Exhibit 10.4
STOCK PURCHASE AGREEMENT
This Agreement is entered into this 29th day of May, 2002 by and
between Metalclad Corporation, a Delaware corporation ("Purchaser"), and Surg
II, Inc., a Minnesota corporation, (the "Company"); Xxxxxxxx X. Xxxxxxx a
Minnesota resident ("Xxxxxxx"); and Xxxxxxx X. XxXxxx, a Minnesota resident
("XxXxxx").
RECITALS
A. The Company recently sold substantially all of its assets under
the terms of an Asset Purchase Agreement between the Company and Oxboro Medical,
Inc., dated October 4, 2001 (the "Oxboro Agreement"), has no material
liabilities, and is desirous of providing additional value for its shareholders.
B. The Company's common stock is registered under Section 12 of the
Securities Exchange Act of 1934, and is traded on the OTC Bulletin Board under
the symbol "SUGR."
C. The Purchaser is desirous of owning at least 90% of the Company,
and utilizing the Company for the acquisition of an active business which
Purchaser believes has good prospects for future growth.
X. Xxxxxxx is a principal shareholder, the Chairman of the Board and
a member of the Board of Directors of the Company, and XxXxxx is a principal
shareholder, the Executive Vice President, Treasurer and a member of the Board
of Directors of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties agree as follows:
1. ARTICLE
PURCHASE OBLIGATION, PRICE, ETC.
1.1 PURCHASE OF SHARES. At the Closing, as hereafter defined,
Purchaser will purchase from the Company, and the Company will
sell to the Purchaser, 145,000,000 shares (the "Shares") of
the Company's authorized but unissued no par value common
stock (the "Common Stock") for an aggregate purchase price of
$3,000,000 U.S. in immediately available good funds (the
"Purchase Price"), subject to the terms and conditions set
forth herein.
1.2 CLOSING. The event at which the Purchase Price shall be paid
to the Company and the certificates representing the Shares
shall be delivered to Purchaser, is referred to as the
"Closing," and the time at which the Closing is to occur is
referred to as the "Time of Closing." The Time of Closing
shall be 3:00 p.m., Minneapolis, Minnesota time, Monday, May
29, 2002, and will be held at Suite 4200, 225 South Sixth
Street, Minneapolis, Minnesota, USA, or at such other time or
place as the parties hereto may mutually agree.
2. ARTICLE
WARRANTIES AND REPRESENTATIONS OF THE COMPANY, XXXXXXX AND XXXXXX
The Company, Xxxxxxx and XxXxxx warrant and represent to Purchaser,
which warranties and representations will be true as of the time of Closing as
they are on the date hereof, and which warranties and representations made by
Xxxxxxx and XxXxxx will only be as to their knowledge (as used herein, knowledge
means actual knowledge without any obligation to have performed any independent
investigation), as follows:
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2.1 NO DISABILITY. Xxxxxxx and XxXxxx each have the power to enter
into and perform their respective obligations under this
Agreement, and neither is under any disability which would
affect the enforceability of this Agreement.
2.2 CORPORATE AUTHORITY. The Company has the power and authority
to enter into and perform its obligations under this
Agreement; and the execution and delivery of this Agreement,
and the consummation of the transactions and compliance with
the terms contemplated and contained herein, have been duly
authorized by the Board of Directors of the Company, and do
not require approval by the shareholders of the Company.
2.3 CORPORATE EXISTENCE. The Company is a corporation duly
incorporated, validly existing and in an active status under
the laws of the state of Minnesota, and has all corporate
powers and authority required to carry on its business as now
conducted.
2.4 ENFORCEABILITY. This Agreement has been duly executed, and
constitutes a valid and binding agreement of the Company,
Xxxxxxx and XxXxxx, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting enforcement of creditors rights generally, and by
general equitable principles, regardless of whether such
enforcement is considered in a proceeding in equity or at a
law.
2.5 CONFLICT. The execution and delivery of this Agreement and the
consummation of the transaction contemplated herein does not
and will not violate or conflict with, or result in a breach
of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute
a default) under, or result in the termination of, or
accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or the
Shares, under any of the terms, conditions or provisions of
the Articles of Incorporation or By-Laws of Company, or any
note, bond, debt, order, decree, license, lease or other
instrument to which Company is a party or is subject.
2.6 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company, Xxxxxxx and XxXxxx of this
Agreement and the consummation of the transactions
contemplated hereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency,
official or authority, other than such consents, approvals,
actions, filings and notices which the failure to make or
obtain could not be reasonably expected to have a Material
Adverse Effect on the Company or on the ability of the Company
to consummate the transactions contemplated hereby. As used
herein, "Material Adverse Effect" with respect to any person
means a material adverse effect on the financial condition,
business, assets or results of operations of such person taken
as a whole, provided that Material Adverse Effect shall not
include any state of facts, event, change or effect disclosed
in this Agreement or any schedule hereto to the extent of the
Company's estimate of liability or obligation (but only to
such extent, and only if an estimate is specifically made).
Material Adverse Effect shall include, but not be limited to,
any liability or any liabilities in the aggregate not
reflected on the "Financial Statements" (as hereafter defined)
in excess of $7,500.
2.7 CAPITALIZATION. The authorized capital stock of the Company
consists of 200,000,000 shares having no par value which,
unless otherwise designated upon the issuance thereof, are
designated as common stock (the "Common Stock"), and of which
1,600,000 shares have been designated and issued as preferred
stock. There are, or will be at the Time of Closing,
14,667,085 shares of Common Stock outstanding, including
shares issuable as provided in Schedule 2.12, warrants
outstanding for the purchase of 325,000 shares of common stock
and no shares of preferred stock outstanding, all of which
outstanding shares are (or will be upon the exercise of the
warrants) duly authorized, validly issued, fully paid and
nonassessable. Except for the warrants to purchase up to
325,000 shares of Common Stock as set forth on Schedule 2.7,
there are no
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outstanding options or other rights to acquire from the Company, and
no obligation of the Company to issue, any capital stock or
securities convertible or exchangeable for capital stock, of the
Company. There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of the Company's capital
stock, rights to acquire capital stock or any other securities of
the Company.
2.8 FINANCIAL STATEMENTS. The balance sheets of the Company as of
December 31, 2000 and 2001, along with the statement of operations
for the 12 month periods then ended, audited by McGladrey & Xxxxxx,
LLP, and the unaudited balance sheet of the Company as of March 31,
2002, along with the unaudited statement of operations for the three
month period then ended, all of which are included in either the
Form 10-KSB Annual Report of the Company for the fiscal year ended
December 31, 2001, or the Form 10-QSB Quarterly Report for the
quarterly period ended March 31, 2002, are referred to herein as the
"Financial Statements". The Financial Statements have been prepared
in accordance with generally accepted accounting principles,
consistently applied in all periods and at all times, and fairly
represent, at the specified dates and for the specified periods, the
financial condition and results of the operations of the Company.
2.9 LIABILITIES. Except for previously incurred liabilities and fees and
expenses which may be incurred in connection with the negotiations
of this Agreement and the consummation of the transactions
contemplated hereby, which shall not exceed $115,000 in the
aggregate, including the obligations set forth on Schedule 2.12, the
Company has no liabilities, whether accrued, contingent, absolute,
determinable or otherwise, including but not limited to any
liability for any breach of covenant, warranty or representation
given or made by the Company in the Oxboro Agreement.
2.10 LITIGATION. Except as set forth in Schedule 2.10, there is no
action, suit or proceeding pending before any court of competent
jurisdiction, or, to the knowledge of the Company, threatened
against the Company, and there is no inquiry, investigation or
proceeding pending, or to the knowledge of the Company, threatened
against the Company, before any court of competent jurisdiction, or
governmental or regulatory authority or agency, and neither the
Company, Xxxxxxx nor XxXxxx are aware of any basis for any such
claim action, lawsuit, inquiry, investigation or proceeding. Except
as set forth in Schedule 2.10, the Company is not a party to or
subject to any order, judgment, decree or consent decree issued by
any court or governmental or regulatory authority or agency relating
to any past or present business practice, transaction or other
activity. There is no action, suit or proceeding pending before any
court of competent jurisdiction, or, to the knowledge of the
Company, Xxxxxxx or XxXxxx, threatened against Company which seeks
to enjoin or otherwise prohibit any of the transactions contemplated
by this Agreement.
2.11 RELATED PARTY TRANSACTIONS. No officer or director of the Company,
or shareholder of the Company owning more than 5% of the outstanding
shares of its common stock, (a) has borrowed money from the Company
since the beginning of the Company's last fiscal year, or currently
has any outstanding indebtedness or other similar obligations to the
Company, (b) has since the beginning of the Company's last fiscal
year loaned or advanced money to the Company, including the
incurrence of reimbursable expenses, or (c) is a director, officer,
employee, partner, affiliate, associate, or consultant of any lender
to, or any borrower from, the Company.
2.12 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on between the
Purchaser and the Company, through its authorized agents, in such
manner as not to give rise to any valid claim against Purchaser or
the Company for a brokerage commission, finder's fee or other like
payment in connection with this Agreement or the transactions
contemplated hereby, except as provided under Schedule 2.12.
2.13 PATENTS, TRADEMARKS AND COPYRIGHTS. The Company does not own,
license or use any patent, patent application, registered trademark,
trademark application, or other trade name or xxxx, other than its
name "Surg II, Inc."
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2.14 TAXES. Except as set forth in Schedule 2.14 hereto:
a. the Company has timely filed, and will, prior to the Closing, timely
file all returns, declarations and reports and information, returns and
statements required to be filed or sent by or relating to the Company prior
to the Closing relating to any Taxes (as defined below) with respect to
income, properties or operations of the Company prior to the Closing,
including the Company's United States income tax return for the period ended
December 31, 2001, and employee income tax withholding and FUTA reports
through March 31, 2002 (collectively, the "Returns");
b. as of the time of filing, the Returns (i) correctly reflected (and,
as to any Returns not filed as of the date hereof, will correctly reflect)
the facts regarding the income, business, assets, operations, activities and
status of the Company, and any other information required to be shown
therein, (ii) constitute (and, as to any Returns not filed as of the date
hereof, will constitute) complete and accurate representations of the Tax
liabilities for the periods covered, and (iii) accurately set forth all items
(to the extent required to be included or reflected in the Returns) relevant
to future Tax liabilities, including the Tax bases of properties and assets;
c. the Company has timely paid all Taxes that have been shown as due
and payable on the Returns that have been filed;
d. the Company has made or will make provision for all Taxes payable
for any periods that ended before the Closing for which no Returns have yet
been filed and for any periods that begin before the Closing and end after
the closing to the extent such Taxes are attributable to the portion of any
such period ending at the Closing;
e. the charges, accruals and reserves for Taxes reflected on the
Financial Statements including the taxes payable, if any, with respect to the
sale of its assets to Oxboro Medical, Inc., are adequate to cover the Tax
liabilities accruing or payable by the Company in respect of periods prior to
the date of the Financial Statements;
f. the Company is not delinquent in the payment of any Taxes and has
not requested any extension of time within which to file or send any Return,
which Return has not since been filed or sent;
g. no deficiency for any Taxes has been asserted or assessed against
the Company for which the Company has not provided adequate reserves in
accordance with generally accepted accounting principles;
h. the Company has not granted any extension of the limitation period
applicable to any Tax claims and the Company has not waived any such
limitation period;
i. the Company is not and has not been a party to any tax sharing
agreement with any corporation; and
j. the Company's fiscal year end for United States income tax purposes
is December 31.
"Tax" (and with the corresponding meaning "Taxes" and "Taxable") shall include
(i) any net income, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profit tax, custom
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) and (ii)
any liability for the payment of any amount of the type described in clause (i)
as a result of being a member of an affiliated or combined group.
2.15 ABSENCE OF CERTAIN CHANGES.
Except as disclosed in the Company SEC Reports (as defined under Section
2.24) filed and publicly available prior to the date hereof, or in Schedule 2.15
hereto, since December 31, 2001, and other than the sale of
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substantially all of its assets to Oxboro Medical, Inc. (now known as Sterion
Incorporated) on January 22, 2002 pursuant to the Oxboro Agreement, there has
not been any event, occurrence or development of a state of circumstances or
facts which alone or together with another fact could reasonably be expected to
have a Material Adverse Change on the business, financial condition or results
of operations of the Company; or any guarantee by the Company of any
indebtedness of a third party; or any grant of any severance or termination pay
to any director, officer or employee of the Company.
2.16 EMPLOYEES. The Company has no employees or persons similarly engaged
as independent contractors (such as leased employees), and has not
had any such employees or independent contractors since January 22,
2002. During the fiscal year ended December 31, 2001, and through
January 22, 2002, the Company had four employees, each of whom
thereafter became employees or independent contractors of Sterion
Incorporated, formerly known as Oxboro Medical, Inc.
2.17 BANK ACCOUNTS. Attached hereto as Schedule 2.17 are the names of
each bank or other financial institution at which the Company has an
account, credit line or safety deposit box, along with the
corresponding account number and the names of the persons entitled
to draw thereon or have access thereto.
2.18 CONTRACTS. Except for its obligations under the Oxboro Agreement and
this Agreement, the Company is not a party to any executory
contract, and has no obligations under any agreement which could
give rise to any liability or obligation to the Company, whether
contingent or otherwise.
2.19 BENEFIT PLANS. The Company has not adopted, and there are not in
effect, any employee plans as defined under, or which would be
subject to, the U.S. Employment Retirement Income Security Act of
1974.
2.20 CORPORATE RECORD BOOK. The Company has provided, or will at the Time
of Closing provide, Purchaser with a copy of the actions taken by
the Board of Directors of the Company, an index of which is attached
as Schedule 2.20, which constitutes an accurate and complete record
of all action taken by the shareholders and the Board of Directors
of the Company from the Company's inception.
2.21 SHAREHOLDERS LIST. Attached as Exhibit A, is an accurate list of the
names and addresses of the holders of record of the Company's
outstanding common stock, along with their respective share
holdings, as of the close of business on March 29, 2002, and a list
of the names and addresses of persons who became, or are or will be
at the Time of Closing, entitled to become, by Board of Directors
resolution, warrant, agreement, warrant or otherwise, holders of the
Company's common stock after March 29, 2002. Exhibit A identifies
all shares of the Company's capital stock which are deemed
"restricted" as provided under the Securities Act of 1933, as
amended. Schedule 2.21 sets forth the shares held of record and
beneficially by holders of 5% or more of the Company's outstanding
voting stock, and by all "affiliates" of the Company, as defined
under the Securities Act of 1933, as amended, and contains a list of
all warrants issued by the Company, copies of which have or shall be
provided to purchasers prior to the Time of Closing.
2.22 SUBSIDIARIES. The Company does not have any subsidiaries.
2.23 SHARES. The Shares, when duly issued by the Company to Purchaser,
will be fully paid and non-assessable, subject to no lien,
encumbrance or other restriction, except for restrictions on
transferability which may be imposed under the Securities Act of
1933, as amended, or applicable state blue sky laws.
2.24 1934 ACT COMPLIANCE. The Company's common stock is and has been
registered under Section 12 of the Securities Exchange Act of 1934
for at least the past two years. For at least the
42
past two years, the Company has timely filed reports, statements and
documents with the Securities and Exchange Commission as required
under the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended (which reports, statements and
documents are referred to as the "SEC Reports"). Specifically, and
included with the SEC Reports, the Company has provided the
Purchaser with a copy of or access to its annual reports on Form
10-KSB for its fiscal year ended on December 31, 2000 and 2001, its
quarterly reports on Form 10-QSB for the quarter ended March 31,
2002, its proxy statement relating to the last meeting of its
shareholders held on January 22, 2002, and its Forms 8K dated
February 6, 2002. As of their respective dates, the SEC Reports
complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the respective rules and
regulations promulgated thereunder, as the case may be, each in
effect on the dates such SEC Reports were filed. As of their
respective dates, each of the SEC Reports did not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
2.25 INSURANCE. A products liability insurance policy is in full force
and effect, with the premium prepaid for five years, providing for
coverage on products manufactured by the Company on or before
January 22, 2002, with aggregate annual limits of $1,000,000 and per
occurrence limits of $1,000,000 on all product liability claims.
3. ARTICLE
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser warrants and represents to the Company, which warranties and
representations will be true as of the time of Closing, as follows:
3.1 CORPORATE AUTHORITY. Purchaser has the power and authority to enter
into and perform its obligations under this Agreement; and the
execution and delivery of this Agreement, and the consummation of
the transactions and compliance with the terms contemplated and
contained herein, have been duly authorized by the Board of
Directors of the Purchaser, and do not require approval by the
shareholders of the Purchaser.
3.2 CORPORATE EXISTENCE. Purchaser is a corporation duly incorporated,
validly existing and in an active status under the laws of the state
of Delaware, and has all corporate powers and authority required to
carry on its business as now conducted.
3.3 ENFORCEABILITY. This Agreement has been duly executed, and
constitutes a valid and binding agreement of Purchaser, enforceable
in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting enforcement of creditors rights generally,
and by general equitable principles, regardless of whether such
enforcement is considered in a proceeding in equity or at a law.
3.4 CONFLICT. The execution and delivery of this Agreement and the
consummation of the transaction contemplated herein does not and
will not violate or conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under
any of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of Company, or any note, bond, debt, order,
decree, license, lease or other instrument to which Company is a
party or is subject.
3.5 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby by Purchaser requires no action by
or in respect of, or filing with, any governmental body, agency,
official or authority, other than such consents, approvals, actions,
filings and notices which the failure to make or obtain could not
43
be reasonably expected to have a Material Adverse Effect on the
Purchaser to consummate the transactions contemplated hereby.
3.6 INVESTMENT INTENT. Purchaser has been advised that neither the offer
nor the sale of the Shares to Purchaser will have been registered
under the Securities Act of 1933 (the "'33 Act") or any state law on
the grounds that it will be exempt from such registration, and that
the Company's reliance upon such exemption or exemptions is
predicated in part on Purchaser's representation, herein made, that
Purchaser is acquiring such Shares for investment for Purchaser's
own account with no present intention of disposing of the same,
except in compliance with applicable provisions of the '33 Act. Any
certificate or other document representing the Shares will bear a
legend stating in effect that the issuance or sale of the Shares has
not been registered under the Act or any applicable state securities
laws, and that the Shares are "restricted" as defined under the Act.
3.7 ACCREDITED INVESTOR. Purchaser is an "accredited investor" as
defined under the Securities Act of 1933.
4. ARTICLE
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of the Purchaser to purchase the Shares pursuant to this
Agreement shall be subject to the satisfaction, on or prior to the Time of
Closing, of each of the following conditions precedent, any of which may be
waived by the Purchaser.
4.1 ACCURACY OF REPRESENTATIONS AND PERFORMANCE OF OBLIGATIONS. All
warranties and representations made by the Company, Xxxxxxx and
XxXxxx in this Agreement shall be true and correct in all material
respects on and as of the Time of Closing with the same effect as if
such warranties and representations had been made on and as of the
Time of Closing, and the Company shall have performed or complied in
all material respects with the covenants, agreements and conditions
contained in this Agreement on their part required to be performed
or complied with at or prior to the Closing.
4.2 NO LITIGATION OR CONTRARY JUDGMENT. The Closing shall not violate
any order, decree or judgment of any court or governmental body
having competent jurisdiction.
4.3 RESIGNATIONS. Upon the effectiveness of the Closing, each member of
the Company's Board of Directors shall have resigned as a member
thereof, and shall have elected Xxxxxxx X. Xxxxxxx and Xxxxx X.
Xxxxxx to fill vacancies created on the Board of Directors and
constitute all of the members thereof , and shall have elected
Xxxxxxx Xxxxxxx and Xxxxx Xxxxxx to serve as the Company's Chief
Executive Officer and Chief Financial Officer, respectively.
4.4 TRADING OF COMMON STOCK. The Company's common stock will be trading
on the OTC Bulletin Board under the symbol SUGR, subject to no order
or notice of a potential or actual suspension of such trading, or
the removal of such common stock from price quotation on the OTC
Bulletin Board.
4.5 BANK ACCOUNT. The Board of Directors of the Company shall have
established a checking account in the Company's name (the "New
Account") with a bank to be designated by the Purchaser, naming as
the only signatories thereto, with authority to withdraw funds on
behalf of the Company, the persons specified as the proposed Chief
Executive Officer and Chief Financial Officer in Section 4.3.
5. ARTICLE
CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligations of the Company to sell the Shares pursuant to this
Agreement shall be subject to the satisfaction, on or prior to the Time of
Closing, of each of the following conditions precedent, any of which may be
waived by the Company:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All warranties and
representations made by the Purchaser in this Agreement shall be
true and correct in all material respects on and as of the Time of
Closing with the same effect as if such warranties and
representations had been made on and as of
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the Time of Closing and the Purchaser shall have performed or
complied in all material respects with the covenants, agreements and
conditions contained in this Agreement on its part required to be
performed or complied with at or prior to the Time of Closing.
5.2 NO LITIGATION OR CONTRARY JUDGMENT. The Closing shall not violate
any order, decree or judgment of any court or governmental body
having competent jurisdiction.
6. ARTICLE
TRANSACTIONS AT CLOSING
6.1 DELIVERIES BY THE COMPANY. The Company shall deliver, or cause to be
delivered, to the Purchaser at or prior to the Closing the
following:
a. Certificates representing the Shares, registered in the
Purchaser's name;
b. The resignation and appointment of members of the Company's Board
of Directors as set forth in Section 4.3.
c. A certificate of good standing under the laws of the State of
Minnesota, dated as of a date within 15 days of the Time of Closing.
d. An opinion of counsel for the Company in form reasonably
satisfactory to the Purchaser.
e. A Stock Escrow and Security Agreement in the form of Exhibit B
hereto, executed by the Company and the Shareholders.
f. Certification of the Shareholders and other officers of the
Company verifying that the warranties and representations contained in
Article II are, to their knowledge, true as of the Time of Closing.
g. Access to all records of the Company.
h. Such other documents or certificates as shall be reasonably
requested by the Purchaser or his legal counsel.
6.2 DELIVERIES BY THE PURCHASER. The Purchaser shall deliver or cause to
be delivered to the Company at or prior to the Closing the
following:
a. $3,000,000 in available good funds deposited to the New Account;
b. A certificate of good standing under the laws of the State of
Delaware, dated as of a date within 15 days of the Time of Closing.
c. An opinion of counsel for the Purchaser in form reasonably
satisfactory to the Company.
d. A Stock Escrow and Security Agreement in the form of Exhibit B
hereto, executed by Purchaser.
e. Such other documents or certificates as shall be reasonably
requested by the Company or his legal counsel.
7. ARTICLE
INDEMNIFICATION AND SURVIVAL
7.1 INDEMNIFICATION BY XXXXXXX AND XXXXXX. Except as set forth elsewhere
in this Agreement or in any Schedule hereto, Xxxxxxx and XxXxxx
severally, but not jointly, agree to indemnify and hold harmless
Purchaser and its officers, directors and agents, against and in
respect of any and all claims, liabilities, obligations, losses,
costs, expenses, deficiencies, litigation, proceedings, taxes,
levies,
45
imposts, duties, deficiencies, assessments, attorneys' fees,
charges, allegations, demands, damages, or judgments of any kind or
nature whatsoever ("Claims") related to, arising from, or associated
with:
a. Any breach or violation of the covenants made in this Agreement
by the Company;
b. Any breach of any of the representations and warranties made by
Xxxxxxx or XxXxxx in Article II of this Agreement; or
c. Any acts, omissions, events, occurrences, circumstances or
transactions occurring prior to the Closing Date (not covered under
Subsections 7.1(a) or 7.1(b) above), of whatsoever type or nature
associated with, arising out of or relating to the ownership or operation
of the Company.
Any indemnification provided for under this Section shall be deemed also to
extend to agents, consultants, representatives, successors, transferees and
assigns of Purchaser.
7.2 INDEMNIFICATION BY PURCHASER. Except as set forth elsewhere in this
Agreement or any Schedule hereto, Purchaser shall indemnify and hold
harmless the Company, and its officers, directors and agents against
and in respect of all Claims related to, arising from, or associated
with:
a. Any breach or violation of the covenants made in this Agreement
by Purchaser;
b. Any breach of any of the representations or warranties made in
Article III of this Agreement by Purchaser; or
c. Any acts, omissions, events, occurrences, circumstances or
transactions, occurring after the Closing Date (not covered under
Subsections 7.2(a) or 7.2(b) above), of whatsoever type or nature
associated with, arising out of or relating to the ownership or operation
of the Company.
Any indemnification provided for under this Section shall be deemed also to
extend to agents, consultants, representatives, successors, transferees and
assigns of Metalclad and the Company.
7.3 INSURANCE AND THIRD-PARTY OBLIGATIONS. Any indemnification otherwise
payable pursuant to Section 7.1 or 7.2 of this Agreement shall be
reduced by the amount of any insurance or other amounts (net of
deductibles and allocated paid loss retro-premiums) that would be
payable by any party to the Indemnitee or on the Indemnitee's behalf
in the absence of this Agreement. No insurer or any other
third-party shall be (i) entitled to a benefit it would not be
entitled to receive in the absence of the foregoing indemnification
provisions, (ii) relieved of the responsibility to pay any claims
for which it is obligated, or (iii) entitled to any subrogation
rights with respect to any obligation hereunder.
7.4 ACTIONS AND CLAIMS OTHER THAN THIRD-PARTY CLAIMS: NOTICE AND PAYMENT
OF CLAIMS. Upon obtaining knowledge of any Claims, other than
third-party Claims, which any person entitled to indemnification
(the "Indemnitee") believes may give rise to a claim under Section
7.1 or 7.2 of this Agreement, the Indemnitee shall promptly notify
the party liable for such indemnification (the "Indemnitor") in
writing of such Claims which the Indemnitee has determined has given
or could give rise to a claim under Section 7.1 or 7.2 hereof (such
written notice being hereinafter referred to as a "Notice of
Claim"); provided, however, that failure of an Indemnitee timely to
give a Notice of Claim to the Indemnitor shall not release the
Indemnitor from its indemnity obligations set forth in this Article
VII except to the extent that such failure adversely affects the
ability of the Indemnitor to defend such Claim or materially
increases the amount of indemnification which the Indemnitor is
obligated to pay hereunder, in which event the amount of
indemnification which the Indemnitee shall be entitled to receive
shall be reduced to an amount which the Indemnitee would have been
entitled to receive had such Notice of Claim been timely given. A
Notice of Claim shall specify in reasonable detail the nature and
estimated amount of any such Claim giving rise to a right of
indemnification. The Indemnitor shall have 30 business days after
receipt of a Notice of Claim to notify the Indemnitee whether or not
it disputes its liability to the Indemnitee with respect to such
Notice of Claim and setting forth the basis for such objection. If
the Indemnitor fails to respond to the Indemnitee within such thirty
business day period, the Indemnitor shall be deemed to have
acknowledged its responsibility for such Claim. The Indemnitor shall
pay and discharge any such Claim which is not contested within sixty
days after its receipt of a Notice of Claim.
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7.5 THIRD-PARTY CLAIMS: NOTICE, DEFENSE AND PAYMENT. Promptly following
the earlier of (i) receipt of notice of the commencement of a
third-party claim, or (ii) receipt of information from a third-party
alleging the existence of such a third-party claim, any Indemnitee
who believes that it is or may be entitled to indemnification by any
Indemnitor under Section 7.1 or 7.2 with respect to such third-party
claim shall deliver a Notice of Claim to the Indemnitor. Failure of
an Indemnitee timely to give a Notice of Claim to the Indemnitor
shall not release the Indemnitor from its indemnity obligations set
forth in this Section 7.5 except to the extent that such failure
adversely affects the ability of the Indemnitor to defend such Claim
or materially increases the amount of indemnification which the
Indemnitor is obligated to pay hereunder, in which event the amount
of indemnification which the Indemnitee shall be entitled to receive
shall be reduced to an amount which the Indemnitee would have been
entitled to receive had such Notice of Claim been timely given.
Indemnitee shall not settle or compromise any third-party claim in
excess of $5,000 prior to giving a Notice of Claim to Indemnitor. In
addition, if an Indemnitee settles or compromises any third-party
claims prior to or within 30 business days after giving a Notice of
Claim to an Indemnitor, the Indemnitor shall be released from its
indemnity obligations to the extent that such settlement or
compromise was not made in good faith and was not commercially
reasonable. Within thirty days after receipt of such Notice of Claim
(or sooner if the nature of such third-party claim so requires) the
Indemnitor may (i) by giving written notice thereof to the
Indemnitee, acknowledge liability for, and at its option elect to
assume, the defense of such third-party claim at its sole cost and
expense, or (ii) object to the claim of indemnification set forth in
the Notice of Claim delivered by the Indemnitee; provided that if
the Indemnitor does not within the same thirty day period give the
Indemnitee written notice either objecting to such claim and setting
forth the grounds therefor or electing to assume the defense, the
Indemnitor shall be deemed to have acknowledged its responsibility
to accept the defense and its ultimate liability, if any, for such
third-party claim. Any contest of a third-party claim as to which
the Indemnitor has elected to assume the defense shall be conducted
by attorneys employed by the Indemnitor and reasonably satisfactory
to the Indemnitee; provided that the Indemnitee shall have the right
to participate in such proceedings and to be represented by
attorneys of its own choosing at the Indemnitee's sole cost and
expense. If the Indemnitor assumes the defense of a third-party
claim, the Indemnitor may settle or compromise the third-party claim
without the prior written consent of Indemnitee; provided that the
Indemnitor may not agree to any such settlement pursuant to which
any such remedy or relief, other than monetary damages for which the
Indemnitor shall be responsible hereunder, shall be applied to or
against the Indemnitee, without the prior written consent of the
Indemnitee, which consent shall not be unreasonably withheld. If the
Indemnitor does not assume the defense of a third-party claim for
which it has acknowledged liability for indemnification under
Section 7.1 or 7.2, the Indemnitee may require the Indemnitor to
reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorneys' fees and reasonable
out-of-pocket expenses incurred in defending against such
third-party claim and the Indemnitor shall be bound by the result
obtained with respect thereto by the Indemnitee, provided that the
Indemnitor shall not be liable for any settlement effected without
its consent, which consent shall not be unreasonably withheld. The
Indemnitor shall pay to the Indemnitee in cash the amount for which
the Indemnitee is entitled to be indemnified (if any) within fifteen
days after the final resolution of such third-party claim (whether
by settlement, a final non-appealable judgment of a court of
competent jurisdiction or otherwise) or, in the case of any
third-party claim as to which the Indemnitor has not acknowledged
liability, within fifteen days after such Indemnitor's objection has
been resolved by settlement, compromise or judicial decision. The
Indemnitee shall make available to the Indemnitor or its
representatives all records and other materials reasonably required
for use in contesting any third-party claim and shall cooperate
fully with the Indemnitor in the defense of all such claims. If the
Indemnitor does not so elect to defend any such third-party claims,
the Indemnitee shall have no obligation to do so.
7.6 LIMITATION OF LIABILITY. The liability of Xxxxxxx and XxXxxx under
Section 7.1 shall be limited to the value, from time to time, of an
aggregate of 1,000,000 shares of the Company's common stock owned by
Xxxxxxx and XxXxxx under the terms of a Stock Escrow and Security
Agreement in the form attached hereto as Exhibit B, to which the
Purchaser, the Company and the Shareholders shall enter into at the
Closing.
7.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made by either party in Articles II
and III of this Agreement, as well as the covenant of Section
7.1(c), shall survive for the lesser of a period of 12 months
following the date of any change in control, or 24 months from the
Closing Date, and thereafter to the extent a claim is made with
respect to any breach of such representation or warranty, prior to
the expiration of such period. For the purpose of this
47
provision, a change of control will occur if the Purchaser owns less
than 50% of the outstanding Common Stock of the Company. No party
shall be entitled to indemnification for breach of any
representation and warranty set forth in Articles II or III of this
Agreement unless a Notice of Claim of such breach has been given to
the breaching party or parties within the period of survival of such
representation and warranty as set forth herein.
7.8 DE MINIMUS CLAIM. Notwithstanding anything herein to the contrary,
no party to this Agreement shall seek indemnification under Sections
7.1(b) or 7.2(b) with respect to any Claims so long as such Claims
aggregate less than $7,500 over the 12 or 24 month period specified
in Section 7.7.
8. ARTICLE
ADDITIONAL COVENANTS
8.1 CONDUCT OF BUSINESS UNTIL CLOSING. Except as Purchaser may otherwise
consent to or approve in writing on and after the date hereof and
prior to the Closing Date, the Company, Xxxxxxx and XxXxxx agree:
a. Not to enter into or authorize any agent to enter into on his
behalf discussions relating to the sale of all or substantially all of
stock or assets of the Company;
b. To conduct and cause the conduct of, the business, operations,
activities and practices of the Company only in the usual, regular and
ordinary manner and, to the extent consistent with such business,
operations, activities and practices, to cause the Company to use its best
efforts to preserve its current business organization and existing
business relationships and prospects; and
c. Neither to enter into any transaction nor perform any act or to
cause or permit the Company to perform any act, which would result in any
of the representations and warranties of Company, Xxxxxxx or XxXxxx
contained in this Agreement not being true and correct in all material
respects at and as of the time immediately after the occurrence of such
transaction or on the Closing Date.
8.2 DILIGENCE. Prior to Closing, the parties shall proceed with due
diligence and in good faith to take such actions as may be necessary
to satisfy the conditions to Closing set forth in Articles IV and V,
hereof.
8.3 ADDITIONAL INFORMATION. On or after the Closing Date, the parties
shall, on request, cooperate with one another by furnishing any
additional information, executing and delivering any additional
documents and instruments, including contract assignments, and doing
any and all such other things as may be reasonably required by the
parties or their counsel to consummate or otherwise implement the
transactions contemplated by this Agreement, and to facilitate the
control and operation of the Company by Purchaser.
8.4 ACCESS TO INFORMATION. For a period of three years after the Closing
Date, and during normal business hours, the Company will give
Xxxxxxx and XxXxxx reasonable access to the records of the Company
developed or relating to business conducted prior to the closing for
any legitimate business purpose.
9. ARTICLE
MISCELLANEOUS
9.1 EXPENSES. Each party shall pay all of its costs and expenses
(including attorneys', accountants' and investment bankers' fees,
legal costs and expenses) incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby.
9.2 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 the notifying party
delivers such notice or other communication to all other parties to
this Agreement, (ii) if delivered by overnight delivery service, on
the second business day following the date such notice or other
communication is timely delivered to the overnight courier, (iii) if
delivered by telecopier or e-mail, on the first business day
following the date such notice or communication is transmitted, or
(iv) if delivered by mail, on the fourth business
48
day following the date such notice or other communication is
deposited in the U.S. mail by certified or registered mail addressed
to the other party, whichever occurs earlier. The determination of a
"business day" shall be made at the location of the recipient of the
notice or other communication. Mailed, telecopied or e-mailed
communications shall be directed as follows unless written notice of
a change of address or telecopier number has been given in writing
in accordance with this Section:
If to Purchaser: Metalclad Corporation
000 Xxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Facsimile No: (000) 000-0000
With a copy to: Felhaber, Larson, Xxxxxx & Xxxx, P.A.
000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxxx
Facsimile No: (000) 000-0000
E-mail address: xxxxxxxxx@xxxxxxxx.xxx
If to the Company: Surg II, Inc.
000 Xxxxxxxxx Xxxxxx Xxxxx
0000 Xxxx 00xx Xxxxxx
Xxxxxxxxxxx, XX 00000
Facsimile No: (000) 000-0000
E-mail address: xxxxxxxx@xxxxxx.xxx
With a copy to: Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Facsimile No: (000) 000-0000
E-mail address: xxxxx.xxxxxx@xxxxxx.xxx
If to Xxxxxxx: Xxxxxxxx X. Xxxxxxx
000 Xxxxxxxxx Xxxxxx Xxxxx
0000 Xxxx 00xx Xxxxxx
Xxxxxxxxxxx, XX 00000
Facsimile No: (000) 000-0000
E-mail address: xxxxxxxx@xxxxxx.xxx
With a copy to: Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Facsimile No: (000) 000-0000
E-mail address: xxxxx.xxxxxx@xxxxxx.xxx
If to XxXxxx: Xxxxxxx X. XxXxxx
0000 Xxxxxxxxx Xxxx
Xxxxxxx, XX 00000
E-mail address: xxxxxxx@xxxxxxx.xxx
With a copy to: Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Facsimile No: (000) 000-0000
E-mail address: xxxxx.xxxxxx@xxxxxx.xxx
9.3 ARBITRATION. All disputes or claims arising out of or in any way
relating to this Agreement shall be submitted to and determined by
final and binding arbitration. Arbitration proceedings may be
initiated by any party to this Agreement upon notice to the other
party and to the American Arbitration
49
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 parties 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 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 of delay,
the arbitrators may assess such party the cost of such proceedings
including reasonable attorneys' 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. Any award or equitable
relief granted by the arbitrators may be enforced in accordance with
the provisions of Minnesota law. Notwithstanding the foregoing,
nothing herein will prevent a party from seeking and obtaining
equitable relief from a court of competent jurisdiction pending a
final decision of the arbitrators and the proper filing of such
decision with such court.
9.4 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto)
contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all written or oral
negotiations, representations, warranties, commitments, offers,
bids, bid solicitations, and other understandings prior to the date
hereof.
9.5 SEVERABILITY. If any provision hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result
of future legislative action, such holding or action shall be
strictly construed and shall not affect the validity or effect of
any other provision hereof.
9.6 ASSIGNABILITY. This Agreement shall be binding upon and inure to the
benefit of the heirs, personal representatives, successors and
assigns of the parties hereto; provided that, except as otherwise
provided for herein, neither this Agreement nor any right hereunder
shall be assignable by any party hereto, without the prior written
consent of the other party.
9.7 LEGAL REPRESENTATION. Each party to this Agreement acknowledges his
right to, and his opportunity and the advisability of, obtaining
legal counsel in connection with the execution of this Agreement.
9.8 CAPTIONS. The captions of the various Articles and Sections of this
Agreement have been inserted only for convenience of reference, and
shall not be deemed to modify, explain, enlarge or restrict any
provision of this Agreement or affect the construction hereof.
9.9 GOVERNING LAW. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the state of
Minnesota, without giving effect to the conflict of laws provision
thereof.
9.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute a single agreements.
9.11 REMEDIES CUMULATIVE. Except as otherwise expressly limited herein,
the rights, powers and remedies given to any party by this Agreement
shall be in addition to all rights, powers and remedies given to
that party by any statute or rule of law. Any forbearance or failure
to delay in exercising any right, power or remedy hereunder shall
not be deemed to be a waiver of such right, power or remedy, and any
single or partial exercise of any right, power or remedy shall not
preclude the further exercise thereof or be deemed to be a waiver of
any other right, power or remedy.
50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
PURCHASER THE COMPANY
METALCLAD CORPORATION SURG II, INC.
By: By:
-------------------------------- ------------------------------------------
Xxxxx X. Xxxxx, President Xxxxxxxx X. Xxxxxxx, Chairman of the Board
------------------------------------------
------------------------------------------
Xxxxxxxx X. Xxxxxxx Xxxxxxx X. XxXxxx
51
