EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
DATED AS OF MAY 12, 2000
BY AND BETWEEN
THE PERSONS IDENTIFIED HEREIN AS SELLERS
AND
MCR HOLDINGS, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS............................................................................1
1.1 General....................................................................1
1.2 Definitions................................................................1
-----------
1.3 Interpretation.............................................................6
--------------
ARTICLE II SALE AND PURCHASE OF SHARES...........................................................7
2.1 Sale and Purchase of Shares................................................7
---------------------------
2.2 Payment of the Purchase Price..............................................7
-----------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PRINCIPAL STOCKHOLDERS AND SELLERS.................7
3.1 Corporate Status; Conflicts................................................7
---------------------------
3.2 Accounts Receivable........................................................8
-------------------
3.3 Inventories................................................................8
-----------
3.4 Intangibles................................................................8
-----------
3.5 Brokers' Fees.............................................................10
-------------
3.6 Contracts.................................................................10
---------
3.7 Compliance with Laws......................................................11
--------------------
3.8 Litigation................................................................11
----------
3.9 Personnel Identification and Compensation.................................11
-----------------------------------------
3.10 Existing Employment Contracts.............................................11
-----------------------------
3.11 Capitalization; Subsidiaries..............................................11
----------------------------
3.12 Title to Purchased Shares.................................................12
-------------------------
3.13 Environmental.............................................................12
-------------
3.14 Affiliate Transactions....................................................13
----------------------
3.15 Employee Benefit Matters..................................................14
------------------------
3.16 Tax Matters...............................................................14
-----------
3.17 Title to Assets...........................................................17
---------------
3.18 Real Property.............................................................17
-------------
3.19 No Alternative Transaction................................................17
--------------------------
3.20 Consents..................................................................17
--------
3.21 Licenses and Permits......................................................17
--------------------
3.22 Occupational Safety and Health............................................18
------------------------------
3.23 Insurance.................................................................18
---------
3.24 Financial Statements......................................................18
--------------------
3.25 Undisclosed Liabilities...................................................18
-----------------------
3.26 Conduct of Business Since Balance Sheet Date..............................19
--------------------------------------------
3.27 Banking Arrangements......................................................19
--------------------
3.28 Powers of Attorney........................................................19
------------------
3.29 Year 2000 Matters.........................................................20
-----------------
3.30 Disclosure................................................................20
----------
i
Page
----
3.31 Authority; Enforceability.................................................20
-------------------------
3.32 Brokers' Fees.............................................................20
-------------
3.33 Title to Purchased Shares.................................................21
-------------------------
3.34 Consents..................................................................21
--------
3.35 Securities Laws Representations...........................................21
-------------------------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................22
4.1 Corporate Status..........................................................22
----------------
4.2 Due Authorization.........................................................23
-----------------
4.3 Authority of Purchaser....................................................23
----------------------
4.4 Enforceability............................................................23
--------------
4.5 Consents..................................................................23
--------
4.6 Brokers' Fees.............................................................23
-------------
4.7 Financial Statements......................................................23
--------------------
4.8 No Material Adverse Change................................................24
--------------------------
4.9 Litigation................................................................24
----------
4.10 Capitalization............................................................24
--------------
4.11 Disclosure................................................................24
----------
ARTICLE V PRE-CLOSING COVENANTS.................................................................25
5.1 Required Consents.........................................................25
-----------------
5.2 Conduct of the Business...................................................25
-----------------------
5.3 Access to Books and Personnel; Rights of Inspection.......................26
---------------------------------------------------
5.4 Notification of Material Adverse Events...................................26
---------------------------------------
5.5 Supplemental Disclosures..................................................27
------------------------
5.6 Exclusivity...............................................................27
-----------
5.7 Monthly Financial Statements..............................................27
----------------------------
ARTICLE VI CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS......................................28
6.1 Obligations to be Satisfied on or prior to Closing Date...................28
-------------------------------------------------------
6.2 Procedure for Failure to Satisfy Conditions...............................29
-------------------------------------------
ARTICLE VII CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS........................................29
7.1 Obligations to be Satisfied on or prior to Closing Date...................29
-------------------------------------------------------
7.2 Procedure for Failure to Satisfy Conditions...............................30
-------------------------------------------
ARTICLE VIII CLOSING............................................................................30
8.1 Time and Place............................................................30
--------------
8.2 Closing Transactions......................................................31
--------------------
8.3 Deliveries by Sellers to Purchaser........................................31
----------------------------------
8.4 Deliveries by Purchaser to Sellers........................................32
----------------------------------
ARTICLE IX OTHER AGREEMENTS.....................................................................33
9.1 Further Assurance.........................................................33
-----------------
9.2 Confidentiality...........................................................33
---------------
ii
Page
----
9.3 Tax Matters...............................................................34
-----------
9.4 Capital Contribution......................................................37
--------------------
9.5 Lock-Up Agreements........................................................37
------------------
ARTICLE X INDEMNIFICATION.......................................................................37
10.1 Indemnification by Sellers................................................37
--------------------------
10.2 Indemnification by Purchaser..............................................38
----------------------------
10.3 Procedure for Indemnification.............................................38
-----------------------------
10.4 Limitations on Indemnity..................................................39
------------------------
10.5 Payment...................................................................39
-------
ARTICLE XI TERMINATION..........................................................................40
11.1 Rights to Terminate.......................................................40
-------------------
11.2 Effects of Termination....................................................41
----------------------
ARTICLE XII SELLERS' REPRESENTATIVE.............................................................41
12.1 Appointment...............................................................41
-----------
12.2 Authorization.............................................................41
-------------
12.3 Irrevocable Appointment...................................................42
-----------------------
12.4 Resignation...............................................................42
-----------
12.5 Purchaser's Reliance......................................................43
--------------------
12.6 Exculpation and Indemnification...........................................43
-------------------------------
ARTICLE XIII MISCELLANEOUS PROVISIONS...........................................................43
13.1 Public Announcements......................................................43
--------------------
13.2 Post-Closing Deliveries...................................................44
-----------------------
13.3 Notices...................................................................44
-------
13.4 Assignment................................................................45
----------
13.5 Benefit of the Agreement..................................................45
------------------------
13.6 Exhibits and Schedules....................................................45
----------------------
13.7 Headings..................................................................45
--------
13.8 Entire Agreement..........................................................45
----------------
13.9 Modifications and Waivers.................................................46
-------------------------
13.10 Counterparts..............................................................46
------------
13.11 Severability..............................................................46
------------
13.12 GOVERNING LAW.............................................................46
-------------
13.13 Expenses..................................................................46
--------
13.14 Arbitration...............................................................46
-----------
EXHIBITS
Exhibit 8.3(h)(i) Form of Employment Agreement (▇▇▇▇▇▇▇/▇▇▇)
Exhibit 8.3(m) Form of Supplement to Purchaser's Shareholders Agreement
SCHEDULES
Schedule 1.2 Description of Assets
Schedule 3.8 Litigation
Schedule 3.9 Personnel Identification and Compensation
iii
Schedule 3.10 Existing Employment Contracts
Schedule 3.11 Company's Capitalization
Schedule 3.12 Title to Shares
Schedule 3.13 Environmental Disclosures
Schedule 3.14 Affiliate Transactions
Schedule 3.15 Employee Benefit Matters
Schedule 3.17 Title to Assets
Schedule 3.18 Real Property
Schedule 3.20 Company's and Sellers' Consents
Schedule 3.21 Licenses and Permits
Schedule 3.23 Insurance
Schedule 3.24 Financial Statements
Schedule 3.26 Conduct Since Balance Sheet Date
Schedule 3.27 Banking Arrangements
Schedule 3.28 Powers of Attorney
Schedule 4 Purchaser's Knowledge
Schedule 4.5 Purchaser's Consents
Schedule 4.7 Purchaser's Financial Statements
Schedule 4.10 Purchaser's Capitalization
Schedule 5.2(c) Option Grants
iv
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is entered into as of May 12, 2000 by and
between MCR HOLDINGS, INC., an Illinois corporation ("Purchaser"), and the
---------
individuals identified on the signature page hereto as Principal Stockholders
and Other Sellers.
RECITALS
--------
A. Sellers, collectively, own all of the issued and outstanding shares of
capital stock of Emerald BioStructures, Inc., a Washington corporation (the
"Company").
-------
B. The Company is engaged in offering an integrated set of research tools
and services for protein crystallization and 3-dimensional x-ray structure
determination to the biotechnology and pharmaceutical industries (the
"Business").
--------
C. Purchaser desires to purchase the Shares from Sellers and Sellers
desire to sell and transfer the Shares to Purchaser, all subject to the terms
and conditions set forth below.
D. Purchaser and Sellers intend that the transactions contemplated by this
Agreement constitute a tax-free reorganization under Section 368(a)(1)(B) of the
Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and Sellers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General.
Each term defined in the first paragraph of this Agreement and in the
Recitals shall have the meaning set forth above whenever used herein, unless
otherwise expressly provided or unless the context clearly requires otherwise.
1.2 Definitions.
-----------
As used herein, the following terms shall have the meanings ascribed to
them in this Section 1.2:
-----------
Accounts Receivable. All present and future rights to payment for
-------------------
goods sold or services rendered whether or not earned by performance, including
all accounts and notes receivable owned or held by the Company.
Adverse Consequences. All allegations, charges, complaints, actions,
--------------------
suits, proceedings, hearings, investigations, claims, demands, Orders, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities, Taxes,
interest, Liens, losses, expenses and fees,
including all accounting, consultant and attorneys' fees and court costs, costs
of expert witnesses and other expenses of litigation, in each case after taking
into account the actual net tax effect, if any.
Affiliate. As set forth in Rule 12b-2 of the regulations promulgated
---------
under the Securities Exchange Act of 1934.
Agreement. This Stock Purchase Agreement, together with all Exhibits
---------
and Schedules referred to herein, as amended, modified or supplemented from time
to time in accordance with the terms hereof.
Alternative Transaction. As defined in Section 5.6.
----------------------- -----------
Authority. Any governmental, regulatory or administrative body,
---------
agency or authority, any court of judicial authority, any arbitrator or any
public, private or industry regulatory authority, whether foreign, federal,
state or local.
Balance Sheet Date. December 31, 1999.
------------------
Business. As defined in the Recitals hereto.
--------
CERCLA. Comprehensive Environmental Response, Compensation and
------
Liability Act, 42 U.S.C. (S) 9601, et seq.
Closing. The actual sale, transfer, conveyance, assignment and
-------
delivery of the certificates representing the Shares to Purchaser in exchange
for the consideration payable to Sellers on the Closing Date pursuant to this
Agreement.
Closing Date. The day three (3) days following the date on which
------------
Purchaser and the Representative mutually agree all closing conditions have been
satisfied (or will be satisfied on the Closing Date) or waived, or such other
date as Purchaser and the Representative may mutually agree in writing, in
either case, upon which the Closing shall occur.
Code. Internal Revenue Code of 1986 and the regulations thereunder.
----
Company. As defined in the Recitals hereto.
-------
Confidential Information. As defined in Section 9.2.
------------------------ -----------
Confidentiality Agreement. The Confidentiality Agreement between the
-------------------------
Company and MediChem Research, Inc. which was signed on March 10, 2000.
Contracts. All contracts, licenses, leases, subleases, arrangements,
---------
alliances, commitments and other agreements of the Company, including all
customer agreements, vendor agreements, purchase orders, employment agreements,
consulting contracts, installation and maintenance agreements, computer software
licenses, hardware lease or rental agreements,
2
contract claims and all other arrangements and understandings related to the
Business, including those items which are listed on Schedule 1.2 under the
------------
heading "Contracts".
Employment Agreements. As defined in Section 8.3(h).
--------------------- --------------
Environmental Claims. As defined in Section 3.13(d).
-------------------- ---------------
Environmental Law(s). Each and every Law, Order, Permit or similar
--------------------
requirement of each and every Authority and the common law, pertaining to, or
pursuant to which liability may arise with respect to, (i) the protection of
human health and safety, the environment, natural resources and wildlife, (ii)
the protection or use of surface water, groundwater, rivers and other bodies of
water, (iii) the management, manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, Release, threatened Release,
abatement, removal, remediation or handling of, or exposure to, any Hazardous
Substance or (iv) pollution, including CERCLA, RCRA, the Clean Air Act, 42
U.S.C. (S) 7401 et seq., and the Federal Water Pollution Control Act, 33 U.S.C.
(S) 1251, et seq.
Equipment and Improvements. All machinery, equipment, facilities and
--------------------------
structures, buildings, installations, fixtures, improvements, betterments and
additions located on or within the Real Property, appliances, furniture, office
furniture and decorations, fixtures, office supplies and office equipment,
computers, computer terminals and printers, computer software, telephone
systems, telecopiers and photocopiers, and other tangible personal property of
every kind and description that are located upon or within the Real Property,
which are owned or leased by the Company, and are utilized in connection with
the Business, including the items listed on Schedule 1.2 under the heading
------------
"Equipment and Improvements".
ERISA. Employee Retirement Income Security Act of 1974.
-----
Financial Statements. The audited balance sheet of the Company as of
--------------------
December 31, 1999 and statements of operations, stockholders' equity and cash
flow of the Company for the year then ended, and the Interim Financial
Statement.
GAAP. Generally accepted accounting principles in the United States
----
consistently applied.
Hazardous Substance. Any substance which is (i) defined as a
-------------------
hazardous substance, hazardous material, hazardous waste, pollutant, pesticide,
or contaminant under any Environmental Law, (ii) a petroleum hydrocarbon,
including crude oil or any fraction thereof, (iii) hazardous, toxic, corrosive,
flammable, explosive, infectious, radioactive or carcinogenic, or (iv) regulated
pursuant to any Environmental Law.
Indemnified Party. As defined in Section 10.3.
-----------------
Indemnifying Party. As defined in Section 10.3.
------------------
Intangibles. All trade names, trademarks, service marks, copyrights,
-----------
patents, trade secrets, inventions, designs, models, processes, formulae,
software, registrations and
3
applications for any thereof, and all technical know-how and other intellectual
property rights or intangibles used by the Company in the operation of the
Business, including those listed on Schedule 1.2 under the heading
"Intangibles", and all goodwill associated therewith, licenses and sublicenses
granted and obtained with respect thereto and rights thereunder, remedies
against infringement thereof and rights to protection of interests therein under
all applicable Laws.
Interim Financial Statement. The unaudited balance sheet of the
---------------------------
Company as of April 6, 2000.
Inventories. All of the Company's inventory, consumable supplies,
-----------
spare parts and repair materials and any and all other inventories of the
Company.
▇▇▇. ▇▇▇▇▇▇ ▇▇▇, Ph.D., an individual residing in the State of
---
Washington.
IRS. Internal Revenue Service.
---
Law. Any law, statute, regulation, rule, ordinance, requirement,
---
announcement or other binding action or requirement of an Authority.
Leased Real Property. Those certain premises more fully described on
--------------------
Schedule 1.2 under the heading "Leased Real Property", together with all
leasehold improvements thereon.
Liabilities. Any obligation or liability (whether known or unknown,
-----------
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated and whether due or to become
due), including any liability for Taxes.
Lien. Any lien (statutory or otherwise), mortgage, pledge,
----
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or security agreement or preferential arrangement of any kind or nature
whatsoever (including the interest of a vendor or lessor under any conditional
sale, capitalized lease or other title retention agreement).
Material Operating Decision. As defined in Section 5.2(b).
---------------------------
Order. Any decree, order, judgment, writ, award, injunction,
-----
stipulation or consent of or by an Authority.
Ordinary Course of Business. The ordinary course of business of the
---------------------------
Company in accordance with past custom and practice (including with respect to
quantity and frequency).
Permits. As defined in Section 3.21.
-------
Person. Any natural person, corporation, limited liability company,
------
partnership, firm, joint venture, joint-stock company, trust, association,
Authority, unincorporated entity or organization of any kind.
Plan. As defined in Section 3.15(a).
----
4
Principal Stockholders. ▇▇▇ and ▇▇▇▇▇▇▇.
----------------------
Principal Stockholders' Knowledge. The actual knowledge of either
---------------------------------
Principal Stockholder.
Purchase Price. As defined in Section 2.2.
--------------
Purchaser Shares. The shares of Purchaser's Class A Common Stock to
----------------
be issued to Sellers in accordance with Section 2.2.
-----------
Purchaser's Knowledge. The actual knowledge of any person listed on
---------------------
Schedule 4.
----------
Purchaser's Shareholders Agreement. The Shareholders Agreement dated
----------------------------------
as of June 14, 1999 among Purchaser and its shareholders.
Purchaser Warranty Claim. As defined in Section 10.1(a).
------------------------
RCRA. Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901, et
----
seq.
Real Property Leases. All leases and subleases of the Leased Real
--------------------
Property.
Records. All books of account, ledgers, forms, records, documents,
-------
files, invoices, vendor or supplier lists, plans and other data which are
necessary to or desirable for the ownership, use, maintenance, development or
operation of the Business and which are owned or used by the Company, including
all research logs and records, blueprints and specifications, all Tax,
personnel, payroll, payroll tax and labor relations records, all environmental
control records, environmental impact reports, statements, studies and related
documents, handbooks, technical manuals and data, engineering specifications and
work papers, all pricing and cost information, all sales records, all accounting
and financial records, all sales and use tax returns, reports, files and
records, asset history records and files, all data entry and accounting systems,
all maintenance and repair records, all correspondence, notices, citations and
all other documents received from, sent to or in the Company's possession in
connection with any Authorities (including foreign, federal, state, county or
regional environmental protection, air or water quality control, occupational
health and safety, land use, planning or zoning, and any alcohol, beverage or
fire prevention Authorities), all plans, maps and surveys of the Leased Real
Property, and all plans and designs of buildings, structures, fixtures and
equipment.
Related Entities. The Company, Purchaser and their respective
----------------
Affiliates.
Release. Any spilling, leaking, pumping, pouring, emitting, emptying,
-------
discharging, injecting, escaping, leaching, dumping or disposing into the
environment (including the abandonment or discarding of barrels, containers and
other receptacles containing any Hazardous Substance).
Representative. As defined in Section 12.1.
-------------- ------------
5
Securities Act. Securities Act of 1933.
--------------
Seller Warranty Claim. As defined in Section 10.2(a).
--------------------- ---------------
Sellers. On the date hereof, the individuals identified on the
-------
signature page hereto as "Principal Stockholders" or "Other Sellers"; and, as of
immediately prior to the Closing, such individuals together with the Persons
described in Schedule 5.2(c) as receiving Company common stock or options for
---------------
the Company's common stock (that are exercised prior to the Closing). "Seller"
means any one of the Sellers.
Shares. As of the date hereof, 4,787,500 shares of the Company common
------
stock, no par value per share; and, as of the Closing such shares plus any and
all shares issued between the date hereof and the Closing solely in accordance
with the transactions described on Schedule 5.2(c).
---------------
▇▇▇▇▇▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Ph.D., an individual residing in the State
-------
of Washington.
Taxes. As defined in Section 3.16(a).
----- ---------------
Third Party Licenses. All licenses, sublicenses and other agreements
--------------------
to which the Company is a party relating to Third Party Technology.
Third Party Notice. As defined in Section 10.3.
------------------ ------------
Third Party Technology. Intangibles that the Company is licensed or
----------------------
otherwise authorized by a third party to use, market, distribute or incorporate
into its products or processes.
1.3 Interpretation.
--------------
Unless otherwise expressly provided or unless the context requires
otherwise, (a) all references in this Agreement to Articles, Sections, Schedules
and Exhibits shall mean and refer to Articles, Sections, Schedules and Exhibits
of this Agreement; (b) all references to statutes and related regulations shall
include all amendments of the same and any successor or replacement statutes and
regulations; (c) words using the singular or plural number also shall include
the plural and singular number, respectively; (d) references to "hereof",
"herein", "hereby" and similar terms shall refer to this entire Agreement
(including the Schedules and Exhibits hereto); and (e) references to any Person
shall be deemed to mean and include the successors and permitted assigns of such
Person (or, in the case of an Authority, Persons succeeding to the relevant
functions of such Person); (f) the term "including" shall be deemed to mean
"including, without limitation"; and (g) all pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the Person or Persons may require.
6
ARTICLE II
SALE AND PURCHASE OF SHARES
2.1 Sale and Purchase of Shares.
---------------------------
Subject to the terms and conditions hereof, and in reliance upon the
representations, warranties, covenants and agreements made herein by Sellers and
Purchaser, Purchaser shall purchase and accept from Sellers, and Sellers shall
sell, transfer, convey, assign and deliver to Purchaser, on the Closing Date,
the Shares. At the Closing, each Seller shall deliver to Purchaser the
certificates evidencing the Shares owned by such Seller.
2.2 Payment of the Purchase Price.
-----------------------------
The aggregate purchase price (the "Purchase Price") payable by Purchaser to
--------------
Sellers in consideration for the Shares shall be satisfied on the Closing Date
by the issuance of 84,511 shares of Class A Common Stock of Purchaser to
Sellers, pro rata based on their respective ownership percentages of all the
Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL STOCKHOLDERS AND SELLERS
A. As an inducement to Purchaser to enter into and perform its obligations
under this Agreement, and in consideration of the covenants of Purchaser
contained herein, the Principal Stockholders, jointly and severally, represent
and warrant to Purchaser (which representations and warranties shall survive the
Closing (subject to Section 10.4) regardless of what examinations, inspections,
------------
audits and other investigations Purchaser has heretofore made, or may hereafter
make, with respect to such representations and warranties) as follows:
3.1 Corporate Status; Conflicts.
---------------------------
(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington and is duly qualified and in
good standing in each other jurisdiction where the failure to so qualify could
reasonably be expected to have a material adverse effect on the operations,
condition or prospects of the Company or the Business. The Company has the
corporate power and authority necessary to own, lease, operate or otherwise hold
its properties and assets and to carry on its business as presently conducted.
(b) Neither the execution or delivery of this Agreement by any Seller nor the
performance by any Seller of his obligations under this Agreement will
(assuming the receipt of all consents described in Schedule 3.20), conflict
-------------
with or result in a breach of any of the terms or provisions of, or constitute a
default under, any Contract, Permit or indenture, mortgage, deed of trust, note
or other agreement or instrument to which the Company is a party or is bound,
the articles of incorporation or by-laws of the Company or any applicable Law or
Order to which the Company is a party or by which the Company is bound.
7
3.2 Accounts Receivable.
-------------------
Except as reserved against on the Interim Financial Statement, the Accounts
Receivable reflected on such balance sheet: (a) were acquired by the Company in
the Ordinary Course of Business and represent fully completed bona fide
transactions that require no further act on the part of the Company to make such
Accounts Receivable payable by the account debtors; (b) are not subject to any
material claim, counterclaim, set-off or deduction; (c) represent valid
obligations owing to the Company by account debtors that are not Affiliates,
stockholders, directors, officers or employees of the Company, which are
enforceable in accordance with their respective terms; and (d) are owned by the
Company free and clear of all Liens (other than Liens which will be released on
or before the Closing Date).
3.3 Inventories. The Inventories reflected in the Interim Financial Statement
-----------
consist of items of a quality and quantity useable or saleable in the Ordinary
Course of Business.
3.4 Intangibles.
-----------
(a) Except as set forth on Schedule 1.2 under the heading "Intangibles", the
------------
Company owns all right, title and interest in and to all Intangibles, free and
clear of all Liens. The foregoing representation as it relates to Third Party
Technology is limited to the Company's interest pursuant to the Third Party
Licenses, all of which are, to the Principal Stockholders' Knowledge, valid and
enforceable and in full force and effect and which grant the Company such right
to Third Party Technology as are employed in or necessary to the business of the
Company as conducted or currently proposed to be conducted prior to the Closing
Date.
(b) Schedule 1.2 under the heading "Intangibles" contains an accurate and
------------
complete description of (i) all patents, trademarks (with separate listings
of registered and unregistered trademarks), trade names, and registered
copyrights in or related to products owned by the Company (the "Products"),
--------
all applications and registrations therefor, and a list of all licenses and
other agreements relating thereto, and (ii) a list of all Third Party Licenses.
All of the Company's trademark or trade name registrations related to the
Products and all of the Company's copyrights in any of the Products are valid
and in full force and effect; and consummation of the transactions contemplated
hereby will not alter or impair any such rights. To the Principal Stockholders'
Knowledge, there is no material default by any party to any Third Party License.
All of the Company's rights thereunder are freely assignable. To the Principal
Stockholders' Knowledge, the licensors under such Third Party Licenses have and
had all requisite power and authority to grant the rights purported to be
conferred thereby. Sellers have provided to Purchaser true and complete copies
of all such Third Party Licenses, and any and all amendments thereto.
(c) No claims have been asserted against the Company or any Seller (and, to the
Principal Stockholders' Knowledge, no such claims are likely to be asserted
against the Company) by any Person challenging the use or distribution by the
Company of any Intangibles (including the Third Party Technology) or challenging
or questioning the validity or effectiveness of any license or agreement
relating thereto (including the Third Party Licenses). To the Principal
Stockholders' Knowledge, there is no valid basis for any claim of the type
specified in the
8
immediately preceding sentence which could in any way relate to or interfere
with the continued enhancement and exploitation by the Company of any of the
Products. To the Seller's Knowledge, none of the Products nor the use of any
Intangibles by the Company in its current business infringes on the rights of,
constitutes misappropriation of, or in any way involves unfair competition with
respect to, any proprietary information or intangible property right of any
Person, including any patent, trade secret, copyright, trademark or trade name.
(d) All licenses, sublicenses or other agreements currently in effect pursuant
to which the Company has granted rights to others in Intangibles owned or
licensed by the Company are listed on Schedule 1.2 under the heading
------------
"Intangibles." All of such licenses, sublicenses or agreements are in full force
and effect, there is no default by any party thereto and all of the Company's
rights thereunder are freely assignable. Sellers have provided to Purchaser true
and complete copies of all such licenses, sublicenses and other agreements, and
any and all amendments thereto. Except as set forth on Schedule 1.2 under the
------------
heading "Intangibles", the Company has not granted any Person any right to
manufacture, reproduce, distribute, market or exploit any of the Products or any
adaptations, translations or derivative works based on the Products or any
portion thereof. Except with respect to the rights of third parties to the Third
Party Technology, to the Principal Stockholders' Knowledge, no third party has
any right to manufacture, reproduce, distribute, market or exploit any
underlying works or materials of which any of the Products are a "derivative
work" as that term is defined in the United States Copyright Act, 17 U.S.C. (S)
101.
(e) Except as set forth on Schedule 1.2 under the heading "Intangibles", to the
------------
Principal Stockholders' Knowledge, no designs, drawings, specifications, source
code, object code, documentation, flow charts or diagrams incorporating,
embodying or reflecting any of the Product at any stage of their development
(the "Components") were written, developed, created or discovered in whole or
----------
in part by any employee of the Company with the assistance of any third party or
were created by third parties who has not assigned ownership of such employee's
rights to the Company. The Company has at all times used commercially reasonable
efforts to treat the Products and the Components as containing trade secrets and
has not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by release into the public domain.
(f) To the Principal Stockholders' Knowledge, no employee of the Company is in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of any such
employee with the Company or, to the Principal Stockholders' Knowledge, any
other party, including any previous employer, because of the nature of the
business conducted by the Company or proposed to be conducted by the Company.
(g) Each person presently or previously employed by the Company (including
independent contractors, if any) in a research and development or other
technical position has executed a confidentiality and non-disclosure agreement
in substantially the same form as the form previously provided by Sellers to
Purchaser. Such confidentiality and non-disclosure agreements constitute valid
and binding obligations of the Company and, to the Principal Stockholders'
Knowledge, such person, enforceable in accordance with their respective terms.
To the Principal
9
Stockholders' Knowledge, neither the execution or delivery of such agreements,
nor the carrying on of the Company's business by such persons as employees, nor
the conduct of the Company's business as currently anticipated, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument currently in
effect under which any of such persons is obligated. The Company is not
knowingly making unauthorized use of any confidential information or trade
secrets of any Person, including any former employer or any past or present
employee of the Company. Neither the Company nor, to the Principal Stockholders'
Knowledge, any of the Company's employees, has any agreement or arrangement with
any Persons other than the Company related to confidential information or trade
secrets of such Persons or restricting any such employee's ability to engage in
business activities of any nature.
(h) No product liability or warranty claims have been communicated to or
threatened against the Company and, to the Principal Stockholders' Knowledge,
there is no specific situation, set of facts or occurrence that provides a basis
for such claim.
3.5 Brokers' Fees.
-------------
Neither the Company nor any Seller has dealt with any broker, finder or
consultant in connection with the transactions contemplated by this Agreement,
and no Person acting on behalf of or at the direction of the Company or any
Seller is entitled to any commission or finder's fee in connection with the sale
of the Shares to Purchaser.
3.6 Contracts.
---------
(a) Schedule 1.2 under the heading "Contracts", contains a complete list of all
------------
Contracts to which the Company is party or by which the Company is currently
bound and Sellers have provided to Purchaser true and complete copies of such
written Contracts (and true and complete summaries of all material terms of any
and all oral Contracts). The Company is not a party to any Contract not entered
into in the Ordinary Course of Business. All Contracts are valid and binding
upon the Company and, to the Principal Stockholders' Knowledge, the other
parties thereto, except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally. There is no default or
event that with notice or lapse of time, or both, would constitute a default by
the Company or, to the Principal Stockholders' Knowledge, any other party to any
of the Contracts. The Company has not received notice that any party to any of
the Contracts intends to cancel or terminate any of such agreements or to
exercise or not exercise any options under any of such agreements.
(b) Since July 7, 1998, the Company has received grants from the U.S. Small
Business Innovative Research Program (collectively, "SBIR Grants") totaling
-----------
approximately $872,000 for technology development, of which approximately
$549,000 in cash already has been received by the Company. An additional
approximately $234,000 in grants becomes available in July, 2000 and an
additional approximately $59,000 in grants becomes available in March, 2001. The
consummation of the sale of the Company to Purchaser contemplated hereby shall
not adversely affect the Company's right to receive the SBIR Grants (or any
pending applications for similar
10
grants), other than as result of facts about Purchaser and its subsidiaries of
which the Principal Stockholders are unaware.
3.7 Compliance with Laws.
--------------------
The Company has complied with all, and is not in violation of any,
applicable Laws or Orders affecting its products, properties or the Business.
3.8 Litigation.
----------
Schedule 3.8 sets forth a brief description of all suits, actions,
------------
arbitrations, and legal, administrative and other proceedings and governmental
investigations pending or, to the Principal Stockholders' Knowledge, threatened
against or affecting the Company, the Business, the Leased Real Property or any
other assets of the Company. Except for the matters set forth on Schedule 3.8,
------------
the Company is not presently engaged in any legal action to recover moneys due
to it or damages sustained by it. None of the matters set forth on Schedule
--------
3.8, if decided adversely to the Company, could reasonably be expected to have a
---
material adverse effect on the Business.
3.9 Personnel Identification and Compensation.
-----------------------------------------
Schedule 3.9 contains a true and complete list of the names, addresses and
------------
titles of all current officers, directors, employees, consultants, agents and
representatives of the Company. Sellers have previously delivered to Purchaser
a true and complete (a) schedule stating the rates of compensation payable (or
paid, as the case may be) to each such Person and (b) copy of the Company's
agreement with such Person, if any. Schedule 3.9 includes a true and complete
------------
list of all directors and officers of the Company.
3.10 Existing Employment Contracts.
-----------------------------
The Company has no employment contracts, collective bargaining agreements
or similar arrangements except those described on Schedule 3.10. All such
-------------
contracts and arrangements are in full force and effect, and neither the
Company, nor, to the Principal Stockholders' Knowledge, any other Person is in
default under any such contract or arrangement. There is no pending or, to the
Principal Stockholders' Knowledge, threatened labor dispute, strike or work
stoppage affecting the Business.
3.11 Capitalization; Subsidiaries.
----------------------------
(a) The total number of shares of capital stock and the par value thereof which
the Company is authorized to issue and the number of such shares which are
issued and outstanding are described on Schedule 3.11.
--------------
(b) No shares of the Company's capital stock are held as treasury stock.
(c) Except as described on Schedule 3.11, there are no outstanding rights,
-------------
options, warrants, subscriptions, calls, puts, convertible securities, phantom
stock plans or other agreements of any character or nature under which the
Company is or may become obligated to issue, redeem or
11
repurchase any of its securities and there are no outstanding preemptive rights,
rights of first refusal or similar rights to subscribe for or acquire any
securities of the Company.
(d) The Shares have been duly and validly issued and are fully paid and
nonassessable and are not subject to any preemptive rights; and there are no
voting trust agreements or other contracts or agreements restricting voting or
dividend rights or transferability with respect to the outstanding shares of
capital stock of the Company.
(e) The Company has not violated any Law in connection with the offer for sale
or sale and issuance of its outstanding shares of capital stock or any
other securities.
(f) The Company does not own any securities or any other direct or indirect
interest in any other Person.
3.12 Title to Purchased Shares.
-------------------------
The persons listed as "Sellers" on the signature page of this Agreement are
all of the record and beneficial owners of all of the issued and outstanding
shares of capital stock of the Company. The Shares constitute as of the date
hereof, and will constitute at Closing, all of the issued and outstanding shares
of capital stock of the Company.
3.13 Environmental. Except as disclosed in Schedule 3.13:
------------- -------------
(a) The Company has been and is in compliance with all applicable Environmental
Laws; has not received written notice of any violation of or liability arising
under applicable Environmental Laws; and has not been subject to any
administrative or judicial proceeding pursuant to any Environmental Laws.
(b) Neither the Company nor, to the Principal Stockholders' Knowledge, any
other present or former owner, tenant, occupant or user of the Leased Real
Property has used, handled, generated, produced, manufactured, treated, stored,
disposed, transported, threatened to Release or Released any Hazardous Substance
on, under, about, to or from the Leased Real Property or any real property
formerly owned, operated, leased or used by the Company or otherwise related to
the Business in violation of or in a manner that may form the basis of liability
under any Environmental Law, including the disposal or treatment of any
Hazardous Substance at any real property.
(c) To the Principal Stockholders' Knowledge, there is no Release or threatened
Release of any Hazardous Substance existing on, beneath or from the surface,
subsurface or ground water associated with the Leased Real Property, nor, to the
Principal Stockholders' Knowledge, is there or has there been any Release or
threatened Release of Hazardous Substance adjacent to, from or in the vicinity
of the Leased Real Property.
(d) There exists no Order nor any demand, allegations, suit, claim, proceeding
action, citation, directive, summons, investigation, information request,
penalty, fine, notice of violation or other notice pending or threatened
pursuant to any Environmental Law relating to (i) the ownership, lease,
occupation or use of the Leased Real Property or any real property formerly
12
owned, leased, occupied or used real property by the Company or, to the
Principal Stockholders' Knowledge, any other present or former owner, tenant,
occupant or user of the Leased Real Property, (ii) any alleged violation of or
liability under any Environmental Law by the Company, (iii) the suspected
presence, Release or threatened Release of any Hazardous Substance on, under, in
or from the surface, subsurface, or groundwater associated with the Leased Real
Property, any real property formerly owned, leased, occupied or used by the
Company, or any real property to which Hazardous Substances generated by or
related to the Business or the Company came to be located and (iv) any actual or
alleged damage, injury, threat, or harm to health, safety, natural resources or
the environment (collectively referred to herein as "Environmental Claims") nor,
--------------------
to the Principal Stockholders' Knowledge, does there exist any valid basis for
any such Environmental Claims.
(e) To the Principal Stockholders' Knowledge, there are and were no aboveground
nor underground storage tanks currently or formerly located on the Leased Real
Property used or formerly used for the purpose of storing any Hazardous
Substance. To the Principal Stockholders' Knowledge, there is no asbestos-
containing building material on the Leased Real Property, and no asbestos
abatement or remediation work has been performed on the Leased Real Property. To
the Principal Stockholders' Knowledge, there is no PCB-containing equipment or
PCB-containing material located on the Leased Real Property.
(f) No Leased Real Property or, to the Principal Stockholders' Knowledge, any
real property formerly owned, operated, leased or used by the Company or any
real property to which Hazardous Substances generated by or related to the
Business or the Company came to be located is listed on any or nominated for
listing on the National Priority List promulgated by the United States
Environmental Protection Agency pursuant to CERCLA or any analogous remedial
priority list promulgated or published pursuant to any comparable state law.
(g) There are no environmental site assessment reports, environmental audits
and any other reports prepared by or on behalf of the Company or in the
Company's or any Seller's possession relating to environmental matters of the
Business or the Leased Real Property.
3.14 Affiliate Transactions.
----------------------
All purchases and sales or other transactions, if any, between the Company,
on the one hand, and any officer, director, shareholder or key employee or
Affiliate thereof, on the other hand, within the three (3) years immediately
preceding the date hereof have been made on the basis of prevailing market rates
and terms such that from the prospective of the Company, all such transactions
have been made on terms no less favorable than those which would have been
available from unrelated third parties. Except as set forth on Schedule 3.14,
-------------
neither any officer, director, shareholder or employee of the Company, nor any
spouse, child or other relative of any of such persons, owns, or has any
interest, directly or indirectly, in any of the real or personal property owned
by or leased to the Company.
13
3.15 Employee Benefit Matters.
------------------------
(a) Schedule 3.15 contains a true and complete list of each pension,
-------------
retirement, profit sharing, savings, stock option, restricted stock, severance,
termination, bonus, fringe benefit, insurance, supplemental benefit, medical,
education reimbursement or other employee benefit plan, program, agreement or
arrangement, including each "employee benefit plan" as defined in Section 3(3)
of ERISA, with respect to which the Company may have any Liability (each a
"Plan").
----
(b) Sellers have delivered to Purchaser true and complete copies of the
following items relating to each Plan, where applicable:
(i) the plan document and related trust agreement and insurance contracts,
including any amendments (including descriptions of vacation and severance
policies);
(ii) the most recent determination letter received from the IRS with respect to
each such Plan that is intended to be qualified under Section 401 of the
Code;
(iii) the most recent summary plan description, summary of material
modifications and all material communications to participants; and
(iv) the most recent annual report (5500 series) and schedules.
(c) Each Plan has been operated and administered in accordance with the
applicable provisions of ERISA and the Code, including COBRA, and all other
applicable Laws, and there are no actions, suits or claims pending or, to the
Principal Stockholders' Knowledge, threatened against any Plan or any
administrator or fiduciary thereof, nor, to the Principal Stockholders'
Knowledge, do any facts exist which could give rise to any such action, suit or
claim.
(d) None of the Plans is a plan subject to Title IV of ERISA or a multiemployer
plan within the meaning of Section 4001(a)(3) of ERISA. No Plan which is a
"welfare plan" within the meaning of Section 3(2) of ERISA provides benefits
with respect to employees beyond termination of employment other than coverage
required by law.
(e) The Company is not, and has never been, a member of a "controlled group of
corporations" within the meaning of Section 414(b) of the Code, a member of a
group under "common control" within the meaning of Section 414(c) of the Code,
or a member of an "affiliated service group" within the meaning of Section
414(m) of the Code.
3.16 Tax Matters.
-----------
(a) The term "Taxes" means all net income, capital gains, gross income, gross
-----
receipts, sales, use, transfer, ad valorem, franchise, profits, license,
capital, withholding, payroll, employment, excise, goods and services,
severance, stamp, occupation, premium, property, assessments or other
governmental charges of any kind whatsoever, together with any interest, fines
and any penalties, additions to tax or additional amounts incurred or accrued
under applicable federal, state, local or foreign tax law or assessed, charged
or imposed by any Authority, provided that
14
any interest, penalties, additions to tax or additional amounts that relate to
Taxes for any taxable period (including any portion of any taxable period ending
on or before the Closing Date) shall be deemed to be Taxes for such period,
regardless of when such items are incurred, accrued, assessed or charged. For
purposes of this Section 3.16 and Section 10.1, the Company shall be deemed to
------------ ------------
include any predecessor to the Company and any Person from which the Company
incurs a liability for Taxes as a result of transferee liability, joint and
several liability or contract.
(b) The Company has duly and timely filed (and prior to the Closing Date will
duly and timely file) true, correct and complete Tax returns, reports or
estimates, all prepared in accordance with applicable Laws, for all years and
periods (and portions thereof), for all jurisdictions (whether federal, state,
local or foreign) in which any such returns, reports or estimates are required
to be filed by any applicable Law on or prior to the Closing Date. All Taxes
shown as due and payable on such returns, reports and estimates have been paid
(or will be paid prior to the Closing), and there is no current liability for
any Taxes due and payable in connection with any such returns. All taxes not yet
due and payable have been fully accrued on the books of the Company and adequate
reserves have been established therefor. There are no unpaid assessments for
additional Taxes for any period and there is no basis therefor. Any charges,
accruals and reserves for Taxes provided for on the Financial Statements (and
the monthly financial statements to be delivered pursuant to Section 5.7) are
-----------
(or will be) adequate. There are no existing liens for Taxes upon any of the
Company's assets. Sellers have provided to Purchaser true and complete copies of
all federal, state and foreign tax returns filed by the Company since its
incorporation.
(c) The Company has (i) withheld all required amounts from its employees,
agents, contractors and nonresidents and remitted such amounts to the proper
Authorities; (ii) paid all employer contributions and premiums; and (iii) filed
all federal, state, local and foreign returns and reports with respect to
employee income Tax withholding, and social security and unemployment Taxes and
premiums, all in compliance with the withholding provisions of the Code and
other applicable Laws.
(d) None of the Company's assets is tax exempt use property under Code Section
168(h).
(e) No portion of the cost of any of the Company's assets was financed directly
or indirectly from the proceeds of any tax exempt state or local government
obligation described in Code Section 103(a).
(f) The Company has no (and has not previously had any) permanent establishment
in any foreign country and the Company does not engage (and has not previously
engaged) in a trade or business within the meaning of the Code relating to the
creation of a permanent establishment in any foreign country.
(g) None of the Sellers nor the Company is a foreign person within the meaning
of Code Section 1445.
(h) Neither the Code nor any other provision of Law requires Purchaser to
withhold any portion of the Purchase Price.
15
(i) The Company has never been a member of any consolidated, combined or
unitary group for federal, state, local or foreign Tax purposes.
(j) The Company is not a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for federal income Tax
purposes.
(k) The federal income Tax returns of the Company have not been examined by the
IRS; the state Tax returns of the Company have not been examined by the relevant
agencies; and no deficiencies or reassessments for any Taxes have been proposed,
asserted or assessed against the Company by any federal, state, local or foreign
taxing authority.
(l) The Company has not executed or filed with any taxing authority (whether
federal, state, local or foreign) any agreement or other document extending or
have the effect of extending the period for assessment, reassessment or
collection of any Taxes, and no power of attorney granted by the Company with
respect to any Taxes is currently in force.
(m) No federal, state, local or foreign Tax audits or other administrative
proceedings, discussions or court proceedings are presently pending with regard
to any Taxes or Tax returns of the Company and no additional issues are being
asserted against the Company in connection with any existing audits of the
Company.
(n) The Company has not entered into any agreement relating to Taxes which
affects any taxable year ending after the Closing Date.
(o) The Company has not agreed to and it is not required to make any adjustment
by reason of a change in accounting methods that affects any taxable year ending
after the Closing Date. Neither the IRS nor any other agency has proposed any
such adjustment or change in accounting methods that affects any taxable year
ending after the Closing Date. The Company has no application pending with any
taxing authority requesting permission for any changes in accounting methods
that relate to its business or operations and that affects any taxable year
ending after the Closing Date.
(p) The Company is not and never has been a party to any Tax sharing agreement
or similar arrangement for the sharing of Tax liabilities or benefits.
(q) The Company has not consented to the application of Code Section 341(f).
(r) There is no Contract covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment by
the Company of any amount that would not be deductible by reason of Code Section
280G.
(s) In the past five years, the Company has not been a party to a transaction
reported as a reorganization within the meaning of Code Section 368, distributed
a corporation in a transaction reported as qualifying under Code Section 355 or
been distributed in a transaction reported as qualifying under Code Section 355.
16
(t) The Company has not participated in any transaction required to be
disclosed as a tax shelter under the Code.
(u) The Company has duly elected to be treated as an S corporation pursuant to
Code Section 1362(a) effective as of January 1, 1998. This election is currently
effective, and no event has occurred that would terminate the Company's S status
(other than the transactions contemplated by this Agreement). No taxing
Authority has challenged the effectiveness of this election.
3.17 Title to Assets.
---------------
Except as otherwise disclosed on Schedule 3.17, the Company (i) has good
-------------
and marketable title to, or with respect to the Leased Real Property and leased
personal property, a valid and binding leasehold interest in, all of its assets,
free and clear of all Liens, and (ii) owns or otherwise has an enforceable right
under a Contract to use all of the assets and rights used in or necessary to the
operation of the Business.
3.18 Real Property.
-------------
Other than its leasehold interest in the Leased Real Property, the Company
has no rights, title or interest in or to any real property. All amounts due
and payable by the Company with respect to the Leased Real Property have been
paid.
3.19 No Alternative Transaction.
--------------------------
Neither the Company nor any Seller is a party to or otherwise bound by any
agreement contemplating or providing for any Alternative Transaction.
3.20 Consents.
--------
Except as contemplated by this Agreement or as otherwise disclosed on
Schedule 3.20, no consent, approval, order or authorization of, or registration,
-------------
declaration or filing with, or notification to, any Authority or any other
Person is required to be obtained, made or given by the Company in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated (including consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, or
notifications to, any Authority or other Person necessary for the grants
referenced in Section 3.6(b) to be available to the Company following the
--------------
consummation of the transactions contemplated by this Agreement).
3.21 Licenses and Permits.
--------------------
Schedule 3.21 lists and describes all material qualifications,
-------------
registrations, filings, privileges, franchises, immunities, licenses, permits,
authorizations and approvals of Authorities which are used or required in order
for the Company to own and operate the Business (collectively, "Permits"); and
-------
each Permit is in good standing, valid and subsisting, and in full force and
effect in accordance with its terms.
17
3.22 Occupational Safety and Health.
------------------------------
The Company has complied with all, and is not in violation of any, federal,
state or local occupational safety and health Laws. The Company has not received
any notice, citation, claim, assessment or proposed assessment as to or alleging
any violation of any federal, state or local occupational safety and health laws
nor has the Company been subject to any investigation by any federal, state or
local occupational safety and health agency within the three (3) years preceding
the date hereof, and no such violation exists. The Company is not a party to any
pending dispute with respect to compliance with any federal, state or local
occupational safety and health law.
3.23 Insurance.
---------
(a) Schedule 3.23 sets forth a list and brief description of all insurance
-------------
policies maintained by the Company, including production liability, workers'
compensation, unemployment, life, medical, liability and casualty insurance.
(b) The Company is not in default with respect to any provision contained in
any such insurance policy, nor has it failed to give any notice or present any
claim thereunder in a due and timely fashion.
(c) Since January 1, 1997, no Company insurance policy has been revoked or
rescinded and the Company has not received any notification or threat by any
insurer to revoke or rescind any such insurance policy.
(d) Schedule 3.23 sets forth a true and complete list of all claims made by the
-------------
Company under any of its insurance policies since January 1, 1997.
3.25 Financial Statements.
--------------------
(a) A true and complete copy of the Financial Statements is attached hereto as
Schedule 3.24.
-------------
(b) The Financial Statements were prepared from and based on the books and
records of the Company and present fairly the financial position and results of
operations of the Company at the dates and for the periods indicated therein.
3.25 Undisclosed Liabilities.
-----------------------
On the Balance Sheet Date, the Company had no Liability with respect to the
Business of the type which should be reflected in balance sheets (including the
notes thereto) prepared in accordance with GAAP which was not fully disclosed,
reflected or reserved against in the balance sheet as of the Balance Sheet Date
included in the Financial Statements; and, except for liabilities which have
been incurred since the Balance Sheet Date in the Ordinary Course of Business,
since the Balance Sheet Date, the Company has not incurred any Liability.
18
3.26 Conduct of Business Since Balance Sheet Date.
--------------------------------------------
Since the Balance Sheet Date:
(a) the Business has been conducted only in the Ordinary Course of Business;
(b) except (i) as described on Schedule 3.26 or (ii) for equipment, inventory
-------------
and supplies purchased, sold, used or otherwise disposed of in the Ordinary
Course of the Business, the Company has not purchased, sold, leased, mortgaged,
pledged or otherwise acquired or disposed of any properties or assets;
(c) the Company has not sustained or incurred any loss or damage with respect
to the Business (whether or not insured against) on account of fire, flood,
accident or other calamity;
(d) the Company has not increased the rate of compensation of any officer or
other employee or any consultant, except in the Ordinary Course of Business;
(e) there has been no material adverse change in or with respect to the
condition (financial or otherwise), operations, business, prospects, rights,
properties, assets or liabilities of the Business or the Company's relations
with Authorities or its employees, creditors, suppliers, customers or others
having business relationships with the Company and no fact exists which may
reasonably be expected to give rise to any such material adverse change;
(f) the Company has not canceled any of the debts or claims owed to it and has
paid and satisfied its accounts payable in the Ordinary Course of Business;
(g) the Company has not changed any accounting methods or practices (including
any change in depreciation or amortization policies or rates);
(h) the Company has not paid or declared any dividend or made any distribution
in respect of, or redeemed or purchased any of, its capital stock; and
(i) the Company has not agreed to take any of the actions described in
paragraphs (b), (d), (f), (g) or (h) above.
3.27 Banking Arrangements.
--------------------
Except as set forth in Schedule 3.27, the Company has no banking, borrowing
-------------
or depository relationship, or accounts or deposits of funds, and all persons
authorized as signatories on each such account are listed in Schedule 3.27.
-------------
3.28 Powers of Attorney.
------------------
Except as set forth in Schedule 3.28, no Person holds any power of attorney
-------------
from the Company.
19
3.29 Year 2000 Matters. The Company has not experienced the effect of what is
-----------------
commonly referred to as the "Year 2000 Problem" (i.e., the inability of certain
computer applications to recognize correctly and perform date sensitive
functions involving certain dates after December 31, 1999). No Year 2000 Problem
has adversely affected any Products.
3.30 Disclosure.
----------
None of the representations and warranties made by the Principal
Stockholders in this Agreement or in any letter, certificate or document
furnished or to be furnished by the Principal Stockholders or on their behalf
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits any material fact the omission of which would make the
statements made herein or therein misleading. There is no fact known to either
Principal Stockholder which materially adversely affects, or is reasonably
likely to materially adversely affect, the condition (financial or otherwise),
assets, liabilities, business, operations or prospects of the Business, the
value or utility of the Company's assets or the ability of either Principal
Stockholder to consummate the transactions contemplated hereby that has not been
set forth herein or heretofore communicated to Purchaser in writing pursuant
hereto.
B. As an inducement to Purchaser to enter into and perform its obligations
under this Agreement, and in consideration of the covenants of Purchaser
contained herein, each Seller, for itself and not on behalf of any other Seller,
represents and warrants to Purchaser (which representations and warranties shall
survive the Closing (subject to Section 10.4) regardless of what examinations,
------------
inspections, audits and other investigations Purchaser has heretofore made, or
may hereafter make, with respect to such representations and warranties) as
follows:
3.31 Authority; Enforceability.
-------------------------
(a) Seller has the requisite capacity to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement is binding upon, and
enforceable against, Seller in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights generally
and by general principles of equity (whether in a proceeding at law or in
equity).
(b) Neither the execution or delivery of this Agreement by Seller nor the
performance by Seller of his obligations under this Agreement will
(assuming the receipt of all consents described in Schedule 3.20), conflict
-------------
with or result in a breach of any of the terms or provisions of, or constitute a
default under, any Contract, Permit or indenture, mortgage, deed of trust, note
or other agreement or instrument to which Seller is a party or is bound, or any
applicable Law or Order to which Seller is a party or by which Seller is bound.
3.32 Brokers' Fees.
-------------
Seller has not dealt with any broker, finder or consultant in connection
with the transactions contemplated by this Agreement, and no Person acting on
behalf of or at the
20
direction of Seller is entitled to any commission or finder's fee in connection
with the sale of Seller's Shares to Purchaser.
3.33 Title to Purchased Shares.
-------------------------
Seller owns the number of shares of capital stock of the Company indicated
in Schedule 3,12 as being owned by Seller, free and clear of any Liens, and has
-------------
good and marketable title to such Shares. Upon delivery of and payment by the
Purchaser to Seller of his proportionate share of the Purchase Price in respect
of the Shares owned by Seller, Purchaser will acquire good and marketable title
to the Shares free and clear of all Liens.
3.34 Consents.
--------
Except as contemplated by this Agreement, no consent, approval, order or
authorization of, or registration, declaration or filing with, or notification
to, any Authority or any other Person is required to be obtained, made or given
by Seller in connection with the execution and delivery of this Agreement or the
performance by Seller of his obligations hereunder (including consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, or notifications to, any Authority or other Person necessary for
the grants referenced in Section 3.6(b) to be available to the Company following
--------------
the consummation of the transactions contemplated by this Agreement).
3.35 Securities Laws Representations.
-------------------------------
(a) Seller is acquiring Purchaser Shares for his account and not for the
account or benefit of any other Person.
(b) Seller is acquiring Purchaser Shares solely for investment and not with a
view to a distribution or resale thereof otherwise than in compliance with the
Securities Act.
(c) Seller understands that the Purchaser Shares have not been registered
under the Securities Act, or any state securities laws, and are being sold in
reliance upon exemptions from registration for non-public offerings.
(d) Seller understands that neither such security nor any interest therein may
be resold or otherwise disposed of unless such security is subsequently
registered under the Securities Act and under appropriate state securities laws
or unless an exemption from registration is applicable.
(e) Seller has been informed of and understands that no federal or state
agency has made any finding or determination as to the merits of an investment
in the Purchaser Shares or any recommendation or endorsement of the Purchaser
Shares.
(f) Seller has knowledge and experience in financial and business matters such
that he is capable of evaluating the merits and risks of an investment in the
Purchaser Shares.
(g) Seller (i) has been furnished with all such information as he has deemed
necessary to make an informed investment decision with respect to the Purchaser
Shares and (ii) has been
21
afforded an opportunity to ask questions and receive answers from authorized
officers and other representatives of Purchaser concerning Purchaser.
(h) Seller confirms that he has had the opportunity to obtain such independent
legal and tax advice and financial planning services as he has deemed
appropriate prior to making a decision to invest in the Purchaser Shares.
(i) Seller is aware that an investment in Purchaser is highly speculative and
subject to substantial risks.
(j) Seller is capable of bearing the economic risks of an investment in the
Purchaser Shares, including, but not limited to, the possibility of a complete
loss of its investment, as well as limitations on the transferability of the
Purchaser Shares which may make the liquidation of an investment in such
security difficult or impossible for the indefinite future.
(k) None of the following information has ever been represented, guaranteed or
warranted to Seller, expressly or by implication, by Purchaser or by any
officer, director, employee or agent of Purchaser or by any other Person:
(i) the length of time that Seller will be required to remain as a shareholder
in Purchaser
(ii) the profit or loss that may be realized as a result of an investment in
the Purchaser Shares; and
(iii) that the past performance or experience of the management of Purchaser or
any other Person are in any way indicative of future results of operations of
Purchaser or a return on an investment in the Purchaser Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Sellers to enter into and perform their obligations
under this Agreement, and in consideration of the covenants of Sellers contained
herein, Purchaser represents and warrants to Sellers (which representations and
warranties shall survive the Closing (subject to Section 10.4) regardless of
------------
what examinations, inspections, audits and other investigations Sellers have
heretofore made, or may hereafter make, with respect to such representations and
warranties) as follows:
4.1 Corporate Status.
----------------
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois.
22
4.2 Due Authorization.
-----------------
The execution and delivery by Purchaser of this Agreement, and the
performance by Purchaser of its obligations hereunder, have been duly and
validly authorized and approved by all necessary corporate action on the part of
Purchaser.
4.3 Authority of Purchaser.
----------------------
Purchaser has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. Neither the execution or
delivery of this Agreement by Purchaser nor the performance by Purchaser of its
obligations under this Agreement will conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, any contract,
lease, indenture, mortgage, deed of trust, note agreement or other agreement or
instrument to which Purchaser is a party or is bound, its articles of
incorporation, by-laws or any applicable Law or Order to which Purchaser is a
party or by which Purchaser is bound.
4.4 Enforceability.
--------------
This Agreement is binding upon, and enforceable against, Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights generally and by principles of equity
(whether in a proceeding at law or in equity).
4.5 Consents.
--------
Except as contemplated by this Agreement or as otherwise disclosed on
Schedule 4.5, no consent, approval, order or authorization of, or registration,
------------
declaration or filing with, or notification to, any Authority or any other
Person is required to be obtained, made or given by Purchaser in connection with
its execution and delivery of this Agreement or the performance by it of its
obligations hereunder.
4.6 Brokers' Fees.
-------------
Purchaser has not dealt with any broker, finder or consultant in connection
with any of the transactions contemplated by this Agreement, and no Person
acting on its behalf or at its direction is entitled to any commission or
finder's fee in connection with the sale of the Shares to Purchaser.
4.7 Financial Statements.
--------------------
(a) The audited consolidated balance sheet and statements of income, changes in
shareholders' equity and cash flows of Purchaser and its consolidated
subsidiaries as of December 31, 1996, 1997, 1998 and 1999, and for each of the
years then ended, and the unaudited consolidated balance sheet and statement of
income of Purchaser and its consolidated subsidiaries as of, and for the two-
month period ended, February 29, 2000, were prepared in accordance with GAAP and
present fairly the financial position and results of operations of Purchaser and
its consolidated subsidiaries at the dates and for the periods indicated
therein,
23
except that the financial statements for the two-month period ended February 29,
2000 do not include footnotes or normal year-end adjustments.
(b) A true and complete copy of the financial statements described in Section
-------
4.7(a) is attached hereto as Schedule 4.7.
------ ------------
4.8 No Material Adverse Change.
--------------------------
Since December 31, 1999, there has been no material adverse change in or
with respect to the financial condition of Purchaser.
4.9 Litigation.
----------
No suit, action, arbitration or legal, administrative or other proceeding
or governmental investigation is pending or, to Purchaser's Knowledge,
threatened against Purchaser or any of its Affiliates which, if decided
adversely to Purchaser or its Affiliates, could reasonably be expected to have a
material adverse effect on Purchaser and its subsidiaries, taken as a whole, or
the ability of Purchaser to perform its obligations under this Agreement.
4.10 Capitalization.
--------------
(a) The total number of shares of capital stock and the par value thereof which
Purchaser is authorized to issue and the number of such shares which are issued
and outstanding are described on Schedule 4.10.
-------------
(b) No shares of Purchaser's capital stock are held as treasury stock.
(c) Except as described on Schedule 4.10, there are no outstanding rights,
-------------
options, warrants, subscriptions, calls, puts, convertible securities, phantom
stock plans or other agreements of any character or nature under which Purchaser
is or may become obligated to issue, redeem or repurchase any of its securities
and there are no outstanding preemptive rights, rights of first refusal or
similar rights to subscribe for or acquire any securities of Purchaser.
(d) Except as described on Schedule 4.10, there are no voting trust agreements
-------------
or other contracts or agreements restricting voting or dividend rights or
transferability with respect to the outstanding shares of capital stock of
Purchaser.
(e) Purchaser has a sufficient number of authorized but unissued shares of its
Class A Common Stock available for issuance to Sellers in accordance with the
terms of this Agreement. The Purchaser Shares to be issued to Sellers pursuant
to this Agreement will, when so delivered, be duly and validly issued, fully
paid and nonassessable.
4.11 Disclosure.
----------
None of the representations and warranties made by Purchaser in this
Agreement or in any letter, certificate or document furnished or to be furnished
by Purchaser or on its behalf pursuant to this Agreement, contains or will
contain any untrue statement of a material fact, or
24
omits any material fact the omission of which would make the statements made
herein or therein misleading.
ARTICLE V
PRE-CLOSING COVENANTS
From the date hereof through and including the Closing Date:
5.1 Required Consents. Sellers and Purchaser agree to (a) promptly file, or
-----------------
cause to be promptly filed, with all appropriate Authorities and other Persons
any and all other notices, registrations, declarations, applications and other
documents as may be necessary to consummate the transactions contemplated hereby
and (b) thereafter diligently pursue all consents, approvals and authorizations
from such Authorities and other Persons as may be necessary to consummate the
transactions contemplated hereby.
5.2 Conduct of the Business.
-----------------------
Except as otherwise contemplated by this Agreement or consented to by
Purchaser in writing:
(a) The Principal Stockholders shall, and shall cause the Company to, operate
and maintain the Business in the Ordinary Course of Business;
(b) The Principal Stockholders shall, and shall cause the Company to, consult
with Purchaser regarding all operational decisions material to the Business,
including decisions (or related decisions) involving payments by (or to) the
Company of more than $50,000 in aggregate in any twelve month period (including
entering into, changing, modifying, canceling or terminating any agreement or
contract involving such a payment) (each a "Material Operating Decision");
---------------------------
provided, that the right to make all Material Operating Decisions shall remain
--------
solely with the Company and the Principal Stockholders; provided, further, that
-------- -------
the Company may acquire certain robotics equipment to the extent previously
discussed with Purchaser;
(c) The Principal Stockholders shall not, and shall not allow the Company to,
(i) permit or allow any of the Company's assets to be subjected to any Lien
(except any Lien described on Schedule 3.17); (ii) sell, lease, transfer or
-------------
otherwise dispose of any of the Company's assets, except for sales, leases,
transfers or disposals in the Ordinary Course of Business; (iii) enter into any
agreement or contract with respect to real property; (iv) change the Business'
accounting methods, principles or practices (including any change in
depreciation or amortization methods, policies or rates or income recognition
methods); (v) increase or otherwise change the rate or nature of the
compensation (including wages, salaries, bonuses and benefits under any Plan)
which is paid or payable to any officer, employee, consultant or other
representative of the Business, except in the Ordinary Course of Business; (vi)
make, or commit to make, any payment, contribution or award under or into any
Plan, except in the Ordinary Course of Business; (vii) declare or pay any
dividends or distributions to its shareholders or redeem or repurchase any of
the Company's securities or make any payments to any Seller or Affiliate thereof
(except for salaries paid and current debt service payments disclosed to
Purchaser, in any
25
case, which are paid in the Ordinary Course of Business); (viii) change the
terms of any Accounts Receivable or cancel any debts owed to the Company; (ix)
except as set forth on Schedule 5.2(c), issue any capital stock or any option,
---------------
warrant or right relating thereto; or (x) amend its articles of incorporation or
by-laws; and
(d) The Principal Stockholders shall, and shall cause the Company to, use all
commercially reasonable efforts to preserve and protect the Business' goodwill,
prospects, rights, properties, assets and business, to keep available to it and
Purchaser the services of the Business' employees and consultants, and to
preserve and protect the Business' relationships with Authorities and its
employees, consultants, officers, suppliers, customers, creditors and others
having business relationships with it.
5.3 Access to Books and Personnel; Rights of Inspection.
---------------------------------------------------
(a) The Principal Stockholders shall, and shall cause the Company's officers,
directors, employees, auditors and agents to, afford to Purchaser and
Purchaser's underwriters, lenders, officers, employees, auditors and agents the
right at any time prior to the Closing during normal business hours and upon
reasonable prior notice, access to the Company's directors, officers, employees,
consultants, auditors, agents, facilities, research logs, books and records
(including auditors' work papers) as Purchaser reasonably shall deem necessary
or desirable and shall furnish such financial and operating data and other
information as Purchaser may reasonably require. The Principal Stockholders also
shall permit Purchaser and its underwriters, lenders, officers, employees,
auditors and agents to meet with the Company's lenders, banking institutions,
primary suppliers and customers. The Principal Stockholders shall make full
disclosure to Purchaser of all relevant matters concerning the Company, the
Business and the assets used in the Business. No such access, examination or
review shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Sellers set forth herein.
(b) During the term of this Agreement Purchaser may physically inspect, and
cause one or more representatives of Purchaser to physically inspect, the
Company's assets, including all research laboratories and storage facilities, if
any. The Principal Stockholders shall, and shall cause the Company to, grant
Purchaser and its agents reasonable access to the Company's assets to perform
such inspection. All inspection fees and other expenses of any kind incurred by
Purchaser relating to the inspection of the Company's assets will be solely at
Purchaser's expense. The Principal Stockholders shall, and shall cause the
Company to, cooperate with Purchaser in all reasonable respects in making such
inspections.
(c) Purchaser shall provide to Sellers all financial statements and other
information regarding Purchaser and its Affiliates that are reasonably requested
by Sellers.
5.4 Notification of Material Adverse Events.
---------------------------------------
(a) Sellers shall promptly notify Purchaser in writing of any event following
the date hereof of which Sellers are or become aware that will or could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), rights, properties, assets or
26
prospects of the Company or its Business or the performance by Sellers of their
obligations under this Agreement.
(b) Purchaser shall promptly notify Representative in writing of any event
following the date hereof of which Purchaser is or becomes aware that will or
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), rights, properties, assets or prospects of Purchaser
or the performance by Purchaser of its obligations under this Agreement.
5.5 Supplemental Disclosures.
------------------------
The Principal Stockholders and Purchaser shall have the continuing
obligation to supplement promptly and amend all Schedules attached hereto as
necessary or appropriate with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in such Schedules by such party;
provided, however, that for the purpose of the rights and obligations of the
-------- -------
parties hereunder, any such supplemental or amended disclosure shall not, except
as the other party hereto may otherwise agree in writing, be deemed to have
cured any breach of any representation or warranty made in this Agreement.
5.6 Exclusivity.
-----------
Unless this Agreement has been terminated in accordance with Article XI,
----------
(a) Sellers shall not, and shall not permit the Company or any of the Company's
Affiliates, directors, officers, employees, consultants, agents or advisors to,
initiate, pursue or encourage (by way of furnishing information or otherwise)
any inquiries or proposals, or enter into any discussions, negotiations or
agreements (whether preliminary or definitive) with any Person, contemplating or
providing for any merger, acquisition, purchase or sale of all or substantially
all of the capital stock or assets or any business combination or change in
control of the Business (an "Alternative Transaction"), other than the
-----------------------
transaction contemplated by this Agreement, and (b) Sellers shall deal
exclusively with Purchaser with respect to the sale of the Business and the
Shares. In the event any Seller, the Company or any of the Company's
Affiliates, directors, officers, employees, consultants, agents or advisors
receive a proposal, directly or indirectly, from any Person regarding an
Alternative Transaction, the Representative shall give written notice to
Purchaser of such contact within one (1) day after receiving such contact.
5.7 Monthly Financial Statements.
----------------------------
(a) The Principal Stockholders shall cause the Company to deliver to Purchaser
within fifteen (15) days after the date hereof, an unaudited balance sheet for
the Company as of March 31, 2000 and a statement of operations for the three-
month period then ended.
(b) The Principal Stockholders shall cause the Company to deliver to Purchaser
within thirty (30) days after the end of each calendar month, beginning with the
month ended April 30, 2000, a balance sheet for the Company as of the end of
such month and a statement of income for the Company for the portion of the
calendar year then ended.
27
(c) Purchaser shall deliver to the Representative, within fifteen (15) days
after the date hereof, an unaudited consolidated balance sheet for Purchaser and
its consolidated subsidiaries as of March 31, 2000 and a consolidated statement
of income for the Purchaser and its consolidated subsidiaries for the three-
month period then ended.
(d) Purchaser shall deliver to the Representative within thirty (30) days after
the end of each calendar month, beginning with the month ended April 30, 2000, a
consolidated balance sheet for Purchaser and its consolidated subsidiaries as of
the end of such month and consolidated statement of income for Purchaser and its
consolidated subsidiaries for the portion of the calendar year then ended.
(e) The financial statements described in Sections 5.7(a) and (b) shall be
--------------- ---
prepared in accordance with GAAP, except for footnote disclosures and normal
year-end adjustments.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
6.1 Obligations to be Satisfied on or prior to Closing Date.
-------------------------------------------------------
The obligation of Purchaser to purchase the Shares under this Agreement is
subject to the satisfaction (or waiver by Purchaser), on or prior to the Closing
Date, of the following conditions:
(a) Accuracy of Representations and Warranties. Each of the representations
------------------------------------------
and warranties made by Sellers in this Agreement shall be true and complete in
all material respects on the Closing Date as though made on such date.
(b) Compliance with Agreement. Sellers shall have performed or complied in all
-------------------------
material respects with the covenants, agreements and obligations required by
this Agreement to be performed or complied with by Sellers on or prior to the
Closing Date.
(c) Consents. All consents, approvals, orders, authorizations, registrations,
--------
declarations and filings described on Schedule 3.20 and 4.5 shall have been
------------- ---
obtained or made in form reasonably satisfactory to Purchaser. All necessary
authorizations, agreements and consents of any Persons or Authorities to the
consummation of the transactions contemplated by this Agreement, or otherwise
pertaining to the matters covered by it, shall have been obtained by Sellers and
delivered to Purchaser and shall be in full force and effect as of the Closing
Date, and no such authorizations, agreements and consents shall impose any
burdensome or, in Purchaser's reasonable determination, unsatisfactory
conditions or requirements on Purchaser or the Company.
(d) No Adverse Proceedings. No Law shall have been enacted or promulgated, and
----------------------
no investigation, action, suit or proceeding shall have been threatened or
instituted against the Sellers, the Company or Purchaser, which, in any case, in
the reasonable judgment of Purchaser, challenges, or could reasonably be
expected to result in a challenge to, the consummation of the transactions
contemplated hereby, or which claims, or could reasonably be expected to give
rise
28
to a claim for, damages against Purchaser or the Company as a result of the
consummation of such transactions.
(e) No Material Adverse Change. There shall have occurred no material adverse
--------------------------
change in or with respect to the condition (financial or otherwise), business,
prospects, rights, properties or assets of the Business or the Company since
December 31, 1999.
(f) Schedules. All amendments or supplements to the Schedules made by Sellers
---------
pursuant to Section 5.5 shall be reasonably acceptable to Purchaser.
-----------
(g) Closing Documents. Sellers shall have delivered all reports, agreements,
-----------------
certificates, instruments, opinions and other documents required to be delivered
by Sellers on the Closing Date pursuant to Section 8.3, and the form and
-----------
substance of all such reports, agreements, certificates, instruments, opinions
and other documents shall be reasonably satisfactory to Purchaser.
(h) UCC, Tax Lien and Judgment Search Results. Purchaser shall have received,
-----------------------------------------
at Sellers' sole cost and expense, a report, in form and substance satisfactory
to Purchaser, as to the results of an examination of financing statements filed
under the Uniform Commercial Code, and tax lien and judgment records, in each
office in each such jurisdiction as Purchaser shall reasonably request, and such
report shall indicate no security interests, tax liens, judgments or other Liens
not previously disclosed in writing to Purchaser.
(i) Environmental Audit. Purchaser shall have obtained, at the Purchaser's own
-------------------
expense, an environmental audit with respect to the Leased Real Property and the
Business which is satisfactory in form and substance to Purchaser in its sole
discretion.
6.2 Procedure for Failure to Satisfy Conditions.
-------------------------------------------
In the event that, in Purchaser's reasonable judgment, any of the
conditions precedent set forth in Section 6.1 have not been satisfied, Purchaser
-----------
shall notify the Representative in writing indicating its election to (a) waive
such condition precedent or (b) terminate this Agreement pursuant to Section
-------
11.1.
----
ARTICLE VII
CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
7.1 Obligations to be Satisfied on or prior to Closing Date.
-------------------------------------------------------
The obligations of Sellers to sell the Shares under this Agreement are
subject to the satisfaction (or waiver by the Representative), on or prior to
the Closing Date, of the following conditions:
(a) Accuracy of Representations and Warranties. Each of the representations
------------------------------------------
and warranties made by Purchaser in this Agreement shall be true and complete in
all material respects on the Closing Date as though made on such date.
29
(b) Compliance with Agreement. Purchaser shall have performed or complied in
-------------------------
all material respects with the covenants, agreements and obligations required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) No Adverse Proceedings. No Law shall have been enacted or promulgated, and
----------------------
no investigation, action, suit or proceeding shall have been threatened or
instituted against the Sellers, the Company or Purchaser, which, in any case, in
the reasonable judgment of Sellers, challenges, or could reasonably be expected
to result in a challenge to, the consummation of the transactions contemplated
hereby, or which claims, or could reasonably be expected to give rise to a claim
for, damages against the Sellers as a result of the consummation of such
transactions.
(d) Closing Documents. Purchaser shall have delivered all reports, agreements,
-----------------
certificates, instruments, opinions and other documents required to be delivered
by it on the Closing Date pursuant to Section 8.4, and the form and substance
-----------
of all such certificates, instruments, opinions and other documents shall be
reasonably satisfactory to Sellers.
(e) Regulatory Approvals. All approvals, permits or qualifications from all
--------------------
appropriate Authorities required for the consummation of the transactions
contemplated hereby shall have been obtained.
(f) No Material Adverse Change. There shall have occurred no material adverse
--------------------------
change in or with respect to the condition (financial or otherwise), business,
prospects, rights, properties or assets of Purchaser since December 31, 1999.
(g) Schedules. All amendments or supplements to the Schedules made by
---------
Purchaser pursuant to Section 5.5 shall be reasonably acceptable to Sellers.
-----------
7.2 Procedure for Failure to Satisfy Conditions.
-------------------------------------------
In the event that, in the Representative's reasonable judgment, any of the
conditions set forth in Section 7.1 have not been satisfied, the Representative
-----------
shall notify Purchaser in writing indicating Sellers' election to: (a) waive
such conditions precedent; or (b) terminate this Agreement pursuant to Section
-------
11.1.
----
ARTICLE VIII
CLOSING
8.1 Time and Place.
--------------
The Closing shall take place at 10:00 a.m. (local time) on the Closing Date
at the offices of Winston & ▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, or
at such other time and place as the Representative and Purchaser may mutually
agree.
30
8.2 Closing Transactions.
--------------------
All documents and other instruments required to be delivered at the Closing
shall be regarded as having been delivered simultaneously, and no document or
other instrument shall be regarded as having been delivered until all have been
delivered.
8.3 Deliveries by Sellers to Purchaser.
----------------------------------
At the Closing, Sellers shall deliver or cause to be delivered to
Purchaser:
(a) certificates representing all of the Shares, which certificates shall be
either duly endorsed or accompanied by stock powers duly endorsed, together with
evidence satisfactory to Purchaser that any Liens on such Shares have been
released or terminated;
(b) (i) the articles of incorporation of the Company certified by the Secretary
of State of the State of Washington as of a date not earlier than five (5) days
prior to the Closing Date and (ii) the articles of incorporation and by-laws of
the Company certified by the Secretary or an Assistant Secretary of the Company
as of the Closing Date;
(c) certificates of good standing for the Company from the State of Washington
and each state where the Company's failure to be qualified to transact business
as a foreign corporation would have a material adverse effect on the Company or
its business or financial condition;
(d) the legal opinions of Short ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ PLLC and The Law Office of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, each as counsel for Sellers and the Company, in form and
substance reasonably satisfactory to Purchaser;
(e) a certificate executed by the Representative, dated as of the Closing Date,
certifying that all representations and warranties of Sellers herein contained
are true and complete in all material respects as of the Closing Date as if made
thereon and that each Seller has performed or complied in all material respects
with all of the covenants, agreements and obligations required by this Agreement
to be performed or complied with by Sellers on or prior to the Closing Date;
(f) an executed original of each consent required to be obtained pursuant to
Section 6.1(c);
--------------
(g) an affidavit of the President or a Vice President of the Company stating,
under penalty of perjury, the Company's United States taxpayer identification
number and that the Company is not a foreign person, pursuant to Section
1442(b)(2) of the Code;
(h) the Employment and Non-Compete Agreement, substantially in the form of
Exhibit 8.3(h)(i) executed by each of ▇▇▇▇▇▇▇ and ▇▇▇ (together, the
-----------------
"Employment Agreements");
----------------------
(i) all releases necessary to terminate and discharge any and all Liens on the
Shares and the Company's other assets;
(j) evidence of the resignations of all directors and officers of the Company;
31
(k) evidence of the repayment in full of the aggregate amount of all loans, if
any due and owing to the Company from Sellers (excluding the approximately
$8,779.78 owed to the Company by ▇▇▇▇▇▇▇) or the Company's Affiliates,
employees, consultants, officers or directors and evidence of the repayment in
full of the aggregate amount of all loans, if any due and owing from the Company
to Sellers (excluding the approximately $17,094.84 owed to ▇▇▇ by the Company)
or the Company's Affiliates, employees, consultants, officers or directors;
(l) a landlord's waiver and consent in form and substance satisfactory to
Purchaser with respect to the Leased Real Property;
(m) a supplement to Purchaser's Shareholders Agreement, substantially in the
form of Exhibit 8.3(m) as executed by the Principal Stockholders;
--------------
(n) a written acknowledgment and agreement, in form and substance satisfactory
to Purchaser, by each Seller that becomes a stockholder of the Company as
described on Schedule 5.2(c) that such Person assumes all obligations of a
---------------
Seller set forth in this Agreement, including under Articles II, III, IX, X and
----------- --- -- -
XII; and
---
(o) such other instruments and documents as are: (i) required by any other
provisions of this Agreement to be delivered on the Closing Date by Sellers to
Purchaser; or (ii) reasonably necessary, in the opinion of Purchaser, to
evidence the performance by Sellers of their obligations under this Agreement.
8.4 Deliveries by Purchaser to Sellers.
----------------------------------
At the Closing, Purchaser shall deliver or cause to be delivered to
Sellers:
(a) a certificate of the Secretary or an Assistant Secretary of Purchaser,
dated as of the Closing Date, certifying to (i) the articles of incorporation
and by-laws of Purchaser; (ii) resolutions of the Board of Directors of
Purchaser approving the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby; and (iii)
incumbency and signatures of the officers of Purchaser executing this Agreement
and any other certificate or document delivered by Purchaser in connection
herewith;
(b) a certificate executed by the President or any Vice President of Purchaser,
dated as of the Closing Date, certifying that all representations and warranties
of Purchaser herein contained are true and complete in all material respects as
of the Closing Date as if made thereon and that Purchaser has performed or
complied in all material respects with all of the covenants, agreements and
obligations required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date;
(c) the articles of incorporation of Purchaser certified by the Secretary of
State of the State of Illinois as of a date not earlier than five (5) days prior
to the Closing Date;
(d) the Employment Agreements executed by the Company;
32
(e) the Supplement to Purchaser's Shareholders Agreement executed by Purchaser
and the shareholders of Purchaser required to execute such Supplement (provided
that the failure of such shareholders of Purchaser (other than ▇▇. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇) to execute and deliver such Supplement shall be deemed to not constitute
a breach by Purchaser of this covenant); (ii) a letter agreement from ▇▇.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to ▇▇▇▇▇▇▇ stating that, for so long as ▇▇▇▇▇▇▇ continues to
hold not less than 60% of the Purchaser shares acquired by ▇▇▇▇▇▇▇ on the
Closing Date (for purposes of their subsection, any stock of Purchaser held by
or for the benefit of ▇▇▇▇▇▇▇'▇ spouse, child (including by adoption) or
grandchild or by a trust, limited partnership, limited liability company,
corporation or other entity for the benefit of any of the foregoing shall be
deemed held by ▇▇▇▇▇▇▇), ▇▇. ▇▇▇▇▇▇ will vote the stock in Purchaser held by him
or by any trust of which he is a trustee in favor of granting ▇▇▇▇▇▇▇ Purchaser
Board of Director observer rights; and (iii) a letter agreement from ▇▇. ▇▇▇▇▇▇
to ▇▇▇ stating that, for so long as ▇▇▇ continues to hold not less than 60% of
the Purchaser shares acquired by ▇▇▇ on the Closing Date (for purposes of this
subsection, any stock of Purchaser held by or for the benefit of Kim's spouse,
child (including by adoption) or grandchild or by a trust, limited partnership,
limited liability company, corporation or other entity for the benefit of any of
the foregoing shall be deemed held by ▇▇▇), ▇▇. ▇▇▇▇▇▇ will vote the stock in
Purchaser held by him or by any trust of which he is a trustee in favor of
granting ▇▇▇ Purchaser Board of Directors observer rights;
(f) certificates representing all the Purchaser Shares;
(g) the legal opinion of Winston & ▇▇▇▇▇▇, counsel for Purchaser, in form and
substance reasonably satisfactory to the Representative; and
(h) such other instruments and documents as are: (i) required by any other
provisions of this Agreement to be delivered on the Closing Date by Purchaser to
Sellers; or (ii) reasonably necessary, in the opinion of Sellers, to evidence
the performance by Purchaser of its obligations under this Agreement.
ARTICLE IX
OTHER AGREEMENTS
9.1 Further Assurance.
-----------------
At any time and from time to time from and after the Closing, Sellers and
Purchaser will, at the request and expense of the other party hereto, execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and other documents and perform or cause to be performed such
acts and provide such information, as may reasonably be required to evidence or
effectuate the sale, conveyance, transfer, assignment and delivery to Purchaser
of the Shares or to Sellers of the Purchaser Shares or for the performance by
Sellers or Purchaser of any of their other respective obligations under this
Agreement.
9.2 Confidentiality.
---------------
(a) The parties hereto agree with respect to the terms and conditions of this
Agreement, including the Purchase Price, and all information that is furnished
or disclosed to it by the other
33
party (collectively, 9.2 "Confidential Information"), that (i) such
-------------------------
Confidential Information is confidential and/or proprietary to the
furnishing/disclosing party and entitled to and shall receive treatment as such
by the receiving party; (ii) the receiving party will hold in confidence and not
disclose nor use (except in respect of the transactions contemplated by this
Agreement) any such Confidential Information, treating such Confidential
Information with the same degree of care and confidentiality as it accords its
own confidential and proprietary information; provided, however, that the
-------- -------
receiving party shall not have any restrictive obligation with respect to any
Confidential Information which (A) is contained in a printed publication
available to the general public, (B) is or becomes publicly known through no
wrongful act or omission of the receiving party, (C) is known by the receiving
party without any proprietary restrictions by the furnishing/disclosing party at
the time of receipt of such Confidential Information or (D) is subject to
disclosure pursuant to any Order or requirement of any Authority; and (iii) all
such Confidential Information furnished to either party by the other, unless
otherwise specified in writing, shall remain the property of the
furnishing/disclosing party, and in the event this Agreement is terminated,
shall be returned to it, together with any and all copies made thereof, upon
request for such return by it (except for documents submitted to an Authority
with the consent of the furnishing/disclosing party or upon subpoena and which
cannot be retrieved with reasonable effort).
(b) Each party hereto acknowledges that the remedy at law for any breach by
either party of its obligations under Section 9.2(a) is inadequate and that
--------------
the other party shall be entitled to equitable remedies, including an
injunction, in the event of breach by any other party.
9.3 Tax Matters.
-----------
(a) The Principal Stockholders shall be jointly and severally liable and
indemnify Purchaser and the Company (i) for all Taxes imposed on or incurred by
the Company for any taxable period ending on or before the Closing Date (except
to the extent such Taxes are adequately provided for as current Taxes on the
Company's Interim Financial Statement and monthly financial statements delivered
pursuant to Section 5.7) and (ii) with respect to any taxable period that
-----------
includes but does not end on the Closing Date, for the portion (as determined
by Section 9.3(b)) of any Taxes attributable to the period ending on the
--------------
Closing Date (except to the extent such Taxes are adequately provided for as
current Taxes on the Company's Interim Financial Statement and monthly financial
statements delivered pursuant to Section 5.7).
-----------
(b) For any period that includes but does not end on the Closing Date, (i)
liability for any Taxes determined by reference to income, capital gains, gross
income, gross receipts, sales, net profits, windfall profits or similar items or
resulting from a transfer of assets shall be allocated between the Sellers and
the Company based on the date on which such items accrued; and (ii) liability
for all other Taxes shall be allocated between the Sellers and the Company, pro
rata, based on the number of days in the taxable period for which each party is
liable for Taxes hereunder.
(c) Sellers and Purchaser shall provide each other with such assistance as may
reasonably be requested by the other in connection with the preparation of any
return or report of Taxes, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings
34
relating to liabilities for Taxes. Such assistance shall include making
employees available on a mutually convenient basis to provide additional
information or explanation of material provided hereunder and shall include
providing copies of relevant Tax returns and supporting material. The party
requesting assistance hereunder shall reimburse the assisting party for
reasonable out-of-pocket expenses incurred in providing assistance. Sellers and
Purchaser shall retain for the full period of any statute of limitations and
provide the other with any records or information which may be relevant to such
preparation, audit, examination, proceeding or determination. The Principal
Stockholders shall be responsible for causing the Company to file all Tax
returns and reports of the Company due on or prior to the Closing Date, which
such returns and reports shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such returns or reports and
consistent with prior practice with respect to the treatment of specific items
on the returns or reports; provided, however, that if the treatment of an item
-------- -------
on any such return or report has not been provided by prior practice, the
Principal Stockholders shall cause the Company to report such items in a manner
that would result in the least amount of Tax liability to the Company and
Purchaser for periods ending after the Closing Date. Purchaser shall cause the
Company to prepare and file all Tax returns and reports of the Company due after
the Closing Date, which returns and reports, to the extent they relate to
taxable periods beginning prior to, but including the Closing Date, and for the
purpose of determining the Sellers' liability for Taxes, shall be prepared and
filed timely and on a basis consistent with existing procedures for preparing
such returns and in a manner consistent with prior practice with respect to the
treatment of specific items on the returns and reports, unless such treatment
does not have sufficient legal support to avoid the imposition of penalties. In
the event Sellers are liable under Section 9.3(a) for Taxes due in connection
--------------
with the returns described in the preceding sentence, Sellers shall pay the
amount of such liability to the Company immediately upon request or at least ten
(10) business days prior to the filing of such returns, whichever is later,
provided that Sellers have had at least ten (10) business days to review and
approve such returns which approval shall not be unreasonably withheld.
(d) If in connection with any examination, investigation, audit or other
proceeding in respect of any Tax return covering the operations of the Company
on or before the Closing Date, any Authority issues to the Company a written
notice of deficiency, a notice of reassessment, a proposed adjustment, an
assertion of claim or demand concerning the taxable period covered by such
return, Purchaser or the Company shall notify Sellers of its receipt of such
communication from the Authority within thirty (30) business days after
receiving such notice of deficiency, reassessment, adjustment or assertion of
claim or demand. No failure or delay of Purchaser or the Company in the
performance of the foregoing shall reduce or otherwise affect the obligations or
liabilities of Sellers pursuant to this Agreement, except to the extent that
such failure or delay shall have adversely affected the Sellers' ability to
defend against any liability or claim for Taxes that the Sellers are obligated
to pay hereunder. Except as provided below, the Sellers shall, at their expense,
have the nonexclusive right to participate in the contest of any such
assessment, proposal, claim, reassessment, demand or other proceedings in
connection with any Tax return covering taxable periods of the Company ending on
or before the Closing Date. Purchaser and the Company will not be obligated to
settle or resolve any issue related to Taxes for such a period, which, if so
settled or resolved, could have an effect on the Company or Purchaser for
periods after the Closing Date, unless the Sellers agree in writing with
Purchaser and the
35
Company, in terms reasonably satisfactory to Purchaser and the Company, to
indemnify Purchaser, any affiliate of the Purchaser, and the Company from any
cost, damage, loss or expense relating to such settlement or resolution.
Notwithstanding anything in this Agreement to the contrary, if any examination,
investigation, audit or other proceeding relates to a Tax return for a period
that begins before and ends after the Closing Date, Purchaser and the Company
shall solely participate in, control and resolve such examination,
investigation, audit or other proceeding; provided that Purchaser shall
--------
communicate with the Sellers regarding the status of such examination,
investigation, audit or proceeding.
(e) If there is an adjustment to any return or report of Taxes for the Company
which creates a deficiency in any Taxes for which Sellers are liable under the
provisions of Section 9.3(a), Sellers shall pay to Purchaser the amount
--------------
of such deficiency in Taxes. No liability of Sellers under this Section 9.3(e)
--------------
shall be payable until the occurrence of any action by any Tax Authority that is
final or, if not final, is acquiesced in by Sellers during the course of any
audit or any proceeding relating to Taxes. All payments required to be made by
Sellers pursuant to this Section 9.3(e) shall be made within ten (10) business
--------------
days of the occurrence of the event described in the immediately preceding
sentence.
(f) Purchaser agrees that, upon a good faith written request of Sellers and at
Sellers' expense, Purchaser shall file or cause the Company to file, an amended
tax return or a claim for refund of any Taxes with respect to any period ending
on or prior to the Closing Date, so long as such return or claim has sufficient
legal support to avoid the imposition of penalties and such return or claim will
not cause an increase in the amount of Tax liability to the Company and
Purchaser for periods ending after the Closing Date.
(g) The provisions of this Section 9.3 shall not be governed by the limitations
-----------
contained in Article X and to the extent of any inconsistency between this
---------
Section 9.3 and Article X, the provisions of this Section 9.3 shall control.
----------- --------- -----------
36
9.4 Capital Contribution. Purchaser shall contribute or loan to the Company
--------------------
during the one year period following the Closing Date not less than $1,300,000
to be used by the Company for certain capital expenditures and working capital
purposes, but in no event shall such funds be distributed to any Seller other
than for reasonable compensation if such Seller is an employee of Company.
Purchaser shall contribute or loan $125,000 of the $1,300,000 to the Company
within the three month period immediately following the Closing Date and shall
contribute or loan an additional $525,000 of the $1,300,000 to the Company
within the six month period immediately following the Closing Date.
9.5 Lock-Up Agreements. Each Seller agrees not to effect any public sale or
------------------
distribution (including sales pursuant to Rule 144 under the Securities Act) of
equity securities of Purchaser, or any securities convertible into or
exchangeable or exercisable for such securities, during the ten (10) day period
prior to the date on which Purchaser has notified such Seller that it intends to
commence an initial public offering through the 180-day period immediately
following the effective date of the registration statement covering such initial
public offering.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Sellers.
--------------------------
(a) Subject to the limitations set forth in Section 10.4, the Principal
------------
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless Purchaser, the Company and their respective officers, directors,
shareholders, Affiliates, employees and agents (the "Purchaser Indemnified
---------------------
Persons") after the Closing from and against any Adverse Consequence
-------
arising out of or resulting from:
(i) (A) the untruth, inaccuracy or incompleteness as of the date hereof or on
the Closing Date of any representation or warranty of the Principal Stockholders
contained in this Agreement (or in any document or certificate delivered by the
Principal Stockholders pursuant to this Agreement) (each a "Purchaser Warranty
------------------
Claim") or (B) the failure by the Principal Stockholders to perform any of their
------
covenants or obligations hereunder;
(ii) any brokers' commissions, finders' fees or other like payments incurred
or alleged to have been incurred by the Company in connection with the sale of
the Shares or the consummation of the transactions contemplated by this
Agreement; and
(iii) Taxes of the Company as provided in Section 9.3.
-----------
(b) Subject to the limitations set forth in Section 10.4, each Seller,
------------
severally, agrees to indemnify, defend and hold harmless the Purchaser
Indemnified Persons after the Closing from and against any Adverse Consequence
arising out of or resulting from:
(i) (A) the untruth, inaccuracy or incompleteness as of the date hereof or on
the Closing Date of any representation or warranty of such Seller contained in
this Agreement (or in any document or certificate delivered by such Seller
pursuant to this Agreement) or (B) the failure by such Seller to perform any of
his covenants or obligations hereunder; and
37
(ii) any brokers' commissions, finders' fees or other like payments incurred
or alleged to have been incurred by such Seller in connection with the sale of
his Shares or the consummation of the transactions contemplated by this
Agreement.
10.2 Indemnification by Purchaser.
----------------------------
Subject to the limitations set forth in Section 10.4, Purchaser agrees to
-------------
indemnify, defend and hold harmless Sellers after the Closing from and against
any Adverse Consequences arising out of or resulting from:
(a) the untruth, inaccuracy or incompleteness as of the date hereof or on the
Closing Date of any representation or warranty of Purchaser contained in this
Agreement (or in any document, writing or certificate delivered by Purchaser
under this Agreement) (each a "Seller Warranty Claim") or the failure by
----------------------
Purchaser to perform any of its covenants or obligations hereunder; and
(b) any brokers' commissions, finders' fees or other like payments incurred or
alleged to have been incurred by Purchaser in connection with its purchase of
the Shares or the consummation of the transactions contemplated by this
Agreement.
10.3 Procedure for Indemnification.
-----------------------------
If any Person shall claim indemnification (the "Indemnified Party")
-----------------
hereunder for any claim other than a third party claim, the Indemnified Party
shall promptly give written notice to the other party from whom indemnification
is sought (the "Indemnifying Party") of the nature and amount of the claim. If
------------------
an Indemnified Party shall claim indemnification hereunder arising from any
claim or demand of a third party, the Indemnified Party shall promptly give
written notice (a "Third Party Notice") to the Indemnifying Party of the basis
------------------
for such claim or demand, setting forth the nature of the claim or demand in
detail. The Indemnifying Party shall defend and, if appropriate, settle at its
own cost and through counsel of its own choosing, any claim or demand set forth
in a Third Party Notice giving rise to such claim for indemnification. In the
event the Indemnifying Party undertakes to compromise or defend any such claim
or demand, it shall promptly (and in any event, no later than fifteen (15) days
after receipt of the Third Party Notice) notify the Indemnified Party in writing
of its intention to do so and shall give the Indemnified Party such security in
that regard as the Indemnified Party reasonably may request. The Indemnified
Party shall fully cooperate with the Indemnifying Party and its counsel in the
defense or compromise of such claim or demand. After the assumption of the
defense by the Indemnifying Party, the Indemnifying Party shall not be liable
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with such defense, but the Indemnified Party may participate in
such defense at its own expense. No settlement of a third party claim or demand
defended by the Indemnifying Party shall be made without the written consent of
the Indemnified Party, such consent not to be unreasonably withheld. The
Indemnifying Party shall not, except with written consent of the Indemnified
Party, consent to the entry of a judgment or settlement which does not include
as an unconditional term thereof, the giving by the claimant or plaintiff to the
Indemnified Party of an unconditional release from all liability in respect of
such third party claim or demand.
38
10.4 Limitations on Indemnity.
------------------------
(a) The indemnities contained in this Article X with respect to Purchaser
---------
Warranty Claims and Seller Warranty Claims shall expire two (2) years following
the Closing Date, except with respect to claims (i) under Sections 3.7, 3.15,
------------ ----
3.16, 3.21, and 3.22 as to which the indemnification obligation shall survive
---- ---- ----
until thirty (30) days after the expiration of any applicable statute of
limitations; (ii) under Section 3.13 as to which the indemnification
------------
obligation shall survive until the fifth anniversary of the Closing Date; and
(iii) under Sections 3.1, 3.5, 3.11, 3.12, 3.14, 4.1, 4.2, 4.3 and 4.4 as to
------------ --- ---- ---- ---- --- --- --- ---
which there shall be no expiration date; provided, that if at the stated
--------
expiration of any indemnification obligation there shall then be pending any
indemnification claim by a Person, such Person shall continue to have the right
to such indemnification with respect to such claim notwithstanding such
expiration.
(b) Each Seller's maximum liability to the Purchaser Indemnified Persons for
indemnification pursuant to Sections 10.1(a)(i)(A) and, if applicable, 10.1(b)
---------------------- -------
(i)(A) shall not exceed such Seller's pro rata portion (based on such Seller's
------
ownership percentage of the Shares) of $1,500,000.
(c) Purchaser's maximum aggregate liability to Sellers for indemnification of
Seller Warranty Claims pursuant to Section 10.2(a) shall not exceed $1,500,000.
---------------
(d) Except with respect to indemnification claims arising out of a breach of
representation, warranty, covenant or obligation contained in Section 3.16,
------------
Purchaser Indemnified Person shall not be entitled to indemnification for a
Purchaser Warranty Claim pursuant to Section 10.1(a) unless and until the
---------------
aggregate Adverse Consequences suffered by all Purchaser Indemnified Persons
collectively exceed $25,000, whereupon the Purchaser Indemnified Persons shall
be entitled to indemnification hereunder from the Principal Stockholders for all
Adverse Consequences suffered by Purchaser Indemnified Persons regardless of
such threshold amount.
(e) Sellers shall not be entitled to indemnification for a Seller Warranty
Claim pursuant to Section 10.2(a) unless and until the aggregate Adverse
---------------
Consequences suffered by Sellers exceed $25,000, whereupon Sellers shall be
entitled to indemnification hereunder from Purchaser for all Adverse
Consequences suffered by Sellers regardless of such threshold amount.
(f) From and after the Closing Date, as between Sellers and Purchaser, the
remedies set forth in this Article X shall be the exclusive remedies with
respect to the matters addressed in Section 9.3 and this Article X; provided,
----------- --------- ---------
however, that this paragraph (f) shall not restrict the rights of any Seller or
-------
Purchaser to seek and obtain injunctive relief to specifically enforce another
party's obligations or to seek and obtain relief for fraud.
10.5 Payment.
-------
(a) Except for third party claims being defended in good faith by the
Indemnifying Party in accordance with Section 10.3, the Indemnifying Party shall
------------
satisfy its obligations hereunder within fifteen (15) days after receipt of
notice of a claim. Any amount not paid to the
39
Indemnified Party by such date shall bear interest at a rate equal to twelve
percent (12%) per annum from the date due until the date paid.
--- -----
(b) Notwithstanding anything to the contrary in Section 9.3 or 10.5(a),
----------- -------
Purchaser Indemnified Persons shall defer collection of any indemnification
claim they may have against Sellers pursuant to Section 9.3 or 10.1 until
----------- ----
the first anniversary of Closing; provided, however, that such deferred
-------- -------
claims shall accrue interest as set forth in Section 10.5(a); and, provided,
--------------- --------
further, that, until such time as a Seller may sell his Purchaser Shares to the
-------
public without restriction, Purchaser Indemnified Persons shall not seek
payment, in full or in part, in the form of cash in excess of $200,000 in
aggregate from such Seller on any indemnification claim or claims.
(c) From and after the first anniversary of the Closing, Purchaser may, in its
sole and absolute discretion, in order to satisfy any and all outstanding
indemnification claims against any Seller by any Purchaser Indemnified Person,
require that such Seller transfer to Purchaser, without consideration, Purchaser
Shares having a value equal to such claims. Subject to the immediately following
sentence, for purposes of this Section 10.5(c), the value per Purchaser Share
---------------
so transferred shall be equal to $141.99. Notwithstanding the foregoing, if
Purchaser's common stock is registered under the Securities Act and publicly
traded, then the value per Purchaser Share so transferred shall equal the
average of the high and low trading price each day, averaged over 20 days of
Purchaser's common stock as quoted by the exchange on which it then trades for
the 20 business days immediately preceding the date on which such Purchaser
Shares are transferred to Purchaser in satisfaction of any such claim.
ARTICLE XI
TERMINATION
11.1 Rights to Terminate.
-------------------
This Agreement may be terminated at any time prior to the Closing only as
follows:
(a) by mutual written consent of the Representative and Purchaser;
(b) by the Representative if Purchaser is in material breach of any material
representation, warranty or covenant under this Agreement (and Sellers are not
then in material breach of any material representation, warranty or covenant);
(c) by Purchaser if any Seller is in material breach of any material
representation, warranty or covenant under this Agreement (and Purchaser is not
then in material breach of any material representation, warranty or covenant);
(d) by the Representative if, at or before the Closing, any condition set
forth herein for the benefit of Sellers shall not have been timely met and
cannot be met on or before the Closing Date and has not been waived;
40
(e) by Purchaser if, at or before the Closing, any condition set forth herein
for the benefit of Purchaser shall not have been timely met and cannot be timely
met on or before the Closing Date and has not been waived;
(f) by Purchaser if Sellers make a Material Operating Decision to which
Purchaser objects; provided that Purchaser must exercise such right within ten
--------
(10) business days of Purchaser's receipt of Sellers' written disclosure to
Purchaser of the taking of such action; or
(g) by Purchaser or the Representative if the Closing shall not have occurred
on or before May 30, 2000.
11.2 Effects of Termination.
----------------------
(a) Notwithstanding any provision of this Agreement to the contrary, no
termination of this Agreement shall release (i) any Seller or Purchaser from
such party's obligation to pay any costs and expenses that such party has
expressly agreed herein to pay, (ii) any party from any Liabilities arising
hereunder for any pre-termination breaches hereof or misrepresentations made
herein or (iii) any party from its obligations under Section 9.2 or 13.13.
----------- -----
(b) Each party's right of termination hereunder is in addition to any rights
it may have hereunder or otherwise.
ARTICLE XII
SELLERS' REPRESENTATIVE
12.1 Appointment.
-----------
Sellers hereby irrevocably make, constitute and appoint the Principals,
Stockholders, acting jointly, as their agent and representative (acting jointly,
the "Representative") for all purposes under this Agreement. In the event of
--------------
the death, resignation or incapacity of either Representative, Sellers shall
promptly designate another individual to act as their representative under this
Agreement so that at all times there will be two individuals constituting the
Representative with the authority provided in this Article XII. Such successor
-----------
Representative shall be designated by Sellers by an instrument in writing signed
by Sellers (or their successors in interest) currently holding a majority of the
Shares, and such appointment shall become effective as to the successor
Representative when such instrument shall have been delivered to him or her and
a copy thereof delivered to Purchaser.
12.2 Authorization.
-------------
Sellers hereby authorize the Representative, on their behalf and in their
name, to:
(a) receive all notices or documents given or to be given to Sellers by the
Purchaser pursuant hereto or in connection herewith and to receive and accept
service of legal process in connection with any suit or proceeding arising under
this Agreement, which the Representative shall promptly forward to each Seller;
41
(b) deliver at the Closing the certificates for the Shares in exchange for
the Sellers' respective portion of the consideration payable with respect to
such securities;
(c) deliver to Purchaser at the Closing all certificates and documents to be
delivered to Purchaser by Sellers pursuant to this Agreement, together with any
other certificates and documents executed by Sellers and deposited with the
Representative for such purpose;
(d) engage counsel and such accountants and other advisors for Sellers and
incur such other expenses on behalf of Sellers in connection with this Agreement
and the transactions contemplated hereby as the Representative may deem
appropriate; and
(e) take such action on behalf of Sellers as the Representative may deem
appropriate in respect of:
(i) waiving any inaccuracies in the representations or warranties of
Purchaser contained in this Agreement or in any document delivered by Purchaser
pursuant hereto;
(ii) waiving the fulfillment of any of the conditions precedent to Sellers'
obligations hereunder, except with respect to Purchaser's payment of the
Purchase Price to be paid to Sellers pursuant to Section 2.2;
-----------
(iii) taking such other action as the Representative is authorized to take
under this Agreement;
(iv) receiving all documents or certificates and making all determinations, on
behalf of Sellers, required under this Agreement;
(v) all such other matters as the Representative may deem necessary or
appropriate to consummate this Agreement and the transactions contemplated
hereby; and
(vi) taking all such action as may be necessary after the Closing Date to
carry out any of the transactions contemplated by this Agreement.
12.3 Irrevocable Appointment.
-----------------------
The appointment of the Representative hereunder is irrevocable and any
action taken by the Representative pursuant to the authority granted in this
Article XII shall be effective and absolutely binding on each Seller
-----------
notwithstanding any contrary action of, or direction from, a Seller, except for
actions taken by the Representative which constitute willful misconduct or are
grossly negligent. The death or incapacity of a Seller shall not terminate the
prior authority and agency of the Representative.
12.4 Resignation.
-----------
The Representative may resign at any time by giving notice to Sellers and
Purchaser, and such resignation shall be effective upon the appointment and
qualification of a successor. The Representative may be discharged, and replaced
by another person to act as his or her successor,
42
by an instrument in writing signed by Sellers (or their successors in interest)
currently holding a majority of the Shares.
12.5 Purchaser's Reliance.
--------------------
Purchaser shall not be obliged to inquire into the authority of the
Representative, and Purchaser shall be fully protected in dealing with the
Representative in good faith.
12.6 Exculpation and Indemnification.
-------------------------------
(a) In performing any of his or her duties as Representative under this
Agreement, the Representative shall not incur any Liability to any Person,
except for Liability caused by the Representative's willful misconduct or gross
negligence. Accordingly, the Representative shall not incur any such Liability
for (i) any action that is taken or omitted in good faith regarding any
questions relating to the duties and responsibilities of the Representative
under this Agreement, or (ii) any action taken or omitted to be taken in
reliance upon any instrument that the Representative shall in good faith believe
to be genuine, to have been signed or delivered by a proper person or persons
and to conform with the provisions of this Agreement.
(b) Sellers, jointly and severally, shall indemnify, defend and hold harmless
the Representative against, from and in respect of any Adverse Consequence
arising out of or resulting from the performance of his or her duties hereunder
or in connection with this Agreement (except for Liabilities arising from the
gross negligence or willful misconduct of the Representative).
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Public Announcements.
--------------------
(a) Purchaser and Sellers hereby agree that upon the request of Purchaser or
the Representative, as applicable, each shall cooperate and coordinate in the
preparation and issuance of a press release (or other similar announcement) in
form and substance reasonably satisfactory to each of the parties hereto and
shall be free to respond to inquiries from third parties by disseminating
information consistent with any such press release. Purchaser and Sellers agree
to not otherwise disclose, or permit any of their respective directors,
officers, employees, agents or advisors to disclose, the existence or contents
of this Agreement or the transactions contemplated hereby to any third party
without the prior written consent of the other parties hereto.
(b) Notwithstanding the foregoing, nothing herein contained shall restrict
Purchaser or Sellers from disclosing any information (i) to its or their legal
counsel, accountants, financial advisors, underwriters, lenders, environmental
consultants, directors, employees, and others employed or engaged by any of
Purchaser or Sellers, (ii) to any party from whom consent is required in
connection with the consummation of the transactions contemplated hereby and
(iii) otherwise required to be so disclosed under applicable Law or pursuant to
judicial process.
43
13.2 Post-Closing Deliveries.
-----------------------
After the Closing, any monies, checks, instruments, invoices, bills,
receipts, notices, mail and other communications received by one party but
directed toward or due to another shall be promptly delivered to the other
party. Sellers shall cooperate with Purchaser after the Closing to ensure the
orderly transition of the operation of the Business from Sellers to Purchaser
and to minimize any disruption in the business of Purchaser that might result
from the transactions contemplated hereby.
13.3 Notices.
-------
All notices or other communications required or permitted by this
Agreement shall be in writing and shall be deemed to have been duly received (a)
if given by telecopier, when transmitted and the appropriate telephonic
confirmation received if transmitted on a business day and during normal
business hours of the recipient, and otherwise on the next business day
following transmission, (b) if given by certified or registered mail, return
receipt requested, postage prepaid, three business days after being deposited in
the U.S. mails and (c) if given by courier or other means, when received or
personally delivered, and, in any such case, addressed as follows:
(i) if to Purchaser:
MCR Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Winston & ▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to the Representatives or any Seller:
c/o ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Emerald BioStructures, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
44
with a copy to:
Short ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ PLLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or to such other addresses as may be specified by any such Person to the other
Person pursuant to notice given by such Person in accordance with the provisions
of this Section 13.3.
------------
13.4 Assignment.
----------
No party may assign or transfer any or all of its rights or obligations
under this Agreement without the prior written approval of all the other
parties.
13.5 Benefit of the Agreement.
------------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, permitted assigns, heirs and
executors. This Agreement shall not be construed so as to confer any right or
benefit upon any Person, other than the parties hereto and their respective
successors, permitted assigns, heirs and executors.
13.6 Exhibits and Schedules.
----------------------
The Exhibits and Schedules hereto shall be construed with and as an
integral part of this Agreement to the same effect as if the contents thereof
had been set forth verbatim herein. No disclosure set forth in one Schedule
shall be deemed to constitute a disclosure for the purposes of any other
Schedule unless expressly so stated.
13.7 Headings.
--------
The headings used in this Agreement are for convenience of reference only
and shall not be deemed to limit, characterize or in any way affect the
interpretation of any provision of this Agreement.
13.8 Entire Agreement.
----------------
This Agreement contains the complete and entire agreement and
understanding of the parties with respect to the subject matter hereof, and no
other representations, promises, agreements or understandings regarding the
subject matter hereof shall be of any force or effect unless in writing,
executed by the party to be bound thereby and dated on or after the date hereof,
except that the Confidentiality Agreement shall remain in effect until the
earlier of (a) the Closing or (b) the termination thereof in accordance with its
terms.
45
13.9 Modifications and Waivers.
-------------------------
No change, modification or waiver of any provision of this Agreement
shall be valid or binding unless it is in writing, dated subsequent to the date
hereof and signed by Purchaser and the Representative. No waiver of any breach,
term or condition of this Agreement by any party shall constitute a subsequent
waiver of the same or any other breach, term or condition.
13.10 Counterparts.
------------
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
13.11 Severability.
------------
In case any one or more of the provisions contained herein for any reason
shall be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision or provisions had never been contained
herein.
13.12 GOVERNING LAW.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW RULES THEREOF.
13.13 Expenses.
--------
Except as otherwise expressly provided herein, each party hereto shall
pay all of its own fees, costs and expenses incurred or to be incurred in
negotiating and preparing this Agreement and in closing and carrying out the
transactions contemplated by this Agreement; provided, that the Principal
--------
Stockholders shall be jointly and severally responsible for all fees, costs and
expenses incurred by the Company on or prior to the Closing in connection with
the transactions contemplated hereby, but only to the extent such fees, costs
and expenses are in excess of $30,000.
13.14 Arbitration.
-----------
In the event that Purchaser and Sellers fail to agree on any dispute
arising out of or related to this Agreement or any other agreement or instrument
delivered in connection with the transactions contemplated hereby, after using
their best efforts to negotiate and resolve their differences in good faith,
such dispute shall be resolved by arbitration in Chicago, Illinois. Any party
electing to commence arbitration shall give written notice to the other parties
of such election. The claim shall be settled by one arbitrator under the
auspices of, and in accordance with, the then prevailing rules of the American
Arbitration Association (the "AAA"). The parties shall agree upon such
---
arbitrator within the 15-day interval following the service of written notice of
election to arbitrate. If the parties do not agree upon an arbitrator within
that period, any party may apply to the AAA for the appointment of an
arbitrator. To the extent possible, the
46
arbitrator shall be a Person experienced in the business in which the Company is
engaged. The determination of the arbitrator in all matters referred to such
arbitrator hereunder shall be final and binding on the parties hereto. The award
of such arbitrator may be confirmed or enforced in any court of competent
jurisdiction. The arbitrator or the arbitrator's designee shall have full access
to such records and physical facilities of the parties hereto as may be required
by such arbitrator. The costs and expenses of the arbitrator, and the reasonable
attorneys' fees and costs of the prevailing party incurred in such arbitration
(and in related matters), shall be included in the arbitration award in favor of
such prevailing party; provided, however, that if there shall be no prevailing
-------- -------
party in such arbitration, then such costs and expenses shall be apportioned
among the parties by such arbitrator in accordance with the arbitrator's
determination of the merits of their respective positions.
[Signature page follows]
47
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the date first written above.
PURCHASER: MCR HOLDINGS, INC.
By:___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
PRINCIPAL STOCKHOLDERS:
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇▇▇
OTHER SELLERS:
______________________________________
▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Trustee
______________________________________
Lansing ▇. ▇▇▇▇▇▇▇, Trustee
______________________________________
▇▇▇ ▇▇▇ ▇▇▇, M.D.
______________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
EXHIBIT 8.3(h)(i)
-----------------
FORM OF EMPLOYMENT AGREEMENT (▇▇▇▇▇▇▇/▇▇▇)
------------------------------------------
[to follow]