EXHIBIT 10.34
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STOCK PURCHASE AGREEMENT
BY
AND
AMONG
COLORADO GREENHOUSE HOLDINGS, INC.;
▇▇▇▇▇▇▇▇▇ -▇▇▇▇▇ PARTNERS III, L.P.;
BCI GROWTH IV, L.P.
AND
CO-INVESTORS LISTED ON SCHEDULE 1
___________________
Dated as of January 21, 1997
___________________
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TABLE OF CONTENTS
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PAGE
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ARTICLE 1. DEFINITIONS............................................................ 1
1.1. Definitions.............................................................. 1
1.2. Accounting Terms; Financial Statements................................... 8
1.3. Knowledge Standard....................................................... 8
1.4. Other Defined Terms...................................................... 9
ARTICLE 2. AUTHORIZATION OF SERIES B PREFERRED STOCK; PURCHASE AND SALE OF
SERIES B PREFERRED STOCK............................................... 9
2.1. Preferred Stock.......................................................... 9
2.2. Purchase and Sale of Series B Preferred Stock............................ 9
2.3. Closing.................................................................. 9
2.4. Fees and Expenses........................................................ 10
2.5. Preferred Stock Conversion Adjustments................................... 10
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE
SERIES B PREFERRED STOCK............................................... 10
3.1. Representations and Warranties........................................... 10
3.2. Compliance with Terms and Conditions of this Agreement................... 10
3.3. Delivery of Certificates Evidencing the Series B Preferred Stock......... 10
3.4. Closing Certificates..................................................... 10
3.5. Secretary's Certificates................................................. 11
3.6. Documents................................................................ 11
3.7. Purchase Permitted by Applicable Laws.................................... 11
3.8. Opinion of Counsel....................................................... 11
3.9. Approval of Counsel to Purchasers........................................ 11
3.10. Consents and Approvals.................................................. 11
3.11. Certain Waivers......................................................... 11
3.12. No Material Adverse Effect.............................................. 11
3.13. Certificate and By-laws................................................. 12
3.14. No Material Judgment or Order........................................... 12
3.15. Financial Statements.................................................... 12
3.16. Severance and Noncompete Agreements..................................... 12
3.17. Registration Rights Agreement........................................... 12
3.18. Series A Registration Rights Agreement.................................. 12
3.19. Shareholders' Agreement................................................. 13
3.20. Certificate of Designations............................................. 13
3.21. Redemption Agreement.................................................... 13
3.22. Company Reorganization.................................................. 13
3.23. Purchaser Diligence..................................................... 13
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CLOSE.................. 13
4.1. Representations and Warranties........................................... 13
TABLE OF CONTENTS
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4.2. Compliance with Terms and Conditions of this Agreement.................. 13
4.3. Closing Certificates.................................................... 13
4.4. Issuance Permitted by Applicable Laws................................... 13
4.5. Payment of Purchase Price............................................... 14
4.6. Approval of Counsel to Company.......................................... 14
4.7. Consents and Approvals.................................................. 14
4.8. No Material Judgment or Order........................................... 14
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 14
5.1. Corporate Existence and Authority....................................... 14
5.2. Corporate Authorization; No Contravention............................... 14
5.3. Governmental Authorization; Third Party Consents........................ 15
5.4. Binding Effect.......................................................... 15
5.5. Other Agreements........................................................ 15
5.6. Capitalization.......................................................... 15
5.7. Affiliates.............................................................. 16
5.8. Private Offering........................................................ 16
5.9. Litigation.............................................................. 17
5.10. Financial Statements.................................................... 17
5.11. Title and Condition of Assets........................................... 17
5.12. Contractual Obligations................................................. 18
5.13. Patents, Trademarks, Etc................................................ 18
5.14. Tax Matters............................................................. 19
5.15. Severance Arrangements.................................................. 20
5.16. No Material Adverse Effect.............................................. 20
5.17. Environmental Matters................................................... 21
5.18. Investment Company/Government Regulations............................... 21
5.19. Broker's, Finder's or Similar Fees...................................... 22
5.20. Labor Relations and Employee Matters.................................... 22
5.21. Employee Benefits Matters............................................... 22
5.22. Potential Conflicts of Interest......................................... 23
5.23. Business Relationships.................................................. 24
5.24. Outstanding Borrowings.................................................. 24
5.25. Insurance Schedule...................................................... 24
5.26. Undisclosed Liabilities................................................. 24
5.27. Solvency................................................................ 24
5.28. Compliance with Law..................................................... 25
5.29. No Other Agreements to Sell the Assets or Capital Stock of the Company.. 25
5.30. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇....................................................... 25
5.31. Disclosure.............................................................. 25
5.32. Restructuring........................................................... 25
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................... 26
TABLE OF CONTENTS
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6.1. Existence and Authority.................................................. 26
6.2. Authorization; No Contravention.......................................... 26
6.3. Binding Effect........................................................... 26
6.4. Purchase for Own Account................................................. 26
6.5. Accredited Investor Status............................................... 27
6.6. Broker's, Finder's or Similar Fees....................................... 27
ARTICLE 7. COVENANTS OF THE COMPANY............................................... 27
7.1. Further Assurances....................................................... 27
7.2. Notification of Certain Matters.......................................... 27
7.3. Access to Information.................................................... 28
7.4. Conduct of Business...................................................... 28
ARTICLE 8. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD FOLLOWING THE
CLOSING................................................................ 28
8.1. Financial Statements and Other Information............................... 28
8.2. Notices.................................................................. 29
8.3. Reservation of Shares.................................................... 30
8.4. Books and Records........................................................ 30
8.5. Use of Proceeds.......................................................... 30
8.6. New Lines of Business.................................................... 30
8.7. Compensation of Directors................................................ 30
8.8. Management Incentive Stock Option Plan................................... 30
8.9. Torrance Greenhouse...................................................... 30
ARTICLE 9. INDEMNIFICATION........................................................ 31
9.1. Indemnification.......................................................... 31
9.2. Notification............................................................. 32
9.3. Registration Rights Agreement............................................ 32
ARTICLE 10. MISCELLANEOUS......................................................... 32
10.1. Termination............................................................. 32
10.2. Survival of Representations and Warranties.............................. 33
10.3. Notices................................................................. 33
10.4. Successors and Assigns.................................................. 34
10.5. Amendment and Waiver.................................................... 34
10.6. Counterparts............................................................ 35
10.7. Headings................................................................ 35
10.8. Governing Law........................................................... 35
10.9. Severability............................................................ 35
10.10. Rules of Construction.................................................. 35
10.11. Entire Agreement....................................................... 35
10.12. Transaction Expenses................................................... 35
TABLE OF CONTENTS
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10.13. Publicity.............................................................. 35
10.14. Further Assurances..................................................... 35
10.15. Severability of Representations, Warranties and Covenants.............. 36
TABLE OF EXHIBITS AND SCHEDULES
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EXHIBITS
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Exhibit A - Certificate of Designations for the Series B Preferred Stock
Exhibit B - Lender Letters
Exhibit C - Redemption Agreement
Exhibit D - Registration Rights Agreement
Exhibit E - Series A Registration Rights Agreement
Exhibit F - Shareholders' Agreement
Exhibit G - Severance and Noncompete Agreements
Exhibit H - Preferred Stock Conversion Adjustments
Exhibit I - Opinion of Holme ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
Exhibit J - Amended and Restated Certificate of Incorporation of Colorado
Greenhouse Holdings, Inc.
Exhibit K - ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Warrant
SCHEDULES
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Shares Being Purchased............................... 1
Lenders.............................................. 1.1
Adjustment Prices.................................... 2
Adjustment Percentages............................... 3
Schedule 3.22 - Restructuring Table
Schedule 5.3 - Consents
Schedule 5.6 - Capitalization
Schedule 5.7 - Affiliates and Project Owners
Schedule 5.9 - Litigation
Schedule 5.11(a) - Leased Real Property
Schedule 5.12 - Contractual Obligations
Schedule 5.13 - Intellectual Property
Schedule 5.14(c) - Tax Mattters; Audits
Schedule 5.14(f)(i) - Tax Matters; Tax Elections
Schedule 5.14(f)(iii) - Tax Matters; Tax Indemnity
Schedule 5.14(i) - Tax Matters; Excess Parachute Payments
Schedule 5.14(j) - Tax Matters; Joint Ventures
Schedule 5.17(e) - Environmental Matters; Phase I Environmental Assessments
Schedule 5.20 - Employment Agreements
Schedule 5.21 - Employee Benefits Plans
Schedule 5.22 - Potential Conflicts of Interest; Transactions with Affiliates
Schedule 5.24 - Outstanding Borrowings
Schedule 5.25 - Insurance Policies
Schedule 8.5 - Use of Proceeds
ii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
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the 21st day of January, 1997 by and among ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ PARTNERS III, L.P. a
Delaware limited partnership ("▇▇▇▇▇▇▇▇▇"), BCI Growth IV, L.P., a Delaware
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limited partnership ("BCI"), the other co-investors listed on Schedule 1
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attached hereto (the "Co-Investors") and COLORADO GREENHOUSE HOLDINGS, INC., a
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Delaware corporation (the "Company").
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RECITALS
A. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its Series B
Preferred Stock (as defined herein) to ▇▇▇▇▇▇▇▇▇, BCI and the Co-Investors (each
being referred to herein as a "Purchaser" and collectively referred to herein as
the "Purchasers").
B. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Purchasers desire to contribute capital to the Company in
exchange for the issuance to the Purchasers of shares of the Series B Preferred
Stock as set forth herein.
C. WHEREAS, the Purchasers desire that, upon the Closing (as defined
in herein), ▇▇▇▇▇▇▇▇▇, BCI and the Co-Investors will collectively own one
hundred percent (100%) of the Company's outstanding Series B Preferred Stock.
D. WHEREAS, the Company, the holders of the Company's Series A
Preferred Stock and the Purchasers desire to set forth the objectives and
agreements that will govern their relations and responsibilities with respect to
each other by entering into concurrently with the sale and purchase of
securities hereunder a Shareholders' Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
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1.1. Definitions. As used in this Agreement, and unless the context
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requires a different meaning, the following terms have the meanings indicated:
"Actual EBIT" shall mean, for any period, the Consolidated Net Income
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of the Company for such period adjusted to deduct therefrom interest income and
to add thereto the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expenses; (ii) interest expense and
(iii) any non-cash charge related to the issuance of Company options to purchase
Common Stock. Such amounts shall be determined pursuant to an audit by a
nationally recognized accounting firm in accordance with GAAP.
"Adjustment Percentage" shall mean, with respect to any return on
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Investment in connection with a Liquidity Event, the "Adjustment Percentage" as
set forth on Schedule 3 for such Return on Investment as of the closing date of
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such Liquidity Event.
"Adjustment Price" shall mean, with respect to any date, the
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"Adjustment Price" as set forth on Schedule 2 for such date.
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"Affiliate" means, with respect to any specified Person, any Person
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that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise, provided, however, in no event shall Brush
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Cogeneration Partners, Colorado Power Partners, American Atlas #1 LTD, CTI,
Inc., CTI Partners I, LLC and CTI Partners II, LLC be deemed an Affiliate of the
Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Unless otherwise qualified, all references to an "Affiliate" or to
"Affiliates" in this Agreement shall refer to an Affiliate or Affiliates of the
Company.
"Balance Sheet Date" means December 31, 1996.
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"Benefit Arrangement" means any employment, consulting, severance or
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other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"Certificate of Designations" shall mean the Company's Certificate of
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Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions thereof of Series B Preferred Stock attached hereto as Exhibit A.
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"Code" means the Internal Revenue Code of 1986, as amended, or any
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successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
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similar agency then having jurisdiction to enforce the Securities Act.
"Common Equity" shall mean all shares now or hereafter authorized of
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any class of common stock of the Company, however designated, including the
Common Stock, and any other stock of the Company, however designated, authorized
after the Initial Issue Date, which has the right (subject always to prior
rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Company without limit as to per
share amount.
"Common Stock" means the common stock, par value $.001 per share, of
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the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
2
"Company's Line of Business" means the current line of business of the
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Company and its Affiliates, any line of business that is related thereto and any
line of business that involves the production and distribution of produce and
related food products and ancillary services.
"Condition of the Company" means the assets, business, properties,
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operations, financial condition or prospects of the Company and its subsidiaries
taken as a whole.
"Consolidated Net Income" shall have the meaning assigned to such term
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in the Certificate of Designations.
"Contractual Obligation" means as to any Person, any provision of any
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security issued by such Person or any provision of any agreement, lease of real
or personal property, undertaking, contract, indenture, mortgage, deed of trust
or other instrument to which such Person is a party or by which it or any of its
property is bound.
"Defined Benefit Plan" means a defined benefit plan within the meaning
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of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
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Pension Plans and Welfare Plans.
"Environmental Expenses" means any liability, loss, cost or expense
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arising from any Pre-Closing Environmental Matter, including, without
limitation, costs of investigation, cleanup, removal, remedial, corrective or
response action, the costs associated with posting financial assurances for the
completion of investigation, cleanup, removal, remedial, corrective or response
actions, the preparation of any closure or other necessary or required plans or
analyses, or other reports or analyses submitted to or prepared by regulating
agencies, including the cost of health assessments, epidemiological studies and
the like, retention of engineers and other expert consultants, legal counsel,
capital improvement, operation and maintenance testing and monitoring costs,
power and utility costs and pumping taxes or fees, and administrative costs or
damages.
"Environmental Laws" means any federal, state, territorial, provincial
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or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or local) relating to emissions,
discharges, releases or threatened releases of any pollutant or contaminant
including, without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Material
-- ---
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
-- ---
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control
-- ---
Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 1251 et
-- --- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), and the
--- -- ---
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such laws
-- ---
have been
3
amended, modified or supplemented heretofore and any analogous federal, state or
local laws, statutes and regulations.
"Equipment" means all of the tangible personal property owned or
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leased by the Company or any of its Affiliates and used in or held for use in
the operations of the business of the Company or any of its Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"ERISA Affiliate" means any Person that is (or at any relevant time
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was) a member of a "controlled group of corporations" with or under "common
control" with the Company as defined in Section 414(b), (c), (m) or (o) of the
Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
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and the rules and regulations of the Commission thereunder.
"Facilities" means the buildings, plants, offices, greenhouses and all
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other improvements on any real property (including fixtures affixed thereto)
which are owned or leased by the Company or any of its Affiliates and used or
held for use in the operation of the business of the Company or any of its
Affiliates.
"GAAP" means United States generally accepted accounting principles,
----
in effect from time to time, consistently applied.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
exercising public functions owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means those substances which are regulated by or
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form the basis of liability under any Environmental Laws, including, without
limitation, petroleum products, radon and asbestos.
"Indebtedness" means, as to any Person: (a) all obligations, whether
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or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any
4
other Person referred to in clauses (a) through (f) above, guaranteed, directly
or indirectly, by that Person.
"Initial Issue Date" shall mean the date that shares of Series B
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Preferred Stock are first issued by the Company.
"Letters" means those letters addressed to Colorado Springs Production
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Credit Association from each of the lenders set forth on Schedule 1.1 (or their
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successors as holders of deeds of trust on any of the Brush I, Brush II or Ft.
▇▇▇▇▇▇ greenhouses) consenting to the execution of a consent and subordination
from the lessor and lessee of the Brush I, Brush II and Ft. ▇▇▇▇▇▇ greenhouses
substantially in the form of Exhibit B hereto and containing (and not modifying
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or abrogating) the following paragraph:
"Each Project Party agrees that the making of any
distribution by Colorado Greenhouse, LLC to its members after the
payment of all of its other obligations then due (including payments
due under the Management Agreement); regardless of the purposes for
which such funds are used by the members of Colorado Greenhouse
(including the construction and operation of any new greenhouses),
shall not cause Colorado Greenhouse to be in violation of Section
3.3(a) of the Management Agreement."
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
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assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Liquidity Event" shall have the meaning assigned to such term in the
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Certificate of Designations.
"Material Adverse Effect" means any adverse material change in the
-----------------------
assets, business, properties, operations or financial condition of the Company
or the LLC.
"Multiemployer Plan" means any "multiemployer plan," as defined in
------------------
Section 4001(a)(3) or Section 3(37) of ERISA, (A) which the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"Outstanding Borrowings" means all Indebtedness of the Company and/or
----------------------
its Affiliates for borrowed money (including without limitation, reimbursement
and all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), excluding obligations with
respect to trade payables incurred in the ordinary course of business.
"PBGC" means the Pension Benefit Guaranty Corporation.
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5
"Pension Plan" means any "employee pension benefit plan" as defined in
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Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability and (B) which covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
"Permitted Liens" means (i) Liens for taxes, governmental charges or
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levies which (a) are not yet due and payable, or (b) are being diligently
contested in good faith by appropriate proceedings; provided, that for any such
taxes being diligently contested in good faith, the Company has set aside
adequate reserves, (ii) Liens imposed by law, such as mechanic's, materialman's,
landlord's, warehouseman's and carrier's liens, securing obligations incurred in
the ordinary course of business which are not yet overdue or which are being
diligently contested in good faith by appropriate proceeding and, with respect
to such obligations which are being contested, for which the Company has set
aside adequate reserves, and (iii) Liens which (x) in each case, secure
obligations of less than $10,000, and (y) do not, individually or in the
aggregate, interfere with the use and enjoyment of the property subject thereto.
"Person" means any individual, firm, corporation, partnership, trust,
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incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Pre-Closing Environmental Matters" means (i) the production, use,
---------------------------------
generation, storage, treatment, recycling, disposal, discharge, release, or
other handling or disposition of any kind at any time on or prior to the Closing
Date (collectively "Handling") of any Hazardous Material, either in, on, or
under any real property or facility owned, leased or used at any time by the
Company (or a predecessor or affiliate of the Company) including without
limitation the effects of such Handling of Hazardous Materials on resources,
persons, or property within or outside the boundaries of any facility owned,
operated or otherwise used by the Company; (ii) the presence as of the Closing
Date of Hazardous Materials in, on or under any facility owned, leased or used
at any time by the Company regardless of how the Hazardous Materials came to
rest at, on or under such facility, (iii) the failure on or prior to the Closing
Date of any facility or any operations of the Company to be in compliance with
any Environmental Laws, and (iv) any other act, omission or condition existing
prior to the Closing Date which gives rise to liability under any Environmental
Laws with respect to the Company.
"Preferred Stock" means the Series A Preferred Stock and the Series B
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Preferred Stock.
"Private Placement Memorandum" means the Confidential Private
----------------------------
Placement Memorandum prepared by the Company and dated October 1996.
"Project Owners" means each of Brush Cogeneration Partners, Colorado
--------------
Power Partners and American Atlas #1 LTD.
"Qualified Initial Public Offering" shall have the meaning assigned to
---------------------------------
such term in the Certificate of Designations.
6
"Redemption Agreement" means the Redemption Agreement attached hereto
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as Exhibit C.
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"Registration Rights Agreement" means the Registration Rights
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Agreement attached hereto as Exhibit D.
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"Requirements of Law" means, as to any Person, the provisions of the
-------------------
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination, in each case, of an arbitrator or a court or other Governmental
Authority, in each case, applicable to or binding upon such Person or any of its
property (or to which such Person or any of its property is subject) or
applicable to any or all of the transactions contemplated by or referred to in
the Transaction Agreements.
"Return on Investment" shall have the meaning assigned to such term in
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the Certificate of Designations.
"Securities Act" means the Securities Act of 1933, as amended, and the
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rules and regulations of the Commission thereunder.
"Series A Registration Rights Agreement" means the Series A
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Registration Rights Agreement attached hereto as Exhibit E.
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"Series A Preferred Stock" means the Series A Preferred Stock, par
------------------------
value $.001 per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Series B Preferred Stock" means the Series B Preferred Stock, par
------------------------
value $.001 per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Severance and Noncompete Agreements" means the Severance and
-----------------------------------
Noncompete Agreements entered into between (i) the Company and ▇▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and (ii) the Company and Mr. ▇▇▇▇▇▇▇ ▇▇▇▇, each in a form reasonably
acceptable to the Company and the Purchasers attached hereto Exhibit F.
---------
"Shareholders' Agreement" means the Shareholders' Agreement among the
-----------------------
Company, the holders of Series A Preferred Stock and the Purchasers attached
hereto as Exhibit G.
---------
"Shares" means the Common Stock and the Preferred Stock.
------
"subsidiary" shall mean (i) any corporation, at least 50% of the total
----------
combined voting power of all classes of capital stock of which shall, at the
time as of which any determination is being made, be beneficially owned by the
Company either directly or through subsidiaries, and (ii) any partnership or
other entity in which the Company or any subsidiary beneficially owns more than
a 50% equity interest and controls the management of such entity.
7
"Tax" or "Taxes" shall mean all federal, state, local foreign and
--- -----
other taxes, assessments or other government charges, including, without
limitation, income, estimated income, business, occupation, franchise, property
sales, transfer, use, employment, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
the Company may be liable.
"Transaction Agreements" means collectively, this Agreement, the
----------------------
Severance and Noncompete Agreements, the Series A Registration Rights Agreement,
the Series B Registration Rights Agreement, the Certificate of Designations, the
Shareholders' Agreement and the Redemption Agreement.
"Transaction Expenses" means any and all out-of-pocket expenses
--------------------
incurred by the Purchasers in connection with the legal and financial due
diligence review of the Condition of the Company conducted by the Purchasers,
the negotiation and preparation of the Transaction Agreements, the consummation
of the transactions contemplated thereby and preparation for any of the
foregoing, including, without limitation, travel expenses, fees, (including,
without limitation, consulting fees), charges and disbursements of counsel and
any similar or related costs and expenses.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
------------
Section 3(1) of ERISA, (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
"1997 Target EBIT" means $7,361,000.
----------------
"1998 Target EBIT" means $14,914,000.
----------------
1.2. Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
1.3. Knowledge Standard. When used herein, the phrase "to the
------------------
knowledge of" any Person, "to the best knowledge of" any Person or any similar
phrase shall mean, (i) with respect to any individual, the actual knowledge of
such Person (ii) with respect to any corporation, the actual knowledge of
officers and directors, or Persons acting in similar capacities, of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, (iii) with respect to any
limited liability company, the actual knowledge of the members and the officers
and directors of members, or Persons acting in similar capacities, of such
entity and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iv) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry. When used
herein, the phrase "to the knowledge of the Company," "to the best knowledge of
the Company" or any similar phrase shall mean "to the best knowledge of the
Company and each Affiliate" using the standards set forth in the previous
sentence.
8
1.4. Other Defined Terms. The following terms shall have the meanings
-------------------
specified in the Sections set forth below:
Term Section
---- -------
Actions 5.9
Budget 8.1
Certificate of Incorporation 3.13
Closing 2.3
Closing Date 2.3
Holders 8.1
HSR Act 5.30
Indemnified Party 9.1
Indemnifying Party 9.1
Initial Determination 9.1
Intellectual Property 5.13
Liability (and Liabilities) 9.1
LLC 3.15
Purchase Price 2.2
Restructuring 3.20
Taxpayer (and Taxpayers) 5.14
Termination Date 10.1
Torrance Greenhouse 5.3
Unaudited Financial 3.15
Statements
ARTICLE 2.
AUTHORIZATION OF SERIES B PREFERRED STOCK;
PURCHASE AND SALE OF SERIES B PREFERRED STOCK
---------------------------------------------
2.1. Preferred Stock. The Company has authorized (a) the issuance and
---------------
sale to the Purchasers of an aggregate of 1,875,000 shares of Series B Preferred
Stock and (b) has duly adopted resolutions (i) authorizing the filing of the
Certificate of Designations and (ii) establishing the rights, preferences,
privileges and restrictions of the Series B Preferred Stock. The Series B
Preferred Stock will have the respective rights, preferences and privileges set
forth in the Certificate of Designations.
2.2. Purchase and Sale of Series B Preferred Stock. Upon the terms and
---------------------------------------------
subject to the conditions herein contained, at the Closing (as defined herein)
on the Closing Date (as defined herein), the Company agrees that it will issue
and sell to each of the Purchasers, and each Purchaser agrees that it will
acquire and purchase from the Company, the number of shares of Series B
Preferred Stock listed next to such Purchaser's name on Schedule 1 hereto. The
----------
purchase price of the Series B Preferred Stock shall be $8.00 per share. The
aggregate purchase price of such Series B Preferred Stock shall be $15,000,000
(the "Purchase Price").
--------------
2.3. Closing. The closing of the sale to and purchase by the
-------
Purchasers of the Series B Preferred Stock referred to in Section 2.2 hereof
(the "Closing") shall occur at the offices of Holme ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, 1401
-------
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ at 10:00 a.m. Colorado time on
January 21, 1997 or at such different time of day as the Purchasers and the
Company shall agree (the
9
"Closing Date"). At the Closing, (i) the Company shall deliver to each
------------
Purchaser certificates evidencing the Series B Preferred Stock being purchased
by such Purchaser, free and clear of any Liens of any nature whatsoever, other
than those created by the Certificate of Designations or the Shareholders'
Agreement, registered in such Purchaser's name, and (ii) each Purchaser shall
deliver to the Company the portion of the Purchase Price listed next to such
Purchaser's name on Schedule 1 hereto, by cashier's check or wire transfer of
----------
immediately available funds.
2.4. Fees and Expenses. Regardless whether the transactions
-----------------
contemplated by this Agreement are consummated, the Company shall reimburse the
Purchasers for all Transaction Expenses, at the Closing out of the proceeds of
the sale of the Series B Preferred Stock hereunder or, if there is no Closing,
promptly upon request therefor, which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by the
Purchasers.
2.5.Preferred Stock Conversion Adjustments. Attached hereto as
--------------------------------------
Exhibit H are example calculations of the conversion adjustments to be made
---------
pursuant to the terms of the Certificate of Designations. The Company and
Purchasers have prepared the example calculations set forth on Exhibit H as
---------
illustrations of the effect of such adjustment terms for the purpose of
assisting in the interpretation of such terms. Such calculations are intended to
implement, not to supersede or modify, the terms of the Certificate of
Designations.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE SERIES B PREFERRED STOCK
---------------------------------------------------
The obligation of each Purchaser to purchase the Series B Preferred
Stock, to pay the purchase prices therefor and to perform any obligations
hereunder on the Closing Date (unless otherwise specified) shall be subject to
the satisfaction as determined by, or waiver by, such Purchaser of the following
conditions on or before the Closing Date:
3.1. Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Article 5 hereof shall be true and
correct at and as of the Closing Date (both before and after giving effect to
the transactions contemplated under this Agreement) as if made at and as of such
date.
3.2. Compliance with Terms and Conditions of this Agreement. The
------------------------------------------------------
Company shall have duly and properly performed and complied with all of the
agreements, covenants, obligations and conditions set forth herein that are
required to be performed or complied with by the Company on or before the
Closing Date.
3.3. Delivery of Certificates Evidencing the Series B Preferred Stock.
----------------------------------------------------------------
The Company shall have delivered to each Purchaser the certificates evidencing
the Series B Preferred Stock as set forth in Section 2.1.
3.4. Closing Certificates. The Company shall have delivered to each
--------------------
Purchaser a certificate executed by an authorized officer of the Company
certifying to such matters as the Purchasers may reasonably request, including
that the representations and warranties of the Company contained in the
Agreement are true and correct on and as of the Closing Date, and that the
conditions set forth in this Section 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
10
3.5. Secretary's Certificates. Each Purchaser shall have received a
------------------------
certificates from the Company, dated as of the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying that the attached
copies of the Certificate of Incorporation, By-laws of the Company, and
resolutions of the Board of Directors of the Company approving the Transaction
Agreements and the transactions contemplated thereby, are all true, complete and
correct and remain unamended and in full force and effect.
3.6. Documents. Each Purchaser or one Purchaser on behalf of all
---------
Purchasers shall have received true, complete and correct copies of such
documents and such other information as it may have reasonably requested in
connection with or relating to the sale of the Series B Preferred Stock and the
transactions contemplated by the Transaction Agreements, all in form and
substance reasonably satisfactory to the Purchasers prior to the Closing.
3.7. Purchase Permitted by Applicable Laws. The acquisition of and
-------------------------------------
payment for the Series B Preferred Stock to be acquired by the Purchasers
hereunder and the consummation of the transactions contemplated by the
Transaction Agreements shall not (a) violate any Requirements of Law, (b) result
in a breach or default (i) under any of the Contractual Obligations of the
Company or (ii) under any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator, or commission, board, bureau,
agency or other governmental instrumentality, (c) result in, or require, the
creation or imposition of any Lien, or the obligation to make any payment with
respect to any Lien, upon or with respect to any of the property of the Company,
or (d) require any consents, approvals, exemptions, authorizations,
registrations, declarations or filings by the Company.
3.8. Opinion of Counsel. Each Purchaser shall have received an
------------------
opinion of Holme ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to the Company, dated as of the
Closing Date attached hereto as Exhibit I.
---------
3.9. Approval of Counsel to Purchasers. All actions and proceedings
---------------------------------
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Company on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, counsel to the Purchasers, in its reasonable judgment as to their form
and substance.
3.10. Consents and Approvals. All agreements, approvals, consents,
----------------------
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those material Contractual Obligations of the Company,
necessary or required in connection with the execution, delivery or performance
of the Transaction Agreements (including, without limitation, the issuance of
the Series B Preferred Stock, and issuance of the Common Stock upon conversion
of the Series B Preferred Stock) by the Company, shall have been obtained and be
in full force and effect, and the Purchasers shall have been furnished with
appropriate evidence thereof, and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.11. Certain Waivers. Each holder of the shares of the capital stock
---------------
of the Company (or any other party who may possess such rights) shall have
waived any and all preemptive rights, rights of first refusal, "tag along"
rights, rights of co-sale and any similar rights with respect to the issuance of
the Series B Preferred Stock contemplated hereby.
3.12. No Material Adverse Effect. Since the Balance Sheet Date, (i)
--------------------------
there shall have been no Material Adverse Effect in the Condition of the Company
which the Company can reasonably foresee, and (ii) there shall be no fact known
to the Company that has not been disclosed to the
11
Purchasers, which will or would be reasonably likely to have a Material Adverse
Effect on the Condition of the Company which the Company can reasonably foresee.
3.13. Certificate and By-laws. The Company shall have adopted and
-----------------------
filed the Amended and Restated Certificate of Incorporation attached hereto as
Exhibit J (the "Certificate of Incorporation") and the By-laws of the Company
---------
shall be amended as may be required by the Certificate of Incorporation and the
Shareholders' Agreement, in form and substance satisfactory to the Purchasers.
3.14. No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchasers, would (i) prohibit the
purchase of the Series B Preferred Stock or the consummation of the other
transactions contemplated hereunder, (ii) subject the Purchasers to any penalty
if the Series B Preferred Stock were to be purchased hereunder, (iii) question
the validity or legality of the transactions contemplated hereby, or (iv) be
reasonably expected to materially adversely affect the value of the capital
stock of the Company, the Series B Preferred Stock or the Condition of the
Company.
3.15. Financial Statements. The Company shall have delivered to the
--------------------
Purchasers a copy of the (i) audited balance sheet of Colorado Greenhouse L.L.C.
(the "LLC") and of American Atlas #1 LTD (together with consolidating
---
information relating to Wolf Creek Rifle, LLC, ("Wolf Creek")) as of December
31, 1995 and the related consolidated statements of operations and cash flows
for the fiscal year then ended, accompanied by the report of an independent
auditor, (ii) the unaudited consolidated balance sheet of the LLC as of December
31, 1996 and the related consolidated statements of operations and cash flows
for the fiscal year then ended (the "Unaudited Financial Statements"), (iii) a
schedule of the Company's fixed assets as of December 31, 1996, valued at cost
less accumulated depreciation, certified on behalf of the Company and LLC by the
Chief Financial Officer of the Company (the "Certified Fixed Assets Schedule")
and (iv) a schedule of the Company's physical inventory as of December 31, 1996,
valued at the lower of cost and net realizable value, certified on behalf of the
Company and the LLC by the Chief Financial Officer of the Company (the
"Certified Inventory Schedule"). The financial statements identified in clauses
(i) and (ii) above fairly present the financial condition and results of
operations in accordance with GAAP applied on a consistent basis as of the dates
and for the periods set forth in the balance sheet included therein and the
results of operations of the Company for the period covered thereby; provided,
--------
however, that the Unaudited Financial Statements are subject to normal and
-------
customary year-ending audit adjustments and do not contain all the footnotes
required by GAAP.
3.16. Severance and Noncompete Agreements. The Company and Mr. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇▇▇ and the Company and Mr. ▇▇▇▇▇▇▇ ▇▇▇▇ shall have duly executed and
delivered to the Purchasers the Severance and Noncompete Agreements attached
hereto as Exhibit F.
---------
3.17. Registration Rights Agreement. The Company and the other parties
-----------------------------
to the Registration Rights Agreement (other than the Purchasers) shall have duly
executed and delivered to the Purchasers the Registration Rights Agreement
attached hereto as Exhibit D.
---------
3.18. Series A Registration Rights Agreement. The Company and the
--------------------------------------
other parties to the Series A Registration Rights Agreement shall have duly
executed and delivered to the Purchasers the Series A Registration Rights
Agreement attached hereto as Exhibit E.
---------
12
3.19. Shareholders' Agreement. The Company, the holders of Series A
-----------------------
Preferred Stock and the Purchasers shall have entered into a Shareholders
Agreement attached hereto as Exhibit G.
---------
3.20. Certificate of Designations. The Company shall have duly
---------------------------
executed and filed with the Secretary of State of the State of Delaware the
Certificate of Designations attached hereto as Exhibit A.
---------
3.21. Redemption Agreement. The Company and the Purchasers shall have
--------------------
entered into a Redemption Agreement attached hereto as Exhibit C.
---------
3.22. Company Reorganization. The Company shall have completed the
----------------------
restructuring (the "Restructuring"), including (i) the issuance of shares of
-------------
Series A Preferred Stock of the Company in exchange for member interests in the
LLC as set forth in Schedule 3.22; (ii) the formation of Colorado Greenhouse,
-------------
Inc. and CG Member, Inc. as wholly owned subsidiaries of the Company; and (iii)
the acquisition by the Company or a wholly owned subsidiary of the Company of
100% of the member interests in the LLC, all in form and substance satisfactory
to the Purchasers and their counsel.
3.23. Purchaser Diligence. The Purchasers shall be satisfied, in their
-------------------
sole discretion, with the due diligence inquiries made with respect to the
Company, its Affiliates and the Project Owners.
ARTICLE 4.
CONDITIONS TO THE
OBLIGATIONS OF THE COMPANY TO CLOSE
-----------------------------------
The obligation of the Company to issue and sell the Series B Preferred
Stock and the other obligations of the Company hereunder, shall be subject to
the satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date:
4.1. Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date.
4.2. Compliance with Terms and Conditions of this Agreement. The
------------------------------------------------------
Purchasers shall have performed and complied with all of the obligations and
conditions set forth herein that are required to be performed or complied with
by the Purchasers on or before the Closing Date.
4.3. Closing Certificates. Each Purchaser shall have delivered to the
--------------------
Company a certificate executed by such Purchaser certifying to such matters as
the Company may reasonably request, including that the representations and
warranties of such Purchaser contained in this Agreement are true and correct on
and as of the Closing Date, and that the conditions set forth in this Section 4
to be satisfied by such Purchaser have been satisfied on and as of the Closing
Date.
4.4. Issuance Permitted by Applicable Laws. The issuance of the
-------------------------------------
Series B Preferred Stock by the Company hereunder and the consummation of the
transactions contemplated by the Transaction Agreements shall not (a) violate
any Requirements of Law, or (b) result in a breach or default (i) under any of
the Contractual Obligations of the Purchasers, or (ii) under any order, writ,
judgment, injunction, decree, determination or award of any court, arbitrator,
or commission, board, bureau, agency or other governmental instrumentality, or
(c) require any consents, approvals, exemptions, authorizations, registrations,
declarations or filings by the Purchasers.
13
4.5. Payment of Purchase Price. The Purchasers shall tender to the
-------------------------
Company the Purchase Price set forth in Section 2.2 in the respective amounts
specified on Schedule 1 hereto.
----------
4.6. Approval of Counsel to Company. All actions and proceedings
------------------------------
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Purchasers on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to Holme ▇▇▇▇▇▇▇
& ▇▇▇▇ LLP, counsel to the Company, in their reasonable judgment as to their
form and substance.
4.7. Consents and Approvals. All agreements, approvals consents,
----------------------
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those material Contractual Obligations of the Purchasers
necessary or required in connection with the execution, delivery or performance
of the Transaction Agreements by each Purchaser, shall have been obtained and be
in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof as requested by the Company and all waiting periods
shall have lapsed without extension or imposition of any conditions or
restrictions.
4.8. No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirements of
Law which, in the reasonable judgment of the Company would (i) prohibit the sale
of the Series B Preferred Stock or the consummation of the other transactions
contemplated hereunder, (ii) subject the Company to any penalty if the Series B
Preferred Stock were to be sold hereunder, or (iii) question the validity or
legality of the transactions contemplated hereby.
ARTICLE 5.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
-------------------------
The Company hereby represents and warrants to the Purchasers as of the
date hereof as follows:
5.1. Corporate Existence and Authority. The Company (a) is a
---------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be
engaged, (c) is duly qualified as a foreign corporation, licensed and in good
standing in each jurisdiction in which such qualification is necessary under
applicable law as a result of the conduct of its business or the ownership of
its properties, and (d) has the corporate power and authority to execute,
deliver and perform its obligations under each Transaction Agreement to which it
is or will be a party.
5.2. Corporate Authorization; No Contravention. The execution,
-----------------------------------------
delivery and performance by the Company of each of the Transaction Agreements
and the consummation of the transactions contemplated thereby, including without
limitation, the issuance of the Series B Preferred Stock (a) has been duly
authorized by all necessary corporate action, including, if required,
stockholder action, (b) does not and will not conflict with or contravene the
terms of the Certificate of Incorporation or the By-Laws of the Company, or any
amendment thereof; and (c) does not and will not violate,
14
conflict with or result in any material breach or contravention of (i) any
Contractual Obligation of the Company or any of its Affiliates, or (ii) any
Requirements of Law applicable to the Company or any of its Affiliates.
5.3. Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
applicable Requirements of Law, and no lapse of a waiting period under any
applicable Requirements of Law, is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Series B Preferred Stock, the issuance of the Common Stock upon the
conversion or exercise of the Series B Preferred Stock) by the Company or the
enforcement against the Company of the Transaction Agreements, or the
transactions contemplated thereby. Except as set forth on Schedule 5.3, all
------------
approvals, authorizations, exemptions and permits necessary or required for the
construction, operation and use of that certain greenhouse facility to be
located in Torrance County, New Mexico (the "Torrance Greenhouse") have been
obtained by the Company and its Affiliates from all Governmental Authorities
with applicable jurisdiction.
5.4. Binding Effect. The Transaction Agreements have been duly
--------------
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
5.5. Other Agreements. Neither the Company nor any Affiliate has
----------------
previously entered into any agreement which is currently in effect or to which
the Company or any Affiliate is currently bound, granting any registration or
other material rights to any Person, the provision or performance of which would
render the provision or performance (including, without limitation, the issuance
of the Series B Preferred Stock and the issuance of the Common Stock upon the
conversion of the Preferred Stock) of the material rights to be granted to the
Purchasers by the Company in the Transaction Agreements impracticable.
5.6. Capitalization.
--------------
(a) As of the date hereof, the capital stock of the Company consists
solely of (i) 10,600,000 authorized shares of Common Stock (of which none is
issued and outstanding and 7,780,135 reserved for issuance upon the exercise of
outstanding options and the conversion of Preferred Stock) and (ii) 8,100,000
authorized shares of Preferred Stock (of which 6,200,000 shares of Series A
Preferred Stock are issued and outstanding). Immediately following the Closing
(i) no shares of Common Stock will be issued and outstanding; (ii) 1,580,135
shares of Common Stock will be reserved for issuance upon the exercise of
options to purchase such shares, (iii) 6,200,000 shares of Common Stock will be
reserved for issuance upon the conversion of the Series A Preferred Stock, (iv)
2,754,095 shares of Common Stock will be reserved for issuance upon the
conversion of the Series B Preferred Stock; and (v) 1,875,000 shares of Series B
Preferred Stock will be issued and outstanding. A total of 8,650,995 fully
diluted shares of Common Stock will be outstanding immediately following the
Closing, assuming the conversion of all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock and the exercise of all outstanding options
and warrants. All outstanding shares of capital stock of the Company are, and
the Series B Preferred Stock (when issued, sold and delivered against payment
therefor) will be, duly authorized and validly issued, fully paid, nonassessable
and free and clear of any Liens, preferential
15
rights, priorities, claims, options, charges or other encumbrances or
restrictions, other than those created by the Certificate of Designations and
the Shareholders' Agreement.
(b) Schedule 5.6 sets forth the name of each holder of the issued and
------------
outstanding capital stock of the Company, the number of shares of such capital
stock held of record by each such holder, the name of each Person holding any
options, warrants or other rights to purchase any capital stock of the Company,
the number, class and series of shares of capital stock subject to each such
option, warrant or right and the exercise price of each such option, warrant or
right. Except as set forth on Schedule 5.6, and except for the stock options and
------------
rights referred to in Section 5.6(a) and the Preferred Stock, there are no
outstanding securities convertible into or exchangeable for capital stock of the
Company or options, warrants or other rights to purchase or subscribe to capital
stock of the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any such holder of capital
stock is a party relating to the issuance of any capital stock of the Company,
any such convertible or exchangeable securities or any such options, warrants or
rights.
(c) Except as set forth in the Shareholders' Agreement, no Person has
any preemptive rights, rights of first refusal, "tag along" rights, rights of
co-sale or any similar rights with respect to the issuance of the Series B
Preferred Stock contemplated hereby.
5.7. Affiliates. Schedule 5.7 sets forth a complete and accurate list
---------- ------------
of all of the Affiliates of the Company and all of the Project Owners, together
with their respective jurisdictions of incorporation or organization. Each
Affiliate and Project Owner that is a corporation or a limited liability company
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the corporate or
requisite power and authority to own its properties and conduct its business.
Each Affiliate and Project Owner that is a partnership is an existing
partnership under the laws of the jurisdiction of its formation and has full
partnership power and authority to own its properties and conduct its business.
Each Affiliate and Project Owner is qualified and licensed to transact business
in each jurisdiction where such qualification is necessary under applicable law
as a result of the conduct of its business and ownership of its properties. Each
Affiliate and Project Owner has all corporate, partnership or requisite power
and authority to own and operate its properties, to lease the properties it
operates as lessee and to conduct the business in which it is currently, or is
currently proposed to be, engaged. All of the outstanding shares of capital
stock of the Affiliates that are corporations have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 5.7, all of the outstanding shares of capital stock of, or other
------------
ownership interests in, each of the Affiliates are owned by the Company or by a
wholly owned Affiliate free and clear of any Liens, claims, options, charges or
other encumbrances. Except as set forth on Schedule 5.7, no Affiliate has
------------
outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating the Affiliate to issue,
transfer or sell any securities of the Affiliate.
5.8. Private Offering; California Commissioner of Corporations. No
---------------------------------------------------------
form of general solicitation or general advertising was used by the Company or
its representatives in connection with the offer or sale of the Series B
Preferred Stock. No registration of the Series B Preferred Stock pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Series B Preferred Stock
pursuant to this Agreement. The Company agrees that neither it, nor anyone
acting on its behalf, will offer or sell the Series B Preferred Stock or any
other security so as to require the issuance and sale of the Series B Preferred
Stock pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, unless such shares are so registered. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
16
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS EXEMPT.
5.9. Litigation. Except as set forth on Schedule 5.9, there is no
---------- ------------
complaint, action, order, writ, injunction, judgment or decree outstanding, or
claim, suit, litigation, proceeding, labor dispute, arbitral action or
investigation (collectively, "Actions") pending or, to the knowledge of the
-------
Company, threatened against, relating to or affecting (i) the assets of the
Company, its Affiliates or the Project Owners, or (ii) the transactions required
to be performed under this Agreement or by the Transaction Agreements. Neither
the Company nor the Affiliates are in default with respect to any judgment,
order, writ, injunction or decree of any court or governmental agency, and there
are no unsatisfied judgments against the Company or any Affiliate. Except as set
forth on Schedule 5.9, there is not a reasonable likelihood of an adverse
------------
determination of any pending Action that would, individually or in the
aggregate, have a Material Adverse Effect on the Condition of the Company.
5.10. Financial Statements. The Company has furnished the Purchasers
--------------------
with (i) the audited balance sheet of LLC and of American Atlas #1 LTD (together
with consolidating information relating to Wolf Creek) as of December 31, 1995
and the related statements of operations and cash flows for the fiscal year then
ended, accompanied by the report of an independent auditor, (ii) the Unaudited
Financial Statements, (iii) the Certified Fixed Assets Schedule and (iv) the
Certified Inventory Schedule. The financial statements identified in clauses (i)
and (ii) above fairly present the financial condition and results of operations
of the Company and LLC as of the dates thereof and were prepared in accordance
with GAAP applied on a consistent basis as of the dates and for the periods set
forth in the balance sheet included therein and the results of operations of the
Company and LLC for the period covered thereby; provided, however, that the
--------- --------
Unaudited Financial Statements are subject to normal and customary year-ending
audit adjustments and do not contain all the footnotes required by GAAP
5.11. Title and Condition of Assets.
-----------------------------
(a) The Company and its Affiliates have good and, with respect to real
property, marketable, title to all of the real and personal property reflected
on the balance sheets included in the Unaudited Financial Statements or acquired
by the Company and its Affiliates since the Balance Sheet Date, free and clear
of any Liens or defects of title, other than Permitted Liens. The Project Owners
have good and, with respect to real property, marketable title to all of their
real and personal property free and clear of any Liens or defects of title,
other than Permitted Liens and such Liens which individually and in the
aggregate do and will not materially impair or interfere with the current or
anticipated uses of such property. All real property which is leased by the
Company and its Affiliates is listed on Schedule 5.11(a) hereto. The Company has
----------------
a valid and enforceable leasehold interest in all real property leased by it
pursuant to the terms of the respective lease agreements. With respect to the
leases listed on Schedule 5.11(a) hereto, the Company or each Affiliate, as
----------------
applicable, is in compliance with the leases and such leases are sufficient for
the conduct of the Company's and its Affiliates' business as now being and
presently planned to be conducted.
17
(b) The Facilities and Equipment are in good operating condition and
repair (except for ordinary wear and tear and any defect the cost of repairing
which would not be material), are sufficient for the operation of the Company's
business and are in conformity in all material respects with applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety standards, occupational safety and
health laws and regulations) relating thereto, except where such failure to
conform would not have a Material Adverse Effect on the Condition of Company.
The Company and each of its Affiliates enjoy peaceful and undisturbed possession
of all Facilities owned or leased by the Company or such Affiliate, and, to the
best knowledge of the Company, such Facilities are not subject to any
encroachments, building or use restrictions, exceptions, reservations or
limitations which in any material respect interfere with or impair the present
and continued use thereof in the usual and normal conduct of the business of the
Company or its Affiliates. There are no pending or, to the best knowledge of the
Company, threatened, condemnation proceedings relating to any of the Facilities.
The Facilities and the Equipment are insured and are, to the best of the
Company's knowledge, structurally sound with no material defects.
5.12. Contractual Obligations.
-----------------------
(a) Neither the Company nor any of its Affiliates is in default or
breach under or with respect to any Contractual Obligation to which it is a
party (and to the best knowledge of the Company and such Affiliates no other
party to any such Contractual Obligation is in default or breach thereunder),
except any such default which, individually or together with all such defaults,
would not have a Material Adverse Effect on the Condition of the Company or the
ability of the Company to perform its obligations under the Transaction
Agreements. Neither the Company or any of its Affiliates has received notice
that any party to any such Contractual Obligation intends to cancel, amend or
terminate any such agreement.
(b) Schedule 5.12 lists all of the contracts, leases, agreements,
-------------
indentures and undertakings governing or relating to the Contractual Obligations
of the Company and the Affiliates other than (i) the Transaction Agreements,
(ii) purchase orders entered into in the ordinary course of business, and (iii)
any such contracts, leases, agreements, indentures or undertaking that (x) do
not involve the receipt or payment of more than $20,000 each, (y) do not involve
employment or labor matters and (z) do not contain covenants restricting the
Company from engaging in any line of business. The Company has provided the
Purchaser with true, correct and complete copies of all contracts, leases,
agreements, indentures and undertakings listed on Schedule 5.12. Every contract
-------------
listed on Schedule 5.12 is legal, valid, binding and enforceable in accordance
-------------
with its terms with respect to the Company or its Affiliates and any other
parties bound thereby.
5.13. Patents, Trademarks, Etc. As of the Closing, the Company owns
------------------------
or is licensed or otherwise has the right to use all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises and other
intellectual property rights that are material to the operation of the
businesses of the Company (the "Intellectual Property"), and all pending
---------------------
applications related to such Intellectual Property, registered rights in such
Intellectual Property and executed agreements related to such Intellectual
Property are listed on Schedule 5.13 hereto. All registered patents, copyrights,
-------------
trademarks and service marks listed on Schedule 5.13 are in full force and
-------------
effect and are not subject to any taxes or other fees except for annual filing
and maintenance fees. No product, process, method, substance or other material
presently sold by or employed by the Company, or which the Company contemplates
selling or employing, infringes upon the patents, trademarks, service marks,
trade names, copyrights, licenses or other intellectual property rights that are
owned by others. To the Company's knowledge, no litigation is pending and no
claim has been made against the Company or any Affiliate or, to the best
knowledge of the Company, is threatened, contesting the right of the Company or
any Affiliate to sell or use any
18
product, process, method, substance or other material presently sold by or
employed by the Company or any Affiliate. To the actual knowledge of the
officers and directors of the Company, no patent, invention, devise, principal
or any statute, law, rule, regulation, standard or code is pending or proposed,
which would have a Material Adverse Effect on the Condition of the Company.
5.14. Tax Matters.
-----------
(a) Filing of Tax Returns. Each of the Company, its Affiliates and
---------------------
any predecessor of the Company or any Affiliate (each such entity hereinafter a
"Taxpayer" or collectively the "Taxpayers") have timely filed with the
-------- ---------
appropriate taxing authorities all returns (including without limitation
information returns and other material information) in respect of Taxes required
to be filed through the date hereof and will timely file any such returns
required to be filed on or prior to the Closing Date. The returns and other
information filed (or to be filed) are complete and accurate in all material
respects. No Taxpayer has requested any extension of time within which to file
returns (including without limitation information returns) in respect of any
Taxes that have not been filed.
(b) Payment of Taxes. All Taxes of each of the Taxpayers in respect
----------------
of periods beginning before the Closing Date have been timely paid, or will be
timely paid prior to the Closing Date, and no Taxpayer has any material
liability for Taxes in excess of the amounts so paid. All Taxes that each
Taxpayer has been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be (prior to
the Closing Date) duly paid to the proper taxing authority.
(c) Audits, Investigations or Claims. Except as set forth on Schedule
-------------------------------- --------
5.14(c), the federal income tax returns of each of the Taxpayers have not been
-------
audited by the Internal Revenue Service, and no material deficiencies for Taxes
of any of the Taxpayers have been claimed, proposed or assessed by any taxing or
other governmental authority against any of the Taxpayers. There are no pending
or, to the best knowledge of the Taxpayers, threatened audits, investigations or
claims for or relating to any material additional liability to any of them in
respect of Taxes, and there are no matters under discussion with any
governmental authorities with respect to Taxes that in the reasonable judgment
of any of the Taxpayers, or its or their counsel, is likely to result in a
material additional liability to any of them for Taxes. No audits of any of the
Taxpayers' federal, state, and local returns for Taxes by the relevant taxing
authorities have occurred. None of the Taxpayers have been notified that any
taxing authority intends to audit a return for any period. No extension of a
statute of limitations relating to Taxes is in effect with respect to any of the
Taxpayers.
(d) Lien. There are no liens for Taxes (other than for current Taxes
----
not yet due and payable) on any assets of any Taxpayer.
(e) Partnership Status. The LLC is properly treated as a division of
------------------
the Company for federal and applicable state income tax purposes and, since the
time of its organization, the LLC has not been and will not be treated for
federal or applicable state income tax purposes as an association or publicly
traded partnership taxable as a corporation.
19
(f) Tax Elections; Tax Sharing Arrangements.
---------------------------------------
(i) All material elections with respect to Taxes affecting each
of the Taxpayers as of the date hereof are set forth on Schedule 5.14(f)(i).
-------------------
(ii) None of the Taxpayers has made an election, and none of
them are required, to treat any asset as owned by another person or as tax-
exempt bond financed property or tax-exempt use property of the Company within
the meaning of section 168 of the Code or under any comparable state or local
income tax or other tax provision.
(iii) Except as set forth on Schedule 5.14(f)(iii), none of the
---------------------
Taxpayers is a party to or bound by any binding tax sharing, tax indemnity or
tax allocation agreement or other similar arrangement with any other party.
(iv) None of the Taxpayers has filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(g) Affiliated Group. None of the Taxpayers has ever been a member
----------------
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code.
(h) Section 481(a). None of the Taxpayers has agreed to make, or are
--------------
required to make, any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(i) Excess Parachute Payments. Except as set forth on Schedule
------------------------- --------
5.14(i), none of the Taxpayers is a party to any agreement, contract,
-------
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(j) No Joint Venture. Except as set forth on Schedule 5.14(j), none
---------------- ----------------
of the Taxpayers is a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes.
5.15. Severance Arrangements. Other than the Severance and Noncompete
----------------------
Agreements, neither the Company nor any Affiliate has entered into any severance
or similar arrangement in respect of any present or former employee that will
result in any obligation (absolute or contingent) of the Company to make any
payment to any present or former employee following termination of employment.
5.16. No Material Adverse Effect. Since the Balance Sheet Date, there
--------------------------
has not been any Material Adverse Effect, nor to the best knowledge of the
Company is any such change threatened, in the Condition of the Company or the
prospects of the Company or any Affiliate which the Company (based on facts
known to it) can reasonably foresee, other than normal market fluctuations.
20
5.17. Environmental Matters.
---------------------
(a) The property, assets and operations of the Company and each
Affiliate are and have been in compliance in all material respects with all
applicable Environmental Laws; except for commonly used industrial materials,
the presence, use or handling of which does not give rise to liability under any
Environmental Laws, there are and have been no Hazardous Materials stored,
handled or otherwise located in, on or under any of the property or assets of
the Company and each Affiliate, including the groundwater; and, to the best
knowledge of the Company, there have been no releases or threatened releases of
Hazardous Materials in, on or under any property adjoining any of the property
or assets of the Company and each Affiliate. Neither the Company nor any
Affiliate has stored or caused to be stored any Hazardous Materials on or under
any of the property or assets of the Company, including the groundwater, other
than in compliance with Environmental Laws; and the Company has not generated,
released or discharged any Hazardous Materials other than in compliance with
Environmental Laws.
(b) None of the property, assets or operations of the Company or any
Affiliate is the subject of any federal, state or local investigation evaluating
whether (i) any remedial action is needed to respond to a release or threatened
release of any Hazardous Materials into the environment or (ii) any release or
threatened release of any Hazardous Materials into the environment is in
contravention of any Environmental Law.
(c) There are no pending, or, to the best knowledge of the Company,
threatened lawsuits or proceedings against the Company or any Affiliate, with
respect to violations of an Environmental Law or in connection with the presence
of or exposure to any Hazardous Materials in the environment or any release or
threatened release of any Hazardous Materials into the environment, and neither
the Company nor any Affiliate is or was the owner or operator of any property
which (i) pursuant to any Environmental Law has been placed on any list of
Hazardous Materials disposal sites, including without limitation, the "National
Priorities List" or "CERCLIS List," (ii) has or, to the best knowledge of the
Company, had any subsurface storage tanks located thereon; or (iii) to the
knowledge of the Company, has ever been used as or for a waste disposal
facility, a mine, a gasoline service station or a petroleum products storage
facility.
(d) Neither the Company nor any Affiliate has any present or
contingent liability in connection with the presence either on or off the
property or assets of the Company or any Affiliate of any Hazardous Materials or
any release or threatened release of any Hazardous Materials into the
environment, except for any such liability that would not have a Material
Adverse Effect on the Condition of the Company.
(e) Schedule 5.17(e) is a complete and accurate list of the most
----------------
recent Phase I Environmental Site Assessments with respect to environmental
matters prepared with regard to each of the greenhouse sites currently operated
by the LLC.
5.18. Investment Company/Government Regulations. Immediately
-----------------------------------------
following the Closing, after giving effect to the transactions contemplated by
the Transaction Agreements, neither the Company nor any Person controlling,
controlled by or under common control with the Company will be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, as amended, the Federal Power Act, or any federal or state
statute or regulation limiting its ability to incur Indebtedness.
21
5.19. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any officer, director, shareholder, or
Affiliate of the Company, or any action taken by any such person, except for an
amount payable to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ of $897,500 and a warrant for the purchase
of 18,500 shares of Series B Preferred Stock of the Company attached hereto as
Exhibit K and granted to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇.
---------
5.20. Labor Relations and Employee Matters.
------------------------------------
(a) Neither the Company nor any Affiliate is engaged in any unfair
labor practice. There is (i) no unfair labor practice complaint pending or, to
the best knowledge of the Company, threatened against the Company or any
Affiliate before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is so pending or, to the best knowledge of the Company, threatened against the
Company or any Affiliate, (ii) no strike, labor dispute, slowdown or stoppage
pending or, to the best knowledge of the Company, threatened against the Company
or any Affiliate, and (iii) no union representation question existing with
respect to the employees of the Company or any Affiliate and, to the knowledge
of the Company, no union organizing activities are taking place.
(b) Except as set forth on Schedule 5.20, the Company is not a party
-------------
to any employment agreement (other than "at will" employment relationships),
collective bargaining agreement or covenant not to compete.
5.21. Employee Benefits Matters.
-------------------------
(a) Except as set forth on Schedule 5.21, neither the Company nor any
-------------
Affiliate maintains or contributes to any Employee Plans which cover or have
covered employees of the Company or a Affiliate (with respect to their
relationship with such entities). True and complete copies of each of the
following documents relating to Employee Plans which cover any employees or
former employees of the Company have been delivered by the Company to the
Purchaser: (i) each Welfare Plan and Pension Plan (and, if applicable, related
trust agreements) and all amendments thereto, all written interpretations
thereof and written descriptions thereof which have been generally distributed
to employees and all annuity contracts or other funding instruments, (ii) each
Benefit Arrangement including written interpretations thereof and written
descriptions thereof which have been generally distributed to employees and a
complete description of any such Benefit Arrangement which is not in writing,
(iii) the most recent determination letter issued by the Internal Revenue
Service for each Pension Plan, (iv) for the three most recent plan years, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Pension Plan or Welfare Plan, (v) a description setting forth the
amount of any liability of the Company as of the Closing Date for payments more
than thirty days past due with respect to each Pension Plan or Welfare Plan.
(b) Except as set forth in Schedule 5.21, the Company represents as
-------------
follows:
(1) Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company or a
Affiliate (with respect to their relationship with such entities) that,
individually or collectively, provides for the payment by the
22
Company of any amount (i) that is not deductible under Section 162(a)(1) or 404
of the Code or (ii) that is an "excess parachute payment" pursuant to Section
280G of the Code.
(2) No Amendments. Except for the Severance and Noncompete
-------------
Agreements, neither the Company nor any Affiliate has any announced plan or
legally binding commitment to create any additional Employee Plan which is
intended to cover employees or former employees of the Company or a Affiliate
(with respect to their relationship with such entities) or to amend or modify
any existing Employee Plan which covers or has covered employees or former
employees of the Company or a Affiliate (with respect to their relationship with
such entities).
(3) No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (i) under any
statute, regulation or governmental order relating to any Employee Plans or (ii)
pursuant to any obligation of the Company or any Affiliate to indemnify any
person against liability incurred under, any such statute, regulation or order
as they relate to the Employee Plans.
(4) No Pension Plan is subject to Title IV of ERISA or Section
412 of the Code. Each Pension Plan, each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under the
provisions of Code Section 401(a) and 501(a) and has been so qualified during
the period from its adoption to date.
(5) Neither the Company nor any ERISA Affiliate contributes to,
or after September 25, 1980 has been obligated to contribute to, any
Multiemployer Plan.
(6) Neither the Company nor any ERISA Affiliate has any present
or future obligation to make any payment to or with respect to any present or
former employee of the Company pursuant to any retiree medical benefit plan,
other than as may be required by federal or state law. Neither the Company nor
any ERISA Affiliate has ever maintained, contributed to or been required to
contribute to any "welfare benefit fund" as defined in Section 419(e) of the
Code. Each Welfare Plan which is a "group health plan," as defined in Section
607(l) of ERISA, has been operated in compliance with provisions of Part 6 of
Title I of ERISA and Sections 162(k) and 4980B of the Code at all times.
(7) Each Welfare Plan, Pension Plan and Benefit Arrangement
which covers or has covered employees or former employees of the Company or any
ERISA Affiliate has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, Pension Plan or Benefit Arrangement,
including but not limited to ERISA and the Code.
(8) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any person to benefits under any of
the Employee Plans, including but not limited to the acceleration of the
exercisability of any stock options, the acceleration of the vesting of any
restricted stock or any interest in any Pension Plan or Welfare Plan or the
creation of rights under any severance, parachute or change of control
agreement.
5.22. Potential Conflicts of Interest. Except as set forth on Schedule
------------------------------- --------
5.22, no officer, director, or stockholder of five percent (5%) or more of the
----
aggregate number of shares of Common Stock then outstanding on a fully diluted
basis (after giving effect to the Restructuring) of the Company
23
or any Affiliate, no spouse of any such officer, director or stockholder and no
Affiliate of the foregoing: (a) owns, directly or indirectly, any interest in,
or is an officer, director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or borrower from, the Company or any
Affiliate; (b) owns, directly or indirectly, in whole or in part, any tangible
or intangible property that the Company or any Affiliate uses in the conduct of
business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company or any Affiliate, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof and described in Schedule 5.22.
-------------
5.23. Business Relationships. There exists no actual or to the best
----------------------
of the Company's knowledge, threatened, termination or cancellation, of the
business relationship of the Company or any Affiliate with any customer,
supplier or any group of customers or suppliers whose purchases or sales, as the
case may be, are individually or in the aggregate material to the Condition of
the Company.
5.24. Outstanding Borrowings. Schedule 5.24 lists the amount of all
---------------------- -------------
Outstanding Borrowings as of the date hereof and the name of each lender
thereof.
5.25. Insurance Schedule. Schedule 5.25 accurately summarizes all of
------------------ -------------
the insurance policies or programs of the Company or any Affiliate in effect as
of the date hereof (true and correct copies of which have been provided to the
Purchasers), and indicates the insurer's name, policy number, expiration date,
amount of coverage, type of coverage, annual premiums and deductibles, and also
indicates any self-insurance program that is in effect. The insurance policies
summarized on Schedule 5.25 are in full force and effect and are adequate to
-------------
protect the Company and its Affiliates assets, crops and businesses covering
property damage by fire, business interruption or other casualty, sufficient in
amount to allow it to replace any of its properties damaged or destroyed and are
adequate to protect against all liabilities, claims, and risks against which it
is customary to insure by companies engaged in businesses the same or similar to
the business conducted by the Company.
5.26. Undisclosed Liabilities. Neither the Company nor any Affiliate
-----------------------
has any material liabilities or obligations (absolute, accrued, contingent or
otherwise) to the knowledge of the Company except (i) liabilities that are
reflected and reserved against on the balance sheets included in the Unaudited
Financial Statements (including the notes thereto), (ii) liabilities incurred in
the ordinary course of business and consistent with the past practice of the
Company since the Balance Sheet Date, and which are reflected and reserved for
in the balance sheets included in the Unaudited Financial Statements, and (iii)
liabilities arising under Contractual Obligations described on Schedule 5.12.
-------------
5.27. Solvency. Neither the Company, its Affiliates nor any Project
--------
Owner has (i) made a general assignment for the benefit of its creditors, (ii)
filed any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition in bankruptcy by its creditors, (iii) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets or properties, (iv) suffered the attachment or other judicial seizure of
all or substantially all of its assets or (v) admitted in writing its inability
to pay its debts as they come due. After giving effect to the transactions
contemplated by the Transaction Agreements, the Company will not (i) have
liabilities which exceed the stated value of its assets, or (ii) be left with
unreasonably small capital with which to engage in its respective business for
the foreseeable future, or (iii) have incurred debts beyond its ability to pay
such debts as they mature (as such terms are used with respect to applicable
solvency statutes).
24
5.28. Compliance with Law. The Company, its Affiliates and the
-------------------
Project Owners and the conduct of their businesses are in compliance with all
applicable laws, statutes, ordinances and regulations, whether federal, state or
local, except where the failure to comply would not have a Material Adverse
Effect on the Condition of the Company. Neither the Company, its Affiliates nor
any Project Owner has received any written notice to the effect that it is not
in compliance with any of such statutes, regulations, orders, ordinances or
other laws where the failure to comply would have a Material Adverse Effect on
the Condition of the Company or, to the best knowledge of the Company, has
reason to anticipate that any presently existing circumstances are likely to
result in violations of any such regulations which would, in any one case or in
the aggregate, have a Material Adverse Effect on the Condition of the Company.
5.29. No Other Agreements to Sell the Assets or Capital Stock of the
--------------------------------------------------------------
Company. Neither the Company nor any Affiliate has any legal obligation,
-------
absolute or contingent, other than the obligations of the Company and each
Affiliate under the Transaction Agreements, to any person or firm to (i) sell
any material assets other than in the ordinary course of business consistent
with past practices, (ii) sell any capital stock of the Company (other than as
set forth in Section 5.6) or effect any merger, consolidation or other
reorganization of the Company or (iii) enter into any agreement with respect any
of the foregoing.
5.30. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. The Person (as that term is defined in 16
-----------------
C.F.R. (S) 801.1(a)(1)) of which the Company is a part does not have total
assets or annual net sales of $100,000,000 or more, as measured under the
applicable rules and regulations interpreting the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
-------
5.31. Disclosure.
----------
(a) Agreement and Other Documents. This Agreement does not, and the
-----------------------------
documents and certificates executed by the Company or otherwise furnished by the
Company to the Purchasers at the Closing will not, contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
(b) Material Adverse Effect. There is no fact known to the Company,
-----------------------
which the Company has not disclosed to the Purchasers in writing, which has a
Material Adverse Effect, or insofar as the Company can reasonably foresee, will
have a Material Adverse Effect on the Condition of the Company, or the ability
of the Company to perform its obligations under the Transaction Agreements, or
any document contemplated thereby.
5.32. Restructuring. The Restructuring and the consummation of the
-------------
transactions contemplated in paragraph 3.22 (a) have been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) do
not and will not conflict with or contravene the terms of the Certificate of
Incorporation or the By-Laws of the Company, or any amendment thereof; and (c)
do not and will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of the Company or any of its
Affiliates, or (ii) any Requirements of Law applicable to the Company or any of
its Affiliates
25
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
----------------------------
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
6.1. Existence and Authority. Such Purchaser (a) is a corporation,
-----------------------
limited liability company, or limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation, (b) has all requisite partnership or corporate power and authority to
own its assets and operate its business, and (c) has all requisite corporate or
partnership power and authority to execute, deliver and perform its obligations
under each of the Transaction Agreements to which it is or will be a party .
6.2. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of the Transaction Agreements to which it is a
party and the consummation of the transactions contemplated thereby, including,
without limitation, the acquisition of the Series B Preferred Stock: (a) is
within such Purchaser's partnership or corporate power and authority and has
been duly authorized by all necessary partnership or corporate action on the
part of such Purchaser; (b) does not conflict with or contravene the terms of
such Purchaser's partnership agreement or certificate of limited partnership or
certificate of incorporation or bylaws or any amendment thereof; and (c) will
not violate, conflict with or result in any material breach or contravention of
(i) any Contractual Obligation of such Purchaser, or (ii) the Requirements of
Law or any order or decree applicable to such Purchaser.
6.3. Binding Effect. This Agreement has been duly executed and
--------------
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. Purchase for Own Account. The Series B Preferred Stock and the
------------------------
Common Stock to be issued upon conversion of the Series B Preferred Stock, are
being or will be acquired by such Purchaser for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part of
the Series B Preferred Stock or the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of such Purchaser's property being at all times within its control,
except as restricted by the Shareholders' Agreement. If such Purchaser should in
the future decide to dispose of any of the Series B Preferred Stock or the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock,
such Purchaser understands and agrees that it may do so only in compliance with
the Securities Act and applicable state securities laws, as then in effect. Such
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Series B Preferred Stock or the shares of
Common Stock to be issued upon conversion of the Series B Preferred Stock to the
following effect:
26
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 21, 1997, AS MAY BE AMENDED FROM TIME
TO TIME, AND SAID SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT.
SUCH AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF BUSINESS OF THE COMPANY
AND A COPY THEREOF WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS
CERTIFICATE UPON RECEIPT BY THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE SHAREHOLDER."
6.5. Accredited Investor Status. Such Purchaser is an "accredited
--------------------------
investor" as such term is defined in Rule 501(a) of Regulation D, promulgated
under the Securities Act.
6.6. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Purchasers.
ARTICLE 7.
COVENANTS OF THE COMPANY
------------------------
From the date hereof until the Closing Date, the Company hereby
covenants and agrees with the Purchasers as follows:
7.1. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties that
may be required, (B) to obtain all necessary permits as are required to be
obtained under any federal, state, local or foreign law or regulations, and (C)
to fulfill all conditions to this Agreement.
7.2. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, the Company shall give prompt notice to Purchaser of (a) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement or
in any exhibit or schedule hereto to be untrue or inaccurate in any material
respect and (b) any material failure of the Company to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement or any exhibit or schedule hereto.
27
7.3. Access to Information. From the date hereof through the Closing,
---------------------
the Company shall, and shall cause its officers, directors, employees and agents
to, afford the Purchasers (or its representatives) complete access at all
reasonable times to the Company records for the purpose of inspecting the same,
and to the officers, employees, agents, attorneys, accountants, properties, and
contracts of the Company, and shall furnish Purchasers all financial, operating
and other data and information as Purchaser or its representatives, may
reasonably request.
7.4. Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, except as contemplated by this Agreement, or as consented to
by Purchaser in writing which consent will not be unreasonably withheld, operate
the Company in the ordinary course of business and in accordance with past
practice and will not take any action inconsistent with this Agreement or with
the consummation of the Closing.
ARTICLE 8.
COVENANTS OF THE COMPANY WITH
RESPECT TO THE PERIOD FOLLOWING THE CLOSING
-------------------------------------------
Until all shares of Series B Preferred Stock are no longer outstanding
due to conversion, redemption or otherwise, the Company hereby covenants and
agrees with the Purchasers as follows, except with respect to the obligations of
the Company set forth in paragraph 8.1 shall terminate upon the earlier of (a) a
Qualified Initial Public Offering and (b) the date on which the Purchasers or
their Affiliates hold less than 25% of the Series B Preferred Stock (or Common
Stock issued upon conversion of such Series B Preferred Stock) issued hereunder:
8.1. Financial Statements and Other Information.
------------------------------------------
(a) The Company and each Affiliate shall maintain correct and
complete books and records of accounts in which full and correct entries will be
made of all its business transactions pursuant to a system of accounting
established and administered in accordance with GAAP consistently applied to the
extent applicable, and set aside on its books all such proper accruals and
reserves as shall be required under generally accepted accounting principles
consistently applied. The Company shall retain ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or another "Big
Six" accounting firm for the purpose of auditing its financial statements and
reports for each fiscal year.
(b) The Company shall deliver to the holders of the Series B
Preferred Stock (the "Holders"), in form satisfactory to such Holders:
(1) As soon as available after the end of each fiscal year, and
in any event within ninety (90) days thereafter, (i) a consolidated balance
sheet of the Company and its Affiliates, if any, as at the end of such fiscal
year, and consolidated statements of income and retained earnings and
consolidated statements of changes in cash flows of the Company and its
Affiliates, if any, for such year, setting forth in each case in comparative
form the corresponding figures for the previous fiscal year, all prepared in
accordance with GAAP consistently applied and accompanied by a report and
opinion thereon by the Company's independent certified public accountants, which
audit report shall state that such consolidated financial statements present
fairly in all material respects the financial position as of such date and
results of operations and cash flows for the periods indicated, all in
conformity with GAAP; and (ii) a schedule setting forth the number, class and
series of all authorized shares of stock of the Company, the number, class and
series of issued and outstanding stock of the Company, the name of
28
each record holder of any such stock and the number, class and series of such
stock held by each such holder.
(2) As soon as available after the end of the first fiscal
quarter of the Company after the date hereof, and in any event within forty-five
(45) days after the end of each of the first three fiscal quarters of each
fiscal year, an unaudited balance sheet of the Company and its Affiliates, if
any, as of end of such quarter, and unaudited statements of income, retained
earnings, and changes in cash flows of the Company and its Affiliates, if any,
for such period and the fiscal year to date, setting forth in comparative form
the corresponding figures for the corresponding fiscal quarter of the previous
fiscal year, in each case prepared in accordance with GAAP (subject to normal
year-end adjustments and without footnote disclosure), together with a detailed
analysis of results of operations of the Company or its Affiliate, if any, and
certified on behalf of the Company by the Chief Financial Officer the Company.
(3) As soon as available after the end of each fiscal month, and
in any event within thirty (30) days thereafter, an unaudited balance sheet as
of the end of such month, and unaudited statements of income, retained earnings,
and changes in cash flows for such period and the fiscal year to date, prepared
in accordance with GAAP (subject to normal year-end adjustments and without
footnote disclosure), and certified on behalf of the Company by the Chief
Financial Officer of the Company, setting forth in comparative form (i) the
corresponding figures for the corresponding periods of the preceding year and
(ii) the corresponding figures from the Budget (as defined below) for the same
fiscal year.
(4) At least thirty (30) days prior to the end of each fiscal
year of the Company, the Company shall provide to each Purchaser: a business
plan (the "Budget") which (i) forecasts ahead at least one year the Company's
------
projected costs, revenues, income, balance sheet and cash flow on a monthly
basis, and (ii) forecasts ahead at least one year the capital requirements
necessary to reasonably expand the Company. The Budget shall continue to be
reviewed and approved in advance by the Board of Directors of the Company.
(5) Promptly, upon preparation thereof any revisions of the
Company's Budget.
8.2. Notices. Within 5 business days of obtaining knowledge of any
-------
of the events described below, the Company shall give written notice to each
member of the Company's Board of Directors of:
(a) any (i) default or event of default under any material
Contractual Obligation of the Company or any Affiliate, (ii) initiation or
resolution of any material dispute, litigation, investigation, or proceeding
which may exist at any time between the Company or any Affiliate and any private
third party or Governmental Authority, and (iii) any default or breach of the
terms of any of the Transaction Agreements by the Company; and
(b) any other matter that has resulted in a Material Adverse Effect
in the Condition of the Company.
Each notice pursuant to this Section 8.2 shall be accompanied by a
statement on behalf of the Company by the Chief Executive Officer, President or
Chief Financial Officer of the Company setting forth details of the occurrence
referred to therein, stating what action the Company proposes to take with
respect thereto, the Company officer responsible for such action and the
timetable with respect to such action.
29
8.3. Reservation of Shares. The Company shall at all times reserve
---------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issue or delivery upon conversion of the Series B Preferred Stock as provided in
the Certificate of Designations, the maximum number of shares of Common Stock
that may be issuable or deliverable upon such conversion, as well as the number
of shares of Common Stock that may be issuable or deliverable upon conversion of
the Series B Preferred Stock issued to the Purchasers as dividends. Such shares
of Common Stock shall, when issued or delivered in accordance with the
provisions of the Certificate of Designations, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate of Designations and
shall otherwise comply with the terms thereof.
8.4. Books and Records. The Company shall, and shall cause each of
-----------------
its Affiliates to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each of is Affiliates in accordance with GAAP. The
Company shall provide the Purchasers with access to all such books and records
and allow the Purchasers to make copies and abstracts thereof at reasonable
times and, with respect to proprietary or confidential information, subject to
reasonable confidentiality limitations.
8.5. Use of Proceeds. The Company shall use the proceeds of the sale
---------------
of Series B Preferred Stock hereunder only for (a) working capital and general
corporate purposes of the Company as set forth on Schedule 8.5, (b) the
------------
construction of two 20-acre greenhouses, (c) the redemption of not more than
$1,500,000 of outstanding Series A Preferred Stock; and (d) for the payment of
fees and expenses in connection with the transactions contemplated in the
Transaction Agreements.
8.6. New Lines of Business. The Company shall not, without the prior
---------------------
written consent of 66 2/3% of the holders of the then outstanding shares of
Series B Preferred Stock, engage in any material activity in any line of
business other than the Company's Line of Business.
8.7. Compensation of Directors. Each member of the Board of
-------------------------
Directors shall entitled to (i) customary liability insurance obtained at
commercially reasonable rates no later than the earlier of (A) six months from
the date of this Agreement and (B) the date of a Qualified Initial Public
Offering, and (ii) fees and reimbursement by the Company for all out-of-pocket
expenses, including, without limitation, travel expenses, incurred by such
director in connection with the performance of such director's duties.
8.8. Management Incentive Stock Option Plan. The Company shall
--------------------------------------
review completely its existing stock option plan within six months from the date
of this Agreement and, subject to approval by the Board of Directors, make any
necessary revisions or modifications.
8.9. Torrance Greenhouse. The Company shall cause all approvals,
-------------------
authorizations, exemptions and permits necessary or required for the
construction, operation and use of the Torrance Greenhouse, including those set
forth on Schedule 5.3, to be obtained in a timely manner from all Governmental
------------
Authorities with applicable jurisdiction.
30
ARTICLE 9.
INDEMNIFICATION
---------------
9.1. Indemnification. In addition to all other sums due hereunder or
---------------
provided for in this Agreement and all other remedies that may be otherwise
available, the Company (an "Indemnifying Party") agrees to indemnify and hold
------------------
harmless each Purchaser and its Affiliates and its respective officers,
directors, agents, employees, Affiliates, partners and assigns (each, an
"Indemnified Party") to the fullest extent permitted by law from and against any
-----------------
and all Environmental Expenses and (i) tax liabilities, (ii) losses, costs,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel) and (iii) other liabilities (collectively, "Liabilities")
-----------
based upon, relating to or arising out of any breach of any representation or
warranty, covenant or agreement of such Indemnifying Party in this Agreement or
any legal, administrative or other actions (including actions brought by any of
the Purchasers or any Indemnifying Party or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of (A) the status of the
Purchasers as shareholders of the Company and the existence or exercise of the
rights and powers of the Purchasers (including without limitation, any claim
against any Indemnified Party relating to Environmental Matters), (B) violations
of applicable securities laws by the Company in connection with (i) the offering
of the Series A Preferred Stock and Series B Preferred Stock and (ii) the
Restructuring Transactions, or (C) third party claims that the Series B
Preferred Stock hereunder violate preexisting understandings or arrangements
with the Company; provided, however, that no Indemnifying Party shall be liable
-------- -------
under this Section 9.1 to an Indemnified Party: (a) for any amount paid in
settlement of claims without such Indemnifying Party's consent (which consent
shall not be unreasonably withheld), (b) to the extent that it is finally
judicially determined that such Liabilities resulted from the willful misconduct
or gross negligence of such Indemnified Party, or (c) to the extent that it is
finally judicially determined that such Liabilities resulted from the material
breach by such Indemnified Party of any representation, warranty, covenant or
other agreement of such Indemnified Party contained in this Agreement; provided,
--------
further, that if and to the extent that such indemnification is unenforceable
-------
for any reason, the Indemnifying Party shall make the maximum contribution to
the payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party further agrees to reimburse each Indemnified Party for all
such expenses (including reasonable fees, disbursements and other charges of
counsel) as they are incurred by such Indemnified Party.
At the option of the Holders of 66 2/3% of the then outstanding shares
of the Series B Preferred Stock and lieu of cash payment, the Company shall
satisfy its indemnification obligation under this Article 9 through the issuance
to the Indemnified Party of shares of Common Stock having an aggregate fair
value equal to the amount of such obligation. The fair value of any Common
Stock issued pursuant to the preceding sentence shall be determined initially
(the "Initial Determination") by the Board of Directors (and written notice
---------------------
thereof provided to the holders within two (2) business days) after giving
effect to any indemnification obligation, such determination to be made in good
faith. Any such determination may be challenged in good faith by the holders of
a majority of the Series B Preferred Stock, whereupon a representative of such
holders and the Company shall attempt in good faith to resolve such dispute for
a period not to exceed thirty (30) days. If within such thirty (30) day period,
such parties fail to resolve such dispute, such dispute shall be resolved
promptly (and in no event later than sixty (60) days after any challenge), at
the Company's expense, by an investment banking firm of recognized national
standing selected by the Company and acceptable to such holders of Series B
Preferred Stock. The Initial Determination shall be deemed approved if the
requisite holders have not
31
notified the Company of any challenge within thirty (30) days after receiving
notice (including a statement in reasonable detail of the bases therefor) of
such determination.
9.2. Notification. Each Indemnified Party under this Article 9
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from any Indemnifying Party under this
Article 9, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party under this Article 9 except to the extent
that such failure to notify results in a loss of a material defense of such
Indemnified Party in actual prejudice due to such action. In case any such
action, claim or other proceeding shall be brought against any Indemnified Party
and such Indemnified Party shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
-------- -------
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which both the Indemnifying Party, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel at
the Indemnifying Party's expense and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnifying Party,
on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable. The Indemnifying Party agrees that it
will not, without the prior written consent of the Purchasers (such consent not
to be unreasonably withheld), settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Purchasers and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
9.3. Registration Rights Agreement. Notwithstanding anything to the
-----------------------------
contrary in this Article 9, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 10.
MISCELLANEOUS
-------------
10.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date:
(a) by the mutual written consent of the Purchasers and the Company;
(b) by either Purchaser or the Company if the Closing shall not have
occurred prior to February 15, 1997 (the "Termination Date") unless such
----------------
Termination Date is extended by mutual written consent of the Purchasers and the
Company provided, that the right to terminate this Agreement under
--------
32
this Section 10.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or results
in, the failure of the Closing to have occurred by such date;
10.2. Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the Closing Date of
this Agreement for a period of three (3) years from the date hereof except the
representations and warranties in (i) Sections 5.11(a), 5.17 and 5.21 shall
survive until the statute of limitations period has expired for such
representations and warranties and (ii) Section 5.14 shall survive until thirty
days after the expiration of the statute of limitations period has expired for
such representations and warranties.
10.3 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, courier service,
personal delivery or facsimile transmission (provided the original of such
notice or communication has been sent by one of the previously listed methods):
(a) if to ▇▇▇▇▇▇▇▇▇ or to ▇▇▇▇▇▇▇▇▇-CGH Partners, L.L.C.:
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ Partners III, L.P..
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to BCI:
BCI Growth IV, L.P.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Reboul, MacMurray, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ &
Kristol
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
33
(c) if to the Company:
Colorado Greenhouse, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, # ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Holme ▇▇▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; when mailed, five
business days after being deposited in the mail, postage prepaid.
10.4. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. This agreement may be assigned by any Purchaser, subject to
applicable securities laws. The Company may not assign any of its rights under
this Agreement without the written consent of each of the Purchasers. Except as
provided in Article 9, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of any of the
Transaction Agreements.
10.5. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company, or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement shall be effective only if it is made or given in writing and
signed by the Company and the Holders of 66 2/3% of the then outstanding shares
of the Series B Preferred Stock. Any waiver of any provision of this Agreement,
and any consent to any departure by any party from the terms of any provision of
this Agreement shall be effective (i) only if it is made in writing and signed
by the Company and the Holders of 66 2/3% of the then outstanding shares of the
Series B Preferred Stock or the parties to be bound thereby and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto any other or further
notice or demand in similar or other circumstances.
34
10.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.7. Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
10.8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such state.
10.9. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provision or
provisions held invalid, illegal or unenforceable shall substantially impair the
remaining provisions hereof.
10.10. Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
10.11. Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Agreements is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth herein or therein. This Agreement, together with the exhibits
and schedules hereto, the other Transaction Agreements, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
10.12. Transaction Expenses. The Company will pay all Transaction
--------------------
Expenses of the Purchasers in accordance with Section 2.4 of this Agreement,
regardless whether the transactions contemplated hereby are consummated.
10.13. Publicity. Except as may be required by applicable law, none of
---------
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
10.14. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties that
may be required; (B) to obtain all
35
necessary permits as are required to be obtained under any federal, state, local
or foreign law or regulations, and (C) to fulfill all conditions to this
Agreement.
10.15. Severability of Representations, Warranties and Covenants.
---------------------------------------------------------
▇▇▇▇▇▇▇▇▇ and BCI shall not be liable to the Company for the breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by any of the other Purchasers, but each such Purchaser shall be
liable to the Company solely for its own breach or violation, if any, of any
representation, warranty or covenant made or to be complied with by such
Purchaser. The Company shall not be liable to the Purchasers for the breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by any party hereto, but the Company shall be liable to the
Purchasers solely for its own breach or violation, if any, of any
representation, warranty, or covenant made or to be complied with by the
Company.
[signature pages follow]
36
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ ▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------------------------
Name:
Title: CEO
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ PARTNERS III, L.P.
By: ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ Managing Partner III, L.L.C.,
its General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------------
Name:
Title:
▇▇▇▇▇▇▇▇▇-CGH PARTNERS, L.L.C.
By: ▇▇▇▇▇▇▇▇▇ Partners Management Company, L.L.C.,
its Managing Member
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------------
Name:
Title:
BCI GROWTH IV, L.P.
By: Glenpointe Associates, L.L.C.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------------------------
Name:
Managing Member
37
H&Q COLORADO GREENHOUSE INVESTORS, L.P.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
------------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Attorney-in-Fact
38
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES B CONVERTIBLE
PREFERRED STOCK
OF
COLORADO GREENHOUSE HOLDINGS, INC.
___________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________
COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article IV
-----------
of its Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware (the "DGCL"), the Board of
----
Directors of the Corporation by written consent dated as of January 16, 1997,
duly adopted the following resolution, which resolution remains in full force
and effect on the date hereof:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Restated Certificate of Incorporation, a series of Preferred
Stock of the Corporation be and hereby is established, consisting of 1,893,500
shares. $.001 par value per share, to be designated the "Series B Convertible
Preferred Stock" (hereinafter, "Series B Preferred Stock"); that the Board of
------------------------
Directors be and hereby is authorized to issue such shares of Series B Preferred
Stock from time to time and for such consideration and on such terms as the
Board of Directors shall determine; and that, subject to the limitations
provided by law and by the Restated Certificate of Incorporation, the voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof shall be as
follows:
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Actual EBIT" shall mean, for any period, the Consolidated Net Income
-----------
of the Corporation for such period adjusted to deduct therefrom interest income
and to add thereto the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense; (ii) interest expense and (iii)
any non-cash charge related to the issuance of Company options to purchase
Common Stock. Such amounts shall be determined pursuant to an audit by a
nationally recognized accounting firm in accordance with GAAP.
"Adjustment Percentage" shall mean, with respect to any Return on
---------------------
Investment in connection with a Liquidity Event, the "Adjustment Percentage" as
set forth on Schedule 3 to the Stock Purchase Agreement for such Return on
----------
Investment as of the closing date of such Liquidity Event.
"Adjustment Price" shall mean, with respect to any date, the
----------------
"Adjustment Price" as set forth on Schedule 3 to the Stock Purchase Agreement
----------
for such date.
"Affiliate" shall have the meaning given to such term under Rule 12b-2
---------
of the rules promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
EXHIBIT B
January 28, ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Production Credit Association
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Re: Brush Cogeneration Partners, Brush Greenhouse Partners II, LLC and
Colorado Greenhouse LLC
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Deed of Trust,
Security Agreement and Assignment of Rents dated as of June 30, 1992, as amended
(the "Deed of Trust") from Brush Cogeneration Partners ("BCP") in favor of the
undersigned (collectively, the "Lenders"). The Deed of Trust was created
pursuant to the terms of the Construction and Term Loan Agreement among BCP and
the Lenders, which document provided for the advancement of funds from the
Lenders to BCP for the purposes of constructing a cogeneration facility, which
includes a commercial greenhouse facility, located in Brush, Colorado (the
"Facility").
It is our understanding that:
(a) BCP has leased the greenhouse component of the Facility to Brush
Greenhouse Partners II, LLC ("BGP II") pursuant to that certain
Amended and Restated Cogeneration and Greenhouse Lease Agreement dated
as of June 1, 1992 (as amended, the "Greenhouse Lease");
(b) BGP II has entered into a Greenhouse Operation and Management
Agreement (the "O&M Agreement") dated as of December 29, 1994 with
Colorado Greenhouse LLC ("Colorado Greenhouse");
(c) Colorado Greenhouse has entered into a Line of Credit Agreement
(providing for a line of credit in the aggregate principal amount of
up to $1,500,000) and a Security Agreement (together, the "Loan
Documents"), each dated as of January 24, 1997, with Colorado
Greenhouse, Inc. ("CGI"), which is an affiliate of Colorado
Greenhouse;
EXHIBIT C
REDEMPTION AGREEMENT
--------------------
THIS REDEMPTION AGREEMENT (this "Agreement") is made as of the 21st day of
January, 1997, among Colorado Greenhouse Holdings, Inc., a Delaware corporation
(the "Company"), ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ Partners III, L.P., a Delaware limited
partnership ("▇▇▇▇▇▇▇▇▇-▇▇▇▇▇"), BCI Growth IV, L.P., a Delaware limited
partnership ("BCI"), H & Q Colorado Greenhouse Investors, L.P., a Delaware
limited partnership ("H&Q") and ▇▇▇▇▇▇▇▇▇ - CGH Partners, LLC, a Delaware
limited liability company ("▇▇▇▇▇▇▇▇▇, LLC"). ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇, BCI, H&Q and
▇▇▇▇▇▇▇▇▇, LLC are collectively referred to herein as "Purchasers."
RECITALS
--------
A. Purchasers and the Company are parties to that certain Stock Purchase
Agreement of even date herewith (the "Purchase Agreement") pursuant to which
Purchasers will acquire from the Company certain shares of its Series B
Preferred Stock.
B. Following the acquisition by the Purchasers of the Series B Preferred
Stock, the Company desires to redeem certain outstanding shares of its Series A
Preferred Stock from the holders thereof.
C. As additional consideration for the obligations of Purchasers under
the Purchase Agreement, the Company has agreed to limits its redemption of the
Series A Preferred Stock as set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Redemption. The Company shall not redeem outstanding shares of its
----------
Series A Preferred Stock except in conformity with the following terms:
a. Value of Redeemed Shares. The aggregate value of the outstanding
------------------------
shares of Series A Preferred Stock the Company shall be entitled to redeem shall
not exceed $1,500,000.
b. Price Per Share. The price per share of any share of Series A
---------------
Preferred Stock redeemed by the Company shall not exceed $6.75 per share.
2. Time for Redemption. The Company must consummate any redemption
-------------------
pursuant to this Agreement within 90 days after the date hereof.
EXHIBIT D
COLORADO GREENHOUSE HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
EXHIBIT E
COLORADO GREENHOUSE HOLDINGS, INC.
SERIES A REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
EXHIBIT F
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "Agreement") is entered into as of
---------
the 21st day of January, 1997 by and among ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ PARTNERS III, L.P., a
Delaware limited partnership ("▇▇▇▇▇▇▇▇▇"), BCI GROWTH IV, L.P., a Delaware
limited partnership ("BCI"), the other co-investors listed on Schedule 1
----------
attached hereto (the "Co-Investors"), the holders of Series A Preferred Stock
------------
(collectively, the "Shareholders") and COLORADO GREENHOUSE HOLDINGS, INC., a
Delaware corporation (the "Company").
-------
RECITALS
WHEREAS, Company, ▇▇▇▇▇▇▇▇▇, and the Co-Investors (the "Purchasers")
----------
have entered into that certain Stock Purchase Agreement (the "Stock Purchase
--------------
Agreement") dated as of January 21, 1997, pursuant to which the Purchasers have
---------
agreed to purchase from the Company, and the Company has agreed to sell to the
Purchasers 1,875,000 shares of the Preferred Stock (as hereinafter defined) of
the Company;
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement that the Company and
the Shareholders enter into this Agreement; and
WHEREAS, the Company and the Shareholders desire to enter into this
Agreement to provide continuity of management of the Company and to govern
certain aspects of the relationship among the Shareholders and the relationship
between the Shareholders and the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
a. "Affiliate" means, with respect to any specified Person, any
---------
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise. Unless otherwise qualified, all references to
an "Affiliate" or to "Affiliates" in this Agreement shall refer to an Affiliate
or Affiliates of the Company.
b. "Business Days" shall mean all days other than Saturday or
-------------
Sunday or any day on which banking institutions in New York, New York are
authorized or obligated by law to close.
c. "Common Stock" shall mean: (i) the common stock of the
------------
Company, par value $.001 per share; (ii) any other capital stock of the Company
into which such common stock is converted, exchanged, reclassified or
reconstituted; (iii) any warrants or options exercisable for any of the
foregoing; and (iv) any right to receive any of the foregoing other than upon
conversion of any security convertible into any of the foregoing.
1
EXHIBIT G
SEVERANCE AND NONCOMPETE AGREEMENT
----------------------------------
THIS SEVERANCE AND NONCOMPETE AGREEMENT (this "AGREEMENT"), dated
effective as of December 31, 1996, is between Colorado Greenhouse, Inc., a
Delaware corporation (the "Company"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("Employee").
In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee
----------
hereby agrees to be employed by the Company for the period and upon the terms
and conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as
-------------------
its Chief Executive Officer or in such other executive capacity as the board of
directors shall determine. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors. Employee shall devote such time, attention and
energies to the business of the Company as shall be necessary to perform the
duties requested by the board of directors; provided that Employee shall be free
to engage in other business activities. His actions shall at all times be such
that they do not discredit the Company or its products and services.
3. Compensation.
------------
EXHIBIT G
SEVERANCE AND NONCOMPETE AGREEMENT
----------------------------------
THIS SEVERANCE AND NONCOMPETE AGREEMENT (this "Agreement"), dated effective
as of December 31, 1996, is between Colorado Greenhouse, Inc., a Delaware
corporation (the "Company"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ("Employee").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
----------
agrees to be employed by the Company for the period and upon the terms and
conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as its
-------------------
Chief Operating Officer or in such other executive capacity as the board of
directors shall determine. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors and the duly elected officers of the Company. Employee
shall devote his entire working time, attention and energies to the business of
the Company. His actions shall at all times be such that they do not discredit
the Company or its products and services. Except for his involvement in personal
investments, Employee shall not engage in any other business activity or
activities that require significant personal services by Employee that, in the
judgment of the board of directors, may conflict with the proper performance of
Employee's duties hereunder.
EXHIBIT H
COLORADO GREENHOUSE, INC.
Anti-Dilution Formula For Weighted Average Ratchet
--------------------------------------------------
SHARES CONV RATIO
------ ----------
Existing Shares of Series A & Options on CS 7,020,000 1,0000
New Shares of $14 mm Series B @ $8.00 1,750,000 1,0000
New Shares of $14 mm Series B @ $5.50 2,545,455 1,4545
Total Common Shares of A & B @ $5.50 9,565,455
Symbol Description Number Memo
------ ----
O= # of shares of Outstanding at Record Date 9,565,455 (Should include CS which Pfd is convert into &
N= # of shares which each B is convertible into 1,4545 options)
P= Offering Price Per Share of Additional CS
M= Market value of CS
A= Number of Shares of CS offered (Never less than $5.50)
(C) Rights, Options or Warrants
Ex) #1 Assume they issue Warrants to purchase 1,000,000 CS at $0.01 for $2.00
Warrant (within 60 days)
O= 9,565,455
N= 1.4545
P= $2.01
M= $5.50
A= 1,000,000
N/1/= N x (O divided by A)
-------------------
O - ((AxP)/M)
N/1/= 1.4545 x (9,565,455 + 1,000,000)
-------------------------------
9,565,455 + ((1,000,000 x 2.01)/5.5)
N/1/= 15,367,934
---------------
9,930,909
N/1/= $1.5475
memo 8/1.5475= $5.1697 Price per Share of B
CHECK: (9,565,455 x 5.5) + (1,000,000 x 2.01)
-------------------------------------
Weighted (9,565,455 + 1,000,000)
Avg Formula
$5.1697
Ex) #2 Assume they issue Rights purchase 10,000,000 CS at $5.00.
O= 9,565,455
N= 1.4545
P= $5.00
M= $5.50
A= 10,000,000
N/1/= N x (O + A)
----------
O divided by ((AxP)/M)
N/1/= 1.4545 x (9,565,455 + 10,000,000)
--------------------------------
9,565,455 + ((10,000,000 x 5)/5.5)
N/1/= 28,458,842.98
-------------
18,656,363.64
N/1/= 1.5254
memo 8/1.5254= $5.2444 Price per Share of B
CHECK: (9,565,455 x 5.5) + (10,000,000 x 5)
-----------------------------------
Weighted (9,565,455 + 10,000,000)
Avg Formula
$5.2444
EXHIBIT I
[LETTERHEAD OF HOLME ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP APPEARS HERE]
January 21, 1997
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ Partners III, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
BCI Growth IV, L.P.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
H & Q Colorado Greenhouse Investors, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇-CGH Partners, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Re: Colorado Greenhouse, Inc., Series B Preferred Stock Sale
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), Colorado Greenhouse LLC, a Colorado limited
liability company ("CG, LLC"), Colorado Greenhouse, Inc. ("CG, Inc.") and CG
Member, Inc., a Delaware corporation ("CGM, Inc.") (CG, LLC, CG, Inc. and CGM,
Inc. are sometimes referred to herein as the "Subsidiaries"), in connection with
the restructuring of the Company and the LLC (the "Restructuring Transaction"),
the organization of CG, Inc. and CGM, Inc. and the negotiation, preparation,
execution and delivery of the Stock Purchase Agreement (the "Agreement") dated
as of the date of this opinion, by and among the Company, ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇
Partners III, L.P., a Delaware limited partnership ("▇▇▇▇▇▇▇▇▇-▇▇▇▇▇"), BCI
Growth IV, L.P., a Delaware limited partnership ("BCI"), H&Q
EXHIBIT I
[LETTERHEAD OF MODRALL, SPERLING,▇▇▇▇▇,▇▇▇▇▇▇ & ▇▇▇▇, P.A. APPEARS HERE]
--------------------------------------------------------------------------------
VIA FACSIMILE
AND U.S MAIL
January 21, 1997
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Colorado Greenhouse, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Estancia Greenhouse Project: Opinion on Governmental Approvals
---------------------------------------------------------------
Dear ▇▇. ▇▇▇▇▇:
As you know, we have acted as local counsel for Colorado Greenhouse, Inc.,
a Delaware Corporation ("Colorado Greenhouse"). This opinion identifies the
governmental approvals required for the development, design, construction,
start-up, testing, operation and maintenance of the Estancia Greenhouse Project
("Project"). In connection with this opinion, we have examined, among other
things, the documents and agreements listed on Exhibit A attached hereto (the
"Documents"). We have also examined other agreements and information pertaining
to the Project and have made such investigations of law as we have deemed
relevant and necessary for the purposes of rendering this opinion.
The opinions, review and analysis set forth below are subject to the
following further qualifications:
(a) This opinion is subject to the effect of bankruptcy, solvency,
reorganization, moratorium and similar loss generally affecting creditors'
rights.
(b) This opinion does not address matters related to the Occupational
Safety and Health Act, 29 U.S.C. (S)(S) 651 to 678; the Emergency Planning and
Community Right to Know Act of 1986 (as set forth in Title III of the Superfund
Amendments); or any governmental approvals by or with any governmental authority
pertaining to lending, banking, fiscal or monetary matters.
EXHIBIT J
PAGE 1
State of Delaware
Office of the Secretary of State
______________________
I, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"COLORADO GREENHOUSE, INC.", CHANGING ITS NAME FROM "COLORADO GREENHOUSE, INC."
TO "COLORADO GREENHOUSE HOLDINGS, INC.", FILED IN THIS OFFICE ON THE SEVENTEENTH
DAY OF JANUARY, A.D. 1997, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
[SEAL APPEARS HERE] ------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary of State
AUTHENTICATION: 8290856
DATE: 01-17-97
EXHIBIT K
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT.
COLORADO GREENHOUSE HOLDINGS, INC.
WARRANT TO PURCHASE 18,500
SHARES OF SERIES B PREFERRED STOCK
Void after January 31, 2002
THIS CERTIFIES THAT, for value received, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLC (the
"Holder") is entitled to purchase, on the terms and subject to the conditions
hereof, up to 18,500 shares of Series B Convertible Preferred Stock, par value
$0.001 per share (the "Series B Stock"), of Colorado Greenhouse Holdings, Inc.,
a Delaware corporation (the "Company"), at a per share purchase price of $8.00
(the "Exercise Price"), subject to adjustment as provided herein.
The following terms shall apply to this Warrant:
1. Exercise of Warrant. The terms and conditions upon which this Warrant
-------------------
may be exercised, and the Series B Stock covered hereby (the "Warrant Shares"),
may be purchased, are as follows:
1.1 Number of Shares. This Warrant is being delivered to Holder in
----------------
exchange for Holder's financial advisory services pursuant to that letter
agreement dated September 23, 1996. The number of Warrant Shares for which this
Warrant is initially exercisable is 18,500 shares, which number is subject to
adjustment pursuant to Section 2 of this Warrant.
1.2 Exercise. This Warrant may be exercised in whole or in part at
--------
any time or from time to time up until 5:00 p.m. Mountain Standard Time, January
31, 2002, and shall be void thereafter. The exercise of the purchase rights
hereunder, in whole or in part shall be effected by (a) the surrender of this
Warrant, together with a duly executed copy of the form of the subscription
attached as Exhibit A hereto, to the Company at its principal offices, and (b)
---------
the delivery of the Exercise Price by (i) check or bank draft payable to the
Company's order, or (ii) by wire transfer to the Company's account for the
number of Warrant Shares for which the purchase rights hereunder are being
exercised.
1.3 Automatic Exercise. Notwithstanding the provisions of Section 1.1
------------------
above, this Warrant shall automatically be deemed to be exercised in full in the
manner set forth in Section
SCHEDULE 1
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SHARES BEING PURCHASE
PURCHASER PURCHASED PRICE
--------- --------- -----
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇ Partners III, 875,000 $7,000,000
▇.▇.
▇▇▇▇▇▇▇▇▇-CGH Partners, L.L.C. 31,250 $ 250,000
BCI Growth IV, L.P. 875,000 $7,000,000
H&Q Colorado Greenhouse 93,750 $ 750,000
Investors, L.P.
SCHEDULE 1.1
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LENDERS
-------
The Prudential Insurance Company of America
Pruco Life Insurance Company
Credit Suisse
The Fuji Bank, Limited
Credit Local de France
Credit Lyonnais
Mellon Bank, N.A.
The Sanwa Bank, Limited
Campagnie Financiere de Cic et de L'Union Europeene
SCHEDULE 2
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ADJUSTMENT PRICES
-----------------
For Calendar Year 1997
----------------------
If the Company's Actual EBIT is equal to or less than $7,361,000 but greater
than $6,974,000, the Adjustment Price shall be $7.60
If the Company's Actual EBIT is equal to or less than $6,974,000 but greater
than $6,586,000, the Adjustment Price shall be $7.20
If the Company's Actual EBIT is equal to or less than $6,586,000 but greater
than $6,199,000, the Adjustment Price shall be $6.80
If the Company's Actual EBIT is equal to or less than $6,199,000 but greater
than $5,811,000, the Adjustment Price shall be $6.40
If the Company's Actual EBIT is equal to or less than $5,811,000 but greater
than $5,424,000, the Adjustment Price shall be $6.00
If the Company's Actual EBIT is equal to or less than $5,424,000 but greater
than $5,331,000, the Adjustment Price shall be $5.60
If the Company's Actual EBIT is equal to or less than $5,331,000, the Adjustment
Price shall be $5.50
For Calendar Year 1998
----------------------
If the Company's Actual EBIT is equal to or less than $14,914,000 but greater
than $14,129,000, the Adjustment Price shall be $7.60
If the Company's Actual EBIT is equal to or less than $14,129,000 but greater
than $13,344,000, the Adjustment Price shall be $7.20
If the Company's Actual EBIT is equal to or less than $13,344,000 but greater
than $12,559,000, the Adjustment Price shall be $6.80
If the Company's Actual EBIT is equal to or less than $12,559,000 but greater
than $11,774,000, the Adjustment Price shall be $6.40
If the Company's Actual EBIT is equal to or less than $11,774,000 but greater
than $10,989,000, the Adjustment Price shall be $6.00
If the Company's Actual EBIT is equal to or less than $10,989,000 but greater
than $10,801,000, the Adjustment Price shall be $5.60
If the Company's Actual EBIT is equal to or less than $10,801,000, the
Adjustment Price shall be $5.50
SCHEDULE 3
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1997
Liquidity Event
After Closing, but on or Before Dec., Adjustment
31, 1997 Percentage
-------- ----------
If ROI is greater than 200.0% then adj % shall be 100%
If ROI is greater than 196.7% then adj % shall be 95%
If ROI is greater than 193.3% then adj % shall be 90%
If ROI is greater than 190.0% then adj % shall be 85%
If ROI is greater than 186.7% then adj % shall be 80%
If ROI is greater than 183.3% then adj % shall be 75%
If ROI is greater than 180.0% then adj % shall be 70%
If ROI is greater than 176.7% then adj % shall be 65%
If ROI is greater than 173.3% then adj % shall be 60%
If ROI is greater than 170.0% then adj % shall be 55%
If ROI is greater than 166.7% then adj % shall be 50%
If ROI is greater than 163.3% then adj % shall be 45%
If ROI is greater than 160.0% then adj % shall be 40%
If ROI is greater than 156.7% then adj % shall be 35%
If ROI is greater than 153.3% then adj % shall be 30%
If ROI is greater than 150.0% then adj % shall be 25%
1998
Liquidity Event
After
Dec. 31, 1997, but on or Adjustment
Before Dec. 31, 1998 Percentage
-------------------- ----------
If ROI is greater than 250.0% then adj % shall be 100%
If ROI is greater than 246.7% then adj % shall be 95%
If ROI is greater than 243.3% then adj % shall be 90%
If ROI is greater than 240.0% then adj % shall be 85%
If ROI is greater than 236.7% then adj % shall be 80%
If ROI is greater than 233.3% then adj % shall be 75%
If ROI is greater than 230.0% then adj % shall be 70%
If ROI is greater than 226.7% then adj % shall be 65%
If ROI is greater than 223.3% then adj % shall be 60%
If ROI is greater than 220.0% then adj % shall be 55%
If ROI is greater than 216.7% then adj % shall be 50%
If ROI is greater than 213.3% then adj % shall be 45%
If ROI is greater than 210.0% then adj % shall be 40%
If ROI is greater than 206.7% then adj % shall be 35%
If ROI is greater than 203.3% then adj % shall be 30%
If ROI is greater than 200.0% then adj % shall be 25%
1999
Liquidity Event
After
Dec. 31, 1998, but on or Adjustment
Before Dec. 31, 1999 Percentage
-------------------- ----------
If ROI is greater than 350.0% then adj % shall be 100%
If ROI is greater than 343.3% then adj % shall be 95%
If ROI is greater than 336.7% then adj % shall be 90%
If ROI is greater than 330.0% then adj % shall be 85%
If ROI is greater than 323.3% then adj % shall be 80%
If ROI is greater than 316.7% then adj % shall be 75%
If ROI is greater than 310.0% then adj % shall be 70%
If ROI is greater than 303.3% then adj % shall be 65%
If ROI is greater than 296.7% then adj % shall be 60%
If ROI is greater than 290.0% then adj % shall be 55%
If ROI is greater than 283.3% then adj % shall be 50%
If ROI is greater than 276.7% then adj % shall be 45%
If ROI is greater than 270.0% then adj % shall be 40%
If ROI is greater than 263.3% then adj % shall be 35%
If ROI is greater than 256.7% then adj % shall be 30%
If ROI is greater than 250.0% then adj % shall be 25%
2000
Liquidity Event
After
Dec. 31, 1999, but on or Adjustment
Before Dec. 31, 2000 Percentage
-------------------- ----------
If ROI is greater than 450.0% then adj % shall be 100%
If ROI is greater than 443.3% then adj % shall be 95%
If ROI is greater than 436.7% then adj % shall be 90%
If ROI is greater than 430.0% then adj % shall be 85%
If ROI is greater than 423.3% then adj % shall be 80%
If ROI is greater than 416.7% then adj % shall be 75%
If ROI is greater than 410.0% then adj % shall be 70%
If ROI is greater than 403.3% then adj % shall be 65%
If ROI is greater than 396.7% then adj % shall be 60%
If ROI is greater than 390.0% then adj % shall be 55%
If ROI is greater than 383.3% then adj % shall be 50%
If ROI is greater than 376.7% then adj % shall be 45%
If ROI is greater than 370.0% then adj % shall be 40%
If ROI is greater than 363.3% then adj % shall be 35%
If ROI is greater than 356.7% then adj % shall be 30%
If ROI is greater than 350.0% then adj % shall be 25%
"ROI" = Return on Investment
"adj. %" = Adjustment Percentage
SCHEDULE 3.22
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Exchange of Membership Interests in Colorado Greenhouse LLC
-----------------------------------------------------------
For Series A Preferred Stock in Colorado Greenhouse Holdings, Inc.
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Holder Shares Issued Date Issued % of MI's Exchanged
------ ------------- ----------- -------------------
Brush Greenhouse Partners 3,100,000 12/31/96 50%
Brush Greenhouse Partners II 3,038,000 12/31/96 49%
Brush Greenhouse Partners II 62,000 1/1/97 1%
--------- -------- -------
TOTAL: 6,200,000 100%
SCHEDULE 8.5
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USE OF PROCEEDS
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1. Fees and expenses associated with Farm Credit loan agreement.
2. Reimbursement of CG, LLC for costs related to reorganization,
financing and expansion.
3. Funding of $10 million for special construction account per Farm
Credit loan agreement ($1 million to be refunded upon completion of
construction).
4. Working capital requirements (start-up costs) for new greenhouses and
other corporate working capital requirements.