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EXHIBIT 2.1
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AGREEMENT FOR PURCHASE AND SALE OF STOCK
among
Medical Manufacturing Device, Inc.,
G&D, Inc., d/b/a Star Guide Corporation,
and each of
Eric Pollock, George Archambault, Helene Pollock,
the Helene Pollock Irrevocable Spousal Trust No.1,
the Helene Pollock Irrevocable Spousal Trust No.2,
Patricia Harrison and Donald Bothner,
constituting all of the shareholders of G&D, Inc.
July 6, 1999
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TABLE OF CONTENTS
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1. PURCHASE AND SALE OF SHARES...................................................................-1-
1.1. PURCHASE AND SALE...........................................................-1-
1.2. PURCHASE PRICE..............................................................-2-
1.3. ADJUSTMENTS TO PURCHASE PRICE...............................................-2-
1.4. PAYMENT OF PURCHASE PRICE...................................................-4-
1.5. EARNOUT PAYMENT.............................................................-5-
1.6. CONTINGENT ISSUANCE OF ADDITIONAL SERIES A-1 PREFERRED
STOCK.......................................................................-6-
2. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES.............................................-6-
2.1. AUTHORITY; ENFORCEABILITY...................................................-7-
2.2. CONSENTS AND APPROVALS......................................................-7-
2.3. ORGANIZATION, QUALIFICATION, AND CORPORATE POWER............................-7-
2.4. CAPITALIZATION; TITLE TO SHARES.............................................-8-
2.5. NONCONTRAVENTION............................................................-8-
2.6. SUBSIDIARIES................................................................-8-
2.7. FINANCIAL STATEMENTS........................................................-9-
2.8. EVENTS SUBSEQUENT TO FY 1998................................................-9-
2.9. UNDISCLOSED LIABILITIES....................................................-11-
2.10. TITLE TO ASSETS............................................................-11-
2.11. TANGIBLE ASSETS AND INVENTORY..............................................-11-
2.12. TAX MATTERS................................................................-11-
2.13. REAL PROPERTY..............................................................-13-
2.14. CONTRACTS..................................................................-14-
2.15. RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS.................................-16-
2.16. NOTES AND ACCOUNTS RECEIVABLE; BANK ACCOUNTS...............................-16-
2.17. INSURANCE..................................................................-16-
2.18. EMPLOYEES..................................................................-17-
2.19. EMPLOYEE BENEFITS..........................................................-17-
2.20. ENVIRONMENTAL COMPLIANCE...................................................-19-
2.21. LITIGATION.................................................................-21-
2.22. LEGAL COMPLIANCE...........................................................-22-
2.23. CERTAIN BUSINESS RELATIONSHIPS WITH CORPORATION............................-22-
2.24. PRODUCT WARRANTY AND LIABILITY.............................................-22-
2.25. INTELLECTUAL PROPERTY......................................................-22-
2.26. NATURALIZATION OF EMPLOYEES................................................-23-
2.27. CERTAIN OTHER COMPENSATION PAYMENTS........................................-23-
2.28. BROKERS' FEES..............................................................-24-
2.29. YEAR 2000 COMPLIANCE.......................................................-24-
2.30. NO MATERIAL ADVERSE CHANGE.................................................-24-
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3. BUYER'S REPRESENTATIONS AND WARRANTIES.......................................................-24-
3.1. ORGANIZATION; AUTHORITY; ENFORCEABILITY....................................-24-
3.2. CAPITALIZATION; TITLE TO SHARES; DEBT STRUCTURE............................-24-
3.3. CONSENTS AND APPROVALS.....................................................-25-
3.4. NONCONTRAVENTION...........................................................-25-
3.5. LITIGATION.................................................................-25-
3.6. BROKERS' FEES..............................................................-25-
4. SELLING PARTIES' AND CORPORATION'S OBLIGATIONS BEFORE CLOSING................................-26-
4.1. GENERAL....................................................................-26-
4.2. ACCESS.....................................................................-26-
4.3. OPERATION OF BUSINESS......................................................-26-
4.4. PRESERVATION OF BUSINESS; INSURANCE........................................-27-
4.5. NOTICES AND CONSENTS.......................................................-27-
4.6. EXCLUSIVITY................................................................-27-
4.7. NOTICE OF DEVELOPMENTS; UPDATE OF DISCLOSURE SCHEDULE......................-27-
4.8. DELIVERY OF FINANCIAL STATEMENTS...........................................-28-
4.9. CONFIDENTIALITY............................................................-29-
4.10. CONVERSION OF LOANS FROM SELLING PARTIES...................................-29-
4.11. TRANSFER OF CERTAIN ASSETS.................................................-29-
5. BUYER'S OBLIGATIONS BEFORE CLOSING...........................................................-29-
5.1. DUE DILIGENCE..............................................................-29-
5.2. CONFIDENTIALITY............................................................-30-
5.3. NOTICES AND CONSENTS.......................................................-30-
5.4. FINANCING..................................................................-30-
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE..................................................-30-
7. CONDITIONS PRECEDENT TO SELLING PARTIES' PERFORMANCE.........................................-33-
8. THE CLOSING..................................................................................-34-
9. POST-CLOSING COVENANTS.......................................................................-35-
9.1. GENERAL....................................................................-35-
9.2. LITIGATION SUPPORT.........................................................-35-
9.3. TAX MATTERS................................................................-36-
9.4. COOPERATION WITH INITIAL PUBLIC OFFERING...................................-36-
9.5. ENVIRONMENTAL ISSUES.......................................................-36-
10. REMEDIES FOR BREACHES OF THIS AGREEMENT......................................................-37-
10.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................-37-
10.2. INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER............................-38-
10.3. INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLING PARTIES..................-38-
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10.4. METHOD OF ASSERTING CLAIMS.................................................-39-
11. TERMINATION..................................................................................-41-
11.1. TERMINATION OF AGREEMENT...................................................-41-
11.2. EFFECT OF TERMINATION......................................................-41-
12. PUBLICITY....................................................................................-42-
13. COSTS........................................................................................-42-
14. FORM OF AGREEMENT............................................................................-42-
15. PARTIES......................................................................................-43-
16. ARBITRATION..................................................................................-43-
17. SPECIFIC PERFORMANCE.........................................................................-43-
18. NOTICES......................................................................................-43-
19. GOVERNING LAW................................................................................-45-
20. SEVERABILITY.................................................................................-45-
21. TAX MATTERS..................................................................................-45-
22. MUTUAL CONTRIBUTION..........................................................................-46-
23. AMENDMENT OR MODIFICATION; WAIVER............................................................-46-
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AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT (this "Agreement") is made as of this 6th day
of July, 1999, by and among Medical Device Manufacturing, Inc., a Colorado
corporation, as buyer ("Buyer"), G&D, Inc., a Colorado corporation d/b/a Star
Guide Corporation (the "Corporation"), Eric Pollock ("E. Pollock"), Helene
Pollock ("H. Pollock"), George Archambault ("Archambault"), the Helene Pollock
Irrevocable Spousal Trust No.1 ("Pollock Trust No.1"), the Helene Pollock
Irrevocable Spousal Trust No.2 ("Pollock Trust No.2;" and, together with Pollock
Trust No.1, "Pollock Trusts"), Patricia Harrison ("Harrison") and Donald Bothner
("Bothner") and, together with E. Pollock, H. Pollock, Archambault, Pollock
Trusts and Harrison, "Selling Parties" and each individually, a "Selling
Party").
RECITALS
A. This Agreement contemplates certain transactions pursuant to which
Buyer will purchase from Selling Parties all of the outstanding capital stock of
the Corporation.
B. The authorized capital stock of the Corporation consists solely of
20,000,000 shares of common stock, no par value per share (the "Common Stock"),
of which 200,000 shares have been designated as Class A Common Stock, no par
value per share (the "Class A Common"), and 19,800,000 shares have been
designated as Class B Common Stock, no par value per share (the "Class B
Common").
C. As of the date hereof, 100,000 shares of Class A Common and
9,900,000 shares of Class B Common, respectively, are issued and outstanding.
C. Selling Parties own all of the issued and outstanding capital stock
of the Corporation.
D. It is proposed that Selling Parties sell to Buyer, and Buyer acquire
from Selling Parties, all of Selling Parties' shares of Common Stock on the
terms and for the consideration described below, with the effect that Buyer will
become the sole owner of the Corporation and all of the issued and outstanding
shares of capital stock of the Corporation.
AGREEMENT
In consideration of the mutual promises and covenants contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. PURCHASE AND SALE OF SHARES.
1.1. PURCHASE AND SALE.
Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below in Section 8.1), Selling
Parties will sell to Buyer, and Buyer will purchase from Selling Parties,
10,000,000 shares of the Common Stock, plus any shares of capital stock issued
upon
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the conversion, prior to the Closing (as defined below in Section 8.1), of any
loans or other amounts due to Selling Parties from the Corporation pursuant to
Section 4.10 hereof (collectively, the "Shares"), for the purchase price set
forth in Section 1.2 below (the "Purchase Price"). Selling Parties own
beneficially and of record the Shares, in the amounts set forth in Exhibit 1.1.
1.2. PURCHASE PRICE.
The Purchase Price for the Shares will be TWENTY-THREE MILLION
EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($23,800,000), subject to adjustment
as provided in Section 1.3 below, and payable to Selling Parties in the amounts
set forth on Exhibit 1.2 attached hereto, in the manner provided in Section 1.4
below, plus (i) the Earnout Amount (as defined below in Section 1.5) payable in
accordance with Section 1.5 below, and (ii) a contingent issuance of additional
shares of Series A-1 Preferred Stock (as defined in Section 1.4.2) issuable in
accordance with Section 1.6 below, all allocable among Selling Parties as they
instruct Buyer.
1.3. ADJUSTMENTS TO PURCHASE PRICE.
1.3.1. The Purchase Price will be subject to the
following adjustments on the Closing Date, based on the difference between the
Net Working Capital Balance (as hereinafter defined) of the Corporation as of
May 31, 1999 (the "Closing Net Working Capital Balance") as set forth on a
schedule delivered by Selling Parties to Buyer prior to the Closing Date, and
ONE MILLION SIX HUNDRED AND SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($1,675,000) (the "Baseline Net Working Capital Balance"):
(i) if the Closing Net Working Capital Balance
exceeds the Baseline Net Working Capital Balance, the Purchase Price will be
increased by the amount by which the Closing Net Working Capital Balance exceeds
the Baseline Net Working Capital Balance;
(ii) if the Baseline Net Working Capital Balance
exceeds the Closing Net Working Capital Balance, the Purchase Price will be
decreased by the amount by which the Baseline Net Working Capital Balance
exceeds the Closing Net Working Capital Balance; and
(iii) if the Baseline Net Working Capital Balance
equals the Closing Net Working Capital Balance, the Purchase Price will not be
adjusted pursuant to this Section 1.3.1.
For purposes of this Agreement, the "Closing Net Working Capital Balance" of the
Corporation shall mean (A) all current assets of the Corporation as of May 31,
1999 (including all amounts owed to the Corporation by Archambault), less (B)
all current liabilities (excluding the current portion of any interest-bearing
or other long-term debt), calculated in accordance with generally accepted
accounting principles (except as provided in Section 4.8 hereof), applied on a
consistent basis throughout the periods covered thereby as of May 31, 1999, plus
(C) an amount equal to the product of $10,000 multiplied by the number of days
between May 31, 1999 and the Closing.
1.3.2. The Purchase Price will be subject to the
following additional adjustments on the Closing Date, based on the difference
between the Restated EBITDA (as
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hereinafter defined) of the Corporation as of May 31, 1999 (the "Closing
Trailing Twelve Months EBITDA") as set forth on a schedule delivered by Selling
Parties to Buyer prior to the Closing Date, and FOUR MILLION AND NO/100 DOLLARS
($4,000,000) (the "Baseline Trailing Twelve Months EBITDA"):
(i) if the Closing Trailing Twelve Months EBITDA
exceeds the Baseline Trailing Twelve Months EBITDA, the Purchase Price will be
increased by the product of (X) six (6) and (Y) the amount by which the Closing
Trailing Twelve Months EBITDA exceeds the Baseline Trailing Twelve Months
EBITDA;
(ii) if the Baseline Trailing Twelve Months EBITDA
exceeds the Closing Trailing Twelve Months EBITDA, the Purchase Price will be
decreased by the product of (X) six (6) and (Y) the amount by which the Baseline
Trailing Twelve Months EBITDA exceeds the Closing Trailing Twelve Months EBITDA;
and
(iii) if the Closing Trailing Twelve Months EBITDA
equals the Baseline Trailing Twelve Months EBITDA, the Purchase Price will not
be adjusted pursuant to this Section 1.3.2.
For purposes of this Agreement, the "Restated EBITDA" of the Corporation shall
mean the Corporation's earnings before interest, taxes, depreciation and
amortization for the period in question, as determined by financial statements
of the Corporation prepared in accordance with generally accepted accounting
principles (except as provided in Section 4.8 hereof), applied on a consistent
basis throughout the periods covered thereby, and adjusted to take into account
the adjustments shown on Exhibit 1.3.2 attached hereto and such other
adjustments as Buyer and Selling Parties may mutually agree to.
1.3.3. Following the Closing, the adjustments to
Purchase Price pursuant to Sections 1.3.1 and 1.3.2 will be subject to review by
Buyer in accordance with the following procedure:
(i) Buyer shall have until ninety (90) days after the
Closing Date (the "Verification Period") to verify Selling Parties'
determinations of the Closing Net Working Capital Balance and Closing Trailing
Twelve Months EBITDA. Any adjustments to such determinations shall be made by
written notice to Selling Parties within the Verification Period (an "Adjustment
Notice") setting forth (A) Buyer's objections to Selling Parties' determination
of the Closing Net Working Capital Balance or Closing Trailing Twelve Months
EBITDA, (B) Buyer's determination of the Closing Net Working Capital Balance or
Closing Trailing Twelve Months EBITDA, and (C) the proposed purchase price
adjustment (the "Proposed Purchase Price Adjustment"). If Buyer does not deliver
an Adjustment Notice to Selling Parties within the Verification Period, Selling
Parties' determination of the Closing Net Working Capital Balance and Closing
Trailing Twelve Months EBITDA shall be final and binding on the parties.
(ii) To the extent that Selling Parties have any
objection to the Proposed Purchase Price Adjustment, such objection shall be
made by written notice to Buyer (the "Objection
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Notice") within ten (10) days after delivery of the Adjustment Notice (the
"Objection Period"). If Selling Parties do not object to the Proposed Purchase
Price Adjustment within the Objection Period, Buyer shall be entitled to offset
the Proposed Purchase Price Adjustment against the Earnout Amount (as defined in
Section 1.5).
(iii) If Selling Parties deliver an Objection Notice
in response to any Adjustment Notice delivered by Buyer, and Buyer and Selling
Parties are unable to agree upon the amount of any Proposed Purchase Price
Adjustment within ten (10) days after delivery of the Objection Notice, then
Arthur Andersen LLP (the "Auditor") shall be requested to conduct a review and
determine the amount of the Closing Net Working Capital Balance and/or the
Closing Trailing Twelve Months EBITDA, as applicable. The Auditor shall be
instructed in performing such review that Buyer and Selling Parties shall each
be provided with copies of any and all correspondence and drafts distributed to
any party. Prior to issuing its final determination, Buyer and Selling Parties
shall each have the opportunity to provide the Auditor with any additional
information that such party deems relevant, provided that the Auditor shall not
be required to use any such information in connection with its review and
determination of the Closing Net Working Capital Balance and/or the Closing
Trailing Twelve Months EBITDA. Upon completion of its review and determination,
the Auditor shall promptly deliver copies of its report to Buyer and Selling
Parties, setting forth the Auditor's determination of the Closing Net Working
Capital Balance and/or Closing Trailing Twelve Months EBITDA, as applicable (the
"Auditor's Report"). The Auditor's Report will be conclusive and binding upon
both Buyer and Selling Parties, and Buyer shall be entitled to offset against
the Earnout Amount, an amount equal to (a) the excess, if any, of the Closing
Net Working Capital Balance as determined by Selling Parties on or before the
Closing Date over the Closing Net Working Capital Balance determined by the
Auditor and reported in the Auditor's Report; and (b) six (6) times the excess,
if any, of the Closing Trailing Twelve Months EBITDA as determined by Selling
Parties on or before the Closing Date over the Closing Trailing Twelve Months
EBITDA determined by the Auditor and reported in the Auditor's Report. Fifty
percent (50%) of the costs and expenses of the Auditor and the Auditor's Report
contemplated by this Section 1.3.4 shall be borne by Buyer, and the remainder of
such costs shall be borne by Selling Parties.
1.4. PAYMENT OF PURCHASE PRICE.
1.4.1. A payment of NINETEEN MILLION TWO HUNDRED AND
FIFTY-FIVE THOUSAND AND NO/100 DOLLARS ($19,255,000), plus or minus any
adjustments to the Purchase Price made pursuant to Section 1.3 (the "Closing
Cash Payment"), shall be made by Buyer by wire transfers payable to the order of
Selling Parties of immediately available federal funds on or before 10:00 a.m.,
Mountain Time, on the Closing Date in the amounts set forth on Exhibit 1.2.
1.4.2. FOUR MILLION TWO HUNDRED THOUSAND AND NO/100
DOLLARS ($4,200,000) of the Purchase Price shall be paid by the issuance of
383,992 shares of Series A-1 5% Convertible Preferred Stock (the "Series A-1
Preferred Stock") of Buyer to Selling Parties in the amounts set forth on
Exhibit 1.4., of which 36,571 shares shall be held by Buyer and released or
canceled pursuant to the terms of Section 1.6. The Series A-1 Preferred Stock
shall have the rights and preferences set forth in the certificate of
designation for the Series A-1 Preferred Stock attached hereto as Exhibit
1.4.2(a) (the "A-1 Certificate of Designation"). In connection with the
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issuance of the Series A-1 Preferred Stock to Selling Parties pursuant to this
Section 1.4.2, Selling Parties shall each be required to execute a subscription
agreement in the form attached hereto as Exhibit 1.4.2(b) (the "Subscription
Agreement").
1.4.3. TWENTY THOUSAND AND NO/100 DOLLARS ($20,000)
of the Purchase Price shall be paid by the issuance of 200,000 shares of Series
B-1 Convertible Preferred Stock (the "Series B-1 Preferred Stock") of Buyer to
Selling Parties in the amounts set forth on Exhibit 1.4. The Series B-1
Preferred Stock shall have the rights and preferences set forth in the
certificate of designation for the Series B-1 Preferred Stock attached hereto as
Exhibit 1.4.3 (the "B- 1 Certificate of Designation"). In connection with the
issuance of the Series B-1 Preferred Stock to Selling Parties pursuant to this
Section 1.4.3, Selling Parties shall each be required to execute the
Subscription Agreement.
1.4.4. THREE HUNDRED TWENTY-FIVE THOUSAND AND NO/100
DOLLARS ($325,000) of the Purchase Price shall be paid by issuing stock
appreciation rights, at the direction of Selling Parties, to certain employees
of the Corporation. A stock appreciation rights plan shall be adopted and
implemented within thirty (30) days of the Closing.
1.4.5. Following the Closing, Selling Parties shall
be eligible to receive an earnout payment in accordance with, and under the
circumstances set forth in, Section 1.5 hereof, and a contingent issuance of
shares of Series A-1 Preferred Stock in accordance with, and under the
circumstances set forth in, Section 1.6 hereof.
1.4.6. In addition to the foregoing payments, Buyer
is, contemporaneously with the Closing of the transactions contemplated hereby,
paying $200,000 in the aggregate for the agreement of each of Archambault, E.
Pollock and David Pollock not to compete with Buyer, Star Guide or the
Affiliates of either of them.
1.5. EARNOUT PAYMENT.
Within thirty (30) days after the delivery of audited
financial statements of the Corporation for the fiscal year ending December 31,
1999, Buyer shall pay, or shall cause the Corporation to pay, to Selling Parties
an amount (the "Earnout Amount") in cash equal to the sum of (a) the product of
six (6) and the Recovery Amount (as hereinafter defined), if any, plus (b) the
product of four (4) and the Excess Amount, if any. Notwithstanding the
foregoing, the Earnout Amount shall, in no event, exceed the sum of (x) TWO
MILLION AND NO/100 DOLLARS ($2,000,000), plus (y) the product of six (6) and the
Recovery Amount. The Earnout Amount shall be allocated among Selling Parties as
they instruct Buyer and no distribution of any portion of the Earnout Amount
shall be made unless and until written direction, executed by all Selling
Parties, as to such allocation is provided to Buyer.
For purposes of this Agreement, the following terms shall have
the meanings indicated herein: "Recovery Amount" shall mean the lesser of (A)
the difference between the Baseline Trailing Twelve Months EBITDA and the
Closing Trailing Twelve Months EBITDA, or (B) the difference between the
Corporation's Restated EBITDA for the fiscal year ending December
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31, 1999 (the "FY 1999 Restated EBITDA") and the Closing Trailing Twelve Months
EBITDA; and "Excess Amount" shall mean the amount, if any, by which the FY 1999
Restated EBITDA exceeds the Baseline Trailing Twelve Months EBITDA.
1.6. CONTINGENT ISSUANCE OF ADDITIONAL SERIES A-1
PREFERRED STOCK.
Within thirty (30) days after the delivery of audited
financial statements of the Corporation for the fiscal year ending December 31,
2000, Buyer shall either release or cancel the 36,751 shares of Series A-1
Preferred Stock that it was holding pursuant to Section 1.4.2, as determined
below:
1.6.1. If the FY 2000 EBITDA Growth Rate (as defined
in Section 1.6.4) is greater than or equal to ten percent (10%), the Maximum
Number of Shares (as defined in Section 1.6.4) of Series A-1 Preferred Stock
shall be released to Selling Parties.
1.6.2. If the FY 2000 EBITDA Growth Rate is greater
than five percent (5%) but less than ten percent (10%), that number of shares of
Series A-1 Preferred Stock equal to the product of (a) the Conversion Ratio (as
defined in Section 1.6.4) and (b) the Maximum Number of Shares shall be released
to Selling Parties and the remainder shall be canceled.
1.6.3. If the FY 2000 EBITDA Growth Rate is less than
or equal to five percent (5%), no additional shares of Series A-1 Preferred
Stock shall be released to Selling Parties.
1.6.4. For purposes of this Agreement, the following
terms shall have the meanings indicated herein: the "FY 2000 Restated EBITDA"
shall mean the Corporation's Restated EBITDA for the fiscal year ending December
31, 2000; the "FY 2000 EBITDA Growth Rate" shall mean the ratio of (a) the
amount, if any, by which the FY 2000 Restated EBITDA exceeds the FY 1999
Restated EBITDA over (b) the FY 1999 Restated EBITDA; the "Maximum Number of
Shares" shall mean 36,571; and the "Conversion Ratio" shall mean the ratio of
(a) the net result of FY 2000 EBITDA Growth Rate, less five percent (5%)
multiplied by 100, to (b) five (5). In connection with the additional issuance
of the Series A-1 Preferred Stock to Selling Parties pursuant to this Section
1.6, Selling Parties shall each be required to execute a Subscription Agreement.
2. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES.
Selling Parties (excluding Harrison and Bothner, except with respect to
Sections 2.4 and 2.5 below), jointly and severally (except where otherwise
indicated), represent and warrant to Buyer that the statements contained in this
Section 2 are correct and complete as of the date of this Agreement, except as
set forth in the disclosure schedule to be delivered by Selling Parties to Buyer
on the date hereof (the "Disclosure Schedule"), and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 2), except as
set forth in the revised disclosure schedule which may be delivered by Selling
Parties pursuant to Section 4.7 hereof (the "Revised Disclosure Schedule"). The
Disclosure Schedule and the Revised Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered paragraphs contained in this Section 2.
Any reference herein to the
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Disclosure Schedule after the date hereof shall be deemed to be a reference to
the Revised Disclosure Schedule.
As used in this in this Agreement, the following terms shall have the
respective meanings ascribed to them as set forth below:
(i) As of the date hereof, "Selling Parties' Knowledge" means
the actual present knowledge of each Selling Party.
(ii) As of the date of the Revised Disclosure Schedule,
"Selling Parties' Knowledge" means the actual knowledge, after conducting a
reasonable investigation, of each Selling Party.
2.1. AUTHORITY; ENFORCEABILITY.
The Corporation has the right and authority to enter into and
perform its obligations under this Agreement, and this Agreement constitutes the
valid and legally binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms. Each of Selling Parties represents and
warrants, severally and not jointly, that he or it has the right, legal capacity
and authority to enter into and perform his or its obligations under this
Agreement and that this Agreement constitutes the valid and legally binding
obligation of such Selling Party, enforceable against such Selling Party in
accordance with its terms.
2.2. CONSENTS AND APPROVALS.
Excepting any Premerger Notification filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or any other filings set forth in the Disclosure Schedule, no consent,
approval, or authorization of, or declaration, filing, or registration with, any
United States federal or state governmental or regulatory authority is required
to be made or obtained by Selling Parties or the Corporation in connection with
the execution, delivery, and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement.
2.3. ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.
The Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado and has
all necessary corporate or other powers to own its assets and operate its
business. The Corporation is qualified to do business as a foreign corporation
in every jurisdiction in which the nature of its business or its ownership of
property requires it to be so qualified, and otherwise has all licenses, permits
and authorizations necessary to carry on the business in which it is engaged and
to own and use the properties owned and used by it, except to the extent the
failure to maintain any such qualification, license, permit or authorization
would not reasonably be expected to have a Material Adverse Effect (as
hereinafter defined). As used in this Agreement, "Material Adverse Effect" means
an adverse effect on the business, business prospects, assets, properties,
financial condition or results of operations of the Corporation exceeding
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FIFTY THOUSAND AND NO/100 DOLLARS ($50,000) in either (i) lost revenue, (ii)
increased costs, (iii) lost asset value not due to normal amortization or
depreciation, or (iv) increased liabilities of the Corporation.
2.4. CAPITALIZATION; TITLE TO SHARES.
The authorized capital stock of the Corporation consists
solely of 20,000,000 shares of Common Stock, of which only the Shares are issued
and outstanding. All the Shares are validly issued, fully paid, and
nonassessable, and each Share has been issued in compliance with all applicable
federal and state securities laws. There are no outstanding subscriptions,
options, rights, warrants, convertible securities or other agreements or
commitments obligating the Corporation to issue or to transfer from treasury any
additional shares of its capital stock of any class. Selling Parties hold of
record, and own beneficially, all of the Shares, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and state securities laws), liens,
charges, encumbrances, taxes, security interests, options, warrants, purchase
rights, contracts, commitments, equities, claims and demands, and each Selling
Party so holds and owns the number of Shares set forth next to his or its name
in Exhibit 1.1. Each of Selling Parties represents and warrants, severally and
not jointly, that he or it is not party to any option, warrant, purchase right
or other contract or commitment that could require him or it to sell, transfer,
or otherwise dispose of any Shares other than pursuant to this Agreement, and,
except as provided in this Agreement, is not a party to any voting trust, proxy
or other agreement or understanding with respect to the voting of any of the
Shares.
2.5. NONCONTRAVENTION.
Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate any
law to which the Corporation is subject, (ii) violate any provision of the
articles of incorporation or bylaws of the Corporation, (iii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under, any agreement, contract, lease, license, instrument
or other arrangement to which the Corporation is a party or by which it is bound
or to which any of its assets is subject, or (iv) result in the creation or
imposition of any security interest upon any of the Corporation's assets. Each
of Selling Parties represents, severally and not jointly, that neither the
execution and delivery of this Agreement by him, nor the consummation of the
transactions contemplated hereby, will (i) violate any law to which he or it is
subject, (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under, any agreement,
contract, lease, license, instrument or other arrangement to which such Selling
Party is a party or by which he or it is bound, or (iii) result in the creation
or imposition of any security interest upon any of the Shares owned by him.
2.6. SUBSIDIARIES.
The Corporation does not own or control, directly or
indirectly, or have any other direct or indirect equity interest in any
corporation, partnership, trust or other business association.
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2.7. FINANCIAL STATEMENTS.
When delivered in accordance with Section 4.8, the FY 1998
Financial Statements (as defined in Section 4.8) shall (i) be prepared in
accordance with generally accepted accounting principles (except as provided in
Section 4.8), applied on a consistent basis throughout the periods covered
thereby, (ii) present fairly the financial condition and results of operations
of the Corporation as of the dates and for the periods identified therein, (iii)
be correct and complete in all material respects, and (iv) be consistent with
the books and records of the Corporation (which books and records are and will
be correct and complete).
2.8. EVENTS SUBSEQUENT TO FY 1998.
Except as contemplated by this Agreement, since the end of the
fiscal year ended December 31, 1998 ("FY 1998"), there has not been any adverse
change in the business, financial condition, operations, results of operations
of the Corporation, or, to Selling Parties' Knowledge, in the future prospects
of the Corporation, that exceeds FIFTY THOUSAND AND NO/100 DOLLARS ($50,000) in
either (i) lost revenue, (ii) increased costs, (iii) lost asset value not due to
normal amortization or depreciation, or (iv) increased liabilities of the
Corporation (a "Material Adverse Change"). Except as contemplated by this
Agreement, but without limiting the generality of the foregoing, since December
31, 1998 (the "Balance Sheet Date"):
(i) the Corporation has not sold, leased, transferred
or assigned any of its assets, tangible or intangible, other than on an
arm's-length basis in the ordinary course of business;
(ii) the Corporation has not entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, or licenses) outside the ordinary course of business
involving more than $50,000 in the aggregate that will remain an obligation of
the Corporation following the Closing;
(iii) no party (including the Corporation) has
accelerated, terminated, modified or canceled any agreement, contract, lease or
license (or series of related agreements, contracts, leases or licenses)
involving more than $50,000 in the aggregate to which the Corporation is a party
or by which the Corporation is bound;
(iv) the Corporation has not created or imposed, or
suffered the creation or imposition of, any lien, claim, charge, encumbrance or
security interest upon any of its assets, tangible or intangible, other than
pursuant to purchase money security interests in the ordinary course of
business, the aggregate amount of which does not exceed $25,000;
(v) the Corporation has not made any capital
expenditure (or series of related capital expenditures) involving expenditures
of more than $50,000 in the aggregate;
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(vi) the Corporation has not issued any note, bond,
or other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $25,000 in the aggregate, except in the ordinary course of business;
(vii) the Corporation has not delayed or postponed
the payment of accounts payable and other liabilities outside the ordinary
course of business, or, to Selling Parties' Knowledge, suffered any Material
Adverse Change in its relationship with its suppliers, vendors or customers or
suffered any Material Adverse Change in the pricing or quality of materials and
supplies used in the ordinary course of the Corporation's business;
(viii) there has been no material change in the
normal operating balances of the Corporation's inventory;
(ix) the Corporation has not canceled, compromised,
waived, or released any right or claim (or series of related rights and claims)
involving more than $25,000 in the aggregate;
(x) there has been no amendment made or authorized to
the Articles of Incorporation or bylaws of the Corporation;
(xi) the Corporation has not declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock;
(xii) the Corporation has not experienced any
material damage, destruction, or loss to its property not covered by insurance;
(xiii) except for loans or advances to a director,
officer or employee, which will be paid in full prior to Closing, the
Corporation has not made any loan or advance to, or entered into any other
transaction with, any of its directors, officers or employees;
(xiv) except as otherwise contemplated or described
in this Agreement, the Corporation has not entered into any employment contract
providing for base compensation in excess of $65,000 or any collective
bargaining agreement, written or oral, or modified the terms of any such
existing contract or agreement;
(xv) the Corporation has not granted any increase in
the base compensation of any of its directors, officers or employees outside the
ordinary course of business, and any such increase is set forth on the
Disclosure Schedule;
(xvi) the Corporation has not adopted, amended,
modified or terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors, officers
or employees;
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(xvii) the Corporation has not made any other change
in employment terms for any of its directors, officers or employees outside the
ordinary course of business;
(xviii) the Corporation has not made or pledged to
make any charitable contribution in excess of $5,000 in the aggregate; and
(xix) the Corporation has not committed or agreed to
any of the foregoing.
2.9. UNDISCLOSED LIABILITIES.
The Corporation has no liabilities except for (i) liabilities
reflected and reserved against on the Corporation's balance sheet included in
the FY 1998 Financial Statements (the "FY 1998 Balance Sheet"), (ii) liabilities
that have arisen after the Balance Sheet Date in the ordinary course of
business, and (iii) liabilities that are disclosed in this Section 2 and/or in
the Disclosure Schedule, as applicable (as such disclosures are qualified by the
terms set forth in this Section 2).
2.10. TITLE TO ASSETS.
The Corporation has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by the Corporation in the
ordinary course of business (except inventory consigned to the Corporation for
sale) or shown on the FY 1998 Balance Sheet, or acquired after the date thereof,
free and clear of all security interests, except for properties and assets
disposed of in the ordinary course of business for fair value since the date of
the FY 1998 Balance Sheet.
2.11. TANGIBLE ASSETS AND INVENTORY.
The Corporation owns or leases all buildings, machinery,
equipment and other tangible assets necessary for the conduct of its business as
presently conducted, and all such tangible assets are located in buildings owned
or leased by the Corporation. To Selling Parties' Knowledge, each such tangible
asset is free from material defect and is in good operating condition and repair
(subject to normal wear and tear). The Corporation's inventory consists of raw
materials and consignment and finished goods salable by the Corporation in its
ordinary course of business. The FY 1998 Financial Statements reflect an
adequate reserve for all the Corporation's inventory that is slow-moving, as
determined in accordance with the Corporation's customary practices, or is
obsolete, damaged or defective.
2.12. TAX MATTERS.
2.12.1. The Corporation has timely filed with the
appropriate governmental agencies complete and accurate Tax Returns (as defined
below) required to be filed by it in respect of all applicable Taxes (as defined
below) required to be paid through the date hereof, and will timely file any
such Tax Return required to be filed by it prior to the Closing Date with
respect to all applicable Taxes required to be paid through the Closing Date.
All such Tax Returns were prepared in compliance with applicable law and all
Taxes due, or claimed to be due by any taxing authority, pursuant thereto
(whether or not shown as due on any Tax Return) have been paid. In
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addition, all Taxes due or claimed to be due by any taxing authority (whether or
not shown on any Tax Return), prior to the Closing Date for which the
Corporation may be liable in its own right or as a transferee of the assets of,
or successor to, any corporation, person, association, partnership, joint
venture or other entity, have been paid on a timely basis, or an adequate
reserve has been established therefor. The Corporation currently is not the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Corporation
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Corporation that arose in connection with any failure (or alleged failure) to
pay any Tax.
2.12.2. The Corporation has withheld and paid all
Taxes that it is required to withhold and pay in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder or other
third party.
2.12.3. To Selling Parties' Knowledge, there is no
basis for any Tax authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no action, suit, proceeding, audit,
investigation, assessment, dispute or claim concerning any Tax liability of the
Corporation, either (a) claimed or raised by any authority delivered to the
Corporation in writing or (b) as to which Selling Parties have knowledge based
upon personal communication or contact with any agent of such authority.
2.12.4. In furtherance of their obligations under
Section 4.2, Selling Parties will make available to Buyer at the Corporation's
corporate offices prior to the Closing correct and complete copies of all
federal, state, local and foreign income Tax Returns and all written
communications from the Internal Revenue Service or other Tax authorities
relating to any such Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Corporation since January 1,
1993.
2.12.5. The Corporation has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency, and no power of attorney granted by the
Corporation with respect to any Tax matter is currently in force.
2.12.6. The Corporation: (A) has not engaged in any
transaction that would result in a deemed election under Section 338(e) of the
Code (as defined in Section 2.12.10); and (B) has not filed a consent under
Section 341(f) of the Code.
2.12.7. The Corporation has not made any payments, is
not obligated to make any payments, and is not a party to any agreement that,
under any circumstances, could obligate it to make any payments that will not be
deductible pursuant to Code Section 280G. The Corporation has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662. The Corporation is not a party to any Tax allocation or sharing
agreement. The Corporation: (A) has not been a member of an affiliated group
filing a consolidated federal income Tax Return, (B) is not and has never been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income tax purposes, and (C) has no liability for the
Taxes of any person
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(other than the Corporation) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
2.12.8. The unpaid Taxes of the Corporation do not
exceed the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the FY 1998 Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Corporation in filing its Tax Returns.
2.12.9. The Corporation has been a validly electing
"S corporation" within the meaning of Sections 1361 and 1362 of the Code at all
times since at least December 1994, and the Corporation will be an S corporation
up to and including the Closing Date. The Corporation and Selling Parties will
not, prior to the Closing Date, revoke the Company's election to be taxed as an
S corporation within the meaning of Sections 1361 and 1362 of the Code. The
Corporation and Selling Parties will not take or allow any action other than the
sale of the Shares pursuant to this Agreement that would result in the
termination of the Company's status as a validly electing S corporation within
the meaning of Sections 1361 and 1362 of the Code.
2.12.10. As used in this Agreement, "Code" means the
Internal Revenue Code of 1986, as amended; "Tax" means any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, highway, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not imposed by any governmental or
quasi-governmental authority; and "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.13. REAL PROPERTY.
2.13.1. The Corporation does not own any Real
Property (as defined below in Section 2.20.1), other than the Real Property to
be transferred to Selling Parties pursuant to Section 4.11 (the "Transferred
Real Property").
2.13.2. Section 2.13.2 of the Disclosure Schedule
lists all Real Property leased or subleased to the Corporation, identifies the
lessor, rental rate, lease term, expiration date, existence of a renewal option
and, to Selling Parties' knowledge, any use of the Real Property prior to the
use or occupation by the Corporation. Selling Parties have made available to
Buyer at the Corporation's corporate offices prior to the Closing correct and
complete copies of all leases and subleases listed in Section 2.13.2 of the
Disclosure Schedule (as amended to date). With respect to each lease and
sublease listed:
(i) the lease or sublease is in full force and effect
and will remain in full
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force and effect on substantially similar terms on and after the Closing, the
Corporation is in possession of the leased premises and all rental and other
obligations of the Corporation are current;
(ii) the Corporation is not in breach or default (or
has not received notice of breach or default), and no event has occurred which,
with notice or lapse of time or both, would constitute a breach or default or
permit termination, modification or acceleration under such lease or sublease;
(iii) to Selling Parties' Knowledge, no party has
repudiated any provision of such lease or sublease;
(iv) there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease to which the
Corporation is a party;
(v) the Corporation has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold; and
(vi) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof by the Corporation
and have been operated and maintained by the Corporation in compliance with
applicable laws, except to the extent that the failure to obtain such approvals
or to be in compliance with such laws would not reasonably be expected to have a
Material Adverse Effect.
2.14. CONTRACTS.
Section 2.14 of the Disclosure Schedule lists the following
contracts and other agreements to which the Corporation is a party:
2.14.1. any agreement (or group of related
agreements) for the lease of personal property to or from any person providing
for lease payments in excess of $20,000 per annum;
2.14.2. any agreement (or group of related
agreements) for the purchase or sale of supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will (A) extend over a period of more than one year and involve consideration in
excess of $100,000 in the aggregate, or (B) result in a loss to the Corporation
of more than $50,000 in any twelve (12)-month period;
2.14.3. any agreement concerning a partnership or
joint venture;
2.14.4. any agreement (or group of related
agreements) under which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation in excess
of $25,000 in the aggregate or under which it has imposed a security interest on
any of its assets, tangible or intangible, copies of which have been made
available to
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Buyer at the Corporation's corporate offices prior to the Closing;
2.14.5. any agreement concerning confidentiality or
noncompetition;
2.14.6. any agreement with Selling Parties, their
respective affiliates, or any relative of a Selling Party;
2.14.7. any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers or
employees;
2.14.8. any collective bargaining agreement;
2.14.9. any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis providing
annual compensation or severance benefits that would make such individual one of
the ten (10) highest paid employees of the Corporation;
2.14.10. any agreement under which the Corporation
has advanced or loaned any amount to (A) any of its directors or officers, or
(B) any of its employees outside the ordinary course of business;
2.14.11. any other agreement (or group of related
agreements) under which the consequences of a default or termination could
reasonably be expected to have a Material Adverse Effect; or
2.14.12. any other agreement (or group of related
agreements) the performance of which involves the payment of consideration in
excess of $100,000 in the aggregate during any twelve (12)-month period.
Pursuant to their obligations under Section 4.2, Selling Parties will make
available to Buyer at the Corporation's corporate offices prior to the Closing a
correct and complete copy of each written agreement listed in Section 2.14 of
the Disclosure Schedule and a brief written summary setting forth the terms and
conditions of any oral agreement referred to in Section 2.14 of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding and enforceable against the Corporation, and in full force and
effect as against the Corporation; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
(except as otherwise explicitly set forth in Section 2.14 of the Disclosure
Schedule) as of the Closing Date immediately after giving effect to the
consummation of the transactions contemplated hereby; (C) the Corporation is not
in breach or default and, to Selling Parties' Knowledge, no other party is in
breach or default and no event has occurred which, with notice or lapse of time
or both, would constitute a breach or default or permit termination,
modification, or acceleration, under the agreement; and (D) the Corporation has
not repudiated any provision of the agreement, and, to Selling Parties'
Knowledge, no other party has repudiated any provision of the agreement.
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2.15. RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS.
To Selling Parties' Knowledge, the Corporation currently has
good relationships with its customers and suppliers. The Corporation currently
is not in dispute, written or oral, with any current or former customer or
supplier material to the Corporation, and, since the Balance Sheet Date, no
customer or supplier material to the Corporation has notified the Corporation
that it will stop doing business, or materially reduce its business, with the
Corporation. Section 2.15 of the Disclosure Schedule lists the ten (10) largest
customers and suppliers of the Corporation in terms of dollar volume during each
of the three (3) immediately preceding fiscal years of the Corporation.
2.16. NOTES AND ACCOUNTS RECEIVABLE; BANK ACCOUNTS.
All notes and accounts receivable of the Corporation are
reflected properly on its books and records, are valid receivables subject to no
setoffs or counterclaims, are current and collectible, and will be collected in
accordance with their terms at their recorded amounts, subject to the allowance
for doubtful accounts on the FY 1998 Financial Statements for bad debt. Section
2.16 of the Disclosure Schedule sets forth, as of December 31, 1998, all notes
and accounts receivable of the Corporation. Selling Parties will also have
delivered, on or one business day prior to the Closing Date, a revised schedule
of all notes and accounts receivable of the Corporation as of one business day
prior to the Closing Date. Section 2.16 of the Disclosure Schedule also sets
forth all related party notes and accounts receivable (including those that will
be repaid or offset prior to Closing). Section 2.16 of the Disclosure Schedule
also sets forth all bank accounts maintained by the Corporation.
2.17. INSURANCE.
Section 2.17 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Corporation is a party, a named
insured, or otherwise the beneficiary of coverage:
(i) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(ii) the policy number and the period of coverage;
(iii) the scope (including an indication of whether
the coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(iv) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) to Selling Parties' Knowledge,
the policy is legal, valid, binding, enforceable, and in full force and effect
and will remain in full force and effect on
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identical terms (except as otherwise explicitly set forth in Section 2.17 of the
Disclosure Schedule) on and after the Closing; (B) neither the Corporation nor,
to Selling Parties' Knowledge, any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (C) to Selling Parties' Knowledge, no
party to the policy has repudiated any provision thereof. The Corporation is
covered by insurance in scope and amount customary and reasonable for the
businesses in which it is engaged. Section 2.17 of the Disclosure Schedule
describes any self- insurance arrangements affecting the Corporation.
2.18. EMPLOYEES.
To Selling Parties' Knowledge, no executive, key employee, or
group of employees has any plans to terminate employment with the Corporation.
The Corporation is not a party to or bound by any collective bargaining
agreement, nor has the Corporation experienced any strikes, grievances, claims
of unfair labor practices, or other collective bargaining disputes. The
Corporation has not taken any action, or omitted to take any action, that would
result in any unfair labor practice. To Selling Parties' Knowledge, no
organizational effort is presently being made or threatened by or on behalf of
any labor union with respect to employees of the Corporation. All of the
Corporation's current procedures, policies and training practices with respect
to employee matters, including, without limitation, those relating to the hiring
and termination of employees and worker safety, conform with applicable laws to
which the Corporation is subject, except to the extent the failure by the
Corporation to so conform would not reasonably be expected to have a Material
Adverse Effect. Except as between Selling Parties, no offer has been made to any
employee of the Corporation to purchase all, or any material portion of, the
capital stock or assets of the Corporation, nor has any discussion taken place
regarding such a transaction or any similar transaction. The Corporation is not
subject to any claim for overtime compensation due to any employee, and, to
Selling Parties' Knowledge, no such claim has been threatened.
2.19. EMPLOYEE BENEFITS.
2.19.1. With respect to all employees and former
employees of the Corporation who perform or performed functions in connection
with the Corporation's business and all dependents and beneficiaries of such
employees and former employees, except as set forth on Section 2.19.1 of the
Disclosure Schedule: (a) the Corporation does not maintain or contribute to any
nonqualified deferred compensation or retirement plans, contracts or
arrangements; (b) the Corporation does not maintain or contribute to any
qualified defined contribution plans (as defined in Section 3(34) of ERISA (as
defined below) or Section 414(i) of the Code; (c) the Corporation does not
maintain or contribute to any qualified defined benefit plans (as defined in
Section 3(35) of ERISA or Section 414(j) of the Code); (d) the Corporation does
not maintain or contribute to any employee welfare benefit plans (as defined in
Section 3(1) of ERISA); and (e) the Corporation does not maintain any severance
plan for, or have any severance agreement with, any employee.
2.19.2. The Employee Benefit Plans comply in all
material respects with the requirements of ERISA and the Code. With respect to
the Employee Benefit Plans, (a) all required
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contributions which are due have been made and a proper accrual has been made
for all contributions due in the current fiscal year; and (b) there have been no
Prohibited Transactions (as defined below) that would reasonably be expected to
have a Material Adverse Effect.
2.19.3. The Corporation does not contribute (and has
never contributed) to any multi-employer plan, as defined in Section 3(37) of
ERISA. The Corporation has no actual or potential liabilities under Section 4201
of ERISA for any complete or partial withdrawal from a multi-employer plan that
would reasonably be expected to have a Material Adverse Effect. The Corporation
has no actual or potential liability for death or medical benefits after
separation from employment, other than (a) death benefits under the employee
benefit plans or programs (whether or not subject to ERISA) set forth under
Section 2.19.3 in the Disclosure Schedule, (b) health care continuation benefits
described in Section 4980B of the Code, or (c) other actual or potential
liabilities that would not, singly or in the aggregate, be reasonably expected
to have a Material Adverse Effect.
2.19.4. Neither the Corporation nor any of its
directors, officers or employees, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with respect to the
Employee Benefit Plans which would subject the Corporation, Buyer or any of
their respective directors, officers or employees to any liability under ERISA
or any applicable law that would reasonably be expected to have a Material
Adverse Effect.
2.19.5. The Corporation has not incurred any
liability for any tax or civil penalty or any disqualification of any Employee
Benefit Plan imposed by Sections 4980B and 4975 of the Code and Part 6 of Title
I and Section 502(i) of ERISA.
2.19.6. As used in this Agreement:
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee
Pension Benefit Plan, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c)
qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or
(d) Employee Welfare Benefit Plan or material fringe benefit plan or
program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
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2.20. ENVIRONMENTAL COMPLIANCE.
2.20.1. The Corporation and all real property owned,
purchased, leased or otherwise operated or occupied by the Corporation (the
"Real Property") is currently, and at all times during the Corporation's
ownership and/or operation of its business has been, in compliance in all
material respects with all applicable Environmental Laws (as defined below). At
all times during the Corporation's ownership and/or operation of the Real
Property, there has not been, nor is there now occurring, any Release (as
defined below) of any Hazardous Material (as defined below) or any Contamination
(as defined below) on, under or from the Real Property, except any such Release
permitted by, and made in accordance with, applicable Environmental Laws. To
Selling Parties' Knowledge, at all times prior to the Corporation's ownership,
occupation and/or operation of the Real Property, there did not occur any
Release of any Hazardous Material or any Contamination on, under or from the
Real Property, except any such Release permitted by, and made in accordance
with, applicable Environmental Laws and all such ownership, occupation and/or
operation of the Real Property was otherwise in accordance with all applicable
Environmental Laws.
2.20.2. The Corporation has obtained and maintains in
full force and effect all environmental permits, licenses, certificates of
compliance, approvals and other authorizations (the "Environmental Permits")
necessary to conduct the activities and business of the Corporation as currently
conducted, and to own or operate the Real Property, other than any Environmental
Permits the absence of which, singly or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect. The Corporation has conducted its
activities and business in compliance, in all material respects, with all terms
and conditions of any Environmental Permits. The Corporation has filed all
reports and notifications required to be filed under applicable Environmental
Laws.
2.20.3. Neither Selling Parties nor the Corporation
have received any notice that any Third Party Environmental Claims (as defined
below) or Regulatory Actions (as defined below) have been asserted or assessed
against the Corporation or the Real Property and, no Third Party Environmental
Claims or Regulatory Actions are pending or, to Selling Parties' Knowledge,
threatened, against the Corporation or the Real Property arising out of or due
to, or allegedly arising out of or due to, (A) the Release on, under or from the
Real Property of any Hazardous Materials; (B) any Contamination of the Real
Property, including, without limitation, the presence of any Hazardous Material
which has come to be located on or under the Real Property from another
location; (C) any violation or alleged violation of any Environmental Law with
respect to the Real Property or the activities of the Corporation; (D) any
injury to human health or safety or to the environment by reason of the past or
present condition of, or past or present activities on or under, the Real
Property; or (E) the generation, manufacture, storage, treatment, handling,
transportation or other use, however defined, of any Hazardous Material by or
for the Corporation on or off the Real Property.
2.20.4. The Corporation has not stored, transported,
handled, treated, processed, used or disposed of any Hazardous Materials on, in
or under the Real Property, including specifically, but not limited to,
polychlorinated biphenyls ("PCBs"), asbestos or asbestos-containing materials,
radon, urea formaldehyde or radioactive materials, except any of the foregoing
permitted by, and made in accordance with, applicable Environmental Laws.
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2.20.5. The Corporation has not transported or
arranged for the transportation of any Hazardous Materials to any location which
is: (i) listed on the Environmental Protection Agency's National Priorities List
of Hazardous Waste Sites (the "National Priorities List"); (ii) listed on the
Comprehensive Environmental Response, Compensation, Liability Information System
("CERCLIS") or on any similar state list; or (iii) the subject of any Regulatory
Action which may lead to claims against Buyer for damages to natural resources,
personal injury, clean-up costs or clean-up work, including, but not limited to,
claims under CERCLA (as defined below).
2.20.6. None of the Real Property is listed in the
National Priorities List or any other list, schedule, log, inventory or record
published by any federal, state or local governmental agency with respect to
sites from which there is or has been a Release of any Hazardous Material or any
Contamination. To Selling Parties' Knowledge, no part of the Real Property was
ever used, nor is it now being used (i) as a landfill, dump or other disposal,
storage, transfer or handling area for Hazardous Materials which requires a
permit under Environmental Laws; or (ii) as a gasoline service station. There
are no underground or above ground tanks on the Real Property.
2.20.7. As used in this Agreement:
"Clean-up" shall mean removal and/or remediation of, or other
response to (including, without limitation, testing, monitoring,
sampling or investigating of any kind) any Release of Hazardous
Materials or Contamination, to the satisfaction of all applicable
governmental agencies, in compliance with Environmental Laws and in
compliance with good commercial practice.
"Contamination" shall mean the presence of, or Release on,
under, from or to the Real Property of any Hazardous Material, except
the routine storage and use of Hazardous Materials from time to time in
the ordinary course of business, in compliance with Environmental Laws
and compliance with good commercial practice.
"Environmental Law(s)" shall mean any and all existing
federal, state and local laws, statutes, codes, ordinances,
regulations, rules, consent decrees, judicial orders, administrative
orders or other requirements relating to the environment or to human
health or safety associated with the environment, as may have existed
from time to time prior to and on the date of the Closing.
Environmental Laws shall include, but are not limited to, the following
statutes and all rules and regulations relating thereto, all as amended
or modified prior to the date hereof:
(A) The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA")
42 U.S.C. Section 9601-9675; the Resource Conservation and
Recovery Act of 1976 ("RCRA") 42 U.S.C. Section 6901-6991; the
Clean Water Act 33 U.S.C. Section 1321 et seq.; the Clean Air
Act 42 U.S.C. Sections 7401 et seq.; the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA") 7 U.S.C. Section.
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136 et seq.; and the Toxic Substances Control Act ("TSCA") 15
U.S.C. Section 2601-2671; and
(B) all similar state and local laws, statutes,
codes, ordinances, regulations and rules.
"Hazardous Material(s)" shall mean (A) any substance, the
presence in a quantity of which requires investigation or remediation
under any Environmental Law or under common law; (B) any toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous substance present in a quantity such
that it is regulated by any Environmental Law; (C) any substance in a
quantity the presence of which poses or threatens to pose a hazard to
the health or safety of persons on or about the Real Property; and (D)
urea-formaldehyde, PCBs, asbestos or asbestos-containing materials,
radon, petroleum and petroleum products.
"Regulatory Action(s)" shall mean any claim, demand, action or
proceeding brought or instigated by any governmental agency in
connection with any Environmental Law (including, without limitation,
civil, criminal and/or administrative proceedings), whether or not
seeking costs, damages, penalties or expenses.
"Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, injecting, leaching, escaping, or
any other release or threatened release, and whether intentional or
unintentional, of any Hazardous Material.
"Third Party Environmental Claim(s)" shall mean third-party
claims, actions, demands or proceedings (other than Regulatory Actions)
based on negligence, trespass, strict liability, nuisance, toxic tort
or detriment to human health or welfare due to any Release of Hazardous
Materials or Contamination, and whether or not seeking costs, damages,
penalties or expenses.
2.21. LITIGATION.
2.21.1. No action, suit, or proceeding is pending or,
to Selling Parties' Knowledge, threatened against Selling Parties or the
Corporation before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (a) prevent consummation of any
of the transactions contemplated by this Agreement, (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (c) affect adversely the right of Buyer to own and vote the
Shares.
2.21.2. The parties acknowledge that, as of the date
hereof, the Corporation has initiated, and is a party to, a lawsuit styled G&D,
Inc. d/b/a Star Guide Corporation v. Precision Wire Components LLC, Civil Action
No. 96-WM-1864, pending in the United States District Court for the District of
Colorado (the "Precision Litigation"). The parties agree to share all costs,
expenses, damages or awards arising from the Precision Litigation or from any
counterclaim, cross
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claim, or any other claim derived therefrom or related thereto, in accordance
with a litigation agreement to be negotiated and entered into by the parties
prior to the Closing (the "Litigation Agreement").
2.22. LEGAL COMPLIANCE.
Except for violations of laws that would not reasonably be
expected to have a Material Adverse Effect, the Corporation has complied with
all laws applicable to the Corporation, and neither the Corporation nor Selling
Parties have received any notice of any violation of any applicable federal,
state, or local statute, law, or regulation (including, without limitation, any
applicable building, zoning, environmental protection, or other law, ordinance
or regulation) affecting the Corporation's properties, the Real Property or the
operation of the Corporation's business.
2.23. CERTAIN BUSINESS RELATIONSHIPS WITH CORPORATION.
Except for loans to Selling Parties from the Corporation and
notes payable to the Corporation (all of which will be repaid or offset prior to
the Closing), none of Selling Parties, their affiliates or any of Selling
Parties' relatives has been involved in any business arrangement or relationship
with the Corporation within the past twelve (12) months, and none of any of the
foregoing persons owns any asset, tangible or intangible, which is used in the
business of the Corporation.
2.24. PRODUCT WARRANTY AND LIABILITY.
It is the Corporation's standard practice to sell each product
sold by the Corporation in conformity with all applicable contractual
commitments, if any, and all express and implied warranties of the manufacturer.
All products sold by the Corporation have been sold in conformity with such
practice, except for such deviations therefrom that do not have, and would not
be reasonably expected to have, a Material Adverse Effect. No product sold by
the Corporation is subject to any other guaranty, warranty or other indemnity
beyond the applicable standard terms and conditions of sale. No third party has
advised the Corporation that it has any liability arising out of any injury to
individuals or property as a result of the ownership, possession or use of any
product sold to the Corporation prior to the Closing. To Selling Parties'
Knowledge, the Corporation has no liability arising out of any injury to
individuals or property as a result of the ownership, possession or use of any
product sold by the Corporation prior to the Closing.
2.25. INTELLECTUAL PROPERTY.
The Corporation owns all right, title and interest in, or has
the right to use, sell or license, all patent applications, patents, trademark
applications, trademarks, service marks, trade names, copyright applications,
copyrights, trade secrets, know-how, technology, customer lists, proprietary
processes and formulae, all source and object code, algorithms, inventions,
development tools and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda and
records and other intellectual property and proprietary
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rights used in, or reasonably necessary or required for the conduct of, its
business as presently conducted (collectively, the "Intellectual Property"). Set
forth on Section 2.25 of the Disclosure Schedule is a true and complete list of
all copyright and trademark registrations and applications and all patents and
patent applications for Intellectual Property owned by the Corporation. The
Corporation is not aware of any material loss, cancellation, termination or
expiration of any such registration or patent. The business of the Corporation
as conducted as of the date hereof does not, and as currently anticipated to be
conducted in the future will not, cause the Corporation to infringe or violate
any of the patents, trademarks, service marks, trade names, mask works,
copyrights, trade secrets, proprietary rights or other intellectual property of
any other person, and the Corporation has not received any written or oral claim
or notice of infringement or potential infringement of the intellectual property
of any other person. There are no royalties, honoraria, fees or other payments
payable by the Corporation to any person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property (other than as set
forth on Section 2.25 of the Disclosure Schedule). Neither the manufacture,
marketing, sale or intended use of any product currently licensed or sold by the
Corporation or currently under development by the Corporation violates any
license or agreement between the Corporation and any third party. The
Corporation has taken reasonable and practicable steps designed to safeguard and
maintain the secrecy and confidentiality of, and its proprietary rights in, all
material Intellectual Property. To Selling Parties' Knowledge, there has been no
infringement of the Intellectual Property by any third party other than the
infringement that forms the basis for the Precision Litigation. All officers and
employees of the Corporation have executed and delivered to the Corporation an
agreement regarding the protection of proprietary information and the assignment
to the Corporation of all intellectual property rights arising from the services
performed for the Corporation by such persons.
2.26. NATURALIZATION OF EMPLOYEES.
The Corporation has not received a notice of any violation of
any immigration and naturalization laws relating to employment and employees and
has properly completed and maintained all applicable forms (including, but not
limited to, I-9 forms) and, to Selling Parties' Knowledge, after due inquiry,
the Corporation is in compliance with all such immigration and naturalization
laws (except to the extent that the failure to so comply would not reasonably be
expected to have a Material Adverse Effect) and there are no citations,
investigations, administrative proceedings or formal complaints of violations of
the immigration or naturalization laws pending or threatened before the
Immigration and Naturalization Service of any federal, state or administrative
agency or court against or involving the Corporation or any of the Selling
Parties.
2.27. CERTAIN OTHER COMPENSATION PAYMENTS.
Since March 31, 1998, the Corporation has not granted or paid
any increase in the hourly wage scale or base compensation to any class of its
employees. For purposes of this Section 2.27, a "class of employees" shall mean
any group of three (3) or more employees with the same or similar title or job
function.
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2.28. BROKERS' FEES.
The Corporation has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.29. YEAR 2000 COMPLIANCE.
The Corporation has (i) initiated a review and assessment of
all areas within its business and operations (including those affected by
suppliers and vendors) that could be adversely affected by the "Year 2000
Problem" (which term, as used herein, shall mean the risk that computer
applications used by the Company (or its suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan for
addressing the Year 2000 Problem on a timely basis (a "Year 2000 Plan"), and
(iii) to date, is in the process of implementing that plan. The Corporation
reasonably believes that all computer applications that are material to its
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000, except
to the extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
2.30. NO MATERIAL ADVERSE CHANGE. Since May 31, 1999 through
the date hereof, there has been no Material Adverse Change to the business of
the Corporation or other event that resulted in a Material Adverse Effect.
3. BUYER'S REPRESENTATIONS AND WARRANTIES.
Buyer represents and warrants to each of Selling Parties that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3).
3.1. ORGANIZATION; AUTHORITY; ENFORCEABILITY.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Colorado. Buyer has the right and authority to
enter into and perform its obligations under this Agreement, and this Agreement
constitutes the valid and legally binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms.
3.2. CAPITALIZATION; TITLE TO SHARES; DEBT STRUCTURE.
The authorized capital stock of Buyer consists of 30,000,000
shares of common stock, $0.01 par value per share ("Buyer Common Stock"), of
which 150,000 shares are issued and outstanding, and 20,000,000 shares of
preferred stock, $0.01 par value per share ("Buyer Preferred Stock"), of which
841,030 shares have been designated as Series A-1 Preferred Stock and 841,030
shares of such series are issued and outstanding and 300,000 shares have been
designated as Series B-1 Preferred Stock and 300,000 shares of such series are
issued and outstanding. All such
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outstanding shares are validly issued, fully paid, and nonassessable, and each
of such shares has been issued in compliance with all applicable federal and
state securities laws. Except as contemplated by this Agreement, there are no
outstanding subscriptions, options, rights, warrants, convertible securities or
other agreements or commitments obligating Buyer to issue or to transfer from
treasury any additional shares of its capital stock of any class or series.
Exhibit 3.2(a) hereto sets forth the name of, the number of shares of each
series and class of capital stock held by, and the consideration paid for such
shares by, each shareholder of Buyer. The amount and terms of Buyer's
indebtedness is as set forth on Exhibit 3.2(b) hereto.
3.3. CONSENTS AND APPROVALS.
Excepting any filings required by the HSR Act, no consent,
approval, or authorization of, or declaration, filing, or registration with, any
United States federal or state governmental or regulatory authority is required
to be made or obtained by Buyer in connection with the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement.
3.4. NONCONTRAVENTION.
Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate any
law to which Buyer is subject, (ii) violate any provision of the charter or
bylaws of Buyer, or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject.
3.5. LITIGATION.
No action, suit, or proceeding is pending or, to Buyer's
actual knowledge, threatened, against Buyer before any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (a) prevent consummation of any of the transactions contemplated by this
Agreement, or (b) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation.
3.6. BROKERS' FEES.
Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which Selling Parties could become personally
liable or obligated, other than a transaction fee of $300,000 payable to KRG
Capital Partners, LLC ("KRG") in connection with the transactions contemplated
by this Agreement and certain other fees and costs payable to KRG in accordance
with the management agreement to be executed between KRG and the Corporation
(the "Management Agreement") pursuant to Section 6.18 of this Agreement. Among
other things, the Management Agreement shall
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provide that, in the event of any "sale of the Corporation" (as defined in the
Management Agreement), KRG will receive from the Corporation an accelerated cash
payment in an amount equal to KRG's fees for the period of time that is the
longer of (i) two and one-half (2 1/2) or (ii) the remainder of the original
term of the Management Agreement.
4. SELLING PARTIES' AND CORPORATION'S OBLIGATIONS BEFORE CLOSING.
Selling Parties and the Corporation covenant that, from the date of
this Agreement until the Closing:
4.1. GENERAL.
Each of Selling Parties and the Corporation will use his or
its commercially reasonable efforts to take all action and to do all things
necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 6 below).
4.2. ACCESS.
From the date of the execution of this Agreement through June
1, 1999, Buyer and Buyer's senior and subordinated lenders (the "Lenders") that
are providing Buyer with the financing necessary, in part, to consummate the
transactions contemplated by this Agreement, and their counsel, accountants, and
other representatives shall have reasonable access during specified hours
reasonably determined by the Corporation to all properties, books, accounts,
records, contracts, and documents of or relating to the Corporation. Selling
Parties and the Corporation shall furnish or cause to be furnished to Buyer and
its representatives and the Lenders and their representatives all data and
information concerning the business, finances, and properties of the Corporation
that may reasonably be requested to complete their due diligence review pursuant
to Section 5.1 of this Agreement.
4.3. OPERATION OF BUSINESS.
The Corporation will carry on its business and activities
diligently and in substantially the same manner as they previously have been
carried out and, except as expressly contemplated by this Agreement, shall not
make or institute any unusual or novel methods of manufacture, purchase, sale,
lease, management, accounting, or operation that vary materially from those
methods used by the Corporation as of the date of this Agreement. Without
limiting the generality of the foregoing and except as set forth in Section
4.11, unless reflected on the May 31, 1999 balance sheet of the Corporation as a
payable, Selling Parties will not cause or permit the Corporation to (i)
declare, set aside, or pay any dividend or make any distribution with respect to
its capital stock or redeem, purchase, or otherwise acquire any of its capital
stock, or (ii) otherwise engage in any practice, take any action, or enter into
any transaction of the sort described in Section 2.8 above, other than in the
ordinary course of business.
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4.4. PRESERVATION OF BUSINESS; INSURANCE.
Except as contemplated by this Agreement, Selling Parties will
cause the Corporation to, and the Corporation will, keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, lessees,
licensors, licensees, suppliers, customers, and employees, and will continue to
carry its existing insurance, subject to variations in amounts required by the
ordinary operations of its business.
4.5. NOTICES AND CONSENTS.
Selling Parties will cause the Corporation to, and the
Corporation will, give any notices to third parties, and will cause the
Corporation to use commercially reasonable efforts to obtain any third-party
consents, including, without limitation, the consent of lessors and sublessors,
that Buyer may reasonably request in connection with the matters referred to in
Section 2.5 above. If required by law, Selling Parties and the Corporation shall
cooperate and share information regarding the preparation of any filings
required by the HSR Act and will seek early termination of any waiting period
imposed by the HSR Act. Selling Parties shall be responsible to pay fifty
percent (50%) of the filing fees and costs in connection with all filings
required by the HSR Act, with the remaining fifty percent (50%) to be paid by
Buyer.
4.6. EXCLUSIVITY.
Until the earliest of: (1) the date of the Closing, (2) the
termination (for whatever reason) of this Agreement or (3) June 30, 1999,
neither the Corporation nor any of Selling Parties shall solicit, initiate or
encourage any other bids for the sale of the Corporation or enter into any other
negotiations for the sale of the capital stock or assets of the Corporation, or
any material portion thereof, without the written consent of Buyer. Selling
Parties will notify Buyer promptly if any person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing.
4.7. NOTICE OF DEVELOPMENTS; UPDATE OF DISCLOSURE
SCHEDULE.
4.7.1. Selling Parties will give prompt written
notice to Buyer of any material adverse development causing a breach of any of
the representations and warranties in Section 2 above. Selling Parties will give
prompt written notice to Buyer of any Material Adverse Change known to them in
the Corporation's relationship with any of its customers or suppliers. Selling
Parties will provide written updates to Buyer as to the status of the Precision
Litigation upon request, continuing through the final resolution thereof, and
upon request Selling Parties will promptly provide Buyer with copies of any new
court filing in the Precision Litigation. No disclosure by a Selling Party
pursuant to this Section 4.7, however, shall be deemed to amend or supplement
the Disclosure Schedule, unless set forth in the Revised Disclosure Schedule, or
to prevent or cure any misrepresentation or breach of warranty; provided,
however, if Buyer determines not to terminate this Agreement pursuant to Section
11.1.3 and to consummate the transactions contemplated hereby despite the
existence of a misrepresentation or breach of warranty of which Buyer has been
informed in writing by Selling Parties, the facts giving rise to such
misrepresentation or breach may be set forth in the Revised Disclosure Schedule
at Closing and such disclosure shall be deemed to amend
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or supplement the Disclosure Schedule for purposes of curing such
misrepresentation or breach of warranty.
4.7.2. Any Revised Disclosure Schedule must be
delivered to Buyer at least five (5) business days prior to the Closing to amend
and supplement the Disclosure Schedule to reflect events or developments which
have occurred since the date hereof to the date of delivery of the Revised
Disclosure Schedule and which would have been appropriate subject matter for the
Disclosure Schedule in accordance with Section 2. Notwithstanding any other
provision contained herein to the contrary, the Revised Disclosure Schedule is
not intended and shall not be used or interpreted to correct misstatements or
omissions in the Disclosure Schedule as of the date of execution of this
Agreement, unless Buyer determines not to terminate this Agreement pursuant to
Section 11.1.3 and to consummate the transactions contemplated hereby despite
the existence of such misstatements or omissions in the Disclosure Schedule of
which Buyer has been informed in writing by Selling Parties, in which case the
facts giving rise to such misstatement or omission may be set forth in the
Revised Disclosure Schedule at the Closing and such disclosure shall be deemed
to amend or supplement the Disclosure Schedule for purposes of curing such
misstatement or omission.
4.8. DELIVERY OF FINANCIAL STATEMENTS.
4.8.1. Selling Parties and the Corporation have
delivered to Buyer the Corporation's financial statements for FY 1998, including
an audited balance sheet as of December 31, 1998 and audited statements of
income and cash flow for the fiscal year then ended (collectively, the "FY 1998
Financial Statements"). The FY 1998 Financial Statements were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered thereby (except as otherwise explicitly set
forth in Section 4.8.1 of the Disclosure Schedule), present fairly the financial
condition and results of operations of the Corporation as of such dates and for
such periods, are correct and complete, and are consistent with past practices
and the books and records of Corporation (which books and records are and will
be correct and complete).
4.8.2. Within ten (10) days after the end of each
month prior to the Closing Date, Selling Parties and Corporation shall deliver
to Buyer the Corporation's unaudited financial statements for each such month,
including an unaudited balance sheet as of each such month end, and unaudited
statements of income and cash flow for each such month (collectively, the
"Monthly Financial Statements"). When delivered, the Monthly Financial
Statements shall be prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered thereby
(except to the extent that such Monthly Financial Statements shall be subject to
year-end audit and adjustments and shall omit footnotes), present fairly the
financial condition and results of operations of the Corporation as of such
dates and for such periods, be correct and complete, and be consistent with past
practices and the books and records of Corporation (which books and records are
and will be correct and complete).
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4.9. CONFIDENTIALITY.
Selling Parties and the Corporation agree that Selling
Parties, the Corporation and its officers, directors, and other representatives
of Selling Parties and the Corporation will hold in strict confidence, and will
not use to the detriment of Buyer, any and all data and information with respect
to the business of Buyer obtained in connection with this Agreement or the
transactions contemplated hereby. If the transactions contemplated by this
Agreement are not consummated, Selling Parties will return to Buyer all that
data and information that Buyer may reasonably request, including, but not
limited to, worksheets, tests, reports, manuals, lists, memoranda and other
documents prepared by or made available to Selling Parties in connection with
this Agreement or the transactions contemplated hereby.
4.10. CONVERSION OF LOANS FROM SELLING PARTIES.
Prior to the Closing, Selling Parties shall cause the
Corporation to, and the Corporation shall, convert any loans or other amounts
due to any Selling Party from the Corporation into capital stock of the
Corporation (which capital stock shall be included in the Shares pursuant to
Section 1.1 hereof).
4.11. TRANSFER OF CERTAIN ASSETS.
Prior to the Closing, Selling Parties shall cause the
Corporation to, and the Corporation shall, transfer the assets shown on Exhibit
4.11 hereto, including, but not limited to, the Transferred Real Property, to
the appropriate Selling Party as set forth in Exhibit 4.11.
5. BUYER'S OBLIGATIONS BEFORE CLOSING.
5.1. DUE DILIGENCE.
5.1.1. Buyer has substantially completed its due
diligence investigation of the Corporation prior to the execution by Buyer of
this Agreement; however, to the extent Buyer deems it reasonably necessary to
respond to requests of the Lenders in connection with their due diligence review
of the Corporation, Buyer shall be permitted to conduct additional due diligence
procedures to be completed no later than June 1, 1999.
5.1.2. Buyer and Selling Parties acknowledge that the
Lenders will conduct a due diligence review of the Corporation and its assets
and property to be completed no later than June 1, 1999, including a Phase I and
Phase II (if recommended) environmental review. Any such environmental review
will be performed by recognized experts mutually acceptable to Buyer, its
Lenders and Selling Parties. A Phase II environmental review will be performed
only to the extent recommended by such expert and required by the Lenders. The
Corporation shall be solely responsible for the costs and expenses related to
the Phase I environmental review, and Buyer shall be solely responsible for the
costs and expenses related to any Phase II environmental review.
5.1.3. Any inventory of raw, consignment and finished
goods inventory taken
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on or prior to the Closing Date shall be performed by the Corporation's
personnel using methods and procedures mutually acceptable to the parties
hereto. Buyer's representative shall have the right to observe the taking of any
such inventory and have access to any documentation relating thereto.
5.2. CONFIDENTIALITY.
Buyer agrees that Buyer and its officers, directors, and other
representatives will hold in strict confidence, and will not use to the
detriment of Selling Parties or the Corporation, any and all data and
information with respect to the business of the Corporation and/or Selling
Parties obtained in connection with this Agreement. If the transactions
contemplated by this Agreement are not consummated, Buyer will return to Selling
Parties all that data and information that Selling Parties may reasonably
request, including, but not limited to, worksheets, tests, reports, manuals,
lists, memoranda and other documents prepared by or made available to Buyer in
connection with this Agreement and the transactions contemplated hereby.
5.3. NOTICES AND CONSENTS.
Buyer will use commercially reasonable efforts to obtain any
third-party consents that Selling Parties may reasonably request in connection
with the matters referred to in Section 3.3 above. If required by law, Buyer
shall cooperate and share information regarding the preparation of any filings
required by the HSR Act or provide Selling Parties with information necessary to
qualify for an exemption from such filing and to seek early termination of any
waiting period imposed by the HSR Act. Buyer shall be responsible to pay fifty
percent (50%) of the filing fees and costs in connection with all filings
required by the HSR Act, with the remaining fifty percent (50%) to be paid by
Selling Parties.
5.4. FINANCING.
Buyer shall be obligated to provide to Selling Parties copies
of proposal letters executed by reputable institutional lenders evidencing the
proposal by such institutional lenders to lend to Buyer money sufficient,
together with amounts committed to be contributed to Buyer as equity, to pay the
Closing Cash Payment to Selling Parties (the "Proposal Letters"). Buyer shall be
obligated to provide Selling Parties with copies of the Proposal Letters
executed by Buyer. On or before June 11, 1999, Buyer shall be obligated to
provide to Selling Parties commitment letters from reputable institutional
lenders evidencing the commitment by such institutional lenders to lend to Buyer
money sufficient, together with amounts committed to be contributed to Buyer as
equity, to pay the Closing Cash Payment to Selling Parties.
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
The obligations of Buyer to purchase the Shares under this Agreement
are subject to the satisfaction, at or before the Closing, of all the conditions
set out below. Buyer may waive any or all of these conditions, in whole or in
part, without prior notice.
6.1. Except as otherwise permitted by this Agreement, all
representations and
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warranties by each of Selling Parties in this Agreement, or in any written
statement that shall be delivered to Buyer by any of them under this Agreement,
shall be true on and as of the Closing Date as though made at that time.
6.2. Selling Parties shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them, or any of them, on or before
the Closing Date.
6.3. During the period from the end of FY 1998 to the Closing
Date, there shall not have been any Material Adverse Change in the financial
condition or the results of operations of the Corporation.
6.4. Selling Parties and the Corporation shall have procured
all of the third-party authorizations and consents specified in Section 2.5
above, including, without limitation, the consents of lessors under any leases
to the extent required by and reasonably acceptable to the Lenders.
6.5. Any waiting period under the HSR Act, if applicable to
the transactions contemplated by this Agreement, shall have expired or been
terminated.
6.6. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement, (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (c) affect adversely the right of Buyer to own and vote
the Shares, or (d) have a Material Adverse Effect on the right of the
Corporation to own its assets and to operate its business (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect).
6.7. The FY 1998 Financial Statements shall show that the
Corporation's FY 1998 Restated EBITDA was at least THREE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($3,500,000).
6.8. Selling Parties shall have delivered to Buyer a
certificate to the effect that each of the conditions specified above in
Sections 6.1 through 6.7 have been satisfied.
6.9. Contemporaneously with the Closing, either (i) Selling
Parties shall cause the Corporation to repay all revolving lines of credit and
other interest-bearing debt of the Corporation (including, without limitation,
the debt incurred by the Corporation in connection with the shareholder
distribution effected on or about July 5, 1999 (the "Distribution Debt"), in the
amount equal to THREE MILLION THREE THOUSAND SIX HUNDRED AND FORTY-FIVE AND
80/100 DOLLARS ($3,003,645.80)) with a portion of the Closing Cash Payment, or
(ii) Buyer shall repay all such revolving lines of credit and other
interest-bearing debt of the Corporation (including, without limitation, the
Distribution Debt) by wire transfer and receive a dollar for dollar reduction in
the Purchase Price in the amount equal to such repayments.
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6.10. E. Pollock and Archambault shall have each executed
employment agreements with the Corporation in the forms attached hereto as
Exhibit 6.10(a) and Exhibit 6.10(b), respectively. Other key employees to be
identified on Exhibit 6.10(c) by Buyer (collectively, the "Employees"), shall
have each executed employment agreements with the Corporation in a form to be
negotiated by the Corporation and such Employees (collectively, the "Employment
Agreements").
6.11. Each of E. Pollock, Archambault and David Pollock (the
President and Treasurer of the Corporation and the trustee of the Pollock Trust)
shall have each executed a non-competition agreement, in the form attached
hereto as Exhibit 6.11.
6.12. Selling Parties and the Corporation shall have executed
the Litigation Agreement, in the form attached hereto as Exhibit 6.12.
6.13. Selling Parties and the Corporation shall have executed
a lease with respect to the Transferred Real Property, in the form attached
hereto as Exhibit 6.13 (the "Lease").
6.14. At Buyer's option and expense, Buyer shall have obtained
such title insurance commitments, endorsements, policies and other reports as it
deems necessary or advisable or as may be required by the Lenders including:
6.14.1. with respect to each parcel of Real Property
that the Corporation leases or subleases, an endorsement to the existing title
policy on such leasehold interest, an ALTA Leasehold Owner's Policy of Title
Insurance and an ALTA Leasehold Loan Policy of Title Insurance issued by a title
insurer reasonably satisfactory to Buyer and such Lenders in such amount as
Buyer or the Lenders reasonably may determine; and
6.14.2. with respect to the personal property and
fixtures of the Corporation, Uniform Commercial Code Search Reports from the
appropriate governmental agencies.
6.15. Buyer shall have received from Hogan & Hartson L.L.P.,
counsel to Selling Parties, an opinion in form and substance satisfactory to
Buyer, addressed to Buyer, and dated as of the Closing Date, addressing such
matters as Buyer's counsel and Selling Parties' counsel shall mutually agree.
6.16. Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of the Corporation, other than
those whom Buyer shall have specified in writing at least five (5) business days
prior to the Closing.
6.17. The Lenders shall have been satisfied in all respects
with the results of their due diligence review of the Corporation and its
operations and assets, and Buyer shall have obtained a written commitment from
the Lenders for the financing necessary to consummate the transactions
contemplated by this Agreement on the terms and conditions substantially as set
forth on Exhibit 6.17 attached hereto.
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6.18. The Corporation shall have executed the Management
Agreement in the form attached hereto as Exhibit 6.18.
6.19. Notwithstanding any other provision of this Agreement to
the contrary, any breaches of the representations, warranties or covenants set
forth herein or the occurrence of any event which could result in a Material
Adverse Effect shall not be deemed a failure to satisfy the conditions set forth
in Sections 6.1, 6.2, 6.3, 6.4 and 6.6(d) if the aggregate Buyer Losses (as
defined in Section 10.2.1) that could reasonably be expected to result from all
such breaches and events do not exceed $250,000, and if the aggregate Buyer
Losses resulting from such breaches and events exceeds $250,000, the conditions
set forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.6(d) shall be deemed not to have
been satisfied. Nothing set forth in this Section 6.19 shall be interpreted as a
waiver of any breach of any representation, warranty or covenant in this
Agreement, and, notwithstanding any other provision contained in this Agreement
to the contrary, Selling Parties shall indemnify, defend, and hold harmless
Buyer against, and in respect of, any Buyer Losses resulting from such breaches
and events, as contemplated by this Section 6.19, (i) dollar for dollar and
without regard to the Deductible (as defined in Section 10.2.2) [with respect to
breaches of the representations, warranties or covenants relating to results of
operations and financial performance of the Corporation], and (ii) dollar for
dollar after giving effect to the Deductible with respect to breaches of the
representations, warranties or covenants relating to any other matter.
7. CONDITIONS PRECEDENT TO SELLING PARTIES' PERFORMANCE.
The obligations of Selling Parties to sell and transfer the Shares
under this Agreement are subject to the satisfaction, at or before the Closing,
of all the following conditions. Selling Parties may waive any or all of these
conditions in whole or in part without prior notice.
7.1. All representations and warranties by Buyer contained in
this Agreement or in any written statement delivered by Buyer under this
Agreement shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
7.2. Buyer shall have performed and complied with all
covenants and agreements and satisfied all conditions that it is required by
this Agreement to perform, comply with, or satisfy before or at the Closing.
7.3. Buyer shall have procured all of the third-party
authorizations and consents specified in Section 3.4 above.
7.4. Any waiting period under the HSR Act, if applicable to
the transactions contemplated by this Agreement, shall have expired or been
terminated.
7.5. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement, or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation.
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7.6. Buyer shall have delivered to Selling Parties a
certificate to the effect that each of the conditions specified above in
Sections 7.1 through 7.5 have been satisfied.
7.7. Selling Parties shall have received from Dorsey & Whitney
LLP, counsel to Buyer, an opinion in form and substance satisfactory to Selling
Parties, addressed to Selling Parties, and dated as of the Closing Date,
addressing such matters as Buyer's counsel and Selling Parties' counsel shall
mutually agree.
7.8. Buyer shall have executed the Litigation Agreement.
7.9. Buyer shall have executed the Employment Agreements.
7.10. Buyer shall have executed the Lease.
7.11. KRG shall have executed the Management Agreement.
8. THE CLOSING.
8.1. The transfer of the Shares by Selling Parties to Buyer
(the "Closing") shall take place at the offices of Dorsey & Whitney LLP, Denver,
Colorado at 10:00 a.m., local time, on June 15, 1999 or at such other time and
place as Buyer and Selling Parties may agree. That date, or if the Closing is
advanced or postponed under this paragraph, then the date to which it is
advanced or postponed, is referred to as the "Closing Date." If, on the Closing
Date, Selling Parties and Buyer shall have been unable to obtain all other
waivers and consents of private parties and governmental agencies required by
this Agreement, then either Buyer or Selling Parties, on written notice, may
postpone the Closing to a date not later than June 30, 1999 or to such later
date as may be required solely to comply with the HSR Act.
8.2. On or before the Closing, Selling Parties shall deliver
to Buyer the following instruments, in form and substance satisfactory to Buyer
and its counsel:
8.2.1. A certificate or certificates representing the
Shares, registered in the name of Selling Parties, duly endorsed by Selling
Parties for transfer or accompanied by an assignment of the Shares duly executed
by Selling Parties. On submission of that certificate or certificates to the
Corporation for transfer, the Corporation shall issue to Buyer a certificate
representing the Shares, registered in Buyer's name.
8.2.2. The stock books, stock ledgers, minute books,
and corporate seal of the Corporation.
8.2.3. A copy of the Articles of Incorporation of the
Corporation, certified by the Secretary of State of Colorado, and Certificates
of Good Standing from the Secretary of State of Colorado.
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8.2.4. A copy of the bylaws of Corporation, along
with certificates executed by the Secretary of the Corporation, certifying to
Buyer that such copies are true, correct and complete copies of such bylaws, and
that such bylaws were duly adopted and have not been amended or rescinded.
8.2.5. The additional deliveries specified in Section
6 hereof.
8.3. At the Closing, Buyer shall deliver to Selling Parties
the following instruments and documents:
8.3.1. By bank wire transfers, the amount of the
Closing Cash Payment;
8.3.2. Certified resolutions of Buyer's board of
directors, in form satisfactory to counsel for Selling Parties, authorizing the
execution and performance of this Agreement and all actions to be taken by Buyer
under this Agreement.
8.3.3. The additional deliveries specified in Section
7 hereof.
9. POST-CLOSING COVENANTS.
The parties agree as follows with respect to the period following the
Closing.
9.1. GENERAL.
In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, including
obtaining any third-party consents not obtained prior to the Closing, each of
the parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other party reasonably may
request, at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Section 10
below). Selling Parties acknowledge and agree that, from and after the Closing,
Buyer will be entitled to possession of all documents, books, records (including
Tax records), agreements and financial data of any sort relating to the
Corporation.
9.2. LITIGATION SUPPORT.
In the event that, and for so long as, any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand (including Tax audits) in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Corporation, each of the other parties will
cooperate with such party and its counsel in the contest or defense, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor under
Section 10 below).
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9.3. TAX MATTERS.
Selling Parties and Buyer agree to provide each other with
such cooperation and information as either of them reasonably may request of the
other in relation in (A) the preparation of any Tax Return of the Corporation or
with respect to the Corporation's operations, (B) determining any Taxes or right
to a refund of Taxes of the Corporation or with respect to the Corporation's
operations or (C) responding to any audit or examination of Tax Returns of the
Corporation or with respect to the Corporation's operations. Without limiting
the foregoing, Selling Parties shall have the right to participate in the
defense of any audit or examination of Tax Returns of the Corporation for any
Tax period prior to or which includes the Closing Date. In the event that any
controversy develops between Buyer or the Corporation and any Tax authority with
respect to any Tax period prior to or which includes the Closing Date, neither
Buyer nor the Corporation may settle or compromise such controversy in a manner
which would affect any Tax liability of the Corporation for any Tax period prior
to or which includes the Closing Date without first obtaining the consent
thereto of Selling Parties, which consent shall not unreasonably be withheld or
delayed.
9.4. COOPERATION WITH INITIAL PUBLIC OFFERING.
Selling Parties shall use their reasonable best efforts to
cooperate with Buyer, the Corporation and their respective representatives and
agents in connection with any proposed initial public offering of capital stock
of the Corporation or Buyer after the Closing Date, including, but not limited
to, organizing and preparing information regarding the Corporation and
participating in underwriter due diligence sessions and investor meetings at
such times as are reasonably requested by the underwriters of such public
offering.
9.5. ENVIRONMENTAL ISSUES.
9.5.1. NO ACTION PETITION. Selling Parties shall,
within three (3) months of the Closing Date, complete, execute and file a
Petition for No Action (a "Petition"), together with the necessary supporting
documents and analyses, with the Colorado Department of Public Health and
Environment (the "CDPHE") to obtain a no action determination with respect to
the real property located at 5000 Independence Street, Arvada, Colorado 80002
(the "Clean-up Site"). Selling Parties shall be solely responsible for any and
all costs, fees, charges, fines, penalties, clean-up costs or other amounts, if
any, resulting from, or associated in any respect with, preparation and
submission of the Petition and the supporting documents and analyses, any
environmental remediation of the Clean-up Site due to its condition on the
Closing Date (including, without limitation, all costs, fees and expenses
associated with the preparation, completion, execution and filing of the
Petition). Notwithstanding any other provision contained in this Agreement to
the contrary, Selling Parties shall indemnify (dollar for dollar and without
regard to the Deductible), defend, and hold harmless Buyer against, and in
respect of, any Buyer Losses resulting from (i) any failure by Selling Parties
to complete, execute and timely file the Petition, together with the necessary
supporting documents and analyses, with the CDPHE as prescribed above, and (ii)
any costs, fees, charges, fines, clean-up costs or other amounts assessed
against, or charged to, Buyer by the CDPHE (or any other federal or state
governmental authority) with respect to the condition of Clean-up Site on the
Closing Date.
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9.5.2. VOLUNTARY INDUSTRIAL DISCHARGE QUESTIONNAIRE.
Selling Parties shall, as soon as practicable following the Closing, complete,
execute and file a Voluntary Industrial Discharge Questionnaire (the
"Questionnaire") with the Clear Creek Sanitation System in connection with the
Corporation's discharge of industrial waste at 5000 Independence Street, Arvada,
Colorado 80002 (the "Industrial Waste Site"). Selling Parties shall be solely
responsible for any and all costs, fees, charges, fines, clean-up costs,
pre-treatment costs or other amounts resulting from, or associated in any
respect with, the generation, storage and/or discharge of industrial waste from
the Industrial Waste Site (including, without limitation, all costs, fees and
expenses associated with the completion, execution and filing of the
Questionnaire) prior to the Closing Date or due to bringing the Company's
processes that discharge industrial waste into the Clear Creek Sanitation
District on the Closing Date into compliance with the regulations of Clear Creek
Sanitation District. Notwithstanding any other provision contained in this
Agreement to the contrary, Selling Parties shall indemnify (dollar for dollar
and without regard to the Deductible), defend, and hold harmless Buyer against,
and in respect of, any Buyer Losses resulting from (i) any failure by Selling
Parties to complete, execute and timely file the Questionnaire with the Clear
Creek Sanitation District as prescribed above, and (ii) any costs, fees,
charges, fines, clean-up costs or other amounts assessed against, or charged to,
Buyer by the Clear Creek Sanitation District (or any other federal or state
governmental authority) with respect to the generation, storage and/or discharge
of industrial waste at the Industrial Waste Site prior to the Closing Date or
due to bringing the Company's processes that discharge industrial waste into the
Clear Creek Sanitation District on the Closing Date into compliance with the
regulations of Clear Creek Sanitation District. Notwithstanding any other
provision contained in this Agreement to the contrary, Buyer shall be solely
responsible for any maintenance fees (including, without limitation, all
recurring fees relating to permits and licenses to discharge) or other recurring
costs or fees relating to the industrial waste disposal or discharge due to
bringing the Company's processes that discharge industrial waste into the Clear
Creek Sanitation District on the Closing Date into compliance with the
regulations of Clear Creek Sanitation District.
10. REMEDIES FOR BREACHES OF THIS AGREEMENT.
10.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the parties
contained in Section 2 and Section 3 above shall survive the Closing hereunder
and continue in full force and effect for a period ending three (3) years after
the Closing Date (the "Survival Period"). The survival of representations and
warranties pursuant to this Section 10.1 shall not be construed to mean that the
representations and warranties are made at any time other than upon execution of
this Agreement and as of the Closing Date, as applicable. The Survival Period
set forth in this Section 10.1 shall mean that a party seeking indemnification
pursuant to Sections 10.2 or 10.3 for a breach of a representation or warranty
as of the date such representation or warranty was made (i.e., upon execution of
this Agreement or as of the Closing Date, as applicable), or for any other
indemnification obligation set forth in this Section 10, must provide written
notice of the claim for indemnification within thirty (30) days after the
expiration of the Survival Period.
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10.2. INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
10.2.1. Subject to the limitations of Sections 10.1
and 10.2.2, Selling Parties (excluding Harrison and Bothner, except with respect
to the representations and warranties contained in Sections 2.4 and 2.5 above)
shall indemnify, defend, and hold harmless Buyer, the Corporation and their
respective officers, directors, employees and agents (the "Buyer Indemnified
Parties") against, and in respect of, any and all claims, losses, costs,
expenses, liabilities and damages, including reasonable attorneys' fees, that
Buyer Indemnified Parties shall incur or suffer, which arise, result from, or
relate to any breach of, or failure by Selling Parties to perform, any of their
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Selling Parties under this Agreement (collectively, "Buyer
Losses"); provided, however, that no amounts paid or payable pursuant to the
Litigation Agreement shall be considered Buyer Losses for the purposes of this
Agreement.
10.2.2. Selling Parties shall be obligated to
indemnify Buyer Indemnified Parties from and against any Buyer Losses only if
the aggregate amount of all Buyer Losses exceeds ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($100,000) (the "Deductible"), and then only to the extent that the
aggregate amount of all Buyer Losses exceeds the Deductible. Notwithstanding the
foregoing, the maximum amount of all indemnification obligations of each
individual Selling Party for Buyer Losses under this Agreement shall not exceed
twenty-five percent (25%) of the Net Proceeds (as hereinafter defined) received
by such Selling Party pursuant to this Agreement. For purposes of this
Agreement, the "Net Proceeds" received by a Selling Party pursuant to this
Agreement shall mean (a) the portion of the Closing Cash Payment allocable to
such Selling Party, plus (b) the value of the liquidation preference of all of
the shares of Preferred Stock issued to such Selling Party and (c) the portion
of the Earnout Amount allocable to such Selling Party.
10.3. INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLING
PARTIES.
10.3.1. Subject to the limitations of Sections 10.1
and 10.3.2, Buyer shall indemnify and hold harmless Selling Parties against, and
in respect of, any and all claims, losses, costs, expenses, liabilities and
damages, including reasonable attorneys' fees, that Selling Parties shall incur
or suffer, which arise, result from, or relate to any breach of, or failure by
Buyer to perform, any of its representations, warranties, covenants, or
agreements in this Agreement or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by Buyer under this Agreement
(collectively, "Selling Party Losses"); provided, however, that no amounts paid
or payable pursuant to the Litigation Agreement shall be considered Seller
Losses for purposes of this Agreement.
10.3.2. Buyer shall be obligated to indemnify Selling
Parties from and against any Seller Losses only if the aggregate amount of all
Selling Party Losses exceeds the Deductible, and then only to the extent that
the aggregate amount of all Selling Party Losses exceeds the Deductible.
Notwithstanding the foregoing, the maximum amount of all indemnification
obligations of Buyer for Selling Party Losses to any Selling Party under this
Agreement shall not exceed twenty-
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five percent (25%) of the Net Proceeds received by such Selling Party pursuant
to this Agreement.
10.3.3. In addition, Buyer shall indemnify and hold
harmless Selling Parties against, and in respect of, any and all claims, losses,
expenses, costs, obligations and liabilities that Selling Parties may incur
arising out of the conduct of the Corporation's business following the Closing.
The obligations of Buyer set forth in this Section 10.3.3 shall not be subject
to the limitations set forth in Sections 10.1 and 10.3.2.
10.4. METHOD OF ASSERTING CLAIMS.
10.4.1. The method of asserting any claims pursuant
to Section 10 shall be as set forth in this Section 10.4. As used in this
Section 10.4, an "Indemnified Party" shall refer to the "Buyer Indemnified
Parties" or to "Selling Parties," as applicable, the "Indemnifying Party" shall
refer to the party hereto obligated to indemnify such Indemnified Parties, and
"Loss" shall refer to Buyer Losses or Selling Party Losses, as applicable.
10.4.2. In the event that any of the Indemnified
Parties is made a defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party for the liability or the costs or
expenses of which are indemnifiable losses hereunder, the Indemnified Party
shall promptly notify the Indemnifying Party of the existence of such claim,
demand, or other matter to which the Indemnifying Party's indemnification
obligations would apply and shall give the Indemnifying Party a reasonable
opportunity to defend the same at the Indemnifying Party's own expense and with
counsel of the Indemnifying Party's own selection; provided, that the
Indemnified Party shall at all times also have the right to fully participate in
the defense at its own expense. The failure to timely give such notice shall not
affect any the Indemnified Party's ability to seek reimbursement unless such
failure has materially and adversely affected the Indemnifying Party's ability
to defend successfully a claim. If the Indemnifying Party shall, within a
reasonable time after this notice, fail to defend, the Indemnified Party shall
have the right, but not the obligation, to undertake the defense of, and to
compromise or settle (exercising reasonable business judgment), the claim or
other matter on behalf, for the account, and at the risk, of the Indemnifying
Party. If the claim is one that cannot by its nature be defended solely by the
Indemnifying Party (including, without limitation, any federal or state tax
proceeding), then the Indemnified Party shall make available and cause the
Corporation to make available all information and assistance that the
Indemnifying Party may reasonably request.
10.4.3. In the event any Indemnified Party should
seek a right of indemnification against any Indemnifying Party that does not
involve a third party claim, the Indemnified Party shall deliver a notice of
such intention with reasonable promptness to the Indemnifying Party within the
survival period specified in Section 10.1. If the Indemnifying Party notifies
the Indemnified Party that it does not dispute the claim described in such
notice or fails to notify the Indemnified Party within sixty (60) days after
delivery of such notice by the Indemnified Party whether the Indemnifying Party
disputes the claim described in such notice, the Loss in the amount specified in
the Indemnified Party's notice will be conclusively deemed a liability of the
Indemnifying Party and, subject to the other limitations on indemnification set
forth in this Section 10, the Indemnifying Party shall pay the amount of such
loss to the Indemnified Party on demand.
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If the Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiation within ninety (90) days after the delivery of the Indemnified
Party's notice of such claim, such dispute shall be resolved fully and finally
in by arbitration in accordance with Section 16 hereof.
10.5. SPECIAL REPRESENTATIONS AND INDEMNITIES. Each Selling
Party hereby severally makes the following additional representations and
indemnities to Buyer, each in connection only with such Selling Party's
ownership of such shares.
10.5.1. The authorized capital stock of the Company
consists of (i) 20,000,000 shares of common stock, no par value per share, of
which, as of the date hereof, 200,000 shares have been designated as Class A
Common Stock, no par value per share, and 19,800,000 shares have been designated
as Class B Common Stock, no par value per share, of which, as of the date
hereof, 100,000 shares of Class A Common and 9,900,000 shares of Class B Common,
respectively, are issued and outstanding. The Shares are owned beneficially and
of record by each Selling Party as set forth on Exhibit 1.1 and are owned by
such Selling Party free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies or
other arrangements, restrictions or other legal or equitable limitations of any
kind. All Shares have been duly authorized and validly issued and are fully paid
and nonassessable.
10.5.2. Prior to the sale of the Shares to Buyer,
each of the Selling Parties was the sole registered and beneficial owner of the
Shares as set forth on Exhibit 1.1, free and clear of any lien, charge,
encumbrance or adverse claim or any restriction on transfer of such Shares.
Immediately after the Closing, Buyer will be the sole registered and beneficial
owner of all Shares and will have acquired all of the rights of each of the
Selling Parties in the Shares previously owned by such Selling Party, free of
any lien, charge, encumbrance or adverse claim (other than any such lien,
charge, encumbrance or adverse claim create by or affecting or relating to
Buyer) or any restrictions on transfer of the Shares imposed by the Company or
the trust agreements or other charter documents under which each of the
Pollock's Trusts were formed.
10.5.3. Each of the Pollock Trusts is a trust duly
formed and validly existing under the laws of each of the respective states
where they were formed. Each of the trustees executing this Agreement on behalf
of a Pollock Trust is the duly appointed, qualified and acting trustee of the
respective Pollock Trust, having full authority to act on behalf of the
respective trust. Each of the trustees acting on behalf of the Pollock Trusts
has full power and authority to execute and deliver this Agreement and to
perform their respective obligations thereunder, including the power to bind the
Pollock Trusts to the indemnification provisions set forth in this Article 10.
10.5.4. In the event that a Selling Party breaches
any of the representations contained in this Section 10.5, Buyer shall be
entitled to seek indemnification from such breaching Selling Party pursuant to
the provisions of Section 10.2.2 hereof; provided, however, that,
notwithstanding any other provision contained in this Agreement to the contrary,
the Deductible shall not apply to any breaches of this Section 10.5 and the 25%
cap on the damages payable to the breaching Selling Party will be increased to
100% of the Net Proceeds of the breaching Selling Party.
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11. TERMINATION.
11.1. TERMINATION OF AGREEMENT.
The parties may terminate this Agreement as provided below:
11.1.1. Buyer and Selling Parties may terminate this
Agreement by mutual written consent at any time prior to the Closing;
11.1.2. Buyer may terminate this Agreement by written
notice to Selling Parties at any time prior to Closing if the Lenders have
terminated their financing commitments and determined not to provide to Buyer
the required financing necessary for Buyer to consummate the transactions
contemplated by this Agreement;
11.1.3. Buyer may terminate this Agreement by giving
written notice to Selling Parties at any time prior to the Closing (a) in the
event any Selling Party has breached any material representation, warranty, or
covenant contained in this Agreement (including, without limitation, by amending
the Disclosure Schedule), Buyer has notified Selling Parties of the breach, and
the breach has continued without cure for a period of thirty (30) days after the
notice of breach or (b) if the Closing shall not have occurred on or before June
30, 1999 or such later date as may be required solely to comply with the HSR
Act, by reason of the failure of any condition precedent under Section 6 hereof
(unless the failure results primarily from Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
11.1.4. Selling Parties may terminate this Agreement
by giving written notice to Buyer at any time prior to the Closing (a) in the
event Buyer has breached any material representation, warranty, or covenant
contained in this Agreement, Selling Parties has notified Buyer of the breach,
and the breach has continued without cure for a period of thirty (30) days after
the notice of breach, or (b) if the Closing shall not have occurred on or before
June 30, 1999 or such later date as may be required solely to comply with the
HSR Act, by reason of the failure of any condition precedent under Section 7
hereof (unless the failure results primarily from any of Selling Parties himself
breaching any representation, warranty, or covenant contained in this
Agreement).
11.2. EFFECT OF TERMINATION.
If any party terminates this Agreement pursuant to Section
11.1 above, all rights and obligations of the parties hereunder shall terminate
without any liability of any party to any other party. Notwithstanding the
preceding sentence, in the event that Buyer terminates this Agreement for any
reason (other than a termination by Buyer effected pursuant to Section 11.1.2 or
as a result of the Corporation's or any Selling Party's actual fraud) after it
has received the financing commitments from the Lenders, Buyer and/or KRG shall
pay the reasonable attorneys' fees incurred by the Corporation and Selling
Parties in connection with this transaction up to the date of such termination.
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12. PUBLICITY.
Prior to the Closing Date, subject to the exceptions described below,
neither Buyer, Selling Parties or the Corporation shall issue any press release
(or make any public announcement) related to this Agreement or the transactions
contemplated hereby or make any announcement to the employees, customers or
suppliers of the Corporation without prior written approval of the other party
hereto.
13. COSTS.
13.1. Selling Parties and Buyer each agree to indemnify and
hold harmless one another against any loss, liability, damage, cost, claim, or
expense incurred by reason of any brokerage, commission, or finder's fee alleged
to be payable because of any act, omission, or statement of the indemnifying
party.
13.2. Except as otherwise provided herein, each party shall
pay all costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement, preparing and filing its filings required by the HSR
Act and in closing and carrying out the transactions contemplated by this
Agreement; provided, however, that Selling Parties shall be permitted to cause
the Corporation to pay such costs and expenses of Selling Parties so long as
such payments do not cause the Closing Net Working Capital Balance to be less
than ONE MILLION SIX HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($1,675,000)
14. FORM OF AGREEMENT.
14.1. The subject headings of the paragraphs and sub
paragraphs of this Agreement are included for convenience only and shall not
affect the construction or interpretation of any of its provisions.
14.2. This Agreement, together with the Disclosure Schedule
and the other documents delivered pursuant to this Agreement, constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and understandings of the parties. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by all the parties.
No waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
14.3. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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15. PARTIES.
This Agreement shall be binding on, and shall inure to the benefit of,
the parties to it and their respective heirs, legal representatives, successors,
and assigns. No Party may assign either this Agreement or any of his or its
rights, interests, or obligations hereunder without the prior written approval
of Buyer and Selling Parties. Notwithstanding the foregoing, Buyer may assign
this Agreement or its rights, interests and obligations hereunder to an
affiliate of Buyer or KRG or to any lenders to Buyer or their agent on their
behalf.
16. ARBITRATION.
16.1. Subject to the exceptions set forth in Section 17
hereof, any controversy or claim arising out of or relating to this Agreement or
the formation, breach or interpretation hereof, will be settled by arbitration
before one arbitrator in accordance with the Commercial Arbitration Rules then
in effect of the American Arbitration Association in Denver, Colorado. Judgment
upon the award rendered by the arbitration may be entered and enforced in the
court with jurisdiction over the appropriate party. All controversies not
subject to arbitration or contesting any arbitration will be litigated in the
federal or state courts sitting in Denver, Colorado (and each of the parties
hereto hereby consent to the exclusive jurisdiction of such courts and waive any
objections thereto).
16.2. In the event that any arbitration or legal action is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in said action or
proceeding, in addition to any other relief to which such party may be entitled.
17. SPECIFIC PERFORMANCE.
Selling Parties hereby acknowledge that any breach of this
Agreement by Selling Parties would cause Buyer irreparable harm and that a
remedy at law for such breach would be inadequate. Selling Parties therefore
hereby agree that, in addition to any other available remedy at law or in
equity, injunctive relief and specific performance may be granted in any
proceeding commenced by Buyer to enforce this Agreement without the necessity of
proof that any other remedy at law is inadequate. Selling Parties further agree
that, regardless of the provisions of Section 16 hereof, Buyer may seek a
temporary restraining order and/or a preliminary injunction from a court of law
in anticipation of any arbitration commenced pursuant to Section 16 hereof.
18. NOTICES.
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of delivery, if delivered personally on the party to whom notice is to be
given, or on the third day after mailing, if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
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<PAGE> 48
To Selling Parties at:
Mr. Eric Pollock
5000 Independence Street
Arvada, Colorado 80002
Fax: (303) 424-6700
and
Ms. Helene Pollock
The Helene Pollock Irrevocable Spousal Trust No.1
The Helene Pollock Irrevocable Spousal Trust No.2
c/o Mr. David Pollock
4216 South Hudson Parkway
Englewood, Colorado 80110
and
Mr. George Archambault
2260 Dover Street
Lakewood, Colorado 80215
and
Ms. Patricia Harrison
7272 Russell Court
Arvada, Colorado 80007
and
Mr. Donald Bothner
180 Sky Trail
Boulder, Colorado 80302
with a copy to:
Hogan & Hartson L.L.P.
One Tabor Center Suite 1500
1200 Seventeenth Street
Denver, Colorado 80202
Attn: Douglas A. Pluss, Esq.
Fax: (303) 899-7333
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<PAGE> 49
To Buyer at:
Medical Device Manufacturing, Inc.
5000 Independence Street
Arvada, Colorado 80002
Attn: Bruce L. Rogers
Fax: (303) 424-6700
and
KRG Capital Partners, LLC
The Park Central Building
1515 Arapahoe Street
Tower One, Suite 1500
Denver, Colorado 80202
Attn: Mark M. King and Bruce L. Rogers
Fax: (303) 390-5015
with a copy to:
Dorsey & Whitney LLP
370 Seventeenth Street, Suite 4400
Denver, Colorado 80202
Attn: Kevin A. Cudney, Esq.
Fax: (303) 629-3450
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the manner set
forth above.
19. GOVERNING LAW.
This Agreement shall be construed in accordance with, and governed by,
the internal laws of the State of Colorado, without regard to conflicts of law
principles.
20. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by
any court of final jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed to remain fully valid, enforceable,
and binding on the parties.
21. TAX MATTERS.
Selling Parties and Buyer hereby acknowledge and agree that each has
been advised and encouraged by their legal counsel to consult with their
respective independent tax advisors regarding the consequences of the
transactions contemplated by this Agreement.
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<PAGE> 50
22. MUTUAL CONTRIBUTION.
This Agreement has been drafted on the basis of the parties' mutual
contributions of language, and the Agreement is not to be construed against any
party as being the drafter of this Agreement.
23. AMENDMENT OR MODIFICATION; WAIVER.
No provision of this Agreement may be amended or waived other than
pursuant to a writing signed by the party to be charged. No delay or omission or
failure to exercise any right or remedy provided for herein shall constitute a
waiver of any provision of this Agreement or shall limit any party's right
thereafter to enforce any provision or exercise any right. No waiver by any
party hereto of any breach by any other party of any provision of this Agreement
shall be deemed a waiver of a similar or dissimilar breach at the same or at any
prior or subsequent time.
* * *
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<PAGE> 51
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
BUYER: MEDICAL DEVICE MANUFACTURING, INC.
By: /s/ BRUCE L. ROGERS
--------------------------------------
Name: Bruce L. Rogers
Title: Vice President
SELLING PARTIES: /s/ ERIC M. POLLOCK
-----------------------------------------
Eric M. Pollock
/s/ HELENE POLLOCK
-----------------------------------------
Helene Pollock
/s/ GEORGE ARCHAMBAULT
-----------------------------------------
George Archambault
/s/ PATRICIA HARRISON
-----------------------------------------
Patricia Harrison
/s/ DONALD BOTHNER
-----------------------------------------
Donald Bothner
HELENE POLLOCK IRREVOCABLE SPOUSAL TRUST NO.1
By: /s/ DAVID POLLOCK
--------------------------------------
Name: David Pollock
Title: Trustee
HELENE POLLOCK IRREVOCABLE SPOUSAL TRUST NO.2
By: /s/ DAVID POLLOCK
--------------------------------------
Name: David Pollock
Title: Trustee
[Signature Page to Purchase Agreement]
<PAGE> 52
CORPORATION: G&D, INC. D/B/A STAR GUIDE CORPORATION
By: /s/ ERIC POLLOCK
--------------------------------------
Name: Eric Pollock
Title: Vice President
SOLELY FOR PURPOSES
OF SECTION 11.2: KRG CAPITAL PARTNERS, LLC
By: /s/ BRUCE L. ROGERS
--------------------------------------
Name: Bruce L. Rogers
Title: Managing Director
[Signature Page to Purchase Agreement]
