Cactus, Inc 8-K, filed Jan 3, 2023
Cactus, Inc. (WHD)
8-K
2023-01-03
For: 2022-12-29
View Original
Added on
April 08, 2026
About this 8-K
Cactus, Inc filed this 8-K on January 3, 2023, reporting on events of December 29, 2022.
Items reported
- Item 1.01: Entered into a material agreement
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 8-K
______________________________________________________________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 29, 2022
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
______________________________________________________________________________
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
(Address of principal executive offices)
(Zip Code)
(713 ) 626-8800
(Registrant’s telephone number, including area code)
______________________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On December 30, 2022, Cactus, Inc., a Delaware corporation (the “Company”), and its newly formed wholly owned subsidiary Atlas Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with HighRidge Resources, Inc., a Delaware corporation (the “Target”), which indirectly owns all of the issued and outstanding equity interests in FlexSteel Pipeline Technologies, Inc., a Delaware corporation, and FlexSteel LTIP LP, a Delaware limited partnership (the “Seller Representative”), solely in its capacity as Seller Representative thereunder and for purposes of certain provisions of the Merger Agreement, pursuant to which Merger Sub will merge with and into the Target, with the Target continuing as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”), for a purchase price of $621,160,000 (on a debt-free, cash-free basis), subject to certain working capital, debt and other customary adjustments set forth in the Merger Agreement (the “Purchase Price”). In addition, if the aggregate gross revenue of the Target and its subsidiaries on a consolidated basis during the 18-month period commencing on January 1, 2023 is greater than $545,000,000, then the Company will pay an additional cash earn-out payment in 2024, the maximum amount of which is $75,000,000 if such gross revenue is equal to or greater than $649,000,000 (such earn-out payment, if any, together with the Purchase Price, the “Merger Consideration”).
The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing of the transactions contemplated thereby, the Company will deposit $6,250,000 of the Merger Consideration with an escrow agent to fund the Target’s payment obligations with respect to the working capital, debt and other customary post-closing adjustments contained in the Merger Agreement.
Under the Merger Agreement, the Company and the Target have made customary representations and warranties and have agreed to be bound to customary covenants for transactions of this type, including committing to use reasonable best efforts to obtain necessary approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”). The representations and warranties will not survive the closing of the Merger. Instead, to provide for coverage against certain breaches by the Target of its representations and warranties and certain pre-closing taxes of the Target, the Company has obtained a representation and warranty insurance policy. The policy is subject to a retention amount, exclusions, policy limits and certain other customary terms and conditions.
The completion of the Merger is subject to customary closing conditions, including, among others: (a) the absence of certain legal impediments to the consummation of the Merger; (b) the expiration or termination of the applicable waiting period under the HSR Act; (c) in the case of the Company’s and the Target’s obligations to complete the transaction, the accuracy of the Target’s and the Company’s, respectively, representations and warranties contained in the Merger Agreement; (d) material compliance by the Company, the Target and the Seller Representative with certain pre-closing covenants; and (e) no material adverse change in the Target’s business since the date of the Merger Agreement. Subject to the satisfaction of the closing conditions, the Merger is expected to close in the first fiscal quarter of 2023.
The Merger Agreement contains customary termination rights for the parties thereto, including by mutual consent of the Company and Seller Representative and under certain other circumstances, including by the Company or Seller Representative if the Merger has not occurred by April 30, 2023.
In connection with the foregoing, Cactus Wellhead, LLC, a Delaware limited liability company (“Cactus LLC”), the operating subsidiary through which the Company operates its business, entered into a commitment letter (the “Commitment Letter”) with JP Morgan Chase Bank, N.A. (the “Bridge Lender”), pursuant to which the Bridge Lender has committed to provide a senior secured credit facility to Cactus LLC as the borrower in an aggregate amount of up to $375,000,000 (the “Bridge Facility”), with a maturity date of 364 days following the closing, which may be extended at Cactus LLC’s option for an additional three month period. Both the obligation to fund the Bridge Facility and Cactus LLC’s option to extend the maturity are subject to the satisfaction of certain conditions set forth in the Commitment Letter. The Company can use the Bridge Facility, together with cash on hand, to fund
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the Purchase Price. The Company intends to finance the Merger Consideration through a mix of cash, debt and/or equity.
The Merger Agreement is not subject to any financing condition. The Company’s currently committed credit facilities (including the Bridge Facility), together with cash on hand, are sufficient to fund the Merger Consideration. The Bridge Lender and other arrangers and lenders providing the Bridge Facility or providing financing or other services in connection with the financing of the Merger Consideration have received, or may receive in the future, customary fees for such transactions.
The foregoing description of the Merger Agreement is a summary of the material terms of the Merger Agreement, does not purport to be complete and is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The Merger Agreement and the above description have been included in this Current Report on Form 8-K to provide investors and stockholders with information regarding the terms of the Merger Agreement. They are not intended to provide any other factual information about the Company, the Target, Merger Sub, or their respective subsidiaries, affiliates, businesses, or equityholders. The representations, warranties, and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement; and may be subject to limitations agreed upon by the parties thereto, including being qualified by confidential disclosures made by each contracting party to the others for the purposes of allocating contractual risk between them that differ from those applicable to investors. Investors should be aware that the representations, warranties, and covenants or any description thereof may not reflect the actual state of facts or conditions of the Company, the Target, Merger Sub, or any of their respective subsidiaries, affiliates, businesses, or equityholders. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, and covenants contained in the Merger Agreement or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, the Target, Merger Sub, or their respective subsidiaries, affiliates, and businesses. Moreover, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company.
Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC
On December 29, 2022, Cactus LLC and its members entered into the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC, dated December 29, 2022 (the “Second A&R Cactus LLC Agreement”). The Second A&R Cactus LLC Agreement amends and restates in its entirety the existing limited liability company operating agreement of Cactus LLC (the “Existing LLC Agreement”). The Second A&R Cactus LLC Agreement amended the Existing LLC Agreement to, among other things, clarify that Cactus LLC may make non-pro rata distributions to its members as an interim step to fund an acquisition.
The foregoing description of the Second A&R Cactus LLC Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Second A&R Cactus LLC Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
On January 3, 2023, the Company announced the signing of the Merger Agreement described in Item 1.01 above. A copy of the press release announcing the signing of the Merger Agreement is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Also, on January 3, 2023, the Company posted a presentation to its website relating to the proposed Merger, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
The information in this Item 7.01, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
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Act”), or otherwise subject to the liabilities of Section 18, and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as set forth by specific reference in such filing.
Forward Looking Statements
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act regarding the Merger and related transactions. These statements are not historical or current facts and deal with potential future circumstances and developments, in particular statements regarding whether and when the transactions contemplated by the Merger Agreement and proposed financing arrangements will be consummated. Forward-looking statements are qualified by the inherent risk and uncertainties surrounding future expectations generally and may materially differ from actual future experience. Risks and uncertainties that could affect forward-looking statements include: satisfaction of conditions to the closing of the Merger and related transactions, satisfaction of conditions to the financing for the acquisition and the risks that are described in the Company’s annual report on Form 10-K for the year ended December 31, 2021 and in subsequent reports filed under the Exchange Act. This report speaks only as of its date and the Company disclaims any duty to update the information herein other than as required by applicable law or regulation.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | |||||||
| 2.1 | ||||||||
| 10.1 | ||||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
* The schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however, that the Registrant may request confidential treatment of omitted items.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Cactus, Inc. | ||||||||
| January 3, 2023 | By: | /s/ Stephen Tadlock | ||||||
| Date | Name: | Stephen Tadlock | ||||||
| Title: | Vice President, Chief Financial Officer and Treasurer | |||||||
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Exhibit 2.1
Execution Version
CONFIDENTIAL
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HIGHRIDGE RESOURCES, INC.,
CACTUS, INC.
ATLAS MERGER SUB, LLC
AND
FLEXSTEEL LTIP LP,
in its capacity as Seller Representative and for purposes of Section 8.12(b)
DATED AS OF DECEMBER 30, 2022
US 9076475
TABLE OF CONTENTS
PAGE
ARTICLE 1 CERTAIN DEFINITIONS | |||||
Section 1.1 Definitions | |||||
ARTICLE 2 PURCHASE AND SALE | 19 | ||||
Section 2.1 Merger | 19 | ||||
Section 2.2 Closing of the Transactions Contemplated by this Agreement | 19 | ||||
Section 2.3 Deliveries at the Closing | 20 | ||||
Section 2.4 Purchase Price | 21 | ||||
Section 2.5 Surviving Entity Certificate of Incorporation; Bylaws | 24 | ||||
Section 2.6 Officers | 24 | ||||
Section 2.7 Conversion of Shares and RSUs | 24 | ||||
Section 2.8 Earn-Out Payment | 25 | ||||
Section 2.9 Withholding | 29 | ||||
ARTICLE 3 REPRESENTATIONS AND WARRANTIES CONCERNING THE GROUP COMPANIES | 29 | ||||
Section 3.1 Organization and Qualification; Subsidiaries | 29 | ||||
Section 3.2 Capitalization of the Group Companies | 30 | ||||
Section 3.3 Authority | 31 | ||||
Section 3.4 Financial Statements | 32 | ||||
Section 3.5 Consents and Requisite Governmental Approvals; No Violations | 32 | ||||
Section 3.6 Permits | 33 | ||||
Section 3.7 Material Contracts | 34 | ||||
Section 3.8 Sanctions; FCPA; Sales Representatives | 36 | ||||
Section 3.9 Absence of Changes | 36 | ||||
Section 3.10 Litigation | 36 | ||||
Section 3.11 Compliance with Applicable Law | 37 | ||||
Section 3.12 Employee Plans | 37 | ||||
Section 3.13 Environmental Matters | 39 | ||||
Section 3.14 Intellectual Property | 40 | ||||
Section 3.15 Labor Matters | 41 | ||||
Section 3.16 Insurance | 42 | ||||
Section 3.17 Tax Matters | 43 | ||||
Section 3.18 Brokers | 45 | ||||
Section 3.19 Real and Personal Property | 45 | ||||
Section 3.20 Related Party Transactions | 46 | ||||
Section 3.21 Suppliers and Customers | 46 | ||||
Section 3.22 Accounts Receivable | 47 | ||||
Section 3.23 Inventory | 47 | ||||
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Section 3.24 Product and Service Warranties | 47 | ||||
Section 3.25 Bank Accounts | 47 | ||||
Section 3.26 No Business Activities | 47 | ||||
Section 3.27 Exclusivity of Representations and Warranties | 48 | ||||
ARTICLE 4 REPRESENTATIONS AND WARRANTIES CONCERNING PARENT AND MERGER SUB | 48 | ||||
Section 4.1 Organization | 48 | ||||
Section 4.2 Authority | 48 | ||||
Section 4.3 Consents and Approvals; No Violations | 49 | ||||
Section 4.4 Brokers | 49 | ||||
Section 4.5 Sufficiency of Funds | 49 | ||||
Section 4.6 Solvency | 50 | ||||
Section 4.7 Litigation | 50 | ||||
Section 4.8 Investigation; No Other Representations | 50 | ||||
Section 4.9 R&W Insurance Policy | 52 | ||||
Section 4.10 Financing | 52 | ||||
Section 4.11 No Business Conduct | 52 | ||||
ARTICLE 5 COVENANTS | 53 | ||||
Section 5.1 Conduct of Business of the Company | 53 | ||||
Section 5.2 Access to Information | 55 | ||||
Section 5.3 [Reserved]. | 56 | ||||
Section 5.4 Efforts to Consummate | 56 | ||||
Section 5.5 Public Announcements | 59 | ||||
Section 5.6 Employee Matters | 59 | ||||
Section 5.7 Payoff Letters and Lien Releases | 61 | ||||
Section 5.8 Indemnification; Directors’ and Officers’ Insurance | 61 | ||||
Section 5.9 Documents and Information | 62 | ||||
Section 5.10 Contact with Customers, Suppliers and Other Business Relations | 62 | ||||
Section 5.11 Code Section 280G | 63 | ||||
Section 5.12 Tax Matters | 64 | ||||
Section 5.13 Limited Tax Indemnity and Related Proceedings. | 67 | ||||
Section 5.14 Certain Sales and Use Tax Returns and Proceedings. | 68 | ||||
Section 5.15 R&W Insurance Policy | 69 | ||||
Section 5.16 Intercompany Matters | 69 | ||||
Section 5.17 Financing and Financing Cooperation | 70 | ||||
Section 5.18 International Subsidiaries | 73 | ||||
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT | 74 | ||||
Section 6.1 Conditions to the Obligations of the Company, Parent and Merger Sub | 74 | ||||
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Section 6.2 Other Conditions to the Obligations of Parent and Merger Sub | 74 | ||||
Section 6.3 Other Conditions to the Obligations of the Company | 75 | ||||
Section 6.4 Waiver of Closing Conditions | 75 | ||||
Section 6.5 Frustration of Closing Conditions | 75 | ||||
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER | 76 | ||||
Section 7.1 Termination | 76 | ||||
Section 7.2 Effect of Termination | 77 | ||||
Section 7.3 Amendment | 77 | ||||
Section 7.4 Extension; Waiver | 77 | ||||
ARTICLE 8 MISCELLANEOUS | 78 | ||||
Section 8.1 Survival of Representations, Warranties and Covenants | 78 | ||||
Section 8.2 Entire Agreement; Assignment | 78 | ||||
Section 8.3 Notices | 79 | ||||
Section 8.4 Governing Law | 80 | ||||
Section 8.5 Fees and Expenses | 80 | ||||
Section 8.6 Construction; Interpretation | 80 | ||||
Section 8.7 Exhibits and Schedules | 81 | ||||
Section 8.8 Parties in Interest | 81 | ||||
Section 8.9 Severability | 81 | ||||
Section 8.10 Counterparts; Electronic Signatures | 82 | ||||
Section 8.11 Knowledge of the Company | 82 | ||||
Section 8.12 No Recourse | 82 | ||||
Section 8.13 Waiver of Jury Trial | 83 | ||||
Section 8.14 Jurisdiction and Venue | 83 | ||||
Section 8.15 Remedies | 83 | ||||
Section 8.16 Waiver of Conflicts | 84 | ||||
Section 8.17 Release | 85 | ||||
Section 8.18 Currency | 86 | ||||
Section 8.19 Time of Essence | 86 | ||||
Section 8.20 Seller Representative | 86 | ||||
Section 8.21 Concerning Financing Related Parties | 87 | ||||
Exhibit A - Balance Sheet Principles | 92 | ||||
Exhibit B - Form of Escrow Agreement | 93 | ||||
Exhibit C - Form of Certificate of Merger | 94 | ||||
Exhibit D - R&W Insurance Policy Conditional Binder | 95 | ||||
Exhibit E – Form of Letter of Transmittal | 96 | ||||
Exhibit F – Net Working Capital Example | 97 | ||||
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of December 30, 2022, is made by and among HighRidge Resources, Inc., a Delaware corporation (the “Company”), Cactus, Inc., a Delaware corporation (“Parent”), Atlas Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), FlexSteel LTIP LP, a Delaware limited partnership, in its capacity as the Seller Representative (in such capacity, the “Seller Representative”) and for purposes of Section 8.12(b). The Company, Parent, Merger Sub and the Seller Representative shall be referred to herein from time to time each as a “Party” and collectively as the “Parties”. Capitalized terms used but not otherwise defined herein have the meanings set forth in Section 1.1.
WHEREAS, Parent, Merger Sub and the Company are hereby adopting a plan of merger, providing for the merger of Merger Sub with and into the Company, with the Company being the surviving entity, and pursuant to which the Company will become a wholly owned subsidiary of Parent (the “Merger”);
WHEREAS, the respective board of directors of Parent and the Company and the sole member of Merger Sub have approved this Agreement and the Merger and the related transactions contemplated hereby, upon the terms and subject to the conditions set forth herein;
WHEREAS, simultaneously with the execution of this Agreement, each Shareholder of the Company has executed a written consent approving this Agreement and the Merger and the related transactions contemplated hereby, upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
CERTAIN DEFINITIONS
Section 1.1Definitions. As used in this Agreement, the following terms have the respective meanings set forth below.
“18-Month FlexSteel Revenue” means the aggregate gross revenue of the Group Companies on a consolidated basis during the Earn-Out Period.
“2021 FlexSteel Bonus Amount” means the aggregate amount of ordinary course bonuses to be paid to employees of the Group Companies in respect of the calendar year 2021, which amount will be established by the Company in a manner consistent with past practice prior to the Closing Date, but in any event shall be an amount equal to no less than $4,000,000, in addition to any (i) bonus payable or to be paid to current employees of PNRI, which will remain an obligation of PNRI and (ii) sales commissions.
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“2022 FlexSteel Bonus Amount” means the aggregate amount of ordinary course bonuses to be paid to employees of the Group Companies in respect of the calendar year 2022 (excluding any amounts to be paid under the FlexSteel Holdings, Inc. Cash Incentive Bonus Plan), which amount will be established by the Company in a manner consistent with past practice prior to the Closing Date, but in any event shall be an amount equal to no less than $4,000,000, in addition to any (i) bonus payable or to be paid to current employees of PNRI, which will remain an obligation of PNRI and (ii) sales commissions.
“AAA” has the meaning set forth in Section 2.8(j).
“Arbitrator” has the meaning set forth in Section 2.8(j).
“Accounting Firm” has the meaning set forth in Section 2.4(b)(ii).
“Action” means any claim, action, suit, litigation, Order, proceeding, investigation, audit or arbitration.
“Adjustment Time” means 12:01 a.m. Central Time on the Closing Date.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “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, and the terms “controlled” and “controlling” have meanings correlative thereto. Prior to the Closing, PNRI shall be deemed an Affiliate of the Group Companies and following the Closing, the Group Companies shall be considered Affiliates of Parent.
“Agreed Adjustments” has the meaning set forth in Section 2.8(b)(ii).
“Agreement” has the meaning set forth in the introductory paragraph to this Agreement.
“Ancillary Documents” has the meaning set forth in Section 3.3.
“Anti-Bribery Laws” means any applicable Laws prohibiting corruption and bribery, including the U.S. Foreign Corrupt Practices Act of 1977 and the UK Bribery Act.
“Antitrust Laws” means the Sherman Act of 1890, the Clayton Act of 1914, the HSR Act, the Federal Trade Commission Act of 1914 and all other Laws intended to prohibit, restrict or regulate actions having the purpose or effect of reducing competition, monopolization or restraint of trade through merger or acquisition.
“Balance Sheet Principles” means those balance sheet principles set forth in Exhibit A.
“Benefit Plans” has the meaning set forth in Section 3.12(a).
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“Business Day” means a day, other than a Saturday or Sunday, on which commercial banks in Houston, Texas are open for the general transaction of business.
“Cash and Cash Equivalents” means, with respect to any Person as of any time, the aggregate amount (expressed in United States dollars) of such Person’s cash and cash equivalents (including marketable securities, bank deposits, deposits with third parties, restricted cash and United States Treasury Securities with a maturity of no more than three months following the Closing Date) as of such time, including the amounts of any received but uncleared checks and drafts and wires issued prior to such time and deposits in transit, net of issued but uncleared checks or transfers as of such time; provided, that “Cash and Cash Equivalents” shall be reduced by an amount equal to 7% of the amount of Cash and Cash Equivalents held by the Group Companies in bank accounts in Canada. “Cash and Cash Equivalents” shall also include (i) any accrued interest on any Cash and Cash Equivalents and (ii) any and all uncollected credit card receivables.
“Certificate of Merger” has the meaning set forth in Section 2.1.
“Chancery Court” has the meaning set forth in Section 8.14.
“Change of Control” has the meaning set forth in Section 2.8(h).
“Class A Common Stock” means the Class A Voting Common Stock, par value $0.000001 per share, of the Company.
“Class B Common Stock” means the Class B Non-Voting Common Stock, par value $0.000001 per share, of the Company.
“Closing” has the meaning set forth in Section 2.2.
“Closing Cash” means the aggregate amount of the consolidated Cash and Cash Equivalents of the Group Companies as of the Adjustment Time.
“Closing Date” has the meaning set forth in Section 2.2.
“Closing Date Payoff Debt” means an amount equal to the Estimated Closing Indebtedness.
“Closing Indebtedness” means the aggregate amount of Indebtedness of the Group Companies as of the Adjustment Time.
“Closing Statement” has the meaning set forth in Section 2.4(b)(i).
“Closing Working Capital” means the Net Working Capital of the Group Companies as of the Adjustment Time, determined in accordance with the Balance Sheet Principles.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations and administrative guidance promulgated thereunder.
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“Common Stock” means the Class A Common Stock and Class B Common Stock.
“Company” has the meaning set forth in the introductory paragraph to this Agreement.
“Company Consolidated Group” means the affiliated group within the meaning of Section 1504 of the Code for U.S. federal income tax purposes electing to file a consolidated U.S. federal Income Tax Return of which the Company is the common parent.
“Company Disclosure Schedule” means, collectively, that certain disclosure letter of even date with this Agreement from the Company to Parent delivered concurrently with the execution and delivery of this Agreement.
“Company Employees” has the meaning set forth in Section 3.15(a).
“Company Intellectual Property” means Owned Company Intellectual Property and Licensed Company Intellectual Property.
“Compliant” means, with respect to the Financing Information, that (a) with respect to the audited financial statements (i) the independent public accounting firm that audited such audited financial statements shall not have withdrawn its audit opinion with respect to any of the audited financial statements included in the Financing Information, unless a new unqualified audit opinion is delivered with respect to such financial statements by such independent public accounting firm or another nationally recognized independent public accounting firm and (ii) none of the financial statements included in the Financing Information shall have been restated, nor shall the Company, any governing body of the Company, any of its Affiliates or the independent public accounting firm that audited such audited financial statements have determined that a restatement of any such audited financial statements is required, unless such restatement has been completed, audited by a nationally recognized independent public accounting firm, and delivered to Parent, and (b) with respect to the Included Interim Financial Statements, (i) none of the Included Interim Financial Statements shall have been restated, nor shall the Company, any governing body of the Company, any of its Affiliates or the independent public accounting firm that reviewed the Included Interim Financial Statements have determined that a restatement of any such Included Interim Financial Statements is required, unless such restatement has been completed, reviewed by a nationally recognized independent public accounting firm, and delivered to Parent; (ii) the Included Interim Financial Statements present fairly, in all material respects, respectively, the consolidated financial position and statements of operations, stockholder’s equity and cash flows of the Company and its Subsidiaries, at the respective dates set forth therein and for the respective periods covered thereby; and (iii) the Included Interim Financial Statements were prepared from the books and records of the Company and its Subsidiaries in all material respects in accordance with GAAP, subject to year-end adjustments in accordance with past practice (none of which are reasonably expected to be material in nature or amount).
“Confidentiality Agreement” means that certain Confidentiality Agreement, dated as of April 27, 2022, by and between the Company and Parent LLC.
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“COVID-19” means SARS-CoV-2 or COVID-19, and any variants, evolutions or mutations thereof or related or associated epidemics, pandemic or disease outbreaks.
“COVID-19 Measures” means any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester or any other similar Law, Order, directive, guidelines or recommendations promulgated by any Governmental Entity, including the Centers for Disease Control and Prevention and the World Health Organization, in connection with or in response to COVID-19, including the Coronavirus Aid, Relief, Economic Security Act (CARES) and Families First Act.
“COVID-19 Response” means (x) any action taken, or omitted to be taken, by the Company pursuant to and in accordance with any Law, directive, pronouncement or guideline issued by any Governmental Entity providing for business closures, “sheltering-in-place” or other restrictions that relates to, or arises out of, any pandemic, epidemic or disease outbreak and (y) any action taken, or omitted to be taken, by the Company to protect the business of the Company that is responsive to any pandemic, epidemic or disease outbreak, as determined by the Company in its reasonable discretion.
“D&O Persons” has the meaning set forth in Section 5.8(a).
“Debt Commitment Letter” means the commitment letter dated as of December 30, 2022, among Parent LLC and JPMorgan Chase Bank, N.A., as amended, amended and restated, modified, supplemented, replaced or extended from time to time after the date of this Agreement in accordance with this Agreement.
“Debt Fee Letter” means any fee letter executed in connection with the Debt Commitment Letter, as amended, amended and restated, modified, supplemented, replaced or extended from time to time after the date of this Agreement in accordance with this Agreement.
“Debt Financing” means the debt financing contemplated by the Debt Commitment Letter and the Debt Fee Letter(s).
“Designated VDA” means a voluntary disclosure agreement (or other settlement, compromise, closing or similar agreement) between FlexSteel Pipeline Technologies, Inc. and the Texas Comptroller of Public Accounts with respect to sales or use taxes charged (or chargeable) in connection with assets owned by Trinity Bay Equipment Holdings, LLC and leased to FlexSteel Pipeline Technologies, Inc. with respect to taxable periods beginning in 2019 and ending on or before the Closing Date.
“Designated Sales Tax Return” means any state or local sales Tax Returns (or applicable portion thereof) filed or required to be filed after the date of this Agreement and on or before the Closing Date with respect to sales or use taxes charged (or chargeable) in connection with assets owned by Trinity Bay Equipment Holdings, LLC and leased to FlexSteel Pipeline Technologies, Inc.
“DGCL” means the Delaware General Corporation Law.
“DLLCA” means the Delaware Limited Liability Company Act.
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“Earn-Out Deliverables” has the meaning set forth in Section 2.8(b).
“Earn-Out Financial Statements” has the meaning set forth in Section 2.8(b).
“Earn-Out Payment” means the amount determined in accordance with Section 2.8(a), as applicable.
“Earn-Out Percentage” means a percentage determined via linear interpolation and based on the Earn-Out Range pursuant to the below formula:
Earn-Out Percentage = (i) the result of (A) 18-Month FlexSteel Revenue minus (B) 545,000,000 divided by (ii) 104,000,000 (being the result of (A) 649,000,000 minus (B) 545,000,000)
“Earn-Out Period” means the eighteen (18) month period commencing on January 1, 2023, and ending on June 30, 2024.
“Earn-Out Range” means, with respect to the 18-Month FlexSteel Revenue, any amount that is greater than $545,000,000 and less than $649,000,000, inclusive.
“Effective Time” means the effective time of the Merger, which shall be (i) the date and time at which the Certificate of Merger has been duly filed with and accepted by the Secretary of State of the State of Delaware in accordance with the DGCL and the DLLCA or (ii) such other subsequent date and time as Parent and the Seller Representative may agree and specify in the Certificate of Merger in accordance with the DGCL and the DLLCA.
“Enterprise Value” means $621,160,000.
“Environmental Laws” means any and all applicable Laws which (i) regulate or relate to pollution or the protection or clean-up of the environment; the use, treatment, storage, transportation, handling, disposal or release of Hazardous Substances; or the health and safety of persons or property (regarding exposure to Hazardous Substances) or (ii) impose liability with respect to any of the foregoing, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.).
“Environmental Permits” means any permit, license, authorization, registration or approval required under applicable Environmental Laws.
“ERISA” means the Employee Retirement Income Security Act of 1974, and the regulations and administrative guidance promulgated thereunder.
“Escrow Account” has the meaning set forth in Section 2.3(b)(i)(A).
“Escrow Agent” means JPMorgan Chase Bank, N.A.
“Escrow Agreement” has the meaning set forth in Section 2.3(b)(i)(A).
“Escrow Amount” means an amount in cash equal to $6,250,000.
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“Escrow Funds” has the meaning set forth in Section 2.3(b)(i)(A).
“Estimated Closing Cash” has the meaning set forth in Section 2.4(a).
“Estimated Closing Indebtedness” has the meaning set forth in Section 2.4(a).
“Estimated Closing Statement” has the meaning set forth in Section 2.4(a).
“Estimated Closing Working Capital” has the meaning set forth in Section 2.4(a).
“Estimated Purchase Price” means (a) Enterprise Value, plus (b) the amount of Estimated Closing Cash, plus (c) the amount (if any) by which Estimated Closing Working Capital exceeds Target Working Capital, minus (d) the amount (if any) by which Target Working Capital exceeds Estimated Closing Working Capital, minus (e) the amount of Estimated Closing Indebtedness, minus (f) the amount of Estimated Seller Expenses.
“Estimated Seller Expenses” has the meaning set forth in Section 2.4(a).
“Exchange Act” has the meaning set forth in Section 2.8(h).
“Extended Commitment Fee” has the meaning set forth in the Debt Fee Letter, which, for the avoidance of doubt, such fee shall not exceed $562,500.
“FCPA” means the U.S. Foreign Corrupt Practices Act of 1977.
“Final Company Taxes” means, with respect to any Pre-Closing Income Tax Return as of the time of filing thereof pursuant to Section 5.12(b), the U.S. federal income Taxes, if any, payable by the Company Consolidated Group to the extent shown as due and payable on such Pre-Closing Income Tax Return.
“Final Purchase Price” has the meaning set forth in Section 2.4(d)(i).
“Financial Statements” has the meaning set forth in Section 3.4(a).
“Financing” means any debt financing, whether in the form of debt securities, a credit or loan facility or otherwise, obtained or proposed to be obtained by Parent or any of its Affiliates in connection with the transactions contemplated by this Agreement, including the debt financing contemplated by the Debt Commitment Letter or any other debt financing the proceeds of which are intended to be used to finance the payment, in whole or in part, of the Purchase Price or any of the other amounts payable by Parent or any of its Affiliates under this Agreement or any of the Ancillary Documents.
“Financing Documents” means the Debt Commitment Letter, any Debt Fee Letter, any commitment letter, engagement letter, underwriting agreement, purchase agreement, placement agreement, credit agreement, indenture or any other agreement or document, in each case, entered into by any Financing Related Party, on the one hand, and Parent or any of its Affiliates, on the other, in connection with any Financing.
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“Financing Failure Event” has the meaning set forth in Section 5.17(e).
“Financing Indemnitees” has the meaning set forth in Section 5.17(b).
“Financing Information” means: (a) the audited consolidated balance sheets of the Company and its Subsidiaries as of the last day of each of the fiscal years ended December 31, 2021 and 2020, and the related audited consolidated statements of operations, comprehensive income, stockholder’s equity and cash flows for each of the fiscal years then-ended; (b) the reviewed unaudited consolidated balance sheet of the Company and its Subsidiaries as of the last day of each of the quarter ended September 30, 2022 and the year ended December 31, 2021, and the unaudited consolidated statements of operations, comprehensive income, stockholder’s equity and cash flows for each of the quarters ended September 30, 2022 and 2021, as reviewed by the accounting firm that audited the audited financial statements referenced in foregoing clause (a) or another nationally recognized independent public accounting firm (all such financial statements delivered pursuant to this clause (b), the “Included Interim Financial Statements”) and (c) customary authorization letters from the Group Companies authorizing the distribution of the foregoing financial information to prospective lenders or investors. Financing Information shall not include financial statements for any period following the fiscal quarter ended September 30, 2022, and for the avoidance of doubt shall expressly exclude financial statements for the fiscal year ended December 31, 2022 or for the quarter ended December 31, 2022 or any quarterly or annual period thereafter.
“Financing Related Action” has the meaning set forth in Section 8.21(a).
“Financing Related Parties” means the Persons (other than Parent or any of its Affiliates) party from time to time to the Debt Commitment Letter, including any such Persons becoming party thereto pursuant to any joinder documentation, and shall also include each other Person that has committed or agreed to provide, arrange, syndicate, underwrite, purchase or place any Financing, or has otherwise entered into any agreement with Parent or any of its Affiliates in connection with, or that is otherwise acting as an arranger, bookrunner, underwriter, initial purchaser, placement agent, administrative or collateral agent, trustee or a similar representative in respect of, all or any part of the Financing, the respective Affiliates of any of the foregoing and the respective partners, managers, members, trustees and Representatives of any of the foregoing or any such Affiliates.
“Foreign Benefit Plan” has the meaning set forth in Section 3.12(g).
“Fraud” means the actual and deliberate fraud by a Party in the making of a representation and warranty contained in Article 3 or Article 4 of this Agreement (as modified by the Schedules, as applicable) or in any certificate delivered by such Party at the Closing, which involves the actual knowledge of such Party that such representation and warranty is materially false when made and with the intent of inducing any other Party to enter into or consummate this Agreement or to act in reliance upon such false representation and warranty which causes such other Party, in justifiable reliance upon such false representation and warranty (and with no prior actual knowledge of such false representation and warranty), to enter into or consummate this Agreement and to take action and suffer actual and material damages by reason of such reliance. For the avoidance of doubt, “Fraud”, does not include (x) constructive fraud, equitable fraud or promissory fraud or (y)
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any fraud based on constructive knowledge, negligent misrepresentation, recklessness or any similar theory.
“Fundamental Representations” means the representations and warranties set forth in Section 3.1(a), Section 3.2, Section 3.3, Section 3.5(b)(i) and Section 3.18.
“GAAP” means United States generally accepted accounting principles, as consistently applied by the Group Companies.
“General Enforceability Exceptions” has the meaning set forth in Section 3.3.
“Governing Documents” means the legal document(s) by which any Person (other than an individual) establishes its legal existence or which govern its internal affairs. For example, the “Governing Documents” of a corporation are its certificate of incorporation and by-laws, the “Governing Documents” of a limited partnership are its limited partnership agreement and certificate of limited partnership and the “Governing Documents” of a limited liability company are its operating agreement and certificate of formation.
“Governmental Entity” means any United States or non-United States (a) supranational, federal, national, state, provincial, local, municipal or other government, (b) governmental or quasi-governmental entity of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal) or (c) body exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature, including any public arbitral tribunal.
“Group Company” and “Group Companies” means, collectively, the Company and each of its Subsidiaries.
“Group Company Permits” has the meaning set forth in Section 3.6.
“Hazardous Substances” means any pollutant, chemical, substance and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound, or hazardous substance, material or waste, that is subject to regulation, control or remediation under any Environmental Laws due to its dangerous or deleterious properties or characteristics, including without limitation, asbestos, urea formaldehyde, polychlorinated biphenyls (PCBs), radon gas, and petroleum products or by-products.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
“Included Interim Financial Statements” has the meaning set forth in the definition of Financing Information.
“Interim Financial Statements” has the meaning set forth in Section 3.4(a).
“Income Tax Return” means a U.S. federal income Tax Return and any similar return filed or required to be filed under applicable state, local or non-U.S. tax law, in each case, by the Group Companies with respect to income, capital gains, franchise and similar Taxes.
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“Indebtedness” means, as of any time, without duplication, (a) the outstanding principal amount of and accrued and unpaid interest on any obligations of any Group Company, whether current, short-term or long-term and whether secured or unsecured, for (i) indebtedness for borrowed money, and (ii) other obligations evidenced by any note, bond, debenture or other debt security, (b) obligations for the deferred purchase price of property, assets or services (including any “earn-out” or similar payments, but excluding any (i) trade payables or accrued expenses arising in the Ordinary Course of Business to the extent such trade payables or accrued expenses are taken into account in the calculation of Closing Working Capital and (ii) amounts in respect of any retention-related payments to the extent such retention-related payments are taken into account in the calculation of Seller Expenses), or obligations created or arising under any conditional sale or other title retention agreement with respect to property, assets or services acquired, (c) all reimbursement obligations, contingent or otherwise, with respect to performance bonds, letters of credit, bank guarantees, bankers’ acceptances, or similar facilities, in each case, solely to the extent drawn, (d) any leases which were or are required to be recorded as capital leases in accordance with GAAP, (e) all obligations secured by any Lien on property owned subject to such Lien whether or not the obligation secured has been assumed, (f) the net settlement amount of any swap, collar, cap or other contracts the principal purpose of which is to benefit from or reduce or eliminate the risk of fluctuations in interest rates, currencies or commodity prices (which amount will reduce Indebtedness if in a net asset position), (g) any obligations in the nature of accrued fees, interest, premiums or penalties in respect of any of the foregoing clauses (a) through (f), including any such obligations in connection with clause (c), whether or not drawn, (h) guarantees by any Group Company (to the extent of the amount of such guarantees) of any indebtedness of a third party of the type described in the foregoing clauses (a) through (g) (including under any “keep well” or similar arrangement) and (i) State Income Tax Liabilities. “Indebtedness” shall also include any termination payments, pre-payment premiums or penalties, “breakage costs,” redemption fees, make-whole payments, costs and expenses or premiums and other amounts owing pursuant to the instruments evidencing Indebtedness, assuming that such Indebtedness is repaid on the Closing Date. Notwithstanding the foregoing, “Indebtedness” shall not include any (i) obligations under leases that are not required to be recorded as capital leases in accordance with GAAP (as in effect on the date of this Agreement) or real property leases, (ii) amounts included as Seller Expenses, (iii) amounts otherwise taken into account in the calculation of Closing Working Capital or (iv) intercompany Indebtedness entirely between a Group Company, on the one hand, and another Group Company, on the other hand, or deferred revenue of any Group Company.
“Intellectual Property” means all of the following in any jurisdiction throughout the world: (i) inventions (whether or not patentable and whether or not reduced to practice) discoveries, utility models, industrial designs, models, and improvements thereto, patents, patent applications, provisional patent applications and disclosures relating thereto (and any patents that issue as a result of those patent applications), and any renewals, reissues, revisions, reexaminations, extensions, continuations, continuations-in-part, divisions, certificate of invention, and substitutions relating to any of the patents and patent applications, as well as all related foreign patent and patent applications that are counterparts to such patents and patent applications and any other governmental grant for the protection of inventions or industrial designs, (ii) trademarks, service marks, trade dress, logos, brand names, trade names and corporate names, designs, shapes, configurations, slogans, Internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof, and in connection therewith, whether registered or unregistered, and the goodwill associated therewith, together with any registrations,
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renewals, and applications for registration thereof, (iii) copyrights and rights under copyrights, whether registered or unregistered, including moral rights, and any registrations and applications for registration thereof, all rights of authorship, use, publication, publicity, reproduction, distribution, performance, transformation, rights of ownership of copyrightable works, semiconductor topography works, and all applications, registrations, and renewals in connection therewith, and all rights to use and exploit a copyrightable work, neighboring and ancillary rights, all mask works and all applications, registrations, and renewals in connection therewith, (iv) trade secrets, proprietary information, and confidential information, including Know-How, concepts, methods, processes, designs, schematics, drawings, formulae, technical data, specifications, research and development information, technology, and business plans, ideas, recipes, compositions, techniques, customer and supplier lists, pricing and cost information, (v) rights in software, databases and data collections (including knowledge databases, customer lists and customer databases, Source Code, executable code, data, and related documentation), libraries or other code (or a portion of any of the foregoing), (vi) URL and domain name registrations, (vii) other rights to industrial property and European Community designs and (viii) other intellectual property and proprietary rights of any type or nature, recognized under the applicable Laws of any jurisdiction in the world, (ix) all advertising and promotional materials, and (x) all other proprietary rights, along with copies and tangible embodiments of any of the foregoing (in whatever form or medium), and any data and goodwill associated with the foregoing.
“Intellectual Property Rights” means all rights in or to all U.S. or foreign Intellectual Property.
“Interim Financial Statements” has the meaning set forth in Section 3.4(a).
“International Trade Laws” means any applicable U.S., UK, EU or other trade control Laws, including (i) trade or economic Laws relating to Sanctions, or other economic or trade sanctions administered by the EU and the United Kingdom; (ii) export, reexport, transfer, and retransfer Laws administered by the U.S. Department of Commerce and the U.S. Department of State; and (iii) antiboycott Laws administered by the U.S. Department of Commerce and the Internal Revenue Service.
“Know-How” means all information not in the public domain held in any form, including without limitation, information that is comprised in or derived from inventions, patents, patent applications, invention disclosures, publications, drawings, data formulae, patterns, specifications, notes, samples, chemical compounds, biological materials, computer software, component lists, instructions, manuals, brochures, catalogues and process descriptions and scientific approaches and methods.
“Law” means any federal, state, local or foreign statute, law, ordinance, treaty, rule, code, regulation or legal restraint issued, promulgated or enforced by a Governmental Entity having competent jurisdiction over a given matter.
“Leased Real Property” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by the Group Companies.
“Leases” means all leases, subleases, licenses, concessions and other agreements (written and oral) pursuant to which the Group Companies hold any Leased Real Property.
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“Letter of Transmittal” has the meaning set forth in Section 2.3(a)(iii).
“Licensed Company Intellectual Property” means all Intellectual Property and Intellectual Property Rights that are licensed to the Group Companies by third parties and are material to the conduct of the business of the Group Companies.
“Lien” means any mortgage, pledge, security interest, deed of trust, deed to secure debt, easement, right-of-way, defect of title, covenant, condition, restriction, adverse claim, right of first refusal, right of first offer, title default, encroachment or any survey defect, option or any other encumbrance, lien or charge of any kind, including any conditional sale or other title retention agreement, any lease and any financing statement under the Uniform Commercial Code of any jurisdiction and including any lien or charge arising by Law, which secures the payment of a debt (or any Tax) or the performance of an obligation.
“Marketing Period” means the first period of 60 consecutive Business Days beginning on the later to occur of January 2, 2023 and the first Business Day after the Company has provided to Parent Compliant Financing Information, but the Marketing Period shall not be deemed to have commenced if such Financing Information does not remain Compliant for the entire 60 consecutive Business Day period. Notwithstanding the foregoing, if the Marketing Period has not ended by March 31, 2023, the Marketing Period shall end on such date regardless of whether the entire 60 consecutive Business Day period has elapsed.
“Material Adverse Effect” means any event, change, occurrence or circumstance that, individually or in the aggregate with all other events, changes, occurrences and circumstances, has had or would reasonably be expected to have a material adverse effect upon the assets, financial condition, business or results of operations of the Group Companies, taken as a whole; provided, however, that none of the following (or the results thereof) shall be taken into account, either alone or in combination, in determining whether a Material Adverse Effect has occurred or is reasonably expected to occur: any adverse event, change, occurrence or circumstance arising from or related to (a) conditions affecting the economy generally or generally affecting the industries or markets in which the Group Companies operate, (b) any national or international political or social conditions, including the engagement by the United States or another government in hostilities (whether or not pursuant to the declaration of a national emergency or war), the occurrence in any place of any military or terrorist attack, (c) any actual or potential sequester, stoppage, shutdown, default or similar event or occurrence by or involving any Governmental Entity involving a national or federal government as a whole, (d) financial, banking or securities markets (including any disruption thereof and any decline in the price of any market index), (e) any hurricane, tornado, flood, earthquake, tsunami, natural disaster, act of God or other comparable event, (f) any epidemic, pandemic, or disease outbreak (including COVID-19 and variants thereof), escalation or general worsening thereof, or compliance with COVID-19 Measures or laws, regulations, statutes, directives, pronouncements or guidelines issued by a Governmental Entity, the Centers for Disease Control and Prevention, or the World Health Organization providing for business closures, “sheltering-in-place,” curfews or other restrictions that relate to, or arise out of, an epidemic, pandemic or disease outbreak (including COVID-19) or any change in such laws, regulations, statutes, directives, pronouncements or guidelines or interpretations thereof following the date of this Agreement or any material worsening of such conditions threatened or existing as of the date of this Agreement, (g) changes in GAAP (or the interpretation thereof), (h) changes in any Laws or Orders issued by any Governmental Entity (or the interpretation or enforcement thereof) or
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actions taken to comply with such changes, (i) the announcement or pendency of this Agreement or the performance of the transactions contemplated by this Agreement and/or the Ancillary Documents, including the impact thereof on the relationships, contractual or otherwise, of the Group Companies with officers, employees, customers, suppliers, vendors, partners or other business relations, (j) any failure by any Group Company to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period ending before, on or after the date hereof, or changes in the credit rating of any Group Company (although any event, change, occurrence or circumstance that may have given rise or contributed to any such failure that is not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect), (k) (i) the taking of any action expressly required by this Agreement and/or the Ancillary Documents, including the completion of the transactions contemplated hereby and thereby and (ii) compliance with Section 5.1 and Section 5.4, (l) any action taken at the written request or with the written consent of Parent or any of its Affiliates, to the extent such action is so taken in accordance with such written request or consent, (m) any failure to take any action, if such action is prohibited by this Agreement and/or the Ancillary Documents and the Company has sought, and not received, Parent’s consent to take such action, (n) the identity of, or any facts or circumstances relating exclusively to, Parent or any of its Affiliates, or (o) any fluctuations in the value of any currency or interest rates; except, in each case with respect to clauses (a) through (f) or (o) of this definition, to the extent disproportionately affecting the Group Companies, taken as a whole, relative to other similarly situated businesses in the industry in which the Group Companies operate.
“Material Contracts” has the meaning set forth in Section 3.7(a).
“Maximum Earn-Out Target” has the meaning set forth in Section 2.8(g).
“Merger” has the meaning set forth in the recitals to this Agreement.
“Merger Consideration” means a portion of (a) the Estimated Purchase Price and Final Purchase Price, without duplication, and (b) the Earn-Out Payment (if any), in each case allocable to each Shareholder in consideration for the cancellation of such Shareholder’s Shares in accordance with the terms hereof, which allocations shall be calculated pro rata based on the number of Shares (including Class B Common Stock, if any, deemed issued in exchange for RSUs as provided in Section 2.7(b)) held by such Shareholder divided by the total number of issued and outstanding Shares (including Class B Common Stock deemed issued in exchange for RSUs as provided in Section 2.7(b)).
“Merger Sub” has the meaning set forth in the introductory paragraph to this Agreement.
“Net Working Capital” means (i) only those specific line items designated as “Current Assets” on Schedule 1.1(b) of the Company Disclosure Schedule, minus (ii) only those specific line items designated as “Current Liabilities” on Schedule 1.1(b) of the Company Disclosure Schedule, in each case, for the Group Companies on a consolidated basis calculated in accordance with the Balance Sheet Principles and subject to the specific adjustments set forth on Schedule 1.1(b) of the Company Disclosure Schedule. For the avoidance of doubt, Net Working Capital shall exclude Cash and Cash Equivalents, Indebtedness, Seller Expenses, Services Payments, any U.S. federal income tax assets or
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liabilities, any state income or franchise tax assets or liabilities, any deferred Tax assets or liabilities, and any liabilities related to any VDA Proceedings that have not commenced or are pending as of the Closing Date. Exhibit F sets forth an illustrative example of the calculation of Net Working Capital (including any such specific adjustments thereto for purposes of calculating Net Working Capital), as of October 31, 2022. Such illustrative calculation is included for reference purposes only, and notwithstanding anything to the contrary, neither the Company nor any other Person makes any representation or warranty in respect thereof.
“New Plans” has the meaning set forth in Section 5.6.
“Non-Cooperation Notice” has the meaning set forth in Section 5.17(d).
“Non-Privileged Deal Communications” has the meaning set forth in Section 8.16(c).
“Non-Recourse Parties” has the meaning set forth in Section 8.12.
“Objection” has the meaning set forth in Section 2.4(b)(ii).
“Objection Notice” has the meaning set forth in Section 2.4(b)(ii).
“Order” means any award, injunction, judgment, ruling, subpoena, writ, decree or verdict entered, issued, made or rendered by any Governmental Entity.
“Ordinary Course of Business” means an action taken, or omitted to be taken, by any Person in the ordinary course of such Person’s business consistent with past practice (including, for the avoidance of doubt, recent past custom and practice in light of COVID-19 or COVID-19 Measures); provided, that any COVID-19 Response shall be deemed to be in the Ordinary Course of Business.
“Outside Date” has the meaning set forth in Section 7.1(d).
“Owned Company Intellectual Property” means all Intellectual Property and Intellectual Property Rights that are owned or purported to be owned by the Group Companies and, other than the Intellectual Property listed on Schedule 3.14(a) of the Company Disclosure Schedule (which shall not be qualified by materiality), are material to the conduct of the business of the Group Companies.
“Owned Real Property” means all land, together with all buildings, structures, improvements and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by the Group Companies.
“Parent” has the meaning set forth in the introductory paragraph to this Agreement.
“Parent Arrangements” has the meaning set forth in Section 3.12(e).
“Parent LLC” means Cactus Wellhead, LLC, a Delaware limited liability company.
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“Participant” has the meaning set forth in Section 3.12(e).
“Party” or “Parties” has the meaning set forth in the introductory paragraph to this Agreement.
“Payoff Letters” has the meaning set forth in Section 5.7.
“Permitted Liens” means (a) mechanic’s, materialmen’s, carriers’, repairers’ and other Liens arising or incurred in the Ordinary Course of Business for amounts that are not yet delinquent or are being contested in good faith by appropriate proceedings; provided, that appropriate reserves have been established with respect to such contest, (b) Liens for Taxes, assessments or other governmental charges not yet due and payable (or that thereafter may be paid without penalty) or which are being contested in good faith by appropriate proceedings, (c) encumbrances and restrictions on property (including easements, covenants, conditions, rights of way and similar restrictions) that do not (in each case) materially detract from the value of, or materially interfere with the Group Companies’ present uses or occupancy of such property, (d) any Liens arising under or related to the Closing Date Payoff Debt, any note or any other Indebtedness that is released and discharged at or prior to the Closing, (e) Liens granted in connection with any financing by Parent of the transactions contemplated hereby, (f) Liens that secure personal property subject to personal property leases (such as capital leases) or that are purchase money liens entered in the Ordinary Course of Business, (g) zoning, building codes and other land use Laws regulating the use or occupancy of real property or the activities conducted thereon which are imposed by any Governmental Entity having jurisdiction over such real property and which are not violated in any material respect by the current use or occupancy of such real property by the Group Companies or the operation of the businesses of the Group Companies, (h) matters identified on title policies or title reports made available to Parent and Merger Sub, (i) matters that would be disclosed by an accurate survey or inspection of the real property that do not (in each case) materially detract from the value of, or materially interfere with the Group Companies’ present uses or occupancy of, such property, (j) Liens described on Schedule 1.1(c) of the Company Disclosure Schedule, and (k) any right, interest, Lien or title of a licensor, sublicensor, licensee, sublicensee, lessor or sublessor under any license or lease agreement or in the property being leased or licensed (including the Leases).
“Permitted Transferee” has the meaning set forth in Section 2.8(i).
“Person” means an individual, partnership, corporation, limited liability company, joint stock company, unincorporated organization or association, trust, joint venture, association or other similar entity, whether or not a legal entity.
“PNRI” means Prime Natural Resources, Inc., a Delaware corporation.
“PNRI Texas Combined Group” has the meaning set forth in Section 5.12(c)(i).
“PNRI Texas Franchise Taxes” has the meaning set forth in Section 5.12(c)(i).
“Pre-Closing Income Tax Period” means, with respect to the Company Consolidated Group, any U.S. federal income tax period ending on or before the Closing Date for which the applicable initial Pre-Closing Income Tax Return has not been filed as of the Closing
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Date. For the avoidance of doubt, the Pre-Closing Income Tax Period for the Company Consolidated Group shall include the taxable period that ends on the Closing Date and shall also include the taxable period that ends on December 31, 2022.
“Pre-Closing Income Tax Return” means any U.S. federal Income Tax Return of the Company Consolidated Group for a Pre-Closing Income Tax Period. For the avoidance of doubt the Pre-Closing Income Tax Return shall include the consolidated U.S. federal Income Tax Return of the Company Consolidated Group for the taxable period that ends on the Closing Date and shall also include the consolidated U.S. federal Income Tax Return of Company Consolidated Group for the taxable period that ends on December, 31, 2022.
“Privileged Communications” has the meaning set forth in Section 8.16(a).
“Privileged Deal Communications” has the meaning set forth in Section 8.16(b).
“Purchase Price” means (a) Enterprise Value, plus (b) the amount of Closing Cash, plus (c) the amount (if any) by which Closing Working Capital exceeds Target Working Capital, minus (d) the amount (if any) by which Target Working Capital exceeds Closing Working Capital, minus (e) the amount of Closing Indebtedness, minus (f) the amount of Seller Expenses.
“R&W Conditional Binder” has the meaning set forth in Section 4.9.
“R&W Insurance Policy” means the buyer-side representations and warranties insurance policy, to be purchased and conditionally bound by Parent prior to the Closing.
“Reference Date” has the meaning set forth in Section 3.4(a).
“Related Party Transaction” has the meaning set forth in Section 3.20.
“Released Party” has the meaning set forth in Section 8.17.
“Releasing Party” has the meaning set forth in Section 8.17.
“Representatives” means, with respect to any Person, such Person’s Affiliates and its and its Affiliates’ respective directors, officers, employees, members, owners, partners, accountants, consultants, advisors, attorneys, agents and other representatives.
“Revenue Statement” has the meaning set forth in Section 2.8(b).
“RSU Holder” means a holder of RSUs.
“RSUs” means each outstanding award of restricted stock units representing the right to receive shares of Class B Common Stock that has not been settled, and any accrued and unpaid rights pursuant to the RSU Holder’s award agreement, as applicable.
“Sales Representative” means (a) any person appointed by a power of attorney or similar instrument granted by any Group Company empowering that person to represent any
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Group Company in matters and dealings by or involving the business of any Group Company, and (b) any agent, intermediary, sales representative, joint venture partner, sponsor, distributor, seller or reseller, consultant, or other Person appointed or retained to assist any Group Company to obtain business or promote the distribution, marketing or sales of products or services of any Group Company, including licensing agreements pursuant to which any Person distributes, markets, sells, or resells such products or services.
“Sanction” means any trade or economic sanction imposed under any applicable Laws administered by the U.S. Department of Treasury Office of Foreign Assets Control or the U.S. Department of State.
“Schedules” means the Company Disclosure Schedule.
“SEC” means the United States Securities and Exchange Commission.
“Second Request” has the meaning set forth in Section 5.4(e).
“Seller Expenses” means, without duplication, (I) solely to the extent that any of the following obligations have been incurred prior to or in connection with Closing and remain unpaid immediately prior to the Closing (whether incurred prior to or after the date hereof), the aggregate amount due (whether before or after Closing) and payable by the Group Companies immediately prior to the Closing for (a) third party out-of-pocket fees, costs or expenses or brokerage, finders’ or other similar payments incurred by or on behalf of the Group Companies (solely to the extent, in each case, such amounts are a liability of and are due and payable by any Group Company) as a result of or in connection with the negotiation, documentation or consummation of the transactions contemplated by this Agreement or the Ancillary Documents, including all of the fees and expenses of Vinson & Elkins L.L.P. and the fees, expenses and commissions of each of Morgan Stanley & Co. LLC and Piper Sandler & Co, (b) any sale, “stay-around,” retention, change of control or transaction bonuses, severance payments, commission or other similar bonuses or payments payable to current or former employees, independent contractors, directors or consultants of the Group Companies (including any amounts payable by the Group Companies or any Affiliate of a Group Company in respect of such Persons under any long-term incentive plan, including the FlexSteel Holdings, Inc. Cash Incentive Bonus Plan) (i) as a result of or in connection with the Closing (excluding, for the avoidance of doubt, any change of control bonuses resulting from the termination of any such Person or any other action taken at the direction of Parent or any of its Affiliates) or (ii) as a result of any termination of employment occurring prior to the Closing and, in the case of each of the foregoing clause (i) and (ii), the employer’s share of any employment, social insurance and other Taxes related to payments made in respect of any of the foregoing solely to the extent attributable to such amounts, (c) 50% of any other fees, costs, expenses or payments resulting from the change of control of any Group Company, including any amounts payable in connection with receipt of any consent or approval in connection with the transactions contemplated by this Agreement or the Ancillary Documents, (d) any amounts required to be paid by the Group Companies in connection with the purchase of any “tail” policies pursuant to Section 5.8, (e) 50% of all fees, costs, and expenses of the Escrow Agent or (f) 50% of any Transfer Taxes, (II) solely to the extent that any of the following amounts remain unpaid immediately prior to the Closing (a) the 2021 FlexSteel Bonus Amount and (b) the 2022 FlexSteel Bonus Amount and (III) solely to the extent paid by Parent LLC, the Extended Commitment Fee. Notwithstanding anything to the contrary contained herein, in no event shall “Seller Expenses” include (i)
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HSR Act filing fees, and (ii) any amounts to the extent taken into account in the calculation of Closing Indebtedness or Closing Working Capital.
“Seller Representative” has the meaning set forth in the introductory paragraph to this Agreement.
“Services Payments” means payments for services from a Group Company to an Affiliate of the Group Companies (other than a Group Company).
“Shareholder” means a holder of Shares.
“Shares” means all of the issued and outstanding shares of Common Stock of the Company.
“Specified Tax Item” means the item set forth on Section 1.1(e) of the Company Disclosure Schedule.
“Specified Tax Item Proceeding” has the meaning set forth in Section 5.13(a).
“State Income Tax Liabilities” means the current period accrued Tax liabilities of the Group Companies net of any current period accrued Tax assets of the Group Companies, in each case, with respect to state income and franchise Taxes (other than, for the avoidance of doubt, Texas franchise Taxes), as determined in accordance with the Balance Sheet Principles.
“Straddle Period” means any taxable period beginning on or before and ending after the Closing Date.
“Subsidiary” of any Person means another Person, an amount of the voting securities or other voting ownership or voting partnership interests of which sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person or by another subsidiary of such first Person.
“Surviving Entity” has the meaning set forth in Section 2.1.
“Tangible Property” has the meaning set forth in Section 3.19(b).
“Target Working Capital” means the amount set forth on Schedule 1.1(d) of the Company Disclosure Schedule.
“Tax” means (i) any U.S. federal, state, local or non-U.S. income, gross receipts, franchise, estimated, alternative minimum, sales, use, transfer, value added, excise, stamp, customs, duties, real property, personal property, capital stock, social security, unemployment or other tax or similar governmental charge, together with any interest, penalties or additions to tax in respect of the foregoing, and (ii) any liability for the payment of such amounts as a result of being a member of a consolidated, combined, unitary, affiliated or similar group, as a transferee or successor or by contract.
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“Tax Return” means any return, report, information return or other document (including schedules or any related or supporting information) filed or required to be filed with any Governmental Entity or other taxing authority in connection with the determination, assessment or collection of any Tax.
“Top Customers” has the meaning set forth in Section 3.21(b).
“Top Suppliers” has the meaning set forth in Section 3.21(a).
“Transaction Tax Deduction” means, without duplication, any item of loss or deduction for income tax purposes resulting from or attributable to Seller Expenses or amounts payable under the FlexSteel Holdings, Inc. Cash Incentive Bonus Plan.
“Transaction Financing” has the meaning set forth in Section 5.17(b).
“Transfer Taxes” has the meaning set forth in Section 5.12(a).
“VDA Firm” has the meaning set forth in Section 5.14(a).
“VDA Proceedings” has the meaning set forth in Section 5.14(a).
“Voting Securities” has the meaning set forth in Section 2.8(h).
ARTICLE 2
PURCHASE AND SALE
PURCHASE AND SALE
Section 2.1Merger. At the Effective Time, Merger Sub shall, automatically and without any action on the part of any Party, be merged with and into the Company and the separate existence of Merger Sub shall thereupon cease. The Company shall be the surviving entity in the Merger (hereinafter referred to for the periods on and after the Effective Time as the “Surviving Entity”) and the direct wholly owned Subsidiary of Parent, and the separate existence of the Company, with all its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger except as set forth in Section 2.6. The Merger shall have the effects set forth in the DGCL, the DLLCA and this Agreement. On the Closing Date, Merger Sub and the Company shall cause a Certificate of Merger between Merger Sub and the Company in substantially the form attached hereto as Exhibit C (the “Certificate of Merger”) to be executed and filed with the Secretary of State of the State of Delaware as provided in Section 251 of the DGCL and Section 18-209 of the DLLCA.
Section 2.2Closing of the Transactions Contemplated by this Agreement. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place remotely by exchange of documents and signatures (or their electronic counterparts) at 10:00 a.m. (Houston, Texas time) on the date that is three (3) Business Days following the later of (a) satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to satisfaction or waiver of such conditions) and (b) the date that is the earlier of (i) the final day of the Marketing Period and (ii) any Business Day prior to or during the Marketing Period that is specified by Parent in a written notice delivered to the Seller Representative; provided, however, that if the satisfaction of clause (a) or clause (b)
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occurs on or prior to March 31, 2023, the Parties shall consummate the Closing on or prior to March 31, 2023 notwithstanding such three (3) Business Day period. The date on which the Closing actually occurs shall be referred to as the “Closing Date.”
Section 2.3Deliveries at the Closing.
(a)Deliveries by the Seller Representative. At the Closing, the Seller Representative shall deliver to Parent and Merger Sub:
(i)a duly executed Internal Revenue Service Form W-9 for each Shareholder;
(ii)the Escrow Agreement (as defined below), duly executed by the Seller Representative; and
(iii)a letter of transmittal, substantially in the form of Exhibit E attached hereto (each, a “Letter of Transmittal”), duly executed by each Shareholder.
(b)Deliveries by Parent and Merger Sub. At the Closing, Parent and Merger Sub shall make the following payments (or, in the case of Section 2.3(b)(iv), delivery):
(i)Parent shall pay the Estimated Purchase Price to the Seller Representative by:
(A)depositing the Escrow Amount into an escrow account (the “Escrow Account”) to be established and maintained by the Escrow Agent pursuant to an escrow agreement, substantially in the form of Exhibit B attached hereto (the “Escrow Agreement”), to be entered into on the Closing Date by and among the Seller Representative, Parent and the Escrow Agent. The funds held in the Escrow Account (the “Escrow Funds”) shall serve as security for and the sole source of payment of Seller Representative’s obligations pursuant to Section 2.4(d)(ii), if any; and
(B)paying, or causing to be paid, to the Seller Representative (on behalf of the Shareholders) an amount equal to the Estimated Purchase Price minus the Escrow Amount.
(ii)Parent shall pay, or cause to be paid, on behalf of the Company, the Closing Date Payoff Debt pursuant to the Payoff Letters;
(iii)Parent shall pay or cause to be paid all Estimated Seller Expenses in accordance with payment instructions delivered by the Seller Representative to Parent; and
(iv)the Escrow Agreement, duly executed by Parent.
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All payments made by Parent pursuant to this Section 2.3(b) shall be made by wire transfer of immediately available funds to the accounts specified at least three (3) Business Days prior to the Closing Date by Seller Representative, in the Payoff Letters, or by the Escrow Agent, as applicable.
(c)Other Deliveries. At the Closing, the closing certificates and other documents required to be delivered pursuant to Article 6 with respect to the Closing will be exchanged.
Section 2.4Purchase Price.
(a)Estimated Purchase Price. No later than five (5) Business Days prior to the Closing Date, the Seller Representative shall deliver to Parent a statement (the “Estimated Closing Statement”) setting forth the Estimated Purchase Price, and including the Seller Representative’s estimates of (and reasonably detailed calculations of) Closing Working Capital (“Estimated Closing Working Capital”), Closing Cash (“Estimated Closing Cash”), Closing Indebtedness (“Estimated Closing Indebtedness”), and Seller Expenses (“Estimated Seller Expenses”). The Estimated Closing Statement and the determinations and calculations contained therein shall be prepared by Seller Representative in good faith and in accordance with the definitions set forth in this Agreement, and shall be accompanied by reasonably detailed supporting documentation, data and information, including invoices for Seller Expenses. No later than three (3) Business Days following receipt of the Estimated Closing Statement, Parent shall deliver to the Seller Representative a written report containing any changes that Parent proposes be made to the Estimated Closing Statement, together with reasonable explanations for such changes. Seller Representative and Parent shall use good faith efforts to agree upon the final Estimated Closing Statement and the Estimated Purchase Price at or prior to the Closing.
(b)Determination of Final Purchase Price.
(i)As soon as reasonably practicable, but no later than ninety (90) days after the Closing Date, Parent shall prepare and deliver to Seller Representative a statement (the “Closing Statement”) setting forth Parent’s good faith proposed determination of the actual amounts of Closing Working Capital, Closing Cash, Closing Indebtedness, and Seller Expenses, together with a calculation of the Purchase Price based thereon, in each case, including reasonably detailed calculations of the components thereof. The Closing Statement and the determinations and calculations contained therein shall be prepared in accordance with the definitions set forth in this Agreement. If Parent does not timely deliver the Closing Statement in accordance with the foregoing, then the Estimated Closing Statement shall be deemed to be the Closing Statement for all purposes of this Agreement; provided, however, that Seller Representative reserves any and all other rights granted to it in this Agreement or otherwise at law or equity, including the ability to deliver an Objection Notice.
(ii)Within forty five (45) days following receipt by Seller Representative of the Closing Statement (or such later date as provided in Section 2.4(c)), Seller Representative may deliver written notice (as may be amended pursuant to this Section 2.4(b)(ii), an “Objection Notice”) to Parent of any dispute it has with respect to the preparation or content of the Closing Statement (each such objection raised in the Objection Notice, an “Objection”). Any amount, determination or calculation contained in the Closing
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Statement and not disputed in a timely delivered Objection Notice shall be final, conclusive and binding on the Parties. Seller Representative may provide an Objection Notice and include an Objection on the basis that it has not been provided with adequate information to understand and evaluate the differences between the calculations contained in the Estimated Closing Statement, on the one hand, and the calculations contained in the Closing Statement (and/or components thereof, including the Closing Working Capital, the amount of Closing Cash, the amount of Closing Indebtedness, and/or the amount of Seller Expenses), on the other hand; provided, that Seller Representative shall amend such an Objection Notice to include specified Objections regarding any amount, determination or calculation contained in the Closing Statement within fifteen (15) days following receipt of any such information Seller Representative reasonably requests. If Seller Representative does not timely deliver an Objection Notice with respect to the Closing Statement within such forty five (45) day period or an amended Objection Notice within such fifteen (15) day period, as applicable (or such later date as provided in Section 2.4(c)), then the Closing Statement will be final, conclusive and binding on the Parties. If an Objection Notice is timely delivered within such forty five (45) day period or an amended Objection Notice within such fifteen (15) day period, as applicable (or such later date as provided in Section 2.4(c)), Parent and Seller Representative shall negotiate in good faith for a maximum of fifteen (15) days to resolve each Objection. The Parties acknowledge and agree that the Federal Rules of Evidence Rule 408 and any similar state rules shall apply to Seller Representative (and any of its Representatives) and Parent (and any of its Representatives) during any such negotiations and any subsequent dispute arising therefrom. If Parent and Seller Representative, notwithstanding such good faith efforts, fail to resolve any Objections within fifteen (15) days after Seller Representative delivers an Objection Notice, then Parent and Seller Representative shall jointly engage the dispute resolution group of KPMG LLP or, if such firm declines to be retained to resolve the dispute, the dispute resolution group of another internationally-recognized, independent accounting firm reasonably acceptable to Seller Representative and Parent (in either case, the “Accounting Firm”) to resolve such disputes (acting as an expert and not an arbitrator) in accordance with the definitions set forth in this Agreement and the Balance Sheet Principles as soon as practicable thereafter. Parent and Seller Representative shall use commercially reasonable efforts to cause the Accounting Firm to deliver a written report containing its final determination of the subject matter of the disputed Objections (which determination shall be within the range of dispute in respect of each Objection between the amounts set forth on the Closing Statement and the Objection Notice) within the thirty (30) day period after its engagement. The Accounting Firm’s determination shall be based solely on (A) the definitions and other applicable provisions of this Agreement, and (B) presentations consisting of (x) a single written presentation submitted by each of Parent and Seller Representative (which the Accounting Firm shall be instructed to distribute to Parent and Seller Representative upon receipt of both such presentations) and (y) a single written response submitted by each of Parent and Seller Representative to each such presentation and any interrogatories of the Accounting Firm (which the Accounting Firm shall be instructed to distribute to Parent and Seller Representative upon receipt of such responses). For the avoidance of doubt, neither Parent nor Seller Representative shall have any ex parte communications with the Accounting Firm relating to this Section 2.4(b) or this Agreement, and the Accounting Firm shall not conduct an independent investigation in respect of its determination. All Objections that are resolved between the Parties or are determined by the Accounting Firm will be final, conclusive and binding on the Parties, absent manifest error or fraud. The costs and expenses of the Accounting Firm shall be borne by Parent and Seller Representative in a proportion as is appropriate to reflect their relative success in the resolution of the dispute; for example, if Seller Representative challenges the calculation of the Purchase Price by an amount of $100,000, but the Accounting Firm determines that Seller
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Representative has a valid claim for only $60,000, then Parent shall bear sixty percent (60%) of the fees and expenses of the Accounting Firm and Seller Representative shall bear the other forty percent (40%) of such fees and expenses. Subject to the foregoing sentence, each party shall be responsible for its own fees and expenses incurred in connection with this Section 2.4.
(iii)The Parties agree that the procedures set forth in this Section 2.4(b) for resolving disputes with respect to the Closing Statement (or the calculations therein) shall be the sole and exclusive method for resolving any such disputes and none of the Parties or any of their Affiliates shall have any claim or any right to any Action against any other Party or their Affiliates in respect thereof; provided, however, that this Section 2.4(b)(iii) shall not prohibit Seller Representative or Parent, as applicable, from instituting an Action to enforce any final determination of the Purchase Price by the Accounting Firm pursuant to Section 2.4(b), or to compel any Party to submit any dispute arising in connection with this Section 2.4(b) to the Accounting Firm pursuant to and in accordance with the terms and conditions of this Section 2.4(b), in any court or other tribunal of competent jurisdiction in accordance with Section 8.14. The substance of the Accounting Firm’s determination shall not be subject to review or appeal, absent a showing of manifest error or fraud. It is the intent of the Parties to have any final determination of the Purchase Price by the Accounting Firm proceed in an expeditious manner; provided, however, any deadline or time period contained herein may be extended or modified by the written agreement of Seller Representative and Parent, and the Parties agree that the failure of the Accounting Firm to conform to any deadline or time period contained herein shall not be a basis for seeking to overturn any determination rendered by the Accounting Firm which otherwise conforms to the terms of this Section 2.4(b).
(c)Access. Parent shall, and shall cause each Group Company to, during regular business hours and upon reasonable advanced notice, make its financial and other records, work papers, supporting documentation, accounting personnel and advisors available to Seller Representative and its Representatives and the Accounting Firm during the review by Seller Representative and the Accounting Firm of, and the resolution of any Objections with respect to, the Closing Statement. In the event that Parent and the Group Companies fail to provide such access as reasonably determined by Seller Representative, the time periods in respect of Seller Representative’s obligations set forth in this Section 2.4 shall be extended by the length of time it takes Parent and the Group Companies to provide such access.
(d)Adjustments.
(i)Payment by the Company. If the Purchase Price as finally determined pursuant to Section 2.4(b) (the “Final Purchase Price”) exceeds the Estimated Purchase Price, Parent shall or shall cause a Group Company to pay to Seller Representative an amount equal to such excess by wire transfer of immediately available funds within three (3) Business Days after the date on which the Final Purchase Price is finally determined.
(ii)Payment from the Escrow Funds. If the Final Purchase Price is less than the Estimated Purchase Price then, within three (3) Business Days after the date on which the Final Purchase Price is finally determined, Seller Representative and Parent shall deliver a joint written instruction to the Escrow Agent directing the Escrow Agent to release and pay to Parent, by wire transfer of immediately available funds to the bank account
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designated in such joint written instruction no later than the fifth (5th) Business Day after the date on which the Final Purchase Price is finally determined, a portion of the Escrow Funds equal to the amount of such shortfall (not to exceed the amount of Escrow Funds in the Escrow Account).
(iii)Release of Escrow Funds. Within three (3) Business Days after the date on which the Final Purchase Price is finally determined, Seller Representative and Parent shall deliver to the Escrow Agent a joint written instruction directing the Escrow Agent to release and pay to Seller Representative, by wire transfer of immediately available funds to the bank account designated in such joint written instruction no later than the fifth (5th) Business Day after the date on which the Final Purchase Price is finally determined, an amount equal to the Escrow Funds remaining in the Escrow Account after giving effect to any payment required pursuant to Section 2.4(d)(ii), if any.
(iv)Escrow as Sole Recourse. Notwithstanding anything to the contrary in this Agreement, Seller Representative and the Company shall have no liability to Parent or any of its Affiliates for any adjustment amount pursuant to this Section 2.4(d), except to the extent of the then remaining balance of the Escrow Fund (if any). Recovery from the Escrow Fund shall be the sole and exclusive remedy available to Parent and any of its Affiliates for any claims arising out of or relating to this Section 2.4(d), and neither Parent nor any of its respective Affiliates shall have any claim against Seller Representative or the Company in respect thereof.
(v)Tax Treatment. Any amount(s) paid pursuant to this Section 2.4(d) shall to the extent permitted by applicable Law be treated as an adjustment to the Purchase Price for U.S. federal (and applicable state and local) income Tax purposes.
Section 2.5Surviving Entity Certificate of Incorporation; Bylaws. At the Effective Time, (a) the certificate of incorporation of the Company in effect immediately prior to the Effective Time shall become the certificate of incorporation of the Surviving Entity and (b) the bylaws of the Company in effect immediately prior to the Effective Time shall become the bylaws of the Surviving Entity, in each case, until thereafter changed or amended as provided therein or by applicable law.
Section 2.6Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Entity, each to hold office in accordance with the Surviving Entity’s bylaws until such officer’s successor is duly elected or appointed and qualified, or until the earlier of their death, resignation or removal.
Section 2.7Conversion of Shares and RSUs.
(a)Shares. In accordance with the terms and subject to the conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the Parties or the Shareholders, (a) each Share that is outstanding shall thereupon be cancelled and retired and shall cease to exist, shall be converted into and become the right to receive the portion of the Merger Consideration (and the Earn-Out Payment, as applicable) allocable to such Share, and each Shareholder shall cease to have any rights with respect to such Shares other than the right to receive the Merger Consideration (and the Earn-Out Payment, as applicable) from Seller Representative following payment thereto by Parent as provided in Section 2.3(b)(i), and (b) all of the issued and outstanding membership interests
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of Merger Sub shall be converted into one share of Class A Voting Common Stock of the Surviving Entity.
(b)RSUs. At the Effective Time, each outstanding award of RSUs shall fully vest and settle in cash in accordance with the terms of each RSU Holder’s award agreement. For the avoidance of doubt, no shares of Class B Common Stock shall be issued in respect of any RSU outstanding as of immediately prior to the Effective Time; provided, however, that such shares of Class B Common Stock shall be deemed to have been outstanding for purposes of calculating the Merger Consideration.
Section 2.8Earn-Out Payment. In addition to the Final Purchase Price, the Merger Consideration shall include, and Parent shall pay, additional cash proceeds (if any) which shall be paid, calculated and determined in the manner set forth in this Section 2.8.
(a)Earn-Out Payment. The Earn-Out Payment shall be calculated as follows:
(i)To the extent the 18-Month FlexSteel Revenue is equal to or below $545,000,000, no Earn-Out Payment shall be payable by Parent.
(ii)To the extent the 18-Month FlexSteel Revenue is within the Earn-Out Range, Parent shall pay an amount in cash equal to (x) $75,000,000 multiplied by (y) the Earn-Out Percentage (which shall not exceed 100%). For example, if the 18-Month FlexSteel Revenue equals $600,000,000, then the Earn-Out Percentage shall be 52.8846% (i.e. ($600,000,000 - $545,000,000 = $55,000,000) ÷ 104,000,000) and the Earn-Out Payment shall be $39,663,462 (i.e. $75,000,000 * 0.528846).
(b)Delivery of Financial Documents. Within the later of (i) thirty (30) days after the end of the Earn-Out Period and (ii) three (3) Business Days after the date on which Parent files its Quarterly Report for the Quarterly Period Ended June 30, 2024 with the SEC (assuming Parent is a public reporting company at such time), Parent shall (x) prepare or cause to be prepared the combined statement of financial position of the Group Companies for the Earn-Out Period then ended (the “Earn-Out Financial Statements”) and a statement (the “Revenue Statement”) setting forth the amount of the 18-Month FlexSteel Revenue (as derived from the Earn-Out Financial Statements) and the resulting Earn-Out Payment determined pursuant to this Section 2.8, if any (collectively, the “Earn-Out Deliverables”), and (y) deliver the Earn-Out Deliverables to Seller Representative.
(i)Promptly following receipt of the Earn-Out Deliverables, Seller Representative shall review the same and, within thirty (30) Business days after the date of such receipt, may deliver to Parent in writing its objections, if any, to the determinations set forth in the Earn-Out Deliverables; provided, that such written notice of objection shall specify in reasonable detail the nature and dollar amount of any disagreement so asserted, and shall be delivered only if (and to the extent that) Seller Representative reasonably and in good faith determines that the 18-Month FlexSteel Revenue set forth on the Revenue Statement has not been determined in accordance with the guidelines and procedures set forth in this Agreement and the definition of the 18-Month FlexSteel Revenue herein. If Seller Representative does not so object within such 30-day period, the determinations set forth in the Earn-Out Deliverables shall be final and binding on Parent, the Seller Representative and the Shareholders.
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(ii)If Seller Representative so objects, Parent and Seller Representative shall seek in good faith for a period of fifteen (15) Business Days following receipt of Seller Representative’s objections to resolve by written agreement (the “Agreed Adjustments”) any differences as to the determinations set forth in the Earn-Out Deliverables (provided, that any settlement negotiations will not be discoverable by or communicated to the Arbitrator, if applicable) and, if Seller Representative and Parent so resolve any such differences, the determinations set forth in the Earn-Out Deliverables as adjusted by the Agreed Adjustments shall be final and binding on Parent, the Seller Representative and the Shareholders.
(iii)If any objections timely raised by Seller Representative are not resolved by Agreed Adjustments within the fifteen (15)-day period set forth in Section 2.8(b)(ii), then Parent and Seller Representative shall submit any such objections that are unresolved to be resolved in accordance with Section 2.8(j).
(iv)Upon final determination of the Earn-Out Payment (including, if applicable, following arbitration pursuant to Section 2.8(j)), Parent shall pay (or cause an Affiliate of Parent to pay) to the Seller Representative the Earn-Out Payment (if any owed pursuant to this Section 2.8), within three (3) Business Days following the date on which such final determination is made, by wire transfer of immediately available funds in such amounts and to an account designated by Seller Representative. Promptly following the receipt of the Earn-Out Payment, the Seller Representative shall pay each Shareholder its portion of the Earn-Out Payment to which it is entitled under Section 2.7(a).
(c)Tax Treatment of Earn-Out Payments. The Parties agree that, unless prohibited by applicable law and except with respect to any amounts treated as imputed interest under Section 483 of the Code, the Earn-Out Payment shall be treated for Tax purposes as an adjustment to the Purchase Price and the Parties shall report such transactions consistently therewith on all applicable Tax Returns.
(d)Acknowledgements. Parent acknowledges that the payment of the Earn-Out Payment serves as a material inducement for the Company, the Seller Representative and the Shareholders to enter into this Agreement and the Ancillary Documents, as applicable, and Parent covenants and agrees that, without either (A) the express prior written consent of Seller Representative or (B) the payment in full of the Earn-Out Payment in the amount of $75,000,000 pursuant to this Section 2.8, from the Closing until the end of the Earn-Out Period:
(i)Parent shall (and shall cause its Affiliates to) maintain the business of the Group Companies as a singular unit, such that the revenues earned by the business of the Group Companies can be clearly determined as a separate, individual business segment for financial reporting purposes and for purposes of making the determinations pursuant to this Section 2.8; and
(ii)Parent shall not, and shall cause its Affiliates to not, intentionally cause the 18-Month FlexSteel Revenue to be diminished or reduced, and shall not (and shall cause its Affiliates to not) otherwise intentionally circumvent the obligation to pay any amount of the Earn-Out Payment.
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(e)Revenue Recognition Methods. For purposes of determining whether an Earn-Out Payment is owed pursuant to this Section 2.8, the 18-Month FlexSteel Revenue shall be determined in accordance with GAAP in effect as of the date of this Agreement, consistently applied. For the avoidance of doubt, no change in GAAP after the date of this Agreement shall be utilized or taken into account when determining the 18-Month FlexSteel Revenue for purposes of this Section 2.8.
(f)Independent Obligation. Parent’s obligation to pay the Earn-Out Payment in accordance with this Section 2.8 is an independent obligation of Parent and is not otherwise conditioned or contingent upon the satisfaction of any conditions precedent, other than the occurrence of the Closing and the achievement of the applicable 18-Month FlexSteel Revenue amount as set forth in this Section 2.8. Except in the event of Fraud (as determined by a court of competent jurisdiction in a final, non-appealable order), Parent shall have no right to offset the Earn-Out Payment against any other claim, liability or obligation of the Company, the Seller Representative or any other Shareholder, and no breach of this Agreement or any Ancillary Document by any Party shall affect Parent’s obligation to pay the Earn-Out Payment (as applicable) in accordance with this Section 2.8.
(g)Early Achievement of Maximum Earn-Out Target. Notwithstanding anything to the contrary in this Section 2.8, if, as of December 31, 2023, the 18-Month FlexSteel Revenue equals or exceeds $649,000,000 (the “Maximum Earn-Out Target”), Parent shall pay to the Seller Representative the full Earn-Out Payment of $75,000,000 in accordance with this Section 2.8. Parent shall notify the Seller Representative of the achievement of the Maximum Earn-Out Target within three (3) Business Days after the date on which Parent files its annual report with the SEC for the year ended December 31, 2023, assuming the Maximum Earn-Out Target is achieved as of December 31, 2023 (assuming Parent is a public reporting company at such time, and if it is not a public reporting company at such time, then the date such annual report would have been required to be filed by Parent with the SEC if it were a public reporting company with a large accelerated filer status).
(h)Change of Control. Following the Closing until the later of (i) the final determination of the Earn-Out Payment for the Earn-Out Period, and the subsequent payment thereof (if any), and (ii) the payment in full of any Earn-Out Payment payable pursuant to this Section 2.8, prior to the consummation of a Change of Control during the Earn-Out Period, Parent shall either (A) obtain a written consent from the Seller Representative authorizing Parent or the Company to effect a Change of Control prior to entering into any agreement to effect a Change of Control, (B) cause the Person(s) that will Control Parent or the Company following such Change of Control to unconditionally guarantee in full, and to acknowledge and agree to abide by (and cause its Affiliates to abide by) the obligations of Parent and its Affiliates under this Section 2.8, including the obligation to pay the Earn-Out Payment to the extent earned, or (C) pay or cause to be paid to Seller Representative, in accordance with this Section 2.8, an Earn-Out Payment in the amount of $75,000,000.00. “Change of Control” means (w) the occurrence of an event or series of events that results in any third party unaffiliated with Parent or the Company acting together in a way that would constitute a “group” for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), beneficially owning (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, securities of or interests in Parent or the Company representing greater than 50% of the combined total voting power of Parent or the Company, as applicable, entitled to vote in the election of directors of or Persons performing similar functions of Parent or the Company, as applicable (“Voting Securities”); (x) the consummation of a merger or consolidation of Parent or the Company with or into
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another unaffiliated third party, if the Persons who, immediately prior to the consummation thereof, own 50% or more of the then-outstanding Voting Securities of Parent or the Company, respectively, do not own immediately after the consummation of such merger, consolidation or other reorganization, 50% or more of the Voting Securities of either (1) the continuing or surviving entity or (2) the direct or indirect parent entity of such continuing or surviving entity; (y) the consummation of the sale or other disposition, in one transaction or a series of related transactions, of all or substantially all of the assets of Parent or the Company to one or more unaffiliated third parties; or (z) any of the foregoing with respect to a Subsidiary or Subsidiaries of the Company if substantially all assets of the Company and its Subsidiaries are held by such Subsidiary or Subsidiaries, either individually or taken together as a whole.
(i)Transferability. Each Shareholder shall have the right to transfer, assign, gift or otherwise dispose of its contingent right to any Earn-Out Payment under this Section 2.8 to such Shareholder’s Permitted Transferees in a private transaction subject to compliance with applicable securities laws. Notwithstanding the foregoing, (i) the contingent right to receive any Earn-Out Payment shall not be represented by any form of certificate or other instrument, and does not constitute an equity or ownership interest in Parent and (ii) Shareholders shall not have any rights as a securityholder of Parent solely as a result of the contingent right to receive any Earn-Out Payment hereunder. For purposes of this Section 2.8, “Permitted Transferee” means, with respect to any Shareholder that is a natural person: (A) a trust or similar estate-planning vehicle established by or for the benefit of such Shareholder or such Shareholder’s immediate family members; provided, that at the time of such transfer, assignment, gift or other disposition, such trust or similar estate-planning vehicle is Controlled by such Shareholder; (B) any immediate family member of such Shareholder who is entitled to receive such Shareholder’s contingent right to any Earn-Out Payment by testamentary transfer upon the death of such Shareholder or (C) any investment fund or entity that is an Affiliate of the Seller Representative (excluding portfolio companies of any Affiliate of the Seller Representative).
(j)Disputes. Notwithstanding anything herein to the contrary, the Parties hereby agree that any and all disputes regarding determination of the Earn-Out Payment under this Section 2.8 shall be submitted to arbitration by one arbitrator mutually agreed upon by Parent and Seller Representative, and if no agreement can be reached within ten (10) days after names of potential arbitrators have been proposed by the American Arbitration Association (the “AAA”), then by one arbitrator having reasonable experience in corporate finance transactions of the type provided for in this Agreement and who is chosen by the AAA (such arbitrator ultimately chosen, the “Arbitrator”). The arbitration shall take place in Wilmington, Delaware, in accordance with the AAA rules then in effect. There shall be limited discovery prior to the arbitration hearing as follows: (a) exchange of witness lists and copies of documentary evidence and documents relating to or arising out of the issues to be arbitrated, (b) depositions of all party witnesses and (c) such other depositions as may be allowed by the Arbitrator upon a showing of good cause. Depositions shall be conducted in accordance with the Delaware Rules of Civil Procedure, the Arbitrator shall be required to provide in writing to Parent and Seller Representative the basis for the decision of the Arbitrator, and a court reporter shall record all hearings, with such record constituting the official transcript of such proceedings. If the Arbitrator determines that any actions taken by Parent to which Seller Representative objects constituted a violation of the terms of this Section 2.8 (including, for the avoidance of doubt, the covenants set forth in Section 2.8(d)), then the Abritrator shall determine (i) the extent of the reduction to the 18-Month FlexSteel Revenue that resulted from such actions, if any, and (ii) the resulting Earn-Out Payment that
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would be payable had Parent not taken such actions. All determinations by the Arbitrator pursuant to this Section 2.8(j) shall be final and binding upon Parent, the Seller Representative and the Shareholders. The fees and expenses of the Arbitraror shall be allocated between Parent, on the one hand, and the Seller Representative, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party. For the avoidance of doubt, the Arbitrator shall only resolve disputes for matters arising under this Section 2.8 and shall not resolve disputes related to any other part of this Agreement.
Section 2.9Withholding
. Parent and the Company shall be entitled to deduct and withhold (or cause to be deducted and withheld) from any amount payable pursuant to this Agreement such amounts as are required to be deducted and withheld under applicable Tax law; provided that Parent shall notify Seller Representative as promptly as practicable in advance of any such intended deduction and withholding, describing the basis for such deduction and withholding in reasonable detail, in writing. Parent shall cooperate with Seller Representative (and the applicable Shareholder(s)), upon the written request of Seller Representative, to reduce or eliminate any deduction and withholding that otherwise would be required. Amounts withheld pursuant to this Section 2.9 and paid over to the appropriate Governmental Entity shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING THE GROUP COMPANIES
REPRESENTATIONS AND WARRANTIES CONCERNING THE GROUP COMPANIES
Except as set forth on the Company Disclosure Schedule, the Company hereby represents and warrants to Parent and Merger Sub as of the date hereof as follows:
Section 3.1Organization and Qualification; Subsidiaries.
(a)Each Group Company is duly organized and validly existing under the Laws of its jurisdiction of formation. Each Group Company is in good standing (if applicable) under the Laws of its jurisdiction of formation and has the requisite corporate, limited liability company or similar power and authority to own, lease, use, maintain and operate its properties and assets and to carry on its businesses as presently conducted, except where the failure to have such power and authority would not be material to such Group Company’s assets or business taken as a whole.
(b)Each Group Company is duly qualified or licensed to transact business and is in good standing (if applicable) in each jurisdiction in which the property and assets owned, leased or operated by it, or the nature of the business conducted by it, makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing, individually or in the aggregate, has not had and would not be reasonably expected to have a Material Adverse Effect.
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Section 3.2Capitalization of the Group Companies.
(a)As of the date hereof, the entire authorized capital stock of the Company consists of 99,469 shares of Class A Common Stock, of which 99,469 shares are issued and outstanding, and 530 shares of Class B Common Stock, of which (i) 89 shares are issued and outstanding as of the date hereof and (ii) 279 shares are issuable by the Company in exchange for outstanding RSUs. Schedule 3.2(a) of the Company Disclosure Schedule sets forth, as of the date hereof, (x) the name of each Shareholder and the number of Shares of each class held by such Shareholder and (y) the name of each RSU Holder and the number of RSUs held by each such RSU Holder. The Shares comprise all of the issued and outstanding capital stock of the Company, and the Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Shares were not issued in violation of any preemptive or similar rights created by Law, the Company’s Governing Documents or any agreement to which the Company is a party or by which it is bound and, other than as designated in the Stockholders Agreement, dated June 11, 2020, and the Governing Documents, are free of any preemptive rights, rights of first offer, rights of first refusal or similar rights with respect thereto. Except for the Shares and the RSUs, there are no outstanding (A) equity securities of the Company, (B) securities of the Company that are convertible into or exchangeable for, at any time, equity securities of the Company, or (C) options or other rights to acquire from the Company, or obligations of the Company to issue, any equity securities or securities convertible into or exchangeable for equity securities of the Company.
(b)Except for ownership of equity securities of another Group Company, no Group Company owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, at any time, any equity or similar interest in, any Person. Schedule 3.2(b) of the Company Disclosure Schedule sets forth the name, owner, and percentages of outstanding equity securities owned by each Group Company, with respect to each Person that has issued equity or equity-related securities owned by such Group Company. All outstanding equity securities of each Subsidiary of the Company are owned by a Group Company. All outstanding equity securities of each Subsidiary of the Company (except to the extent such concepts are not applicable under the applicable Law of such Subsidiary’s jurisdiction of incorporation, formation or organization (as applicable) or other applicable Law) have been duly authorized and validly issued, are fully paid and non-assessable, are free and clear of any preemptive rights (other than such rights as may be held by any Group Company), restrictions on transfer (other than restrictions under applicable federal, state and other securities Laws), or Liens (other than restrictions under applicable federal, state and other securities Laws). Except as set forth on Schedule 3.2(b) of the Company Disclosure Schedule, there are no outstanding (i) equity securities issued by any Subsidiary of the Company, (ii) securities issued by any Subsidiary of the Company convertible into or exchangeable for, at any time, equity securities of any Subsidiary of the Company or (iii) options or other rights to acquire from any Subsidiary of the Company, or obligations of any Subsidiary of the Company to issue, any equity securities or securities convertible into or exchangeable for equity securities of any Subsidiary of the Company.
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Section 3.3Authority.
(a)The Company has the requisite corporate power and authority to execute and deliver this Agreement and will have the requisite corporate power and authority to execute and deliver each other agreement, document, instrument and/or certificate contemplated by this Agreement to be executed in connection with the transactions contemplated hereby (the “Ancillary Documents”), and to which the Company is a party, at or prior to the Closing and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement (and the Ancillary Documents to which the Company is or will be a party) and the consummation of the transactions contemplated hereby and thereby have been (or, in the case of the Ancillary Documents, at the Closing will be) (i) duly authorized by all necessary corporate action on the part of the Company (and no other proceeding, consent or authorization on the part of the Company, the Company’s board of directors or the Shareholders is necessary to authorize this Agreement or the Ancillary Documents to which the Company is or will be a party or the consummation of the transactions contemplated hereby or thereby); and (ii) duly executed and delivered by the Company and (assuming that this Agreement has (and the Ancillary Documents to which the Company is or will be a party have) been or will be at the Closing, as applicable, duly and validly authorized, executed and delivered by each other party thereto) constitute (or, in the case of the Ancillary Documents, at the Closing will constitute, as applicable) a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with their terms; except (A) to the extent that enforceability may be limited by the applicable bankruptcy, insolvency, reorganization, moratorium or other Laws affecting the enforcement of creditors’ rights generally and (B) that the availability of equitable remedies, including, specific performance, is subject to the discretion of the court before which any proceeding thereof may be brought (clauses (A) and (B), the “General Enforceability Exceptions”).
(b)The Seller Representative has the requisite limited partnership power and authority to execute and deliver this Agreement and will have the requisite limited partnership power and authority to execute and deliver each Ancillary Document to which the Seller Representative is a party at or prior to the Closing and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement (and the Ancillary Documents to which the Seller Representative is or will be a party) and the consummation of the transactions contemplated hereby and thereby have been (or, in the case of the Ancillary Documents, at the Closing will be) (i) duly authorized by all necessary limited partnership action on the part of the Seller Representative (and no other proceeding, consent or authorization on the part of the Seller Representative or its partners is necessary to authorize this Agreement or the Ancillary Documents to which the Seller Representative is or will be a party or the consummation of the transactions contemplated hereby or thereby); and (ii) duly executed and delivered by the Seller Representative and (assuming that this Agreement has (and the Ancillary Documents to which the Seller Representative is or will be a party have) been or will be at the Closing, as applicable, duly and validly authorized, executed and delivered by each other party thereto) constitute (or, in the case of the Ancillary Documents, at the Closing will constitute, as applicable) a valid, legal and binding agreement of the Seller Representative, enforceable against the Seller Representative in accordance with their terms, subject to the General Enforceability Exceptions.
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Section 3.4Financial Statements.
(a)Attached hereto as Schedule 3.4(a) of the Company Disclosure Schedule are true and complete copies of the following financial statements (the “Financial Statements”): (i) the audited (in accordance with standards issued by the American Institute of Certified Public Accountants) consolidated balance sheet of the Company and its Subsidiaries as of December 31, 2021 and 2020, and the related audited consolidated statements of operations and comprehensive income, stockholder’s equity and cash flows for each fiscal year then-ended, including the related notes, and (ii) the reviewed unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 2022 (the “Reference Date”) and December 31, 2021, and the unaudited consolidated statements of operations, comprehensive income, stockholder’s equity and cash flows for each of the nine-month periods ended September 30, 2022 and 2021 (such financial statements in this clause (ii), the “Interim Financial Statements”).
(b)The Financial Statements were prepared in accordance with GAAP and fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries, as applicable, as of the dates thereof and their consolidated results of operations for the periods then ended in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, except as may be indicated in the notes thereto; provided, however, that the Interim Financial Statements are subject to certain year-end adjustments and lack the footnote disclosure otherwise required by GAAP.
(c)Except as set forth in the Financial Statements, no Group Company maintains any “off-balance-sheet arrangement” within the meaning of Item 303 of Regulation S-K of the Securities Act of 1933, as amended. No Group Company has any liabilities, whether accrued, contingent, absolute or otherwise, that would have been required to be reflected on a consolidated balance sheet of the Group Companies prepared in accordance with GAAP, other than (a) as reflected or reserved against in the Financial Statements (including any notes thereto), (b) those incurred in the Ordinary Course of Business since December 31, 2021 (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement or misappropriation), (c) those included in Estimated Closing Working Capital, (d) those that are repaid, terminated, forgiven, settled, cancelled or otherwise extinguished at Closing pursuant to the terms of this Agreement (including those liabilities arising under Closing Date Payoff Debt), (e) those incurred in connection with the transactions contemplated by this Agreement, and (f) those that, individually or in the aggregate, would not be reasonably expected to be material to the Group Companies, taken as a whole.
(d)The Company’s system of internal controls over financial reporting is sufficient to provide reasonable assurance in all material respects that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, consistently applied, subject, with respect to the Interim Financial Statements, to certain year-end adjustments and the lack of footnote disclosure otherwise required by GAAP.
Section 3.5Consents and Requisite Governmental Approvals; No Violations.
(a)Assuming the truth and accuracy of the representations and warranties of Parent and Merger Sub set forth in Section 4.3, no notices to, filings with, or
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authorizations, consents or approvals of any Governmental Entity are necessary for the execution, delivery or performance by the Company of this Agreement, the Ancillary Documents to which the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby, except for (i) compliance with and filings under the HSR Act, (ii) those the failure of which to obtain or make would not, individually or in the aggregate, reasonably be expected to be material to the Group Companies, taken as a whole, and (iii) those that may be required solely by reason of Parent’s (as opposed to any other Person’s) participation in the transactions contemplated hereby or thereby.
(b)Assuming the making of the filings and the receipt of the authorizations, consents or approvals set forth in Section 3.5(a), except as set forth on Schedule 3.5 of the Company Disclosure Schedule, neither the execution, delivery or performance by the Company of this Agreement or the Ancillary Documents to which it is (or at the Closing will be) a party nor the consummation by the Company of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the Governing Documents of any Group Company, (ii) result in a violation or breach of, conflict with, cause acceleration 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 any of the terms, conditions or provisions of any Material Contract, (iii) violate in any material respect any applicable material Law or Order of any Governmental Entity having jurisdiction over any Group Company or any of their respective properties or assets or (iv) except as contemplated by this Agreement, result in the creation of any Lien upon any of the assets or properties of any Group Company (other than Permitted Liens), except in the case of clauses (ii) and (iv) above, for such violations, conflicts, breaches, accelerations, defaults or Lien creations as would not have a Material Adverse Effect.
Section 3.6Permits. Each Group Company is in possession of all authorizations, licenses, permits, certificates, approvals and clearances of any Governmental Entity necessary for the Group Companies to own, lease, use, maintain and operate their properties and assets and to carry on their business substantially in the manner as is being conducted as of the date hereof (the “Group Company Permits”), and all such Group Company Permits are valid, and in full force and effect, except where the failure to possess or maintain such Group Company Permits in full force and effect has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole. Since January 1, 2020, no Group Company has received any written notice from any Governmental Entity regarding (i) any actual or possible material violation of any Group Company Permit or (ii) any actual or possible revocation, withdrawal, suspension, cancelation, termination or modification of any Group Company Permit, in each case of clauses (i) and (ii), other than as has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole. The Group Companies comply with the terms of all Group Company Permits, and no suspension or cancelation of any Group Company Permit is pending or, to the knowledge of the Company, threatened, except for such noncompliance, suspensions or cancelations that have not been and would not reasonably be expected to be, individually or in the aggregate,
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material to the Group Companies, taken as a whole.
Section 3.7Material Contracts.
(a)Schedule 3.7(a) of the Company Disclosure Schedule (collectively, the “Material Contracts”) sets forth a list, as of the date hereof, of each contract or other legally binding arrangement to which any Group Company is a party or by which any of its properties or assets are bound which:
(i)(A) involves expenditures or purchases by any Group Company in excess of $2,000,000 in aggregate for the twelve-month period ended December 31, 2021, or projected expenditures or purchases by any Group Company during the twelve-month period ended December 31, 2022 in excess of $2,000,000 in aggregate, or (B) involves expenditures or purchases by any Group Company and the term thereof is greater than twelve months (other than Leases), unless, in the case of this clause (B), such contract or other legally binding arrangement is terminable by such Group Company on 90 days’ or less notice without penalty;
(ii)involves payments to any Group Company in excess of $2,000,000 in aggregate for the twelve-month period ended December 31, 2021 or projected payments to any Group Company in excess of $2,000,000 in aggregate for the twelve-month period ended December 31, 2022 (in each case, other than intercompany payments between any Group Company and another Group Company and other than customary purchase orders);
(iii)contains any (A) non-compete or exclusivity provisions with respect to any line of business or geographic area with respect to any Group Company or, upon consummation of the Merger, Parent or its Subsidiaries or Affiliates, (B) other exclusivity rights, rights of refusal, rights of first negotiation or similar rights or terms provided to any Person, (C) restriction on the conduct of any line of business of any Group Company, (D) grant to any Person of “most favored nation” pricing terms or a preferential right to purchase, (E) standstill or similar agreement pursuant to which a Group Company has agreed not to acquire assets or securities of another Person, except for any such contract or other legally binding arrangement that is a confidentiality, non-disclosure or similar type of agreement entered into in the Ordinary Course of Business, or (F) obligation that any Group Company purchase all of its requirements for any product, material or service from any Person;
(iv)relates to a partnership, joint venture or similar arrangement, or relates to a commitment, arrangement or agreement to contribute capital or make additional investments in any other Person with respect to the sharing of profits, revenues, losses, costs or liabilities of any Person other than a Group Company;
(v)is an employment, severance, change of control, deferred compensation or other legally binding arrangement for the twenty (20) employees with the highest annualized compensation from the Group Companies for the calendar year ending December 31, 2021;
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(vi)is a license agreement or other agreement with respect to any Company Intellectual Property (other than (A) shrink-wrap, click-wrap, and off-the-shelf licenses for software that are generally commercially available, in each case for which the license, maintenance, support and other fees are less than $100,000 in any 12-month period, and (B) any such agreements between any Group Company and another Group Company);
(vii)relates to the creation, incurrence, assumption or guarantee of borrowed money or extension of credit, including in respect of the Closing Date Payoff Debt, in each case having a principal amount of indebtedness in excess of $1,000,000;
(viii)is a collective bargaining agreement or other labor agreement with any union, works council, or other labor organization;
(ix)is a settlement, conciliation, or similar agreement with a Governmental Entity pursuant to which any Group Company has continuing obligations or involving the payment of more than $250,000;
(x)is a contract or other legally binding arrangement with respect to any acquisition or divestiture outside of the Ordinary Course of Business of (A) assets by any Group Company entered into after January 1, 2020 (1) for aggregate consideration in excess of $1,000,000 or (2) pursuant to which any Group Company has continuing indemnification, guarantee, “earn-out” or other contingent payment obligations, or (B) Shares, or other capital stock of, or other equity interests in, any Group Company entered into after January 1, 2020;
(xi)is a Related Party Transaction;
(xii)is a contract or other legally binding arrangement with a Top Supplier or a Top Customer;
(xiii)gives rise to the obligations to make the Services Payments;
(xiv)is a contract or other legally binding arrangement with a Sales Representative required to be listed on Schedule 3.8(c) of the Company Disclosure Schedule; or
(xv)is a Governing Document of the Company or FlexSteel Holdings, Inc.
(b)Except as set forth on Schedule 3.7(b) of the Company Disclosure Schedule, (i) each Material Contract is legal, valid and binding on the applicable Group Company, and, to the knowledge of the Company, each other party thereto, as applicable, and in full force and effect and enforceable in accordance with its terms with respect to such Group Company and, to the knowledge of the Company, the other party thereto (in each case, except that such enforcement may be subject to applicable General Enforceability Exceptions), (ii) to the knowledge of the Company, there is no event or condition which has occurred or exists, which constitutes or would constitute (with or without notice, the happening of any event and/or the passage of time) a default or breach under any Material Contract by any Group Company or, to the knowledge of the Company, the other party
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thereto, except to the extent such breach or default has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, and (iii) no Group Company has received written notice from any other party to a Material Contract that such other party intends to terminate, not renew, or renegotiate in any material respect the terms of any such Material Contract.
(c)The Company has made available to Parent true and complete copies of all of the Material Contracts (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto).
Section 3.8Sanctions; FCPA; Sales Representatives.
(a)Since January 1, 2020, each Group Company, and, to the knowledge of the Company, each of their respective officers, managers, directors, employees, and any agent or other Person acting on behalf of the Group Companies, has been in compliance in all material respects with all applicable International Trade Laws and Anti-Bribery Laws. No Group Company nor, to the knowledge of the Company, any of their respective officers, directors, employees, any agent or other Person acting on behalf of any Group Company, is or has been since January 1, 2020, (i) the target of any Sanctions or (ii) organized, resident or located in any country or region that is the target of Laws imposing comprehensive Sanctions, currently Cuba, the Crimea region of Ukraine, the so-called Donetsk People’s Republic or Luhansk People’s Republic, Syria, Iran, or North Korea.
(b)Since January 1, 2020, no Group Company, nor any of its officers, manager, directors, employees or agents, has been indicted for allegedly violating any International Trade Law or Anti-Bribery Law or has been the target of any investigation by a Governmental Entity for potential violation of any applicable International Trade Laws or Anti-Bribery Laws.
(c)Schedule 3.8(c) of the Company Disclosure Schedule identifies the name, principal business location and territory for each Sales Representative who promotes, distributes, markets or sells any Group Company products or services outside of the United States.
Section 3.9Absence of Changes. During the period beginning on the Reference Date and ending on the date hereof, (a) no Material Adverse Effect has occurred and (b) each Group Company has conducted its business in the Ordinary Course of Business in all material respects, except (i) in connection with or related to the process by which the Group Companies (or any of their respective Representatives) solicited, discussed or negotiated strategic alternatives (including the transactions contemplated by this Agreement or any other transaction prior to the date hereof) prior to the date hereof or (ii) any actions taken as a result of, or in reaction to COVID-19 or COVID-19 Measures. Each of Parent and Merger Sub acknowledges that the announcement by the Company of its intention to sell its business (as well as the execution of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby) might affect one or more of the Group Companies’ business relationships, and that such effects do not and will not constitute a breach of this Section 3.9.
Section 3.10Litigation. Except as set forth on Schedule 3.10 of the Company Disclosure Schedule, since January 1, 2020, (a) there has not been any (i) Action pending
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against (or to the Company’s knowledge, threatened against) any Group Company or any executive officer or director of any Group Company (in their capacity as such), (ii) audit of a Governmental Entity pending or, to the knowledge of the Company, threatened against any Group Company, or (iii) inquiry or investigation of a Governmental Entity pending or, to the knowledge of the Company, threatened against any Group Company, in each case of clauses (i), (ii) and (iii), other than as has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, and (b) no Group Company has been subject to any outstanding order, writ, injunction, award, decree or arbitration ruling or judgment of a Governmental Entity which has been or would reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole.
Section 3.11Compliance with Applicable Law. Since January 1, 2020, except in each case for such non-compliance that has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, (i) each of the Group Companies has complied and is in compliance with all Laws which affect the business, properties or assets of such Group Company and (ii) no notice, charge or assertion has been received by any Group Company or, to the Company’s knowledge, threatened against any Group Company alleging any non-compliance with any such Laws.
Section 3.12Employee Plans.
(a)Schedule 3.12(a) of the Company Disclosure Schedule sets forth a true, correct and complete list of all material Benefit Plans. For purposes of this Agreement, “Benefit Plan” means each (i) “employee benefit plan” (as that term is defined in Section 3(3) of ERISA), (ii) retirement, welfare, severance, termination, paid time off, employment, change-in-control, retention, equity or other incentive plan, and (iii) other benefit, bonus, commission or compensation plan, policy, program, agreement or arrangement, in each case, sponsored, maintained, contributed to by, or required to be contributed to by, any Group Company, with respect to which any Group Company has any liability or obligation (in either case, whether current or contingent), or with respect to which any current or former officer, employee, independent contractor, manager or director of, consultant to, or other Person providing services for the benefit of, any Group Company receives or will receive any compensation or benefit.
(b)Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination, opinion or advisory letter from the Internal Revenue Service and, except as could not result in material liability to any Group Company, nothing has occurred that could reasonably be expected to adversely affect the qualification or tax exemption of any such Benefit Plan. Except as has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, each Benefit Plan and any related trust, if applicable, complies in all respects, and has been maintained, funded and administered in compliance in all respects, with its terms and all applicable Laws, including, to the extent applicable, ERISA and the Code, and with any applicable collective bargaining agreements. There are no Actions (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened with respect to any Benefit Plan, other than as has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole.
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(c)No Benefit Plan is, and no Group Company has any current or contingent liability or obligation under or with respect to, (i) a “multiemployer plan” (as defined in Section 3(37) of ERISA), (ii) a plan that is or was subject to Title IV of ERISA or Section 412 of the Code, (iii) a multiple employer plan as described in Section 413(c) of the Code, (iv) a “multiple employer welfare arrangement” (as defined in Section 3(40)(A) of ERISA), or (v) a plan or arrangement providing post-retirement or post-termination health or life insurance benefits to any Person. With respect to each multiemployer plan to which any Group Company has any current or contingent liability or obligation, no Group Company has made or incurred a “complete withdrawal” or a “partial withdrawal” (as such terms are respectively defined in Sections 4203 and 4205 of ERISA) for which liability is or could be outstanding (whether or not assessed). No Group Company is party to any agreement intended to comply with Section 4204 of ERISA. No Group Company has any current or contingent liability or obligation as a result of at any time being treated as a single employer under Section 414 of the Code with any Person other than any Group Company.
(d)With respect to the Benefit Plans, each to the extent applicable, correct and complete copies of the following have been delivered or made available to Parent by the Company: (i) the current plan documents governing all Benefit Plans (including all amendments thereto); (ii) written summaries of the material terms of any Benefit Plan not in writing; (iii) the current related trust documents, custodial agreements, insurance contracts and other funding arrangements; (iv) administration agreements, investment management or investment advisory agreements, and similar agreements; (v) the most recently filed annual report (Form 5500) with all schedules and attachments; (vi) the most recent determination, opinion or advisory letter from the Internal Revenue Service; and (vii) the most recent summary plan description and summaries of material modifications thereto.
(e)Except as set forth on Schedule 3.12(e) of the Company Disclosure Schedule, neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated in this Agreement, either alone or in conjunction with any other event, (i) will result in any payment or benefit becoming due to any current or former employee, director, or individual consultant of the Group Companies (each, a “Participant”) under any Benefit Plan, (ii) will increase any compensation or benefits otherwise payable under any Benefit Plan, (iii) will accelerate the time of payment, funding, or vesting of any compensation or benefits due to any Participant under any Benefit Plan, or (iv) has given or will give rise to the payment of any amount or provision of any benefit that would not be deductible by the Company or its Subsidiaries by reason of Section 280G of the Code or any amount or benefit that could, individually or in combination with any other such payment or benefit, constitute an “excess parachute payment”, as defined in Section 280G(b)(1) of the Code, determined without regard to any arrangements entered into prior to Closing at the direction of Parent or any of its Affiliates or between Parent and its Affiliates, on the one hand, and a “disqualified individual” on the other hand (“Parent Arrangements”).
(f)Each Benefit Plan that provides for deferred compensation that is required to comply with Section 409A of the Code materially complies in form and operation with Section 409A of the Code. No Group Company has any obligation to “gross-up” or otherwise indemnify any individual for the imposition of the taxes under Section 4999 of the Code or under Section 409A of the Code.
(g)With respect to each Benefit Plan subject to the Laws of a jurisdiction outside the United States (a “Foreign Benefit Plan”), each Foreign Benefit Plan that is
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required to be registered has been timely registered and has been maintained in good standing with the applicable Governmental Entity and, except as has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, no event has occurred since the date of the most recent approval or application therefor relating to any such Foreign Benefit Plan that could adversely affect any such approval or good standing. Each Foreign Benefit Plan required to be fully funded and/or fully insured, and/or book-reserved, is fully funded and/or fully insured and/or book-reserved, as appropriate, in all material respects, including any back-service obligations, on an ongoing basis (determined using reasonable actuarial assumptions) in compliance with all applicable Laws and applicable accounting standards. Each Foreign Benefit Plan, if intended to qualify for special tax treatment, meets all the requirements for such treatment in all material respects and, except as has not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, no event has occurred with respect to such Foreign Benefit Plan that could reasonably be expected to cause the denial or loss of such special tax treatment. The consummation of the transactions contemplated by this Agreement is not by itself reasonably expected to create or otherwise result in any material liability with respect to any Foreign Benefit Plan.
(h)Notwithstanding any other provision in this Agreement to the contrary, the representations and warranties in this Section 3.12, Section 3.15 and Section 3.17 are the sole and exclusive representations and warranties with respect to the employee benefit matters.
Section 3.13Environmental Matters. (a) The Group Companies are, and since January 1, 2020, have been, in compliance in all material respects with applicable Environmental Laws, including all Environmental Permits; (b) the Group Companies have all the material Environmental Permits required for the conduct and operation of the business as now being conducted, and no Action is pending or, to the Company’s knowledge, threatened with respect to such Environmental Permits; (c) there has been no release to the environment of any Hazardous Substances at any facility currently, or to the knowledge of the Company, any formerly, owned, leased, or operated by any of the Group Companies, the subject of which remains unresolved; (d) the Group Companies have not received any written notice of alleged, actual or potential responsibility or liability of the Group Companies for, or any written inquiry or investigation of the Group Companies regarding, any release or threatened release of Hazardous Substances by or associated with the Group Companies or alleged violation by the Group Companies of, or non-compliance by the Group Companies with, any Environmental Law, the subject of which notice, inquiry or investigation is unresolved; (e) to the knowledge of the Company, there is no site to which any Group Company has disposed or arranged for disposal of or transported or arranged for the transport of Hazardous Substances which, would reasonably be expected to become the subject of an environmental action or give rise to liability; (f) the Group Companies do not own, lease or operate a site that (i) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.) or any similar state Law, has been placed or is proposed to be placed by any Governmental Entity on the “National Priorities List” or similar state list, as in effect as of the date hereof, or (ii) is involved with any voluntary cleanup program sponsored by a Governmental Entity, and (g) no Group Company has contractually assumed or retained, liabilities under any Environmental Law. For purposes of clauses (c) and (d) of this Section 3.13, a matter shall only be deemed resolved if the Group Company has no liability with respect to such matter and there is no Order in effect with respect to such matter. Notwithstanding any other provision in this Agreement to the contrary, the representations
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and warranties in this Section 3.13 are the sole and exclusive representations and warranties with respect to the environmental matters.
Section 3.14Intellectual Property.
(a)Schedule 3.14(a) of the Company Disclosure Schedule sets forth a true, complete, and correct list of all registered Owned Company Intellectual Property and applications for registration or issuance of Owned Company Intellectual Property, including the owner or registrant thereof, and: (i) for each patent and patent application, the registration, patent number or application serial number, the jurisdiction in which the patent or application has been filed or issued, and the date filed, issued, reissued, and renewed; (ii) for each registered trademark or service mark, the application serial number or registration number, the jurisdiction of the application or registration, and the date filed or issued; (iii) each URL or domain name registered; and (iv) for each registered copyrighted work, the number and date of registration and the jurisdiction of the registration. The Intellectual Property Rights set forth on Schedule 3.14(a) of the Company Disclosure Schedule are subsisting and, to the knowledge of the Company, are valid and enforceable. The Group Companies own all Owned Company Intellectual Property, including all of the Intellectual Property Rights set forth on Schedule 3.14(a) of the Company Disclosure Schedule, free and clear of all Liens (other than Permitted Liens).
(b)The Company or one of the Group Companies owns all right, title and interest in and to (free and clear of all Liens other than Permitted Liens), or otherwise has valid and enforceable rights to use, all Intellectual Property Rights used in or necessary to conduct the business of the Group Companies as currently conducted, except for such Intellectual Property Rights that, if not possessed by the Company or the Group Companies, have not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole.
(c)Since January 1, 2020, neither any Group Company, nor the operation of the Company’s or any of the Company Subsidiaries’ business has infringed upon or misappropriated, or is infringing upon, diluting, or misappropriating, the Intellectual Property Rights of another Person. No action, claim or proceeding alleging infringement, misappropriation, unauthorized use of any third party intellectual property or technology, or other violation of any Intellectual Property Right of another Person is pending or, to the knowledge of the Company, threatened against any Group Company. Since January 1, 2020, the Company has not received any written notice relating to any actual or alleged infringement, misappropriation, or violation of any Intellectual Property Right of another Person by any Group Company. To the knowledge of the Company, no Person or any of such Person’s products or services or other operation of such Person’s business is infringing upon or misappropriating any Company Intellectual Property in any material respect.
(d)Except for such proceedings or actions that, if resolved against the Group Companies, have not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, there are no proceedings or actions, nor are the Group Companies aware of any proceedings or actions, pending before any Governmental Entity challenging the ownership, use, validity or enforceability of the Owned Company Intellectual Property, except for office actions and other communications issued during the normal course of procuring registered Owned
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Company Intellectual Property before any Governmental Entity, and, to the knowledge of the Company, no such proceedings or actions have been threatened against any Group Company.
(e)To the Company’s knowledge, there are no circumstances that would form the basis for any claim of infringement, dilution, unauthorized use, or violation of any Owned Company Intellectual Property, or challenge to the ownership, use, validity or enforceability of any Owned Company Intellectual Property.
(f)The Group Companies have taken commercially reasonable steps to protect, maintain the secrecy and confidentiality of, and secure, the ownership of and rights of the Group Companies in Owned Company Intellectual Property, including in their confidential information, know how, and trade secrets included in the Owned Company Intellectual Property. To the knowledge of the Company, no Group Company is aware of any release, publication, disclosure or other dissemination of such confidential and proprietary information and materials except as permitted under confidentiality and non-disclosure agreements between any Group Company and its employees or third parties. To the knowledge of the Company, there has been no unauthorized access to or uses or other security breaches of information technology systems used by or on behalf of the Group Companies or any such information or data collected, processed, stored, or maintained by or on behalf of the Group Companies.
(g)Schedule 3.14(g) of the Company Disclosure Schedule sets forth a listing of all Patents, including applications and registrations, owned or, to the Company’s Knowledge, previously owned, by the Group Companies and not included in Schedule 3.14(a) of the Company Disclosure Schedule, in each case that have expired during the last five (5) years.
(h)No Group Company is obligated under any license in respect of Licensed Company Intellectual Property or otherwise to pay royalty or license fees for the use of any Company Intellectual Property.
(i)To the knowledge of the Company, no Group Company is in violation of any license in respect of Licensed Company Intellectual Property.
(j)The execution, delivery or performance of this Agreement will not contravene, conflict with, or result in any limitation on, the Group Companies’ right, title or interest in or to any Company Intellectual Property.
Section 3.15Labor Matters.
(a)The Company has provided Parent with a true and complete list identifying all employees of any Group Company as of the date hereof (collectively, the “Company Employees”) and specifying with respect to each such employee, as of such date, the employee’s: (i) name; (ii) job title; (iii) employing entity; (iv) date of hire (and service date, if different); (v) base salary or regular hourly wage rate, as applicable; (vi) target bonus amount, if such employee is eligible for a bonus; (vii) classification as full-time or part-time; and (viii) classification as exempt or non-exempt under the Fair Labor Standards Act. Schedule 3.15(a) of the Company Disclosure Schedule sets forth a true, complete and accurate list of each individual consultant and individual independent contractor who is
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directly engaged by any Group Company and provides services to, or since January 1, 2020 provided services to, any Group Company and, if such Person is eligible for a bonus, the target amount of such bonus. The Company has made available to Parent true and complete copies of all agreements for the provision of staffing services or temporary workers, to which any Group Company is a party.
(b)Since January 1, 2020, there have been no and there is no pending or, to the knowledge of the Company, threatened labor dispute, strike or lockout, concerted walkout or work stoppage against, or employee organizing activity with respect to any Group Companies, except where such dispute, strike or lockout, walkout or work stoppage has not had or would not reasonably be expected to have a Material Adverse Effect. No Group Company is party to or bound by any collective bargaining agreement or other labor agreement with any union, works council, or other labor organization, and no Company Employee is represented by a union, works council, or other labor organization with respect to employment with a Group Company.
(c)Except for matters that have not been or would not reasonably be expected to be, individually or in the aggregate, material to the Group Companies, taken as a whole, each of the Group Companies is, and at all times since January 1, 2020 has been, in compliance with all applicable Laws related to employment or employment practices, including all such Laws relating to collective bargaining, discrimination, civil rights, employee classification, payment of wages and overtime and provision of employee benefits and employee leave and immigration. All individuals characterized and treated by the Group Companies as independent contractors or consultants are, and at all times since January 1, 2020 have been, properly treated as independent contractors under all applicable Laws. To the knowledge of the Company, since January 1, 2020, (i) no allegations of sexual harassment have been made against any current or former member of the management team of any Group Company, and (ii) no Group Company has entered into any settlement agreements related to allegations of sexual harassment or sexual misconduct by any current or former member of the management team of any Group Company. Except as set forth on Schedule 3.15(c) of the Company Disclosure Schedule, there is no Action pending against (or to the Company’s knowledge, threatened against or naming as a party thereto) any Group Company nor, to the knowledge of the Company, is there any audit, inquiry or investigation of a Governmental Entity pending or threatened against any Group Company, in each case with respect to current or former employees, applicants, or service providers to any Group Company that would reasonably be expected to be material to the Group Companies, taken as a whole. There has not been any failure by any of the Group Companies to comply with (y) the Fair Labor Standards Act or applicable state and local wage and hour or tax Laws or (z) applicable Laws pertaining to the classification of employees and independent contractors, including any failure to properly classify individuals and consultants as employees under the Fair Labor Standards Act or applicable state and local wage and hour or tax Laws that would reasonably be expected to be material to the Group Companies, taken as a whole.
(d)Notwithstanding any other provision in this Agreement to the contrary, the representations and warranties in this Section 3.15, and Section 3.12 are the sole and exclusive representations and warranties with respect to the labor and employment matters.
Section 3.16Insurance. The Group Companies maintain insurance under various insurance policies, as set forth on Schedule 3.16 of the Company Disclosure Schedule, which policies are in full force and effect, enforceable in accordance with their terms and all
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premiums due and payable thereon have been paid in full when due. The Company has made available to Parent true and complete copies of all of such insurance policies. To the knowledge of the Company, all such insurance policies have terms and conditions, including amounts and scope of coverage, that are customary for companies in the same or similar lines of business and of similar size and financial condition as the Group Companies. No written notice of cancelation has been received by any Group Company under such policies, and there is no existing default or event which, with the giving of notice or lapse of time or both, has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has made available to Parent loss-runs from January 1, 2022 through September 30, 2022 in respect of the Group Companies.
Section 3.17Tax Matters.
(a)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, (i) the Group Companies have filed all material Tax Returns required to be filed by them (taking into account any extensions of time within which to file such Tax Returns), (ii) all such Tax Returns are true, complete and correct in all material respects, (iii) the Group Companies have paid all Taxes required to be paid with respect to such Tax Returns or that are otherwise due and payable by a Group Company, and (iv) the Group Companies have withheld all Taxes required to have been withheld in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
(b)To the extent there are Taxes incurred but not yet due and payable by a Group Company (i) for periods covered by the Financial Statements, such Group Company has made an adequate provision for such Taxes in the Financial Statements in accordance with GAAP and (ii) for periods not covered by the Financial Statements, such Taxes have been accrued on the books and records of such Group Company.
(c)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, no Group Company is currently the subject of a Tax audit or examination, no such audit or examination is pending and, to the Company’s knowledge, no such audit or examination has been threatened by a Governmental Entity.
(d)No Group Company has waived any statute of limitations or agreed to any extension of time, in each case, with respect to the payment or collection of any material Tax (other than automatic extensions obtained in the Ordinary Course of Business).
(e)There are no Liens for Taxes upon any property or assets of any Group Company, except for Permitted Liens.
(f)No Group Company is a party to (or bound by) any Tax sharing, Tax allocation or Tax indemnity agreement with respect to Taxes (other than (i) any agreement the principal purpose of which does not relate to Taxes and (ii) any such agreement solely between Group Companies) for which any Group Company may be liable after Closing.
(g)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, no Group Company (i) has been a member of an affiliated group filing a consolidated U.S. federal Income Tax Return or a similar consolidated, combined or unitary group for state, local or non-U.S. Tax purposes (other than a group which includes only
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Group Companies) or (ii) has any liability for any Taxes of any Person (other than any Group Company) under Treasury Regulations Section 1.1502-6, as a transferee or successor, or by contract (other than any contract the principal purpose of which does not relate to Taxes).
(h)None of the Group Companies has been a party to a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
(i)None of the Group Companies has deferred any Taxes or claimed any employee retention credits under any COVID-19 Measure).
(j)None of the Group Companies has been a “controlled corporation” or a “distributing” corporation in any transaction occurring in the two-year period ending on the date hereof that was purported or intended to be governed in whole or in part by Section 355 of the Code.
(k)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, none of the Group Companies will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion of a Straddle Period) ending after the Closing Date as a result of any (i) change in method of accounting of the Group Companies prior to the Closing for a taxable period (or portion of a Straddle Period) ending on or prior to the Closing Date, (ii) use of an improper method of accounting for a taxable period (or portion of a Straddle Period) ending on or prior to the Closing Date, (iii) installment sale or open transaction disposition made prior to the Closing, (iv) prepaid amount received or paid prior to the Closing, or (v) closing agreement described under Code Section 7121 (or any corresponding or similar provision of state, local or non-U.S. Tax Law) executed prior to the Closing.
(l)None of the Group Companies is or has been classified as a passive foreign investment company within the meaning of Section 1297 of the Code or a United States real property holding corporation within the meaning of Section 897 of the Code.
(m)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, no income inclusion will be required after the Closing Date with respect to any Group Company under Section 951, 951A or 956 of the Code.
(n)All sales, license and financing transactions among or between Group Companies have been conducted on an arm’s-length basis (based on applicable transfer pricing requirements imposed by applicable Governmental Entities or under applicable Law) for Tax purposes.
(o)No written claim has been made by any Governmental Entity in a jurisdiction where a Group Company does not file Tax Returns that such Group Company is or may be subject to taxation by that jurisdiction, which claim has not been resolved or settled.
(p)Except as set forth on Schedule 3.17 of the Company Disclosure Schedule, all material sales and use Taxes required to have been collected and paid on the sale of products or taxable services by any Group Company have been properly and timely collected and paid, or all sales tax exemption certificates or other proof of the exempt nature
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of sales of such products or services have been properly collected and, to the extent required, submitted to the appropriate Governmental Entity.
Notwithstanding any other provision in this Agreement to the contrary, (i) the representations and warranties in Section 3.12 and this Section 3.17 are the sole and exclusive representations and warranties with respect to the Tax matters.
Section 3.18Brokers. No broker, investment banker, financial advisor or other Person (other than Morgan Stanley & Co. LLC and Piper Sandler & Co, each of whose fees and expenses shall be paid by the Company as a Seller Expense) is entitled to receive any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with this Agreement or the transactions contemplated hereby, including the Merger, for which Parent, Merger Sub or any Group Company may become liable.
Section 3.19Real and Personal Property.
(a)The Company or a Group Company has good and valid indefeasible fee simple title to, or in the case of Leased Real Properties, a valid leasehold interest in, all of its Owned Real Property or Leased Real Property and the Tangible Property, free and clear of all Liens other than Permitted Liens. No condemnation Action is pending or, to the knowledge of the Company, threatened with respect to any of the Owned Real Property or Leased Real Property.
(b)Schedule 3.19(b) of the Company Disclosure Schedule sets forth the address of each Owned Real Property. Except as set forth on Schedule 3.19(b) of the Company Disclosure Schedule, no Group Company has subleased, licensed or otherwise granted any Person the right to use or occupy or collaterally assigned or granted any security interest in any such Owned Real Property or any portion thereof other than Permitted Liens. None of the buildings on the Owned Real Property are in need of maintenance or repairs, ordinary wear and tear and maintenance excepted, that would be material to the Group Companies, taken as a whole. No Group Company is party to any contract or option to purchase any real property or interest in real property. The present use of the Owned Real Property, or any portion thereof, and the improvements erected on the Owned Real Property, do not breach, violate or conflict with in any material respect any Laws, covenants, conditions or restrictions or other agreements of record applicable thereto and binding on a Group Company or the Owned Real Property.
(c)Schedule 3.19(c) of the Company Disclosure Schedule sets forth the address of each Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property. The Company has made available to Parent and Merger Sub a true and complete copy of each such Lease document (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto). Except as set forth in Schedule 3.19(c) of the Company Disclosure Schedule, with respect to each of the Leases: (i) such Lease is a legal, valid, and binding obligation, and is enforceable against the applicable Group Company and, to the Company’s knowledge, the other party thereto and is in full force and effect, subject to General Enforceability Exceptions; (ii) to the Company’s knowledge, no Group Company is in breach or default under such Lease and no event has occurred and no circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, except to the extent such breach or default has not been and would not reasonably be expected to be material to the Group Companies,
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taken as a whole, (iii) no Group Company has received written notice from any other party to a Lease that such other party intends to terminate, not renew, or renegotiate in any material respect the terms of any such Lease and (iv) except as set forth in Schedule 3.19(c) of the Company Disclosure Schedule, the Group Companies have not subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any portion thereof.
(d)The facilities, machinery, equipment, furniture, leasehold improvements, fixtures, vehicles, structures, related capitalized items and other tangible property that are, individually or in the aggregate, material to any Group Company (the “Tangible Property”) are in good operating condition and repair, ordinary wear and tear excepted, subject to continued repair and replacement in accordance with the Ordinary Course of Business, are suitable for their intended use, and are adequate to support the business of the Group Companies. Since January 1, 2020, the Tangible Property has been maintained and repaired by a qualified Person and in accordance with prudent industry standards. Since January 1, 2020, there has not been any significant interruption in the operations of the business of the Group Companies due to inadequate maintenance of the Tangible Property.
Section 3.20Related Party Transactions. Other than as set forth on Schedule 3.20 of the Company Disclosure Schedule, no Affiliate of the Company nor, to the Company’s knowledge, any of the Group Companies’ officers, directors, employees, equityholders, nor any Person related by blood, marriage or adoption to any of such Persons, nor any Person in which any of such Persons owns any a greater than two percent (2%) beneficial interest: (a) has any interest in any material asset owned or leased by any Group Company or used in connection with the business of any Group Company or (b) is engaged in any transaction, arrangement or understanding with any Group Company (other than as a customer in the Ordinary Course of Business on arms’ length terms) (any such transaction in foregoing clause (a) or (b), a “Related Party Transaction”).
Section 3.21Suppliers and Customers.
(a)Schedule 3.21(a) of the Company Disclosure Schedule sets forth the names of the ten (10) largest suppliers or vendors of the Group Companies (the “Top Suppliers”) measured by dollar value of purchases by the Group Companies since January 1, 2020 through September 30, 2022. None of the Top Suppliers have notified any Group Company in writing or, to the knowledge of the Company, orally that it is (i) canceling or terminating its relationship with the Group Companies or (ii) materially and adversely modifying its relationship with the Group Companies.
(b)Schedule 3.21(b) of the Company Disclosure Schedule sets forth the names of the ten (10) largest customers of the Group Companies (the “Top Customers”) measured by dollar value of sales by the Group Companies since January 1, 2020 through September 30, 2022. None of the Top Customers has notified any Group Company in writing or, to the knowledge of the Company, orally that it is (i) canceling or terminating its relationship with the Group Companies or (ii) materially and adversely modifying its relationship with the Group Companies, including with respect to the terms of any legally binding agreement between any of the Group Companies and such customer.
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Section 3.22Accounts Receivable. The accounts receivable reflected in the Interim Financial Statements and the accounts receivable arising after the Reference Date (a) have arisen from bona fide transactions entered into by the Group Companies involving the sale of goods or the rendering of services in the Ordinary Course of Business; (b) constitute only valid, undisputed claims of the Group Companies not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the Ordinary Course of Business and not material in amount; and (c) are subject to a reserve for bad debts shown in the Interim Financial Statements or, with respect to accounts receivable arising after the Reference Date, on the accounting records of the Group Companies, are collectible in full within 90 days after billing.
Section 3.23Inventory. Subject to the reserves set forth on the Interim Financial Statements, except as set forth on Schedule 3.23 of the Company Disclosure Schedule: (a) the Group Companies have sole title to their inventory and such title is good and marketable free and clear of all Liens, other than Permitted Liens; (b) the Group Companies’ inventory was acquired and has been maintained in the Ordinary Course of Business; (c) the Group Companies’ inventory is in good and marketable condition and is of a quality, quantity and condition usable, leasable or saleable in the Ordinary Course of Business; (d) the Group Companies’ inventory is valued at the lower of cost or market value; (e) the Group Companies’ inventory is not subject to any write-down, write-off or other reserve that has not been reflected in the Group Companies’ accounting records; and (f) the Group Companies are not under any liability or obligation with respect to the return of any of their inventory in the possession of third parties.
Section 3.24Product and Service Warranties. Except as set forth on Schedule 3.24 of the Company Disclosure Schedule, the Group Companies have not provided a warranty with respect to products sold or services provided by them for a period of more than 24 months. Since January 1, 2021, to the Company’s knowledge, no Group Company has incurred any loss or liability as a result of any deficiency with respect to any product sold or service performed by it, whether such loss or liability is incurred by reason of any express or implied warranty, any doctrine of common law, any other Law, or otherwise. Since January 1, 2021, the products sold and services provided by the Group Companies conform with all applicable express warranties in all material respects. There are no pending or, to the Company’s knowledge, threatened claims for defects or deficiencies in products sold or services provided by the Group Companies against any Group Company that exceed $350,000 in the aggregate.
Section 3.25Bank Accounts. Schedule 3.25 of the Company Disclosure Schedule contains a true, complete and accurate list of the names and locations of all banks and other financial institutions and depositories, in each case, foreign or domestic, at which any Group Company maintains accounts of any type or safe deposit boxes, the name of the bank or other financial institution or depository, the account number of each such account, the number of each such safe deposit box and the current authorized signatory or signatories on each such account or safe deposit box. As of November 30, 2022, the aggregate amounts of the Group Companies’ restricted cash and cash held in bank accounts outside of the United States does not exceed $5,000,000.00.
Section 3.26No Business Activities. Except as set forth on Schedule 3.26 of the Company Disclosure Schedule, since January 1, 2012, the Company has not engaged in any business activities or conducted any operations, nor does it have any assets or liabilities,
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other than the equity interests in FlexSteel Holdings, Inc. and the Company’s obligations under this Agreement and the Ancillary Documents to which the Company is or will be a party and the Company’s obligations, if any, in respect of any Closing Date Payoff Debt or the documents in respect thereof.
Section 3.27Exclusivity of Representations and Warranties. Except for the representations and warranties made by the Company in this Article 3 (as qualified by the Company Disclosure Schedule), neither the Company nor any other Person (other than a Shareholder in its Letter of Transmittal) makes or has made any representation or warranty, express or implied, at law or in equity, with respect or on behalf of the Company or its Subsidiaries, their businesses, operations, assets, liabilities, financial condition, results of operation, future operating or financial results, estimates, projections, forecasts, plans or prospects (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, plans or prospects) or the accuracy or completeness of any information regarding the Company or its Subsidiaries or to any other matter furnished or provided to Parent or its Representatives or made available to Parent or its Representatives in any “data rooms,” management presentations or in any other form in the expectation of, or in connection with, this Agreement or the Ancillary Documents or the transactions contemplated hereby or thereby. The Group Companies disclaim any representations or warranties, except for the representations and warranties made by the Company in this Article 3 (as qualified by the Company Disclosure Schedule or a Shareholder in its Letter of Transmittal), whether made by the Company or any of its Subsidiaries or any of their respective Affiliates or Representatives.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES CONCERNING PARENT AND MERGER SUB
REPRESENTATIONS AND WARRANTIES CONCERNING PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company as of the date hereof as follows:
Section 4.1Organization. Parent is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite power and authority to carry on its businesses as now being conducted, except where the failure to have such power or authority would not prevent or materially delay the consummation of the transactions contemplated hereby. Merger Sub is a limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite power and authority to carry on its businesses as now being conducted, except where the failure to have such power or authority would not prevent or materially delay the consummation of the transactions contemplated hereby.
Section 4.2Authority. Each of Parent and Merger Sub has the requisite power and authority to execute and deliver this Agreement and will have the requisite power and authority to execute and deliver each of the Ancillary Documents at or prior to the Closing and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement (and the Ancillary Documents to which Parent or Merger Sub is or will be a party) and the consummation of the transactions contemplated hereby and thereby have been (or, in the case of the Ancillary Documents, at the Closing will be) (a) duly authorized by all necessary action on the part of Parent and Merger Sub (and no other proceeding, consent or authorization on the part of Parent or Merger Sub or their respective
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board of directors, shareholders, managers or members is necessary to authorize this Agreement or the Ancillary Documents to which Parent or Merger Sub is or will be a party or the consummation of the transactions contemplated hereby or thereby); and (b) duly executed and delivered by the Parent or Merger Sub and (assuming that this Agreement has (and the Ancillary Documents to which Parent or Merger Sub is or will be a party have) been or will be at the Closing, as applicable, duly and validly authorized, executed and delivered by each other party thereto) constitute (or, in the case of the Ancillary Documents, at the Closing will constitute, as applicable) a valid, legal and binding agreement of Parent and Merger Sub, enforceable against Parent or Merger Sub in accordance with their terms, subject to the General Enforceability Exceptions.
Section 4.3Consents and Approvals; No Violations.
(a)Assuming the truth and accuracy of the Company’s representations and warranties contained in Section 3.5, no notices to, filings with, or authorizations, consents or approvals of any Governmental Entity are necessary for the execution, delivery or performance by Parent or Merger Sub of this Agreement or the Ancillary Documents to which Parent or Merger Sub is a party or the consummation by Parent and Merger Sub of the transactions contemplated hereby or thereby, except for (i) compliance with and filings under the HSR Act or (ii) those the failure of which to obtain or make would not reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereby.
(b)Assuming the making of filings and the receipt of authorizations, consents or approvals set forth in Section 4.3(a), neither the execution, delivery or performance by Parent and Merger Sub of this Agreement or the Ancillary Documents to which Parent or Merger Sub is a party nor the consummation by Parent and Merger Sub of the transactions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of Parent’s or Merger Sub’s Governing Documents, (ii) result in a violation or breach of, conflict with, cause acceleration 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 any of the terms, conditions or provisions of any material agreement to which Parent or Merger Sub is a party, or (iii) violate in any material respect any applicable Law or Order of any Governmental Entity having jurisdiction over Parent or Merger Sub, which in the case of clause (ii) above, would otherwise prevent or materially delay the consummation of the transactions contemplated hereby.
Section 4.4Brokers. No broker, finder, financial advisor or investment banker is entitled to any brokerage, finder’s, financial advisor’s or investment banker’s fee or commission or similar payment in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent, Merger Sub or any of their respective Affiliates for which any Shareholder may become liable.
Section 4.5Sufficiency of Funds. At the Closing, Parent will have access to sufficient unrestricted cash on hand or other sources of immediately available funds to enable Parent to make all necessary payments in connection with the transactions contemplated hereby, including any adjustment payments to the Estimated Purchase Price pursuant to Section 2.4. Notwithstanding anything to the contrary in this Agreement, Parent understands and acknowledges that receipt or availability of any funds or any financing by Parent or any of its Affiliates, including pursuant to the Debt Commitment Letter or any other Financing
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Document, is not, and shall not be, a condition to Parent’s and/or Merger Sub’s obligations hereunder.
Section 4.6Solvency. Assuming the representations and warranties contained in Article 3 are true and correct in all material respects, immediately after giving effect to the transactions contemplated by this Agreement, none of Parent or the Group Companies will (i) be insolvent (either because its financial condition is such that the sum of its debts is greater than the fair value of its assets or because the fair salable value of its assets is less than the amount required to pay its probable liability on its existing debts as they mature), (ii) have unreasonably small capital with which to engage in its business, or (iii) have incurred debts beyond its ability to pay as they become due.
Section 4.7Litigation. There is no Action pending or, to Parent’s or Merger Sub’s actual knowledge, threatened in writing against Parent or Merger Sub or any of their respective Affiliates before any Governmental Entity which would prevent or materially delay the consummation of the transactions contemplated hereby. Neither Parent, Merger Sub nor any of their respective Affiliates is subject to any outstanding Order which would prevent or materially delay the consummation of the transactions contemplated hereby.
Section 4.8Investigation; No Other Representations.
(a)Each of Parent and Merger Sub, on its own behalf and on behalf of its Affiliates and each of its and their respective Representatives, (i) acknowledges, represents, warrants and agrees that (A) it has conducted its own independent review and analysis of, and, based thereon, has formed an independent judgment concerning, the business, assets, condition, operations and prospects of the Group Companies, (B) it has been furnished with or given full access to such documents and information about the Group Companies and their respective businesses and operations as it, its Affiliates and its and their respective Representatives have deemed necessary to enable it to make an informed decision with respect to the execution, delivery and performance of this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby, (C) it has received all materials relating to the business of the Group Companies that it has requested and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any such information or of any representation or warranty made by the Company herein or by any Group Company in any Ancillary Document to otherwise evaluate the merits of the transactions contemplated hereby and by the Ancillary Documents and (D) the Company has answered to Parent’s and Merger Sub’s satisfaction all inquiries that Parent, Merger Sub, their respective Affiliates and its and their respective Representatives made concerning the business of the Group Companies or otherwise relating to the transactions contemplated hereby and by the Ancillary Documents, and (ii) except in the case of Fraud, waives all rights Parent, Merger Sub any of their Affiliates or any of their respective Representatives may have against any Group Company or any of their respective Representatives with respect to any omission or concealment, or any misstatement with respect to, any other potentially material information by any Group Company or any of their respective Representatives.
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(b)In entering into this Agreement and the Ancillary Documents, each of Parent and Merger Sub has relied solely upon its own investigation and analysis and the representations and warranties of the Company expressly contained in Article 3 (in each case, as qualified by the Company Disclosure Schedule) and the representations and warranties of the Shareholders in their respective Letters of Transmittal, respectively, and Parent and Merger Sub, on its own behalf and on behalf of its Affiliates and each of its and their respective Representatives, acknowledges, represents, warrants, and agrees that, other than as set forth in Article 3 of this Agreement or in the Letters of Transmittal, none of the Group Companies, any of their respective Representatives, or any other Person makes or has made any representation or warranty, either express or implied, (i) as to the condition, value or quality of the Shares or businesses or assets of any of the Group Companies, (ii) as to the accuracy or completeness of any of the information provided or made available to Parent or Merger Sub, any of their Affiliates or any of its or their respective Representatives or (iii) with respect to any projections, forecasts, estimates, plans or budgets of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component thereof) or future financial condition (or any component thereof) of any Group Company heretofore or hereafter delivered to or made available to Parent or Merger Sub, any of its Affiliates or any of its or their Representatives. Without limiting the generality of the foregoing, each of Parent and Merger Sub, on its own behalf and on behalf of its Affiliates and each of its and their respective Representatives, acknowledges, represents, warrants and agrees that (A) none of the Group Companies, any of their respective Representatives, or any other Person has made, or shall be deemed to have made, any representations or warranties in the materials relating to the business, assets or liabilities of the Group Companies made available to Parent and Merger Sub, including due diligence materials, memorandum or similar materials, or in any presentation of the business of the Group Companies by management or other Representatives of the Group Companies or others in connection with the transactions contemplated hereby, and (B) no statement contained in any such materials or made in any such presentation shall be deemed a representation or warranty hereunder or otherwise or deemed to be relied upon by Parent or Merger Sub in executing and delivering or performing under this Agreement or the Ancillary Documents or in consummating the transactions contemplated hereby or thereby; provided, however, that the foregoing shall not limit any representation and warranty made by the Company in Article 3 or by a Shareholder in its Letter of Transmittal. It is understood that any cost estimates, projections or other predictions, any data, any financial information or any memoranda or offering materials or presentations, including any offering memorandum or similar materials made available to each of Parent and Merger Sub or any of its Representatives (x) are not and shall not be deemed to be or to include, representations or warranties of the Group Companies, any of their respective Representatives, or any other Person, and (y) are not and shall not be deemed to be relied upon by Parent or Merger Sub in executing and delivering or performing under this Agreement or the Ancillary Documents or in consummating the transactions contemplated hereby or thereby. Each of Parent and Merger Sub specifically disclaims that it is relying upon or has relied upon any representations or warranties that may have been made by any Person (other than the Company in Article 3 and the Shareholders in their respective Letters of Transmittal), and acknowledges and agrees that the Company and its Affiliates have specifically disclaimed and do hereby specifically disclaim any such other representations and warranties.
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Section 4.9R&W Insurance Policy. Parent has obtained the R&W Insurance Policy Conditional Binder, which is attached hereto as Exhibit D (the “R&W Conditional Binder”).
Section 4.10Financing.
(a)Parent has delivered to the Company a true and complete copy of the executed Debt Commitment Letter and the related Debt Fee Letters as in effect on the date hereof, in each case with all schedules, exhibits, annexes and amendments thereto (with, in the case of any Debt Fee Letter, only the fee amounts, original issue discount, and economic “market flex” terms customarily redacted, none of which redacted provisions would be reasonably expected to adversely affect the amount, conditionality or availability of the Debt Financing on the Closing Date). Neither Parent nor any of its Affiliates has entered into any agreement, side letter or other arrangement relating to funding of the Debt Financing, other than as set forth in the Debt Commitment Letter and the Debt Fee Letter (including any “market flex” provisions set forth therein). The committed amount of Debt Financing is sufficient in order to cause the representation made by Parent and Merger Sub in Section 4.5 to be true and correct.
(b)As of the date hereof, the commitments contained in the Debt Commitment Letter have not been withdrawn or rescinded in any respect. As of the date hereof, the Debt Commitment Letter is in full force and effect against Parent LLC and represents a valid, binding and enforceable obligation of Parent LLC and, to Parent’s knowledge, each other party thereto, to provide the financing contemplated thereby subject only to the satisfaction or waiver of the conditions set forth in the Debt Commitment Letter as of the date hereof, subject to the General Enforceability Exceptions. Parent has fully paid (or caused to be fully paid) any and all commitment fees and other amounts that are due and payable on or prior to the date of this Agreement in connection with the Debt Financing. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would constitute a breach or default on the part of Parent LLC or any other party thereto under the Debt Commitment Letter. Assuming the satisfaction of the conditions set forth in Section 6.1 and Section 6.2, Parent LLC has no reason to believe that Parent LLC or any other party thereto will be unable to satisfy on a timely basis any term of the Debt Commitment Letter. The only conditions precedent or other contingencies related to the funding of the Debt Financing on the Closing Date that will be included in any debt financing documents shall be the conditions set forth in the Debt Commitment Letter as of the date hereof, as the Debt Commitment Letter may be modified in accordance with Section 5.17(a)(i). Assuming the satisfaction of the conditions set forth in Section 6.1 and Section 6.2, Parent has no reason to believe that (A) any of such conditions in the Debt Commitment Letter will not be satisfied or (B) the Debt Financing will not be made available to Parent on the Closing Date.
Section 4.11No Business Conduct. Merger Sub was formed on December 21, 2022. Since inception, Merger Sub has not engaged in any activity, other than actions taken in connection with (i) its organization and (ii) the preparation, negotiation and execution of this Agreement (or any Ancillary Document) and the transactions contemplated hereby (or thereby). Merger Sub has no operations, has generated no revenues and does not have any liabilities other than those incurred in connection with the Merger as provided in this Agreement.
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ARTICLE 5
COVENANTS
COVENANTS
Section 5.1Conduct of Business of the Company. Except as expressly permitted or required by this Agreement or any Ancillary Document or to the extent necessary to effect the transactions contemplated hereby or thereby on the terms and conditions contained herein or therein, as applicable, from and after the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, the Company shall, and shall cause each other Group Company to, except as set forth on Schedule 5.1 of the Company Disclosure Schedule, as required by applicable Law or any COVID-19 Response or COVID-19 Measure, or as consented to in writing by Parent (which consent shall not be unreasonably withheld, conditioned or delayed), (a) use its commercially reasonable efforts to conduct its business in the Ordinary Course of Business in all material respects (taking into account any material event or change in circumstance that occurs following the date of this Agreement) (provided, that no action or inaction by the Group Companies with respect to matters specifically addressed by any provision of Section 5.1 shall be deemed a breach of this Section 5.1 and no Group Company shall take any action to comply with the foregoing that would breach any of the provisions of Section 5.1) and (b) not do any of the following:
(i)declare or pay a non-cash dividend on, or make any other non-cash distribution in respect of, its equity securities except dividends and distributions by any of the Company’s Subsidiaries entirely to the Company or another Group Company;
(ii)(A) acquire in any manner (whether by merger or consolidation, the purchase of an equity interest in or a material portion of the assets of or otherwise) any business or any corporation, partnership, association or other business organization or division thereof of any other Person, (B) acquire assets with an aggregate value of greater than $2,000,000 other than, in the case of this clause (B), the acquisition of inventory or raw materials in the Ordinary Course of Business, (C) form any joint venture or similar arrangement, or (D) make any loans, advances or capital contributions to, or investments in, any Person, (other than a Group Company), except for loans, advances or capital contributions in the form of trade credit granted to customers in the Ordinary Course of Business;
(iii)adopt any amendments to their respective Governing Documents;
(iv)sell, convey, transfer lease, assign, license, encumber, abandon or otherwise dispose of any assets with an aggregate value of greater than $500,000; provided, that such Group Company may sell or otherwise dispose of any pipe or any obsolete, unusable or unneeded parts and equipment, in each case, in the Ordinary Course of Business;
(v)issue (other than entirely to any other Group Company) (A) any capital stock of any Group Company or (B) any options, warrants, rights of conversion or other rights, agreements, arrangements or commitments obligating any Group Company to issue, deliver or sell any capital stock of any Group Company;
(vi)(A) incur, create, assume or otherwise become liable for any Indebtedness for borrowed money in excess of $500,000, other than (y) any borrowings that
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will constitute Closing Date Payoff Debt; and (z) any such Indebtedness for which the Group Companies will not have any liability at and after the Closing, or (B) other than Permitted Liens, create, assume or suffer to exist any Lien upon any of its assets or properties;
(vii)make any capital expenditures in excess of $1,500,000 in the aggregate, except pursuant to the Company’s 2023 annual budget made available to Parent or in the Ordinary Course of Business, but only to the extent required by the terms of any contract or agreement in effect as of the date hereof and made available to Parent or entered into after the date hereof in accordance with the terms of this Section 5.1;
(viii)enter into, conduct, engage in or otherwise operate any material new line of business;
(ix)other than in the Ordinary Course of Business, (A) make, revoke or change any material Tax election, (B) amend any Tax Return, (C) settle or compromise any Tax audit, examination or litigation, (D) agree to extend or waive the applicable statute of limitations with respect to any Tax, or (E) waive any right to a refund of any Tax;
(x)enter into, modify, amend, voluntarily terminate, renew, fail to renew or waive any rights under any Material Contract (or any contract or other legally binding arrangement that would have been a Material Contract had it been entered into prior to the date hereof), other than in the Ordinary Course of Business and, with respect to voluntary termination, other than in respect of any documents governing any Closing Date Payoff Debt;
(xi)dissolve or liquidate or adopt or enter into any plan or agreement of complete or partial liquidation or dissolution, merger, amalgamation, consolidation, restructuring, recapitalization or other reorganization;
(xii)settle or offer or propose to settle any Action against any Group Company unless such settlement (A) requires the payment of less than $500,000 by such Group Company, (B) involves the unconditional release of such Group Company with respect to the subject matter of such Action, (C) does not impose any material obligations on such Group Company after the Closing, and (D) does not involve an admission of liability by such Group Company;
(xiii)collect accounts receivable or pay any accrued liabilities or accounts payable or prepay any expenses, in each case, other than in the Ordinary Course of Business;
(xiv)except as required by applicable Law, the terms of a Benefit Plan as in effect immediately prior to the date hereof, or in the Ordinary Course of Business: (A) grant or agree to grant any increase in salaries, wages, bonuses or other compensation or benefits with respect to any current or former employee, director or consultant, (B) grant any equity or equity-based or other incentive award to, or accelerate the vesting or payment of any such award held by, any current or former employee, director or consultant, (C) grant or increase any severance, retention, change in control, termination or similar pay to, or enter into or amend any employment severance, retention, change in control, termination or similar
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agreement or arrangement with any current or former employee, director or consultant, or (D) adopt, enter into, commence participation in, materially amend or modify (except as required by applicable Law), terminate, or withdraw from any material Benefit Plan, (E) hire or, other than for cause as reasonably determined, terminate any senior executive of a Group Company, or (F) extend credit or renew or forgive a previously existing extension of credit (either directly or indirectly) for the benefit of any current or former directors, officers, consultants, or employees of a Group Company;
(xv)except as required by applicable Law, negotiate with or agree to negotiate with any labor organization in respect of any employees of a Group Company or enter into, amend, or extend the term of any collective bargaining agreement; or
(xvi)enter into any agreement to take, or cause to be taken, any of the actions set forth in this Section 5.1.
Notwithstanding anything to the contrary contained in this Section 5.1, (A) nothing contained in this Agreement shall give Parent or Merger Sub, directly or indirectly, the right to control or direct the operations of the Group Companies prior to the Closing and (B) the Parties expressly acknowledge and agree that the Group Companies may repay any Indebtedness, pay any Seller Expenses or make any distribution of Cash and Cash Equivalents at any time prior to the Adjustment Time.
Section 5.2Access to Information. From and after the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, upon reasonable notice, and subject to (x) applicable Laws relating to the exchange of information and/or access to the Group Company’s properties, facilities and/or assets in light of COVID-19 or (y) any restrictions contained in the confidentiality agreements to which any Group Company is subject or bound and any other applicable confidentiality obligation or restriction (legal, contractual or otherwise) of any Group Company, the Company shall provide, or cause to be provided, to Parent and its authorized Representatives during normal business hours on reasonable notice reasonable access to the books and records of the Group Companies (in a manner so as to not unreasonably interfere with the normal business operations of any Group Company); provided, that all of such information shall be treated as “Evaluation Material” pursuant to the terms of the Confidentiality Agreement, the provisions of which are by this reference hereby incorporated herein and Parent agrees that it shall be bound by the Confidentiality Agreement to the same extent as Parent LLC; provided, that such access may be limited by the Company or any member of the Group Company to remote, electronic access in response to COVID-19 to the extent reasonably necessary to protect the health and safety of the Group Companies’ respective managers, officers, directors, partners, members, equityholders, employees, advisors, consultants, agents or other representatives, or customers, lessors, suppliers, vendors or other commercial partners; provided, further, that such access shall not extend to any sampling or testing of environmental media at any Owned Real Property or Leased Real Property. Notwithstanding anything to the contrary set forth in this Agreement, during the period from the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, none of the Company or any of its Affiliates (including the Group Companies) or Representatives shall be required to disclose to Parent, Merger Sub or any of its Representatives any information: (i) if doing so would violate any contract, fiduciary duty or Law to which the Company or any of its Affiliates (including the Group Companies) is a party or is subject or bound by; (ii) if it reasonably determined upon the advice of counsel
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that doing so could result in the loss of the ability to successfully assert attorney-client, work product or similar legal privileges; (iii) if the Company or any of its Affiliates, on the one hand, and Parent, Merger Sub or any of their respective Affiliates, on the other hand, are adverse parties in any Action and such information is reasonably pertinent thereto; (iv) if the Company reasonably determines that such information should not be disclosed due to its competitively sensitive nature; or (v) relating to Taxes or Tax Returns other than to the extent related to the Group Companies; provided, that in the event that the restrictions in the foregoing clauses (i) or (ii) apply, the Seller Representative shall provide Parent with a reasonably detailed description of the information not provided, and the Seller Representative and the Group Companies shall cooperate in good faith to design and implement alternative disclosure arrangements to enable Parent to evaluate such information without violating such contract, duty or Law or jeopardizing such privilege.
Section 5.3[Reserved].
Section 5.4Efforts to Consummate.
(a)Subject to the terms and conditions herein provided, each of the Company, Parent and Merger Sub shall use reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement (including the satisfaction, but not waiver, of the closing conditions set forth in Article 6); provided, however, that notwithstanding anything to the contrary contained in this Agreement, in the case of any consents or approvals of any Persons (other than a Governmental Entity) that may be required in connection with the foregoing or otherwise related to this Agreement, any Ancillary Document or the transactions contemplated hereby or thereby, neither the Company, Parent, Merger Sub nor any of their respective Affiliates (including the Group Companies, in the case of the Company) shall be required to make or agree to make any payments or afford or agree to afford any other benefit to any third party to secure any such consent or approval and shall not be required to modify or agree to modify any such contract or agreement to which the consent or approval may relate. Without limiting the generality of the foregoing or Parent’s and Merger Sub’s obligations under this Section 5.4(a), each of Parent, Merger Sub and the Company shall use reasonable best efforts to make filings or notifications with, and obtain consents of all Governmental Entities necessary to consummate the transactions contemplated by this Agreement. All fees payable to government entities that are incurred in connection with the making of such filings or notification and obtaining such consents, including the HSR Act, shall be borne by Parent. Each Party (i) shall make an appropriate filing pursuant to the HSR Act with respect to the transactions contemplated by this Agreement promptly (and in any event, within seven (7) Business Days) after the date hereof (unless filed prior to the date hereof), which shall include a request for early termination of the waiting period, if available, and (ii) shall supply as promptly as practicable to the appropriate Governmental Entities any additional information and documentary material that may be requested pursuant to the HSR Act. Each Party shall promptly inform the other Parties of any substantive communication between such Party and any Governmental Entity regarding any of the transactions contemplated by this Agreement. Without limiting the foregoing, (A) the Company, Parent, Merger Sub and their respective Affiliates shall not extend any waiting period, review period or comparable period under the HSR Act or enter into any agreement with any Governmental Entity to delay or not to consummate the transactions contemplated hereby, except with the prior written consent of the other Parties, and (B) Parent and Merger Sub agree to take, and to cause their respective Affiliates to take, any and all commercially reasonable actions that are
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necessary or advisable or as may be required by any Governmental Entity to expeditiously (and in any event, prior to the Outside Date) consummate the transactions contemplated by this Agreement, including (v) selling, licensing or otherwise disposing of, or holding separate and agreeing to sell, license or otherwise dispose of, any entities, assets or facilities of any Group Company after the Closing or any entity, facility or asset of Parent, Merger Sub or any of their respective Affiliates, (w) terminating, amending or assigning existing relationships and contractual rights and obligations, (x) amending, assigning or terminating existing licenses or other agreements (other than terminations that would result in a breach of a license or such other agreement with a third party) and entering into such new licenses or other agreements, (y) litigating (or defending) against any Action (including any Action seeking a temporary restraining order or preliminary injunction) challenging the transactions contemplated hereby as violative of any Law and (z) taking any action requested by a Governmental Entity as a condition to terminate an applicable waiting period or otherwise permit the transactions contemplated hereby to close without challenge. All such efforts in the foregoing clause (a) shall not be limited by any lesser standard of efforts used in this Agreement. Notwithstanding anything in this Section 5.4(a) to the contrary, in no event shall the Company (including the Group Companies), Parent or Merger Sub be required to agree to take or enter into any action (or refrain from taking any action) which is not conditioned upon, and shall only become effective from and after, the Closing. Notwithstanding anything in this Agreement to the contrary, each Party will consult and cooperate with the other Parties and will consider in good faith the views of the other Parties in connection with any filing, analysis, appearance, presentation, memorandum, brief, argument, opinion, or proposal made or submitted in connection with the Transactions; provided, however, that Parent shall, on behalf of the Parties, control and lead all communications and strategy for dealing with any Governmental Entity regarding antitrust matters.
(b)Each Party hereto shall and shall cause their respective Affiliates to coordinate and reasonably cooperate with one another in exchanging and providing such information to each other and in making the filings and requests referred to in this Section 5.4. The Parties hereto shall and shall cause their respective Affiliates to supply such reasonable assistance as may be requested by any other Party in connection with the foregoing.
(c)In the event any Action by any Governmental Entity or other Person is commenced which questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, the Parties agree to cooperate and use reasonable best efforts to defend against such Action and, if an injunction or other Order is issued in any such Action, to use reasonable best efforts to have such Order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated hereby prior to the Outside Date, which reasonable best efforts shall, in the case of Parent and Merger Sub, include taking the actions required pursuant to Section 5.4(a).
(d)Each of Parent and Merger Sub, on the one hand, and the Seller Representative, on the other hand, shall, to the extent permissible, permit counsel for the other with a reasonable opportunity to review in advance, and consider in good faith the views of the other in connection with, any proposed written communication, application, submission, meeting, notice, or other substantive filing to any Governmental Entity relating to the transactions contemplated by this Agreement. Each of the Parties agrees not to participate in any substantive meeting or discussion, either in person or by telephone or video conference, with any Governmental Entity in connection with the transactions contemplated by this Agreement unless it consults with, in the case of Parent and Merger Sub, the
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Company or, in the case of the Company, Parent in advance and, to the extent not prohibited by such Governmental Entity, gives, in the case of Parent and Merger Sub, the Company and Seller Representative, or, in the case of the Company, Parent the opportunity to attend and participate in such meeting or discussion. To the extent that the filing responsibility under any applicable Antitrust Laws lies solely with Parent or Merger Sub, Parent and Merger Sub agree to provide the Seller Representative with copies of all relevant material filed on behalf of Parent and Merger Sub in such regard to the extent legally permissible (subject to adequate measures for protection of the Parent’s or Merger Sub’s or their Affiliates’ confidential business information and, if not otherwise legally permissible with the appropriate redactions, share the possible information on a counsel-to-counsel basis).
(e)In the event that a Governmental Entity issues a request for additional information or documentary material pursuant to the HSR Act (the “Second Request”) in connection with the transactions contemplated by this Agreement, then each of Parent, Merger Sub and the Company shall make (or cause to be made), as soon as reasonably practicable an appropriate response in substantial compliance with the Second Request in order to obtain expiration or termination of the applicable waiting period before the Outside Date. No Party may enter into a so-called timing agreement with any Governmental Entity without the consent of the other Parties; provided, that any such consent shall not be unreasonably withheld, conditioned or delayed.
(f)From and after the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, and except as required by this Agreement, each of Parent and Merger Sub shall not, and each shall cause its Affiliates not to, engage in any action or enter into any transaction or permit any action to be taken or transaction to be entered into, in each case, that would prevent or materially delay the consummation of the transactions contemplated hereby or have a material adverse effect on Parent’s or Merger Sub’s ability to perform its obligations hereunder or under any Ancillary Document. Without limiting the generality of the foregoing, from and after the date hereof until the earlier of the Closing and the termination of this Agreement in accordance with its terms, each of Parent and Merger Sub shall not, and shall cause its Affiliates not to, acquire or agree to acquire, by merging with or into or consolidating with, or by purchasing a portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets or equity interests, if the entering into of a definitive agreement relating to, or the consummation of, such acquisition, merger or consolidation would reasonably be expected to: (i) impose any material delay in the obtaining of, or increase the risk of not obtaining, any consents of any Governmental Entity necessary to consummate the transactions contemplated by this Agreement or the expiration or termination of any applicable waiting period; (ii) increase the risk of any Governmental Entity seeking or entering an Order prohibiting the consummation of the transactions contemplated by this Agreement; (iii) increase the risk of not being able to remove any such Order on appeal or otherwise; or (iv) materially delay or prevent the consummation of the transactions contemplated by this Agreement.
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Section 5.5Public Announcements. Parent, Merger Sub and the Seller Representative shall consult with each other before issuing, and give each other the opportunity to review and comment upon, any press release or other public statement with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement without the prior written consent of the Seller Representative, in the case of a press release or other public statement by Parent or Merger Sub, or Parent, in the case of a press release or other public statement by Seller Representative or a Group Company; provided, however, that each Party may make any such announcement which it in good faith believes, based on advice of counsel, is necessary or advisable in connection with any requirement of applicable Law, it being understood and agreed that each Party shall, to the extent permitted by applicable Law, provide the other Parties with copies of any such announcement in advance of such issuance; provided, further, that each Party may make internal announcements to their respective employees that are not inconsistent in any material respects with the Parties’ prior public disclosures regarding the transactions contemplated by this Agreement. The Parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement following the Closing shall be in the form agreed to by the Parties. Notwithstanding the foregoing, this Section 5.5 shall not apply to any press release or other public statement made by Parent, Merger Sub or the Company (including, after the Closing, the Surviving Entity) which is consistent with the terms of this Agreement and does not contain any information relating to the Company (including, after the Closing, the Surviving Entity) or the transactions contemplated by this Agreement that has not been previously announced or made public in accordance with the terms of this Section 5.5. Nothing herein shall prevent Seller Representative or any of its Affiliates which is a private equity or other investment fund from making customary disclosures (which are made subject to customary confidentiality obligations), including with respect to the key economic terms of the transactions contemplated by this Agreement and the return realized as a result thereof, to its current or prospective investors in connection with its normal fundraising and reporting activities. The Parties acknowledge and agree that Parent (or any Affiliate thereof) may file this Agreement, including a summary thereof, with the SEC or otherwise make press releases or other public statements, in each case, as necessary to comply with applicable Laws and/or stock exchange rules.
Section 5.6Employee Matters.
(a)With respect to the period commencing on the Closing Date and ending one (1) year following the Closing Date (or such shorter period as the employee remains employed), Parent shall provide, or cause to be provided to, each employee of each Group Company who continues to be employed by a Group Company immediately after Closing (i) a salary or hourly wage rate that is not less than that provided to such employee by the applicable Group Company immediately prior to Closing, except (A) with respect to employees that agree to new employment terms with Parent or its Affiliates and (B) for reductions in such compensation that are commensurate with reductions to the compensation of Parent’s or its Affiliates employees, (ii) cash incentive compensation opportunities, other cash compensation, and benefits (excluding equity arrangements) that are at least as favorable, in the aggregate, as those provided by Parent or its Affiliates to their own similarly situated employees, and (iii) severance benefits that are no less favorable, in the aggregate, than provided by Parent or its Affiliates to their own similarly situated employees.
(b)Parent further agrees that, from and after the Closing, Parent shall, and shall cause each Group Company to, grant all of its employees credit for any service with
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such Group Company earned prior to the Closing (i) for eligibility and vesting purposes (but not for vesting of incentive or equity compensation) and (ii) for purposes of vacation/paid time off accrual and severance benefit determinations under any benefit or compensation plan, program, policy, agreement or arrangement maintained by Parent or a Group Company or any of their Affiliates immediately after the Closing (the “New Plans”), in either case only to the extent that (A) such crediting does not result in duplication of benefits and (B) such service is properly credited under a Benefit Plan for a similar purpose.
(c)In addition, Parent shall use commercially reasonable efforts to (i) cause to be waived all pre-existing condition exclusions and actively-at-work requirements and similar limitations, eligibility waiting periods and evidence of insurability requirements under any New Plans to the extent waived or satisfied by an employee or his or her dependents under any Benefit Plan as of the Closing and (ii) cause any deductible, co-insurance and covered out-of-pocket expenses paid in the plan year in which Closing occurs and on or before the Closing by any employee (or covered dependent thereof) of any Group Company to be taken into account for purposes of satisfying the corresponding deductible, co-insurance and maximum out-of-pocket provisions after the Closing under any applicable New Plan in the plan year in which Closing occurs. Parent shall cause each employee of each Group Company who is a participant in any Benefit Plan that is a tax-qualified retirement plan with a cash or deferred arrangement described in Section 401(k) of the Code (the “401(k) Plan”) on the Closing Date to be allowed to participate effective as of the Closing Date in a 401(k) plan sponsored by Parent (or a member of the same controlled group as Parent) and such employee shall be eligible immediately after the Closing Date to make elective deferrals into such 401(k) plan, and to be eligible to receive employer contributions. In addition, Parent shall cause such 401(k) plan to accept rollover contributions of “eligible rollover distributions” (within the meaning of Section 401(a)(31) of the Code) from the 401(k) Plan, including any undefaulted participant loans. All rollovers shall be accomplished pursuant to the terms of Parent’s 401(k) plan and administrative policies.
(d)The Company shall, and shall cause each Group Company to, withdraw, effective immediately prior to and contingent upon the Closing, from participation in or sponsorship of, as applicable, each Benefit Plan that is not sponsored or maintained solely by a Group Company.
(e)The Company shall ensure that, to the extent applicable, PNRI, Seller Representative and their respective Affiliates (other than the Group Companies) shall withdraw, effective immediately prior to and contingent upon the Closing, from participation in or sponsorship of, as applicable, each Benefit Plan that is sponsored or maintained by a Group Company, other than in any administrative capacity that is necessary to finalize settlement of payments or accounts, or other administrative issues that may be necessary following Closing.
(f)The Parties acknowledge and agree that all provisions contained in this Section 5.6 are included for the sole benefit of Parent and the Company, and that nothing contained herein, express or implied, is intended to confer upon or shall create any third party beneficiary or other rights (i) in any Person, including any Company Employees, any participant in any New Plan or Benefit Plan, or any dependent or beneficiary thereof, or (ii) to continued employment for any period or continued receipt of any specific employee
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benefit, or shall constitute an amendment to or any other modification of any New Plan or Benefit Plan.
Section 5.7Payoff Letters and Lien Releases. Prior to the Closing, the Company shall (a) obtain and deliver to Parent customary payoff letters in connection with the repayment of the Closing Date Payoff Debt, together with any customary financing termination statements or mortgage releases and shall obtain other release and termination documentation necessary or reasonably requested by Parent to, subject to receipt by the lenders of such Closing Date Payoff Debt of the applicable payoff amounts, terminate all liens and guaranties supporting such Closing Date Payoff Debt, in form reasonably satisfactory to Parent (collectively, the “Payoff Letters”) and (b) make arrangements for the delivery of any possessory collateral, subject to the receipt of the applicable payoff amounts by the lenders of such Closing Date Payoff Debt, to the Surviving Entity upon Closing, each of which shall be reasonably satisfactory to Parent; provided, that, at least three (3) Business Days prior to the Closing Date, the Company shall have delivered to Parent substantially final drafts of such Payoff Letters and copies or other evidence of any such possessory collateral.
Section 5.8Indemnification; Directors’ and Officers’ Insurance.
(a)Parent agrees that all rights to indemnification or exculpation now existing in favor of the directors, officers, employees, fiduciaries, trustees and agents of each Group Company (the “D&O Persons”), as provided in any Group Company’s Governing Documents or indemnification agreements, in each case, made available to Parent, shall survive the transactions contemplated by this Agreement and shall continue in full force and effect and that Parent shall, or shall cause the Group Companies to, perform and discharge the Group Companies’ obligations to provide such indemnity and exculpation. To the maximum extent permitted by applicable Law, such indemnification as it relates to directors or officers shall be mandatory rather than permissive, and Parent shall cause, or shall cause the Group Companies to, advance expenses in connection with such indemnification; provided, that such D&O Person undertakes to repay in full any such advanced expenses if it is determined by a court of competent jurisdiction that such D&O Person is not entitled to indemnification. The indemnification and liability limitation or exculpation provisions of the Group Companies’ Governing Documents shall not be amended, repealed or otherwise modified after the Closing in any manner that would adversely affect the rights thereunder of individuals who, as of the Closing or at any time prior to the Closing, were D&O Persons, unless such modification is required by applicable Law.
(b)Neither Parent, nor any Group Company shall settle, compromise or consent to the entry of any Order in any actual or threatened Action in respect of which indemnification has been or could be sought by a D&O Person under this Section 5.8(b) unless such settlement, compromise or Order includes an unconditional release of such D&O Person from all liability arising out of such Action.
(c)Prior to or at the Closing, the Company shall purchase a “tail” policy arranged by the Company prior to the Closing, providing directors’ and officers’ liability insurance coverage for the benefit of those Persons who are directors and officers of the Company or any Group Company and who are covered by the insurance policy bound by PCV Associates LLC and applicable to the Company and each of its direct and indirect Subsidiaries (including any Group Company’s) directors’ and officers’ liability insurance
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policies as of the date hereof or at the Closing with respect to matters occurring prior to the Closing that is at least equal to the coverage provided under any such entity’s current directors’ and officers’ liability insurance policies, and Parent shall cause the Surviving Entity to maintain such policy in effect, without any lapse or gaps in coverage, for a period of six (6) years following the Closing Date; provided, that the Surviving Entity may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous to the beneficiaries thereof so long as such substitution does not result in gaps or lapses in coverage with respect to matters occurring on or prior to the Closing.
(d)Parent agrees, and will cause the Group Companies, not to take any action that would have the effect of limiting the aggregate amount of insurance coverage required to be maintained for the individuals referred to in Section 5.8(c). If Parent, any Group Company or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of their properties and assets as an entity in one (1) or a series of related transactions to any Person, then, in each such case, proper provisions shall be made so that the successors and/or assigns of Parent or such Group Company shall assume all of the obligations set forth in this Section 5.8; provided, that neither Parent nor such Group Company shall be relieved from such obligation. In addition, neither Parent nor any Group Company shall distribute, sell, transfer or otherwise dispose of any of its assets in a manner that would reasonably be expected to render Parent or such Group Company unable to satisfy its obligations under this Section 5.8(d).
(e)The D&O Persons entitled to the indemnification, liability limitation, exculpation and insurance set forth in this Section 5.8 are intended to be third party beneficiaries of this Section 5.8. This Section 5.8 shall survive the consummation of the transactions contemplated by this Agreement and shall be binding on all successors and assigns of Parent and the Group Companies.
Section 5.9Documents and Information. After the Closing Date, Parent and the Group Companies shall, until the fifth (5th) anniversary of the Closing Date, retain all books, records and other documents pertaining to the business of the Group Companies in existence on the Closing Date and, upon the request of Seller Representative, provide digital copies of the same by email or download to Seller Representative and its Representatives, or if not reasonably practicable to provide digital copies, make the same available for inspection and copying by Seller Representative and its Representatives (at Seller Representative’s expense) during normal business hours of the Surviving Entity or any of its Subsidiaries, as applicable.
Section 5.10Contact with Customers, Suppliers and Other Business Relations. Parent hereby agrees that it is not authorized to and shall not (and shall cause its Affiliates and any of its or their respective Representatives not to) contact any employee, customer, supplier, distributor or other material business relation of any Group Company regarding any Group Company, any Group Company’s business or the transactions contemplated by this Agreement without the prior written consent of the Company or the Seller Representative. Notwithstanding the foregoing, (a) Seller Representative and the Company shall provide Parent reasonable access, with reasonable prior notice (which may be oral) to the Chief Executive Officer of the Company, to employees of the Group Companies, and Parent and Merger Sub shall be permitted to communicate with such employees, in order to allow Parent to ensure an orderly transition and integration of the Group Companies following the Closing
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and to allow Parent and Merger Sub to discharge their respective obligations under this Agreement, and (b) with a representative of the Company present (if in person or by phone) or on copy (if by email or in writing), Parent and Merger Sub shall be permitted to respond to inquiries from customers and suppliers of the Group Companies regarding the impact on such customers and suppliers expected to result from the consummation of the transactions contemplated by this Agreement; provided, that if having a representative of the Company present (if in person or by phone) is reasonably impracticable, Parent shall inform the Chief Executive Officer of the Company of such communications within a reasonable period thereafter.
Section 5.11Code Section 280G. Between the date hereof and the Closing Date, the Company will (or will cause its applicable Subsidiaries to) use commercially reasonable efforts to (a) seek waivers, from individuals who would reasonably be expected to be considered “disqualified individuals” (within the meaning of Section 280G(c) of the Code and the regulations thereunder) with respect to the relevant Group Companies, of that portion of their payments and/or benefits payable in connection with this Agreement that would trigger the receipt of “excess parachute payments” (within the meaning of Section 280G of the Code and the regulations thereunder) by such individual and (b) solicit shareholder approval of any such waived payments and/or benefits, such that no payments and/or benefits provided to such individual would be deemed to constitute “parachute payments” pursuant to Section 280G of the Code. At least ten (10) Business Days prior to the Closing Date, the Company shall provide Parent with written calculations regarding the potential application of Section 280G of the Code to each potential disqualified individual. Prior to the Closing Date, the Company shall deliver to Parent notification that (i) a stockholder vote was solicited in manner entitled to comply with Section 280G(b)(5) of the Code and the regulations promulgated thereunder and the requisite stockholder approval was obtained with respect to any waived payments and/or benefits that were subject to the stockholder vote or (ii) such stockholder approval was not obtained and, as a consequence, any waived payments and/or benefits shall not be made or provided to the extent they would cause any amounts to constitute “excess parachute payments” pursuant to Section 280G of the Code. The form of the waiver, the disclosure statement, and any other materials to be submitted to such Shareholders in connection with this Section 5.11 shall be subject to advance timely review and reasonable comment by Parent. Notwithstanding the foregoing, with respect to any Parent Arrangement, Parent shall provide a copy thereof to the Company and Seller Representative at least seven (7) Business Days before the Closing Date and shall cooperate with the Company in good faith in order to calculate or determine the value (for purposes of Section 280G of the Code) of any payments or benefits granted or contemplated therein, which may be paid or granted in connection with the transactions contemplated by this Agreement and that could constitute a “parachute payment” under Section 280G of the Code; provided, that, in any event, the Company’s failure to include the Parent Arrangements in the stockholder voting materials described herein, as a result of Parent’s failure to comply with the timing and other requirements set forth above, will not result in a breach of the covenants set forth in this Section 5.11. In no event shall the Company be deemed in breach of this
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Section 5.11 if any disqualified individual refuses to execute a waiver or the stockholder vote is not obtained.
Section 5.12Tax Matters.
(a)Transfer Taxes. The Shareholders, on the one hand, and Parent, on the other hand, will each be responsible for the payment of fifty percent (50%) of any transfer, documentary, sales, use, registration, real or personal property transfer or gains tax, stamp tax, excise tax, stock transfer tax, or other similar tax (including any penalties or interest) imposed in connection with the transactions contemplated by this Agreement or any Ancillary Document (collectively, “Transfer Taxes”).
(b)Tax Returns. The Seller Representative shall prepare or cause to be prepared all Pre-Closing Income Tax Returns of the Company Consolidated Group. Except to the extent otherwise required by applicable Law, all such Pre-Closing Income Tax Returns described in this Section 5.12(b) shall be prepared on a basis consistent with (i) this Section 5.12 and (ii) past practice (including past practice with respect to the Specified Tax Item). Not later than sixty (60) days prior to the due date for filing any such Pre-Closing Income Tax Return (including applicable extensions), the Seller Representative shall deliver a draft of such Pre-Closing Income Tax Return and a calculation of the amount of Final Company Taxes, if any, with respect to such Pre-Closing Income Tax Return, together with all supporting documentation and workpapers, to Parent for its review and reasonable comment. Within thirty (30) days of such delivery, Parent shall deliver written notice to the Seller Representative specifying any objections Parent has with respect to any items in such Pre-Closing Income Tax Return (or accompanying calculation of Final Company Taxes, if any), which written notice shall provide reasonable detail with respect to any such item to which Parent objects. Any such item in the Pre-Closing Income Tax Return (or accompanying calculation of Final Company Taxes, if any) to which Parent does not timely object in accordance with the immediately preceding sentence shall be final, conclusive and binding on the Parties. Parent and the Seller Representative shall negotiate in good faith to resolve any disputes with respect to any such items to which Parent has timely objected in accordance with this Section 5.12(b) and any such disputes that remain unresolved twenty (20) days prior to the due date for filing any such Pre-Closing Income Tax Return (including applicable extensions) shall be referred to the Accounting Firm for resolution (which resolution shall be final, conclusive and binding on the Parties and, except with respect to any dispute related to the Specified Tax Item, shall reflect a “more likely than not” level of confidence of the Accounting Firm). The costs and expenses of the Accounting Firm shall be borne by the Parties in a manner similar to the principles set forth in Section 2.4(b)(ii). Parent will cause such Pre-Closing Income Tax Return (as finalized in accordance with this Section 5.12(b)) to be timely filed and will provide a copy thereof to the Seller Representative. Parent shall not (and shall not permit any of its Affiliates to) amend, refile or otherwise modify any Tax Return of any Group Company without the prior written consent of the Seller Representative if such amendment, refiling or modification would (i) reduce the amount payable to, or increase the amount payable by, any Shareholder pursuant to this Agreement (including, without limitation, pursuant to Section 5.12(d), Section 5.13 and Section 5.14), (ii) have a material and adverse impact on any Shareholder (or any Affiliate thereof) or (iii) affect the Specified Tax Item; provided, however, that the prior written consent of the Seller Representative shall not be required if Parent consults with the Seller Representative in writing at least thirty (30) days prior to the date on which such amendment, refiling or modification is due under applicable Law and Seller Representative does not, within fifteen (15) days of receipt, provide to Parent a written response describing in
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reasonable detail why any such amendment, refiling or modification would result in any of the effects described in any of the immediately foregoing clauses (i), (ii) or (iii).
(c)Texas Franchise Taxes and Tax Returns.
(i)The Parties acknowledge and agree that, prior to Closing, for Texas state franchise Tax purposes, the Group Companies are part of a “combined group” of which PNRI is the “reporting entity” (such combined group of which the Group Companies are a part, the “PNRI Texas Combined Group”). The Seller Representative shall cause PNRI to file all Texas franchise Tax Returns required to be filed, and pay all Texas franchise Taxes required to be paid, in each case, by the PNRI Texas Combined Group with respect to PNRI Texas Combined Group Tax Returns required to be filed after the Closing Date for tax periods ending on or before the Closing Date (such Taxes, “PNRI Texas Franchise Taxes”).
(ii)From and after the Closing, the Seller Representative shall indemnify and hold harmless Parent and its Affiliates (including, following Closing, the Group Companies) from and against any and all liability for PNRI Texas Franchise Taxes and related costs or expenses incurred by any of the foregoing as a result of, arising out of or relating to a claim made by a Governmental Entity with respect to (and solely to the extent of) PNRI Texas Franchise Taxes.
(d)Final Company Taxes. Within five (5) Business Days after any Pre-Closing Income Tax Return is filed in accordance with Section 5.12(b):
(i)If there is a positive amount of Final Company Taxes with respect to such Pre-Closing Income Tax Return, Seller Representative (on behalf of the Shareholders) shall pay to Parent the amount of Final Company Taxes with respect to such Pre-Closing Income Tax Return.
(ii)If there is any overpayment of Taxes with respect to such Pre-Closing Income Tax Return, Parent shall pay to Seller Representative (for the benefit of the Shareholders) the amount of such overpayment with respect to such Pre-Closing Income Tax Return.
(e)2021 IRS Notice. Neither the Seller Representative nor any member of the Company Consolidated Group shall pay or settle any balances, penalties, or other charges assessed in the 2021 IRS Notice without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed). For purposes of this Section 5.12(e), the “2021 IRS Notice” shall mean the item set forth in Schedule 3.17(a)(2) of the Company Disclosure Schedule.
(f)Any amount(s) paid pursuant to Sections 5.12(c) and (d), Section 5.13 and Section 5.14 shall to the extent permitted by applicable Law be treated as an adjustment to the Purchase Price for U.S. federal (and applicable state and local) income Tax purposes.
(g)No Continuing Liability. Upon the filing in accordance with Section 5.12(b) of any Pre-Closing Income Tax Return and payments of any amounts owed with respect thereto pursuant to Section 5.12(d), no Party shall have any further responsibility for payments pursuant to Section 5.12(d) with respect to such Pre-Closing Income Tax Return or
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Taxes associated therewith, even if such Pre-Closing Income Tax Return is subsequently amended or the subject of any Tax audit, litigation or other proceeding.
(h)Cooperation. Parent, the Surviving Entity and Seller Representative shall (and shall cause their Affiliates to) reasonably cooperate with each other, upon written request, in connection with the preparation and filing of Tax Returns and any audit, litigation or other proceeding, in each case, with respect to Taxes of or with respect to any Group Company for any taxable periods (or portions of any Straddle Periods) ending on or prior to the Closing Date (including, without limitation, any proceeding described in Section 5.13 and Section 5.14). Such cooperation shall include the retention and provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder and shall include providing the Seller Representative with the applicable powers of attorney to the extent necessary for the Seller Representative to take such actions as are permitted in Section 5.13 and Section 5.14. Parent shall cause the Surviving Entity to (and the Surviving Entity shall) (i) retain all books and records with respect to Tax matters pertinent to the Group Companies relating to any taxable periods (or portions of any Straddle Periods) ending on or prior to the Closing Date, (ii) abide by all record retention agreements entered into with any taxing authority with respect to such periods and disclosed to Parent by the Company or Seller Representative on or prior to the Closing Date, and (iii) give the Seller Representative reasonable written notice prior to transferring, destroying or discarding any such books and records prior to the expiration of the applicable statute of limitations, and if the Seller Representative so requests, Parent shall cause the Surviving Entity to (and the Surviving Entity shall) allow Seller Representative to take possession of such books and records rather than destroying or discarding such books and records.
(i)Other Tax Agreements.
(i)No Party shall (and no Party shall permit any of its Affiliates to) make an election under Section 336 or 338 of the Code or any similar provision of state, local or non-U.S. Law in respect of the transactions contemplated by this Agreement or any Ancillary Document.
(ii)The Parties shall, to the extent permitted or required under applicable Law, treat the Closing Date as the last day of the taxable period of the Group Companies for all Tax purposes.
(iii)Any and all Transaction Tax Deductions shall be treated for Tax purposes as arising in a Pre-Closing Income Tax Period to the extent such position can be taken on a “more likely than not” basis, the determination of which shall, for the avoidance of doubt, be subject to the dispute resolution procedures provided in Section 5.12(b).
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Section 5.13Limited Tax Indemnity and Related Proceedings.
(a)Specified Tax Item Indemnity. From and after the Closing, the Seller Representative shall indemnify and hold harmless Parent and its Affiliates from and against any and all liability for U.S. federal, state and local income Taxes and related costs or expenses incurred by any of the foregoing as a result of, arising out of or relating to a claim made by a Governmental Entity with respect to (and solely to the extent of) the Specified Tax Item.
(b)Notice. If Parent (or an Affiliate of Parent) receives any notice regarding an Action or administrative or judicial proceeding with respect to any Income Tax Return of any Group Company or the Company Consolidated Group for any tax period ending on or before the Closing Date that relates (in whole or in part) to the Specified Tax Item (each, a “Specified Tax Item Proceeding”), Parent shall promptly (and, in any event, within ten (10) days of receipt of such notice) notify the Seller Representative; provided, however, that a failure to give such notice will not relieve the Seller Representative of its obligation to indemnify Parent hereunder except to the extent the Seller Representative is materially prejudiced as a result thereof.
(c)Proceedings.
(i)The Seller Representative shall have (at its sole cost and expense) the right to (i) with respect to any Specified Tax Item Proceeding relating in whole to the Specified Tax Item, control the conduct of any such Specified Tax Item Proceeding and (ii) with respect to any Specified Tax Item Proceeding relating in part to the Specified Tax Item, control the conduct of any such Specified Tax Item Proceeding solely to the extent related to the Specified Tax Item.
(ii)With respect to any such Specified Tax Item Proceeding (or portion thereof) controlled by the Seller Representative, the Seller Representative shall (i) have the right to settle or otherwise resolve such proceeding (or portion thereof) (provided, however, the Seller Representative may not settle or otherwise resolve such proceeding (or portion thereof) without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed) to the extent such settlement or resolution would materially and adversely affect the Tax liability of Parent) and (ii) keep Parent reasonably informed regarding the status and defense of any such proceeding (or portion thereof). Parent shall have (at its sole cost and expense) the right to participate in any such Specified Tax Item Proceeding described in this Section 5.13(c)(ii).
(iii)With respect to any such Specified Tax Item Proceeding (or portion thereof) not controlled by the Seller Representative, Parent shall (i) have the right to settle or otherwise resolve such proceeding (provided, however, Parent may not settle or otherwise resolve such proceeding (or portion thereof) without the prior written consent of the Seller Representative (which consent shall not be unreasonably withheld, conditioned or delayed, it being understood that the withholding of consent in connection with the proposed settlement or resolution of any such proceeding (or portion thereof) that would give rise to an indemnification obligation of the Seller Representative pursuant to Section 5.13(a) is not unreasonable) and (ii) keep the Seller Representative reasonably informed regarding the status and defense of any such proceeding (or portion thereof). The Seller Representative
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shall have (at its sole cost and expense) the right to participate in any such Specified Tax Item Proceeding (or portion thereof) described in this Section 5.13(c)(iii).
Section 5.14Certain Sales and Use Tax Returns and Proceedings.
(a)Designated VDA. The Parties agree to cause FlexSteel Pipeline Technologies, Inc. and its applicable Affiliates to (i) initiate the process for entering into the Designated VDA and (ii) engage an independent accounting firm selected by the Seller Representative (the “VDA Firm”) to prepare, file, and negotiate the Designated VDA (“VDA Proceedings”).
(b)VDA Proceedings. The Seller Representative shall control the conduct of any VDA Proceedings. The Seller Representative shall (i) have the right to settle or otherwise resolve any VDA Proceeding with the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed) and (ii) keep Parent reasonably informed regarding the status and defense of any such proceeding. Parent shall have (at its sole cost and expense) the right to participate in any such VDA Proceeding. Notwithstanding the above, if the Seller Representative fails to conduct the negotiation, settlement or defense of the VDA Proceedings in good faith and with reasonable diligence, then Parent shall be entitled to assume the control of such VDA Proceedings (in which case the Seller Representative shall have (at its sole cost and expense) the right to participate in any such VDA Proceeding and Parent shall (i) have the right to settle or otherwise resolve any such VDA Proceeding with the prior written consent of the Seller Representative (which consent shall not be unreasonably withheld, conditioned or delayed) and (ii) keep the Seller Representative reasonably informed regarding the status and defense of any such proceeding).
(c)Costs and Expenses. If the execution of the Designated VDA with the applicable Governmental Entity in accordance with the procedures set forth in this Section 5.14, or other final determination with respect to the sales and use Taxes involved in the VDA Proceeding, occurs after the Closing, the Seller Representative (on behalf of the Shareholders) shall pay to Parent, as and when due, the amount of any sales or use Tax (including any interest, penalties or additions to such Tax) determined to be payable pursuant to such Designated VDA, or such other final determination, and shall reimburse Parent for all reasonable and documented out-of-pocket third-party fees and expenses paid to the VDA Firm in connection with the VDA Proceedings, in each case, except to the extent such amounts were taken into account in the calculation of Net Working Capital (as finally determined).
(d)Refunds. The Shareholders shall be entitled to any and all refunds of any Texas sales or use Taxes charged or chargeable for tax periods ending on or before the Closing Date with respect to assets purchased by Trinity Bay Equipment Holdings, LLC and leased to its Affiliates.
(e)Designated Sales Tax Returns.
(i)For any Designated Sales Tax Return filed or required to be filed on or following the date on which a Designated VDA is executed in accordance with the procedures set forth in this Section 5.14, the Seller Representative shall prepare such Designated Sales Tax Return in a manner consistent with such Designated VDA.
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(ii)For any Designated Sales Tax Return filed or required to be filed before the date on which a Designated VDA is executed in accordance with the procedures set forth in this Section 5.14, the Seller Representative shall as soon as reasonably practicable prior to the due date for filing such Designated Sales Tax Return (including applicable extensions), deliver a draft of such Designated Sales Tax Return, together with all supporting documentation and workpapers, to Parent for its review and reasonable comment. Parent and the Seller Representative shall negotiate in good faith to resolve any disputes with respect to any items in such Designated Sales Tax Return and any such disputes that remain unresolved five (5) days prior to the due date for filing any such Designated Sales Tax Return (including applicable extensions) shall be referred to the Accounting Firm for resolution (which resolution shall be final, conclusive and binding on the Parties); provided that, Parent shall retain the right to refer any such disputed items with respect to any draft Designated Sales Tax Return to the Independent Accountant as and when any such disputed item arises. The costs and expenses of the Accounting Firm shall be borne by the Parties in a manner similar to the principles set forth in Section 2.4(b)(ii).
Section 5.15R&W Insurance Policy. Following the execution of this Agreement, Parent shall satisfy the conditions set forth in the R&W Conditional Binder to cause the R&W Insurance Policy to be issued on terms and in the form set forth in the R&W Conditional Binder as soon as practicable following Closing. Parent shall cause the R&W Insurance Policy to (a) name the Parent as the insured, (b) insure the Parent from any breach, or any failure to be true, of the representations and warranties given by Company to Parent under this Agreement or any certificate delivered pursuant hereto and (c) expressly provide that the insurer(s) issuing such policy shall waive or otherwise not pursue any rights to bring any claim by way of subrogation, contribution or otherwise against the Company, the Seller Representative, any Shareholder or any of their respective Affiliates and/or any of their respective Representatives, except in the case of Fraud by such Person, as applicable, with the applicable insurer expressly agreeing that the Fraud of one Person shall not be imputed to any other Person(s) and such Persons are express third party beneficiaries to such waiver of subrogation. Notwithstanding the foregoing, for the avoidance of doubt, the Parties acknowledge and agree that the obtaining of the R&W Insurance Policy is not a condition to the Closing, and Parent shall remain obligated, subject only to the satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.2, to consummate the transactions contemplated by this Agreement. From and after the date hereof, Parent shall not (and shall cause its Affiliates to not) grant any right of subrogation or contribution or otherwise amend, modify, terminate, or waive any term or condition of the R&W Insurance Policy in a manner inconsistent with the immediately preceding sentence. The Company shall reasonably cooperate with Parent’s efforts and provide assistance as reasonably requested by Parent to obtain and bind the R&W Insurance Policy. Prior to Closing, Parent shall pay or cause to be paid, all costs and expenses related to the R&W Insurance Policy, including the total premium, underwriting costs, taxes, brokerage commission, and other fees and expenses of such policy. From and after issuance of the R&W Insurance Policy, Parent shall not amend, modify, or otherwise change, terminate, or waive any provision of the R&W Insurance Policy in a manner adverse to the Company, Seller Representative, any Shareholder or any of their respective Affiliates.
Section 5.16Intercompany Matters. Effective as of the Closing, except for the agreements or arrangements set forth in Schedule 5.16 of the Company Disclosure Schedule, (i) all agreements or arrangements between an Affiliate of the Group Companies (other than a Group Company), on the one hand, and a Group Company, on the other hand, including those agreements or arrangements whereby Services Payments are made, shall be settled and
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paid in full (regardless of the terms of such agreements or arrangements), and (ii) all Related Party Transactions shall be terminated, in the case of each of the foregoing clause (i) or (ii), without further liability of any party thereunder.
Section 5.17Financing and Financing Cooperation.
(a)Parent shall take, or cause to be taken, all actions and do, or cause to be done, all things reasonably necessary or advisable to arrange, consummate and cause and enforce the funding of the Debt Financing or any other Transaction Financing in lieu of all or a portion of the Debt Financing, including:
(i)maintain in effect the Debt Commitment Letter, not replace or substitute the Debt Commitment Letter without the Company’s written consent, and not permit any amendment or modification to be made to, not consent to any waiver of any provision or remedy under, the Debt Commitment Letter, if such amendment, supplement, modification, waiver: (A) reduces the aggregate amount of the Debt Financing (including by changing the amount of fees to be paid or original issue discount of the Debt Financing) to an amount less than the amount necessary to consummate the transactions contemplated by this Agreement, (B) changes any of the terms of, or substitutes any of the debt financing sources for, or imposes new or additional terms or conditions or otherwise expands, amends or modifies any of terms of, or the conditions to the receipt of, the Debt Financing, in each case in respect of this clause (B) in a manner that would reasonably be expected to (1) materially delay or prevent the Closing, (2) make the funding of the Debt Financing (or satisfaction of the conditions to obtaining the Debt Financing) less likely to occur or (3) adversely impact the ability of Parent LLC to enforce its rights against other parties to the Debt Commitment Letter or the definitive agreements with respect to the Debt Financing when required pursuant to this Agreement, or (C) changes, replaces or substitutes the left lead arranger in respect of the Debt Financing. At the Company’s request, Parent shall keep the Company reasonably apprised of the status of the Transaction Financing. Parent shall promptly notify Company of any amendments, supplements, modifications, or waivers of the Debt Financing, and shall promptly furnish to the Company copies of any agreements or other documentation with respect to such amendment, supplement, modification, or waiver;
(ii)complying in all material respects with the Financing Documents, paying all fees and other amounts when due and owing in respect of the Debt Financing, and using reasonable best efforts to satisfy on a timely basis all conditions to the Debt Financing that are within its control including by negotiating in good faith the definitive documentation for the Debt Financing; and
(iii)using reasonable best efforts to, in the event that the conditions set forth in Section 6.1 and Section 6.2 have been satisfied or, upon funding would be satisfied, and to the extent the proceeds of the Debt Financing are necessary for Parent to fund its payment obligations under this Agreement, fully enforce its rights under the Financing Documents, to the extent entered into prior to the Closing, and to cause the Debt Financing to be funded in the full amount of the Debt Financing (or such lesser amounts as shall be necessary for Parent to fund its payment obligations under this Agreement) at or prior to the Closing. Upon any amendment, supplement, modification, waiver or replacement of the Debt Commitment Letter in accordance with this Section 5.17(a), all references herein to “Debt Commitment Letter” shall include and mean such documents as so amended, replaced, supplemented or modified in accordance with this Section 5.17(a) and references to
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“Debt Financing” shall include and mean the financing contemplated by such Debt Commitment Letter as so amended, replaced, supplemented or modified in accordance with this Section 5.17(a).
(b)The Company agrees to, and shall cause the other Group Companies to, use reasonable best efforts to, and the Company shall use reasonable best efforts to cause the Group Companies’ Representatives to (in each case, at the sole cost of Parent), provide Parent and/or Merger Sub with such cooperation and assistance in connection with arranging and obtaining, and satisfying the conditions (on a timely basis) to the availability of, the Debt Financing to be provided under the Debt Commitment Letter or any other debt financing incurred, or offering of equity or equity-linked securities, by Parent or its Subsidiaries to finance all or a portion of the transactions contemplated by this Agreement (any such financing, the “Transaction Financing”) that is reasonably requested in writing by Parent (or its Representatives) in connection with the transactions contemplated by this Agreement and that is necessary for Parent to obtain the Transaction Financing, including (i) delivering Compliant Financing Information (for the avoidance of doubt, subject to the last sentence of the definition of “Financing Information”) and other information as is reasonably requested by Parent and consented to by the Company, such consent not to be unreasonably withheld, conditioned or delayed (and permitting Parent and its Affiliates to include such information in offering materials as reasonably determined to comply with the applicable securities laws and without any requirement to provide any financial statements not within the definition of “Financing Information”); it being understood that Parent shall be solely responsible for the preparation of any pro forma financial information as may be reasonably necessary to consummate the Transaction Financing or as required pursuant to the Securities Act of 1933, as amended; provided, that, as reasonably requested, the Company shall provide reasonable and customary support in connection with preparation of any such pro forma financial information, (ii) providing Parent at least four (4) Business Days prior to the Closing Date with all documentation required under “know your customer” and anti-money laundering rules and regulations that is requested in writing by Parent’s financing sources at least nine (9) Business Days prior to the Closing Date, (iii) using commercially reasonable efforts to assist Parent and its Representatives in their preparation of appropriate and customary offering documents, private placement memoranda, prospectuses, prospectus supplements, registration statements, syndication documents and materials including information memoranda, lender and investor presentations and other marketing documents and appropriate and customary materials for rating agencies, in each case, to the extent reasonably related to the Group Companies and as reasonably necessary to assist Parent in obtaining the Transaction Financing, (iv) obtaining the consent of, and customary comfort letters from, such accountants with respect to financial information solely as it relates to the Group Companies included in any offering materials, (v) providing available information reasonably requested by Parent’s legal counsel in connection with any legal opinions that may be required from Parent’s or any of its Affiliates’ legal counsel in connection with the Transaction Financing (it being understood that neither Company nor its legal counsel has an obligation to deliver any legal opinions), and (vi) upon reasonable prior written notice, at such times and locations reasonably acceptable to the Company, causing the participation by appropriate and applicable senior management of the Group Companies in a reasonable number of meetings, presentations, roadshows, conference calls, drafting sessions, due diligence sessions (including accounting due diligence sessions) and meetings with prospective investors, lenders and ratings agencies; provided, that (A) such requested cooperation does not unreasonably interfere with the ongoing operations of the Group Companies, (B) no director, officer, employee, member or stockholder of the Company or any of its Subsidiaries or their respective Affiliates shall be required to deliver any certificate
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or take any other action pursuant to this Section 5.17(b) to the extent doing so could reasonably be expected to result in personal liability to such Person, (C) none of the Company or any of its Subsidiaries or their Affiliates or any of their or their Affiliates’ Representatives shall be required to (1) deliver or cause the delivery of any legal opinions or reliance letters or any certificate as to solvency or any other certificate necessary for the Transaction Financing, (2) pay any commitment or other similar fee or incur any actual or potential liability in connection with the Transaction Financing, (3) adopt resolutions or execute consents to approve or authorize the execution of the Transaction Financing, (4) execute, deliver or enter into, or perform any agreement, document or instrument, with respect to the Transaction Financing that is not contingent upon the Closing or that would be effective prior to the effective time of the Closing or (5) take any action that (x) would or could reasonably be expected to, in the reasonable judgment of the Company, conflict with, or result in any violation or breach of, any law or regulation, any contract or any obligations of confidentiality binding on the Company or any of its Subsidiaries, (y) would or could reasonably be expected to, in the reasonable judgment of the Company, result in the loss of attorney-client privilege or (z) would or could reasonably be expected to, in the reasonable judgment of the Company, result in the disclosure of any materials that constitute attorney work product and (D) the Company shall have the right to review and comment on offering materials used in connection with the arrangement of any debt financing of Parent contemplated hereunder prior to the dissemination of such materials to potential lenders or other counterparties to any proposed financing transaction (or filing with any Governmental Entity) and Parent shall accept all reasonable comments from the Company on disclosure related to the Company or its Subsidiaries in such materials. Parent agrees that the execution by the Company or any of its Subsidiaries of any documents in connection with the Transaction Financing will be subject to the consummation of the transactions contemplated hereby at the Closing, and such documents will not take effect prior thereto. Any offering materials, presentations and other documents shall include a conspicuous disclaimer to the effect that none of the Company or any of its Subsidiaries or their respective Affiliates or any of their or their Affiliates’ respective representatives have any responsibility for the content of such document and in any oral disclosure with respect to such debt financing Parent shall expressly notify the recipient of such oral disclosure that Parent is solely responsible for the content of such oral disclosure. The Company hereby consents to the use of its logos, names and trademarks in connection with the Transaction Financing; provided, that Parent and Merger Sub shall ensure that such logos, names and trademarks are used solely in a manner that is not intended to or reasonably likely to harm or disparage the Group Companies’ reputation or goodwill. Parent shall, upon request by the Company, reimburse the Group Companies and their respective Affiliates for all reasonable and documented out-of-pocket costs and expenses (including reasonable and documented out-of-pocket attorneys’ fees) incurred by the Company, its Subsidiaries and their respective Affiliates in connection with the cooperation contemplated by this Section 5.17(b). In addition, Parent shall indemnify and hold harmless the Group Companies (including their respective directors, officers, employees, agents and Representatives and their respective successors and assigns, collectively, the “Financing Indemnitees”) against any and all costs, losses or damages (including advancing attorneys’ fees and expenses) directly or indirectly suffered or incurred by the Financing Indemnitees in connection with the Transaction Financing, including any information or cooperation provided in connection therewith. Except as permitted above to be included in any offering materials, which offering materials and the contents thereof may be publicly disclosed by Parent with the prior written consent of the Company or the Seller Representative (such consent not to be unreasonably withheld, conditioned or delayed), information provided by the Group Companies in connection with the Transaction Financing may only be provided to sources or potential sources of financing and rating agencies that are
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bound by confidentiality provisions substantially similar to the Confidentiality Agreement or otherwise reasonably acceptable to the Company (it being understood and agreed that the confidentiality provisions set forth in the Debt Commitment Letter on the date hereof (and provisions at least as favorable to Parent as such provisions) are reasonably acceptable to the Company).
(c)In addition, the Company agrees to, and shall cause the other Group Companies to, use reasonable best efforts to, and the Company shall use reasonable best efforts to cause the Group Companies’ Representatives to (in each case, at the sole cost of Parent), provide Parent and/or Merger Sub with cooperation and assistance in connection with the preparation of any audit of the Group Companies conducted on behalf of Parent for the fiscal year ended December 31, 2022.
(d)The Company will be deemed to be in compliance with this Section 5.17 at all times unless and until (i) Parent provides written notice (the “Non-Cooperation Notice”) to the Company of any alleged failure to comply, or action or failure to act which could be believed to be a breach of this Section 5.17; (ii) Parent includes in such Non-Cooperation Notice reasonable detail regarding the cooperation required to cure such alleged failure (which will not require the Company to provide any cooperation that it would not otherwise be required to provide under this Section 5.17); and (iii) the Company fails to take the actions specified in such Non-Cooperation Notice within five Business Days from receipt of such Non-Cooperation Notice.
(e)Parent shall give the Company prompt (and in any event within two (2) Business Days) notice of any material dispute or disagreement in respect of, or any breach or repudiation, or any threatened breach or repudiation, by any party to the Debt Commitment Letter of which Parent becomes aware (a “Financing Failure Event”). Without limiting Parent’s other obligations under this Section 5.17, if a Financing Failure Event occurs, Parent shall (y) promptly notify the Company of such event and the reasons therefor and (z) use its reasonable best efforts to obtain (on terms not less favorable in the aggregate to Parent as those set forth in the Debt Commitment Letter) alternative financing from alternative sources, in an amount sufficient, when taken together with the available portion of the Transaction Financing, to make all necessary payments by Parent in connection with the transactions contemplated by this Agreement, including any adjustment payments to the Estimated Purchase Price pursuant to Section 2.4, as promptly as practicable following the occurrence of such event.
Section 5.18International Subsidiaries. If Parent desires to acquire the international Subsidiaries held by the Company’s Affiliates that are not already a Group Company, then Parent shall deliver written notice thereof to the Seller Representative within ten Business Days after the date of this Agreement. Following delivery of such notice and prior to the Closing, the Company shall, and shall cause its applicable Affiliates to, assign to a member of the Group Companies designated by Parent all of the equity interests in each of (a) FlexSteel International, LLC, a Nevada limited liability company, (b) FlexSteel Colombia S.A.S., an entity organized under the laws of Colombia, and (c) Prime Saudi Limited, an
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entity organized under the laws of the Kingdom of Saudi Arabia, which assignment shall be in a form and on terms reasonably satisfactory to Parent.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
Section 6.1Conditions to the Obligations of the Company, Parent and Merger Sub. The obligations of the Company, Parent and Merger Sub to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or, if permitted by applicable Law, waiver by the Party for whose benefit such condition exists) of the following conditions:
(a)any applicable waiting period under the HSR Act relating to the transactions contemplated by this Agreement shall have expired or been terminated; and
(b)no Law or Order issued by any court of competent jurisdiction or other Governmental Entity preventing the consummation of the transactions contemplated by this Agreement shall be in effect.
Section 6.2Other Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent to consummate the transactions contemplated by this Agreement are subject to the satisfaction or, if permitted by applicable Law, waiver by Parent of the following further conditions:
(a)(i) the representations and warranties of the Company set forth in Article 3 hereof (other than the Fundamental Representations), disregarding all “materiality”, “Material Adverse Effect” and similar qualifications, shall be true and correct in all respects as of the date hereof and as of the Closing as though made on and as of the Closing, except (A) to the extent such representations and warranties are made on and as of a specified date, in which case the same shall continue as of the Closing to be true and correct as of the specified date and (B) to the extent such failures of such representations and warranties to be so true and correct, when taken as a whole, do not have and would not reasonably be expected to have a Material Adverse Effect, and (ii) the Fundamental Representations, disregarding all “materiality”, “Material Adverse Effect” and similar qualifications, shall be true and correct in all respects as of the date hereof and as of the Closing as though made on and as of the Closing, except (A) to the extent the Fundamental Representations are made on and as of a specified date, in which case the same shall continue as of the Closing to be true and correct as of the specified date and (B) except for de minimis inaccuracies;
(b)each of the Company and the Seller Representative shall have performed and complied in all material respects with all covenants required to be performed or complied with by it under this Agreement on or prior to the Closing;
(c)since the date hereof, no Material Adverse Effect has occurred (excluding, for the avoidance of doubt, the effects of any action taken by the Parties pursuant to Section 5.4);
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(d)prior to or at the Closing, the Company shall have delivered a certificate of an authorized officer of the Company, dated as of the Closing Date, to the effect that the conditions specified in Section 6.2(a), Section 6.2(b) and Section 6.2(c) have been satisfied; and
(e)prior to or at the Closing, the Seller Representative shall have taken the actions, and delivered the items, contemplated by Section 2.3(a).
Any condition specified in this Section 6.2 may be waived by Parent; provided, that no such waiver shall be effective unless it is set forth in a writing executed by Parent.
Section 6.3Other Conditions to the Obligations of the Company. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction or, if permitted by applicable Law, waiver by the Company of the following further conditions:
(a)the representations and warranties of Parent and Merger Sub set forth in Article 4 hereof, disregarding all “materiality” and similar qualifications, shall be true and correct in all material respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties are made on and as of a specified date, in which case the same shall continue as of the Closing to be true and correct in all material respects as of the specified date, except where the failure of any such representations and warranties to be true and correct has not had, individually or in the aggregate, a material adverse effect on the ability of Parent to consummate the transactions contemplated hereby;
(b)each of Parent and Merger Sub shall have performed and complied in all material respects with all covenants required to be performed or complied with by it under this Agreement on or prior to the Closing;
(c)prior to or at the Closing, Parent and Merger Sub shall have delivered a certificate of an authorized officer of Parent, dated as of the Closing Date, to the effect that the conditions specified in Section 6.3(a) and Section 6.3(b) have been satisfied; and
(d)prior to or at the Closing, Parent shall have taken the actions, and delivered the items, contemplated by Section 2.3(b).
Any condition specified in this Section 6.3 may be waived by the Company; provided, that no such waiver will be effective against the Company unless it is set forth in a writing executed by the Seller Representative.
Section 6.4Waiver of Closing Conditions. Upon the occurrence of the Closing, any condition set forth in this Article 6 that was not satisfied as of the Closing shall be deemed to have been waived as of and from the Closing.
Section 6.5Frustration of Closing Conditions. No Party may rely on the failure of any condition set forth in this Article 6 to be satisfied if such failure was caused by such Party’s failure to use reasonable best efforts to cause the Closing to occur, as required by Section 5.4.
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ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
TERMINATION; AMENDMENT; WAIVER
Section 7.1Termination. This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Closing:
(a)by mutual consent of Parent and the Seller Representative;
(b)by Parent, if any of the representations or warranties of the Company set forth in Article 3 shall not be true and correct or if the Company has failed to perform any covenant or agreement on the part of the Company set forth in this Agreement such that the condition to Closing set forth in either Section 6.2(a) or Section 6.2(b) would not be satisfied and the breach or breaches causing such representations or warranties not to be true and correct, or the failure or failures to perform any covenant or agreement, as applicable, is (or are) not cured or cannot be cured by the earlier of (i) the Outside Date and (ii) twenty (20) days after written notice thereof is delivered to the Company; provided, that Parent and Merger Sub is not then in breach of this Agreement so as to prevent the conditions to Closing set forth in either Section 6.3(a) or Section 6.3(b) from being satisfied;
(c)by Seller Representative, if any of the representations or warranties of Parent and Merger Sub set forth in Article 4 shall not be true and correct or if Parent or Merger Sub has failed to perform any covenant or agreement on the part of Parent or Merger Sub set forth in this Agreement (including the obligation to consummate the Closing) such that the condition to Closing set forth in either Section 6.3(a) or Section 6.3(b) would not be satisfied and the breach or breaches causing such representations or warranties not to be true and correct, or the failure or failures to perform any covenant or agreement, as applicable, is (or are) not cured or cannot be cured by the earlier of (i) the Outside Date and (ii) twenty (20) days after written notice thereof is delivered to Parent or Merger Sub; provided, that the Company is not then in breach of this Agreement so as to prevent the conditions to Closing set forth in Section 6.2(a) or Section 6.2(b) from being satisfied;
(d)subject to Section 8.15(a), by either Parent or the Seller Representative, if the transactions contemplated by this Agreement shall not have been consummated on or prior to the close of business on April 30, 2023 (as such date may be extended pursuant to the following provisions, the “Outside Date”); provided, that (i) if such date occurs prior to the last day of the Marketing Period, then the Outside Date shall be deemed for all purposes to have been extended to the date that is three (3) Business Days following the final day of the Marketing Period; and (ii) the Party seeking to terminate this Agreement pursuant to this Section 7.1(d) shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately caused the failure to consummate the transactions contemplated by this Agreement on or before the Outside Date;
(e)by either Parent or Seller Representative, if any Governmental Entity shall have issued an Order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such Order or other action shall have become final and nonappealable; provided, that the Party seeking to terminate this Agreement pursuant to this Section 7.1(e) shall have used commercially reasonable efforts (unless another standard of efforts is expressly required by this Agreement,
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in which case such Party shall have used such required efforts) to prevent the entry of any Order and to appeal as promptly as possible any Order that may be entered; or
(f)by the Company, if (i) all of the conditions set forth in Section 6.1 and Section 6.2 have been satisfied or, to the extent permitted by applicable Law, waived (other than those conditions that by their nature are to be satisfied by actions taken at the Closing), (ii) the Company has indicated to Parent in writing that the Company is ready, willing and able to consummate the transactions contemplated by this Agreement (subject to the satisfaction or waiver of all the conditions set forth in Section 6.3) and (iii) Parent and Merger Sub fail to consummate the transactions contemplated by this Agreement by the earlier of (A) within two (2) Business Days following the date on which the Closing should have occurred pursuant to Section 2.2 and (B) the Outside Date.
Notwithstanding anything to the contrary contained herein, no COVID-19 Response shall be deemed to violate or breach this Agreement in any way or serve as a basis for Parent to terminate this Agreement or assert that any of the conditions to the Closing contained herein have not been satisfied.
Section 7.2Effect of Termination. In the event of the valid termination of this Agreement pursuant to Section 7.1, this entire Agreement shall forthwith become void (and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company, their respective Affiliates and their respective Representatives or of any Financing Related Party) with the exception of (i) the provisions of the Confidentiality Agreement, the first proviso of Section 5.2, this Section 7.2, and Article 8, each of which provisions shall survive such termination and remain valid and binding obligations of the Parties, and (ii) any liability of a Party for Fraud or for any willful breach of any of its respective obligations under this Agreement (including any failure by Parent and Merger Sub to consummate the transactions contemplated by this Agreement if and when obligated to do so hereunder) prior to such termination, in which case and notwithstanding anything to the contrary in this Agreement, the other Party shall be entitled to all remedies available at law or in equity. Nothing herein shall limit or prevent any Party from exercising any rights or remedies it may have under Section 8.15.
Section 7.3Amendment. This Agreement may be amended or modified only by a written agreement executed and delivered by duly authorized officers of Parent and Seller Representative (subject to Section 8.8). This Agreement may not be modified or amended except as provided in the immediately preceding sentence and any purported amendment by any Party or Parties effected in a manner which does not comply with this Section 7.3 shall be void, ab initio.
Section 7.4Extension; Waiver. Subject to Section 7.2, at any time prior to the Closing, Seller Representative (on behalf of itself and the Company) may (a) extend the time for the performance of any of the obligations or other acts of Parent or Merger Sub contained herein, (b) waive any inaccuracies in the representations and warranties of Parent or Merger Sub contained herein or (c) waive compliance by Parent or Merger Sub with any of the agreements or conditions contained herein. Subject to Section 7.2, at any time prior to the Closing, Parent or Merger Sub may (i) extend the time for the performance of any of the obligations or other acts of the Company or the Seller Representative contained herein, (ii) waive any inaccuracies in the representations and warranties of the Company contained herein or (iii) waive compliance by the Company or the Seller Representative with any of the
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agreements or conditions contained herein. Any agreement on the part of any Party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such Party. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.
ARTICLE 8
MISCELLANEOUS
MISCELLANEOUS
Section 8.1Survival of Representations, Warranties and Covenants. This Article 8 and those covenants and agreements set forth in this Agreement that by their terms contemplate performance in whole or in part after the Closing shall survive the Closing in accordance with their respective terms. All representations and warranties and all other covenants and agreements in this Agreement shall terminate at and not survive the Closing, and there shall be no liability after the Closing in respect thereof, except in the case of Fraud; provided, however, that the representations and warranties in Section 3.27 and Section 4.8 shall survive the Closing. Without limiting the generality of the foregoing or anything else in this Agreement, from and after the Closing (other than in the case of Fraud), Parent, on behalf of itself, its Affiliates and its and their respective Representatives, hereby fully, unconditionally and irrevocably waives (and discharges and releases the Company, Seller Representative, the Shareholders and its and their respective Representatives for) any and all claims, demands, torts, liens, suits, Actions, causes of action, debts, damages, obligations, liabilities and rights whatsoever, at law or in equity, whether known or unknown, suspected or unsuspected, now existing or which may hereafter accrue, directly or indirectly, arising out of or related to the transactions contemplated by this Agreement, other than with respect to any covenants or agreements that expressly survive the Closing pursuant to this Section 8.1. Parent and Merger Sub acknowledge and agree that, except in the case of Fraud, the R&W Insurance Policy shall be the sole and exclusive remedy of Parent, Merger Sub, their respective Affiliates and their respective Representatives, successors and assigns for any liabilities, obligations or losses sustained or incurred by Parent, its Affiliates and their respective Representatives, successors and assigns in connection with this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby. Notwithstanding anything to the contrary in this Agreement, the survival period set forth in this Section 8.1 shall not affect or otherwise limit any claim made or available under the R&W Insurance Policy.
Section 8.2Entire Agreement; Assignment. This Agreement (a) together with the Ancillary Documents, constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof and (b) shall not be assigned by any Party (whether by operation of Law or otherwise) without the prior
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written consent of Parent and the Seller Representative. Any attempted assignment of this Agreement not in accordance with the terms of this Section 8.2 shall be void.
Section 8.3Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, e-mail (having obtained electronic delivery confirmation thereof), or by registered or certified mail (postage prepaid, return receipt requested) to the other Parties as follows:
To Parent, Merger Sub or to the Surviving Entity (after the Closing):
Cactus, Inc.
920 Memorial City Way
Suite 300
Houston, TX 77024
Attention: William Marsh
E-mail: will.marsh@cactuswhd.com
E-mail: will.marsh@cactuswhd.com
with a copy (which shall not constitute notice) to:
Bracewell LLP
711 Louisiana Street
Suite 2300
Houston, TX 77002
Attention: Jason M. Jean
E-mail: jason.jean@bracewell.com
E-mail: jason.jean@bracewell.com
To the Seller Representative or the Company (prior to the Closing):
FlexSteel LTIP LP
c/o Elliott Investment Management L.P.
360 S Rosemary Ave, 18th floor
West Palm Beach, FL 33401
Attention: Rick Cohen
Mike Tomkins
Thao Do
E-mail: rcohen@elliottmgmt.com
mtomkins@elliottmgmt.com
tdo@elliottmgmt.com
with a copy (which shall not constitute notice) to:
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HighRidge Resources, Inc.
1201 Louisiana Street, Suite 2700
Houston, TX 77002
Attention: Gustavo Torres
E-mail: gus.torres@primenri.com
Vinson & Elkins LLP
2001 Ross Avenue, Suite 3900
Dallas, TX 75201
2001 Ross Avenue, Suite 3900
Dallas, TX 75201
Attention: Chris Rowley
E-mail: crowley@velaw.com
E-mail: crowley@velaw.com
or to such other address as the Party to whom notice is given may have previously furnished to the others in writing in the manner set forth above.
Section 8.4Governing Law. This Agreement and any Action of any kind or any nature (whether based upon contract, tort or otherwise) that is any way related to this Agreement or any of the transactions related hereto, shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed in that state without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware.
Section 8.5Fees and Expenses. Except as otherwise set forth in this Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the Party incurring such fees or expenses, whether or not such transactions shall be consummated; provided, however, that if the Closing occurs, then Parent shall pay, or cause to be paid, all Estimated Seller Expenses in accordance with Section 2.3(b)(iii).
Section 8.6Construction; Interpretation. The term “this Agreement” means this Agreement and Plan of Merger together with the Schedules and Exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. No Party, nor its respective counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions hereof, and all provisions of this Agreement shall be construed according to their fair meaning and not strictly for or against any Party. Unless otherwise indicated to the contrary herein by the context or use thereof: (a) the words, “herein,” “hereto,” “hereof” and words of similar import refer to this Agreement as a whole, including the Schedules and Exhibits, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement; (b) masculine gender shall also include the feminine and neutral genders, and vice versa; (c) words importing the singular shall also include the plural, and vice versa; (d) the words “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”; (e) financial terms shall have the meanings given to such terms under GAAP unless otherwise specified herein; (f) references to “$” or “dollar” or “US$” shall be references to United States dollars; (g) the word “or” is disjunctive but not necessarily exclusive; (h) the words “writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic
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media) in a visible form; (i) the word “day” means calendar day unless Business Day is expressly specified; (j) the word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase shall not mean simply “if”; (k) all references to Articles, Sections, Exhibits or Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement; (l) all references to any Law, contract or agreement will be to such Law, contract or agreement as amended, supplemented or otherwise modified from time to time; and (m) all references to “made available” mean, with respect to any document or information, that such document or information was (i) specifically described on Schedule 8.6 or (ii) contained in the Venue® electronic data room maintained by Donnelley Financial Solutions entitled “Atlas” at 5:00 p.m. Houston, Texas time on the second Business Day prior to the execution of this Agreement. If any action under this Agreement is required to be done or taken on a day that is not a Business Day, then such action shall be required to be done or taken not on such day but on the first succeeding Business Day thereafter.
Section 8.7Exhibits and Schedules. All Exhibits and Schedules, or documents expressly incorporated into this Agreement, are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full in this Agreement. The Schedules shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Agreement. Any item disclosed in any Schedule corresponding to any section or subsection of Article 3 shall be deemed to have been disclosed with respect to every other section and subsection of Article 3 only if the relevance of such disclosure to such other section or subsection is reasonably apparent on the face of such disclosure. The specification of any dollar amount in the representations, warranties or covenants contained in this Agreement or the inclusion of any specific item in any Schedule is not intended to imply that such amounts, or higher or lower amounts or the items so included or other items, are or are not material, and no Party shall use the fact of the setting of such amounts or the inclusion of any such item in any dispute or controversy as to whether any obligation, items or matter not described herein or included in a Schedule is or is not material for purposes of this Agreement. The disclosure with respect to any agreement, contract or other document referred to in the Schedules and made available to Parent shall be qualified in its entirety by reference to the terms thereof. The Schedules and the information and statements contained therein are not intended to constitute, and shall not be construed as constituting, representations, warranties, covenants, agreements or obligations of the Company except as and to the extent expressly provided in this Agreement, nor shall they be taken as extending the scope of any representation, warranty, covenant, agreement or obligation set out in this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning given to such term in this Agreement.
Section 8.8Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party and its successors and permitted assigns and, except as provided in Section 5.8 and Section 8.12, nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Notwithstanding the foregoing, Vinson & Elkins LLP is a third-party beneficiary of Section 8.16.
Section 8.9Severability. If any term or other provision of this Agreement is invalid, illegal or unenforceable under applicable Law, all other provisions of this Agreement shall remain in full force and effect so long as neither the economic nor the legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon a determination that any term or other provision of this Agreement is invalid,
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illegal or unenforceable under applicable Law, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 8.10Counterparts; Electronic Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by e-mail or scanned pages shall be effective as delivery of a manually executed counterpart to this Agreement.
Section 8.11Knowledge of the Company. For all purposes of this Agreement, the phrase “to the Company’s knowledge” and “known by the Company” and any derivations thereof shall mean as of the applicable date, the actual knowledge after reasonable inquiry of their direct reports (and shall in no event encompass constructive, imputed or similar concepts of knowledge) of Thirucherai Sathyanarayanan, Gustavo Torres, Don Crawford, and Kris Terrill, none of whom shall have any personal liability or obligations regarding such knowledge.
Section 8.12No Recourse.
(a)Notwithstanding anything that may be expressed or implied in this Agreement or any Ancillary Document, each Party acknowledges and agrees (on behalf of itself and its Affiliates) that no recourse under this Agreement or any Ancillary Document shall be had against any past, present or future director, officer, agent, employee, incorporator, member, partner, equityholder, Affiliate, attorney, controlling Persons, member, manager, general or limited partner, Representative or assignee (or any past, present or future director, officer, manager, employee, incorporator, partner, equityholder, Affiliate, attorney, controlling Persons, manager, general or limited partner, Representative or assignee of any of the foregoing) of the Shareholders or such Party (collectively, the “Non-Recourse Parties”), as such, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any Non-Recourse Party for any obligation of a Party under this Agreement or any Ancillary Document for any claim based on, in respect of or by reason of such obligations or their creation; and each Party waives and releases all such liabilities, claims and obligations against any such Non-Recourse Party; provided, however, that this Section 8.12 is not intended to limit and shall not limit the rights of Parent in respect of any Letter of Transmittal. Non-Recourse Parties are expressly intended as third party beneficiaries of this provision of this Agreement.
(b)Notwithstanding anything to the contrary in Section 8.12(a), in the event of Fraud, the Non-Recourse Parties shall not include FlexSteel LTIP LP and FlexSteel LTIP LP may be held directly liable to Parent for any event of Fraud in the making of representations and warranties by the Company.
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Section 8.13Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR (B) IN ANY WAY BASED UPON, CONNECTED WITH, RELATED OR INCIDENTAL TO THIS AGREEMENT OR THE DEALINGS OF THE PARTIES IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE.
Section 8.14Jurisdiction and Venue. Except as set forth in Section 2.8(j), each of the Parties hereto (a) irrevocably consents to the service of the summons and complaint and any other process in any action or proceeding relating to the transactions contemplated by this Agreement, for and on behalf of itself or any of its properties or assets, in accordance with this Section 8.14 or in such other manner as may be permitted by applicable law, that such process may be served in the manner of giving notices in Section 8.3 and that nothing in this Section 8.14 shall affect the right of any Party to serve legal process in any other manner permitted by applicable law; (b) irrevocably and unconditionally consents and submits itself and its properties and assets in any action or proceeding to the exclusive general jurisdiction of the Court of Chancery of the State of Delaware (the “Chancery Court”) and any state appellate court therefrom located within the State of Delaware (or, only if the Chancery Court does not have or declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware) in the event any dispute or controversy arises out of this Agreement or the transactions contemplated hereby, or for recognition and enforcement of any judgment in respect thereof; (c) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court; (d) agrees that any actions or proceedings arising in connection with this Agreement or the transactions contemplated hereby shall be brought, tried and determined only in the Chancery Court and any state appellate court therefrom located within the State of Delaware (or, only if the Chancery Court declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware); (e) waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; and (f) agrees that it will not bring any action relating to this Agreement or the transactions contemplated hereby in any court other than the aforesaid courts. Each of Parent, Merger Sub and the Company agrees that a final judgment in any action or proceeding in such courts as provided above shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law.
Section 8.15Remedies.
(a)Except as otherwise expressly provided herein, any and all remedies provided herein will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy. The Parties agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached (including failing to take such actions as are required of them hereunder to consummate the transactions contemplated by this Agreement), and that monetary damages or other legal remedies, even if available, would not be an adequate remedy for such harm. It is accordingly agreed that, prior to the valid
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termination of this Agreement pursuant to Section 7.1, the Parties shall be entitled to seek an injunction or injunctions, specific performance and other equitable relief to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement (including failing to take such actions as are required of them hereunder to consummate the transactions contemplated by this Agreement), in each case without posting a bond or undertaking, this being in addition to any other remedy to which they are entitled at law or in equity. The Parties agree that the right to seek specific enforcement is an integral part of the Agreement and without this right, the Parties would not have entered into this Agreement. Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief when expressly available pursuant to the terms of this Agreement on the basis that the other Parties have an adequate remedy at law or an award of specific performance is not an appropriate remedy for any reason at law or equity. No breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any Party, after the consummation of the transactions contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.
(b)To the extent any Party brings an Action to enforce specifically the performance of the terms and provisions of this Agreement (other than an Action to enforce specifically any provision that expressly survives termination of this Agreement), the Outside Date shall automatically be extended to the later of (i) the tenth (10th) Business Day following the final resolution of such Action or (ii) such other time period established by the court presiding over such Action.
Section 8.16Waiver of Conflicts.
(a)Recognizing that Vinson & Elkins L.L.P. has acted as legal counsel to the Shareholders, the Company, certain of its Affiliates, and the Group Companies prior to the Closing, and that Vinson & Elkins L.L.P. may act as legal counsel to the Shareholders and certain of their Affiliates after the Closing, each of Parent and Merger Sub, the Surviving Entity and each of the Group Companies hereby (i) waives, on its own behalf and agrees to cause its Affiliates to waive, any claim it has or may have that Vinson & Elkins L.L.P. has a conflict of interest or is otherwise prohibited from engaging in such representation and (ii) agrees that in the event that a dispute arises after the Closing between Parent or a Group Company and any Shareholder, the Seller Representative or one of its Affiliates, Vinson & Elkins L.L.P. may represent any Shareholder or its Affiliates in such dispute even though the interests of such Person(s) may be directly adverse to Parent or any Group Company and even though Vinson & Elkins L.L.P. may have represented a Group Company in a matter substantially related to such dispute (including in respect of litigation). As to any privileged attorney-client communications between Vinson & Elkins L.L.P. and any of the Group Companies prior to the Closing (collectively, the “Privileged Communications”), Parent agrees that neither it nor any Group Company, together with any of their respective Affiliates, Subsidiaries, successors or assigns, may use or rely on any of the Privileged Communications in any action against or involving any Shareholder or any of their respective Affiliates (which will no longer include the Group Companies) after the Closing.
(b)Parent acknowledges that all privileged communications in any form or format whatsoever between or among Vinson & Elkins L.L.P. and any Shareholder, Seller Representative, their Affiliates, any Group Company or any of their respective
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Representatives that relate in any way to the negotiation, documentation and consummation of the transactions contemplated by this Agreement, any alternative transactions to the transactions contemplated by this Agreement presented to or considered by any Group Company, or any dispute arising under this Agreement, unless finally adjudicated to be not privileged by a court of law (collectively, the “Privileged Deal Communications”), shall remain privileged after the Closing and that the Privileged Deal Communications and the expectation of client confidence relating thereto shall belong solely to the Shareholders and their respective Affiliates (and not the Group Companies or Parent) and shall not pass to or be claimed by Parent or any of the Group Companies. Accordingly, Parent or the Group Companies shall not, without the Seller Representative’s consent, have access to any such communications, or to the files of Vinson & Elkins L.L.P. relating to their engagement, whether or not the Closing shall have occurred and Vinson & Elkins L.L.P. shall have no duty whatsoever to reveal or disclose any such communications or files. Parent agrees that it will not, and that it will cause its Affiliates and the Group Companies not to, (i) access or use the Privileged Deal Communications, (ii) seek to have any Group Company waive the attorney-client privilege or any other privilege, or otherwise assert that Parent or any Group Company has the right to waive the attorney-client privilege or other privilege applicable to the Privileged Deal Communications, or (iii) seek to obtain the Privileged Deal Communications or Non-Privileged Deal Communications (as defined below) from any Group Company, any Shareholder or Vinson & Elkins L.L.P. Notwithstanding anything to the contrary contained in this Agreement, prior to Closing, the Seller Representative/Shareholders shall be permitted to remove from the premises of the Group Companies or any servers thereon, any email, document, or other record containing attorney-client privileged information relating to this Agreement or the contemplated transactions.
(c)Parent further agrees, on behalf of itself and, after the Closing, on behalf of the Group Companies, that all communications in any form or format whatsoever between or among Vinson & Elkins L.L.P. and any Shareholder, any of their respective Affiliates, any Group Company or any of their respective Representatives that relate in any way to the negotiation, documentation and consummation of the transactions contemplated by this Agreement, any alternative transactions to the transactions contemplated by this Agreement presented to or considered by any Group Company, or any dispute arising under this Agreement and that are not Privileged Deal Communications (collectively, the “Non-Privileged Deal Communications”), shall also belong solely to each Shareholder and its Affiliates (and not the Group Companies) and shall not pass to or be claimed by Parent or any of the Group Companies.
(d)If Parent or any Group Company is legally required by Order or otherwise to access or obtain a copy of all or a portion of the Privileged Deal Communications, then Parent shall promptly (and, in any event, within two (2) Business Days) notify the Seller Representative in writing (including by making specific reference to this Section 8.16(d)) so that the Seller Representative can seek a protective order, and Parent agrees to use its best efforts to assist therewith.
Section 8.17Release. Effective as of the Closing, Parent, on behalf of itself and its Affiliates and their respective successors and assigns (each, a “Releasing Party”), hereby unconditionally and irrevocably and forever releases and discharges each Shareholder, each of its successors and assigns, any of its direct or indirect equityholders, and each of its and their respective Affiliates, and any past, present or future directors, managers, officers, employees, agents, lenders, investors, partners, principals, members, managers, direct or
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indirect shareholders or equityholders of any of the foregoing Persons (each, a “Released Party”), of and from, and hereby unconditionally and irrevocably waives, releases and discharges any and all proceedings, covenants, claims, liabilities, suits, judgments, accounts, actions and causes of action of any kind or character whatsoever, known or unknown, suspected or unsuspected, in contract, direct or indirect, primary or secondary, at law or in equity (including arising under any Environmental Laws) that such Releasing Party ever had, now has or ever may have or claim to have against any Released Party, for or by reason of or in connection with or related to any Group Company (including in respect of the management or operation of the Group Companies) and to the extent first arising prior to the Closing; provided, that nothing contained in this Section 8.17 shall be construed as a waiver by Parent or the Group Companies of any of their respective rights expressly provided under (a) this Agreement, including the preservation of Parent’s right under this Agreement to pursue claims based on Fraud or (b) any Ancillary Document, including the Letters of Transmittal. Parent, on behalf of itself and the other Releasing Parties, expressly waives all rights afforded by any statute which limits the effect of a release with respect to unknown claims. Parent, on behalf of itself and the other Releasing Parties, understands the significance of this release of unknown claims and waiver of statutory protection against a release, on behalf of itself and the other Releasing Parties, of unknown claims, and acknowledges and agrees that this waiver is an essential and material term of this Agreement. Parent, on behalf of itself and the other Releasing Parties, acknowledges that the Shareholders will be relying on the waiver and release provided in this Section 8.17 in connection with this Agreement and that this Section 8.17 is intended for the benefit of, and to grant third party beneficiary rights to each Released Party to enforce this Section 8.17.
Section 8.18Currency. All payments made by Parent pursuant to this Agreement shall be made in United States dollars.
Section 8.19Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 8.20Seller Representative. By adoption of this Agreement by the Shareholders, each Shareholder consents to Seller Representative acting with the authority and in the capacity specified in this Agreement. For the avoidance of doubt, Seller Representative shall be entitled to (i) engage, employ or appoint any agents or representatives (including attorneys, accountants and consultants) to assist Seller Representative in complying with its duties and obligations under this Agreement, (ii) incur costs and expenses on behalf of the Shareholders in connection with its duties and obligations under this Agreement and shall be authorized to pay or reimburse, or reserve for, such costs or expenses from proceeds to the Shareholders, including escrow or contingent proceeds or any other sources of proceeds, prior to distribution thereof to the Shareholders and (iii) take all actions necessary or appropriate in the good faith judgment of Seller Representative for the accomplishment of its duties and obligations under this Agreement. Once Parent makes payment to Seller Representative as contemplated in this Agreement, such Parent payment obligation shall be fully satisfied and discharged and Parent shall have no liability to any Person for Seller Representative’s erroneous distribution of, or failure to distribute, the same to the Shareholders. From and after the Closing, Parent is entitled to deal exclusively with, and rely on, the Seller Representative on all matters relating to this Agreement and the transactions contemplated hereby, and Parent shall have no liability to any Person for any action taken or not taken by the Seller Representative or for any act or omission taken or not
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taken by Parent in reliance upon the actions taken or not taken or decisions, communications or writings made, given or executed by the Seller Representative.
Section 8.21Concerning Financing Related Parties. Notwithstanding anything in this Agreement or any Ancillary Document to the contrary, each Party hereby:
(a)agrees that any Action, whether in law or in equity, whether in contract, in tort or otherwise, involving any Financing Related Party in any way arising out of or relating to this Agreement, any Ancillary Document, any Financing Documents, the Financing or any of the transactions contemplated by this Agreement or the performance of any services thereunder (any such Action, a “Financing Related Action”) shall be subject to the exclusive jurisdiction of, and shall be brought exclusively in, the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York, and any appellate court thereof, and irrevocably and unconditionally submits, for itself and its property, with respect to any Financing Related Action, to the exclusive jurisdiction of, and to venue in, any such court; irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any Financing Related Action, (i) any claim that it is not personally subject to the jurisdiction of any such court for any reason, (ii) that it or its property is exempt or immune from jurisdiction of any such court or from any Action commenced in any such court (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (iii) that (A) any Financing Related Action in any such court is brought in an inconvenient forum or (B) the venue of any Financing Related Action is improper; and agrees that notice as provided herein shall constitute sufficient service of process and waives any argument that such service is insufficient;
(b)agrees that any Financing Related Action shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws that would result in the application of the law of any other state, except as otherwise expressly provided in the Debt Commitment Letter or the applicable Financing Document;
(c)agrees not to bring or support, or permit any of its Affiliates to bring or support, any Financing Related Action in any forum other than the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York, and any appellate court thereof;
(d)expressly and irrevocably waives all right to a jury trial with respect to any Financing Related Action;
(e)agrees that none of the Financing Related Parties will have any obligation or liability, on any theory of liability, to any of the Company or its Affiliates, and none of the Company or any of its Affiliates shall have any rights or claims against any of the Financing Related Parties, in each case, in any way arising out of or relating to (i) this Agreement, any Ancillary Document, any Financing Document, the Financing or any of the transactions contemplated by this Agreement, (ii) the negotiation, execution or the performance of any services thereunder (including any representation or warranty made in, in
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connection with, or as an inducement to, this Agreement), (iii) any breach or violation of this Agreement, or (iv) any failure of the transactions contemplated hereunder to be consummated, whether in law or in equity, whether in contract, in tort or otherwise, it being expressly agreed and acknowledged by the Parties that no personal liability or losses whatsoever shall attach to, be imposed on or otherwise be incurred by any Financing Related Party, as such, arising under, out of, in connection with or related to the items in the immediately preceding clauses (i) through (iv);
(f)agrees that, notwithstanding anything to the contrary in Section 8.8 or elsewhere in this Agreement or any Ancillary Document, the Financing Related Parties are express third party beneficiaries of, and may enforce, this Section 8.21;
(g)agrees that the provisions in this Section 8.21 and the definitions of “Financing”, “Financing Document” and “Financing Related Parties” (and any other definition set forth in, or any other provision of, this Agreement or any Ancillary Document to the extent that an amendment, waiver or other modification of such definition or other provision would amend, waive or otherwise modify the substance of this Section 8.21 or the definition of “Financing”, “Financing Document” or “Financing Related Parties”) shall not be amended, waived or otherwise modified, in each case, in any way adverse to the Financing Related Parties without the prior written consent of the Financing Related Parties (and any such amendment, waiver or other modification without such prior written consent shall be null and void); and
(h)the provisions of this Section 8.21 shall survive, and shall continue in full force and effect after, the termination of this Agreement.
* * * * *
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement and Plan of Merger to be duly executed on its behalf as of the day and year first above written.
| COMPANY: | ||||||||
| HIGHRIDGE RESOURCES, INC. | ||||||||
| By: | /s/ Thirucherai Sathyanarayanan | |||||||
| Name: Thirucherai Sathyanarayanan | ||||||||
| Title: President and Chief Executive Officer | ||||||||
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
| CACTUS, INC. | ||||||||
| By: | /s/ Scott Bender | |||||||
| Name: Scott Bender | ||||||||
| Title: President and Chief Executive Officer | ||||||||
| ATLAS MERGER SUB, LLC | ||||||||
| By: | /s/ Scott Bender | |||||||
| Name: Scott Bender | ||||||||
| Title: President and Chief Executive Officer | ||||||||
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
| SELLER REPRESENTATIVE AND FOR PURPOSE OF SECTION 8.12(b): | |||||||||||||||||
| FLEXSTEEL LTIP LP | |||||||||||||||||
| By: | Prime HoldCo GP LLC, its general partner | ||||||||||||||||
| By: | Ealing Manger Corp., its manager | ||||||||||||||||
| By: | /s/ Elliot Greenberg | ||||||||||||||||
| Name: Elliot Greenberg | |||||||||||||||||
| Title: Vice President | |||||||||||||||||
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
Exhibit 10.1
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CACTUS WELLHEAD, LLC
DATED AS OF December 29, 2022
______________________________________________________________________
THE LIMITED LIABILITY COMPANY INTERESTS IN CACTUS WELLHEAD, LLC HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF ANY STATE, OR ANY OTHER APPLICABLE SECURITIES LAWS, AND HAVE BEEN OR ARE BEING ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS; (II) THE TERMS AND CONDITIONS OF THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT; AND (III) ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BETWEEN THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THE LIMITED LIABILITY COMPANY INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS, THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT, AND ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BY THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THEREFORE, PURCHASERS AND OTHER TRANSFEREES OF SUCH LIMITED LIABILITY COMPANY INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.
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Table of Contents
ARTICLE I DEFINITIONS | |||||
Section 1.1 Definitions | |||||
Section 1.2 Interpretive Provisions | |||||
ARTICLE II ORGANIZATION OF THE LIMITED LIABILITY COMPANY | |||||
Section 2.1 Formation | |||||
Section 2.2 Filing | |||||
Section 2.3 Name | |||||
Section 2.4 Registered Office; Registered Agent | |||||
Section 2.5 Principal Place of Business | |||||
Section 2.6 Purpose; Powers | |||||
Section 2.7 Term | |||||
Section 2.8 Intent | |||||
ARTICLE III OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS | |||||
Section 3.1 Authorized Equity Securities; General Provisions With Respect to Equity and Debt Securities. | |||||
Section 3.2 Voting Rights | |||||
Section 3.3 Capital Contributions; Unit Ownership. | |||||
Section 3.4 Capital Accounts | |||||
Section 3.5 Other Matters. | |||||
Section 3.6 Redemption of Units. | |||||
ARTICLE IV ALLOCATIONS OF PROFITS AND LOSSES | |||||
Section 4.1 Profits and Losses | |||||
Section 4.2 Special Allocations. | |||||
Section 4.3 Allocations for Tax Purposes in General. | |||||
Section 4.4 Other Allocation Rules. | |||||
ARTICLE V DISTRIBUTIONS | |||||
Section 5.1 Distributions. | |||||
Section 5.2 Tax-Related Distributions | |||||
Section 5.3 Distribution Upon Withdrawal | |||||
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ARTICLE VI MANAGEMENT | |||||
Section 6.1 The Managing Member; Fiduciary Duties. | |||||
Section 6.2 Officers. | |||||
Section 6.3 Warranted Reliance by Officers on Others | |||||
Section 6.4 Indemnification | |||||
Section 6.5 Maintenance of Insurance or Other Financial Arrangements | |||||
Section 6.6 Resignation or Termination of Managing Member | |||||
Section 6.7 No Inconsistent Obligations | |||||
Section 6.8 Reclassification Events of PubCo | |||||
Section 6.9 Certain Costs and Expenses | |||||
ARTICLE VII ROLE OF MEMBERS | |||||
Section 7.1 Rights or Powers | |||||
Section 7.2 Voting. | |||||
Section 7.3 Various Capacities | |||||
ARTICLE VIII TRANSFERS OF INTERESTS | |||||
Section 8.1 Restrictions on Transfer. | |||||
Section 8.2 Notice of Transfer | |||||
Section 8.3 Transferee Members | |||||
Section 8.4 Legend | |||||
ARTICLE IX ACCOUNTING | |||||
Section 9.1 Books of Account | |||||
Section 9.2 Tax Elections. | |||||
Section 9.3 Tax Returns; Information | |||||
Section 9.4 Tax Matters Member and Company Representative | |||||
Section 9.5 Withholding Tax Payments and Obligations. | |||||
ARTICLE X DISSOLUTION AND TERMINATION | |||||
Section 10.1 Liquidating Events | |||||
Section 10.2 Bankruptcy | |||||
Section 10.3 Procedure. | |||||
Section 10.4 Rights of Members. | |||||
Section 10.5 Notices of Dissolution | |||||
Section 10.6 Reasonable Time for Winding Up | |||||
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Section 10.7 No Deficit Restoration | |||||
ARTICLE XI GENERAL | |||||
Section 11.1 Amendments; Waivers. | |||||
Section 11.2 Further Assurances | |||||
Section 11.3 Successors and Assigns | |||||
Section 11.4 Entire Agreement | |||||
Section 11.5 Rights of Members Independent | |||||
Section 11.6 Governing Law | |||||
Section 11.7 Jurisdiction and Venue | |||||
Section 11.8 Headings | |||||
Section 11.9 Counterparts | |||||
Section 11.10 Notices | |||||
Section 11.11 Representation By Counsel; Interpretation | |||||
Section 11.12 Severability | |||||
Section 11.13 Expenses | |||||
Section 11.14 No Third Party Beneficiaries | |||||
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SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CACTUS WELLHEAD, LLC
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT (as amended, supplemented or restated from time to time, this “Agreement”), dated as of December 29, 2022 (the “Effective Date”), is made and entered into by and among Cactus Wellhead, LLC, a Delaware limited liability company (the “Company”), and each other Person who is or at any time becomes a Member in accordance with the terms of this Agreement and the Act. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in Section 1.1.
RECITALS
WHEREAS, the Company was formed pursuant to a Certificate of Formation filed in the office of the Secretary of State of the State of Delaware on July 11, 2011 and, prior to the IPO Effective Date (as defined herein), was governed by the Limited Liability Company Operating Agreement of the Company dated as of May 31, 2016 (the “Original LLC Agreement”);
WHEREAS, immediately prior to the adoption of this Agreement, the Company was governed by the First Amended and Restated Limited Liability Company Operating Agreement of the Company (the “Existing LLC Agreement”), which was effective as of February 12, 2018 (the “IPO Effective Date”);
WHEREAS, pursuant to the terms of the Closing Agreement, the parties thereto consummated the recapitalization of the Company (the “Recapitalization”) and took the other actions contemplated in the Closing Agreement (together with the Recapitalization, the “Reorganization”);
WHEREAS, immediately prior to the consummation of the Recapitalization, the Members of the Company consist of those Persons listed on Exhibit A hereto;
WHEREAS, in connection with the Reorganization, Cactus, Inc., a Delaware corporation (“PubCo”), issued shares of Class A Common Stock to the public in the initial underwritten public offering of shares of its stock (the “IPO”) in exchange for cash proceeds;
WHEREAS, in connection with the IPO, among other things, (i) PubCo issued and contributed a number of shares of its Class B Common Stock to the Company equal to the number of outstanding Units collectively then held by the Members (other than PubCo), and the Company distributed such shares of Class B Common Stock to such Members (other than PubCo) in accordance with the number of Units held by such Members, (ii) PubCo contributed the net proceeds of the IPO to the Company in exchange for a number of Units such that the total number of Units then held by PubCo equaled the number of shares of Class A Common Stock outstanding immediately after the IPO (including any shares of Class A Common Stock issued pursuant to the
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exercise of the underwriters’ overallotment option) and (iii) the Company used a portion of such cash to redeem Units from certain Members (other than PubCo) (such redemptions, the “IPO Redemptions”);
WHEREAS, subsequent to the IPO and from time to time, certain Members have exercised their Redemption Rights with respect to a number of Units, and upon such exercise, PubCo acquired directly from such Members each Unit for which such Redemption Right was exercised by such Members for one share of Class A Common Stock pursuant to PubCo’s Call Right (as defined herein);
WHEREAS, each Unit (other than any Unit held by PubCo and its direct and indirect Subsidiaries) may be redeemed, at the election of the holder of such Unit (together with the transfer and surrender by such holder of one share of Class B Common Stock), for one share of Class A Common Stock in accordance with the terms and conditions of this Agreement;
WHEREAS, PubCo is the sole managing Member of the Company (in its capacity as managing Member as well as in any other capacity, the “Managing Member”);
WHEREAS, the Members of the Company desire to amend and restate the Existing LLC Agreement and adopt this Agreement; and
WHEREAS, this Agreement shall supersede the Existing LLC Agreement in its entirety as of the Effective Date.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Existing LLC Agreement is hereby amended and restated in its entirety, and the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement and the Schedules and Exhibits attached to this Agreement, the following definitions shall apply:
“A&R HoldCo Agreement” means the Amended and Restated Limited Liability Company Operating Agreement of the Cactus WH Enterprises, LLC dated as of January 29, 2018.
“Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time (or any corresponding provisions of succeeding law).
“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.
“Adjusted Basis” has the meaning given such term in Section 1011 of the Code.
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“Adjusted Capital Account Deficit” means the deficit balance, if any, in such Member’s Capital Account at the end of any Fiscal Year or other taxable period, with the following adjustments:
(a)credit to such Capital Account any amount that such Member is obligated to restore under Treasury Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to last sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account thereunder any changes during such year in Company Minimum Gain and Member Minimum Gain; and
(b)debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
This definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For these purposes, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that, for purposes of this Agreement, (i) no Member shall be deemed an Affiliate of the Company or any of its Subsidiaries and (ii) none of the Company or any of its Subsidiaries shall be deemed an Affiliate of any Member.
“Agreement” is defined in the preamble to this Agreement.
“All Owned Units” means the sum of (x) all of the Units then held by a Redeeming Member and (y) all of the Units which such Redeeming Member would then own had such Redeeming Member then redeemed, pursuant to the A&R HoldCo Agreement, all of the HoldCo Units then owned, if any, by such Redeeming Member.
“beneficially own” and “beneficial owner” shall be as defined in Rule 13d-3 of the rules promulgated under the Exchange Act.
“Bipartisan Budget Act of 2015” means Title XI of the Bipartisan Budget Act of 2015, as may be amended from time to time (or any corresponding provisions of succeeding law), and any related provisions of law, including court decisions, regulations and administrative guidance.
“Black-Out Period” means any “black-out” or similar period under PubCo’s policies covering trading in PubCo’s securities to which the applicable Redeeming Member is subject, during which such Redeeming Member is restricted from immediately reselling shares of Class A Common Stock to be delivered to such Redeeming Member in connection with a Redemption or pursuant to PubCo’s (or such other member(s) of the PubCo Holdings Group designated by PubCo) exercise of its Call Right.
“Board” means the board of directors of PubCo.
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“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York.
“Call Election Notice” is defined in Section 3.6(f)(ii).
“Call Purchase” means the purchase of Units by PubCo (or any other member of the PubCo Holdings Group) pursuant to an election by PubCo (or any other member of the PubCo Holdings Group) to exercise its Call Right set forth in Section 3.6(f).
“Call Right” has the meaning set forth in Section 3.6(f)(i).
“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with Section 3.4.
“Capital Contribution” means, with respect to any Member, the amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member. Any reference to the Capital Contribution of a Member will include any Capital Contributions made by a predecessor holder of such Member’s Units to the extent that such Capital Contribution was made in respect of Units Transferred to such Member.
“Cash Election” is defined in Section 3.6(a)(iv) and shall also include PubCo’s election to purchase Units for cash pursuant to a Call Purchase.
“Cash Election Amount” means with respect to a particular Redemption or Call Purchase for which a Cash Election has been made, (a) if the cash amount to be paid has been derived from a sale of shares of Class A Common Stock by PubCo, an amount of cash equal to the gross proceeds received by PubCo from the sale of the number of shares of Class A Common Stock that would have been received if a Cash Election had not been made less any Offering Expenses with respect to such Redemption, or (b) in any other case, an amount of cash equal to the Fair Market Value of the number of shares of Class A Common Stock that would have been received if a Cash Election had not been made.
“Change of Control Redemption Date” is defined in Section 3.6(g).
“Class A Common Stock” means, as applicable, (a) the Class A Common Stock, par value $0.01 per share, of PubCo or (b) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class A Common Stock or into which the Class A Common Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.
“Class B Common Stock” means, as applicable, (a) the Class B Common Stock, par value $0.01 per share, of PubCo or (b) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class B Common Stock or into which the Class B Common Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.
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“Closing Agreement” means the Closing Steps Agreement dated as of January 29, 2018, by and among the Company, PubCo and the Persons listed on the signature pages thereto, as amended, supplemented or restated from time to time.
“Closing Date Capital Account Balance” means, with respect to any Member, the positive Capital Account balance of such Member as of the IPO Effective Date after giving effect to the Reorganization, IPO, IPO Redemption and related transactions, the amount or deemed value of which will be set forth by the Company on Exhibit A within 180 calendar days following the execution of the Existing Agreement.
“Code” means the United States Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law).
“Commission” means the U.S. Securities and Exchange Commission.
“Company” is defined in the preamble to this Agreement.
“Company Minimum Gain” has the meaning of “partnership minimum gain” set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). It is further understood that Company Minimum Gain shall be determined in a manner consistent with the rules of Treasury Regulations Section 1.704-2(b)(2), including the requirement that if the adjusted Gross Asset Value of property subject to one or more Nonrecourse Liabilities differs from its adjusted tax basis, Company Minimum Gain shall be determined with reference to such Gross Asset Value.
“Company Representative” has the meaning assigned to the term “partnership representative” in Section 6223 of the Code and any Treasury Regulations or other administrative or judicial pronouncements promulgated thereunder.
“Contract” means any written agreement, contract, lease, sublease, license, sublicense, obligation, promise or undertaking.
“control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract, credit arrangement or otherwise.
“Debt Securities” means, with respect to any member of the PubCo Holdings Group, any and all debt instruments or debt securities that are not convertible or exchangeable into Equity Securities of any member of the PubCo Holdings Group.
“Depreciation” means, for each Fiscal Year or other taxable period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other taxable period, except that (a) with respect to any such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes and which difference is being eliminated by use of the “remedial method” pursuant to Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or other taxable period shall be
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the amount of book basis recovered for such Fiscal Year or other taxable period under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2), and (b) with respect to any other such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes at the beginning of such Fiscal Year or other taxable period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or other taxable period bears to such beginning Adjusted Basis; provided, however, that if the Adjusted Basis for U.S. federal income tax purposes of an asset at the beginning of such Fiscal Year or other taxable period is zero, Depreciation with respect to such asset shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Tax Matters Member.
“DGCL” means the General Corporation Law of the State of Delaware, as amended from time to time (or any corresponding provisions of succeeding law).
“Equity Securities” means (a) with respect to a partnership, limited liability company or similar Person, any and all units, interests, rights to purchase, warrants, options or other equivalents of, or other ownership interests in, any such Person as well as debt or equity instruments convertible, exchangeable or exercisable into any such units, interests, rights or other ownership interests and (b) with respect to a corporation, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including all common stock and preferred stock, or warrants, options or other rights to acquire any of the foregoing, including any debt instrument convertible or exchangeable into any of the foregoing.
“ERISA” means the Employee Retirement Security Act of 1974, as amended.
“Exchange Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).
“Existing LLC Agreement” is defined in the recitals to this Agreement.
“Fair Market Value” means the fair market value of any property as determined in good faith by the Managing Member after taking into account such factors as the Managing Member shall deem appropriate.
“Federal Bankruptcy Code” means Title 11 of the United States Code, as amended from time to time, and all rules and regulations promulgated thereunder.
“Fiscal Year” means the fiscal year of the Company, which shall end on December 31 of each calendar year unless, for U.S. federal income tax purposes, another fiscal year is required. The Company shall have the same fiscal year for U.S. federal income tax purposes and for accounting purposes.
“Former A-1 Unitholder” means a Person that, immediately prior to the IPO Effective Time, was a holder of Class A-1 Units of the Company pursuant to the Original LLC Agreement.
“GAAP” means U.S. generally acceptable accounting principles at the time.
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“Good Faith” means a Person having acted in good faith and in a manner such Person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to a criminal proceeding, having had no reasonable cause to believe such Person’s conduct was unlawful.
“Governmental Entity” means any federal, national, supranational, state, provincial, local, foreign or other government, governmental, stock exchange, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.
“Gross Asset Value” means, with respect to any asset, the asset’s Adjusted Basis for U.S. federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Fair Market Value of such asset as of the date of such contribution;
(b) the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross Fair Market Values as of the following times: (i) the acquisition of an interest (or additional interest) in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution to the Company or in exchange for the performance of more than a de minimis amount of services to or for the benefit of the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Code Section 708(b)(1)(B)), (iv) the acquisition of an interest in the Company by any new or existing Member upon the exercise of a noncompensatory option in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(s); or (v) any other event to the extent determined by the Managing Member to be permitted and necessary or appropriate to properly reflect Gross Asset Values in accordance with the standards set forth in Treasury Regulations Section 1.704-1(b)(2)(iv)(q); provided, however, that adjustments pursuant to clauses (i), (ii) and (iv) above shall be made only if the Managing Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. If any noncompensatory options are outstanding upon the occurrence of an event described in this paragraph (b)(i) through (b)(v), the Company shall adjust the Gross Asset Values of its properties in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2);
(c)the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross Fair Market Value of such asset on the date of such distribution;
(d)the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the Adjusted Basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subsection (f) in the definition of
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“Profits” or “Losses” below or Section 4.2(h); provided, however, that the Gross Asset Value of a Company asset shall not be adjusted pursuant to this subsection to the extent the Managing Member determines that an adjustment pursuant to subsection (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and
(e)if the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsections (a), (b) or (d) of this definition of Gross Asset Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits, Losses and other items allocated pursuant to Article IV.
“Holdco” means Cactus WH Enterprises, LLC, a Delaware limited liability company.
“Holdco Units” means units representing membership interests in HoldCo.
“Indebtedness” means (a) all indebtedness for borrowed money (including capitalized lease obligations, sale-leaseback transactions or other similar transactions, however evidenced), (b) any other indebtedness that is evidenced by a note, bond, debenture, draft or similar instrument, (c) notes payable and (d) lines of credit and any other agreements relating to the borrowing of money or extension of credit.
“Interest” means the entire interest of a Member in the Company, including the Units and all of such Member’s rights, powers and privileges under this Agreement and the Act.
“IPO” is defined in the recitals to this Agreement.
“IPO Effective Date” is defined in the recitals to this Agreement.
“IPO Effective Time” means the time immediately prior to the closing of the IPO on the date of the initial closing of the IPO.
“IPO Redemptions” is defined in the recitals to this Agreement.
“Law” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law).
“Legal Action” is defined in Section 11.7.
“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.
“Liquidating Event” is defined in Section 10.1.
“Managing Member” is defined in the recitals to this Agreement.
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“Member” means any Person that executes this Agreement as a Member, and any other Person admitted to the Company as an additional or substituted Member, that has not made a disposition of such Person’s entire Interest.
“Member Minimum Gain” has the meaning ascribed to “partner nonrecourse debt minimum gain” set forth in Treasury Regulations Section 1.704-2(i). It is further understood that the determination of Member Minimum Gain and the net increase or decrease in Member Minimum Gain shall be made in the same manner as required for such determination of Company Minimum Gain under Treasury Regulations Sections 1.704-2(d) and 1.704-2(g)(3).
“Member Nonrecourse Debt” has the meaning of “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse Deductions” has the meaning of “partner nonrecourse deductions” set forth in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
“National Securities Exchange” means an exchange registered with the Commission under the Exchange Act.
“Nonrecourse Deductions” has the meaning assigned that term in Treasury Regulations Section 1.704-2(b).
“Nonrecourse Liability” is defined in Treasury Regulations Section 1.704-2(b)(3).
“Offering Expenses” means, with respect to any Redemption, to the extent PubCo funds the Cash Election Amount to be paid to the Redeeming Member with respect to such Redemption through any offering of Class A Common Stock or other Equity Securities on or prior to the Redemption Date, any expenses, fees and commissions incurred by PubCo or the Company in connection with such offering, including the amount of any difference between the price at which such Equity Securities were sold to underwriters or other initial purchasers and the price at which such Equity Securities are sold to the public or other ultimate investors in such offering after taking into account underwriters’ discounts or commissions and brokers’ fees or commissions (including, for the avoidance of doubt, any deferred discounts or commissions and brokers’ fees or commissions payable in connection with or as a result of such offering).
“Officer” means each Person appointed as an officer of the Company pursuant to and in accordance with the provisions of Section 6.2.
“Original LLC Agreement” is defined in the recitals to this Agreement.
“Person” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.
“Plan Asset Regulations” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations as the same may be amended from time to time.
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“President and Chief Executive Officer” is defined in Section 6.2(b).
“Prime Rate” means, on any date of determination, a rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the “prime rate” at large U.S. money center banks.
“Proceeding” is defined in Section 6.4.
“Proceeds” is defined in the recitals to this Agreement.
“Profits” or “Losses” means, for each Fiscal Year or other taxable period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):
(a) any income or gain of the Company that is exempt from U.S. federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;
(b) any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss;
(c) in the event the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) or (c) of the definition of Gross Asset Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the Company asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the Company asset) from the disposition of such asset and shall, except to the extent allocated pursuant to Section 4.2, be taken into account for purposes of computing Profits or Losses;
(d) gain or loss resulting from any disposition of Company assets with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed with reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value;
(e) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation;
(f)to the extent an adjustment to the adjusted tax basis of any asset pursuant to Code Section 734(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Account balances as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment
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decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and
(g)any items of income, gain, loss or deduction which are specifically allocated pursuant to the provisions of Section 4.2 shall not be taken into account in computing Profits or Losses for any taxable year, but such items available to be specially allocated pursuant to Section 4.2 will be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.
“Property” means all real and personal property owned by the Company from time to time, including both tangible and intangible property.
“PubCo” is defined in the recitals to this Agreement.
“PubCo Holdings Group” means PubCo and each Subsidiary of PubCo (other than the Company and its Subsidiaries).
A “PubCo Change of Control” means the occurrence of any of the following events or series of events after the IPO Effective Time:
(a) any Person (excluding any Qualifying Owner or any group of Qualifying Owners acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act, and excluding a corporation or other entity owned, directly or indirectly, by the stockholders of PubCo in substantially the same proportions as their ownership of stock of the PubCo) is or becomes the beneficial owner, directly or indirectly, of securities of PubCo representing more than 50% of the combined voting power of PubCo’s then outstanding voting securities; or
(b) there is consummated a merger or consolidation of PubCo with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, the voting securities of PubCo immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of the then-outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or
(c) the stockholders of PubCo approve a plan of complete liquidation or dissolution of PubCo or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by PubCo of all or substantially all of PubCo’s assets, other than such sale or other disposition by PubCo of all or substantially all of PubCo’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of PubCo in substantially the same proportions as their ownership of PubCo immediately prior to such sale.
Notwithstanding the foregoing, except with respect to clause (b) above, a “PubCo Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of
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PubCo immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in, and own substantially all of the shares of, an entity which owns, either directly or through a Subsidiary, all or substantially all of the assets of PubCo immediately following such transaction or series of transactions.
“PubCo Common Stock” means all classes and series of common stock of PubCo, including the Class A Common Stock and the Class B Common Stock.
“Qualifying Owners” means (i) Scott Bender, or any company of which he is the manager, managing member or he otherwise controls, including, but not limited to, HoldCo, (ii) any wife, lineal descendant, legal guardian or other legal representative or estate of Scott Bender; and (iii) any trust of which at least one of the trustees is a person described in clause (i) or (ii) above.
“Reclassification Event” means any of the following: (a) any reclassification or recapitalization of PubCo Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination or any transaction subject to Section 3.1(g)), (b) any merger, consolidation or other combination involving PubCo, or (c) any sale, conveyance, lease, or other disposal of all or substantially all the properties and assets of PubCo to any other Person, in each of clauses (a), (b) or (c), as a result of which holders of PubCo Common Stock shall be entitled to receive cash, securities or other property for their shares of PubCo Common Stock.
“Redeeming Member” is defined in Section 3.6(a)(i).
“Redemption” has the meaning set forth in Section 3.6(a)(i).
“Redemption Date” means (a) the later of (i) the date that is ten Business Days after the Redemption Notice Date and (ii) if the Company or PubCo has made a valid Cash Election with respect to the relevant Redemption, the first Business Day on which the Company or PubCo has available funds to pay the Cash Election Amount, which in no event shall be more than fifteen Business Days after the Redemption Notice Date, or (b) such later date (i) specified in the Redemption Notice or (ii) on which a contingency described in Section 3.6(a)(ii)(D) that is specified in the Redemption Notice is satisfied.
“Redemption Notice” is defined in Section 3.6(a)(ii).
“Redemption Notice Date” is defined in Section 3.6(a)(ii).
“Regulatory Allocations” is defined in Section 4.2(i).
“Reorganization” is defined in the recitals to this Agreement.
“Retraction Condition” means any of the following conditions with respect to a Redemption by a Redeeming Member: (a) any registration statement pursuant to which the resale of Class A Common Stock to be registered for such Redeeming Member at or immediately following the consummation of such Redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective; (b) PubCo shall have failed to cause any related prospectus to be supplemented by any required prospectus
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supplement necessary to effect the sale of shares of Class A Common Stock received with respect to such Redemption; (c) PubCo shall have exercised its right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Redeeming Member to have the resale of its Class A Common Stock registered at or immediately following the consummation of the Redemption; (d) PubCo or the Company shall have disclosed to such Redeeming Member any material non-public information concerning PubCo or the Company, the receipt of which results in such Redeeming Member being prohibited or restricted from selling Class A Common Stock at or immediately following the Redemption without disclosure of such information (and PubCo does not permit disclosure); (e) any stop order relating to the registration statement pursuant to which the Class A Common Stock was to be registered by such Redeeming Member at or immediately following the Redemption shall have been issued by the SEC; (f) there shall be in effect an injunction, a restraining order or a decree of any nature of any Governmental Entity that restrains or prohibits the Redemption; or (g) the Redemption Date would occur three Business Days or less prior to, or during, a Black-Out Period.
“Retraction Notice” is defined in Section 3.6(b).
“SEC” means the U.S. Securities and Exchange Commission, including any governmental body or agency succeeding to the functions thereof.
“Securities Act” means the Securities Act of 1933, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).
“Subsidiary” means, with respect to any specified Person, any other Person with respect to which such specified Person (a) has, directly or indirectly, the power, through the ownership of securities or otherwise, to elect a majority of directors or similar managing body or (b) beneficially owns, directly or indirectly, a majority of such Person’s Equity Securities.
“Tax Matters Member” means the “tax matters partner” as defined in Code Section 6231(a)(7) and as appointed in Section 9.4.
“Tax Receivable Agreement” means the Tax Receivable Agreement, dated as of January 29, 2018, by and among PubCo and the other parties thereto, as may be amended, supplemented or restated from time to time, and any similar agreement entered into by PubCo or any other member of the PubCo Holdings Group after the IPO Effective Date.
“Transfer” means, when used as a noun, any voluntary or involuntary, direct or indirect (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor, by operation of law or otherwise), transfer, sale, pledge or hypothecation or other disposition and, when used as a verb, voluntarily or involuntarily, directly or indirectly (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor or any Person that controls the Transferor, by operation of law or otherwise), to transfer, sell, pledge or hypothecate or otherwise dispose of. The terms “Transferee,” “Transferor,” “Transferred,” and other forms of the word “Transfer” shall have the correlative meanings.
“Transfer Agent” is defined in Section 3.6(a)(iii).
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“Treasury Regulations” means pronouncements, as amended from time to time, or their successor pronouncements, which clarify, interpret and apply the provisions of the Code, and which are designated as “Treasury Regulations” by the United States Department of the Treasury.
“Uniform Commercial Code” means the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of Delaware.
“Units” means the Units issued hereunder and shall also include any equity security of the Company issued in respect of or in exchange for Units, whether by way of dividend or other distribution, split, recapitalization, merger, rollup transaction, consolidation, conversion or reorganization.
“Winding-Up Member” is defined in Section 10.3(a).
Section 1.2 Interpretive Provisions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in Section 1.1 are applicable to the singular as well as the plural forms of such terms;
(b) all accounting terms not otherwise defined herein have the meanings assigned under GAAP;
(c) all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars;
(d) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;
(e) whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”;
(f) “or” is not exclusive;
(g) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; and
(h) the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.
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ARTICLE II
ORGANIZATION OF THE LIMITED LIABILITY COMPANY
ORGANIZATION OF THE LIMITED LIABILITY COMPANY
Section 2.1 Formation. The Company has been formed as a limited liability company subject to the provisions of the Act upon the terms, provisions and conditions set forth in this Agreement.
Section 2.2 Filing. The Company’s Certificate of Formation has been filed with the Secretary of State of the State of Delaware in accordance with the Act. The Members shall execute such further documents (including amendments to such Certificate of Formation) and take such further action as is appropriate to comply with the requirements of Law for the formation or operation of a limited liability company in Delaware and in all states and counties where the Company may conduct its business.
Section 2.3Name. The name of the Company is “Cactus Wellhead, LLC” and all business of the Company shall be conducted in such name or, in the discretion of the Managing Member, under any other name.
Section 2.4Registered Office; Registered Agent. The location of the registered office of the Company in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, or at such other place as the Managing Member from time to time may select. The name and address for service of process on the Company in the State of Delaware are The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, or such other qualified Person as the Managing Member may designate from time to time and its business address.
Section 2.5Principal Place of Business. The principal place of business of the Company shall be located in such place as is determined by the Managing Member from time to time.
Section 2.6Purpose; Powers. The nature of the business or purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which limited liability companies may be formed under the Act. The Company shall have the power and authority to take any and all actions and engage in any and all activities necessary, appropriate, desirable, advisable, ancillary or incidental to the accomplishment of the foregoing purpose.
Section 2.7Term. The term of the Company commenced on the date of filing of the Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware in accordance with the Act and shall continue indefinitely. The Company may be dissolved and its affairs wound up only in accordance with Article X.
Section 2.8Intent. It is the intent of the Members that the Company be operated in a manner consistent with its treatment as a “partnership” solely for U.S. federal (and applicable state and local) income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a “partnership” for any other purpose, including for purposes of Section 303 of the Federal Bankruptcy Code. Neither the Company nor any Member shall take any action inconsistent with the express intent of the parties hereto as set forth in this Section 2.8.
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ARTICLE III
OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.1 Authorized Equity Securities; General Provisions With Respect to Equity and Debt Securities.
(a)Subject to the provisions of this Agreement, the Company shall be authorized to issue from time to time such number of Units and other Equity Securities as the Managing Member shall determine in accordance with Section 3.3. Each authorized Unit and other Equity Security may be issued pursuant to such agreements as the Managing Member shall approve, including pursuant to options and warrants. The Company may reissue any Units or other Equity Securities that have been repurchased or acquired by the Company.
(b)Each outstanding Unit shall be identical (except as provided in Section 3.1(e) or Section 3.3).
(c)Initially, none of the Units or other Equity Securities will be represented by certificates. If the Managing Member determines that it is in the interest of the Company to issue certificates representing the Units or other Equity Securities, certificates will be issued and the Units or other Equity Securities will be represented by those certificates, and this Agreement shall be amended as the Managing Member shall determine necessary or desirable to reflect the issuance of certificated Units for purposes of the Uniform Commercial Code. Nothing contained in this Section 3.1(c) shall be deemed to authorize or permit any Member to Transfer its Units or other Equity Securities except as otherwise permitted under this Agreement.
(d)The Members as of the date hereof are set forth on Exhibit B. The total number of Units issued and outstanding and held by the Members is set forth in the books and records of the Company. The Company shall update such books and records from time to time to reflect any Transfers of Interests, the issuance of additional Units or other Equity Securities and subdivisions or combinations of Units, in each case in accordance with the terms of this Agreement.
(e)If, at any time after the IPO Effective Time, PubCo issues a share of its Class A Common Stock or any other Equity Security of PubCo (other than shares of Class B Common Stock), (i) one or more members of the PubCo Holdings Group shall concurrently contribute to the Company the net proceeds (in cash or other property, as the case may be), if any received by PubCo for such share of Class A Common Stock or other Equity Security, and (ii) the Company shall concurrently issue to the relevant member(s) of the PubCo Holdings Group (and the Company shall be deemed to have automatically issued to such member(s) of the PubCo Holdings Group without further action or agreement), in accordance with the contributions made by each such member pursuant to clause (i), one Unit (if PubCo issues a share of Class A Common Stock), or such other Equity Security of the Company (if PubCo issues Equity Securities other than Class A Common Stock) corresponding to
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the Equity Securities issued by PubCo, and with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo to be issued. Notwithstanding the foregoing: (1) if PubCo issues any shares of Class A Common Stock in order to acquire or fund the acquisition from a Member (other than any member of the PubCo Holdings Group) of a number of Units (and shares of Class B Common Stock) equal to the number of shares of Class A Common Stock so issued, then the Company shall not issue any new Units in connection therewith and, where such shares of Class A Common Stock have been issued for cash to fund such an acquisition by any member of the PubCo Holdings Group pursuant to a Cash Election, the PubCo Holdings Group shall not be required to transfer such net proceeds to the Company, and such net proceeds shall instead be transferred by such member of the PubCo Holdings Group to such Member as consideration for such acquisition. For the avoidance of doubt, if PubCo issues any shares of Class A Common Stock or other Equity Security for cash to be used to fund the direct or indirect acquisition by any member of the PubCo Holdings Group of any Person or the assets of any Person, then the PubCo Holdings Group shall not be required to transfer such cash proceeds to the Company but instead such member of the PubCo Holdings Group shall be required to contribute (or cause to be contributed) such Person or the material assets and liabilities of such Person to the Company or any of its Subsidiaries; and (2) this Section 3.1(e) shall not apply (A) to the issuance and distribution to holders of shares of PubCo Common Stock of rights to purchase Equity Securities of PubCo under a “poison pill” or similar shareholders rights plan (and upon any redemption of Units for Class A Common Stock, such Class A Common Stock will be issued together with a corresponding right under such plan), or (B) to the issuance under PubCo’s employee benefit plans of any warrants, options, other rights to acquire Equity Securities of PubCo or rights or property that may be converted into or settled in Equity Securities of PubCo, but shall in each of the foregoing cases apply to the issuance of Equity Securities of PubCo in connection with the exercise or settlement of such rights, warrants, options or other rights or property. Except pursuant to Section 3.6, (x) the Company may not issue any additional Units to any member of the PubCo Holdings Group unless substantially simultaneously therewith a member of the PubCo Holdings Group issues or sells an equal number of newly-issued shares of PubCo’s Class A Common Stock to another Person, and (y) the Company may not issue any other Equity Securities of the Company to any member of the PubCo Holdings Group unless substantially simultaneously a member of the PubCo Holdings Group issues or sells, to another Person, an equal number of newly-issued shares of a new class or series of Equity Securities of PubCo or such member of the PubCo Holdings Group with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of the Company. If at any time any member of the PubCo Holdings Group issues Debt Securities, such member of the PubCo Holdings Group shall transfer to
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the Company (in a manner to be determined by the Managing Member in its reasonable discretion) the proceeds received by such member of the PubCo Holdings Group in exchange for such Debt Securities (or if such proceeds are used to fund the direct or indirect acquisition by a member of the PubCo Holdings Group of any Person or the assets of any Person, then such Person or the material assets and liabilities of such Person) in a manner that directly or indirectly burdens the Company with the repayment of the Debt Securities. In the event any Equity Security outstanding at PubCo is exercised or otherwise converted or exchanged and, as a result, any shares of Class A Common Stock or other Equity Securities of PubCo are issued, (A) the corresponding Equity Security outstanding at the Company shall be similarly exercised or otherwise converted or exchanged, as applicable, and an equivalent number of Units or other Equity Securities of the Company shall be issued to the PubCo Holdings Group as contemplated by the first sentence of this Section 3.1(e), and (B) the PubCo Holdings Group shall concurrently contribute to the Company the net proceeds, if any received by the PubCo Holdings Group from any such exercise.
(f)No member of the PubCo Holdings Group may redeem, repurchase or otherwise acquire (other than from another member of the PubCo Holdings Group) (i) any shares of Class A Common Stock (including upon forfeiture of any unvested shares of Class A Common Stock) unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from the PubCo Holdings Group an equal number of Units for the same price per security or (ii) any other Equity Securities of PubCo (other than shares of Class B Common Stock), unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from the PubCo Holdings Group an equal number of Equity Securities of the Company of a corresponding class or series with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo for the same price per security. The Company may not redeem, repurchase or otherwise acquire (x) except pursuant to Section 3.6, (x) any Units from the PubCo Holdings Group unless substantially simultaneously the PubCo Holdings Group redeems, repurchases or otherwise acquires an equal number of shares of Class A Common Stock for the same price per security from holders thereof, or (y) any other Equity Securities of the Company from the PubCo Holdings Group unless substantially simultaneously the PubCo Holdings Group redeems, repurchases or otherwise acquires for the same price per security an equal number of Equity Securities of PubCo of a corresponding class or series with substantially the same rights to dividends and distributions (including distribution upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo. Notwithstanding the foregoing, to the extent that any consideration payable by the PubCo Holdings Group in connection with the redemption or repurchase of any shares of Class A Common Stock or other Equity Securities of PubCo or any of its Subsidiaries consists (in whole or in part) of shares
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of Class A Common Stock or such other Equity Securities (including, for the avoidance of doubt, in connection with the cashless exercise of an option or warrant), then the redemption or repurchase of the corresponding Units or other Equity Securities of the Company shall be effectuated in an equivalent manner.
(g)The Company shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) of the outstanding Units or other Equity Securities of the Company unless accompanied by an identical subdivision or combination, as applicable, of the related outstanding PubCo Common Stock, with corresponding changes made with respect to any other exchangeable or convertible securities. Unless in connection with any action taken pursuant to Section 3.1(h), PubCo shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) of the outstanding PubCo Common Stock unless accompanied by an identical subdivision or combination, as applicable, of the related outstanding Units or other Equity Securities of the Company (if any), with corresponding changes made with respect to any other exchangeable or convertible securities.
(h)Notwithstanding any other provision of this Agreement (including Section 3.1(e)), if the PubCo Holdings Group acquires or holds any material amount of cash in excess of any monetary obligations it reasonably anticipates, PubCo may, in its sole discretion (i) contribute (or cause to be contributed) such excess cash amount to the Company in exchange for a number of Units or other Equity Securities of the Company determined in its sole discretion, and distribute to the holders of Class A Common Stock shares of Class A Common Stock (if the Company issues Units to PubCo) or such other Equity Security of PubCo (if the Company issues Equity Securities of the Company other than Units to PubCo) corresponding to the Equity Securities issued by the Company and with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of the Company issued, or (ii) use such excess cash amount in such other manner, and make such other adjustments to or take such other actions with respect to the capitalization of PubCo and the Company and to the one-to-one exchange ratio between Units and shares of Class A Common Stock, as PubCo (in its capacity as Managing Member) in Good Faith determines to be fair and reasonable to the holders of PubCo Shares and to the Members and to preserve the intended economic effect of this Section 3.1, Section 3.6 and the other provisions hereof.
(i)Notwithstanding any other provision of this Agreement: (i) the Company may redeem Units from the PubCo Holdings Group for cash to fund any direct or indirect acquisition by the PubCo Holdings Group of another Person; provided that, promptly after such redemption and acquisition, the PubCo Holdings Group contributes or causes to be contributed, directly or indirectly, such Person or the material assets and liabilities of such Person to the Company or any of its
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Subsidiaries in exchange for a number of Units equal to the number of Units so redeemed; and (ii) the Company may redeem Units from the PubCo Holdings Group for all or a portion of the stock or other equity interests of a Subsidiary of the Company held by the Company; provided that, promptly after such redemption and any related transactions, the PubCo Holdings Group contributes or causes to be contributed, directly or indirectly, the material assets and liabilities of such Subsidiary to the Company or any of its other Subsidiaries in exchange for a number of Units equal to the number of Units so redeemed.
(j)Upon any redemption, repurchase, exchange or other acquisition and/or cancellation by, or forfeiture to, the Company of Units held by any Person (other than as a result of any restructuring where substantially similar interests are issued to the holders of Units), an equal number of shares of Class B Common Stock held by such Person shall be automatically forfeited and cancelled for no consideration.
Section 3.2 Voting Rights. No Member has any voting right except with respect to those matters specifically reserved for a Member vote under the Act and for matters expressly requiring the approval of Members under this Agreement. Except as otherwise required by the Act, each Unit will entitle the holder thereof to one vote on all matters to be voted on by the Members. Except as otherwise expressly provided in this Agreement, the holders of Units having voting rights will vote together as a single class on all matters to be approved by the Members.
Section 3.3 Capital Contributions; Unit Ownership.
(a)Capital Contributions. Except as otherwise set forth in Section 3.1(e), no Member shall be required to make additional Capital Contributions.
(b)Issuance of Additional Units or Interests. Except as otherwise expressly provided in this Agreement, the Managing Member shall have the right to authorize and cause the Company to issue on such terms (including price) as may be determined by the Managing Member (i) subject to the limitations of Section 3.1, additional Units or other Equity Securities in the Company (including creating preferred interests or other classes or series of interests having such rights, preferences and privileges as determined by the Managing Member, which rights, preferences and privileges may be senior to the Units), and (ii) obligations, evidences of Indebtedness or other securities or interests convertible or exchangeable for Units or other Equity Securities in the Company; provided that, at any time following the IPO Effective Date, in each case the Company shall not issue Equity Securities in the Company to any Person unless such Person shall have executed a counterpart to this Agreement and all other documents, agreements or instruments deemed necessary or desirable in the discretion of the Managing Member. Upon such issuance and execution, such Person shall be admitted as a Member of the Company. In that event, the Managing Member shall update the Company’s books and records to reflect such additional issuances. Subject to Section 11.1, the Managing Member is hereby authorized to amend this Agreement to set forth the designations, preferences, rights, powers and duties of such additional Units or other Equity Securities in the Company, or such other amendments that the Managing Member determines to be otherwise necessary or appropriate in connection with the creation, authorization or issuance of, any class
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or series of Units or other Equity Securities in the Company pursuant to this Section 3.3(b); provided that, notwithstanding the foregoing, the Managing Member shall have the right to amend this Agreement as set forth in this sentence without the approval of any other Person (including any Member) and notwithstanding any other provision of this Agreement (including Section 11.1) if such amendment is necessary in order to consummate any offering of shares of PubCo Common Stock or other Equity Securities of PubCo provided that the designations, preferences, rights, powers and duties of any such additional Units or other Equity Securities of the Company as set forth in such amendment are substantially similar to those applicable to such shares of PubCo Common Stock or other Equity Securities of PubCo.
Section 3.4 Capital Accounts. A Capital Account shall be maintained for each Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv) and, to the extent consistent with such regulations, the other provisions of this Agreement. Each Member’s Capital Account balance as of the IPO Effective Date shall be equal to the amount of its respective Closing Date Capital Account Balance set forth opposite such Member’s name on Exhibit A. Thereafter, each Member’s Capital Account shall be (a) increased by (i) allocations to such Member of Profits pursuant to Section 4.1 and any other items of income or gain allocated to such Member pursuant to Section 4.2, (ii) the amount of additional cash or the initial Gross Asset Value of any asset (net of any Liabilities assumed by the Member and any Liabilities to which the asset is subject) contributed to the Company by such Member, and (iii) any other increases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv), and (b) decreased by (i) allocations to such Member of Losses pursuant to Section 4.1 and any other items of deduction or loss allocated to such Member pursuant to the provisions of Section 4.2, (ii) the amount of any cash or the Gross Asset Value of any asset (net of any Liabilities assumed by the Member and any Liabilities to which the asset is subject) distributed to such Member, and (iii) any other decreases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv). In the event of a Transfer of Units made in accordance with this Agreement (including a deemed Transfer for U.S. federal income tax purposes as described in Section 3.6(a)(iv)), the Capital Account of the Transferor that is attributable to the Transferred Units shall carry over to the Transferee Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(l).
Section 3.5 Other Matters.
(a)No Member shall demand or receive a return on or of its Capital Contributions or withdraw from the Company without the consent of the Managing Member. Under circumstances requiring a return of any Capital Contributions, no Member has the right to receive property other than cash.
(b)No Member shall receive any interest, salary, compensation, draw or reimbursement with respect to its Capital Contributions or its Capital Account, or for services rendered or expenses incurred on behalf of the Company or otherwise in its capacity as a Member, except as otherwise provided in Section 6.9 or as otherwise contemplated by this Agreement.
(c)The Liability of each Member shall be limited as set forth in the Act and other applicable Law and, except as expressly set forth in this Agreement or required by
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Law, no Member (or any of its Affiliates) shall be personally liable, whether to the Company, any of the other Members, the creditors of the Company, or any other third party, for any debt or Liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company.
(d)Except as otherwise required by the Act, a Member shall not be required to restore a deficit balance in such Member’s Capital Account, to lend any funds to the Company or, except as otherwise set forth herein, to make any additional contributions or payments to the Company.
(e)The Company shall not be obligated to repay any Capital Contributions of any Member.
Section 3.6 Redemption of Units.
(a)(i) Upon the terms and subject to the conditions set forth in this Section 3.6, each of the Members (other than any Members that are part of the PubCo Holdings Group) (the “Redeeming Member”) shall be entitled to cause the Company to redeem all or a portion of such Member’s Units (together with the transfer and surrender of the same number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock (a “Redemption”) or, at the Company’s election made in accordance with Section 3.6(a)(iv), cash equal to the Cash Election Amount calculated with respect to such Redemption. A Redeeming Member shall be permitted to effect a Redemption of Units no more frequently than once per calendar quarter. The Managing Member may, in its discretion, adopt a policy to limit quarterly exchanges to a particular period during each quarter. With respect to each Redemption, a Redeeming Member shall be required to redeem at least a number of Units equal to the lesser of (A) 2,500 Units and (B) All Owned Units (excluding, for this purpose only, HoldCo Units not eligible for redemption pursuant to the terms of the A&R HoldCo Agreement at the time of the relevant Redemption). Notwithstanding the preceding clause (A) of this Section 3.6(a)(i), with respect to each Redemption, if the Redeeming Member is any of Bender Investment Company, Scott Bender, Joel Bender, Steven Bender or Lee Boquet, such Redeeming Member shall be required to redeem at least a number of Units equal to the lesser of 10,000 Units and All Owned Units, and if the Redeeming Member is a Former A-1 Unitholder, such Redeeming Member shall be required to redeem at least a number of Units equal to the lesser of 1,000 Units and All Owned Units (excluding, for this purpose only, HoldCo Units not eligible for redemption pursuant to the terms of the A&R HoldCo Agreement at the time of the relevant Redemption). Notwithstanding the foregoing, subject to Section 3.6(j) and Section 3.6(k), a Redeeming Member may exercise its redemption right with respect to All Owned Units of such Member or at least 1,000,000 Units at any time. Upon the Redemption of all of a Member’s Units, such Member shall, for the avoidance of doubt, cease to be a Member of the Company.
(ii)In order to exercise the redemption right under Section 3.6(a)(i), the Redeeming Member shall provide written notice (the “Redemption Notice”)
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to the Company, with a copy to PubCo (the date of delivery of such Redemption Notice, the “Redemption Notice Date”), stating:
(A)the number of Units (together with the transfer and surrender of an equal number of shares of Class B Common Stock) the Redeeming Member elects to have the Company redeem;
(B)if the shares of Class A Common Stock to be received are to be issued other than in the name of the Redeeming Member, the name(s) of the Person(s) in whose name or on whose order the shares of Class A Common Stock are to be issued;
(C)if the shares of Class A Common Stock are then publicly traded, whether the exercise of the redemption right is contingent upon the price of a share of Class A Common Stock at the close of business on the last trading day prior to the Redemption Date (as reported by Bloomberg, L.P. or its successor) being equal to a specified price, and, if so, such price;
(D)whether the exercise of the redemption right is to be contingent (including as to timing) upon the closing of an underwritten offering of the shares of Class A Common Stock for which the Units will be redeemed or the closing of an announced merger, consolidation or other transaction or event to which PubCo is a party in which the shares of Class A Common Stock would be exchanged or converted or become exchangeable for or convertible into cash or other securities or property; and
(E)if the Redeeming Member requires the Redemption to take place on a specific Business Day, such Business Day, provided that, any such specified Business Day shall not be earlier than the date that would otherwise apply pursuant to clause (a) of the definition of Redemption Date.
(iii)If the Units to be redeemed (or the shares of Class B Common Stock to be transferred and surrendered) by the Redeeming Member are represented by a certificate or certificates, prior to the Redemption Date, the Redeeming Member shall also present and surrender such certificate or certificates representing such Units (or shares of Class B Common Stock) during normal business hours at the principal executive offices of the Company, or if any agent for the registration or transfer of Class A Common Stock is then duly appointed and acting (the “Transfer Agent”), at the office of the Transfer Agent. If required by the Managing Member, any certificate for Units and any certificate for shares of Class B Common Stock (in each case, if certificated) surrendered to the Company hereunder shall be accompanied by instruments of transfer, in forms reasonably satisfactory to the Managing
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Member and the Transfer Agent, duly executed by the Redeeming Member or the Redeeming Member’s duly authorized representative.
(iv)Upon receipt of a Redemption Notice, the Company shall be entitled to elect (a “Cash Election”) to settle the Redemption by delivering to the Redeeming Member, in lieu of the applicable number of shares of Class A Common Stock that would be received in such Redemption, an amount of cash equal to the Cash Election Amount for such Redemption. In order to make a Cash Election with respect to a Redemption, the Company must provide written notice of such election to the Redeeming Member (with a copy to PubCo) prior to 1:00 p.m., Houston time, on the seventh Business Day after the Redemption Notice Date. If the Company fails to provide such written notice prior to such time, it shall not be entitled to make a Cash Election with respect to such Redemption.
(v)For U.S. federal income (and applicable state and local) tax purposes, each of the Redeeming Member, the Company and PubCo (and any other member of the PubCo Holdings Group), as the case may be, agree to treat each Redemption and, in the event PubCo (or another member of the PubCo Holdings Group) exercises its Call Right, each Call Purchase, as a sale of the Redeeming Member’s Units (together with the same number of shares of Class B Common Stock) to PubCo (or such other member of the PubCo Holdings Group) in exchange for shares of Class A Common Stock or cash, as applicable.
(b)(i) Subject to the satisfaction of any contingency described in Section 3.6(a)(ii)(C) or (D) that is specified in the relevant Redemption Notice, the Redemption shall be completed on the Redemption Date; provided, that if a valid Cash Election has not been made and a Retraction Condition occurs, the Redeeming Member may, at any time prior to the Redemption Date, revoke its Redemption Notice or delay the consummation of a Redemption by giving written notice (the “Retraction Notice”) to the Company (with a copy to PubCo); provided that in no event shall the Redeeming Member seeking to revoke or delay the consummation of such Redemption and relying on any of the matters contemplated in the definition of Retraction Condition have controlled or intentionally materially influenced any facts, circumstances, or Persons in connection therewith (except in the good faith performance of his or her duties as an officer or director of PubCo) in order to provide such Redeeming Member with a basis for such revocation or delay. The timely delivery of a Retraction Notice that revokes a Redemption Notice shall terminate all of the Redeeming Member’s, the Company’s and PubCo’s (and, as applicable, any other member of the PubCo Holdings Group’s) rights and obligations arising from the retracted Redemption Notice. If a Redeeming Member delays the consummation of a Redemption pursuant to a Retraction Notice, (A) unless the Redeeming Member delivers a Retraction Notice in accordance with Section 3.6(b)(i)(B), the Redemption Date shall occur on the first Business Day following the date on which the
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conditions giving rise to such delay cease to exist (or such earlier day as PubCo (and, as applicable, any other member of the PubCo Holdings Group’s), the Company and such Redeeming Member may agree in writing) and (B) the Redeeming Member may retract its Redemption Notice by giving a Retraction Notice to the Company (with a copy to PubCo) at any time prior to the date on which the conditions giving rise to such delay cease to exist.
(ii)Unless the Redeeming Member has timely delivered a Retraction Notice revoking a Redemption Notice as provided in Section 3.6(b)(i) or PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) has elected its Call Right pursuant to Section 3.6(f), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (A) the Redeeming Member shall transfer and surrender the Units to be redeemed (and a corresponding number of shares of Class B Common Stock) to the Company, in each case free and clear of all liens and encumbrances, (B) PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 3.6(a)(i) or Section 3.6(a)(iv) and, as described in Section 3.1(e), the Company shall issue to PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) a number of Units or other Equity Securities of the Company as consideration for such contribution, (C) the Company shall (x) cancel the redeemed Units, (y) transfer to the Redeeming Member the consideration the Redeeming Member is entitled to receive under Section 3.6(a)(i) or Section 3.6(a)(iv), and (z) if the Units are certificated, issue to the Redeeming Member a certificate for a number of Units equal to the difference (if any) between the number of Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (ii)(A) of this Section 3.6(b) and the number of redeemed Units, and (D) PubCo shall cancel the surrendered shares of Class B Common Stock.
(c)If (i) there is any reclassification, reorganization, recapitalization or other similar transaction pursuant to which the shares of Class A Common Stock are converted or changed into another security, securities or other property (other than as a result of a subdivision or combination or any transaction subject to Section 3.1(g)), or (ii) PubCo, by dividend or otherwise, distributes to all holders of the shares of Class A Common Stock evidences of its Indebtedness or assets, including securities (including shares of Class A Common Stock and any rights, options or warrants to all holders of the shares of Class A Common Stock to subscribe for or to purchase or to otherwise acquire shares of Class A Common Stock, or other securities or rights convertible into, exchangeable for or exercisable for shares of Class A Common Stock) but excluding any cash dividend or distribution as well as any such distribution of Indebtedness or assets received by PubCo from the Company in respect of the Units, then upon any subsequent Redemption, in addition to the shares of Class A Common Stock or the Cash Election Amount, as applicable, each Member shall be entitled to receive the amount of such security, securities or other
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property that such Member would have received if such Redemption had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization, other similar transaction, dividend or other distribution, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. For the avoidance of doubt, if there is any reclassification, reorganization, recapitalization or other similar transaction in which the shares of Class A Common Stock are converted or changed into another security, securities or other property, or any dividend or distribution (other than an excluded dividend or distribution, as described above), this Section 3.6 shall continue to be applicable, mutatis mutandis, with respect to such security or other property. This Agreement shall apply to the Units held by the Members as of the IPO Effective Date, as well as any Units hereafter acquired by a Member, including Members who receive their Units pursuant to Section 8.3 of the A&R HoldCo Agreement.
(d)PubCo shall at all times keep available, solely for the purpose of issuance upon a Redemption, out of its authorized but unissued shares of Class A Common Stock or other Equity Securities, such number of shares of Class A Common Stock that shall be issuable upon the Redemption of all outstanding Units (other than those Units held by PubCo or any member of the PubCo Holdings Group); provided, that nothing contained herein shall be construed to preclude PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) from satisfying its obligations with respect to a Redemption by delivery of cash pursuant to a Cash Election or shares of Class A Common Stock or other Equity Securities that are held in the treasury of PubCo. PubCo covenants that all shares of Class A Common Stock and other Equity Securities that shall be issued upon a Redemption shall, upon issuance thereof, be validly issued, fully paid and non-assessable. In addition, for so long as the shares of Class A Common Stock or other Equity Securities are listed on a National Securities Exchange, PubCo shall use its reasonable best efforts to cause all shares of Class A Common Stock and such other Equity Securities issued upon a Redemption to be listed on such National Securities Exchange at the time of such issuance.
(e)The issuance of shares of Class A Common Stock or other Equity Securities upon a Redemption shall be made without charge to the Redeeming Member for any stamp or other similar tax in respect of such issuance; provided, however, that if any such shares of Class A Common Stock or other Equity Securities are to be issued in a name other than that of the Redeeming Member, then the Person or Persons in whose name the shares are to be issued shall pay to PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of PubCo that such tax has been paid or is not payable.
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(f)(i) Notwithstanding anything to the contrary in this Section 3.6, but subject to Section 3.6(g), a Redeeming Member shall be deemed to have offered to sell its Units as described in the Redemption Notice to each member of the PubCo Holdings Group, and PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) may, in its sole discretion, by means of delivery of a Call Election Notice in accordance with, and subject to the terms of, this Section 3.6(f), elect to purchase directly and acquire such Units (together with the transfer and surrender of the same number of shares of Class B Common Stock) on the Redemption Date by paying to the Redeeming Member (or, on the Redeeming Member’s written order and subject to Section 3.6(e), its designee) that number of shares of Class A Common Stock the Redeeming Member (or its designee) would otherwise receive pursuant to Section 3.6(a)(i) or, at PubCo’s (or such designated members(s) of the PubCo Holdings Group’s) election, an amount of cash equal to the Cash Election Amount of such shares of Class A Common Stock (the “Call Right”), whereupon PubCo (or such designated members(s) of the PubCo Holdings Group) shall acquire the Units offered for redemption by the Redeeming Member (together with the transfer and surrender of the same number of shares of Class B Common Stock to PubCo for cancellation). PubCo (or such designated members(s) of the PubCo Holdings Group) shall be treated for all purposes of this Agreement as the owner of such Units; provided that if PubCo funds the Cash Election Amount other than through the issuance of shares of Class A Common Stock, such Units will be reclassified into another Equity Security of the Company if the Managing Member determines such reclassification is necessary.
(ii)PubCo (or such designated members(s) of the PubCo Holdings Group) may, at any time prior to the Redemption Date, in its sole discretion deliver written notice (a “Call Election Notice”) to the Company and the Redeeming Member setting forth its election to exercise its Call Right. A Call Election Notice may be revoked by the applicable member of the PubCo Holdings Group at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Redemption on the Redemption Date. Except as otherwise provided by this Section 3.6(f), an exercise of the Call Right shall be consummated pursuant to the same timeframe and in the same manner as the relevant Redemption would have been consummated if a member of the PubCo Holdings Group had not delivered a Call Election Notice.
(g)In connection with a PubCo Change of Control, PubCo shall have the right, in its sole discretion, to require each Member (other than PubCo any Members that are part of the PubCo Holdings Group) to effect a Redemption of some or all of such Member’s Units (together with the transfer and surrender of the same number of shares of Class B Common Stock); provided that a Cash Election shall not be permitted pursuant to such a Redemption under this Section 3.6(g). Any Redemption pursuant to this Section 3.6(g) shall be effective immediately prior to the consummation of the PubCo Change of Control (and, for the avoidance of doubt, shall not be effective if such PubCo Change of Control is not consummated) (the
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“Change of Control Redemption Date”). From and after the Change of Control Redemption Date, (i) the Units and shares of Class B Common Stock subject to such Redemption shall be deemed to be transferred to PubCo (or such other members of the PubCo Holdings Group designated by PubCo) on the Change of Control Redemption Date and (ii) such Member shall cease to have any rights with respect to the Units and shares of Class B Common Stock subject to such Redemption (other than the right to receive shares of Class A Common Stock pursuant to such Redemption). PubCo shall provide written notice of an expected PubCo Change of Control to all Members within the earlier of (x) five (5) Business Days following the execution of the agreement with respect to such PubCo Change of Control and (y) ten (10) Business Days before the proposed date upon which the contemplated PubCo Change of Control is to be effected, indicating in such notice such information as may reasonably describe the PubCo Change of Control transaction, subject to applicable law, including the date of execution of such agreement or such proposed effective date, as applicable, the amount and types of consideration to be paid for shares of Class A Common Stock in the PubCo Change of Control, any election with respect to types of consideration that a holder of shares of Class A Common Stock, as applicable, shall be entitled to make in connection with such PubCo Change of Control, and the number of Units (and corresponding shares of Class B Common Stock) held by such Member that PubCo intends to require to be subject to such Redemption. Following delivery of such notice and on or prior to the Change of Control Redemption Date, the Members shall take all actions reasonably requested by PubCo to effect such Redemption, including taking any action and delivering any document required pursuant to the remainder of this Section 3.6 to effect a Redemption.
(h)No Redemption shall impair the right of the Redeeming Member to receive any distributions payable on the Units redeemed pursuant to such Redemption in respect of a record date that occurs prior to the Redemption Date for such Redemption. For the avoidance of doubt, no Redeeming Member, or a Person designated by a Redeeming Member to receive shares of Class A Common Stock, shall be entitled to receive, with respect to such record date, distributions or dividends both on Units redeemed by the Company from such Redeeming Member and on shares of Class A Common Stock received by such Redeeming Member, or other Person so designated, if applicable, in such Redemption.
(i)Any Units acquired by the Company under this Section 3.6 and transferred by the Company to any member of the PubCo Holdings Group shall remain outstanding and shall not be cancelled as a result of their acquisition by the Company. Notwithstanding any other provision of this Agreement, the applicable members of the PubCo Holdings Group shall be automatically admitted as a Member of the Company with respect to any Units or other Equity Securities in the Company it receives under this Agreement (including under this Section 3.6 in connection with any Redemption).
(j)Notwithstanding any other provision of this Section 3.6, the Managing Member may, by written notice to the Members, suspend the redemption rights of the
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Members as set forth in this Section 3.6 for an aggregate period of up to 90 days in any calendar year. For the avoidance of doubt, following the delivery of a Redemption Notice by any Redeeming Member, if the Managing Member suspends the redemption rights of the Members, such Redeeming Member may deliver a Retraction Notice and revoke its Redemption Notice at any time prior to the later of (x) the applicable Redemption Date or (y) the date of the consummation of the applicable Redemption.
(k)The Managing Member may impose additional limitations and restrictions on Redemptions (including limiting Redemptions or creating priority procedures for Redemptions), to the extent it determines, in its sole discretion, such limitations and restrictions to be necessary or appropriate to avoid undue risk that the Company may be classified as a “publicly traded partnership” within the meaning of Section 7704 of the Code. Furthermore, the Managing Member may require any Member or group of Members to redeem all of their Units to the extent it determines, in its sole discretion, that such Redemption is necessary or appropriate to avoid undue risk that the Company may be classified as a “publicly traded partnership” within the meaning of Section 7704 of the Code. Upon delivery of any notice by the Managing Member to such Member or group of Members requiring such Redemption, such Member or group of Members shall exchange, subject to exercise by PubCo (or such other member(s) of the PubCo Holdings Group designated by PubCo) of its Call Right pursuant to Section 3.6(f)(i), all of their Units effective as of the date specified in such notice (and such date shall be deemed to be a Redemption Date for purposes of this Agreement) in accordance with this Section 3.6 and otherwise in accordance with the requirements set forth in such notice.
ARTICLE IV
ALLOCATIONS OF PROFITS AND LOSSES
ALLOCATIONS OF PROFITS AND LOSSES
Section 4.1 Profits and Losses. After giving effect to the allocations under Section 4.2 and subject to Section 4.4, Profits and Losses (and, to the extent determined by the Managing Member to be necessary and appropriate to achieve the resulting Capital Account balances described below, any allocable items of income, gain, loss, deduction or credit includable in the computation of Profits and Losses) for each Fiscal Year or other taxable period shall be allocated among the Members during such Fiscal Year or other taxable period in a manner such that, after giving effect to the special allocations set forth in Section 4.2 and all distributions through the end of such Fiscal Year or other taxable period, the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal to (i) the amount such Member would receive pursuant to Section 10.3(b) if all assets of the Company on hand at the end of such Fiscal Year or other taxable period were sold for cash equal to their Gross Asset Values, all liabilities of the Company were satisfied in cash in accordance with their terms (limited with respect to each nonrecourse liability to the Gross Asset Value of the assets securing such liability), and all remaining or resulting cash was distributed, in accordance with Section 10.3(b), to the Members immediately after making such allocation, minus (ii) such Member’s share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets, and the amount any such Member is treated as obligated to contribute to the Company, computed immediately after the hypothetical sale of assets.
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Section 4.2 Special Allocations.
(a)Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Members under any method determined by the Managing Member to be appropriate and in accordance with the applicable Treasury Regulations. The amount of Nonrecourse Deductions for a Fiscal Year or other taxable period shall equal the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that Fiscal Year or other taxable period over the aggregate amount of any distributions during that Fiscal Year or other taxable period of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain, determined in accordance with the provisions of Treasury Regulations Section 1.704-2(d).
(b)Any Member Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Member who bears economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i). If more than one Member bears the economic risk of loss for such Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable to such Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the economic risk of loss. This Section 4.2(b) is intended to comply with the provisions of Treasury Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.
(c)Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in Company Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Company Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 4.2(c)), each Member shall be specially allocated items of Company income and gain for such Fiscal Year or other taxable period in an amount equal to such Member’s share of the net decrease in Company Minimum Gain during such year (as determined pursuant to Treasury Regulations Section 1.704-2(g)(2)). This section is intended to constitute a minimum gain chargeback under Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(d)Notwithstanding any other provision of this Agreement except Section 4.2(c), if there is a net decrease in Member Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Member Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 4.2(d)), each Member shall be specially allocated items of Company income and gain for such year in an amount equal to such Member’s share of the net decrease in Member Minimum Gain (as determined pursuant to Treasury Regulations Section 1.704-2(i)(4)). This section is intended to constitute a partner nonrecourse debt minimum gain chargeback under Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
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(e)Notwithstanding any provision hereof to the contrary except Section 4.2(a) and Section 4.2(b), no Losses or other items of loss or expense shall be allocated to any Member to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such Fiscal Year or other taxable period. All Losses and other items of loss and expense in excess of the limitation set forth in this Section 4.2(e) shall be allocated to the Members who do not have an Adjusted Capital Account Deficit in proportion to their relative positive Capital Accounts but only to the extent that such Losses and other items of loss and expense do not cause any such Member to have an Adjusted Capital Account Deficit.
(f)Notwithstanding any provision hereof to the contrary except Section 4.2(c) and Section 4.2(d), in the event any Member unexpectedly receives any adjustment, allocation or distribution described in paragraph (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro rata portion of each item of income, including gross income, and gain for the Fiscal Year or other taxable period) shall be specially allocated to such Member in an amount and manner sufficient to eliminate any Adjusted Capital Account Deficit of that Member as quickly as possible; provided that an allocation pursuant to this Section 4.2(f) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article IV have been tentatively made as if this Section 4.2(f) were not in this Agreement. This Section 4.2(f) is intended to constitute a qualified income offset under Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(g)If any Member has a deficit balance in its Capital Account at the end of any Fiscal Year or other taxable period that is in excess of the sum of (i) the amount that such Member is obligated to restore and (ii) the amount that the Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Sections 1.704-2(g)(1) and (i)(5), that Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 4.2(g) shall be made only if and to the extent that such Member would have a deficit balance in its Capital Account in excess of such sum after all other allocations provided for in this Article IV have been made as if Section 4.2(f) and this Section 4.2(g) were not in this Agreement.
(h)To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to any Member in complete liquidation of such Member’s Interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such item of gain or loss shall be allocated to the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) if such section applies or
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to the Member to whom such distribution was made if Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(i)The allocations set forth in Sections 4.2(a) through 4.2(h) (the “Regulatory Allocations”) are intended to comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other provision of this Article IV (other than the Regulatory Allocations), the Regulatory Allocations (and anticipated future Regulatory Allocations) shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocation of other items and the Regulatory Allocations to each Member should be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. This Section 4.2(i) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith.
Section 4.3 Allocations for Tax Purposes in General.
(a)Except as otherwise provided in this Section 4.3, each item of income, gain, loss and deduction of the Company for U.S. federal income tax purposes shall be allocated among the Members in the same manner as such item is allocated under Sections 4.1 and 4.2.
(b)In accordance with Code Section 704(c) and the Treasury Regulations thereunder (including the Treasury Regulations applying the principles of Code Section 704(c) to changes in Gross Asset Values), items of income, gain, loss and deduction with respect to any Company property having a Gross Asset Value that differs from such property’s adjusted U.S. federal income tax basis shall, solely for U.S. federal income tax purposes, be allocated among the Members to account for any such difference using the “traditional method with curative allocations,” with the curative allocations applied only to sale gain, under Treasury Regulations Section 1.704-3(c) or such other method or methods determined by the Managing Member to be appropriate and in accordance with the applicable Treasury Regulations.
(c)Any (i) recapture of depreciation or any other item of deduction shall be allocated, in accordance with Treasury Regulations Sections 1.1245-1(e) and 1.1254-5, to the Members who received the benefit of such deductions, and (ii) recapture of grants credits shall be allocated to the Members in accordance with applicable law.
(d)Allocations pursuant to this Section 4.3 are solely for purposes of U.S. federal, state and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement.
(e)If, as a result of an exercise of a noncompensatory option to acquire an interest in the Company, a Capital Account reallocation is required under Treasury Regulations
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Section 1.704-1(b)(2)(iv)(s)(3), the Company shall make corrective allocations pursuant to Treasury Regulations Section 1.704-1(b)(4)(x).
Section 4.4 Other Allocation Rules.
(a)The Members are aware of the income tax consequences of the allocations made by this Article IV and the economic impact of the allocations on the amounts receivable by them under this Agreement. The Members hereby agree to be bound by the provisions of this Article IV in reporting their share of Company income and loss for income tax purposes.
(b)The provisions regarding the establishment and maintenance for each Member of a Capital Account as provided by Section 3.4 and the allocations set forth in Sections 4.1, 4.2 and 4.3 are intended to comply with the Treasury Regulations and to reflect the intended economic entitlement of the Members. If the Managing Member determines, in its sole discretion, that the application of the provisions in Sections 3.4, 4.1, 4.2 or 4.3 would result in non-compliance with the Treasury Regulations or would be inconsistent with the intended economic entitlement of the Members, the Managing Member is authorized to make any appropriate adjustments to such provisions.
(c)All items of income, gain, loss, deduction and credit allocable to an interest in the Company that may have been Transferred shall be allocated between the Transferor and the Transferee based on the portion of the Fiscal Year or other taxable period during which each was recognized as the owner of such interest, in accordance with a method determined by the Managing Member and permissible under Code Section 706 and the Treasury Regulations thereunder.
(d)The Members’ proportionate shares of the “excess nonrecourse liabilities” of the Company, within the meaning of Treasury Regulations Section 1.752-3(a)(3), shall be allocated to the Members in any manner determined by the Managing Member and permissible under the Treasury Regulations.
ARTICLE V
DISTRIBUTIONS
DISTRIBUTIONS
Section 5.1 Distributions.
(a)Distributions. To the extent permitted by applicable Law and hereunder, and except as otherwise provided in Section 10.3, distributions to Members may be declared by the Managing Member out of funds legally available therefor in such amounts and on such terms (including the payment dates of such distributions) as the Managing Member shall determine using such record date as the Managing Member may designate; any such distribution shall be made to the Members as of the close of business on such record date on a pro rata basis (except that, for the avoidance of doubt, repurchases or redemptions made in accordance with Section 3.1 or payments made in accordance with Sections 6.4 or 6.9 need not be on a pro rata basis), in
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accordance with the number of Units owned by each Member as of the close of business on such record date; provided, however, that the Managing Member shall have the obligation to make distributions as set forth in Sections 5.2 and 10.3(b)(iii); and provided, further, that, notwithstanding any other provision herein to the contrary, no distributions shall be made to any Member to the extent such distribution would render the Company insolvent or violate the Act. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a distribution pursuant to this Section 5.1, the Managing Member shall give notice to each Member of the record date, the amount and the terms of the distribution and the payment date thereof.
(b)Successors. For purposes of determining the amount of distributions, each Member shall be treated as having made the Capital Contributions and as having received the distributions made to or received by its predecessors in respect of any of such Member’s Units.
(c)Distributions In-Kind. Except as otherwise provided in this Agreement, any distributions may be made in cash or in kind, or partly in cash and partly in kind, as determined by the Managing Member. To the extent that the Company distributes property in-kind to the Members, the Company shall be treated as making a distribution equal to the Fair Market Value of such property for purposes of Section 5.1(a) and such property shall be treated as if it were sold for an amount equal to its Fair Market Value. Any resulting gain or loss shall be allocated to the Member’s Capital Accounts in accordance with Section 4.1 and Section 4.2.
Section 5.2 Tax-Related Distributions. The Company shall, subject to any restrictions contained in any commercial agreement entered into in the ordinary course with a third party to which the Company is bound, make distributions out of legally available funds (and taking into account any cash reserves to pay costs, fees, operating expenses and other expenses of the Company which the Managing Member reasonably deems necessary) to all Members on a pro rata basis, in accordance with the number of Units owned by each Member, at such times and in such amounts as the Managing Member reasonably determines is necessary to enable the PubCo Holdings Group, in the aggregate, to (i) timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities and (ii) timely meet its obligations pursuant to any and all Tax Receivable Agreements.
Section 5.3 Distribution Upon Withdrawal. No withdrawing Member shall be entitled to receive any distribution or the value of such Member’s Interest in the Company as a result of withdrawal from the Company prior to the liquidation of the Company, except as specifically provided in this Agreement.
ARTICLE VI
MANAGEMENT
MANAGEMENT
Section 6.1 The Managing Member; Fiduciary Duties.
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(a)PubCo shall be the sole Managing Member of the Company. Except as otherwise required by Law, (i) the Managing Member shall have full and complete charge of all affairs of the Company, (ii) the management and control of the Company’s business activities and operations shall rest exclusively with the Managing Member, and the Managing Member shall make all decisions regarding the business, activities and operations of the Company (including the incurrence of costs and expenses) in its sole discretion without the consent of any other Member and (iii) the Members other than the Managing Member (in their capacity as such) shall not participate in the control, management, direction or operation of the activities or affairs of the Company and shall have no power to act for or bind the Company.
(b)In connection with the performance of its duties as the Managing Member of the Company, except as otherwise set forth herein, the Managing Member acknowledges that it will owe to the Members the same fiduciary duties as it would owe to the stockholders of a Delaware corporation if it were a member of the board of directors of such a corporation and the Members were stockholders of such corporation. The Members acknowledge that the Managing Member will take action through its board of directors, and that the members of the Managing Member’s board of directors will owe comparable fiduciary duties to the stockholders of the Managing Member. The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities of the Managing Member otherwise existing at law or in equity, are agreed by the Members to replace, to the fullest extent permitted by applicable Law, such other duties and liabilities of the Managing Member.
Section 6.2 Officers.
(a)The Managing Member may appoint, employ or otherwise contract with any Person for the transaction of the business of the Company or the performance of services for or on behalf of the Company, and the Managing Member may delegate to any such Persons such authority to act on behalf of the Company as the Managing Member may from time to time deem appropriate.
(b)The initial president and chief executive officer of the Company (the “President and Chief Executive Officer”) will be Scott Bender.
(c)Except as otherwise set forth herein, the President and Chief Executive Officer will be responsible for the general and active management of the business of the Company and its Subsidiaries and will see that all orders of the Managing Member are carried into effect. The President and Chief Executive Officer will report to the Managing Member and have the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation organized under the DGCL, subject to the terms of this Agreement, and will have such other powers and duties as may be prescribed by the Managing Member or this Agreement. The President and Chief Executive Officer will have the power to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Company, except where required or permitted by Law to be otherwise signed and
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executed, and except where the signing and execution thereof will be expressly delegated by the Managing Member to some other Officer or agent of the Company.
(d)Except as set forth herein, the Managing Member may appoint Officers at any time, and the Officers may include one or more vice presidents, a secretary, one or more assistant secretaries, a chief financial officer, a general counsel, a treasurer, one or more assistant treasurers, a chief operating officer, an executive chairman, and any other officers that the Managing Member deems appropriate. Except as set forth herein, the Officers will serve at the pleasure of the Managing Member, subject to all rights, if any, of such Officer under any contract of employment. Any individual may hold any number of offices, and an Officer may, but need not, be a Member of the Company. The Officers will exercise such powers and perform such duties as specified in this Agreement or as determined from time to time by the Managing Member.
(e)Subject to this Agreement and to the rights, if any, of an Officer under a contract of employment, any Officer may be removed, either with or without cause, by the Managing Member. Any Officer may resign at any time by giving written notice to the Managing Member. Any resignation will take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation will not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the Officer is a party. A vacancy in any office because of death, resignation, removal, disqualification or any other cause will be filled in the manner prescribed in this Agreement for regular appointments to that office.
Section 6.3 Warranted Reliance by Officers on Others. In exercising their authority and performing their duties under this Agreement, the Officers shall be entitled to rely on information, opinions, reports, or statements of the following Persons or groups unless they have actual knowledge concerning the matter in question that would cause such reliance to be unwarranted:
(a)one or more employees or other agents of the Company or subordinates whom the Officer reasonably believes to be reliable and competent in the matters presented; and
(b)any attorney, public accountant, or other Person as to matters which the Officer reasonably believes to be within such Person’s professional or expert competence.
Section 6.4 Indemnification. Subject to the limitations and conditions provided in this Section 6.4, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or arbitrative (each, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact he, she or it, or a Person of which he, she or it is the legal representative, is or was a Member, an Officer, or acting as the, Managing Member, Tax Matters Member or Company Representative of the Company, in each
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case, shall be indemnified by the Company to the fullest extent permitted by applicable Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such Law permitted the Company to provide prior to such amendment) against all judgment, penalties (including excise and similar taxes and punitive damages), fines, settlement and reasonable expenses (including reasonable attorneys’ fees and expenses) actually incurred by such Person in connection with such Proceeding, appeal, inquiry or investigation, if such Person acted in Good Faith. Reasonable expenses incurred by a Person of the type entitled to be indemnified under this Section 6.4 who was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid by the Company in advance of the final disposition of the Proceeding upon receipt of an undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined that he, she or it is not entitled to be indemnified by the Company. Indemnification under this Section 6.4 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. The rights granted pursuant to this Section 6.4 shall be deemed contract rights, and no amendment, modification or repeal of this Section 6.4 shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings, appeals, inquiries or investigations arising prior to any amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Section 6.4 could involve indemnification for negligence or under theories of strict liability.
Section 6.5 Maintenance of Insurance or Other Financial Arrangements. In compliance with applicable Law, the Company (with the approval of the Managing Member) may purchase and maintain insurance or make other financial arrangements on behalf of any Person who is or was a Member, employee or agent of the Company, or at the request of the Company is or was serving as a manager, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, for any Liability asserted against such Person and Liability and expenses incurred by such Person in such Person’s capacity as such, or arising out of such Person’s status as such, whether or not the Company has the authority to indemnify such Person against such Liability and expenses.
Section 6.6 Resignation or Termination of Managing Member. PubCo shall not, by any means, resign as, cease to be or be replaced as Managing Member except in compliance with this Section 6.6. No termination or replacement of PubCo as Managing Member shall be effective unless proper provision is made, in compliance with this Agreement, so that the obligations of PubCo, its successor (if applicable) and any new Managing Member and the rights of all Members under this Agreement and applicable Law remain in full force and effect. No appointment of a Person other than PubCo (or its successor, as applicable) as Managing Member shall be effective unless PubCo (or its successor, as applicable) and the new Managing Member (as applicable) provide all other Members with contractual rights, directly enforceable by such other Members against PubCo (or its successor, as applicable) and the new Managing Member (as applicable), to cause (a) PubCo to comply with all PubCo’s obligations under this Agreement (including its obligations under Section 3.6) other than those that must necessarily be taken in its capacity as Managing Member and (b) the new Managing Member to comply with all the Managing Member’s obligations under this Agreement.
Section 6.7 No Inconsistent Obligations. The Managing Member represents that it does not have any contracts, other agreements, duties or obligations that are inconsistent with its duties
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and obligations (whether or not in its capacity as Managing Member) under this Agreement and covenants that, except as permitted by Section 6.1, it will not enter into any contracts or other agreements or undertake or acquire any other duties or obligations that are inconsistent with such duties and obligations.
Section 6.8 Reclassification Events of PubCo. If a Reclassification Event occurs, the Managing Member or its successor, as the case may be, shall, as and to the extent necessary, amend this Agreement in compliance with Section 11.1, and enter into any necessary supplementary or additional agreements, to ensure that, following the effective date of the Reclassification Event: (i) the redemption rights of holders of Units set forth in Section 3.6 provide that each Unit (together with the transfer and surrender of one share of Class B Stock) is redeemable for the same amount and same type of property, securities or cash (or combination thereof) that one share of Class A Common Stock becomes exchangeable for or converted into as a result of the Reclassification Event and (ii) PubCo or the successor to PubCo, as applicable, is obligated to deliver such property, securities or cash upon such redemption. PubCo shall not consummate or agree to consummate any Reclassification Event unless the successor Person, if any, becomes obligated to comply with the obligations of PubCo (in whatever capacity) under this Agreement.
Section 6.9 Certain Costs and Expenses. The Company shall (i) pay, or cause to be paid, all costs, fees, operating expenses and other expenses of the Company (including the costs, fees and expenses of attorneys, accountants or other professionals and the compensation of all personnel providing services to the Company) incurred in pursuing and conducting, or otherwise related to, the activities of the Company, and (ii) in the sole discretion of the Managing Member, reimburse the Managing Member for any costs, fees or expenses incurred by it in connection with serving as the Managing Member. To the extent that the Managing Member determines in its sole discretion that such expenses are related to the business and affairs of the Managing Member that are conducted through the Company and/or its Subsidiaries (including expenses that relate to the business and affairs of the Company and/or its Subsidiaries and that also relate to other activities of the Managing Member or any other member of the PubCo Holdings Group), the Managing Member shall cause the Company to pay or bear all expenses of the Managing Member, including, without limitation, costs of securities offerings not borne directly by Members, board of directors compensation and meeting costs, costs of periodic reports to its stockholders, litigation costs and damages arising from litigation, accounting and legal costs; provided that the Company shall not pay or bear any income tax obligations of the Managing Member (or any other member of the PubCo Holdings Group) or bear the cost of payments under the Tax Receivable Agreement. For the avoidance of doubt, any payments made to or on behalf of the Managing Member (or any other member of the PubCo Holdings Group) pursuant to this Section 6.9 shall not be treated as a distribution pursuant to Section 5.1(a) but shall instead be treated as a cost or an expense of the Company.
ARTICLE VII
ROLE OF MEMBERS
ROLE OF MEMBERS
Section 7.1 Rights or Powers. Other than the Managing Member, the Members, acting in their capacity as Members, shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way.
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Notwithstanding the foregoing, the Members have all the rights and powers specifically set forth in this Agreement and, to the extent not inconsistent with this Agreement, in the Act. A Member, any Affiliate thereof or an employee, stockholder, agent, director or officer of a Member or any Affiliate thereof, may also be an employee or be retained as an agent of the Company. The existence of these relationships and acting in such capacities will not result in the Member (other than the Managing Member) being deemed to be participating in the control of the business of the Company or otherwise affect the limited liability of the Member. Except as specifically provided herein, a Member (other than the Managing Member) shall not, in its capacity as a Member, take part in the operation, management or control of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company
Section 7.2 Voting.
(a)Meetings of the Members may be called upon the written request of Members holding at least 50% of the outstanding Units. Such request shall state the location of the meeting and the nature of the business to be transacted at the meeting. Written notice of any such meeting shall be given to all Members not less than two Business Days and not more than 30 days prior to the date of such meeting. Members may vote in person, by proxy or by telephone at any meeting of the Members and may waive advance notice of such meeting. Whenever the vote or consent of Members is permitted or required under this Agreement, such vote or consent may be given at a meeting of the Members or may be given in accordance with the procedure prescribed in this Section 7.2. Except as otherwise expressly provided in this Agreement, the affirmative vote of the Members holding a majority of the outstanding Units shall constitute the act of the Members.
(b)Each Member may authorize any Person or Persons to act for it by proxy on all matters in which such Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by such Member or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it.
(c)Each meeting of Members shall be conducted by an Officer designated by the Managing Member or such other individual Person as the Managing Member deems appropriate.
(d)Any action required or permitted to be taken by the Members may be taken without a meeting if the requisite Members whose approval is necessary consent thereto in writing.
Section 7.3 Various Capacities. The Members acknowledge and agree that the Members or their Affiliates will from time to time act in various capacities, including as a Member and as the Tax Matters Member or Company Representative.
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ARTICLE VIII
TRANSFERS OF INTERESTS
TRANSFERS OF INTERESTS
Section 8.1 Restrictions on Transfer.
(a)Except as provided in Section 3.6 and except for Transfers by HoldCo to its members pursuant to Section 8.3 of the A&R Holdco Agreement, no Member shall Transfer all or any portion of its Interest without the Managing Member’s prior written consent, which consent shall be granted or withheld in the Managing Member’s reasonable discretion. If, notwithstanding the provisions of this Section 8.1(a), all or any portion of a Member’s Interests are Transferred in violation of this Section 8.1(a), involuntarily, by operation of law or otherwise, then without limiting any other rights and remedies available to the other parties under this Agreement or otherwise, the Transferee of such Interest (or portion thereof) shall not be admitted to the Company as a Member or be entitled to any rights as a Member hereunder, and the Transferor will continue to be bound by all obligations hereunder, unless and until the Managing Member consents in writing to such admission, which consent shall be granted or withheld in the Managing Member’s sole discretion. Any attempted or purported Transfer of all or a portion of a Member’s Interests in violation of this Section 8.1(a) shall be null and void and of no force or effect whatsoever. For the avoidance of doubt, the restrictions on Transfer contained in this Article VIII shall not apply to the Transfer of any capital stock of the Managing Member; provided that no shares of Class B Common Stock may be Transferred unless a corresponding number of Units are Transferred therewith in accordance with this Agreement.
(b)In addition to any other restrictions on Transfer contained herein, including the provisions of this Article VIII, in no event may any Transfer or assignment of Interests by any Member be made (i) to any Person who lacks the legal right, power or capacity to own Interests; (ii) unless, if requested by the Company, the Transferor has received a written opinion in form and substance that is reasonably acceptable to the Company from legal counsel or a qualified tax advisor (in either case who is reasonably acceptable to the Company) to the effect that such Transfer (A) will not be considered to be effected on or through an “established securities market” or a “secondary market or the substantial equivalent thereof,” as such terms are used in Treasury Regulations Section 1.7704-1, (B) will not result in the Company having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1) (determined taking into account the rules of Treasury Regulations Section 1.7704-1(h)(3)), and (C) will not cause the Company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code or a successor provision or to be taxed as a corporation pursuant to the Code or successor of the Code; (iii) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3 (14) of ERISA) or a “disqualified person” (as defined in Section 4975(e)(2) of the Code); (iv) if such Transfer would, in the opinion of counsel to the Company, cause any portion of the assets of the Company
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to constitute assets of any employee benefit plan pursuant to the Plan Asset Regulations or otherwise cause the Company to be subject to regulation under ERISA; (v) if such Transfer requires the registration of such Interests or any Equity Securities issued upon any exchange of such Interests, pursuant to any applicable U.S. federal or state securities Laws; or (vi) if such Transfer subjects the Company to regulation under the Investment Company Act or the Investment Advisors Act of 1940, each as amended (or any succeeding law). Any Transfer purported to be made in violation of this Section 8.1(b) shall be void ab initio.
Section 8.2 Notice of Transfer. Other than in connection with Transfers made pursuant to Section 3.6, each Member shall, after complying with the provisions of this Agreement, but in any event no later than three Business Days following any Transfer of Interests, give written notice to the Company of such Transfer. Each such notice shall describe the manner and circumstances of the Transfer.
Section 8.3 Transferee Members. A Transferee of Interests pursuant to this Article VIII shall have the right to become a Member only if (i) the requirements of this Article VIII are met, (ii) such Transferee executes an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement and assuming all of the Transferor’s then existing and future Liabilities arising under or relating to this Agreement, (iii) such Transferee represents that the Transfer was made in accordance with all applicable securities Laws, (iv) the Transferor or Transferee shall have reimbursed the Company for all reasonable expenses (including attorneys’ fees and expenses) of any Transfer or proposed Transfer of a Member’s Interest, whether or not consummated and (v) if such Transferee or his or her spouse is a resident of a community property jurisdiction, then such Transferee’s spouse shall also execute an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement to the extent of his or her community property or quasi-community property interest, if any, in such Member’s Interest. Unless agreed to in writing by the Managing Member, the admission of a Member shall not result in the release of the Transferor from any Liability that the Transferor may have to each remaining Member or to the Company under this Agreement or any other Contract between the Managing Member, the Company or any of its Subsidiaries, on the one hand, and such Transferor or any of its Affiliates, on the other hand. Written notice of the admission of a Member shall be sent promptly by the Company to each remaining Member. Notwithstanding anything to the contrary in this Section 8.3, and except as otherwise provided in this Agreement, following a Transfer of Units by HoldCo to any of its members pursuant to Section 8.3 of the A&R HoldCo Agreement, such transferee shall succeed to all of the rights of HoldCo with respect to such Units under this Agreement.
Section 8.4 Legend. Each certificate representing a Unit, if any, will be stamped or otherwise imprinted with a legend in substantially the following form:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
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THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
THE TRANSFER AND VOTING OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF CACTUS WELLHEAD, LLC DATED AS OF DECEMBER 29, 2022 AMONG THE MEMBERS LISTED THEREIN, AS IT MAY BE AMENDED, SUPPLEMENTED AND/OR RESTATED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES WILL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER OF SUCH SECURITIES.”
ARTICLE IX
ACCOUNTING
ACCOUNTING
Section 9.1Books of Account. The Company shall, and shall cause each Subsidiary to, maintain true books and records of account in which full and correct entries shall be made of all its business transactions pursuant to a system of accounting established and administered in accordance with GAAP, and shall set aside on its books all such proper accruals and reserves as shall be required under GAAP.
Section 9.2Tax Elections.
(a)The Company and any eligible Subsidiary shall make an election (or continue a previously made election) pursuant to Section 754 of the Code for the taxable year of the Company that includes the IPO Effective Date, shall not thereafter revoke such election and shall make a new election pursuant to Section 754 of the Code to the extent necessary following any “termination” of the Company or the Subsidiary, as applicable, under Section 708 of the Code. In addition, the Company shall make the following elections on the appropriate forms or tax returns:
i.to adopt the calendar year as the Company’s Fiscal Year, if permitted under the Code;
ii.to adopt the accrual method of accounting for U.S. federal income tax purposes;
iii.to elect to amortize the organizational expenses of the Company as permitted by Section 709(b) of the Code; and
iv.any other election the Managing Member may deem appropriate and in the best interests of the Company.
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(b)Upon request of the Managing Member, each Member shall cooperate in good faith with the Company in connection with the Company’s efforts to elect out of the application of the company-level audit and adjustment rules of the Bipartisan Budget Act of 2015, if applicable. None of the Managing Member, the Members, or the Company shall make any election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015 to have the provisions of the Bipartisan Budget Act of 2015 governing “Subchapter C – Treatment of Partnerships” apply to any tax return of the Company filed for a taxable year beginning prior to January 1, 2018.
Section 9.3Tax Returns; Information. The Tax Matters Member or Company Representative (as applicable) shall arrange for the preparation and timely filing of all income and other tax and informational returns of the Company. The Tax Matters Member or Company Representative (as applicable) shall furnish to each Member a copy of each approved return and statement, together with any schedules or other information which each Member may require in connection with such Member’s own tax affairs as soon as practicable (but in no event more than 60 days after the end of each Fiscal Year). The Members agree to take all actions reasonably requested by the Company or the Company Representative to comply with the Bipartisan Budget Act of 2015, including where applicable, filing amended returns as provided in Sections 6225 or 6226 of the Code and providing confirmation thereof to the Company Representative.
Section 9.4Tax Matters Member and Company Representative. The Managing Member is specially authorized and appointed to act as the Tax Matters Member and as the Company Representative (as applicable) and in any similar capacity under state or local Law. The Tax Matters Member or Company Representative (as applicable) may retain, at the Company’s expense, such outside counsel, accountants and other professional consultants as it may reasonably deem necessary in the course of fulfilling its obligations as Tax Matters Member or Company Representative (as applicable).
Section 9.5Withholding Tax Payments and Obligations.
(a)The Company and its Subsidiaries may withhold from distributions, allocations or portions thereof if it is required to do so by any applicable rule, regulation or law, and each Member hereby authorizes the Company and its Subsidiaries to withhold or pay on behalf of or with respect to such Member any amount of taxes that the Managing Member determines, in good faith, that the Company or any of its Subsidiaries is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement.
(b)To the extent that any tax is paid by (or withheld from amounts payable to) the Company or any of its Subsidiaries and the Managing Member determines, in good faith, that such tax relates to one or more specific Members (including any tax payable by the Company or any of its Subsidiaries pursuant to Section 6225 of the Code with respect to items of income, gain, loss deduction or credit allocable or attributable to such Member), such tax shall be treated as an amount of taxes withheld or paid with respect to such Member pursuant to this Section 9.5.
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(c)For all purposes under this Agreement, any amounts withheld or paid with respect to a Member pursuant to this Section 9.5 shall be treated as if distributed to such Member at the time such withholding or payment is made. Further, to the extent that the cumulative amount of such withholding or payment for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall be considered a loan from the Company to such Member, with interest accruing at the Prime Rate in effect from time to time, compounded annually. The Managing Member may, in its discretion, either demand payment of the principal and accrued interest on such demand loan at any time (which payment shall not be deemed a Capital Contribution for purposes of this Agreement), and enforce payment thereof by legal process, or may withhold from one or more distributions to a Member amounts sufficient to satisfy such Member’s obligations under any such demand loan.
(d)Neither the Company nor the Managing Member shall be liable for any excess taxes withheld in respect of any Member, and, in the event of overwithholding, a Member’s sole recourse shall be to apply for a refund from the appropriate Governmental Entity.
(e)Notwithstanding any other provision of this Agreement, (i) any Person who ceases to be a Member shall be treated as a Member for purposes of this Section 9.5 and (ii) the obligations of a Member pursuant to this Section 9.5 shall survive indefinitely with respect to any taxes withheld or paid by the Company that relate to the period during which such Person was actually a Member, regardless of whether such taxes are assessed, withheld or otherwise paid during such period.
ARTICLE X
DISSOLUTION AND TERMINATION
DISSOLUTION AND TERMINATION
Section 10.1 Liquidating Events. The Company shall dissolve and commence winding up and liquidating upon the first to occur of the following (each, a “Liquidating Event”):
(a)The sale of all or substantially all of the assets of the Company; and
(b)The determination of the Managing Member to dissolve, wind up, and liquidate the Company.
The Members hereby agree that the Company shall not dissolve prior to the occurrence of a Liquidating Event and that no Member shall seek a dissolution of the Company, under Section 18-802 of the Act or otherwise, other than based on the matters set forth in subsections (a) and (b) above. If it is determined by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of a Liquidating Event, the Members hereby agree to continue the business of the Company without a winding up or liquidation. In the event of a dissolution pursuant to Section 10.1(b), the relative economic rights of each class of Units immediately prior to such dissolution shall be preserved to the greatest extent practicable with respect to distributions made to Members pursuant to Section 10.3 in connection with such dissolution, taking into consideration tax and other
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legal constraints that may adversely affect one or more parties to such dissolution and subject to compliance with applicable laws and regulations, unless, with respect to any class of Units, holders of a majority of the Units of such class consent in writing to a treatment other than as described above.
Section 10.2 Bankruptcy. For purposes of this Agreement, the “bankruptcy” of a Member shall mean the occurrence of any of the following: (a) any Governmental Entity shall take possession of any substantial part of the property of that Member or shall assume control over the affairs or operations thereof, or a receiver or trustee shall be appointed, or a writ, order, attachment or garnishment shall be issued with respect to any substantial part thereof, and such possession, assumption of control, appointment, writ or order shall continue for a period of 90 consecutive days; or (b) a Member shall admit in writing of its inability to pay its debts when due, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of any receiver, trustee or similar officer or for all or any substantial part of its property; or shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debts, dissolution, liquidation, or similar proceeding under the Laws of any jurisdiction; or (c) a receiver, trustee or similar officer shall be appointed for such Member or with respect to all or any substantial part of its property without the application or consent of that Member, and such appointment shall continue undischarged or unstayed for a period of 90 consecutive days or any bankruptcy, insolvency, reorganization, arrangements, readjustment of debt, dissolution, liquidation or similar proceedings shall be instituted (by petition, application or otherwise) against that Member and shall remain undismissed for a period of 90 consecutive days.
Section 10.3 Procedure.
(a)In the event of the dissolution of the Company for any reason, the Members shall commence to wind up the affairs of the Company and to liquidate the Company’s investments; provided that if a Member is in bankruptcy or dissolved, another Member, who shall be the Managing Member (“Winding-Up Member”) shall commence to wind up the affairs of the Company and, subject to Section 10.4(a), such Winding-Up Member shall have full right and unlimited discretion to determine in good faith the time, manner and terms of any sale or sales of the Property or other assets pursuant to such liquidation, having due regard to the activity and condition of the relevant market and general financial and economic conditions. The Members shall continue to share profits, losses and distributions during the period of liquidation in the same manner and proportion as though the Company had not dissolved. The Company shall engage in no further business except as may be necessary, in the reasonable discretion of the Managing Member or the Winding-Up Member, as applicable, to preserve the value of the Company’s assets during the period of dissolution and liquidation.
(b)Following the payment of all expenses of liquidation and the allocation of all Profits and Losses as provided in Article IV, the proceeds of the liquidation and any other funds of the Company shall be distributed in the following order of priority:
(i)First, to the payment and discharge of all of the Company’s debts and Liabilities to creditors (whether third parties or Members), in the order of
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priority as provided by Law, except any obligations to the Members in respect of their Capital Accounts;
(ii)Second, to set up such cash reserves which the Managing Member reasonably deems necessary for contingent or unforeseen Liabilities or future payments described in Section 10.3(b)(i) (which reserves when they become unnecessary shall be distributed in accordance with the provisions of subsection (iii), below); and
(iii)Third, the balance to the Members, pro rata in accordance with the number of Units owned by each Member.
(c)Except as provided in Section 10.4(a), no Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company.
(d)Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and the Managing Member or the Winding-Up Member, as the case may be, shall have the authority to execute and record a certificate of cancellation of the Company, as well as any and all other documents required to effectuate the dissolution and termination of the Company.
Section 10.4 Rights of Members.
(a)Each Member irrevocably waives any right that it may have to maintain an action for partition with respect to the property of the Company.
(b)Except as otherwise provided in this Agreement, (i) each Member shall look solely to the assets of the Company for the return of its Capital Contributions, and (ii) no Member shall have priority over any other Member as to the return of its Capital Contributions, distributions or allocations.
Section 10.5 Notices of Dissolution. In the event a Liquidating Event occurs or an event occurs that would, but for the provisions of Section 10.1, result in a dissolution of the Company, the Company shall, within 30 days thereafter, (a) provide written notice thereof to each of the Members and to all other parties with whom the Company regularly conducts business (as determined in the discretion of the Managing Member), and (b) comply, in a timely manner, with all filing and notice requirements under the Act or any other applicable Law.
Section 10.6 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets in order to minimize any losses that might otherwise result from such winding up.
Section 10.7 No Deficit Restoration. No Member shall be personally liable for a deficit Capital Account balance of that Member, it being expressly understood that the distribution of liquidation proceeds shall be made solely from existing Company assets.
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ARTICLE XI
GENERAL
GENERAL
Section 11.1 Amendments; Waivers.
(a)The terms and provisions of this Agreement may be waived, modified or amended (including by means of merger, consolidation or other business combination to which the Company is a party) only with the approval of the Managing Member and the consent of the holders of a majority of outstanding Units; provided, however, that no amendment to this Agreement may:
i.modify the limited liability of any Member, or increase the liabilities or obligations of any Member, in each case, without the consent of each such affected Member; or
ii.materially alter or change any rights, preferences or privileges of any Interests in a manner that is different or prejudicial relative to any other Interests, without the approval of a majority in interest of the Members holding the Interests affected in such a different or prejudicial manner.
(b)Notwithstanding the foregoing subsection (a), the Managing Member, acting alone, may amend this Agreement or update the books and records of the Company, (i) to reflect the admission of new Members, Transfers of Interests, the issuance of additional Units or Equity Securities, as provided by the terms of this Agreement, and, subject to Section 11.1(a), subdivisions or combinations of Units made in compliance with Section 3.1(g), (ii) to the minimum extent necessary to (A) comply with the provisions of the Bipartisan Budget Act of 2015 and any Treasury Regulations or other administrative pronouncements promulgated thereunder and (B) to administer the effects of such provisions in an equitable manner and (iii) as necessary to avoid the Company being classified as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code.
Section 11.2 Further Assurances. Each party agrees that it will from time to time, upon the reasonable request of another party, execute such documents and instruments and take such further action as may be required to accomplish the purposes of this Agreement.
Section 11.3 Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon the parties and their respective successors and assigns, but shall inure to the benefit of and be enforceable by the successors and assigns of any Member only to the extent that they are permitted successors and assigns pursuant to the terms hereof. No party may assign its rights hereunder except as herein expressly permitted.
Section 11.4 Entire Agreement. This Agreement, together with all Exhibits and Schedules hereto and all other agreements referenced therein and herein, constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations or other agreements between the
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parties in connection with the subject matter hereof except as specifically set forth herein and therein.
Section 11.5 Rights of Members Independent. The rights available to the Members under this Agreement and at Law shall be deemed to be several and not dependent on each other and each such right accordingly shall be construed as complete in itself and not by reference to any other such right. Any one or more and/or any combination of such rights may be exercised by a Member and/or the Company from time to time and no such exercise shall exhaust the rights or preclude another Member from exercising any one or more of such rights or combination thereof from time to time thereafter or simultaneously.
Section 11.6 Governing Law. This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and performed in such State and without regard to conflicts of law doctrines.
Section 11.7 Jurisdiction and Venue. The parties hereto hereby agree and consent to be subject to the jurisdiction of any federal court of the District of Delaware or the Delaware Court of Chancery over any action, suit or proceeding (a “Legal Action”) arising out of or in connection with this Agreement. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Action. Each of the parties hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such Legal Action by the mailing of copies thereof by registered mail, postage prepaid, to such party at its address set forth in this Agreement, such service of process to be effective upon acknowledgment of receipt of such registered mail. Nothing in this Section 11.7 shall affect the right of any party hereto to serve legal process in any other manner permitted by law.
Section 11.8 Headings. The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement.
Section 11.9 Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.
Section 11.10 Notices. Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by facsimile, electronic mail or telecommunications mechanism, provided that any notice so given is also mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested as follows:
If to the Company or the Managing Member, addressed to it at:
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Cactus, Inc.
920 Memorial City Way, Suite 300
Houston, TX 77024
Attention: Scott Bender
920 Memorial City Way, Suite 300
Houston, TX 77024
Attention: Scott Bender
Telephone: (713) 626-8800
Facsimile: (713) 626-8800
Email: scott.bender@cactuswellhead.com
Facsimile: (713) 626-8800
Email: scott.bender@cactuswellhead.com
With copies (which shall not constitute notice) to:
Baker Botts L.L.P.
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Adorys Velazquez
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Adorys Velazquez
Telephone: (212) 408-2523
Facsimile: (212) 259-2523
Email: adorys.velazquez@bakerbotts.com
Facsimile: (212) 259-2523
Email: adorys.velazquez@bakerbotts.com
or to such other address or to such other Person as either party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication or electronically, when transmitted to the applicable number or electronic email address so specified in (or pursuant to) this Section 11.10 and an appropriate answerback is received or, if transmitted after 4:00 p.m. local time on a Business Day in the jurisdiction to which such notice is sent or at any time on a day that is not a Business Day in the jurisdiction to which such notice is sent, then on the immediately following Business Day, (ii) if given by mail, on the first Business Day in the jurisdiction to which such notice is sent following the date three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, on the Business Day when actually received at such address or, if not received on a Business Day, on the Business Day immediately following such actual receipt.
Section 11.11 Representation By Counsel; Interpretation. The parties acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.
Section 11.12 Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement, to the extent permitted by Law shall remain in full force and effect, provided that the essential terms and conditions of this Agreement for all parties remain valid, binding and enforceable.
Section 11.13 Expenses. Except as otherwise provided in this Agreement or in the Closing Agreement, each party shall bear its own expenses in connection with the transactions contemplated by this Agreement.
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Section 11.14 No Third Party Beneficiaries. Except as expressly provided in Sections 6.4 and 9.2, nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under this Agreement or otherwise create any third party beneficiary hereto.
Section 11.15 Intent of Amendments. The amendments to the terms and provisions of the Existing LLC Agreement set forth in this Agreement are not intended to (i) modify the limited liability of any Member, or increase the liabilities or obligations of any Member; or (ii) materially alter or change any rights, preferences or privileges of any Interests in a manner that is different or prejudicial relative to any other Interests, and this Agreement shall be interpreted accordingly.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Second Amended and Restated Limited Liability Company Operating Agreement to be executed as of the day and year first above written and effective as of the Effective Date.
CACTUS WELLHEAD, LLC, as the Company
By: /s/ Scott Bender
Name: Scott Bender
Title: President
CACTUS, INC., as holder of a majority of outstanding Units and as Managing Member
By: /s/ Scott Bender
Name: Scott Bender
Title: President and Chief Executive Officer
SIGNATURE PAGE TO
SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
CACTUS WELLHEAD, LLC
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EXHIBIT A
Members of Cactus Wellhead, LLC
Immediately Prior to Recapitalization
| Member | ||
| Cadent Energy Partners II, L.P. | ||
| Cactus WH Enterprises, LLC | ||
| Lee Boquet | ||
EXHIBIT A TO
SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
CACTUS WELLHEAD, LLC
EXHIBIT B
Members of Cactus Wellhead, LLC
As of the Effective Date
| Member | ||
| Cactus WH Enterprises, LLC | ||
| Cactus, Inc. | ||
| Bruce M. Rothstein | ||
| Irrevocable Trust Agreement of Sarah E. Rothstein | ||
| 2020 Rothstein Family Trust | ||
| Lee Boquet | ||
| John (Andrew) O’Donnell | ||
EXHIBIT B TO
SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
CACTUS WELLHEAD, LLC
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Exhibit 99.1
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Cactus Announces Agreement to Acquire FlexSteel
Transaction & Business Highlights
•Acquisition of a leading manufacturer and provider of differentiated onshore spoolable pipe technologies and associated installation services
•Enhances Cactus’ position as premier provider of highly engineered equipment to the exploration & production (“E&P”) industry and expands reach further downstream
•Strong through-cycle margin profile, modest capital requirements and attractive growth potential
•Transaction is expected to be accretive to first year financial metrics
HOUSTON – January 3, 2023 – Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) announced today that it has entered into a definitive agreement (the “Agreement”) to acquire FlexSteel Technologies Holdings, Inc. and its affiliates through a merger with its holding company, HighRidge Resources, Inc. (“FlexSteel”) and Atlas Merger Sub, LLC, a newly formed subsidiary of Cactus, Inc. FlexSteel is a market-leading manufacturer of spoolable pipe technologies primarily purchased by customers during the production phases of a well’s lifecycle.
Scott Bender, President and CEO of Cactus, commented, “This acquisition enhances Cactus’ position as a premier manufacturer of specialized technologies delivered directly to our industry’s end-users. FlexSteel’s products combine the durability and reliability of steel with the speed and efficiency of spoolables. FlexSteel shares many characteristics with Cactus, including: 1) technologically differentiated products and services that increase customer efficiency, 2) state of the art manufacturing capabilities, 3) strong through-cycle margins, 4) modest capital requirements and 5) significant growth in recent years. Both businesses have succeeded by making highly technical sales to market-leading customers. FlexSteel’s products are also highly complementary to Cactus’ equipment at the wellsite. As such, we believe this company meets the exacting criteria we have described over the last several years.
FlexSteel also provides meaningful growth potential driven by: 1) the industry’s shift away from legacy offerings in favor of more technologically advanced solutions, 2) customers’ trend toward larger diameter products and 3) penetration into new markets such as midstream, international, shallow-water, and carbon capture.
Over time, we expect to realize the benefits of cost efficiencies by implementing our existing supply chain expertise and utilizing the combined Company’s infrastructure to deliver specialized products to an expanded customer base.”
Cactus is acquiring FlexSteel on a cash-free, debt-free basis, for total upfront consideration of approximately $621 million, subject to customary purchase price adjustments. The closing is expected to occur in early 2023 and is subject to regulatory approvals and other customary conditions. In addition to the upfront consideration, there is a potential future earn-out payment of up to $75 million to be paid in mid-2024 if certain revenue growth targets are met by FlexSteel.
FlexSteel’s current President and CEO, Thirucherai Sathyanarayanan, will continue to lead the business, which generated revenue of approximately $265 million for the nine months ended September 30, 2022.
Transaction Financing Details
Cactus has obtained fully committed bridge financing that it can use to fund the upfront purchase price together with cash on hand. The Company intends to finance the acquisition of FlexSteel through a mix of cash, debt and/or equity. The Company is targeting net debt to 2022 adjusted EBITDA for the combined company of less than 1.0x at closing and expects to reduce leverage through internal cash generation thereafter.
Advisors
J.P. Morgan Securities LLC is serving as the exclusive financial advisor to Cactus and Bracewell LLP is serving as legal counsel in association with the transaction. Morgan Stanley & Co. LLC is serving as financial advisor to FlexSteel and Vinson & Elkins LLP is acting as legal counsel on the transaction.
Conference Call & Webcast Information
Cactus will host a conference call to discuss the acquisition on Tuesday, January 3, 2023 at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). The call will be webcast on Cactus’ website at www.CactusWHD.com. Please access the webcast for the call at least 10 minutes ahead of start time to ensure a proper connection. In addition, a presentation with additional information relating to the FlexSteel acquisition is available on the Company’s website at www.CactusWHD.com.
About Cactus, Inc.
Cactus designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers’ wells. In addition, it provides field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. Cactus operates service centers throughout the United States and Australia, while also providing equipment and services in select international markets.
About FlexSteel
FlexSteel designs, manufactures, sells and installs highly engineered spoolable pipe technologies. FlexSteel’s steel reinforced pipeline solutions are sold principally for onshore oil and gas wells and are utilized during the production phases of its customers’ wells. FlexSteel’s technology combines the durability of steel with the installation, performance and cost benefits of spoolable pipe products. FlexSteel operates service centers throughout the United States and Canada, while also providing equipment and services in select international markets.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Cactus’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “potential,” “will,” “hope” or other similar words and include the Company’s expectation of future performance contained herein. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by risks or uncertainties, including unanticipated challenges relating to the proposed transaction and related financing. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in the Company’s Annual Report on Form 10-K, any Quarterly Reports on Form 10-Q and the other documents that the Company files with the Securities and Exchange Commission. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement. Cactus disclaims any duty to update and does not intend to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this presentation.
Cactus, Inc.
John Fitzgerald, 713-904-4655
Director of Corporate Development and Investor Relations
IR@CactusWHD.com
Source: Cactus, Inc.
2 Important Disclosures Non-GAAP Measures This presentation includes references to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and EBIT, which are not measures calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). A reconciliation of EBITDA, Adjusted EBITDA and EBIT to net income, the most directly comparable measure calculated in accordance with GAAP, is provided in the Appendix included in this presentation. While management believes such measures are useful for investors, these measures should not be used as a replacement for financial measures that are calculated in accordance with GAAP. Forward-Looking Statements The information in this presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements related to Cactus and to FlexSteel, other than statements of historical fact included in this presentation, regarding the proposed transaction and Cactus’ and FlexSteel’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives of management and avenues for growth are forward- looking statements. When used in this presentation, the words “may,” “hope,” “potential,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on Cactus’ current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, including unanticipated challenges relating to the proposed transaction and related financing and incident to the operation of our business. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in Cactus’ Annual Report on Form 10-K, any Quarterly Reports on Form 10-Q and the other documents that Cactus files from time to time with the Securities and Exchange Commission (“SEC”). These documents are available on Cactus’ website at https://cactuswhd.com/investors/sec-filings/ or through the SEC’s Electronic Data Gathering and Analysis Retrieval (“EDGAR”) system at www.sec.gov. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement. We disclaim any duty to update and do not intend to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this presentation. Industry and Market Data This presentation has been prepared by Cactus and includes market data and other statistical information from third-party sources, including independent industry publications, government publications or other published independent sources. Some data is also based on Cactus’ good faith estimate. Although Cactus believes these third-party sources are reliable as of their respective dates, Cactus has not independently verified the accuracy or completeness of this information. Information Presented Except as otherwise indicated or required by the context, references in this presentation to the “Company,” “Cactus,” “we,” “us” and “our” refer to Cactus, Inc. and its consolidated subsidiaries and references to “FlexSteel” refer to HighRidge Resources, Inc. and its consolidated subsidiaries. None of FlexSteel or its affiliates or any of its or their affiliates’ respective representatives have any responsibility for the content of this presentation.
3 Manufacturer of a Unique Highly Engineered Product Sold Directly to End-Users Variable Cost Business With A Strong Margin Profile Modest Capital Requirements Enhance Free Cash Flow Leverages Cactus’ Infrastructure & Customer Base Attractive Growth Potential FlexSteel Meets Cactus’ Acquisition Criteria
4 Growth Opportunities from Increased Customer Adoption, Midstream, International, Offshore and Carbon Capture Applications Complementary Products at the Wellsite and Sold to Similar End-Users Innovative & Differentiated Technology With Unique Manufacturing Capabilities Strong Through-Cycle Margins With Modest Capital Requirements Industry Leader in a Growing Segment of the Market 5 4 3 2 1 Through-Cycle Outperformance FlexSteel Investment Highlights
5 ◼ Cactus to acquire FlexSteel for $621 million on a cash-free, debt-free basis, subject to customary purchase price adjustments ◼ Consideration to be paid in cash, with closing expected in early 2023 ◼ Potential future earn-out payment of up to $75 million in mid-2024 if certain growth targets are achieved ◼ The upfront purchase price represents a multiple of approximately 6x YTD 2022 annualized Adjusted EBITDA(1) as of September 30th ◼ Entirety of the upfront purchase price able to be funded with cash on hand and committed bridge financing ◼ Cactus ultimately expects to finance the transaction through a combination of debt and/or equity ◼ Cactus is targeting net debt to 2022 Adjusted EBITDA(1) for the combined company of less than 1.0x at closing ◼ Transaction expected to be accretive to various first year financial metrics Transaction & Financing Overview Transaction Overview Strategic Rationale ◼ Increased product diversification supports higher future growth potential ◼ Differentiated product, manufacturing capabilities and service execution supported by IP portfolio ◼ Highly complementary consumable product offering to Cactus’ products and services ◼ Increases exposure to additional end-markets streams including: 1) production, 2) midstream, 3) shallow-water and 4) carbon-capture & underground storage (“CCUS”) ◼ Transaction enhances international opportunities while maintaining Cactus’ flexibility to pursue growth initiatives ◼ Combination enables Cactus to optimize the footprint and infrastructure of the combined Company ◼ Combined business supportive of continued capital returns to shareholders 1) Net debt represents total debt, including current maturities, less cash and cash equivalents. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Subsequent pages in this presentation contain reconciliations to the most comparable financial measures calculated in accordance with GAAP.
6 FlexSteel at a Glance About FlexSteel ◼ FlexSteel is a market leading provider of spoolable pipe technologies for the onshore North American market ◼ Customer base includes some of the largest exploration & production companies in North America ◼ 100% of products manufactured in-house at ISO & API-certified Baytown, TX facility Note: YTD 2022 represents data for the first nine months of 2022, 2022 YOY represents Year-Over-Year. 1) EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Subsequent pages in this presentation contain reconciliations to the most comparable financial measures calculated in accordance with GAAP. 2) Net Capital Expenditures represents net cash used in investing activities excluding $1.6 million in proceeds from notes receivable – related party. $265 million YTD 2022 Revenue $78 million YTD 2022 Adjusted EBITDA(1) 29% YTD 2022 Adjusted EBITDA Margin(1) 12 North American Locations 300+ Employees 20+ Countries Where FlexSteel Has Been Installed 56% 2022 YTD YOY Revenue Growth $7 million YTD 2022 Net Capital Expenditures(2)
7 Tank Battery FlexSteel’s Proprietary Equipment Across the Industry Value Chain Production Lines / Pipe-Under-Pad Gathering Lines Takeaway Lines Multiphase Production Oil / Gas / Water CO2 / CCUSGas Lift / CO2 Oil / Gas / Water CO2 / CCUS Wellhead Midstream Sales Meter Refining / End Use Consumable Sale Spoolable Pipe Associated Service End Fittings Installation Maintenance Customer E&P E&P Midstream TAM ($mm)(1) $1+ billion $850 million $1+ billion Diameter Small/Medium Larger Largest 1. TAM represents Total Addressable Market. Per FlexSteel management estimates.
8 Technologically Advanced Spoolable Pipe Systems Lower maintenance cost for operators Lower cost to install Reduced operating field failures / reinstallations Reduced need for special handling or bedding tools Captures permeated gases Higher flowrates Reliable in extreme conditions Durable and corrosion- resistant Faster installation times Withstands cyclic loading Lowest bend rating of any spoolable pipe Pre-leak detection Large diameter High pressure & temperature ratings Features Operator Savings Conventional Steel Line Pipe FlexSteel Spoolable Pipe FlexSteel Advantages
9 FlexSteel Offerings Enable Customers to Meet ESG-Related Goals ◼ FlexSteel equipment takes less time to install versus legacy offerings, resulting in faster time to production ◼ Longer spooled length minimizes connections made on-site ◼ Translates to fewer people & less equipment on location ◼ FlexSteel’s equipment increases employee safety ◼ Prefabricated fittings provide ease of installation ◼ Reduced lost-time-incidents (LTIs) during field installation ◼ No on-site cutting required with Delivered-to-LengthTM (“DTL”) offering ◼ FlexSteel product enables capturing and managing of permeated gases ◼ Reduced emissions for operators ◼ Real-time annulus monitoring ◼ Product characteristics are well suited for CO2 transportation ◼ Lower operator emissions per Boe(1) produced Faster Safer Cleaner 1. Barrel of oil equivalent
10 32% 29% 15% 14% 10% 10% 9% 7% Peer B Peer A Peer C Peer E Peer F Peer D 31% 24% 18% 15% 8% 7% 5% 5% Peer A Peer B Peer C Peer D Peer E Peer F Differentiated Margin Profile Through the Cycle Total Adjusted EBITDA Margin (2020 – 2021) (1)(2) Source: Factset, Company filings and financial statements. 1) Peer data represents Adjusted EBITDA where available per company filings and presentations. Peers include: ChampionX, Core Laboratories, Dril-Quip, National Oilwell Varco, Oil States International and TechnipFMC. Cactus’ and FlexSteel’s computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. TechnipFMC data represents TechnipFMC plc data pro forma for the separation of Technip Energies for 2020 – 2021. YTD 2022 represents data for the first nine months of 2022. 2) The Appendix at the back of this presentation contains reconciliations of EBITDA and Adjusted EBITDA to net income, the most comparable financial measure calculated in accordance with GAAP for Cactus and FlexSteel. Adjusted EBITDA Margin is defined as Adjusted EBITDA expressed as a percentage of Revenue. YTD 2022 Adjusted EBITDA Margin (1)(2) Strong margin profile relative to peers through the cycle
11 YTD 9/30/2022 Financial Information Year-to-Date (“YTD”) Financial Profile Cactus FlexSteel Cactus & FlexSteel(1) Revenue $501 million $265 million $766 million Adj. EBITDA(2) $161 million $78 million $239 million Adj. EBITDA Margin(2) 32% 29% 31% Net Capital Expenditures(3) $19 million $7 million $26 million Adj. EBITDA – Net Capex $141 million $71 million $213 million Note: YTD represents data for the first nine months of 2022. Figures may not sum due to rounding. Source: Company filings and unaudited financial statements. 1) Represents the sum of Cactus plus FlexSteel and is not intended to represent Cactus on a pro forma basis after giving effect to the acquisition. Does not reflect the potential impact of any purchase price adjustments that may result from purchase accounting. 2) EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. Subsequent pages in this presentation contain reconciliations to the most comparable financial measures calculated in accordance with GAAP. 3) Net Capital Expenditures (or “Net Capex”) for Cactus represents cash flows from investing activities and for FlexSteel represents net cash used in investing activities excluding $1.6 million in proceeds from notes receivable – related party.
12 ◼ Cactus U.S. manufacturing facility located in Bossier City, LA ◼ Both headquarters located in Houston, TX ◼ FlexSteel manufacturing facility located in Baytown, TX ◼ Majority of service centers & yards located in areas with existing Cactus footprint ◼ Two field locations in Canada ◼ FlexSteel has exported products to over 20 countries around the globe Operational Footprint Compatible North American Operating Footprint U.S. Manufacturing Facilities: • Bossier City, Louisiana • Baytown, Texas Headquarters Manufacturing Service Centers / Yards Cactus locations FlexSteel locations
13 ◼ Continued Share Gains For Core Production Products ◼ Transition from legacy offerings to spoolable technologies still underway ◼ Increase customer penetration for larger-diameter gathering-based technologies ◼ Expand customer penetration for on-pad applications that connect to the wellhead ◼ Introduction of an additional market leading technology to Cactus’ customer base ◼ Expansion in the Midstream Segment ◼ Larger diameter capabilities required by relatively untapped customer base ◼ Customer count has significantly increased since 2020 ◼ Carbon Capture & Underground Storage (“CCUS”) ◼ Executed on first CCUS project for large independent operator in 2022 ◼ Actively engaged in multiple CCUS opportunities as market grows ◼ International ◼ International market penetration in relatively early stages ◼ Offshore ◼ Shallow-water product in late stages of development Multiple Avenues for Growth
14 Year Ended Nine Months Ended ($ in thousands) December 31, September 30, 2021 2020 2022 Net income $67,470 $59,215 $104,383 Interest (income) expense, net 774 (701) (1,344) Income tax expense 7,675 10,970 23,498 EBIT 75,919 69,484 126,537 Depreciation and amortization 36,308 40,520 25,991 EBITDA $112,227 $110,004 $152,528 Severance expenses - 1,864 - Revaluation of tax receivable agreement liability (898) 555 (10) Secondary offering related expenses 406 - - Stock-based compensation 8,620 8,599 8,034 Adjusted EBITDA $120,355 $121,022 $160,552 Revenue $438,589 $348,566 $500,595 Net income margin 15.4% 17.0% 20.9% Adjusted EBITDA margin 27.4% 34.7% 32.1% Appendix Non-GAAP Reconciliation (Cactus) Important Disclosure Regarding Non-GAAP Measures EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP. EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define EBITDA as net income excluding net interest, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA excluding severance expenses, revaluation of tax receivable agreement, stock-based compensation, and equity offering expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Revenue. Cactus’ management believes EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are useful, because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin because we believe they provide useful information regarding the factors and trends affecting our business.
15 Year Ended Nine Months Ended ($ in thousands) December 31, September 30, 2021 2020 2022 Net income (loss) ($23,046) ($34,592) $596 Interest (income) expense, net 51,024 53,873 40,082 Income tax expense (benefit) 830 (9,079) 8,491 EBIT 28,808 10,202 49,169 Depreciation and amortization 15,793 15,521 12,124 EBITDA $44,601 $25,723 $61,293 Severance expenses - 194 - Sponsor management fee 3,732 2,009 4,207 Mgmt. long-term incentive plan 8,365 8,641 12,536 Adjusted EBITDA $56,698 $36,567 $78,036 Revenue $235,579 $161,131 $265,450 Net income (loss) margin (9.8%) (21.5%) 0.2% Adjusted EBITDA margin 24.1% 22.7% 29.4% Appendix Non-GAAP Reconciliation (FlexSteel) Important Disclosure Regarding Non-GAAP Measures EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP. EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by FlexSteel management. We define FlexSteel’s EBITDA as net income excluding net interest, income tax and depreciation and amortization. We define FlexSteel’s Adjusted EBITDA as EBITDA excluding severance expenses, sponsor management fees and management long-term incentive plan expenses. We define FlexSteel’s Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Revenue. Sponsor management fees include $4.8 million in 2020, $6.5 million in 2021 and $6.3 million for the nine months ended September 30, 2022 representative of fees charged by FlexSteel’s private equity sponsor, less estimated costs for employees of the sponsor who provided services for FlexSteel. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are useful, because they allow management to more effectively evaluate FlexSteel’s operating performance and compare the results of FlexSteel’s operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of FlexSteel’s EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We present FlexSteel’s EBITDA, Adjusted EBITDA and Adjusted EBITDA margin because we believe they provide useful information regarding the factors and trends affecting FlexSteel’s business.
16 John Fitzgerald Director of Corporate Development & Investor Relations 713-904-4655 IR@CactusWHD.com Investor Relations Contact