the “ Purchase Price ”), which shall be paid as follows:

 

(a)   $5,543,270.03 in cash shall be paid to the Seller at Closing by wire transfer of immediately available funds to an account designated by the Seller; and

 

(b)   $612,500 in cash (the “ Escrow Amount ”) shall be deposited, by wire transfer of immediately available funds, with the Escrow Agent in accordance with the Escrow Agreement, which the Seller and Lufkin shall execute at or prior to the Closing.  The Escrow Amount shall be held in escrow pursuant to the terms of this Agreement and the Escrow Agreement.  Any portion of the Escrow Amount released to the Seller pursuant to the Escrow Agreement shall be deemed to be part of the Purchase Price.

 

2.3   Deliveries at Closing»

 

At or prior to the Closing:

 

(a)   The Seller shall deliver the following to Lufkin:

 

(i)   an irrevocable stock transfer power with respect to the Stock and such additional instruments of transfer of the Stock as Lufkin may reasonably request to vest in Lufkin all the right, title and interest in and to the Stock;

 

(ii)   all other instruments and documents as may be reasonably required to consummate the transactions contemplated hereby;

 

(iii)   a certified copy of resolutions of the board of directors of the Company approving this Agreement and the transactions contemplated hereby in a form reasonably acceptable to Lufkin;

 

(iv)   an executed copy of the Employment Agreement;

 

(v)   an executed copy of the Lease Agreement;

 

(vi)   an executed copy of the Escrow Agreement;

 

(vii)   an executed copy of the License Agreement;

 

(viii)   a copy of each consent, approval, waiver or authorization of, or filing, registration or qualification with, any Governmental Entity or any other Person necessary for the consummation by the Seller or the Company of the transactions contemplated by this Agreement;

 

(ix)   the Seller’s resignation as an officer and the sole director of the Company;

 

(x)   copies of all documents and instruments, duly executed by the Seller and/or the Company, necessary to lift and/or release any Encumbrances relating to the RMT Obligations; and

 

(xi)   certificates issued by appropriate Governmental Entities evidencing (A) the due organization, valid existence and good standing of the Company, as of a date not more than five calendar days prior to the Closing Date, in its jurisdiction of organization and (B) the due registration or qualification of the Company as a foreign corporation, as of a date not more than five calendar days prior to the Closing Date, or such longer period as is reasonably practicable under the circumstances, in each of the other jurisdictions specified in Schedule 4.1(a) hereto.

 

(b)   Lufkin shall deliver the following to the Seller:

 

(i)   by wire transfer of immediately available funds, the amount of $5,543,270.03, and evidence of Lufkin’s wire transfer of immediately available funds of the Escrow Amount to the Escrow Agent;

 

(ii)   an executed copy of the Employment Agreement;

 

(iii)   an executed copy of the Lease Agreement;

 

(iv)   an executed copy of the Escrow Agreement;

 

(v)   an executed copy of the License Agreement;

 

(vi)   a copy of each consent, approval, waiver or authorization of, or filing, registration or qualification with, any Governmental Entity or any other Person necessary for the consummation by Lufkin of the transactions contemplated by this Agreement;

 

(vii)   a certificate issued by the appropriate Governmental Entity evidencing its due organization, valid existence and good standing, as of a date not more than five calendar days prior to the Closing Date, in the State of Texas;

 

(viii)   copies of all documents and instruments, duly executed by Lufkin, necessary to lift and/or release any Encumbrances relating to the RMT Obligations, and payment in full by Lufkin of the RMT Obligations (and evidence of such payment);

 

(ix)   a certified copy of resolutions of the board of directors of Lufkin approving this Agreement and the transactions contemplated hereby in a form reasonably acceptable to the Seller; and

 

(x)   all other instruments and documents as may be reasonably required to consummate the transactions contemplated hereby.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller hereby represents and warrants to Lufkin as follows:

 

3.1   Authority; Authorization; Enforceability

 

The Seller has all requisite power and authority to enter into this Agreement, to consummate the transactions contemplated hereby and to perform his obligations hereunder.  This Agreement has been duly authorized, executed and delivered by the Seller, and constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights generally or by general equitable principles).

 

3.2   No Conflicts or Violations»

 

Except as set forth on Schedule 3.2 hereto, the execution, delivery and performance of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby do not and will not (a) violate any Law applicable to the Seller or (b) violate, result in a breach of, constitute (with due notice or lapse of time or both) a default under, impair the Seller’s rights under, result in the termination of or in a right of termination or cancellation of, or cause any obligation, penalty or premium to accelerate, arise or accrue under any contract, lease, credit or loan agreement, mortgage, security agreement, indenture or other agreement or instrument to which the Seller is a party or by which the Seller is bound.

 

3.3   Consents and Approvals»

 

Except as set forth on Schedule 3.3 hereto, no consent, approval, waiver or authorization of, or filing, registration or qualification with, any Governmental Entity or any other Person (on the part of the Seller) is required for the Seller to execute and deliver this Agreement, perform his obligations hereunder or consummated the transactions contemplated hereby, except for such consents, approvals, waivers or authorizations as have been obtained or such filings, registrations or qualifications as have been accepted as of the date hereof.

 

3.4   Title to Stock»

 

The Seller owns, of record and beneficially, the Stock, free and clear of any Encumbrances.  The Seller has the full power and legal right to cause the Stock to be sold, assigned, transferred and conveyed to Lufkin, and at Closing, Lufkin will acquire good and indefeasible title to the Stock, free and clear of any and all Encumbrances.

 

3.5   Liability for Fees»

 

Other than with respect to Eldredge, Fox & Porretti, LLP (the fees of which shall be paid by the Seller and not by the Company or Lufkin), the Seller has not employed or retained any investment banker, broker, agent, finder or other party, or incurred any liability or obligation, contingent or otherwise, for brokers’ or finders’ fees, advisory fees or commissions, with respect to the transactions contemplated by this Agreement for which Lufkin or the Company shall have any responsibility.

 

3.6   Status»

 

The Seller is not a “foreign person” within the meaning of Section 1445 of the Code and he has reached the age of majority and is a United States citizen or resident.

 

3.7   Retained Control»

 

Except as set forth in Section 6.7 , immediately following the Closing, the Seller shall not own or otherwise control any tangible asset or property necessary for the Company to conduct its business in substantially the same manner as it was conducted immediately prior to Closing.  Any software owned by the Seller that is necessary for the Company to conduct its business in substantially the same manner as it was conducted immediately prior to the Closing will be licensed to Lufkin pursuant to the License Agreement.

 

3.8   Litigation»

 

No litigation, action, suit claim, lawsuit, demand, investigation or proceeding before any Governmental Entity or any mediator or arbitrator (or panel thereof) (collectively, “ Litigation ”) is now pending or, to the Knowledge of the Seller, threatened against the Seller or any Affiliate of the Seller that could reasonably be expected to materially impair or delay the ability of the Seller to perform his obligations under this Agreement or consummate the transactions contemplated hereby.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE COMPANY

The Seller hereby represents and warrants to Lufkin as follows:

 

4.1   Organizational Matters; Company Subsidiaries»

 

(a)   The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of New York; (ii) is duly registered or qualified to conduct business and is in good standing in each other jurisdiction set forth on Schedule 4.1(a) hereto, and there is no other jurisdiction in which the Company’s ownership, operation or lease of property or conduct of its business would require such registration or qualification, except for any such failures to be so registered or qualified as could not reasonably be expected to have a Company Material Adverse Effect; and (iii) has the requisite power and authority and the legal right to own and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted.

 

(b)   Except as set forth on Schedule 4.1(b) hereto, the Company (i) has no Subsidiaries, (ii) is not engaged in any joint venture, partnership or similar arrangement with any other Person, (iii) is not an Affiliate of any other Person and (iv) does not otherwise hold any equity interest in any other Person or any promissory note or other contractual right exercisable or exchangeable for or convertible into any equity interest in any other Person.

 

4.2   Capitalization»

 

Attached as Schedule 4.2 hereto are true and correct copies of the Company Charter and the Company Bylaws, as amended and in full force and effect on the date hereof.  As of the date hereof, (i) the Company is authorized to issue up to 15,000 shares of Class A Voting Stock, no par value per share (“ Class A Stock ”), and up to 5,000 shares of Class B Non-Voting Stock, no par value per share (“ Class B Stock ”), and has 1650 and 0 shares of Class A Stock and Class B Stock, respectively, outstanding and (ii) the Company is not authorized to issue any shares of preferred stock, and has no shares of preferred stock outstanding.  As of the date hereof, the Company has no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights, agreements, arrangements or understandings of any character obligating the Company (i) to issue, deliver or sell, or cause to be issued, delivered or sold, additional Capital Stock or any securities or obligations convertible into or exchangeable for Capital Stock or (ii) to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right, agreement, arrangement or understanding.  All of the issued and outstanding shares of Capital Stock were duly authorized and validly issued and are fully paid and non-assessable, and were not issued in violation of any preemptive, preferential purchase or other similar rights of any Person.

 

4.3   Authority; Authorization; Enforceability»

 

The Company has all requisite power and authority to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder.  The execution and delivery by the Company of this Agreement, the consummation by the Company of the transactions contemplated hereby and the performance of the Company’s obligations hereunder have been duly and validly authorized by the board of directors of the Company and no other proceedings on the part, or on behalf, of the Company are necessary for such execution, delivery, consummation and performance.  This Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights generally or by general equitable principles).

 

4.4   No Conflicts or Violations»

 

Except as set forth on Schedule 4.4 hereto, the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby do not and will not (a) violate or conflict with any provision of the Company Charter, the Company Bylaws or any other organizational documents; (b) violate any Law applicable to the Company or any of its properties or assets; (c) violate, result in a breach of, constitute (with due notice or lapse of time or both) a default under, impair the Company’s rights under, result in the termination of or in a right of termination or cancellation of, or cause any obligation, penalty or premium to accelerate, arise or accrue under, any contract, lease, credit or loan agreement, mortgage, security agreement, indenture or other agreement or instrument to which the Company is a party, by which it is bound or to which any of its properties or assets is subject; (d) result in the creation of imposition of any Encumbrance upon any of the properties or assets of the Company; or (e) result in the cancellation, modification, revocation or suspension of any License (as defined in Section 4.12 ) of the Company (except in the case of clauses (b) , (c) , (d) and (e) above for any such violations, conflicts, breaches, defaults, impairments, terminations, accelerations, accruals, Encumbrances, cancellations, modifications, revocations or suspensions that could not reasonably be expected to have a Company Material Adverse Effect).

 

4.5   Consents and Approvals»

 

Except as set forth on Schedule 4.5 hereto, no consent, approval, waiver or authorization of, or filing, registration or qualification with, any Governmental Entity or any other Person (on the part of the Company) is required for the Company to execute and deliver this Agreement, perform its obligations hereunder or consummate the transactions contemplated hereby, except for such consents, approvals, waivers or authorizations as have been obtained or such filings, registrations or qualifications as have been accepted as of the date hereof.

 

4.6   Financial Statements»

 

Attached as Schedule 4.6 hereto are true, correct and complete copies of the consolidated balance sheets, statements of income and statements of cash flows of the Company as of and for the (a) years ended June 30, 2006, 2007 and 2008 (which have been audited) and (b) nine months ended March 31, 2009 (which have not been audited) (collectively, the “ Company Financial Statements ”).  Except as set forth on Schedule 4.6 hereto, the Company Financial Statements (x) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered; (y) fairly present in all material respects the financial position of the Company as of their respective dates and the results of operations of the Company for the periods indicated therein; and (z) have not in any material respect been rendered untrue, incomplete or unfair as representations of the financial condition of the Company as of the respective dates of the Company Financial Statements by events subsequent to the respective dates of the Company Financial Statements.

 

4.7   Non-Cash Working Capital»

 

As of the date hereof, the Company has Estimated Non-Cash Working Capital of not less than $800,000.

 

4.8   Absence of Undisclosed Liabilities»

 

Except as set forth on Schedule 4.8 hereto or on the unaudited Company Financial Statements as of March 31, 2009, the Company has no indebtedness or liability, absolute or contingent, which is not shown or provided for in the Company Financial Statements, other than (a) liabilities incurred or accrued in the ordinary course of business consistent with past practice since March 31, 2009 that do not exceed $25,000 in the aggregate, or (b) liabilities of the Company that individually or in the aggregate are not material to the Company and that are not required by GAAP to be included in the Company Financial Statements.

 

4.9   Absence of Certain Changes or Events»

 

Except as set forth in Section 6.7 or on Schedule 4.9  hereto, since June 30, 2008, the business of the Company has been conducted in the ordinary course of business consistent with past practices, and there has not been any (a) Company Material Adverse Effect, (b) material change by the Company in any of its accounting methods, principles or practices or any of its Tax methods, practices or elections, (c) any declaration, setting aside or payment of any dividend or distribution in respect of any Capital Stock or any redemption, purchase or other acquisition of any of Capital Stock or (d) except in the ordinary course of business consistent with past practices, any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, option or other employee benefit plan.

 

4.10   Title to and Condition of Properties»

 

(a)   Except as set forth on Schedule 4.10(a) hereto, the Company does not own or lease any real property.

 

(b)   The Company has good and marketable title to, or valid and subsisting leasehold interests in, all of the personal property reflected on the Company Financial Statements or used or useful in its business, free and clear of all Encumbrances, except for Permitted Encumbrances.

 

(c)   Except as set forth on Schedule 4.10(c) hereto, the Company owns or controls or otherwise has a license or other legal right to use all of the tangible assets, contracts, leases or licenses required to enable it to operate its business after the date hereof in the same manner as such business is presently conducted.  Except as set forth on Schedule 4.10(c) , 4.11(a) or 4.14(a) hereto, the business of the Company as presently conducted is not dependent on the right to use the assets or property of others.

 

4.11   Intellectual Property»

 

(a)   Schedule 4.11(a) hereto sets forth a true and complete list of all Intellectual Property described in Section 4.11(e)(i) , 4.11(e)(ii) or 4.11(e)(iii) used in the business of the Company, and, for each item listed, a statement as to whether such Intellectual Property is (i) wholly owned (in which such case the owner shall be named), (ii) licensed from a third party (in which such case the licensee and third-party licensor shall be named), or (iii) licensed to third parties by the Company (in which such case the third-party licensee shall be named), except for off-the-shelf or common software products sold or licensed in normal retail channels.

 

(b)   Schedule 4.11(b) hereto sets forth a true and complete list of all agreements, whether in the form of a development, license, assignment, confidentiality or other agreement, relating to the Intellectual Property to which the Company is a party or by which the Company is bound.

 

(c)   Except as set forth on Schedule 4.11(c) hereto,  (i) the Company owns all right, title and interest in and to, or has a valid and enforceable license or other right to use lawfully, all the Intellectual Property used by the Company in connection with its business, free and clear of any Encumbrances; (ii) the Company has not infringed upon or otherwise violated the Intellectual Property of any other Person and owns all right, title and interest in and to, or has a valid and enforceable license or other right to use lawfully the Intellectual Property; (iii) no action, hearing, investigation, claim or demand is pending or, to the Company’s Knowledge, is threatened which challenges the legality, validity, enforceability, use or ownership of any underlying item of Intellectual Property; (iv) to the Company’s Knowledge, no Person has infringed upon or otherwise violated the Intellectual Property of the Company; (v) the consummation of the transactions contemplated by this Agreement will not alter, impair or extinguish any Intellectual Property of the Company; and (vi) to the Company’s Knowledge, there are no agreements, judicial orders or settlement agreements which limit or restrict the Company’s rights to use any Intellectual Property.

 

(d)   The Intellectual Property of the Company includes the corporate name “Rotating Machinery Technology, Inc.” and any derivations thereof, including without limitation the corporate names listed on Schedule 4.11(d) hereto.  All goodwill with respect to the use of such names will inure to the benefit of Lufkin, and the Seller shall have no right to sue or recover against any Person with respect to the use of such name.

 

(e)   For purposes hereof, “ Intellectual Property ” shall mean all:

 

(i)   letters patent of the United States or of any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, or any other country or any political subdivision thereof, and all reissues, continuations, continuations in part or extensions thereof (collectively, “ Patents ”);

 

(ii)   copyrights (including all computer software, all documentation, source and object codes with respect to such software and all licenses and leases of software) and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any State thereof, or any other country or any political subdivision thereof, and all reissues, extensions or renewals thereof  (collectively, “ Copyrights ”);

 

(iii)   trademarks, trade names, corporate names, business names, trade styles, service marks, logos, slogans, domain names, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, or any other country or any political subdivision thereof, all reissues, extensions or renewals thereof, and all goodwill associated with or symbolized by any of the foregoing (collectively, “ Marks ”); and

 

(iv)   know-how, unpatented inventions, trade secrets, secret formulas, processes, designs, confidential and technical information, manufacturing, engineering and technical drawings, product specifications and other proprietary rights necessary for the business of the Company as now conducted and, to the Company’s Knowledge, as presently proposed to be conducted.

 

4.12   Licenses, Permits and Governmental Approvals»

 

(a)   The Company has all material consents, licenses, permits, certificates, franchises, authorizations and approvals issued or granted by, and has made all material registrations and filings with, any Governmental Entity as are necessary for the conduct of its business as currently conducted (each a “ License ” and, collectively, the “ Licenses ”).

 

(b)   Each License has been issued to, and duly obtained and fully paid for by, the holder thereof and is valid and in full force and effect, except for any such invalidities or failures to be in full force and effect as could not reasonably be expected to have a Company Material Adverse Effect.

 

(c)   To the Company’s Knowledge, all such Licenses will be renewed in the ordinary course, and no Governmental Authority has taken or, to the Company’s Knowledge, threatened to take any action to terminate, cancel or modify any of such Licenses.

 

(d)   None of the Licenses will terminate or become terminable as a result of the transactions contemplated by this Agreement.  Notwithstanding anything to the contrary in this Section 4.12 , the representations and warranties in this Section 4.12 shall not apply to (x) any right to Intellectual Property (which shall be subject to the representations and warranties set forth in Section 4.11 ) or (y) any License required under applicable Environmental, Health and Safety Law (which shall be subject to the representations and warranties set forth in Section 4.19 ).

 

4.13   Compliance with Law»

 

Except with respect to Tax matters (which are addressed in Section 4.17 ), Intellectual Property matters (which are addressed in Section 4.11 ) or environmental, health and safety matters (which are addressed in Section 4.19 ), the operations of the Company are and have been conducted in material compliance with all Laws of all Governmental Entities having jurisdiction over any of the Company or its assets, properties and operations, and no claim of any material violation of any Law by the Company is pending or, to the Company’s Knowledge, threatened against the Company.

 

4.14   Material Contracts»

 

(a)   Schedule 4.14(a) hereto sets forth a true and complete list of the Contracts to which the Company is a party, by which it is bound or otherwise relating or affecting any of its assets, properties or operations, in each of the following categories (each, a “ Company Material Contract ”):

 

(i)   each partnership, limited liability company or joint venture agreement;

 

(ii)   each Contract (or group of related Contracts) for the purchase by the Company of goods and/or services involving total annual payments in excess of $25,000 incurred by the Company in the Company’s fiscal years 2008 or 2009;

 

(iii)   each Contract (or group of related Contracts) for the sale by the Company of goods and/or services involving total annual revenues in excess of $25,000 received by the Company in the Company’s fiscal years 2008 or 2009;

 

(iv)   each Contract (or group of related Contracts) relating to a Debt Obligation;

 

(v)   each Contract relating to a loan or advance to, or investment in, any Person or any agreement, contract, commitment or understanding relating to the making of any such loan, advance or investment;

 

(vi)   each Contract limiting or purporting to limit the ability of the Company to engage or compete in any line of business with any person or in any geographic area;

 

(vii)   each Contract with any Affiliate of the Company (including the Seller);

 

(viii)   each labor union, management service, employment, consulting or other similar type of Contract;

 

(ix)   each Contract obligating the Company, or that would obligate or require any subsequent owner of the Company, to provide for indemnification or contribution with respect to any matter;

 

(x)   each sales, distributorship, agency or similar agreement relating to the products sold or services provided by the Company;

 

(xi)   each license, royalty or similar Contract;

 

(xii)   each Contract (or group of related Contracts) not entered into in the ordinary course of business consistent with past practices and not cancelable by the Company, without penalty to the Company, within 30 calendar days; or

 

(xiii)   each other Contract that might reasonably be expected to be material to the Company or its business.

 

(b)   (i) Each Company Material Contract is (A) in full force and effect and is a valid and binding obligation of the Company and (B) to Company’s Knowledge, a valid and binding obligation of each other party thereto, (ii)(A) the Company is not in breach thereof or default thereunder (and no event or circumstance has occurred that with notice or lapse of time, or both, would constitute an event of default), except for any such breaches or defaults as could not reasonably be expected to have a Company Material Adverse Effect, (B) to the Company’s Knowledge, no other party to any Company Material Contract is in breach thereof or default thereunder and (iii) there is no pending or, to Company’s Knowledge, threatened litigation with respect to any Company Material Contract.

 

(c)   Except as set forth on Schedule 4.14(c) hereto, the enforceability of the Company Material Contracts set forth on Schedule 4.14(a) hereto will not be affected in any manner by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, nor will the counterparties thereto be subject to any additional rights or privileges thereunder as a result thereof because of a “change of control” or otherwise.

 

4.15   Labor Matters»

 

Except as set forth on Schedule 4.15 hereto, as of the date hereof, (a) there is no material labor dispute involving, or strike, slowdown or work stoppage against, the Company, and no such dispute or action is pending or, to the Company’s Knowledge, threatened; (b) the hours worked by and payments made by the Company to employees of the Company comply with the Fair Labor Standards Act and each other federal, state, local or foreign Law applicable to such matters; (c) all payments due from the Company for employee health and welfare insurance have been paid or accrued as a liability on the books of the Company; (d) the Company is not a party to or bound by any collective bargaining agreement, management agreement, consulting agreement, employment agreement, bonus, equity compensation plan or agreement or any similar plan, agreement or arrangement; (e) to the Company’s Knowledge, there is no organizing activity involving the Company pending or threatened by any labor union or group of