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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
January 8, 1999
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Date of Report (date of earliest event reported)
ASHA CORPORATION
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Exact name of Registrant as Specified in its Charter
Delaware 0-16176 84-1016459
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State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
600 C Ward Drive, Santa Barbara, California 93111
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Address of Principal Executive Offices, Including Zip Code
(805) 683-2331
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Registrant's Telephone Number, Including Area Code
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 8, 1999, ASHA Corporation (the "Company") acquired all of the
outstanding stock of McLaren Engines, Inc. ("McLaren") in exchange for 150,000
shares of the Company's authorized but unissued Common Stock. The acquisition
was made pursuant to the terms of a Stock Purchase Agreement among the
Company, McLaren and the shareholders of McLaren.
Immediately prior to the acquisition, the Company assisted McLaren to
complete a reorganization in which McLaren redeemed the stock of its two
shareholders and issued new shares to McLaren's employees. The Company loaned
McLaren $1,355,000 and McLaren borrowed $2,454,000 from an unaffiliated bank
to complete this reorganization.
McLaren was founded in 1969 as the U.S. base for the McLaren Racing Team,
and is currently involved in designing, fabricating, developing, validating
and certifying engines and related products for over 100 automotive Tier I and
OEM companies throughout the world. McLaren's operations are based in a
56,000 square foot office and laboratory facility in Livonia, Michigan.
McLaren has approximately 48 employees.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The financial
statements of McLaren Engines, Inc. will be filed by amendment.
(b) PRO FORMA FINANCIAL INFORMATION. The pro forma financial
information will be filed by amendment.
(c) EXHIBITS. The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION LOCATION
10.1 Stock Purchase Agreement with Filed herewith electronically
McLaren Engines, Inc.
10.2 Loan Agreement with McLaren Filed herewith electronically
Engines, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
ASHA CORPORATION
Dated: January 21, 1999 By:/s/ John C. McCormack
John C. McCormack, President
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 7th day of January, 1999, by and among
the person(s) identified on the signature pages of this Agreement as the
shareholder(s) (the "Shareholders") of McLaren Engines, Inc., a Delaware
Corporation ("McLaren") and ASHA Corporation, a Delaware corporation (the
"Buyer").
PREMISES
A. McLaren is a Delaware corporation and is engaged in the business of
developing, testing, manufacturing and selling high performance engines and
other automotive equipment (the "Business") at 32233 West Eight Mile Road,
Livonia, Michigan 48152 (the "Premises").
B. The Shareholders presently own all of McLaren's issued and outstanding
capital stock, being 1,000 shares of voting common stock having a par value of
$1.00 per share ("McLaren Common Stock"). Buyer desires to purchase from
Shareholders, and Shareholders desire to sell to Buyer, all of the issued and
outstanding McLaren Common Stock (the "Purchased Shares") on the terms and
subject to the conditions of this Agreement.
C. Mr. Wiley R. McCoy (the "Executive") is McLaren's chief operating officer
and is the controlling shareholder of McLaren as a result of a merger of a
company controlled by the Executive with McLaren. To accomplish the merger,
the Buyer agreed to loan and McLaren agreed to borrow $1,355,000 from the
Buyer pursuant to the terms and conditions of a Loan Agreement and a
Promissory Note dated as of January 5, 1999, each of which are, and this
Agreement is, subject to the express condition following the loan that the
purchase and sale transaction contemplated herein and acquisition by Buyer of
the Purchased Shares will occur and close automatically upon the tender of
consideration to the Shareholders and escrow thereof by Buyer.
D. Buyer is further induced by and is willing to purchase the Purchased
Shares from Shareholders, upon the express condition that the Executive agree
to execute, be employed by and carry out the obligations under an Employment
Agreement with McLaren in substantially the form set forth in Exhibit A
attached hereto (the "Employment Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the terms and
conditions set forth in this Agreement, each of the Shareholders, McLaren and
Buyer hereby agree as follows:
1. AGREEMENT OF PURCHASE AND SALE OF THE PURCHASED SHARES. On the terms and
subject to the conditions set forth in this Agreement, Shareholders agree to
sell, assign, transfer, set over, convey, and deliver to Buyer on the Closing
Date (as defined below) the Purchased Shares, free, clear, and discharged of
and from any and all Encumbrances (as defined below), and Buyer agrees to
purchase the Purchased Shares from Shareholders.
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2. PURCHASE PRICE FOR PURCHASED SHARES.
2.1 Purchase Price. The consideration Buyer will pay to the Shareholders
for the Purchased Shares (the "Purchase Price") at the Closing shall be
150,000 shares of common stock of ASHA Corporation, which shall be restricted
as to transfer by the Shareholders pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended.
2.2 Payment of the Purchase Price. The Purchase Price shall be tendered
by Buyer to an escrow for the benefit of Shareholders (hereinafter "McLaren
Escrow") on the Closing Date by delivery of ASHA Corporation common stock
certificates to the McLaren Escrow registered respectively in the names of
each selling Shareholder as set forth in Schedule 2.2 against receipt of all
of the certificates representing the Purchased Shares of McLaren duly endorsed
for transfer or accompanied by duly executed stock powers. The McLaren Escrow
shall be established by and subject to the terms of that certain Escrow
Agreement attached hereto as Exhibit B.
3. OTHER AGREEMENTS. At the Closing, Executive shall execute and deliver to
Buyer the Employment Agreement, and the Executive on behalf of all of the
Shareholders and the Buyer shall execute the Escrow Agreement.
4. PRECLOSING ACTIONS. From the date hereof until the Closing:
4.1 Conduct of Business. Shareholders shall cause McLaren to carry on
and conduct the Business only in the ordinary course consistent with past
practice, without any change in the policies, practices, and methods McLaren
pursued before the date of this Agreement. Shareholders will use their best
efforts and cause McLaren to use its best efforts to preserve the Business
organization intact; to preserve the relationships with McLaren's customers,
suppliers, and others having business dealings with McLaren; and to preserve
the services of McLaren's employees, agents, and representatives. Without
limitation of the foregoing (a) Shareholders will cause McLaren not to
undertake without Buyer's prior written consent any action that, if taken
prior to the date of this Agreement, would be required to be disclosed on the
schedules attached hereto and (b) Shareholders will cause McLaren not to alter
the physical contents or character of any of its inventories in a way that
affects the nature of the Business or results in a change in the total dollar
valuation of the inventories or otherwise take action or refrain from taking
action that would result in any change in McLaren's assets or liabilities,
other than in the ordinary course of business (subject to the merger
transaction referenced above) consistent with past practices.
4.2 Access to Buyer. From the date of this Agreement through the
Closing, Executive shall provide to Buyer reasonable access to McLaren to
conduct a review of McLaren's business, financial, accounting, and legal
condition. No such investigation by Buyer or its representatives shall affect
the representations and warranties of Shareholders or Buyer's reliance on
them.
4.3 Accuracy of Representations and Warranties and Satisfaction of
Conditions. Executive will immediately advise Buyer in writing if (a) any of
the representations or warranties of Shareholders is untrue or incorrect in
any material respect, or (b) Shareholders become aware of the occurrence of
any event or state of facts that results in any of the representations and
warranties of Shareholders being untrue or incorrect as if Shareholders were
then making them. Shareholders will not take any action, or omit to take any
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action, and shall cause McLaren not to take any action, or omit to take any
action, that would result in any of Shareholders' representations and
warranties set forth in this Agreement to be untrue or incorrect as of the
Closing Date. Shareholders will use their best efforts to cause all conditions
set forth in Section 5 that are within their control to be satisfied as
promptly as practicable under the circumstances.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. Buyer's obligation to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment (or waiver by Buyer) before or at the Closing of each of the
following conditions:
5.1 Accuracy of Representations and Warranties. The representations and
warranties of Shareholders contained in this Agreement and all related
documents shall be true and correct at and as of the Closing Date as though
such representations and warranties were made on that date.
5.2 Performance of Covenants. Shareholders shall have in all respects
performed and complied with all covenants, agreements, and conditions that
this Agreement requires, and with all other related documents to be performed
or complied with prior to or on the Closing Date. The Executive shall have
executed and delivered the Employment Agreement.
5.3 Satisfactory Due Diligence Review. Buyer shall have conducted a
review reasonably satisfactory to Buyer of the business, financial,
accounting, and legal aspects of McLaren, the Business, and any relevant
assets and liabilities.
5.4 No Casualty. Prior to the Closing Date, McLaren shall not have
incurred or be threatened with any damage, liability or casualty that would
materially impair the value of its assets.
5.5 Share Certificates. Shareholders shall have delivered to Buyer
certificates representing all of the Purchased Shares registered in the name
of, and held by Buyer under the terms of the Escrow Agreement, without any
restrictive legend, together with such instruments and items that shall
permit, in the reasonable opinion of Buyer's counsel, the sale and transfer of
such shares free, clear, and discharged of any legend or Encumbrance. The
certificates shall be duly endorsed in blank or with accompanying stock powers
or assignments duly signed. Shareholders shall also deliver to Buyer such
other instruments or documents that shall, in the reasonable opinion of the
Buyer's counsel, be reasonably required to vest good and marketable title in
Buyer to the Purchased Shares free, clear, and discharged of any and all
legends, liens and Encumbrances.
5.6 No Litigation. No action, suit, proceeding, or investigation shall
have been instituted before any court or governmental body, or instituted by
any governmental agency, to restrain or prevent the carrying out of the
transactions contemplated by this Agreement or that might affect Buyer's right
to own, operate, and control the Purchased Shares or the Business after the
Closing Date.
5.7 Lien Search. Buyer has received UCC lien searches in form and
content satisfactory to Buyer.
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5.8 Resignations. Each director and officer of McLaren shall have
delivered to the Executive and Buyer in form and content satisfactory to Buyer
resignations from their positions and any other positions held in, or by
appointment by or from, McLaren. Following the Closing, Buyer shall nominate
and appoint Executive as a Director of ASHA Corporation and McLaren and as the
President and Chief Operating Officer of McLaren pursuant to the terms of the
Employment Agreement. Buyer shall also appoint other directors and officers
of McLaren reasonably satisfactory to Executive following the Closing, subject
to compliance with Buyer's ongoing employment policies, terms and conditions.
5.9 Other Documents and Instruments. Buyer shall have received any other
documents and instruments as it may reasonably request.
5.10 Approvals by Buyer's Counsel. Buyer's counsel shall have reasonably
approved all legal matters and the form and substance of all documents Buyer
or McLaren is to deliver at the Closing.
6. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS. Shareholders'
obligations to consummate the transactions contemplated by this Agreement are
subject to the fulfillment of each of the following conditions before or at
the Closing Date:
6.1 Accuracy of Representations and Warranties. Buyer's representations
and warranties contained in this Agreement and all related documents shall be
true and correct at and as of the Closing Date as though such representations
and warranties were made at that time.
6.2 Performance of Covenants. Buyer shall have in all respects performed
and complied with all covenants, agreements, and conditions required by this
Agreement and all related documents that must be performed or complied with
before and at the Closing Date.
7. CLOSING MATTERS.
7.1 Closing. The closing of the transactions contemplated in this
Agreement (the "Closing") shall take place automatically effective as of
January 7, 1999 upon notification in writing by Buyer to Executive that Buyer
has placed the Purchase Price in escrow for the benefit of Shareholders
pursuant to the terms of the McLaren Escrow, which such notification shall
take place on or before January 15, 1999.
7.2 Further Assurances. Shareholders shall cooperate with and assist
Buyer and take all other reasonable actions to ensure a smooth transition of
McLaren to Buyer. From time to time after the Closing Date, Shareholders
shall, at the request of Buyer, execute and deliver additional conveyances,
transfers, documents, instruments, assignments, applications, certifications,
papers, and other assurances that Buyer requests as necessary, appropriate,
convenient, useful, or desirable to effectively carry out this Agreement's
intent and to transfer the Purchased Shares to Buyer.
8. Representations and Warranties of McLaren and Executive. Executive and
McLaren hereby represent and warrant, as follows:
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8.1 Organization and Good Standing of McLaren. McLaren is a corporation
duly organized and existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to carry on its
business as now conducted, to own and to hold the properties used in
connection therewith, to enter into this Agreement and to consummate the
transactions contemplated herein. McLaren is duly licensed or qualified and
in good standing as a foreign corporation in each jurisdiction wherein the
business conducted by it or the character of the properties owned or leased by
it makes such licensing or qualification necessary, except where the failure
to be so qualified would not have a material adverse effect on McLaren.
8.2 Capitalization of McLaren. McLaren's authorized capitalization
consists of One Thousand (1,000) shares of voting common stock, par value
$1.00, of which a total of One Thousand (1,000) shares were issued and
outstanding as of the date hereof. Except as may be anticipated by this
Agreement, there is no other class of common stock nor any preferred stock of
McLaren authorized, issued or outstanding. All such issued and outstanding
shares of common stock have been validly issued, are fully paid and non-
assessable, and were issued in compliance with the provisions of all
applicable federal and state securities laws. Except as set forth on Schedule
8.2, there are no outstanding subscriptions, options, rights, warrants,
securities convertible into or other agreements or commitments obligating
McLaren to sell or issue any additional shares of its capital stock, or any
securities convertible into any shares of its capital stock. Except as set
forth on Schedule 8.2, there are no preemptive rights of shareholders of
McLaren with respect to the issuance or sale of any shares or other
securities. Except as disclosed on Schedule 8.2, McLaren is not a party to
any agreements with any of its shareholders, nor is it aware, after due
inquiry, of any such agreements among its shareholders, with respect to the
voting of or transfer of shares of its capital stock, including agreements for
rights of first refusal or rights of first offer.
8.3 Subsidiaries. Except as set forth on Schedule 8.3, McLaren does not
own, directly or indirectly, any interest in any corporation or other business
entity.
8.4 Financial Statements. McLaren's financial statements as of November
30, 1998 are set forth as Exhibit C (collectively, the "Financial
Statements"). Except as disclosed on Schedule 8.4, the Financial Statements
have been prepared in all material respects in accordance with generally
accepted accounting principles consistently applied, and fairly represent the
financial position of McLaren at the dates indicated thereon and the results
of McLaren's operations for the periods then ended in all material respects.
(a) Except as disclosed on Schedule 8.4, all material liabilities
at the close of business on November 30, 1998 are reflected on the Financial
Statements which would be required to be disclosed therein under generally
accepted accounting principles. Except as disclosed on Schedule 8.4, there are
no contingent liabilities which would be required to be noted on the Financial
Statements under generally accepted accounting principles.
(b) Except as reflected on the Financial Statements, the notes
thereto or on Schedule 8.4, McLaren owns outright all assets and properties
reflected thereon or acquired by it after the date of the Financial
Statements, in each case free and clear of all material mortgages, liens,
charges or encumbrances whatsoever.
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8.5 Intellectual Property. Except as disclosed on Schedule 8.5, McLaren
owns or possesses adequate licenses and other rights to all patents, trade
secrets, trademarks, trade names, service marks, know-how and copyrights or
other intellectual property necessary to carry on its business as presently
conducted without any infringement of or conflict with the rights of others,
except where the failure to do so would not have a material adverse effect on
the business of McLaren.
A list of all patents and patent licenses owned or used by McLaren
in connection with its engine design and development business (other than
commonly available software products) is attached hereto in Schedule 8.5. A
list of all trademarks, trade names and service marks owned or used by McLaren
in connection with its engine design and development business (other than
commonly available software products) is included in Schedule 8.5. All
agreements pursuant to which McLaren has agreed (i) to pay royalty, license or
similar fees for the use of intellectual property listed in Schedule 8.5 or
(ii) to license or assign intellectual property listed on Schedule 8.5 to
third parties are identified and described on Schedule 8.5.
8.6 Material Contracts. Except as set forth on Schedule 8.6, McLaren
has no currently existing contract, obligation or commitment of a material
nature (other than those relating to intellectual property identified on
Schedules 8.5)not cancelable upon thirty days' notice or less or which involve
payments of more than $10,000, including without limitation the following:
(a) employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans;
(b) loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any property of McLaren, or any agreement or instrument
evidencing any guaranty by McLaren of payment or performance of any obligation
by any other person;
(c) agreements with dealers, sales representatives, brokers or
other distributors, jobbers, advertisers or sales agencies;
(d) agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) any contract or series of contracts with the same person for
the furnishing or purchase of machinery, equipment, goods or services,
including without limitation agreements with processors and subcontractors;
(f) any indenture, agreement or other document relating to the sale
or purchase of securities;
(g) any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which McLaren is a party;
(h) agreements limiting the freedom of McLaren to compete in any
line of business or in any geographic area in the world or with any person;
(i) agreements providing for disposition of the business, assets or
shares of McLaren, agreements of merger or consolidation to which McLaren is a
party or letters of intent with respect to the foregoing;
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(j) agreements involving, or letters of intent with respect to, the
acquisition of the business, assets or shares of any other entity; and
(k) any agreement granting or agreeing to grant licenses to use any
existing or hereafter acquired patent, know-how, or trade secrets of McLaren.
8.7 Compliance with Contractual Obligations, Laws and Regulations.
Except as set forth on Schedule 8.7, McLaren has complied with all material
provisions of the agreements identified on Schedules 8.5 and 8.6 and has
received no notice of the existence of any defaults under such agreements.
McLaren is in material compliance with all laws, rules, ordinances and
regulations applicable to them, except environmental laws, rules, ordinances
and regulations, which is the subject of a different representation herein,
the failure to comply with which would have a material adverse effect on
McLaren.
8.8 Litigation. Except as disclosed on Schedule 8.8, There are no
actions, claims, suits, proceedings, or investigations pending or threatened
by or against McLaren or threatened by or against any of the officers or
directors of McLaren in connection with the business of McLaren. There are no
defaults with respect to any order, writ, injunction or decree of any court or
governmental department, commission, board, bureau, agency or instrumentality.
8.9 Violation of Other Instruments. The execution and delivery of this
Agreement has been duly authorized by all necessary corporate action, and this
Agreement constitutes a valid and binding obligation of McLaren enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium, or similar laws relating to the
enforcement of creditor's rights and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at
law or in equity). Except as disclosed on Schedule 8.9, the execution and
performance of this Agreement by McLaren does not violate any provision of law
or any judgment, order, writ, decree or government regulation and does not
conflict with or result in any breach of any of the provisions of the Articles
of Incorporation or the By-Laws of McLaren, nor do the same conflict with or
result in any breach of any of the provisions of, or constitute a default
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties, assets or outstanding stock of McLaren
under any indenture, mortgage, lease, agreement or other instrument to which
McLaren is a party or by which it or any of its property is bound or affected,
the results of which would have a material adverse effect on McLaren.
8.10 No Adverse Changes. Except as set forth in Schedule 8.10, since
the date of the Financial Statements, McLaren has not:
(a) incurred, discharged or satisfied any debts, obligations or
liabilities, whether absolute, accrued, contingent or otherwise, except for
the routine incurrence, discharge or satisfaction of (i) current liabilities
in the ordinary course of business; or (ii) obligations under contracts
entered into in the ordinary course of business;
(b) declared or made any dividend or other payment or distribution
to its shareholders as such, or purchased or redeemed any of its securities;
(c) sold, leased or otherwise disposed of any of its assets except
routine dispositions made in the ordinary course of business;
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(d) suffered any material physical damage, destruction or loss
(whether or not covered by insurance);
(e) encountered any labor difficulties or labor union organizing
activities;
(f) made or granted any increases in wages or salaries or in
employee benefits, except for routine increases that were made in the ordinary
course of business and were consistent with past practice;
(g) entered into any transaction other than in the ordinary course
of business;
(h) suffered or experienced any change in, or event or condition
affecting, its business, assets, liabilities, condition (financial or
otherwise), affairs or operations other than changes, events or conditions in
the ordinary course of business, any of which (either when taken by itself or
when taken in conjunction with all such other changes, events or conditions)
has been materially adverse; or
(i) mortgaged, pledged, or subjected to any lien, charge or any
other encumbrance, any of its assets, tangible or intangible.
8.11 Authorization. The issuance, sale and delivery of the Purchased
Shares to Buyer have been, or will have been as of the Closing Date, duly
authorized by all requisite corporate action, and the Purchased Shares, when
issued, sold and delivered against payment of the purchase price therefor,
shall be validly issued and outstanding, fully paid and non-assessable, and
shall not be subject to any preemptive rights or rights of first refusal or
first offer in favor of any other person, except as set forth in Schedule 8.2.
8.12 Title to Assets. Except as set forth on Schedule 8.12, McLaren has
good and marketable title to the assets reflected on the Financial Statements
(other than those since disposed of in the ordinary course of business), free
and clear of all security interests, charges and other encumbrances, except
(i) liens for taxes not yet due and payable, and (ii) encumbrances that are
incidental to the conduct of its business or its ownership of property, not
incurred in connection with the borrowing of money or the obtaining of credit
and which do not in the aggregate materially detract from the value of the
assets affected thereby or materially impair the use thereof by McLaren.
8.13 Tax Matters. All required tax returns of McLaren are true and
correct in all material respects and have been duly and timely filed, and all
taxes required to be paid with respect to the periods or transactions covered
by such returns have been duly and timely paid. McLaren is not delinquent in
the payment of any tax, assessment or governmental charge, has not had any tax
deficiency proposed or assessed against them, and has not executed any waiver
still in effect of any statute of limitations on the assessment or collection
of any tax. Except as set forth in Schedule 8.13, none of the federal or
state income tax returns or state franchise tax returns of McLaren have ever
been audited by governmental authorities at any time during the last three
years and no other audits are open as of the date of this Agreement. There is
no pending deficiency assessment or proposed adjustment of McLaren's taxes.
8.14 Officers and Directors. The officers, directors and shareholders
of McLaren on the date of this Agreement are set forth on Schedule 8.14.
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8.15 Corporate Records. Copies of the Articles of Incorporation, all
Amendments thereto, the By-Laws and any Minutes of the Directors, Shareholders
and Executive Committee, if any, of McLaren are contained in the Minute Books
of McLaren and are true and correct in the forms previously disclosed to
Buyer.
8.16 Employees and Employee Benefit Plans. Except as set forth on
Schedule 8.16:
(a) Executive is not aware that any key employee of McLaren has any
plans to terminate employment with McLaren.
(b) Neither McLaren nor to Executive's knowledge any of its
employees is subject to any non-compete, nondisclosure, confidentiality,
employment, consulting or similar agreement with any person or entity other
than McLaren relating to the present or proposed business activities of
McLaren.
(c) Each of the key employees of McLaren is able to work without
legal restriction by contract or otherwise and without violation of unfair
competition or secrecy laws. Each of the employees of McLaren listed on
Schedule 8.16 attached hereto has executed a nondisclosure agreement
prohibiting the disclosure of automotive technology and manufacture know-how
to third parties without the consent of McLaren.
(d) Except as set forth on Schedule 8.16, McLaren does not presently
maintain or contribute to, or ever has maintained or contributed to during the
last five (5) years, any "employee benefit plan," as such term is defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to which McLaren is required to file Internal Revenue
Service Form 5500, and McLaren does not presently contribute to or ever has
contributed to any "multi-employer plan" as such term is defined in Section 3
of ERISA.
(e) With respect to each employee benefit plan listed on Schedule
8.16, all contributions required by law to have been made under any such plan
to any fund, trust or account established thereunder or in connection
therewith have been made by the due date thereof and each plan is properly
funded to extent required by its terms and section 412 of the Code.
8.17 Securities Laws. No registration in connection with the issuance of
the Purchased Shares is required under the Securities Act of 1933, as amended,
(the "Act") or any other applicable federal or state securities laws.
8.18 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any federal or state governmental
authority on the part of McLaren is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of
the Shares, or the consummation of any other transaction contemplated hereby.
8.19 Certain Transactions. Except as disclosed on Schedule 8.19 and on
the Financial Statements, McLaren is not indebted, directly or indirectly, to
any of its officers, directors or shareholders or to their respective
Affiliates, as hereinafter defined, and none of such officers, directors,
shareholders or Affiliates is indebted to McLaren. McLaren is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation
other than certain obligations disclosed on Schedule 8.19. No officer or
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director of McLaren, or, to the best knowledge of McLaren, shareholder of
McLaren and no Affiliate of any such officer, director or shareholder has any
direct or indirect ownership interest in any entity with which McLaren is
affiliated or with which McLaren has a material business relationship, or
which competes with McLaren, other than the ownership of publicly traded
stock. Except as disclosed on Schedule 8.19, no officer, director,
shareholder or any Affiliate thereof is, directly or indirectly, interested in
any material contract with McLaren. An "Affiliate" of an officer, director or
shareholder of McLaren shall mean, with respect to an entity, the ownership of
over 50% of the voting stock or interests therein, and, with respect to an
individual, a member of such individual's immediate family.
8.20 Insurance. Except as disclosed on Schedule 8.20, (a)all policies
and binders of insurance for professional liability, directors and officers,
property and casualty, fire liability, workers' compensation and other
customary matters held by or on behalf of McLaren, all of which have been made
available to Buyer; (b) all of said policies are in full force and effect and
McLaren is not in default with respect to any material provision contained in
any such policy; and (c) McLaren has not failed to give any notice of claim
under any such policy in due and timely fashion, nor has any coverage for
current claims been denied.
8.21 Environmental Matters. Except as disclosed on Schedule 8.21
attached hereto, there are no Hazardous Substances in, on or beneath the
surface of any real property owned, leased or used by McLaren, including the
Premises or in or on any improvements located on the Premises, except such
Hazardous Substances the presence of which would not have a material adverse
effect on the business of McLaren. The term "Hazardous Substance" means any
material: (i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action policy or common law; or (ii) which is defined as a "hazardous waste,"
"hazardous substance," pollutant or contaminant under any federal, state or
local statute, regulation, rule or ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. section 9601 et seq.) and or the Resource
Conservation and Recovery Act (42 U.S.C. section 6901 et seq.); or (iii) which
is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, the State of Michigan, or any political
subdivision thereof; or (iv) the presence of which on the Premises or causes
or threatens to cause a nuisance upon the Premises to adjacent properties or
poses a hazard to the health or safety of persons on or about the Premises; or
(v) without limitation which contains gasoline, diesel fuel or other petroleum
hydrocarbons.
8.22 Waivers. None of McLaren's Shareholders and none of McLaren's
officers or directors has a claim against McLaren for unpaid dividends,
bonuses, profit sharing, rights, or other claims of any kind, nature, or
description, except salaries and fringe benefits normally accrued prior to the
date of this Agreement.
8.23 Scope of Representations and Warranties. Neither this Agreement
nor any Schedule hereto contains any untrue statement of any material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
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9. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants to
Shareholders that:
9.1 Organization and Standing. Buyer is a corporation duly organized and
validly existing under the laws of the State of Delaware, and Buyer has all
the requisite power and authority (corporate and otherwise) to own its
properties and to conduct its business as it is now being conducted.
9.2 Authorization. Buyer has taken all necessary corporate action (a) to
duly approve the execution, delivery, and performance of this Agreement and
(b) to consummate the transactions contemplated under these Agreements. Buyer
has duly executed and delivered this Agreement. This Agreement is the legal,
valid, and binding obligation of Buyer, enforceable against Buyer in
accordance with its respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, or similar laws relating to the
enforcement of creditor's rights and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding at
law or in equity).
9.3 Existing Agreements and Governmental Approvals.
(a) Except as set forth on Schedule 9.3, the execution, delivery,
and performance of this Agreement and the consummation of the transactions
contemplated by it (I) do not and will not conflict with, result in the breach
or termination of any provision of, or constitute a default under (in each
case whether with or without the giving of notice or the lapse of time, or
both) Buyer's Articles of Incorporation or By-laws or any indenture, mortgage,
lease, deed of trust, or other instrument, contract, or agreement or any
order, judgment, arbitration award, or decree to which Buyer is a party or by
which it or any of its assets and properties are bound.
(b) Except as set forth on Schedule 9.3, no approval, authority, or
consent of, or filing by Buyer with, or notification to, any federal, state,
or local court, authority, or governmental or regulatory body or agency or any
other corporation, partnership, individual, or other entity is necessary to
authorize Buyer's execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement or the purchase of the
Purchased Shares.
9.4 Investment Intent. Buyer is acquiring the Purchased Shares for its
own account for investment, and without any present intention to resell the
Purchased Shares. Buyer acknowledges and agrees that the Purchased Shares have
not and will not be registered under the Securities Act of 1933 or the
Michigan Uniform Securities Act, and Buyer will not resell the Purchased
Shares unless they are so registered or unless an exemption from registration
is available. Buyer consents to the imposition of a legend to this effect on
the certificates for the Purchased Shares and to a notation to this effect in
the appropriate records of McLaren.
9.5 Securities Laws. No registration in connection with the issuance of
the ASHA Shares is required under the Securities Act of 1933, as amended, (the
"Act") or any other applicable federal or state securities laws.
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10. INDEMNIFICATION AND LIMIT.
10.1 Executive agrees to indemnify Buyer, and to hold it harmless from
and against all taxes, penalties, fines, damages, sanctions, losses,
assessments, liabilities, costs and other expenses (including reasonable
attorney fees) (collectively, "Losses"), arising out of any breach or other
default of any agreements, representations, warranties or covenants on the
part of McLaren or Executive contained in this Agreement.
10.2 Notwithstanding the foregoing, Executive shall have no obligation
to indemnify ASHA from and against any Losses until the aggregate amount of
the Losses suffered by ASHA is greater than Ten Thousand Dollars ($10,000)(the
"Aggregate Threshold Amount"). Executive will be responsible only for those
Losses in excess of the Aggregate Threshold Amount up to a maximum of the then
current closing NASDAQ market price of 150,000 shares of ASHA Common Stock as
of the date a claim for indemnification is satisfied (the "Cap Amount"), which
Cap Amount shall be reduced by any and all recoveries obtained by McLaren from
any third party, including but not limited to H. William Smith, Jr. and or
Edward E. Mayer, as contemplated under the Merger Agreement. The indemnity
obligations contained in this Section and all representations, warranties, and
covenants contained in this Agreement shall expire one year after the date of
this Agreement and the Executive will have no liability under the
indemnification provisions of this Section or otherwise in connection with
this Agreement unless ASHA gives written notice to Executive of its claim for
any such Losses, setting forth in reasonable detail the specific facts and
circumstances pertaining thereto, before the expiration of such one year
period. In addition, Executive shall have no indemnification obligations with
respect to matters listed in Schedules attached to this Agreement.
10.3 The parties agree that Executive's obligations under this indemnity
shall be secured and satisfied solely by the placement of 150,000 shares of
ASHA Common Stock into escrow pursuant to the terms of the Escrow Agreement
attached hereto as Exhibit B. Further, the parties agree no other assets of
Executive shall be subject to claim, attachment, or encumbrance by ASHA in
satisfaction of any liability incurred by Buyer under this section in excess
of the escrowed shares noted above.
10.4 In the event of a breach or other claim, the party claiming such
breach or other claim (the "Indemnitee") shall give written notice ("Notice")
to the party in breach or against whom such other claim is made (the
"Indemnitor") stating that payment of an amount described in the Notice is due
and payable to the Indemnitee under the provisions of this Agreement on
grounds set forth in the Notice, and that such payment is due immediately.
10.5 If any action, litigation, suit, investigation, arbitration or
other proceeding ("Proceeding") is brought against an Indemnitee for which the
Indemnitee is or may be entitled to indemnification from an Indemnitor
pursuant to Sections 10.1 or 10.2, Indemnitee shall promptly give a Notice to
Indemnitor of such Proceeding. Indemnitor shall, at its own expense, have the
opportunity to be represented by counsel of its choosing and to assume and
conduct the defense of any such Proceeding upon providing a written
undertaking to that effect to Indemnitee. If, after such opportunity,
Indemnitor or its counsel does not assume the defense of any such Proceeding,
it shall be bound by the results obtained by Indemnitee. In the event that
Indemnitee does not receive written notice from Indemnitor within ten (10)
days of having given Notice to Indemnitor of any such Proceeding Indemnitor
shall be deemed to have elected not to assume the defense of such Proceeding,
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and in such event Indemnitee will have the right to conduct such defense and
to compromise and settle such Proceeding, provided Indemnitor consents
thereto, which consent may not be unreasonably withheld. In the event that
Indemnitor does elect to assume the defense of such Proceeding, Indemnitee
will cooperate with and make available to Indemnitor such assistance and
materials as may be reasonably requested by it, all at the expense of
Indemnitor, and Indemnitee will have the right at its expense to participate
in the defense; provided, however, that Indemnitee will have the right to
compromise or settle such Proceeding only with the prior written consent of
Indemnitor which shall not be unreasonably withheld. Any compromise or
settlement to which Indemnitor shall have consented in writing shall
constitute an admission of liability on the part of Indemnitor and shall
conclusively be deemed to be an obligation with respect to which Indemnitee is
entitled to indemnification under Sections 10.1 or 10.2, as the case may be.
10.6 The parties shall cooperate fully with each other after the date of
this Agreement with respect to any claims, demands, tax or other audits,
suits, actions, and proceedings by or against Executive, McLaren, Buyer or
McLaren's stock, whether or not notified by the other of a claim for indemnity
with respect to such matter.
11. EXPENSES. Each of the parties shall pay all of the costs that it incurs
incident to the preparation, execution, and delivery of this Agreement and the
performance of any related obligations, whether or not the transactions
contemplated by this Agreement shall be consummated; except that McLaren may
pay such expenses, provided, however, that McLaren's and Executive's expenses
for Clark Hill professional fees in completing the Smith Merger and the
transaction contemplated by this Agreement shall not exceed $100,000.
12. TERMINATION.
12.1 This agreement may be terminated at any time before the Closing
Date as follows:
(a) By Buyer and Shareholders in a written instrument.
(b) By either Buyer or Shareholders if the closing does not occur
on the Closing Date.
(c) By Buyer or Shareholders if there shall have been a material
breach of any of the representations or warranties set forth in this Agreement
on the part of the other, and this breach by its nature cannot reasonably be
cured to the satisfaction of the non-breaching party before the closing.
(d) By Buyer or Shareholders if there has been a breach of any of
the covenants or agreements set forth in this Agreement on the part of the
other, and this breach is not cured within 10 business days after the
breaching party or parties receive written notice of the breach from the other
party.
12.2 If terminated as provided in Section 12.1, this Agreement shall
forthwith become void and have no effect, except for Sections 12.3 and 13, and
except that no party shall be relieved or released from any liabilities or
damages arising out of the party's breach of any provision of this Agreement.
12.3 Buyer, on the one hand, and McLaren, on the other, warrant and
agree that if this Agreement is terminated, each party will not, during the
one-year period following the termination, directly or indirectly solicit any
employee of the other party to leave the employment of the other party.
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13. MISCELLANEOUS PROVISIONS.
13.1 Representations and Warranties. All representations, warranties,
and agreements made by the parties pursuant to this Agreement shall survive
the consummation of the transactions contemplated by this Agreement for a
period of one year and shall thereafter expire and be of no further force and
effect.
13.2 Notices. All notices, demands, and requests required or permitted
to be given under the provisions of this Agreement shall be in writing and
shall be deemed given (a) when personally delivered or sent by facsimile
transmission to the party to be given the notice or other communication or (b)
on the business day following the day such notice or other communication is
sent by overnight courier to the following:
If to Shareholders to:
Mr. Wiley R. McCoy
C/O McLaren Engines, Inc.
32233 West Eight Mile Road
Livonia, Michigan 48152
Facsimile: 248-477-3349
With a copy to:
Clark Hill PLC
Attn: John J. Hern, Jr., Esq.
500 Woodward Avenue, Suite 3500
Detroit, Michigan 48226-3435
Facsimile: 313-965-8252
If to Buyer to:
ASHA Corporation
C/O Mr. Jack McCormack, President
600 C Ward Drive
Santa Barbara, California 93111
Facsimile: 805-964-9948
With a copy to:
Walter J. Borda, Esq.
Borda & Clemens
38705 Seven Mile Road, Suite 225
Livonia, Michigan 48152
Facsimile: 734-542-9569
or to such other address or facsimile number that the parties may designate in
writing.
13.3 Assignment. Neither Shareholders nor Buyer shall assign this
Agreement, or any interest in it, without the prior written consent of the
other, except that Buyer may assign any or all of its rights to any subsidiary
controlled by Buyer without Shareholders' consent.
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13.4 Parties in Interest. This Agreement shall inure to the benefit of,
and be binding on, the named parties and their respective successors and
permitted assigns, but not any other person.
13.5 Choice of Law. This Agreement shall be governed, construed, and
enforced in accordance with the laws of the State of Michigan.
13.6 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature on each counterpart were
on the same instrument.
13.7 Entire Agreement. This Agreement and all related documents,
schedules, exhibits, attachments, or certificates, including the Employment
Agreement, the Escrow Agreement and the Stock Rights Agreement represent the
entire understanding and agreement between the parties with respect to the
subject matter and supersede all prior agreements or negotiations between the
parties. This Agreement may be amended, supplemented, or changed only by an
agreement in writing that makes specific reference to this Agreement or the
agreement delivered pursuant to it, and must be signed by the party against
whom enforcement of any such amendment, supplement, or modification is sought.
13.8 Arbitration.
(a) Any dispute, controversy, or claim arising out of or relating
to this Agreement or relating to the breach, termination, or invalidity of
this Agreement, whether arising in contract, tort, or otherwise, shall at the
request of any party be resolved in binding arbitration. This arbitration
shall proceed in accordance with Title 9 of the United States Code, as it may
be amended or re-codified from time to time ("Title 9"), and the current
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association ("AAA"), to the extent that Title 9 and the
Arbitration Rules do not conflict with any provision of this Section 13.8.
(b) No provision of or the exercise of any rights under this
Section 13.8 shall limit the right of any party to seek and obtain provisional
or ancillary remedies (such as injunctive relief, attachment, or the
appointment of a receiver) from any court having jurisdiction before, during,
or after the pendency of an arbitration proceeding under this Section. The
institution and maintenance of any such action or proceeding shall not
constitute a waiver of the right of any party (including the party taking the
action or instituting the proceeding) to submit a dispute, controversy, or
claim to arbitration under this Section.
(c) Any award, order, or judgment made pursuant to arbitration
shall be deemed final and may be entered in any court having jurisdiction over
the enforcement of the award, order, or judgment. Each party agrees to submit
to the jurisdiction of any court for purposes of the enforcement of the award,
order, or judgment.
(d) The arbitration shall be held before one arbitrator
knowledgeable in the general subject matter of the dispute, controversy, or
claim and selected by AAA in accordance with the Arbitration Rules.
(e) The arbitration shall be held at the office of AAA located in
Southfield, Michigan (as the same may be from time to time relocated), or at
another place the parties agree on.
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(f) In any arbitration proceeding under this Section 13.8, subject
to the award of the arbitrator(s), each party shall pay all its own expenses,
an equal share of the fees and expenses of the arbitrator. The arbitrator(s)
shall have the power to award recovery of costs and fees (including reasonable
attorney fees, administrative and AAA fees, and arbitrators' fees) among the
parties as the arbitrators determine to be equitable under the circumstances.
(g) The interpretation and construction of this Section, including
but not limited to its validity and enforceability, shall be governed by Title
9 of the U.S. Code, notwithstanding the choice of law set forth in Section
13.5 of this Agreement.
13.9 Rule 144 Compliance. With a view to making available the benefits
of certain rules and regulations of the Securities and Exchange Commission
(the "Commission") that may permit the sale of the ASHA Shares to the public
without registration, ASHA agrees diligently to use all reasonable efforts to:
(a) Make and keep public information regarding ASHA available as
those terms are understood and defined in Rule 144 under the Securities Act,
at all times;
(b) File with the Commission in a timely manner all reports and
other document required of the Company under the Securities Act, as amended,
and the Exchange Act, as amended; and
(c) So long as a Shareholder owns any ASHA Shares, furnish to the
Shareholder forthwith upon written request a written statement by ASHA as to
its compliance with the reporting requirements of Rule 144, and of the
Securities Act, as amended, and the Exchange Act, as amended, a copy of the
most recent annual or quarterly report of ASHA, and such other reports and
documents so filed as a Shareholder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Shareholder to sell any
such securities without registration. In addition to the extent required or
requested by any exchange or market system on which the common stock of ASHA
may be traded, or at the request of any broker or dealer, ASHA will, at its
expense, cause to be prepared any and all required or requested opinions of
counsel, and pay any other reasonable fees and expenses incurred by a
Shareholder in connection with selling the ASHA Shares.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth on the first page of this Agreement.
McLAREN ENGINES, INC.
/s/ Wiley R. McCoy
By: Wiley R. McCoy
Its: President
ASHA CORPORATION (BUYER)
/s/ John C. McCormack
By: John C. McCormack
Its: President
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SHAREHOLDERS
/s/ Edwin Babas
Edwin Babas
/s/ Dean Batterman
Dean Batterman
/s/ Thomas Bohnett
Thomas Bohnett
/s/ Jeffrey Burr
Jeffrey Burr
/s/ Vincent Coppola
Vincent Coppola
/s/ James Daw
James Daw
/s/ Thomas G. Dettloff
Thomas Dettloff
/s/ John Gee
John Gee
/s/ Brian Glaser
Brian Glaser
/s/ Thomas Klausler
Thomas Klausler
/s/ Nancy Lewis
Nancy Lewis
/s/ Raymond McCallum
Raymond McCallum
/s/ Wiley McCoy
Wiley McCoy
/s/ Donald L. Miller
Donald Miller
/s/ Candace Rees
Candace Rees
/s/ Philip Sievers
Philip Sievers
/s/ Bruce G. Smith
Bruce Smith
/s/ Gerard Uphaus
Gerard Uphaus
/s/ Cheryl Van Dyke
Cheryl Van Dyke
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Table of Exhibits and Schedules
Item Letter/Number
A. Schedules
List of Shareholders s2.2
November Balance Sheet s2.3(a)
Outstanding Options s8.2
List of Subsidiaries s8.3
List of Patents, Trademarks, etc. s8.5
Contracts s8.6
Contract Defaults s8.7
Tax Returns s8.13
Officers, Directors and Shareholders s8.14
Employee Benefit Plans s8.16(c)
Employee Non-disclosure Agreements s8.16(d)
Debts, Guaranties, Non-Competition s8.21
Environmental Matters s9.3
B. Exhibits
Employment Agreement A
Escrow Agreement B
Financial Statements C
Stock Rights Agreement D
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made this 5th day of January, 1999,
by and between MCLAREN ENGINES, INC., a Delaware corporation with principal
offices located in Livonia, Michigan ("Borrower"), and ASHA CORPORATION, a
Delaware corporation with principal offices located in Santa Barbara,
California ("Lender"). The Lender agrees to make, and the Borrower agrees to
repay the loan described below ("Loan") in accordance with the terms and
conditions set forth in this Agreement.
1. LOAN AND COLLATERAL.
a. Loan. The Loan made under this Agreement shall be, as follows:
One Million, Three Hundred Fifty-Five Thousand and no/100 Dollars
($1,355,000.00), to be evidenced by a Demand Promissory Note ("Note"), which
Loan shall be payable in accordance with the terms stated in the Note, a
sample copy of which is attached hereto as Exhibit A.
b. Payments. The Loan shall be repaid in accordance with the
terms and provisions of this Loan Agreement and the Note. In the event of an
inconsistency between this Loan Agreement and the Note, the terms and
conditions of the Note shall control.
c. Use of Loan Proceeds. The Borrower will use the proceeds of
the Loan in connection with the merger of Borrower and McLaren Engines
Acquisitions, Inc., a Michigan corporation ("Acquiror") as described in that
certain Agreement and Plan of Merger dated as of December 18, 1998 (the
"Merger Agreement") for the purpose of entering into such merger, and
redeeming all of the shares of the Borrower's issued and outstanding stock
held by Mr. H. William Smith and Mr. Edward E. Mayer. Following such merger
the Persons on Schedule A attached hereto (the "Shareholders") shall have
unencumbered title in and to all issued and outstanding shares of stock of
Borrower, including any options, warrants or rights to acquire any securities
of Borrower, free and clear of any claims, demands, entitlements, rights,
liens or other interests any other party.
d. Shares Held By Lender. In lieu of security for the performance
of the Borrower's obligations in connection with the Loan, whether under this
Agreement, the Note or otherwise, the Shareholders herewith have delivered to
Lender, endorsed in blank, accompanied by executed stock powers, all shares of
common stock of Acquiror owned by them and all shares of common stock of
Borrower acquired by them to Lender and have entered into that certain Stock
Purchase Agreement by and between Shareholders, Borrower and Lender.
Lender's participation in this Agreement is subject to the express condition
that the purchase and sale transaction contemplated in said Stock Purchase
Agreement will occur and close automatically upon the tender of consideration
to the Shareholders and escrow thereof by Buyer.
2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lender, as long as the Loan remains outstanding, as follows:
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a. Existence and Authority. Borrower is a corporation organized
under the laws of Delaware, and the person or persons executing this Agreement
on behalf of Borrower have full power and complete authority to execute this
Agreement and all related documents and, when executed, this Agreement and all
related documents will be legal, valid and binding obligations of the
Borrower, enforceable in accordance with their terms.
b. Business and Location. Borrower is in the business of
developing, testing, manufacturing and selling high performance engines and
other automotive equipment, and its chief executive officer is Mr. Wiley R.
McCoy.
c. No Litigation. Except as disclosed on Schedule 2(c), there are
no pending or to the Borrower's knowledge threatened suits or proceedings
before any court, governmental agency, regulatory body, or administrative
tribunal to which the Borrower is a party or by which its property may be
effected and which may result in any material change in the financial
condition of the Borrower or the Collateral.
d. Financial Condition. Except as disclosed on Schedule 2(d), the
Borrower has furnished to the Lender current financial statements, which
statements were prepared in accordance with generally accepted accounting
principles and are correct and complete and accurately present the financial
condition of the Borrower on the dates thereof in all material respects.
Further, except as disclosed on Schedule 2(d), there has been no material
adverse change in the business, property or condition of the Borrower since
the date of the most recent financial statements.
e. Title. Except as disclosed on Schedule 2(e), the Borrower has
good and marketable title to all property (tangible and intangible) necessary
for the proper and efficient operations of the Borrower's business, free from
all liens and encumbrances, except those relating to NBD Bank and those
described in writing.
f. Taxes. The Borrower has filed all federal, state and local
income and other tax returns and other reports required to be filed prior to
the date of this Agreement and the Borrower has paid all taxes, withholdings,
assessments and other governmental charges that are due and payable prior to
the date of this Agreement.
g. Governmental and Non-Governmental Requirements. The Borrower
has obtained all licenses, permits, authorizations, consents or approvals from
each governmental authority and has obtained or will obtain all licenses,
authorizations, consents, approvals or franchises from each non-governmental
entity necessary for the operation of the Borrower's business and all such
licenses, permits, authorizations, consents or approvals are, or upon
obtaining thereof, will be in full force and effect.
h. Compliance with Law. The Borrower is in compliance with all
applicable laws, rules, regulations and orders relating to the Borrower or any
aspect of the Borrower's business or assets, including, without limit, all
environmental laws, rules, regulations and orders. The Borrower agrees to
indemnify and hold the Lender harmless from any and all violations by the
Borrower of any laws, rules, regulations and/or orders.
3. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, as
long as the Loan(s) remain(s) outstanding, the Borrower shall:
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a. Books and Reports. Maintain a proper accounting system in
accordance with generally accepted accounting principles, consistently
applied, and furnish the reports specified below, in form and detail
reasonably satisfactory to the Lender (in each case, such reports shall be
certified by an authorized individual on behalf of the Borrower):
(i) Management prepared financial statements within ten (10)
days after the end of each month.
(ii) Within thirty (30) days after the end of the Borrower's
fiscal year reviewed financial statements prepared by certified public
accountants acceptable to the Lender.
(iii) Within ten (10) days after the end of each month, aging
and listings of accounts receivable and accounts payable.
(iv) Physical inventory reports listing raw materials, work
in process and finished goods within ten (10) days after request by the
Lender.
(v) Copies of all federal, state and local tax returns of
the Borrower within fifteen (15) days after filing.
b. Notice of Adverse Events. Promptly notify the Lender in
writing of any Event of Default or institution of any litigation,
administrative proceeding or lien filed by governmental authorities or other
proceeding or occurrence which may have a material adverse effect on the
Borrower's business, property or financial condition.
c. Existence and Identity. Maintain and keep in full force and
effect the Borrower's existence under the laws of the state of its
organization, and continue its business as presently conducted. Except as
contemplated under the Merger Agreement, the Borrower shall not change the
legal format under which the Borrower was organized nor sell all or
substantially all of its property or merge the Borrower's business, in whole
or in part, without the prior written consent of the Lender. The Borrower
shall give the Lender prompt written notice of any change in location of its
chief executive office or any other place of business.
d. Insurance.
(i) Upon Lenders' request, provide the Lender with evidence
of all risk hazard insurance policy for fire and extended coverage insurance.
The policy must be in the amount of the Loan(s), or the full replacement cost
of the improvements, whichever is greater, but in no event less than one
hundred percent (100%) of the insurable value. The insured premises must be
described by the street address of the property. The hazard insurance policy
must contain replacement cost, inflation-guard, vandalism and malicious
mischief endorsements.
(ii) Upon Lenders' request, provide the Lender with evidence
of comprehensive general liability and property damage insurance with initial
limits of at least $1,000,000/$1,000,000 for bodily injury and $1,000,000 for
property damage.
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(iii) Upon Lenders' request, provide the Lender with evidence
of business interruption insurance in an amount to cover at least a twelve
(12) month period.
(iv) All insurance policies shall be in such amounts, upon
such terms and in such form as shall be reasonably acceptable to the Lender,
and shall be carried with insurers reasonably acceptable to the Lender. The
Lender's failure to request copies of such coverage or failure to approve such
shall not be a waiver of the Lender's future right to enforce the terms of
this Section 4(d). All insurance policies shall have been furnished to the
Lender. All policies shall require at least thirty (30) days prior written
notice to the Lender of cancellation or modification.
e. Taxes. Promptly pay all taxes, withholdings, levies and
assessments due to all local, state and federal agencies, and if requested by
the Lender, submit to the Lender copies of any and all federal or state or
local tax returns evidencing the computation and the payment of such taxes.
f. ERISA Compliance. Meet current funding requirements for
qualified employee benefit plans as required by law or regulations.
g. No Default Certificate. Furnish to the Lender, within ten (10)
days after request by the Lender, a certificate of the Borrower stating that
no Event of Default has occurred or, if an Event of Default has occurred,
stating its nature, how long it has existed and what action the Borrower
proposes to take with respect to the Event of Default.
h. Management. Continue to be managed and operated by the present
management.
i. Protection of Intellectual Property Rights. Vigorously protect
and defend all aspects of Borrower's intellectual property rights,
particularly with respect to use of the McLaren trademark, trade name and
service mark.
j. Other Information. Promptly furnish to the Lender such other
information, documents or certificates regarding the operations, business
affairs and financial condition of the Borrower as the Lender may reasonably
request from time to time and permit the Lender, its employees, attorneys and
agents to inspect, confirm and copy all of the books, records and properties
of the Borrower at any reasonable time.
4. NEGATIVE COVENANTS. The Borrower covenants and agrees that, as long
as the Loan(s) remain(s) outstanding, the Borrower shall not:
a. Acquire Fixed Assets. Acquire fixed assets in any one (1)
month period without prior approval of Lender in excess of $50,000.
b. Lease. Enter into any lease of real or personal property
without prior approval of lender.
c. Borrowings. Except from NBD Bank, borrow money, or act as
guarantor on any loan or other obligation.
d. Create Liens. Other than with NBD Bank or the liens existing
Schedule 2(e), mortgage, assign, hypothecate, encumber, or in any manner
create, suffer or permit liens on its property, and except for liens that have
been disclosed in writing by the Borrower to the Lender prior to the date of
this Agreement and consented to by the Lender.
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e. Transfer Assets. Except in the ordinary course of business,
sell, lease, transfer, assign or otherwise dispose of any of the Borrower's
property.
f. Compensation. Except pursuant to the Merger Agreement, allow
any person or entity to be paid dividends or distributions on its capital
stock or otherwise, in any fiscal year, without the prior approval of the
President of the Borrower and the Chief Executive Officer of the Lender.
g. Dividends. Except pursuant to the Merger Agreement, change its
capital structure or declare dividends, make capital distributions or redeem
capital stock.
h. Ownership. Except pursuant to the Merger Agreement, transfer,
suffer or permit a change in ownership or control of the Borrower or the
business without Lender's approval.
i. Extension of Credit. Except for trade credit or trade terms
provided in the ordinary course of business, make loans, advances or
extensions of credit to or make investments in any person or entity.
5. EVENTS OF DEFAULT. After the consummation by Lender of the purchase
of all of their shares of Borrower from the Shareholders, the occurrence of
any one of the following events shall constitute an "Event of Default" under
this Agreement and, notwithstanding the terms of any note or other agreement
given in connection herewith or otherwise, shall be an Event of Default under
the terms of any such note or agreement:
a. Monetary. Failure by the Borrower to fully pay any amount
owing on the Loan in accordance with the terms of the Note.
b. Breach. Any failure by the Borrower to comply with, or breach
by the Borrower of, any of the terms, provisions, warranties or covenants of
this Agreement or any other agreement or commitment between the Borrower
and/or any guarantor and the Lender, which breach is not cured within five (5)
days after receipt of written notice thereof.
c. Foreclosure. Institution of remedial proceedings or other
exercise of rights and remedies by the holder of any security interest against
the Collateral or any portion thereof.
d. Insolvency. The insolvency of the Borrower or any guarantor or
the admission in writing of the Borrower's or any guarantor's inability to pay
debts as they mature.
e. Misstatement. Any statement, representation or information
made or furnished by or on behalf of the Borrower or any guarantor to the
Lender in connection with or to induce the Lender to make the Loan(s) shall
prove to be materially false or materially misleading when made or furnished.
f. Bankruptcy. Institution of bankruptcy, reorganization,
arrangement, insolvency or other similar proceedings by or against the
Borrower or any guarantor.
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g. Casualty Loss or Judgment. Any loss, theft, substantial damage
or destruction to the Collateral, or the issuance or filing of any attachment,
levy, garnishment or the commencement of any related proceeding or the
commencement of any other judicial process upon or in respect to the Borrower
or any guarantor or the Collateral.
h. Transfer of Assets. Except pursuant to the Merger Agreement,
sale or other disposition by the Borrower of any substantial portion of assets
or property, or death, dissolution, merger, consolidation, termination of
existence, insolvency, business failure or assignment for the benefit of
creditors of or by the Borrower.
i. Failure to Pay. If there is any failure by the Borrower and/or
any guarantor to pay when due any indebtedness (other than to the Lender) or
in the observance or performance of any term, covenant or condition in any
document evidencing, securing or relating to such indebtedness.
j. Adverse Change. There is a substantial change in the existing
financial condition or worth of the Borrower which the Lender in good faith
determines to be materially adverse.
k. Insecurity. The Lender in good faith deems itself insecure.
6. ACCELERATION. Upon any Event of Default occurring, which default
has not been timely cured, the Lender may at any time declare the Loan
immediately due and payable, in each case without presentment, demand,
protest, notice of dishonor, notice of non-payment or other notice of any
kind, all of which are waived by the Borrower.
7. REMEDIES.
a. General. The Lender shall have all the rights and remedies
provided by law or equity or by agreement of the parties, including, without
limit, all of the rights and remedies available under the Michigan Uniform
Commercial Code. The remedies of the Lender are cumulative and not exclusive.
No delay, waiver or failure on the part of the Lender to demand strict
adherence to the terms of this Agreement or any related document shall be
deemed to constitute a course of conduct or waiver inconsistent with the
rights herein.
b. Application of Proceeds. Any proceeds received by the Lender
from the exercise of its remedies shall be applied as follows:
(i) First, to pay all costs and expenses incidental to the
sale or other disposition of the Collateral.
(ii) Second, to all sums expended by the Lender in carrying
out any term, covenant or agreement under this Agreement or any related
document.
(iii) Third, to the payment of the Loan. If the proceeds are
insufficient to fully pay the Loan, then application shall be made first to
interest accrued and unpaid, then to any other charges and expenses, and then
to the outstanding principal balance.
(iv) Fourth, any surplus remaining shall be paid to the
Borrower or to any other party lawfully entitled party.
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8. OTHER AGREEMENTS. The Borrower and Shareholders shall execute and
deliver to the Lender such agreements, certificates or instruments as may be
reasonably required by the Lender to evidence obligations to the Loan,
including but not limited to the Note of even date herewith. All such
agreements and those given in connection with any other loan, present or
future, shall also constitute security for the Loan, and all security given to
the Lender securing the Loan shall also secure all other obligations of the
Borrower to the Lender.
9. MISCELLANEOUS. The Borrower and the Lender further agree as
follows:
a. Governing Law. This Agreement shall be governed by and
interpreted according to the laws of the state of Michigan, without giving
effect to conflict-of-laws principles. The parties hereto irrevocably agree
and consent that any action in connection with this Agreement may be brought
in any state or federal court that has subject matter jurisdiction and is
located in, or whose district includes, Wayne County, Michigan, and that any
such court shall have personal jurisdiction over Shareholders and Borrower for
purposes of such action.
b. Successors and Assigns. This Agreement shall be binding upon
the permitted successors and assigns of the Borrower, and the rights and
privileges of the Lender under this Agreement shall inure to the benefit of
its successors and assigns. The Borrower shall not assign its rights, duties
and obligations under this Agreement without the Lender's written consent,
which consent may be given or withheld in the Lender's sole discretion.
c. Notices. Notice from one party to another relating to this
Agreement shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth in this Agreement by any of the following means:
(I) hand delivery, (ii) registered or certified mail, postage prepaid, (iii)
express mail or other overnight courier service, or (iv) telecopy, telex or
other wire transmission with request for assurance of receipt in a manner
typical with respect to communications of that type. Notice made in
accordance with these provisions shall be deemed delivered on receipt if
delivered by hand or wire transmission, on the third business day after
mailing if mailed by registered or certified mail, or on the next business day
after mailing or deposit with the postal service or an overnight courier
service if delivered by express mail or overnight courier.
d. Amendments. Any amendment of this Agreement shall be in
writing and shall require the signature of the Borrower and the Lender.
e. Partial Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions of this Agreement.
f. Joint and Several Obligations. The obligations of each person
or entity which signs this Agreement shall be joint and several.
g. WAIVER OF JURY TRIAL. THE BORROWER, SHAREHOLDERS AND THE
LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE,
BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE LOAN(S).
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This Agreement is executed and delivered on the day and year set forth
above.
WITNESS: BORROWER:
MCLAREN ENGINES, INC., a
Delaware corporation
/s/ Wiley R. McCoy
By: Mr. Wiley R. McCoy
Its: President
ASHA CORPORATION
/s/ John C. McCormack
By: John C. McCormack
Its: President
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