Form 16-1

Corporation B is a newly formed corporation formed solely for the purpose of the spin-off and the postclosing operation of Business B.

Type D Reorganization—Agreement and Plan of
Corporate Separation
(Spin-Off)

This Agreement and Plan of Corporate Separation and Reorganization (this “Agree­ment”) dated [date] is made by and between [name of corporation A], a Texas corporation (“Corporation A”), and [name of corporation B], a Texas corporation (“Corporation B”).

Recitals

A.For five or more years, Corporation A has conducted two separate lines of business: [describe business A] (“Business A”) and [describe business B] (“Business B”).

B.The board of directors of Corporation A has determined that a separation of Business A from Business B is desirable and in the best interests of Corporation A and its shareholders.

C.Corporation A desires to transfer all the assets of Business B, subject to all liabilities related thereto, to Corporation B in exchange for all of Corporation B’s capital stock.

D.Immediately after, and as an integral part of the transfer of Business B to Corporation B, Corporation A desires to distribute all the capital stock of Corporation B to the sharehold­ers of Corporation A pro rata to their ownership of Corporation A’s capital stock in a transac­tion that will qualify as a reorganization and tax-free distribution under sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the “IRC”).

Agreement

THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, and agreements contained in this Agreement, the parties agree as follows:

Article 1 

Separation Transaction

1.1Transfer of Business B. Subject to the terms and conditions set forth in this Agree­ment, as of the Effective Time (as defined in section 1.4 below), Corporation A will transfer Business B to Corporation B, and Corporation B will accept and assume Business B, as fol­lows:

(a)Corporation A will transfer and deliver to Corporation B, for the consideration set forth in section 1.2 below, all the assets of Business B, more particularly described in Schedule 1.1(a) attached hereto (the “Transferred Assets”).

(b)Corporation B will expressly assume all the liabilities of and allocable to Business B, more particularly described in Schedule 1.1(b) attached hereto (the “Assumed Liabilities”).

1.2Consideration. In consideration for the transfers described in section 1.1 of this Agreement, Corporation B will issue to Corporation A [number] shares of its common stock, par value $[amount] per share, which will be all the issued and outstanding capital stock of Corporation B (the “Corporation B Stock”).

1.3Distribution of Corporation B Stock. Immediately after the transfers described in sections 1.1 and 1.2 of this Agreement, Corporation A will distribute the Corporation B Stock to Corporation A’s shareholders in proportion to their ownership of Corporation A’s issued and outstanding capital stock.

1.4Closing; Effective Time. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the time, date, and place the parties select. The date on which the Closing occurs is hereinafter referred to as the “Closing Date.” If all the conditions of the Closing set forth in this Agree­ment have been fulfilled or waived and this Agreement has not been terminated, Corporation A and Corporation B will, on the Closing Date, make the transfers and distributions contem­plated by this Article 1 (these transfers and distributions being collectively referred to in this Agreement as the “Separation Transaction”). The Separation Transaction will become effec­tive at the time the transfers and distributions contemplated by this Article 1 have been fully consummated or at such later time as the parties agree (the “Effective Time”).

1.5Closing Deliveries. At the Closing—

(a)Corporation A will deliver to Corporation B the following:

1.The transfer documents and all deeds, bills of sale, lease assignments, other contract assignments, and other documents and instruments of sale, transfer, assignment, conveyance, and deliverance necessary or appropriate to effect the transfers of the Transferred Assets contemplated by this Article 1.

2.All other documents and instruments necessary or reasonably appropriate to implement the Separation Transaction.

(b)Corporation B will deliver to Corporation A the following:

1.An assumption agreement, as agreed to by the parties, pursuant to which Cor­poration B accepts the Transferred Assets and covenants and agrees to assume, pay, and discharge the Assumed Liabilities.

2.Transfer documents and all other documents and instruments necessary or reasonably appropriate to effect the transfers of the Transferred Assets and the assumption of the Assumed Liabilities contemplated by section 1.1.

3.One or more stock certificates representing the Corporation B Stock.

(c)Corporation A will deliver to its shareholders stock certificates representing the shares of Corporation B Stock to which the shareholders are entitled under section 1.3 of this Agree­ment.

Article 2 

Representations and Warranties of Corporation A

Corporation A represents and warrants to Corporation B the following:

2.1Existence; Good Standing; Corporate Authority. Corporation A is a corporation duly organized, validly existing, and in good standing under the laws of the state of Texas and has all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as now conducted.

2.2Authorization, Validity, and Effect of Agreements. Corporation A has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements and documents to which it is a party contemplated by this Agreement. This Agreement and the consummation by Corporation A of the Separation Transaction have been duly authorized by all requisite corporate action on the part of Corporation A. This Agreement constitutes the valid and legally binding obligation of Corporation A and is enforceable against Corporation A in accordance with its terms, subject to applicable bankruptcy, insolvency, or other similar laws relating to creditors’ rights, and general principles of equity.

2.3No Conflict

(a)Neither the execution by Corporation A of this Agreement nor the consummation by Corporation A of the Separation Transaction in accordance with the terms hereof will—

1.conflict with or result in a breach of any provision of the certificate of forma­tion or the bylaws of Corporation A;

2.violate, conflict with, or result in a breach of any provision of any instrument or obligation to which Corporation A is a party or by which Corporation A or any of its properties is bound or affected; or

3.contravene, conflict with, or constitute a violation of any provision of any law, regulation, order, or decree binding on or applicable to Corporation A.

(b)Neither the execution by Corporation A of this Agreement nor the consummation by Corporation A of the Separation Transaction in accordance with the terms hereof will require any consent, approval, or authorization of, or filing or registration with, any governmental or regulatory authority.

2.4Corporation A Financial Statements. The balance sheets included in the audited annual financial statements prepared by Corporation A (including the related notes and sched­ules) fairly present, in all material respects, the financial position of Corporation A as of the date of each balance sheet, and the consolidated statements of income, shareholders’ equity, and cash flows included in the audited annual financial statements of Corporation A (includ­ing any related notes and schedules) (together with such balance sheets referred to as the “Financial Statements”) fairly present, in all material respects, the results of consolidated operations, shareholders’ equity, and cash flows of Corporation A for the periods set forth therein, in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Attached hereto as Schedule 2.4 are the Financial Statements as of [date], along with separate pro forma balance sheets for Business A and for Business B.

2.5Litigation and Liabilities. There are no civil, criminal, or administrative actions, claims, hearings, investigations, or other proceedings pending or threatened against Corpora­tion A or any current or former director or officer of Corporation A. There are no obligations or liabilities, whether or not accrued, contingent or otherwise, that would prevent or impair the ability of Corporation A to consummate the Separation Transaction. There are no outstanding orders, awards, or decrees of any governmental entity against Corporation A, any of its prop­erties, assets, or business, or any of its current or former directors or officers in their capacities as directors or officers of Corporation A.

2.6Compliance with Laws; Permits. The businesses of Corporation A are being con­ducted in compliance with all applicable laws. Corporation A has all permits, licenses, fran­chises, variances, orders, and other governmental authorizations, consents, and approvals necessary to own, lease, and operate its properties and conduct its businesses as currently con­ducted. Corporation A has complied and is in compliance with all laws respecting interna­tional trade applicable to its businesses (including any recordkeeping requirements).

2.7Environmental Matters. Corporation A is in compliance with all applicable federal, state, and local laws, ordinances, regulations, licenses, permits, and orders relating to the envi­ronment (including air, water, soil, and natural resources) or regulating the use, storage, han­dling, release, or disposal of any substance regulated or classified as hazardous, toxic, or radioactive under any applicable law.

2.8Tax Matters

(a)Corporation A has prepared in good faith and timely filed (or had filed on its behalf) with the appropriate tax authorities all Tax Returns (as defined below) required to be filed by it on or before the filing date, and all Tax Returns are true, complete, and correct in all mate­rial respects. Corporation A has paid in full all Taxes (as defined below) shown as due on all filed Tax Returns.

(b)“Taxes” means all federal, state, local, and foreign taxes, whether imposed directly or through withholding, including all types of (1) taxes on gross or net income or real or personal property; (2) franchise, occupation, or license taxes; (3) withholding, payroll, or employment taxes such as Social Security, unemployment, disability, or similar taxes; (4) excise and stamp taxes and customs duties or other assessments of a similar nature; and (5) any estimated taxes, interest, additions to tax, or penalties imposed by any taxing authority.

(c)“Tax Returns” means all federal, state, local, and foreign tax returns or statements, however titled, with all attachments and schedules, including information returns.

2.9Business B Assets and Liabilities. The Transferred Assets and the Assumed Liabil­ities reflected on Schedules 1.1(a) and 1.1(b) constitute all the assets and the liabilities of Cor­poration A used solely in the operations of Business B. Corporation A owns all rights, title, and interest in the Transferred Assets, and those Transferred Assets are subject to no liabilities other than the Assumed Liabilities.

2.10Contracts. All material contracts and arrangements relating to Business B to which Corporation A is a party are valid and binding agreements and are in full force and effect as to Corporation A.

2.11Accounts Receivable. All notes receivable and accounts receivable of Corporation A relating to Business B are properly reflected on the appropriate books and records.

2.12Undisclosed Liabilities. Neither this Agreement nor any information or documents delivered or made available to Corporation B or its officers, attorneys, accountants, or repre­sentatives pursuant to this Agreement contain any untrue statements of material fact or omit any material fact necessary to make the statements not misleading.

2.13Insurance. Corporation A maintains in force insurance policies relating to Business B in amounts and against liabilities and hazards consistent with industry practice. There are no claims pending with respect to insurance policies maintained by Corporation A to which the insurer has denied liability or is reserving its rights, and all claims have been timely and prop­erly filed.

Article 3 

Representations and Warranties of Corporation B

Corporation B represents and warrants to Corporation A the following:

3.1Existence; Good Standing; Corporate Authority. Corporation B is a corporation duly organized, validly existing, and in good standing under the laws of the state of Texas and has all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as now conducted.

3.2Authorization, Validity, and Effect of Agreements. Corporation B has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements and documents to which it is a party contemplated by this Agreement. This Agreement and the consummation by Corporation B of the Separation Transaction have been duly authorized by all requisite corporate action on the part of Corporation B. This Agreement constitutes the valid and legally binding obligation of Corporation B and is enforceable against Corporation B in accordance with its terms, subject to applicable bankruptcy, insolvency, or other similar laws relating to creditors’ rights, and general principles of equity.

3.3No Conflict

(a)Neither the execution by Corporation B of this Agreement nor the consummation by Corporation B of the Separation Transaction in accordance with the terms hereof will—

1.   conflict with or result in a breach of any provision of the certificate of formation or the bylaws of Corporation B;

2.   violate, conflict with, or result in a breach of any provision of any instrument or obligation to which Corporation B is a party or by which Corporation B or any of its properties is bound or affected; or

3.   contravene, conflict with, or constitute a violation of any provision of any law, reg­ulation, order, or decree binding on or applicable to Corporation B.

(b)Neither the execution by Corporation B of this Agreement nor the consummation by Corporation B of the Separation Transaction in accordance with the terms of this Agreement will require any consent, approval, or authorization of, or filing or registration with, any gov­ernmental or regulatory authority.

3.4No Operations. Since the date of its formation, Corporation B has not carried on any business or conducted any operations other than the negotiation and execution of this Agreement, the performance of its obligations under this Agreement, and matters ancillary to those obligations.

3.5Status of Corporation B Stock. On issuance in accordance with the terms of this Agreement, the Corporation B Stock will be duly authorized, validly issued, and fully paid and nonassessable.

Article 4 

Covenants

4.1Conduct of Businesses. Before the Effective Time, except as expressly contem­plated by any other provision of this Agreement or as required by applicable law, unless Cor­poration B has consented in writing, Corporation A—

(a)will conduct its operations according to its usual and ordinary course in substantially the same manner as conducted before this Agreement;

(b)will use commercially reasonable efforts to preserve its business organization and goodwill, keep available the services of its officers and employees, and maintain satisfactory relationships with those persons having business relationships with it;

(c)will not amend its certificate of formation or bylaws;

(d)will not (1) issue any shares of its capital stock, effect any stock split, or otherwise change its capitalization as it existed on the date of this Agreement; (2) grant, confer, or award any option, warrant, conversion right, or other right not existing on the date of this Agreement to acquire any shares of its capital stock; (3) increase any compensation or benefits, except in the ordinary course of business consistent with past practice, or enter into or amend any employment agreement with any present or future officers or directors, or enter into any agreement with new employees that is inconsistent with past practice; or (4) adopt any new employee benefit plan (including any stock option, stock benefit, or stock purchase plan) or amend (except as required by law) any existing employee benefit plan in any material respect, except for changes less favorable to participants in those plans;

(e)will not (1) declare, set aside, or pay any dividend, or make any other distribution or payment with respect to any shares of its capital stock or (2) redeem, purchase, or otherwise acquire any shares of its capital stock or the capital stock of any of its subsidiaries, or make any commitment for any such action;

(f)will not sell, lease, or otherwise dispose of any of its assets that are material to Corpora­tion A, individually or in the aggregate, except in the ordinary course of business;

(g)will not take any action that is likely to materially delay or adversely affect the ability of either party (1) to obtain any consent, authorization, order, or approval of any governmental commission or other regulatory body or (2) to consummate the Separation Transaction;

(h)will not make or rescind any express or deemed election relating to Taxes or settle or compromise any material tax liability;

(i)will not make any material change to its accounting methods, principles, or practices; and

(j)will not agree, in writing or otherwise, to take any of the foregoing actions.

4.2Cooperation. Corporation A and Corporation B each will cooperate and use com­mercially reasonable efforts to make all filings and obtain all licenses, permits, consents, approvals, and authorizations necessary for it to consummate the Separation Transaction.

Article 5 

Closing Conditions

The obligation of each party to effect the Separation Transaction will be subject to the fulfillment of the following conditions at or before the Closing Date:

(a)Neither of the parties is subject to any decree, order, or injunction of a court of compe­tent jurisdiction, U.S. or foreign, that prohibits the consummation of the Separation Transac­tion, provided, however, that before invoking this condition, each party agrees to use its commercially reasonable efforts to have any such decree, order, or injunction lifted or vacated.

(b)No statute, rule, or regulation has been enacted by any governmental authority that pro­hibits or makes unlawful the consummation of the Separation Transaction.

(c)Each of the parties has performed in all material respects the covenants and agreements in this Agreement required to be performed by it on or before the Closing Date; the represen­tations and warranties of each of the parties contained in this Agreement and in any document delivered in connection with this Agreement are true and correct in all material respects as of the date of this Agreement and as of the Closing Date (except for representations and warran­ties made as of a specified date, which need be true and correct in all material respects only as of the specified date); and each of the parties has received a certificate from the other party, executed on its behalf by an authorized officer of that party and dated the Closing Date, certi­fying to that effect.

(d)Corporation A has received a private letter ruling from the Internal Revenue Service concluding that the Separation Transaction will qualify as a reorganization under section 368(a)(1)(D) of the IRC and that the distribution of the Corporation B Stock will be tax-free under section 355 of the IRC.

Article 6 

Termination

6.1Termination by Mutual Consent. This Agreement may be terminated at any time before the Effective Time by the mutual written consent of the parties.

6.2Termination by Legal Action. This Agreement will terminate if a court of compe­tent jurisdiction (U.S. or foreign) or a U.S. or foreign governmental, regulatory, or administra­tive agency or commission issues an order, decree, or ruling or takes any other action permanently restraining, enjoining, or otherwise prohibiting the Separation Transaction and that order, decree, ruling, or other action becomes final and nonappealable.

Article 7 

General Provisions

7.1Nonsurvival of Representations and Warranties. The representations and warran­ties in this Agreement or in any instrument delivered pursuant to this Agreement will not sur­vive the Closing.

7.2Notices. All notices, communications, and deliveries made under this Agreement will be made in writing signed by or on behalf of the party sending it, will specify the section of this Agreement under which it is given or made, and will be delivered personally, by fac­simile transmission, by registered or certified mail (return receipt requested), or by any cou­rier service, with postage or other fees prepaid, as follows:

If to Corporation A:

[Name of corporation A]
[Address]
[Fax no.]
Attention: [name]

If to Corporation B:

[Name of corporation B]
[Address]
[Fax no.]
Attention: [name]

Any such notice, communication, or delivery may also be made to any other address or repre­sentative designated in writing by the party. Any notice, communication, or delivery will be deemed given or made (a) on the date of delivery if delivered in person or by a courier service, (b) on transmission by facsimile if receipt is confirmed by telephone, or (c) on the fifth busi­ness day after it is mailed by registered or certified mail.

7.3Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties (whether by opera­tion of law or otherwise) without the prior written consent of the other parties. Nothing in this Agreement, express or implied, is intended to confer on any party, other than the parties hereto and their respective permitted assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, and no person who is not a party to this Agreement may rely on the terms except as otherwise set out. Subject to the preceding sentences, this Agree­ment will be binding on and inure to the benefit of the parties and their respective successors and assigns.

7.4Entire Agreement; Amendments. This Agreement and any documents delivered by the parties in connection with it constitute the entire agreement between the parties with respect to the subject matter of the Agreement and supersede all prior agreements and under­standings between the parties with respect to the Agreement. No addition, amendment to, or modification of any provision of this Agreement will be binding on either party unless made in writing and signed by all parties to this Agreement.

7.5Governing Law. This Agreement is governed by, enforced under, and construed in accordance with the laws of the state of Texas without regard to any of its rules of conflict of laws that might cause the application of any other state’s laws.

7.6Counterparts. This Agreement may be executed by the parties in separate counter­parts, each of which constitutes an original, but all counterparts together constitute one and the same instrument.

7.7Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, the legality, validity, and enforceability of the remaining provisions of this Agreement will not be affected thereby, and in lieu of the illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be legal, valid, and enforceable.

7.8Waiver. No term or provision of this Agreement may be waived or modified unless such waiver or modification is in writing and executed by all the parties hereto. Any waiver by any party hereto of a breach or failure to perform will not constitute a waiver of any subse­quent breach or failure.

7.9Section Headings. The headings contained in this Agreement are for reference pur­poses only and will not affect in any way the meaning or interpretation of this Agreement.

7.10Interpretation. Unless the context otherwise requires, words describing the singu­lar number include the plural, and vice versa; words denoting any gender include all genders; words denoting natural persons include entities, and vice versa; and “include” and “including” do not denote or imply any limitation.

7.11Further Acts. Each party will perform all further acts and execute all documents reasonably required to effect the transactions contemplated by this Agreement.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year written in the first paragraph of this Agreement.

Corporation A:

   
[Name of corporation A]

   
[Name of officer], [title]

Corporation B:

   
[Name of corporation B]

   
[Name of officer], [title]