SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): January 3, 1997
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ENVIRONMENTAL TECHNOLOGIES (USA), INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-22736 41-1704749
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
3558 2nd Street South, Minneapolis, Minnesota 55412
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (612) 521-1111
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 3, 1997 (the "Closing Date"), Environmental Technologies (USA), Inc.,
a Minnesota corporation ("ETI"), completed the sale of all of the issued and
outstanding shares of capital stock of its wholly owned subsidiary, Clean Green
Packing Company of Minnesota, Inc., a Minnesota corporation ("Clean Green"), to
StarchTech, Inc., a Minnesota corporation ("StarchTech"). Clean Green's business
involves the manufacture and sale of starch-based, biodegradable, loose-fill
packing material.
The sale of Clean Green was consummated pursuant to the terms of an Agreement to
Purchase Stock of Clean Green Packing Company of Minnesota, Inc. between ETI and
StarchTech, dated December 27, 1996 (the "Agreement"). In consideration for the
sale of Clean Green, StarchTech paid ETI net cash of $131,705 on the Closing
Date, delivered to ETI a promissory note in the original principal amount of
$200,000 (the "Note"), and assumed certain liabilities, not including any
intercompany debt owed by Clean Green to ETI as of the Closing Date. The net
cash paid on the Closing Date was based on the $200,000 cash due at closing
pursuant to the Agreement, less an adjustment of $36,000 due to repayment of
intercompany debt owed by Clean Green to ETI prior to the Closing Date, plus a
further adjustment of $32,295 paid by Clean Green on the Closing Date in respect
of the termination of its general manager as a condition to closing. According
to its terms, the Note is to be repaid in eleven quarterly installments of
$16,666 beginning on September 30, 1998, and one final installment of $16,674
due on June 30, 2001. The Note does not bear interest, and payments due under
the Note are subject to offset by StarchTech in the event that StarchTech is
entitled to indemnification by ETI under the terms of the Agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. - Not Applicable
(b) Pro Forma Financial Information.
(1) Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Balance Sheet - As of October 31,
1996.
(2) Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Statement of Operations - Six Months
Ended October 31, 1996.
(3) Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Statement of Operations - Year Ended
April 30, 1996.
The financial statement listed above are attached
hereto as Exhibits 99.1, 99.2 and 99.3 respectively.
(c) Exhibits.
2.1 Agreement to Purchase Stock of Clean Green Packing
Company of Minnesota, Inc., dated as of December 27,
1996, between Environmental Technologies (USA), Inc.
and StarchTech, Inc. Omitted from this Exhibit, as
filed, are exhibits and schedules referenced in such
agreement. ETI will furnish supplementally a copy of
any such exhibits and schedules to the Securities and
Exchange Commission upon request.
99.1 Introduction to Pro Forma Unaudited Condensed
Financial Statements of ETI
99.2 Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Balance Sheet - As of October 31,
1996.
99.3 Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Statement of Operations - Six Months
Ended October 31, 1996.
99.4 Environmental Technologies (USA), Inc. Unaudited Pro
Forma Condensed Statement of Operations - Year Ended
April 30, 1996.
99.5 Notes to the Pro Forma Condensed Statement
of Earnings of the Company
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.
ENVIRONMENTAL TECHNOLOGIES
(USA), INC.
(Registrant)
Dated: January 17, 1997 By: /s/ Charles D. Pyle, Jr.
Charles D. Pyle, Jr.
Its Chief Executive Officer and President
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Description Method of Filing
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<S> <C> <C>
2.1 Agreement to Purchase Stock of Clean Green Packing Company of
Minnesota, Inc., dated as of December 27, 1996, between
Environmental Technologies (USA), Inc. and StarchTech, Inc.
Omitted from this Exhibit, as filed, are exhibits and schedules
referenced in such agreement. ETI will furnish supplementally a
copy of any such exhibits and schedules to the Securities and
Exchange Commission upon request................................... Filed electronically
herewith.
99.1 Introduction to Pro Forma Unaudited Condensed Financial Statements
of ETI ............................................................ Filed electronically
herewith.
99.2 Environmental Technologies (USA), Inc. Unaudited Pro Forma
Condensed Balance Sheet - As of October 31, 1996 .................. Filed electronically
herewith.
99.3 Environmental Technologies (USA), Inc. Unaudited Pro Forma
Condensed Statement of Operations - Six Months Ended October 31,
1996 .............................................................. Filed electronically
herewith.
99.4 Environmental Technologies (USA), Inc. Unaudited Pro Forma
Condensed Statement of Operations - Year Ended April 30, 1996...... Filed electronically
herewith.
99.5 Notes to the Pro Forma Condensed Statement of
Earnings of the Company............................................ Filed electronically
herewith.
</TABLE>
AGREEMENT TO PURCHASE STOCK OF
CLEAN GREEN PACKING COMPANY OF MINNESOTA, INC.
BETWEEN
STARCHTECH, INC.,
(AS "BUYER")
AND
ENVIRONMENTAL TECHNOLOGIES (USA), INC.
(AS "SELLER")
DATED DECEMBER 27, 1996
INDEX
SCHEDULES
- ---------
4.4 Conflicts with Other Agreements
4.5 Financial Statement Exceptions
4.8 Changes in Financial Condition
4.9 Liens, Encumbrances or Restrictions on Assets
4.10 Condition of Assets
4.12 Intellectual Property
4.13 Real Property Lease
4.14 Personal Property Leases
4.15 Motor Vehicles
4.16 Certain Sales Contracts and Customer Orders
4.17 Employment Contracts and Matters
4.18 Related Party Interests
4.19 Prepayments to Company
4.20 Material Contracts
4.21 Warranty Exception
4.22 Litigation Matters
4.23 Inventory Matters
4.24 Compliance with Laws
7.5 Required Consents
EXHIBITS
- --------
2(b) Buyer's Promissory Note
STOCK PURCHASE AGREEMENT
This Agreement is entered into this 27th day of December, 1996, by and
between StarchTech, Inc., a Minnesota corporation ("Buyer") and Environmental
Technologies (USA), Inc., a Minnesota corporation (the "Seller").
PREMISES
The Seller owns all of the outstanding capital stock of Clean Green
Packing Company of Minnesota, Inc., a Minnesota corporation (the "Company").
The Company is engaged primarily in the manufacture and distribution of
loose fill packing materials manufactured from starch and other raw materials
with its primary market being the state of Minnesota (hereinafter referred to as
the "Business").
Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, all of the outstanding capital stock of the Company in return for cash
and the Promissory Note (as defined below) so that the Company will continue to
operate the Business as a wholly owned subsidiary of Buyer.
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
On the basis of the representations and warranties and subject to the
terms and conditions set forth in this Agreement, Seller hereby agrees to sell,
transfer and assign to Buyer, and Buyer hereby agrees to purchase from Seller,
all of the 100 shares of $0.01 par value common stock of the Company (the
"Shares") which Shares represent all of the issued and currently outstanding
capital stock of the Company.
ARTICLE 2
PURCHASE PRICE
As the purchase price for the Shares, Buyer shall:
(a) Deliver to Seller, on the Closing Date, by wire transfer
or the delivery of other immediately available funds, the sum of
$200,000 (subject to adjustment); and
(b) Deliver to Seller on the Closing Date the Buyer's
promissory note in the form of Exhibit 2(b) in the original principal
sum of $200,000 (the "Promissory Note"), fully executed by the Buyer.
In the event that the difference between: (x) the aggregate book value,
as of the close of business on the day immediately prior to the Closing Date, of
the Company's cash (net of issued, but unpaid checks), accounts receivable (net
of an appropriate allowance for uncollectible balances consistent with past
practices), equipment (net of depreciation) and inventory of raw materials and
finished goods (net of an appropriate allowance for stale or unsellable
inventory consistent with past practices); and (y) the Company's liabilities as
of the close of business on the day immediately prior to the Closing Date, not
including the intercompany debt owed by the Company to the Seller, shall be less
than $200,000, the difference between the actual excess of such assets over such
liabilities and $200,000 shall be deducted from the cash to be paid to Seller at
Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING SELLER
Seller represents and warrants to Buyer, with such representations and
warranties to survive the Closing and continue in accordance with the terms of
Article 10 hereof, as follows:
3.1 Authorization to Sell. The Seller has full power and authority to
execute and deliver this Agreement and to perform this Seller's obligations
hereunder. This Agreement constitutes the valid and legal obligation of the
Seller enforceable in accordance with its terms and conditions, except as such
enforceability may be subject to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors rights,
and subject to the application of general equity principles. The Seller need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
3.2 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Seller is subject or conflict with any
agreement, contract, lease, license, instrument or other arrangement to which
the Seller is a party or by which Seller is bound or to which any of the Shares
is subject, excluding, however, those agreements for which Seller has obtained
the consent or waiver necessary in connection with the sale of the Shares, as
listed on Schedule 7.5.
3.3 The Shares. The Seller holds record and beneficial ownership of the
Shares free and clear of any liens, encumbrances or restrictions on transfer.
Except with respect to the Buyer's right to acquire the Shares, no one holds any
option, warrant or purchase right to acquire the Shares or other capital stock
of the Company. The Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any capital stock of
the Company.
3.4 Brokers' Fees. The Seller has no obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
CONCERNING THE COMPANY
Seller represents and warrants to Buyer, with such representations and
warranties to survive the Closing and continue in accordance with the terms of
Article 10 hereof, as follows:
4.1 Organization and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has full power and authority and all requisite licenses, permits
and franchises to own, operate, or lease its property and to carry on the
Business.
4.2 Foreign Qualification. The Company does not do business in any
jurisdiction outside the state of Minnesota where, by the nature of the Business
or the character and location of its property or personnel, failure to be
licensed or qualified as a foreign corporation would have a material adverse
effect upon the Business as now being conducted.
4.3 Capitalization. The entire authorized capital stock of the Company
consists of 10,000 shares of $0.01 par value common stock of which 100 shares
are issued and outstanding. All of the outstanding shares of capital stock have
been duly authorized, validly issued and fully paid are nonassessable and owned
of record by the Seller. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights or other contracts or commitments that could require the Company to issue
or sell any of its capital stock.
4.4 Conflict with Other Agreements, Etc. The execution and delivery of
this Agreement by the Seller and the consummation of the transactions
contemplated hereby are not prohibited by, do not violate or conflict with any
provision of, and will not result in a material default under or a material
breach of (i) the Articles of Incorporation or By-Laws of the Company, (ii)
except for those contracts identified on Schedule 4.4, any material contract,
agreement or other instrument to which the Company is a party, (iii) any order,
writ, decree or judgement of any court or governmental agency to which the
Company is subject, or (iv) any material law or regulation applicable to the
Company of which Seller has knowledge.
4.5 Financial Statements. The Seller has delivered to Buyer the
unaudited balance sheets of the Company as of April 30, 1996, 1995 and 1994, and
the unaudited income statements for the one-year periods then ended (the
"Financial Statements") as well as the unaudited balance sheet of the Company as
of October 31, 1996 and an unaudited income statement for the six month period
there ended. Except as set forth in Schedule 4.5, the Financial Statements
presents fairly, in all material respects, the financial position and results of
operations of the Company as of their respective dates. The October 31, 1996
balance sheet is referred to herein as the "Closing Balance Sheet."
4.6 Income Tax Returns. The Seller has provided Buyer with executed
copies of the Seller's consolidated federal income tax return for the periods
ended April 30, 1995 and 1994, which are required to be filed with the United
States Internal Revenue Service. Said income tax returns have been prepared in
accordance with the Internal Revenue Code of 1986, as amended, and applicable
regulations promulgated thereunder, and in all material respects reflect the
income and tax liability of the Company for the periods identified. The Seller
or the Company has filed all required returns, declarations and reports with the
Internal Revenue Service and state and local governmental agencies imposing
taxes based upon the income of the Company. All such returns, declarations and
reports were correct and complete. There is no dispute or claim concerning the
income tax liabilities of the Company which has been asserted by the relevant
governmental taxing authority. The Seller will prepare and file in a timely
manner with the United States Internal Revenue Service Seller's consolidated
federal income tax returns for the periods ending April 30, 1997 and 1996.
Copies of such returns will be provided to Buyer at the time of their filing and
such returns shall be correct and complete and reflect the income and tax
liability of the Company through the Closing Date.
4.7 Other Tax Matters. The Company has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to employees, agents, creditors or other third parties. The Company shall,
through the Closing Date, continue to use its third party payroll service and
the practice of allowing such service to effect all payroll tax deposits. The
Company has filed all sales and use tax returns and reports and such returns and
reports are accurate and complete. The Company has paid when due all property
taxes and assessments when due. The amount of unpaid taxes:
(a) did not, as of the date of the Closing Balance Sheet,
exceed the reserve for tax liability set forth on such balance sheet
and
(b) will not, to the best knowledge of Seller, exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in the
filing of its tax returns.
4.8 Interim Change. To the best of the Seller's knowledge, except as
described in Schedule 4.8 hereto, since December 31, 1995, there has not been
any material adverse change in the financial condition, assets, liabilities,
properties, results of operations or the Business of the Company, and the
Company has (i) operated the Business as a going concern consistent with prior
practice and not other than in the ordinary course of business; (ii) maintained
its material tangible assets in good repair, order and condition, reasonable
wear and tear excepted, and not disposed of any material fixed assets outside of
the ordinary course of business; (iii) maintained and kept in full force and
effect all insurance on its assets or for the benefit of its employees, and all
liability and other casualty insurance related to its business, all as
consistent with prior practice; (iv) not entered into or amended any employment,
bonus, severance or retirement contract or arrangement nor any employee benefit
plan with regard to its business, which is not terminable immediately without
penalty; (v) not entered into or agreed to enter into any single contract with a
customer, or other customer commitment which involves a sale of more than
$10,000; (vi) maintained its books, accounts and records in the usual, regular
and ordinary manner on a basis consistent with prior years; (vii) paid in the
ordinary course of business all material trade payables and other liabilities of
the Company; (viii) not increased the compensation of or paid any bonus to any
employee of the Company, except for regularly scheduled increases and bonus
payments; and (ix) not declared or paid any dividend or made any other
distribution of cash or property to its shareholders with respect to the capital
stock of the Company; and (x) not made any payment on obligations due the Seller
for loans and advances made to the Company by the Seller.
4.9 Title to Assets. The Company is the sole and exclusive legal and
equitable owner of all right and title in, and has good, marketable and
indefeasible title to, all of its assets, free and clear of any pledge, lien,
claim, assessment, easement, restriction or other encumbrance of any kind or
nature, direct or indirect, whether accrued, absolute, contingent or otherwise,
except only those encumbrances or restrictions as are specifically set forth in
Schedule 4.9.
4.10 Condition of Assets. Except as disclosed in Schedule 4.10, the
Company's material assets, whether owned or leased, (i) are in good operating
condition and repair in all material respects and are adequate and suitable for
the purpose for which they are presently being used, and (ii) conform in all
material respects to all applicable laws, ordinances and regulations, except for
such minor variations as do not impair or interfere with the use of such assets
for the purpose for which they are employed.
4.11 Liabilities. Except as disclosed or reflected in this Agreement or
the Closing Balance Sheet, the Company has no material liabilities of a nature
required by generally accepted accounting principles to be reflected on a
balance sheet or described in the notes thereto, other than liabilities incurred
in the ordinary course of business since the date of the Closing Balance Sheet.
4.12 Intellectual Property. To the best knowledge of Seller, the
Company owns or has rights to use the name, Clean Green Packing Company of
Minnesota, and the patents identified in Schedule 4.12 in connection with the
Business (the "Intellectual Property"). Except for the licenses to be assigned
by Seller to the company on or after the Closing Date, the Intellectual Property
constitutes, to the best knowledge of Seller, all intellectual property
necessary or desirable for the operation of the Business. The Company's
ownership and rights to the Intellectual Property will not be affected by the
transaction contemplated hereby. Except as disclosed on Schedule 4.22, the
Company has not received any charge, complaint, claim or demand alleging any
interference, infringement, misappropriation or violation by the Company upon
the intellectual property rights of another party.
4.13 Real Property. The Company owns no real property. Schedule 4.13
lists all of the real property leased by the Company. With respect to real
property leased by the Company, except as disclosed in Schedule 4.13:
(a) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, except as such
enforceability may be subject to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors rights, and subject to the application of general equity
principles.
(b) The lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby,
except as such enforceability may be subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors rights, and subject to the application of general
equity principles.
(c) No party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder, other than defaults which have been waived or
cured.
(d) To the best knowledge of Seller, no party to the lease or
sublease has repudiated any provision thereof.
(e) There are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease.
(f) With respect to each sublease, the representations and
warranties set forth in subsections (a) through (e) above are true and
correct with respect to the underlying lease.
(g) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold.
(h) All facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
4.14 Personal Property Leases. Schedule 4.14 contains a list of
personal property leases written or oral, to which the Company is a party
related to or concerning personal property used in the Business (the "Personal
Property Leases"). Except as disclosed in Schedule 4.14, with respect to each of
the Personal Property Leases:
(a) Each of the Personal Property Leases is in full force and
effect and is valid, binding and enforceable in accordance with its
respective terms, except as such enforceability may be subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors rights, and subject to
the application of general equity principles.
(b) No material amount payable under any of such Personal
Property Leases is past due.
(c) The Company and each other party to the Personal Property
Leases have complied with all material commitments and obligations on
their respective parts to be performed or observed under each such
lease.
(d) The Company has received any notice of any material
default (other than defaults which have been waived or cured) under any
of the Personal Property Leases.
(e) The Company has not caused there to exist any material
security interest, lien, encumbrance or claim of others created or
suffered to exist on the leasehold interests created under any of such
Personal Property Leases.
(f) Except as consented to or waived, the transactions
contemplated by this Agreement will not constitute a material breach
of, or material default under, any provision of any of the Personal
Property Leases.
4.15 Motor Vehicles. All motor vehicles, whether owned or leased, which
are used in the Business are listed on Schedule 4.15.
4.16 Sales Contracts and Customers Orders. Except as disclosed in
Schedule 4.16, there are no outstanding sales contracts or customer orders for
any products which, by their express terms, will require performance later than
30 days following the Closing Date.
4.17 Employees. Schedule 4.17 contains a list of all written employment
contracts with officers, directors and employees of the Company, collective
bargaining agreements, incentive arrangements, pension plans, profit sharing
plans, stock option or bonus plans and other employee compensation or benefit
plans, arrangements or understandings of the Company, or to which the Company is
a party or otherwise bound, or which relate to any employee of the Company. To
the best of the Seller's knowledge, the Company is in full compliance with and
has received no notification that Company is not currently in full compliance
with all applicable material federal, state and local employee safety, labor and
other laws and regulations concerning or affecting its business. Except as
disclosed in Schedule 4.17, during the past two years the Company has not been,
nor is it now subject to, any adverse rulings, findings or determinations of
unlawful employment practices (including, without limitation, determinations of
the Equal Employment Opportunity Commission, the National Labor Relations Board,
or any other state or federal court or agency) or violations of other related
material statutes and the Company has not received any notice of any pending or
threatened investigation, proceeding, labor dispute or litigation of any
unlawful employment practice claim or claims (including alleged violations of
the National Labor Relations Act or Title VII of the Equal Employment
Opportunity Act) or violations of other related material statutes, executive
orders, or administrative determinations or regulations before any commission,
agency, tribunal, or court of law (state or federal). Each employee benefit plan
complies in form and in operation in all respects with the applicable
requirements of ERISA, the Internal Revenue Code and other applicable law.
4.18 Related Party Interests. Except as disclosed in Schedule 4.18,
neither the Seller nor any corporation, partnership, joint venture or other
business organization or facility in which Seller has any direct or indirect
interest or investment:
(a) Has any material cause of action or other claim whatsoever
against, owes any material amount to, or is owed any material amount by
the Company.
(b) Has any interest in or owns any material property or right
used in the conduct of the Business of the Company.
(c) Is a party to any material contract, lease, agreement,
arrangement or commitment with the Company.
(d) Received from or furnished to the Company any material
amount of goods or services other than services as employees of the
Company.
4.19 Prepayments To Company. Except as disclosed on Schedule 4.19, the
Company has not received any payment or other consideration for services,
obligations, benefits, rights or property to be performed or delivered by the
Company subsequent to the Closing Date.
4.20 Material Contracts. All executory contracts, agreements,
instruments, plans and leases (other than those entered into with the written
consent of Buyer) related to or involving the Company or its business, by which
the Company is a party or bound, or by which any of its properties are subject
or bound, meeting any of the descriptions set forth below (the "Material
Contracts"), are listed on Schedule 4.20 or in the other schedules hereto:
(a) Any lease of machinery, equipment or other personal
property involving payment by the Company of aggregate rentals in
excess of $10,000 per year in any lease year.
(b) Any contract or agreement for the purchase of any
materials or supplies in excess of $10,000.
(c) Any contract for the purchase of equipment (other than
equipment purchased for resale or lease in the ordinary course of
business) or any construction or other similar agreement involving any
expenditure in excess of $10,000.
(d) Any instrument evidencing or related to indebtedness,
obligation or liability for borrowed money, or liability for the
deferred purchase price of property in excess of $10,000 (excluding
normal trade payables), any letter of credit in excess of $10,000 or
any instrument guaranteeing any indebtedness, obligation or liability,
or any obligation to incur any indebtedness, obligation or liability.
(e) Any employment or consulting contract.
(f) Any joint venture, partnership or other cooperative
arrangement.
(g) Any sales agency, brokerage, distribution or similar
contract.
(h) Any license or franchising agreements.
(i) Any deed, lease, agreement or other instrument relating to
real property.
With respect to the Material Contracts, except as disclosed in Schedule 4.20:
(i) each is in full force and effect, and is valid, binding and enforceable,
except as such enforceability may be subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors rights, and subject to the application of general equity principles;
and (ii) neither of the Company nor any other party thereto, is in default in
any material respect thereunder.
4.21 Warranties. Except as disclosed in Schedule 4.21, all products
sold and services provided by the Company have, in all material respects been in
conformity with all applicable contractual commitments and all expressed or
implied warranties, and no products previously sold, delivered or leased by the
Company, or any services provided by the Company, are subject to any guarantee,
warranty, claim for product liability, or other indemnity, other than those
contained in the standard terms and conditions of a sale or lease by the Company
or made in the ordinary course of business consistent with industry practice or
as implied by law.
4.22 Litigation. Except as set forth in Schedule 4.22, the Company is
not engaged in, a party to or threatened with, any material suit, claim, action,
proceeding, investigation or legal, administrative, arbitration or other method
of settling disputes or disagreements, or governmental investigation before or
by any federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, including, without
limitation, the Equal Employment Opportunity Commission and the Occupational
Safety and Health Administration. Neither the Company nor any of its assets is
subject to any material order, writ, injunction, or decree of any court,
domestic or foreign, or any federal agency or instrumentality.
4.23 Inventory. Except as disclosed in Schedule 4.23, the inventory of
the Company as of the Closing Date consists of readily saleable finished
products or raw materials fit for use in manufacturing additional products by
the Company.
4.24 Compliance with Law. Except as disclosed in Schedule 4.24, the
Company, to the best of the Seller's knowledge, has all material licenses,
permits, approvals, franchises and other authorizations necessary in order to
enable it to own and conduct its business as it is now being conducted, all such
licenses, permits, approvals, franchises and authorizations are in full force
and effect, and the Company is in compliance in all material respects with all
applicable material federal, state and local laws and regulations. Specifically
and without limitation of the foregoing, to the best of the Seller's knowledge:
(a) The Company and its predecessors has complied with all
laws (including rules, regulations, codes, plans, orders and decrees)
of federal, state and local governments (and all agencies thereof)
concerning pollution or the protection of the environment, public
health and safety or employee health and safety ("Environmental, Health
and Safety Laws") and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been
filed or commenced against any of them alleging any failure so to
comply. The Company and its predecessors have obtained and been in
compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and have
complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables which are contained in, all Environmental, Health and Safety
Laws.
(b) The Company has no liability (and the Company and its
predecessors have not handled or disposed of any substance, arranged
for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any
property or facility in any manner that could form the basis for any
present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against the Company) for damage to
any site, location or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual for
any reason under any Environmental, Health and Safety Law.
4.25 Brokers. The Company has not retained any broker or finder, or
incurred any liability or obligation for any brokerage fees, commissions or
finders fees with respect to the transactions contemplated hereby or the sale of
the Company's assets or the Business.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, such representations and
warranties to survive the Closing and continue in accordance with the terms of
Article 10 hereof, as follows:
5.1 Organization and Power. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and Buyer has full power and authority and all requisite licenses, permits and
franchises to own, operate, or lease its properties and to carry on its business
as now being conducted.
5.2 Authority. The execution, delivery and performance of this
Agreement has been duly and validly authorized and approved by Buyer's Board of
Directors, has been duly executed and delivered by an authorized officer of
Buyer, and is a valid and binding agreement of Buyer enforceable in accordance
with its terms. All corporate and other actions required to be taken by Buyer to
authorize the execution, delivery and performance of this Agreement and all
transactions contemplated hereby have been duly and properly taken.
5.3 Validity. This Agreement and the other documents to be delivered by
the Buyer at the Closing, including, but not limited to, the Promissory Note,
have been, or will be, duly executed and delivered, and are, or will be, the
lawful, valid and legally binding obligations of the Buyer, enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, or similar debtor relief legislation
affecting the rights of creditors generally and subject to the application of
general principles of equity.
5.4 Conflict with Other Agreements, Etc. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
Buyer are not prohibited by, do not violate or conflict with any provision of,
and will not result in a material default under or a material breach of (i) the
Articles of Incorporation or Bylaws of Buyer, (ii) any material contract,
agreement or other instrument to which Buyer is a party, (iii) any material
regulation, order, writ, decree or judgement of any court or governmental agency
to which Buyer is subject, or (iv) any material law applicable to Buyer.
5.5 Brokers. Buyer has not retained any broker or finder, or incurred
any liability or obligation for any brokerage fees, commissions or finders fees
with respect to this Agreement or the transactions contemplated hereby.
5.6 Securities Laws. The Shares are being acquired by the Buyer for its
own account and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), or any applicable state securities
laws. Buyer understands, and acknowledges that the Shares will bear legends to
the effect that, the Shares have not been registered under the Securities Act or
any state securities laws, and cannot be resold unless they are registered under
the Securities Act or any applicable state securities laws or exemption from
such registration is available. Buyer has previously been provided with, and
acknowledges receipt of, such material information as has been requested in
order to enable Buyer to become fully familiar with the financial condition,
business and affairs of the Company. Buyer therefore confirms Seller's
understanding that it is fully aware of and advised concerning the present
financial condition of the Company, the administration of its business affairs
and its prospects for future business and that the purchase of the Shares is a
speculative investment.
ARTICLE 6
OTHER REPRESENTATIONS OR AGREEMENTS OF THE PARTIES
Seller and Buyer hereby agree to the following:
6.1 Interim Conduct of Business. From the date hereof, Seller
represents that Seller shall take all action necessary to cause the Company to
preserve, protect and maintain the Business and the assets of the Company and
that the Company will operate the Business as a going concern consistent with
prior practice and not other than in the ordinary course of business. Without
limiting the generality of the foregoing until the Closing Date, except for
transactions expressly authorized or disclosed in a Schedule to this Agreement
or as have expressly been approved in advance in writing by Buyer, the Seller
shall cause the Company to:
(a) Maintain inventories of finished products and raw
materials at levels adequate to service customer requirements, and not
dispose of any material property, right or other asset employed in its
business, except for sales of inventory in the ordinary course of
business.
(b) Maintain its assets in good repair, order and condition,
reasonable wear and tear excepted, and not dispose of any material
fixed assets.
(c) Maintain and keep in full force and effect all insurance
on its assets or for the benefit of its employees, all liability and
other casualty insurance related to the Business, and all bonds on
personnel of the Company previously carried.
(d) Not enter into or amend any employment, bonus, severance
or retirement contract or arrangement nor any employee benefit plan
with regard to the business, which is not terminable immediately
without penalty.
(e) Not enter into or agree to enter into any lease or
contract, nor (other than in the ordinary course of business) make or
agree upon any lease, contract, purchase or sale order, or other
commitment which involves an expenditure, obligation, purchase or sale
of more than $10,000.
(f) Maintain its books, accounts and records in the usual,
regular and ordinary manner on a basis consistent with prior periods.
(g) Not modify, amend or enter into any leases or sub-leases
with respect to real property.
(h) Not accept any offer from or come to any binding agreement
with any other person or entity with respect to any acquisition,
combination or similar transaction involving the Business, or
substantially all of the assets or securities related thereto.
(i) Pay all trade payables and other liabilities of the
Business consistent with past practices.
(j) Not increase the compensation of any employee of its
business, except for regularly scheduled increases.
(k) Pay when due all material taxes, assessments and other
governmental charges or levies which became due and payable by the
Company to any political entity, subdivision or department thereof
under any law.
(l) Not (i) wind up, liquidate or dissolve the Business or any
of its affairs, or entered into any transaction of merger or
consolidation, (ii) convey, sell, lease or otherwise dispose of any of
its assets, other than inventory disposed of in the ordinary course of
the Business, or (iii) declare or pay any dividend or other
distribution with respect to the capital stock of the Company, whether
in cash or property.
6.2 Access to Information. From the date hereof until the Closing Date,
Seller shall continue to furnish and Seller shall cause the Company to continue
to furnish such other information regarding the operations, Business and
financial condition of the Company, that Buyer (through its legal counsel,
accountants or otherwise) may reasonably request, including but not limited to
true and correct copies of the books of account and financial statements of the
Company, and give Buyer and their representatives full and free access to all
properties, and full and free access to and copies of all books, contracts,
leases, commitments and records, all at such reasonable times and as often as
Buyer may reasonably request.
6.3 Records and Documents. For three years following the Closing Date,
each party hereto shall grant to the other parties and their representatives, at
such party's request and without charge, access to and the right to make copies
of those records and documents related to the Company, possession of which is
retained by any party hereto, as may be necessary or useful in connection with
Buyer's conduct of the Business after the Closing Date or as may relate to tax
returns filed by the Company with respect to periods prior to the Closing Date.
If during such period any party hereto shall determine to dispose of such
records, such party shall first give the other parties sixty days' prior written
notice thereof, during which period the other parties shall have the right to
take possession of such records.
6.4 Obligations due the Seller by the Company. On or before the Closing
Date, the Seller shall release the Company of all sums due the Seller by the
Company with such release to be deemed a capital contribution by the Seller to
the Company.
6.5 Release of Mahibadi Employment Obligations. On or before the
Closing Date, the Company shall be released of the obligation to make severance
payments to Rob Mahibadi at no cost to the Company.
6.6 Section 338(h)(10) Election.
(a) With respect to the purchase by Buyer of the Shares, (i)
Buyer and Seller shall jointly make an election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code") and (any comparable election under state or local tax law);
(ii) Buyer and Seller shall, as promptly as practicable following the
Closing Date, cooperate with each other to take all actions necessary
and appropriate (including filing such forms, returns, elections,
schedules and other documents as may be required) to effect and
preserve a timely election in accordance with the provision of Treasury
Regulation ss 1.338(h)(10)-1 (or any comparable provision of state or
local tax law) or any successor provisions and (iii) Buyer and Seller
shall report the purchase by Buyer of the Shares consistent with such
election (and any comparable elections under state or local tax laws)
and shall take no position to the contrary thereto in any tax return,
any proceeding before any taxing authority, or otherwise.
(b) In connection with the election, Buyer and Seller shall
act together in good faith to agree on the Aggregate Deemed Sales Price
(as defined under applicable Treasury Regulations) and the allocation
of such Aggregate Deemed Sales Price among the Company's Assets. Such
allocation of the Aggregate Deemed Sales Price shall be made in
accordance with Section 338(b) of the Code and any applicable Treasury
Regulations. Buyer and Seller (i) shall be bound by such allocation for
purposes of determining any taxes; (ii) shall prepare and file all
returns to be filed with any taxing authority in a manner consistent
with such allocation; and (iii) shall take no position inconsistent
with such allocation in any return, any proceeding before any taxing
authority or otherwise. In the event that such allocation is disputed
by any taxing authority, the party receiving notice of such dispute
shall promptly notify and consult with the other party concerning
resolution of such dispute.
6.7 Buyer's Financing. Buyer hereby covenants and agrees to use best
efforts to obtain financing of at least $200,000 for the purchase of the Shares
under this Agreement, whether through the U.S. Department of Agriculture or
through other sources.
6.8 Novon License. The Seller and the Buyer shall seek to have the
Seller released from the April 19, 1993 License Agreement among the Company, the
Seller and Warner-Lambert Company. The Seller shall not use, sublicense or
assign to any party other than the Company the rights of Seller under such
License Agreement. On or before June 30, 1997, the Seller shall pay to the
Company one-half of the royalties due under such License Agreement for the
period from July 1, 1996 through December 31, 1996. The Buyer shall indemnify
and hold Seller harmless with respect to all other royalties under such License
Agreement.
6.9 Other Technologies. Following the Closing Date, the Seller shall
assign to the Company all patents and license agreements held by Seller which
relate to the Business and Seller shall not use, license, sublicense or assign
to any other party other than the Company any rights of the Seller to such
technology. In connection with such assignments, the Company will assume the
obligations accruing subsequent to the Closing Date.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions contemplated by
this Agreement is subject to fulfillment, prior to or as of the Closing Date, of
the following conditions precedent, each of which may be waived in whole or in
part by Buyer:
7.1 Accuracy of Warranties; Performance of Covenants. The
representations and warranties of Seller contained herein shall be accurate in
all material respects as if made on and as of the Closing Date, as well as on
the date when made. Seller shall have performed each and all of the obligations
and complied with each and all of the covenants, agreements and conditions
specified herein to be performed or complied with on or prior to the Closing
Date.
7.2 No Pending Action. No action or proceeding (nor any investigation
preliminary thereto) shall be instituted or threatened at any time prior to or
as of the Closing Date before any court or other governmental body by any person
or public authority seeking to restrain or prohibit, or seeking damages or other
relief in connection with, the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
7.3 Condition of Business and Assets. The business of the Company shall
not have been materially adversely affected in any way by any act of God, fire,
flood, war, labor disturbance, legislation or other event or occurrence.
7.4 Opinion of Counsel for Seller. Seller shall have caused to be
delivered to Buyer an opinion of Oppenheimer Wolff & Donnelly, counsel for
Seller and Company, dated as of the Closing Date, in form and substance
satisfactory to Buyer, to the effect that:
(a) The Company is a corporation duly organized and validly
existing and in good standing under the laws of the state of its
incorporation, and has all requisite corporate power and authority to
own or lease its properties and assets and to carry on its business.
(b) The Seller has full right, power, authority and capacity
to make, execute, deliver and perform this Agreement without the
approval or consent of any other person.
(c) This Agreement and each of the documents required to be
executed and delivered by Seller hereunder have been duly executed and
delivered and constitute valid, enforceable and legally binding
obligations of Seller, enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors rights, and
subject to the application of general equity principles.
(d) The common stock being acquired from the Seller pursuant
to this Agreement has been duly authorized by the Company and when paid
for as contemplated by Article 2 of this Agreement, such shares will be
acquired free of all claims, interests or encumbrances.
(e) The performance of this Agreement by the Seller will not
(i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the
creation of any lien, mortgage, security interest, charge or other
encumbrance upon the Company's capital stock or the Company's assets
pursuant to, (iv) result in a violation of, or (v) require any
authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body pursuant to,
the Company's Articles of Incorporation, the Company's By-Laws, any
law, statute, rule or regulation of the United States or the State of
Minnesota, or any order, judgment or decree to which the Company is
subject.
(f) There are no (i) subsidiaries of the Company, (ii)
securities convertible into or exchangeable or exercisable for shares
of the Company's capital stock, or (iii) outstanding options for the
purchase of, or any agreements providing for the issuance (contingent
or otherwise) of, or any commitments or claims of any character
relating to, any such capital stock or any shares of stock or
securities convertible into or exchangeable or exercisable for any such
capital stock.
7.5 Consents. Seller shall have obtained, or undertaken to assist the
Buyer in obtaining, such consents by third parties to the transactions
contemplated hereby necessary for the Business to continue in operation
following the Closing. Set forth in Schedule 7.5 hereto are the required
consents known to the Seller.
7.6 Officers and Directors of the Company. The Seller shall take such
action on the Closing Date to cause the existing officers and directors of the
Company to resign their positions and to appoint as officers and directors of
the Company such individuals as the Buyer shall specify.
7.7 Financing. The Buyer shall have received proceeds of at least
$200,000 in connection with the financing of the purchase contemplated hereby.
The Buyer acknowledges that it has obtained a letter of intent for such
financing to be provided by the United States Department of Agriculture
Alternative Agricultural Research and Commercialization Corporation.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of the Seller to consummate the transactions
contemplated by this Agreement are subject to fulfillment, prior to or as of the
Closing Date, of the following conditions, each of which may be waived in whole
or in part by the Seller:
8.1 Accuracy of Warranties, Performance of Covenants. The
representations and warranties of Buyer contained herein shall be accurate in
all material respects as if made on and as of the Closing Date, as well as on
the date when made. Buyer shall have performed each and all of the obligations
and complied with each and all of the covenants, agreements and conditions
specified in this Agreement to be performed or complied with on or prior to the
Closing Date.
8.2 Opinion of Counsel. Buyer shall have caused to be delivered to
Seller (in form and substance satisfactory to Seller) an opinion of Frommelt &
Eide, Ltd., counsel for Buyer, dated as of the Closing Date to the effect that:
(a) Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota, and
Buyer has all requisite corporate power and authority to own or lease
its properties and assets and to carry on its business.
(b) Buyer has full right, power, authority and capacity to
make, execute, deliver and perform this Agreement without the approval
or consent of any other person, and the execution, delivery and
performance of this Agreement and all documents to be delivered by
Buyer hereunder have been duly authorized and approved by all requisite
corporate action.
(c) This Agreement and each of the documents executed and
delivered by Buyer hereunder have been duly executed and delivered and
constitute valid, enforceable and legally binding obligations of Buyer,
subject to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors, rights, and
subject to the application of general equity principles.
8.3 No Pending Action. As of the Closing, no action or proceeding (nor
investigation preliminary thereto) shall be instituted or threatened at any time
prior to or as of the Closing Date before any court or other governmental body
or by any person or public authority seeking to restrain or prohibit, or seeking
damages or other relief in connection with, the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 9
CLOSING AND DELIVERIES
9.1 Closing; Termination and Effect of Termination.
(a) The transfer of the shares of the Company by the Seller to
the Buyer, payment of the purchase price and other actions contemplated
by this Agreement (the "Closing") shall take place at the offices of
the Company or its legal counsel in Minneapolis, Minnesota, on January
15, 1997 (the "Closing Date"), or such later time and date upon which
the parties hereto may agree. At the Closing, all transactions shall be
conducted substantially concurrently and no transaction shall be deemed
to be completed until all are completed. At the Closing, documents may
be delivered by facsimile, in which event the party delivering such
document shall cause the original of such document to be delivered
within two business days of the Closing.
(b) In the event the Closing has not occurred by 11:59 p.m. on
January 15, 1997, Seller or Buyer may terminate this Agreement upon
notice, without any liability to the other parties hereto, so long as
the terminating party is not in breach of any of its covenants set
forth in this Agreement and has proceeded in good faith to complete the
transactions contemplated hereby. The parties acknowledge that, for the
purposes of evaluating the transaction contemplated by this Agreement
and in connection with the anticipated Closing of this Agreement, Buyer
and certain of its personnel have been afforded access to the physical
plant, operations, records, management, personnel and other sources of
information regarding the Company, and have received information that
is non-public and material to the business and operations of the
Company, including, but not limited to, information regarding the
Company's technology, manufacturing processes, customer list, pricing
information, and financial data. In the event that Closing does not
occur, or upon the termination or expiration of this Agreement for any
other reason whatsoever, Buyer agrees that all such information which
is proprietary in nature will be kept confidential and will not,
without the prior written consent of Seller, be disclosed, in whole or
in part, by Buyer to any other person, and will not be used by Buyer,
directly or indirectly, for any purpose whatsoever. The foregoing will
not apply to any portion of the information which: (i) is or becomes
generally available to the public through no fault or action of Buyer
or any of its representatives; (ii) becomes available to Buyer on a
non-confidential basis from a source other than the Company or the
Seller or their representatives; (iii) was in Buyer's possession prior
to receipt from the Company or the Seller; or (iv) is developed by the
Buyer without violating the terms of this Agreement. Buyer agrees to
specific enforcement and injunctive relief for any violation of the
terms of this Section 9.1(b). Notwithstanding any other provision of
this Agreement, the terms and conditions of this Section 9.1(b) will
survive until the first to occur of: (i) Closing; or (ii) three (3)
years from the date of this Agreement.
9.2 Deliveries by Seller to Buyer. At the Closing, Seller shall deliver
to Buyer the following:
(a) A certificate of the Seller certifying as to the continued
accuracy of the representations and warranties, the performance of the
covenants and the compliance with the conditions precedent contained in
Articles 4, 6 and 7, respectively, of this Agreement;
(b) An opinion of legal counsel to Seller to the effect
described in Section 7.4 hereof;
(c) Certificate(s) evidencing the Shares together with
executed assignment documents reasonably satisfactory to legal counsel
to Buyer, transferring all right and title to all of the outstanding
capital stock of the Company to Buyer, free from all liens and
encumbrances;
(d) Certificate from the Secretary of State of the State of
Minnesota as to the good standing of the Company as a corporation
organized or qualified to do business in that state;
(e) All necessary consents (if any) as provided in Section
7.5;
(f) All resignations and appointments as provided in Section
7.6; and
(g) Such other instruments or documents as may be reasonably
necessary to carry out the transactions contemplated hereby and to
comply with the terms hereof.
At the Closing at all times subsequent thereto, Seller shall take all steps
necessary to put Buyer in actual possession and operating control of the
Business.
9.3 Deliveries by Buyer. At or as soon following the Closing as is
practicable, Buyer shall deliver to Seller the following:
(a) Cash in the amount determined in accordance with Article
2;
(b) The Promissory Note in accordance with Article 2;
(c) An opinion of legal counsel to Buyer to the effect
described in Section 8.2 hereof;
(d) A certificate of the President or Chief Financial Officer
of Buyer certifying as to the continued accuracy of the representations
and warranties, the performance of the covenants and the compliance
with the conditions precedent contained in Articles 5, 6 and 8,
respectively, of this Agreement;
(e) A certificate of the Secretary of Buyer certifying as to
the resolutions of the Board of Directors of Buyer authorizing
execution and delivery of this Agreement, and the execution and
delivery of all other documents, and the consummation of the
transactions contemplated hereby, and that such resolutions have not
been amended or rescinded and remain in full force and effect;
(f) Certificate from the Secretary of State of the State of
Minnesota as to the good standing of Buyer as a corporation organized
in that state; and
(g) Such other instruments or documents as may be reasonably
necessary to carry out the transactions contemplated hereby and to
comply with the terms hereof.
ARTICLE 10
SURVIVAL AND INDEMNIFICATION
10.1 Survival. All representations, warranties, covenants and
agreements contained in this Agreement (including the indemnification
hereinafter provided), and all representations and warranties contained in any
document delivered pursuant hereto shall be deemed to be material and to have
been relied upon by the parties hereto (unless otherwise stated in such
document), and shall survive the Closing and shall be fully effective and
enforceable for a period extending for two years after the Closing Date, and no
legal action may be commenced thereafter with respect to any alleged breach
thereof.
10.2 Indemnification by Seller. Seller hereby agrees to indemnify,
defend and hold harmless Buyer from and against any and all loss, damage,
expense (including court costs, reasonable attorneys' fees, interest expenses
and amounts paid in compromise or settlement), suits, actions, claims,
penalties, liabilities or obligations related to, caused by, arising from or on
account of any misrepresentation, or breach of any representation or warranty of
Seller pursuant to this Agreement. Buyer shall be entitled to withhold from its
payments due under the Promissory Note amounts due Buyer under this
indemnification obligation. In the event Buyer intends to seek indemnification
hereunder, Buyer shall provide Seller with notice within a timely manner upon
gaining knowledge of the factual basis upon which an indemnity claim will be
made. Failure to so notify; however, will relieve Seller of its indemnity
obligation only to the extent Seller is prejudiced by such untimely notice. In
the event the basis upon which indemnification may be sought involves the
defense of claims against the Company, the Seller may at the Seller's expense
assume the defense thereof with counsel reasonably satisfactory to the Company.
10.3 Indemnification by Buyer. Buyer hereby agrees to indemnify, defend
and hold harmless Seller from and against any and all loss, damage, expense
(including court costs, reasonable attorneys' fees, interest expenses and
amounts paid in compromise or settlement), suits, actions, claims, penalties,
liabilities or obligations related to, caused by, arising from or on account of
(i) any misrepresentation, or breach of any representation or warranty of Buyer,
pursuant to this Agreement; (ii) any and all third party claims for liabilities,
obligations, damages and expenses relating to Buyer's ownership or management of
the Business or of the Company; and (iii) all liabilities of the Company
reflected in the Closing Balance Sheet, disclosed in any Schedule hereto, or
which is incurred in the ordinary course of business of the Company after the
date of the Closing Balance Sheet and is consistent with past practices of the
Company except to the extent Seller has expressly agreed to assume such
liability hereunder..
10.4 Arbitration. All disputes or claims arising out of, or in any way
relating to this Agreement (including claims for indemnification), shall be
submitted to and determined by final and binding arbitration under the rules of
the American Arbitration Association. Arbitration proceedings may be initiated
by any party hereto or to the Agreement upon notice to the other parties and to
the American Arbitration Association, and shall be conducted by three
arbitrators under the rules of the American Arbitration Association in
Minneapolis, Minnesota; provided however, that the parties may agree following
the giving of such notice to have the arbitration proceedings conducted with a
single arbitrator. The notice must specify in general the issues to be resolved
in any such arbitration proceeding. The arbitrators shall be selected by
agreement of the parties to the arbitration proceeding from a list of five or
more arbitrators proposed to the party by the American Arbitration Association,
or may be persons not on such list as agreed to by the parties to such
arbitration. If the parties to the arbitration proceeding fail to agree on one
or more of the persons to serve as arbitrators within fifteen calendar days
after delivery to each party hereto of the list as proposed by the American
Arbitration Association, then at the request of any party to such proceeding,
such arbitrators shall be selected at the discretion of the American Arbitration
Association. Where the arbitrators shall determine that an arbitration
proceeding was commenced by a party frivolously or without a basis, or primarily
for the purpose of harassment or delay, the arbitrators may assess such party,
the cost of such proceedings including reasonable attorney's fees of any other
party. In all other cases, each party to the arbitration proceeding shall bear
its own costs and its pro-rata share of the fees and expenses charged by the
arbitrators and the American Arbitration Association in connection with any
arbitration proceeding.
ARTICLE 11
GENERAL PROVISIONS
11.1 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing and signed by the parties hereto, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
11.2 Notices. To be effective, all notices or other communications
required or permitted hereunder shall be in writing. A written notice or other
communication shall be deemed to have been given hereunder (i) if delivered by
hand, when all other parties to this Agreement receive such notice or other
communication from the notifying party, (ii) if delivered by telecopier or
timely delivered to the overnight courier, on the first business day following
the date when so sent or delivered addressed to the other party, or (iii) if
delivered by mail, on the third business day following the date such notice or
other communication is deposited in the U.S. mail for delivery by certified or
registered mail addressed to the other party or when actually received,
whichever occurs earlier. Mailed or telecopied communications shall be directed
as follows unless written notice of the change of address or telecopier number
has been given in writing in accordance with this paragraph:
To Buyer: Mr. Edward Boehmer
StarchTech, Inc.
10009 Nord Road
Bloomington, MN 55437
Telecopier Number: (612) 897-0729
Copy to: Randy J. Sparling, Esq.
Frommelt & Eide, Ltd.
580 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Telecopier Number: (612) 342-2761
To Seller: Attn: Chief Executive Officer
Environmental Technologies (USA), Inc.
3558 Second Street North
Minneapolis, MN 55412
Telecopier Number: (612) 590-0993
Copy to: Richard Lareau, Esq.
Oppenheimer Wolff & Donnelly
45 South Seventh Street, Suite 3400
Minneapolis, MN 55402
Telecopier Number: (612) 344-9376
Any party may change its address for receiving notice by written notice given to
the others named above.
11.3 Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns. Any assignment of this Agreement or the rights hereunder by a party
hereto without the prior written consent of the other party shall be void.
11.4 Entire Transaction. This Agreement and the other documents
referred to herein shall contain the entire understanding among the parties with
respect to the transactions contemplated hereby and shall supersede all other
agreements and understandings among the parties.
11.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Minnesota. Subject to the
arbitration provisions of Section 10.4 hereof, the parties hereto hereby consent
that any action against such party will be commenced and venued in the courts of
the State of Minnesota, County of Hennepin, by service of process upon such
party with the same effect as if such party had been lawfully served within such
state.
11.6 Severability. Should any provision of this Agreement be declared
invalid, void or unenforceable for any reason, the remaining provisions hereof
shall remain in full force and effect.
11.7 Confidentiality. No party to this Agreement shall disclose any of
the terms or conditions of this Agreement, including the purchase price
specified herein, to any third party, except to accountants, attorneys and
others who a party hereto may engage or with whom a party hereto may consult in
connection with the transactions contemplated hereunder, and then only to the
extent that such third party needs to know such information. Each party hereto
will use his or its best efforts to cause those to whom such information is
disclosed to maintain the confidentiality thereof.
11.8 Expenses. All expenses incurred by Buyer (including legal and
accounting fees) in connection with the negotiation of this Agreement and the
consummation of the transactions contemplated hereunder shall be borne by Buyer,
and all expenses incurred by Seller or the Company (including legal and
accounting fees) in connection with the negotiation of this Agreement and the
consummation of the transactions contemplated hereby shall be borne by Seller.
11.9 Litigation Arising from Business Activities. It is recognized that
in the future litigation with third parties may arise relating to the Company
and the conduct of the Business prior to the Closing Date, property or assets of
the Company, subsequent to the Closing Date. Therefore, all of the parties agree
that, to the extent reasonable under the circumstances, they will assist and
provide information, records and documents to any other party with respect to
any such litigation or potential litigation in which such other party is or may
be involved.
11.10 Cooperation. For a period not to exceed thirty-six months
following the Closing, the Seller will execute such documents and take such
actions as are reasonably requested by Buyer to carry out the intent of this
Agreement and to facilitate the continuation of the Business uninterrupted by
the transactions contemplated hereby.
11.11 Headings. The Article, Section and other headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.12 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed on the day and year first above written.
"BUYER" "SELLER"
STARCHTECH, INC. ENVIRONMENTAL TECHNOLOGIES
(USA), INC.
By: /s/ James _________ Jr. By: /s/ Charles D. Pyle, Jr.
Its: Vice President Its: Acting C.E.O.
EXHIBIT 99.1
INTRODUCTION TO
PRO FORMA UNAUDITED CONDENSED
FINANCIAL STATEMENTS OF ETI
The following pro forma condensed combined balance sheet as of October 31, 1996,
reflects the disposition of the assets of ETI's wholly-owned subsidiary, Clean
Green.
The following pro forma condensed combined statement of operations are presented
to reflect the disposition of the assets of ETI's wholly-owned subsidiary, Clean
Green, accounted for as sale of assets.
Assumptions underlying the pro forma adjustments are described in the
accompanying notes which should be read in conjunction with the statements. The
pro forma statements do not purport to be indicative of future results of
operations which may result from the disposition of the Clean Green subsidiary.
PRO FORMA UNAUDITED CONDENSED
BALANCE SHEET
October 31, 1996
<TABLE>
<CAPTION>
Environmental
Technologies Clean Green
USA, Inc. Packing of Pro Forma
and Subsidiaries Minnesota Inc.
(unaudited) (unaudited) Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 47,223 $ (15,655) $ 200,000(b) $ 231,568
Accounts receivable 439,273 (165,453) - 273,820
Notes receivable--Employee 21,555 - - 21,555
Inventories 91,049 (80,925) - 10,124
Prepaid expenses and other assets 47,792 (4,951) - 42,841
------------ ------------ ------------ ------------
Total current assets 646,892 (266,984) 200,000 579,908
Property
Leasehold improvements 84,504 (83,004) - 1,500
Equipment 2,336,619 (1,073,871) - 1,262,748
Furniture and fixtures 151,988 (55,565) - 96,423
------------ ------------ ------------ ------------
2,573,111 (1,212,440) - 1,360,671
Less accumulated depreciation and amortization (1,082,451) 604,158 - (478,293)
------------ ------------ ------------ ------------
Net property and equipment 1,490,660 (608,283) - 882,377
Restricted Cash - - - -
Patent Rights 33,976 (33,976) - -
Goodwill and technology rights, net of amortization 312,203 - (205,587) 106,616
Investments in Clean Green Polymers - - - -
Other assets 43,324 (11,483) - 31,842
------------ ------------ ------------ ------------
Total other assets 389,504 (45,459) (205,587)(b) 138,458
------------ ------------ ------------ ------------
TOTAL ASSETS 2,527,056 (920,725) (5,587) 1,600,743
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 156,689 (56,689) - 100,001
Accounts payable 480,864 (156,204) - 324,660
Accrued expenses 752,832 (103,291) 79,564(b) 729,105
Dividends Payable 86,180 - - 86,180
Deferred Revenue - - - -
Current portion of long-term liabilities 130,674 (37,934) - 92,740
------------ ------------ ------------ ------------
Total current liabilities 1,607,239 (354,118) 79,564 1,332,685
Long-term liabilities
Capitalized lease obligations 43,247 (4,544) - 38,702
Long-term debt less current portion 364,043 (266,242) - 97,801
Less Current Portion (130,674) 37,934 - (92,740)
------------ ------------ ------------ ------------
276,615 (232,852) - 43,763
Deferred Revenue, Sale of Clean Green Polymers, Inc. 102,780 - - 102,780
Stockholders' equity:
Common Stock 40,018 - - 40,018
Preferred Stock U-Stock 10,755 - - 10,755
Preferred Stock 6 - - 6
URI Preferred Stock 500,000 - - 500,000
Additional paid-in capital 22,048,706 - - 22,048,706
Net Assets Sold (333,755) 333,755 -
Accumulated Deficit (418,906)(b) (418,906)
Retained Earnings (Deficit) (21,627,672) - (21,627,672)
------------ ------------ ------------ ------------
971,813 (333,755) (85,151) 552,907
Notes receivable from sale of stock One Capital - - -
Notes receivable from sale of stock Fluor Daniel (161,892) - - (161,892)
Notes receivable from sale of stock Starch Tech (269,500) - - (269,500)
Inc. for Clean Green Polymers, Inc. Common Stock
------------ ------------ ------------ ------------
Total stockholders' equity (431,392) - - (431,392)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,527,055 (920,725) (5,587) 1,600,743
</TABLE>
PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Environmental
Technologies Clean Green
USA, Inc. Packing of Pro Forma
and Subsidiaries Minnesota Inc.
(unaudited) (unaudited) Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 906,402 $ (608,531) $ - $ 297,871
Cost of Product Sold 784,235 (415,365) - 368,870
----------- ----------- ----------- -----------
Gross Profit 122,167 (193,166) - (70,999)
Research and Product Development Costs 406 - 406
General, Administrative and Selling 1,275,649 (301,060) 92,540(a) 1,067,130
----------- ----------- ----------- -----------
Operating (Loss) (1,153,888) 107,893 (92,540) (1,138,535)
Interest Expense (20,768) 14,186 - (6,582)
Other Income 10,849 - - 10,849
----------- ----------- ----------- -----------
Net (Loss) $(1,163,807) 122,079 (92,540) (1,134,269)
=========== =========== =========== ===========
</TABLE>
PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
For the Fiscal Year Ended April 30, 1996
<TABLE>
<CAPTION>
Environmental Clean Green
Technologies Packing of Pro Forma
USA, Inc. Minnesota Inc.
and Subsidiaries (unaudited) Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 1,873,725 $(1,392,881) $ - $ 480,844
Cost of Product Sold 1,755,496 (937,259) - 818,237
----------- ----------- ----------- -----------
Gross Profit 118,229 (455,622) - (337,393)
Research and Product Development Costs 1,058,167 (30,048) 1,028,119
General, Administrative and Selling 3,437,834 (739,985) 179,858(a) 2,877,707
----------- ----------- ----------- -----------
Operating (Loss) (4,377,772) 314,411 (179,858) (4,243,219)
Interest Expense (38,842) (33,139) - (71,981)
Other Income 8,913 (12) - 8,901
----------- ----------- ----------- -----------
Net (Loss) $(4,407,701) 281,261 (179,858) (4,306,298)
=========== =========== =========== ===========
</TABLE>
NOTES TO THE PRO FORMA CONDENSED
STATEMENTS OF EARNINGS OF THE COMPANY
a) Selling, general, and administrative expenses are reduced as a result of the
sale of Clean Green Packing of Minnesota, Inc. These expenses include the
intercompany interest on debt and management related expenses
b) Sale of stock and associated assets:
Stock Purchase 1/3/97:
Cash 200,000
Liabilities Assumed by buyer 586,970
-------------
Selling Price 786,970
Book Value of Assets Disposed (920,725)
Costs Associated with Disposal of Assets (79,564)
Write off of Technology Rights (205,587)
-------------
(1,205,876)
Loss On Sale (418,906)
Restructuring reflected in 10/31/96 10Q figures:
Cash 100,000
Assumed Payable for Technology Rights 134,322
-------------
234,322
Equity Interest in Starchtech, Inc. (69,200)
Forgiveness of Note from Starchtech, Inc. (175,998)
Deferred Revenue Adjustment 76,274
U of M Technology Right Transfer (42,614)
-------------
(211,538)
Gain on Restructuring 22,784
=============
