EXHIBIT 10.5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into as of September 9,
1999 ("Agreement"), by and among XXXXX NURSERIES, INC., a California corporation
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("Purchaser"), and each of those persons and entities whose names are set forth
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on the Schedule of Sellers attached hereto as Exhibit A (which persons and
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entities are sometimes referred to herein as a "Seller" and sometimes
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collectively as "Sellers.")
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RECITALS
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A. Sellers own, or will own following the exercise of all outstanding
Exercised Options (as defined herein), all of the issued and outstanding shares
of capital stock (the "Shares") of Atlantic Greenhouses, Inc. (the "Company").
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X. Xxxxxxx desire to sell to Purchaser and Purchaser desires to purchase
from Sellers the Shares upon consummation of the transactions contemplated by
this Agreement, all pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and intending to be bound hereby, the parties hereto hereby agree as
follows:
AGREEMENT
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1. Sale of Purchased Shares at the Closing. Subject to the terms and
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conditions set forth in this Agreement, at the Closing (as defined in Section
3.1), Purchaser agrees to purchase and accept delivery from Sellers of, and
Sellers agree to sell, assign, transfer and deliver to Purchaser, the Shares
free and clear of all liens, claims and encumbrances of any kind.
2. Payment for Shares; Purchase Price Agreements.
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2.1 Definitions. The following definitions shall apply to this
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Section 2.
(a) Base Amount: shall mean an amount equal to $30,000,000.
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(b) Cash: shall mean, as used in this Section 2, an amount equal
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to that amount which is properly classified as cash or cash equivalents on the
Company's balance sheet in conformity with GAAP at the Calculation Date.
(c) Calculation Date: shall mean, as used in this Section 2, the
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end of the day August 31, 1999.
(d) Company: shall mean, as used in this Section 2, the Company,
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Xxxxx Greenhouses, Inc., a New York corporation ("Xxxxx") and Newark Florists,
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Inc., a New York corporation ("Newark" and together with Xxxxx, the
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"Subsidiaries" or each individually a "Subsidiary"), on a consolidated basis.
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(e) Indebtedness: shall mean the following items with respect to
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the Company as of the Calculation Date: (i) all indebtedness for borrowed money
including accrued interest expense thereon; (ii) that portion of obligations
with respect to capital leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation owed for all or any part of the deferred
purchase price of property or services if the purchase price is due more than
six months from the date the obligation is incurred or is evidenced by a note or
similar written instrument; (v) all indebtedness secured by any Lien on any
property or asset owned or held by the Company; and (vi) any fees or penalties
or any other costs related to the early payoff or termination of any of the
foregoing.
(f) Net Working Capital: shall mean, without duplication to the
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items of Indebtedness (including items of Indebtedness disclosed on the
Schedules 4.5 and 4.9(b)), the sum of (I)accounts receivable (net of allowances
for doubtful accounts, including, without limitation, those items disclosed on
Schedule 4.12 hereof) plus inventory plus prepaid expenses plus prepaid or
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refundable income taxes plus other current assets that can be realized by
Purchaser plus the following noncurrent assets that can be realized by
Purchaser: (i) equipment and automobile deposits, (ii) farm credit patronage
dividends, and (iii) life insurance policy cash surrender value, minus (II) the
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sum of accounts payable, accrued expenses, accrued income taxes, any accrued
pro-rated year-end employee bonuses, and any accrued employee bonuses and
severance payments related to the sale of the Company, all calculated in
accordance with GAAP applied in a manner consistent with the Company's
consolidated audited December 31, 1998 financial statements. Deferred income
taxes shall be disregarded in calculating the Net Working Capital.
Notwithstanding the foregoing, the amount of accrued income taxes shall be
calculated as of the Closing Date.
(g) Working Capital Adjustment: shall mean the following with
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respect to the Company: the amount by which Net Working Capital on the
Calculation Date exceeds (in which case the Net Working Capital Adjustment shall
be a positive number), or, is less than (in which case the Net Working Capital
Adjustment shall be a negative number) $4,800,000.
2.2 Purchase Price. In consideration for the purchase of the Shares,
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Purchaser shall pay to Sellers, in accordance with Schedule 2.3 hereof, an
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amount equal to the Base Amount plus (i) Cash and (ii) the Net Working Capital
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Adjustment (each of which may be a positive or negative number) less (w) the
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amount of Indebtedness, if any, (x) all amounts which will be owed on the
Closing Date to the holders of Terminated Options who have agreed to cancel
their Options upon Closing (net of the exercise price of such options); and (y)
one-half of the interest expense accrued on the Indebtedness after the
Calculation Date through the day immediately preceding the Closing Date (the
"Purchase Price").
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2.3 Payment Terms. The estimated Purchase Price at Closing is
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$11,385,092.10. At the Closing, Purchaser shall (a) deposit $1,000,000 of the
Purchase Price
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with Chicago Title Company ("Escrow Agent"), to be held in an escrow account
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(the "Escrow Account") pursuant to the terms of an Escrow Agreement,
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substantially in the form attached hereto as Exhibit B ("Escrow Agreement") and
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to be available to satisfy the obligations of Sellers under Section 7 of this
Agreement and (b) deposit $125,000 with a financial institution identified by
Xxxx Xxxxxx (including any replacement thereof, the "Representative") to be held
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in escrow and available to satisfy the obligations of Sellers in accordance with
the terms of that certain Environmental Agreement, substantially in the form
attached hereto as Exhibit B-1 (the "Environmental Agreement"). The Sellers
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hereby (i) appoint Xxxx Xxxxxx as their representative (including any
replacement thereof, the "Representative") under the Escrow Agreement and to act
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on their behalf pursuant to the indemnification provisions found at Article 7
herein, (ii) authorize the Representative to enter into the Escrow Agreement on
behalf of the Sellers and to exercise such rights and perform such obligations
of the Representative as provided in the Escrow Agreement, (iii) agree to be
bound by the actions of the Representative in accordance with the terms of the
Escrow Agreement and by such Representative's actions while acting on Sellers'
behalf pursuant to the indemnification provisions found at Article 7 herein and
(iv) agree that Canaan Ventures II Offshore C.V. and Canaan Ventures II Limited
Partnership may replace Xxxx Xxxxxx as the Representative and appoint a new
Representative. The (x) Indebtedness and (y) estimated Purchase Price less
$1,125,000, shall be paid at the Closing by Purchaser by wire transfer of
immediately available funds to those parties and accounts specified in Schedule
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2.3 hereto. Sellers acknowledge that Xxxxxxx Xxxxxxx and the holders of
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Terminated Options shall not be subject to the holdback of the Escrow Account
described above and shall receive greater consideration for their per share
equity interests than the Sellers and hereby consent thereto.
2.4 Determination of the Purchase Price.
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(a) In order to determine the estimated Purchase Price, Sellers
shall, in good faith, prepare and deliver to Purchaser at least two business
days prior to the Closing an estimated unaudited consolidated balance sheet of
the Company, as of the Calculation Date (the "Estimated Closing Balance Sheet")
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together with the computation of the estimated Indebtedness and the estimated
Net Working Capital Adjustment (the "Net Working Capital Report"). The Estimated
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Closing Balance Sheet, the estimated Indebtedness and the estimated Net Working
Capital Report, shall be prepared from the Company's books and records in
accordance with GAAP as applied in a manner consistent with the Company's
audited December 31, 1998 financial statements.
(b) Promptly following the Closing Date, Sellers shall cause KPMG
("Sellers' Accountants") to audit the Cash, Indebtedness and Net Working Capital
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Report, the expense of which shall be paid by Purchaser. Purchaser shall
provide access to the financial books and records to Sellers and Sellers'
accountants during normal business hours in connection with the audit of the
Cash, Indebtedness and Net Working Capital Report. Within 60 days following the
Closing Date, Sellers shall deliver the audited Cash, Indebtedness and Net
Working Capital Report (the "Audited Report") to Purchaser, together with a
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computation of the adjustment amount (the "Adjustment Amount"), if any,
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resulting from the difference between the estimated Purchase Price and the
actual Purchase Price, based on the Cash, Indebtedness and the Net Working
Capital Adjustment, as of the Calculation Date and copies of all back-up and
accounting records which may reasonably be
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requested by the Purchaser or the Purchaser's Accountants (collectively, the
"Report"). The computation of the Adjustment Amount shall be based on the
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Audited Report.
(c) Purchaser and its accountants PriceWaterhouseCoopers
("Purchaser's Accountants") shall have 15 days following the delivery of the
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Report in which to review the Report, including the Audited Report, and the
computation of the Adjustment Amount at Purchaser's expense, and Purchaser's
Accountants shall have access to the Sellers' Accountants and their work papers
relating to the preparation of the Report for this purpose. If Purchaser
believes that the Audited Report or the Adjustment Amount is not correct, then
Purchaser shall, within such 15-day period, deliver to Sellers and Sellers'
Accountants a proposed modification to the Audited Report or the Adjustment
Amount in writing setting forth (i) the amount of the proposed modification,
(ii) the item or items to which such proposed modification relates, and (iii)
the facts and circumstances supporting the reasonableness and propriety of such
modification. Sellers shall cause Sellers' Accountants and Purchaser shall cause
Purchaser's Accountants to use their best efforts for 15 days after any proposed
modifications, to agree upon each dispute related to the Audited Report, and the
parties shall attempt to agree upon the Adjustment Amount. Upon the expiration
of such 15-day period, any party may submit in writing for resolution to
Deloitte and Touche (the "Independent Accountants") any dispute with respect to
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such matters which has not been resolved. The costs of the Independent
Accountants shall be divided equally between Purchaser, on the one hand, and
Sellers, as a group, on the other hand. The decision of the Independent
Accountants with respect to the Audited Report or the computation of the
Adjustment Amount shall be final and binding on each of the parties hereto.
(d) If the final adjusted Purchase Price is greater than the
estimated Purchase Price paid at Closing, then Purchaser shall, within five
business days following the final determination of the Purchase Price, pay by
wire transfer of immediately available funds to such accounts as will have been
designated by Sellers and holders of Terminated Options in writing an amount
equal to (i) the difference between the final adjusted Purchase Price and the
estimated Purchase Price plus (ii) 7.25% interest per annum on such amount from
the Closing Date through the date of payment thereof. If the final adjusted
Purchase Price is less than the estimated Purchase Price paid at Closing, then
Representative, on behalf of Sellers shall, within five business days following
the final determination of the Purchase Price, instruct the Escrow Agent to pay
by wire transfer of immediately available funds to such account designated by
Purchaser in writing, an amount equal to (x) the difference between (A) the
estimated Purchase Price and (B) the final adjusted Purchase Price plus (y)
7.25% interest per annum on such amount from the Closing Date through the date
of payment thereof; provided, however, that if such amount exceeds $150,000 each
Seller shall, within fifteen business days following the final determination of
the Purchase Price, pay to Purchaser such Seller's pro rata share, based on
Seller's ownership interest in the Company as of the Closing Date, by wire
transfer of immediately available funds to such account as will have been
designated by Purchaser in writing such amount in excess of $150,000.
2.5 Accounts Receivable. To the extent prior to April 30, 2000 the
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Company collects accounts which are reflected in the final Net Working Capital
pursuant to Section 2.4(c) hereof (the "Collected Accounts Receivable") in
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excess of the amount of accounts receivable (net of allowances for doubtful
accounts) set forth on the final Net Working Capital determined pursuant to
Section 2.4(c) hereof (the "Final Accounts
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Receivable"), the Purchaser shall deposit in the Escrow Account on April 30,
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2000 an amount equal to such excess.
2.6 Unrealizable Assets. Any assets which are not realized by
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Purchaser and which thereby give rise to a tax deduction, including, but not
limited to, deferred bank fees of Company, shall, to the extent permitted by
applicable tax laws, be available to Company for deduction on Company's August
31, 1999 federal and state income tax returns.
3. Closing.
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3.1 Closing Date. Subject to the fulfillment of the conditions
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precedent specified in Sections 6.1, 6.2 and 6.3, the purchase and sale of the
Shares shall be consummated at a closing (the "Closing") to be held at 10:00
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a.m. local time on September 3, 1999, or on such other date or at such other
time as Purchaser, the Company and Sellers shall mutually agree (such date and
time being herein referred to as the "Closing Date") at a location and in a
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manner agreed to by the parties.
3.2 Deliveries of Seller. At the Closing, Sellers shall deliver or
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cause to be delivered to Purchaser or the Company, as applicable, in form
reasonably satisfactory to counsel for Purchaser, the following:
(a) Stock certificates representing the Shares, which
certificates shall be duly endorsed for transfer or accompanied by properly
executed stock powers, transferring all of the Shares to Purchaser together with
all of the documentation representing the exercise or extinguishment of the
outstanding Options;
(b) A certificate duly executed by each Seller in the form of
Exhibit C certifying as to the accuracy of each of such Sellers' representations
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and warranties at and as of the Closing and that each such Seller has performed
and complied with all of the terms, provisions and conditions to be performed
and complied with by each such Seller at or before the Closing; and
(c) All of the documents, instruments and opinions required to be
delivered under Sections 6.1 and 6.2 of this Agreement or reasonably required by
Purchaser or Purchaser's counsel.
3.3 Deliveries of Purchaser. At the Closing, Purchaser shall deliver
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or cause to be delivered the following to the Sellers:
(a) The estimated Purchase Price as provided under Section 2.1;
and
(b) A certificate duly executed by Purchaser in the form of
Exhibit D certifying as to the accuracy of Purchaser's representations and
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warranties at and as of the Closing and that Purchaser has performed and
complied with all of the terms, provisions and conditions to be performed and
complied with by Purchaser at or before the Closing;
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(c) All documents, instruments and opinions required to be
delivered under Sections 6.1 and 6.3 of this Agreement or reasonably required by
Sellers or Sellers' counsel.
4. Representations and Warranties of Sellers. As an inducement to
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Purchaser to enter into this Agreement and to consummate the transactions
contemplated herein, Sellers jointly represent and warrant to Purchaser, and
covenant and agree, as of the date hereof and as of the Closing Date, as follows
(to the extent the following representations and warranties are limited to the
"knowledge of Sellers" or similar phrases, the knowledge of one or more Sellers
shall be sufficient to bind all the other Sellers and "knowledge" shall mean the
current knowledge of such Seller or the knowledge of their employees and
officers after such individuals have made all reasonable inquiries unless
otherwise specified herein):
4.1 Capitalization; Shareholders List.
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(a) The authorized capital stock of the Company consists solely
of 14,937,488 shares, divided into 6,843,744 shares of Preferred Stock (the
"Preferred Stock") and 8,093,744 shares of Common Stock (the "Common Stock").
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The Preferred Stock is divided into 5,843,744 shares of Series A Preferred
Stock, no par value (the "Series A Preferred Stock") and the remaining Preferred
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Stock is undesignated. The Common Stock is divided into 7,893,744 shares of
Class A Common Stock, no par value (the "Class A Common Stock") and 200,000
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shares of Class B Common Stock (the "Class B Common Stock"). No shares of Class
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A Common Stock are issued and outstanding; however, a total of 6,893,744 shares
of Class A Common Stock have been reserved as follows: (i) 5,843,744 shares
reserved for conversion of the Series A Preferred Stock, (ii) 200,000 shares
reserved for conversion of Series B Common Stock, and (iii) 850,000 shares
reserved for the exercise of the 667,500 outstanding options issued by the
Company authorizing the holders thereof to purchase such shares (the "Options"),
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of which 182,500 will be terminated at Closing (the "Terminated Options") and
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485,000 will be exercised at Closing (the "Exercised Options"), all as disclosed
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in Schedule 4.1(b). A total of 200,000 shares of Class B Common Stock are issued
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and outstanding. A total of 5,843,744 shares of Series A Preferred Stock are
issued and outstanding. All outstanding shares of Class B Common Stock and
Series A Preferred Stock have been, and all shares of Series A Common Stock
issuable upon exercise of those Options which have been exercised, if any, will
be as of the Closing Date, duly authorized and validly issued and are or will be
fully paid and non-assessable and none of them was or will be issued in
violation of any preemptive or other right.
(b) Schedule 4.1(b) is a true, complete and accurate list (the
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"Shareholders List") that after due inquiry, sets forth the name of each holder
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of the Shares exactly as such holder's name is set forth on the stock
certificate(s) representing such Shares. The Shareholders List also sets forth
with respect to each such holder the current address of such holder as set forth
in the records of the Company, the stock certificate numbers held by such holder
and the number of Shares evidenced by each such stock certificate, the date of
each option agreement to which the respective optionholder is a party and the
number of Shares issuable upon exercise of the Options, and indicates whether
any such holder has reported to the Company any lost, stolen or destroyed stock
certificate(s) or option documents and, if so, the number of Shares or the
Option(s) in question. The Shareholder's
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List shall also set forth the percentage ownership (the "Percentage Ownership")
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of each shareholder/optionholder of the total shares outstanding.
(c) Except for the shares of Series B Common Stock, the Series A
Preferred Stock and the Options set forth on the Shareholders List, there are no
outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options or
other rights to acquire from the Company, and there is no obligation of the
Company to issue any, capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Company Securities"). There are no outstanding obligations of the Company to
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issue or deliver or to repurchase, redeem or otherwise acquire any Company
Securities, other than transactions conducted or to be conducted in connection
with the transactions contemplated by this Agreement.
(d) Except as set forth on Schedule 4.1(d), each of the Sellers
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own all of such outstanding shares of Series A Common Stock, Series B Common
Stock or Series A Preferred Stock, as applicable, as set forth opposite such
Sellers' name on the Shareholders List, free and clear of all liens, mortgages,
assessments, security interests, easements, claims, pledges, trusts
(constructive or other), deeds of trust, options or other charges, encumbrances
or restrictions ("Liens") whatsoever, has and will have full power and legal
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right to sell, assign, transfer and deliver the same, and will transfer and
deliver at the Closing good and marketable title to the shares (including those
issuable in respect of the Exercised Options) free and clear of any Lien. Except
as disclosed on Schedule 4.1(d), neither the Company nor any Seller is a party
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to any agreement or understanding relating to the ownership, voting or transfer
of any Series A Common Stock, Series B Common Stock or Series A Preferred Stock,
as applicable, or any other Company Securities (including the Options).
4.2 Subsidiaries and Other Equity Investments. The Company does not
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own, directly or indirectly, any shares of capital stock of any corporation,
except as set forth on Schedule 4.2, or any equity investment in any other
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Person, and the Company has no obligation to acquire any such shares or to make
any such investment. Schedule 4.2 sets forth with respect to each Subsidiary of
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the Company and each other entity described in this Section 4.2, the name,
jurisdiction of organization, amount of shares of capital stock or other equity
interests thereof or therein owned and held by the Company and the percentage
ownership thereof or therein held by the Company. The Company has heretofore
delivered to Purchaser true and complete copies of the organizational documents
of each Subsidiary as currently in effect. The minute books and other books and
records of each Subsidiary of the Company contain complete and accurate records
of all meetings and other actions of its equity holders and board of directors
or other management body and committees thereof.
4.3 Organization, Good Standing and Authority. Except as set forth
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in Schedule 4.3, each of the Company and each Subsidiary is duly organized,
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validly existing and in good standing under the laws of the jurisdiction under
which it is organized and has all powers and governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted. The Company and each of the
Subsidiaries has been duly qualified as a foreign corporation for the
transaction
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of business and is in good standing under the laws of each jurisdiction set
forth on Schedule 4.3, such jurisdictions comprising all jurisdictions in which
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the Company or any Subsidiary owns or leases any property or maintains any
employees.
4.4 Execution and Delivery. All consents, approvals, authorizations
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and orders necessary for the execution, delivery and performance by each Seller
of this Agreement and the other agreements and instruments contemplated hereby
(the "Other Agreements") have been duly and lawfully obtained, and each Seller
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has, and at the Closing will have, full right, power, authority and capacity to
execute, deliver and perform this Agreement and the Other Agreements. This
Agreement and the Other Agreements have been duly executed and delivered by the
Sellers and constitute legal, valid and binding agreements of the Sellers
enforceable against the Sellers in accordance with their respective terms,
except to the extent such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, relating to or limiting creditors' rights generally and (b) general
principles of equity (whether considered in an action in equity or at law).
4.5 No Conflicts. Except for the matters set forth on Schedule 4.5,
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the execution, delivery and performance of this Agreement and the Other
Agreements and the consummation of the transactions contemplated hereby and
thereby will not (a) conflict with or result in a breach or violation of any
term or provision of, or constitute a default under (with or without notice or
passage of time, or both), or otherwise give any Person a basis for accelerated
or additional rights or termination or nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement or instrument to which the Company, any Subsidiary or any Seller is a
party or by which the Company, any Subsidiary or any Seller is bound or affected
or to which any of the property or assets of the Company, any Subsidiary or any
Seller is bound or affected, (b) result in the violation of the provisions of
the Articles of Incorporation or Bylaws of the Company or any Subsidiary, any
order, writ, judgment, injunction, decree or award, whether foreign or domestic
or, to Sellers' knowledge without inquiry or investigation, any applicable
statute, law, ordinance, rule, regulation, permit, ("Legal Requirement"), or (c)
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result in the creation or imposition of any Lien upon any property or asset of
the Company, any Subsidiary or any Seller. Except for this Agreement, neither
Sellers nor the Company nor any Subsidiary have any legal obligation, absolute
or contingent, to any other Person to sell any capital stock, the business, or
substantially all of the assets of the Company or any Subsidiary or to effect
any merger, consolidation or other reorganization of the Company or any
Subsidiary or to enter into any agreement with respect thereto.
4.6 Financial Statements. Schedule 4.6 contains true and complete
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copies of the following financial statements (collectively, the "Financial
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Statements"): (a) the unaudited consolidated balance sheet (the "Balance Sheet")
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of the Company at June 30, 1999 (the "Balance Sheet Date"), and the related
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unaudited consolidated statements of income, equity and cash flows for the six
fiscal months then ended; (b) the audited consolidated balance sheets of the
Company for the Company's fiscal year ended 1998, and for the Company (Atlantic
Greenhouses, Inc. only) audited balance sheets for the fiscal years ended
December 31, 1996 and December 31, 1997, and in each case the related audited
consolidated statements of income, shareholders' equity and cash flow (including
the accompanying notes) for each fiscal year then ended; and (c) the balance
sheets of Newark and Xxxxx for their fiscal years ended December 31, 1996 and
December 31, 1997 and the
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related statements of income, shareholders' equity and cash flow for each fiscal
year then ended. The Financial Statements of the Company, and, for periods
beginning after March 10, 1998, the Subsidiaries (i) have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
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applied as at the dates and during the periods covered thereby except for the
matters set forth on Schedule 4.6, and (ii) are true and correct in all material
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respects and present fairly the financial position and results of operations and
cash flows of the Company, on a consolidated basis with respect to the fiscal
year ended 1998 Financial Statements, as of the dates and for the periods
specified therein. The Financial Statements of the Subsidiaries prior to fiscal
year 1998, to the Sellers' knowledge without inquiry or investigation, (i) have
been prepared in accordance with GAAP consistently applied as at the dates and
during the periods covered thereby except for the matters set forth on Schedule
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4.6, and (ii) are true and correct in all material respects and present fairly
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the financial position and results of operations and cash flows of the
Subsidiaries as of the dates and for the periods specified therein.
4.7 No Undisclosed Liabilities; Trade Payables. Except (a) to the
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extent set forth or provided for in the Balance Sheet or the notes thereto, (b)
as disclosed in this Agreement or (c) for non-material current liabilities of
the same nature as those set forth in the Balance Sheet and the notes thereto
incurred since the Balance Sheet Date in the ordinary course of the Company's
and each Subsidiary's business, consistent with past practices ("Ordinary
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Course"), neither the Company nor any Subsidiary has any liabilities or
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obligations, whether accrued, absolute, contingent or otherwise (including,
without limitation, unasserted claims, whether known or unknown).
4.8 Absence of Certain Changes. Since the Balance Sheet Date, except
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as otherwise disclosed in Schedule 4.8, neither the Company nor any Subsidiary
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has:
(a) incurred any debts or liabilities (absolute, accrued,
contingent or otherwise), other than current liabilities incurred in the
Ordinary Course;
(b) been subjected to or permitted a Lien upon or otherwise
encumbered any of its assets, except any lien for taxes not yet due;
(c) sold, transferred, licensed or leased any of its rights,
assets or properties except in the Ordinary Course;
(d) discharged or satisfied any Lien other than a Lien securing,
or paid any obligation or liability other than, current liabilities shown on the
Balance Sheet and current liabilities incurred since the Balance Sheet Date, in
each case in the Ordinary Course;
(e) canceled or compromised any debt owed to or by or claim of or
against it, or waived or released any right of material value other than in the
Ordinary Course;
(f) suffered a material adverse effect on the business, financial
condition, properties, profitability or operations of the Company or any
Subsidiary ("Material Adverse Effect") resulting from any physical damage,
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destruction or loss (whether or not covered by insurance);
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(g) entered into any material transaction or otherwise committed
or obligated itself to any capital expenditure other than in the Ordinary
Course;
(h) made or suffered any change in its condition (financial or
otherwise), properties, profitability or operations, none of which (individually
or in the aggregate) has had, or may reasonably be expected to have, a Material
Adverse Effect;
(i) made any change in the accounting methods, principles or
practices followed by it;
(j) made or suffered any amendment or termination of any material
contract, agreement, lease or license to which it is a party other than in the
Ordinary Course;
(k) paid any increase in compensation of any kind to any
employee, officer, director or consultant otherwise than in the Ordinary Course
as set forth on Schedule 4.8;
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(l) changed or suffered any change in any benefit plan or labor
agreement affecting any employee of the Company or any Subsidiary otherwise than
in the Ordinary Course or to conform to Legal Requirements;
(m) issued any capital stock of the Company or any Subsidiary or
options or rights to acquire capital stock of the Company or any Subsidiary not
reflected on Schedule 4.1(b), redeemed or repurchased any outstanding shares of
capital stock of the Company or any Subsidiary, declared, set aside or paid any
dividend or distribution on any shares of capital stock of the Company or any
Subsidiary, merged with any other entity or purchased or acquired capital stock
or other interest in any other entity, purchased or otherwise acquired all or
substantially all of the business or assets of any other Person, or transferred
or sold a substantial portion of the Company's or any Subsidiary's business or
assets to any Person;
(n) failed to pay or perform any material obligation of the
Company or Subsidiary when and to the extent due other than pursuant to a good
faith defense or right of setoff; or
(o) entered into any agreement or otherwise obligated itself to
do any of the foregoing.
4.9 Property; Encumbrances. The Company and each Subsidiary has
----------------------
good, valid and marketable title to all its property free and clear of all Liens
except (a) as set forth on Schedule 4.9(a), and (b) Liens for taxes not yet due.
---------------
Schedule 4.9(b) contains a list of all real property owned, leased by the
---------------
Company or any Subsidiary or in which the Company or any Subsidiary has any
rights (the "Real Property"). Schedule 4.9(c) contains a list of all tangible
------------- ---------------
personal property owned by the Company or Subsidiary or held by the Company or
Subsidiary pursuant to leases or licenses and having a cost or fair market value
in excess of $5,000. The Real Property, the personal property owned by the
Company or any Subsidiary and the personal property held by the Company or any
Subsidiary pursuant to leases and licenses comprise all of the real property and
personal property used in the
10
conduct of the business of the Company and each Subsidiary. The leases and
licenses listed on Schedules 4.9(b) and (c) are in full force and effect without
------------------------
any material default, waiver or indulgence thereunder by the Company, any
Subsidiary or, to the knowledge of Sellers, by any other party thereto. True and
complete copies of all leases and licenses listed on Schedules 4.9(b) and (c)
------------------------
have been provided to Purchaser.
4.10 Condition of Personal Property. Except as listed on Schedule
------------------------------ --------
4.10, all personal property owned by the Company or any Subsidiary and all
----
personal property held by the Company or any Subsidiary pursuant to personal
property leases or licenses is in operating condition, subject only to ordinary
wear and tear.
4.11 Condition of Real Property.
--------------------------
(a) The Real Property and all of the structures, buildings and
facilities on the Real Property (the "Structures") are (i) in operating
----------
condition, subject only to ordinary wear and tear, and (ii) supplied with
utilities and other services, including the supply of water and/or rights to
water, necessary for the operation of such Structures and the business conducted
by the Company or any Subsidiary therein. The Structures are the only
structures, buildings and facilities used in the operation of the Company's and
its Subsidiary's business. No condemnation proceeding is pending, or to the
Sellers' knowledge without inquiry or investigation threatened, which would
impair the occupancy, use or value of any of the Real Property.
(b) Except as set forth in Schedule 4.11(b), no Structure, nor
----------------
the operations of the Company or any Subsidiary therein, (i) is in violation of
any Legal Requirement, (ii) is classified as "non-conforming use" or "permitted
non-conforming structure" or (iii) encroaches on any property owned by, or
easement granted in favor of, any other Person.
(c) There are no (x) leases, subleases or other agreements,
written or oral, granting to any other Person the right to acquire, use or
occupy any portion of any Real Property, or (y) outstanding options or rights of
first refusal to purchase all or any portion of Real Property or interest
therein (other than in favor of the Company or the Subsidiaries). No Persons
(other than the Company or the Subsidiaries) are in possession of any of the
Real Property, except pursuant to the terms of lease agreements referred to on
Schedule 4.11(c) copies of which have been provided to Purchaser.
----------------
(d) Except as set forth on Schedule 4.11(d), with respect to each
----------------
item of Real Property, (i) (A) with respect to Real Property leased by the
Company or its Subsidiaries, to the Sellers' knowledge without inquiry or
investigation, the owner thereof has good and marketable title thereto, and the
Company or such Subsidiary has a valid leasehold interest therein, and (B) with
respect to Real Property owned by Company or its Subsidiaries, the respective
owner thereof has good and marketable title thereto, free and clear of all
Liens, (ii) there is ingress and egress (and a continuing right thereto),
without the need for an easement, between paved public rights-of-way and such
Real Property, and (iii) neither the Company nor any Subsidiary has sold,
transferred or subjected to a Lien such Real Property or any interest therein.
11
4.12 Accounts Receivable. Except as set forth on Schedule 4.12, all
------------------- -------------
accounts receivable of the Company or any Subsidiary reflected in the Balance
Sheet and all accounts receivable of the Company or any Subsidiary that have
arisen since the Balance Sheet Date (except such accounts receivable as have
been collected since such dates) are valid and enforceable claims and were
earned by performance in the Ordinary Course. Such accounts receivable of the
Company or any Subsidiary, to the best of Sellers' knowledge, are: (i) subject
to no valid defense, offset or counterclaim; and, (ii) are fully collectible
within 120 days after the Closing Date, except to the extent of the allowance,
if any, for doubtful accounts reflected on the Balance Sheet, which allowance is
consistent in amount with past practices.
4.13 Inventories. All inventories of raw materials, work-in-process
-----------
and finished goods set forth or reflected in the Balance Sheet or acquired by
the Company or any Subsidiary since the Balance Sheet Date are of a quality and
quantity usable and saleable in the Ordinary Course, subject to loss or damages
sustained in the Ordinary Course, and are recorded on the books of the Company
and Subsidiaries in a manner consistent with the Financial Statements for the
fiscal year ended December 31, 1998.
4.14 Intellectual Property and Proprietary Rights. Schedule 4.14
-------------------------------------------- -------------
contains a true and complete list of all patents, patent applications, trade
names, trademarks, service marks, trademark and service xxxx registrations and
applications, copyrights, copyright registrations and applications, and grants
of a license or right to the Company or any Subsidiary with respect to any of
the foregoing, claimed by Company or currently used or proposed to be used by
the Company or any Subsidiary in the conduct of its business, whether registered
or not (collectively, the "Intellectual Property Rights"). The Company or the
----------------------------
Subsidiaries own or, to the Sellers' knowledge without inquiry or investigation,
have the unrestricted right to use the Intellectual Property Rights and every
trade secret, know-how, process, discovery, development, design, technique,
customer and supplier list, marketing and purchasing strategy, invention,
process, confidential data and/or other information (collectively, "Proprietary
-----------
Information") used in the design, development, manufacture, operation, sale and
-----------
use of all products and services sold or rendered or proposed to be sold or
rendered by the Company or the Subsidiaries, free and clear of any right, equity
or claim of others. Except as set forth on Schedule 4.14, neither the Company
-------------
nor any Subsidiary has sold, transferred, assigned, licensed or subjected to any
Lien any Intellectual Property Right or Proprietary Information or any interest
therein. Neither the Company nor any Subsidiary is obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner or licensor of, or other claimant to, any Intellectual Property
Right or Proprietary Information. Except as set forth on Schedule 4.14, no
-------------
Intellectual Property Right or Proprietary Information, to Sellers' knowledge
without inquiry or investigation, conflicts with, infringes on or otherwise
violates any rights of others or is subject to any pending or threatened
litigation or other adverse claim of infringement by any other Person.
4.15 Banking. Schedule 4.15 contains a true and complete list of the
------- -------------
names and locations of all financial institutions at which the Company or any
Subsidiary maintains a checking account, deposit account, securities account,
safety deposit box or other deposit or safekeeping arrangement, the numbers or
other identification of all such accounts and arrangements and the names of all
Persons authorized to draw against any funds therein.
12
4.16 Insurance. Schedule 4.16 contains a true and complete list
--------- -------------
(including the name of the insurer, policy number, coverage amount, deductible
amount, premium amount and expiration date) of all insurance policies and bonds
and self insurance arrangements currently in force that cover or purport to
cover risks or losses to or associated with the Company's or any Subsidiary's
business, operations, premises, properties, assets, employees, agents and
directors (the "Policies"). Except as set forth on Schedule 4.16, neither
-------- -------------
Company nor its Subsidiaries are, and to the knowledge of Sellers without
inquiry or investigation no other party is, in breach of or default under any of
the Policies, neither the Company nor any Subsidiary nor any Seller has received
any written notice of pending or threatened cancellation of any Policy, and no
claim or coverage under any Policy is currently being disputed.
4.17 Indebtedness. Neither the Company nor any Subsidiary has any
------------
Indebtedness other than as set forth on Schedule 4.17, and true and complete
-------------
copies of all instruments and documents evidencing, creating, securing or
otherwise relating to such Indebtedness have been delivered to Purchaser. No
event has occurred and no condition has become known to the Company, any
Subsidiary or Sellers, other than the consummation of the transactions
contemplated herein, that constitutes or, with notice or passage of time, or
both, would constitute a default or termination under any instrument or document
relating to or evidencing such Indebtedness.
4.18 Judgments; Litigation. Except as set forth on Schedule 4.18,
--------------------- -------------
there is no (a) outstanding judgment, order, decree, award, stipulation or
injunction of any local, state, federal or foreign court, government or
governmental department, commission, instrumentality, board, agency or authority
("Governmental Entity") against or, to the knowledge of Sellers without inquiry
-------------------
or investigation, affecting the Company or any Subsidiary or their properties,
assets or business, (b) action, suit, arbitration, hearing, inquiry, proceeding,
complaint, charge or investigation, whether civil, criminal or administrative
("Action"), by or before any Governmental Entity or arbitrator or any appeal
------
from any of the foregoing pending, or to the Sellers' knowledge without inquiry
or investigation, threatened against or affecting the Company or any Subsidiary
or their properties, assets or business, or (c) to the Sellers' knowledge, fact
or circumstance arising from the operation of the Company's or any of its
Subsidiary's business which is reasonably likely to lead to the instigation of
any Action.
4.19 Government Payments. Except as set forth on Schedule 4.19, all
------------------- -------------
returns, declarations, reports and statements ("Government Returns") relating to
------------------
any federal, state, local or foreign income, gross receipts, license, payroll,
employment, real property, personal property, escheated funds or property,
sales, use, import, export or other tax, assessment, duty, fee or charge of any
kind whatsoever ("Government Payments") required to be filed by the Company or
-------------------
its Subsidiaries in connection with the operations of the Company or the
Subsidiaries are true, complete and correct in all material respects, are in
compliance with all Legal Requirements applicable thereto and have been properly
and timely filed. Except as set forth on Schedule 4.19, neither the Company nor
-------------
any Subsidiary has requested any extension of time within which to file any
Government Return, which Government Return has not since been filed. Purchaser
has heretofore been furnished by the Company with true, correct and complete
copies of each Government Return of the Company and the Subsidiaries with
respect to the past three (3) taxable years, and of all reports of, and
communications from, any Governmental Entities relating to Government
13
Payments for such period. All Government Payments required to be paid or
withheld and deposited in connection with the operations of the Company or any
Subsidiary have been duly and timely paid or deposited by the Company or such
Subsidiary. The Company and each Subsidiary has properly withheld or collected
all amounts required by law for Government Payments relating to its employees,
creditors, independent contractors and other third parties, and for Government
Payments on sales, and has properly and timely remitted such withheld or
collected amounts to the appropriate Governmental Entity. The Company and each
Subsidiary has made adequate provision on its books of account for all
Government Payments with respect to its business, properties and operations. The
Company's and Subsidiaries' respective accruals for Government Payments on the
Net Working Capital Report will be adequate to cover all liabilities for
Government Payments of the Company or any Subsidiary, as the case may be, for
all periods ending on or before the Closing Date and such accruals would be
adequate if the Company or Subsidiaries were to file a Government Return on the
Closing Date covering all liabilities accrued through the Closing Date. Except
as set forth on Schedule 4.19, during the past four (4) taxable years, neither
-------------
the Company nor any Subsidiary has (a) had a tax deficiency proposed, asserted
or assessed against it, (b) executed any waiver of any statute of limitations on
the assessment or collection of any Government Payments, or (c) been delinquent
in the payment of any Government Payments. Except as set forth on Schedule 4.19,
-------------
during the past four (4) taxable years, no Government Return of the Company has
been audited or the subject of other Action by any Governmental Entity. Neither
the Company nor any Subsidiary has received any notice from any Governmental
Entity of any pending examination or any proposed deficiency, addition,
assessment, demand for payment or adjustment relating to or affecting the
Company or any Subsidiary or their assets or properties. Neither the Company nor
any Subsidiary has made any payments or is obligated to make any payments that
will not be deductible under Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"). Neither the Company nor any Subsidiary is a party to a
----
tax allocation or sharing agreement and has ever been (or has any liability for
unpaid Government Payments because it was) a member of an affiliated group with
the meaning of Code Section 1504(a).
4.20 No Unlawful Contributions. Neither Company, nor any Subsidiary
-------------------------
nor any director, officer, agent, employee or other Person associated with or
acting on behalf of Company or any Subsidiary has made or used any corporate
funds to make any unlawful contributions, gifts or payments for entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payments to officials or employees of any Governmental Entity
from corporate funds; failed to file any reports required with respect to lawful
contributions; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any intentionally false or fictitious
entries on the books or records of Company or any Subsidiary; or made or
received any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
14
4.21 Employee Benefit Matters.
------------------------
(a) Schedule 4.21 sets forth a list of all "employee benefit
-------------
plans" (as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and all other profit-sharing, deferred
-----
compensation, bonus, stock option, stock purchase, vacation pay, holiday pay,
pension, retirement plans, medical and other compensation or benefit
arrangements maintained or contributed to or required to be contributed to by or
on behalf of either the Company or any Subsidiary for the benefit of its
employees (or former employees), their beneficiaries and/or those persons
providing services to the Company or its Subsidiaries, including, without
limitation, a complete listing of all plans with respect to which the Company or
any Subsidiary has made or has been required to make, directly or indirectly,
contributions, transfers or payments within six (6) years prior to the Closing
(collectively, "Benefit Plans").
-------------
(b) The Company has delivered to Purchaser true and complete
copies of (i) each Benefit Plan and any related funding agreements (e.g.,
insurance contracts or trusts), including all amendments; (ii) the current draft
of the Summary Plan Description pertaining to each Benefit Plan for which a
Summary Plan Description is required by ERISA or by the terms of such Benefit
Plan; (iii) the three (3) most recent annual reports for each Benefit Plan
(including all relevant schedules) for which such annual reports are required;
and (iv) the Internal Revenue Service determination letter (if applicable) for
each Benefit Plan and each amendment thereto.
(c) Each Benefit Plan has been established and while under the
Company's or any Subsidiary's control maintained and administered in all
material respects in accordance with its terms, any related agreements and all
applicable laws and, if intended to qualify under (S) 401(a) of the Code, is so
qualified, and with respect to each Benefit Plan that is subject to Title IV of
ERISA: (i) neither the Company nor any Subsidiary nor any Affiliate of the
Company or any Subsidiary has ever contributed or been obligated to contribute
to any "multi-employer plan" (as defined in (S) 3(37) of ERISA) on account of
any withdrawal from such Benefit Plan; and (ii) no such Benefit Plan subject to
a funding requirement has been terminated at a time when such Benefit Plan was
not sufficiently funded.
(d) All contributions and other payments to be made to each
Benefit Plan under the terms of that Benefit Plan, ERISA, the Code or any other
applicable law have been timely made and all contributions made have been fully
deductible under the Code. The books and records of the Company and each
Subsidiary properly reflect all amounts required to be accrued as liabilities to
date under each Benefit Plan.
(e) In the case of each Benefit Plan for periods during which
such Benefit Plan was administered by the Company or any of its Subsidiaries,
there is no accumulated funding deficiency (within the meaning of (S) 4971 of
the Code), whether or not such deficiency has been waived, or any other unfunded
liability.
(f) To the Sellers' knowledge, each Benefit Plan currently
complies in all material respects, in form and operation, with all applicable
laws, including, without limitation, ERISA, the Code, the continuation coverage
rules of the Consolidated
15
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Code (S) 4980B and part 6
-----
of Title I of ERISA.
(g) No "prohibited transactions" (as defined in (S) 4975(c)(1)
of the Code) or breaches of fiduciary duty involving the Company, any
Subsidiary, Sellers or a director or officer of Company or any Subsidiary, have
occurred with respect to any of the Benefit Plans.
(h) All trusts maintained in connection with a Benefit Plan,
including trusts that are intended to comply with the provisions of Code (S)
501(c)(9) or (S) 501(c)(17), are exempt from federal income taxation under Code
(S) 501(a) and there has been no written or, to the Sellers' knowledge, other
claims of noncompliance or failure to properly maintain, operate or administer
any Benefit Plan (or a related trust) which has rendered or is reasonably likely
to render such Benefit Plan or trust, or the Company or any Subsidiary, subject
to or liable for any taxes, penalties or liabilities to any Person.
(i) There is no contract, agreement or benefit arrangement
covering any employee of the Company or any Subsidiary which, individually or
collectively, could give rise to the payment of any amount which would
constitute an "excess parachute payment" (within the meaning of (S) 280G of the
Code).
(j) Neither the Company nor any Subsidiary nor any of their
Affiliates maintains any Benefit Plan that provides severance pay or medical
benefits to one or more former employees (including retirees) or other persons
who provided services to the Company or any Subsidiary, or provides for post-
retirement benefits to present or former employees or such other persons, other
than benefits that are required to be provided pursuant to COBRA or state law
conversion rights.
(k) Except as set forth on Schedule 4.21, there are no
-------------
proceedings, lawsuits or, to the Sellers' knowledge, investigations, either
currently in progress or, on the basis of facts or circumstances recognized by
the Company, any Subsidiary or Seller, expected to be instituted in the future
against (i) any Benefit Plan, or (ii) any fiduciary of such plan (within the
meaning of (S) 3(21)(A) of ERISA) brought on behalf of any participant,
beneficiary or fiduciary thereunder, or by any Governmental Entity.
16
4.22 Permits, Licenses, Etc.
----------------------
(a) Except as set forth on Schedule 4.22(a)(i), the Company and
-------------------
each Subsidiary possesses, and is in compliance with, all franchises, licenses,
permits, certificates, authorizations, rights and other approvals of
Governmental Entities necessary to (i) occupy, maintain, operate and use the
Real Property as it is currently used (ii) conduct its business as currently
conducted, and (iii) maintain and operate the Benefit Plans (the "Permits").
-------
Schedule 4.22(a)(ii) contains a true and complete list of all Permits. Each
--------------------
Permit has been lawfully and validly issued and is in full force and effect, and
no proceeding is pending or, to the Sellers' knowledge without inquiry or
investigation, threatened, with respect to the revocation, suspension or
limitation of any Permit. The execution, delivery and performance of this
Agreement and the Other Agreements and the consummation of the transactions
contemplated hereby and thereby will not result in the revocation, suspension,
limitation or adverse modification of any Permit and, except as set forth in
Schedule 4.22(a)(iii), no Permit will require the consent of its issuing
---------------------
authority to, or as a result of the consummation of, the transactions
contemplated hereby.
(b) Schedule 4.22(b)(i) identifies all Permits which materially
-------------------
restrict the present output of the Company or any Subsidiary, which limit the
term of possession or operation of any material assets of the Company or any
Subsidiary, or which pertain to environmental discharge. Neither the Company,
any Subsidiary nor any Seller has been notified or presently has reason to
believe any of the Permits will not in the Ordinary Course be renewed upon its
expiration. Except as set forth on Schedule 4.22(b)(ii), neither the Company
--------------------
nor any Subsidiary is in breach of, or has received in writing or, to Sellers'
knowledge, otherwise any claim or assertion that the Company or any Subsidiary
has breached any of the terms or conditions of any Permit.
4.23 Consents. Schedule 4.23 sets forth all consents, authorizations,
-------- -------------
and approvals of, all filings and registrations with, and all notices to, any
Person that are necessary as a result of the consummation of the transactions
contemplated hereby so as not to (a) cause the operations and business of the
Company or any Subsidiary to be interrupted or (b) result in any penalty or fee
to be levied against the Company or its Subsidiaries. All such consents and
filings have been obtained or made or will be obtained or made prior to the
Closing.
4.24 Material Contracts; No Defaults. Schedule 4.24 contains a true
------------------------------- -------------
and complete list and description of all material contracts, agreements,
understandings, arrangements and commitments, written or oral, of either the
Company or any Subsidiary by which either of them or their properties, rights or
assets are bound (the "Contracts"). True and complete copies of such written
---------
Contracts and complete summaries of such oral Contracts have been provided to
Purchaser. Each Contract is, and immediately after the Closing will be (on
identical terms), legal, valid, binding, enforceable and in full force and
effect in the form delivered to Purchaser. Neither the Company nor any
Subsidiary, nor, to the knowledge of Sellers without inquiry or investigation,
any other party, is in breach or default under any Contract, and neither the
Company, nor any Subsidiary nor any Seller has received in writing any claim or
assertion that the Company or any Subsidiary is in breach or default under any
Contract. No event has occurred or, based on facts presently known to exist, is
anticipated which with notice or lapse of time or both would constitute a breach
or default, or permit termination, acceleration or modification, under any
Contract. Except as
17
set forth in Schedule 4.24 and subject to the receipt of any necessary consents
-------------
listed in Schedule 4.23, the execution and delivery of this Agreement and the
-------------
consummation of the transactions contemplated hereby will not result in any
change or modification of any of the rights or obligations of any party under
any of the Contracts.
4.25 Employee Matters.
----------------
(a) Schedule 4.25(a) contains a true and complete list of all
----------------
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's or any Subsidiary's property and related matters of the Company or any
Subsidiary with any current or former officer, director, employee or consultant
or persons who provide or provided services to Company or any Subsidiary (other
than such items which represent minor variances from general practices of the
Company or its Subsidiaries), and true and complete copies of all such
contracts, agreements, plans, arrangements and understandings have been made
available to Purchaser.
(b) The Company and each Subsidiary is in compliance in all
material respects with all Legal Requirements respecting employment and
employment practices, terms and conditions of employment, wages and hours and
occupational safety, and neither the Company nor any Subsidiary has received
notice of, or is engaged in, any unfair labor practice. No unfair labor practice
complaint against the Company or any Subsidiary is pending before the National
Labor Relations Board.
(c) Except to the extent provided in Schedule 4.25(c), there are
----------------
no material claims, grievances or arbitration proceedings, workers' compensation
proceedings, labor disputes (including charges of violations of any Legal
Requirements relating to current or former employees (including retirees),
current or former applicants for employment or persons who provide services to
Company or any Subsidiary), governmental investigations or administrative
proceedings of any kind pending or, to any Sellers' knowledge without inquiry or
investigation threatened against or relating to the Company or any Subsidiary,
or their employees or employment practices, or operations as they pertain to
conditions of employment, nor is the Company, any Subsidiary or any Seller
subject to any order, judgment, decree, award or administrative ruling arising
from any such matter. To the knowledge of the Sellers without inquiry or
investigation, no facts or circumstances exist that could provide a reasonable
basis for a claim of wrongful termination by any current or former employee of
the Company or any Subsidiary or persons who provide services to Company or any
Subsidiary against the Company or any Subsidiary.
(d) No labor, collective bargaining, union or similar agreement
is currently in existence or is being negotiated by the Company or any
Subsidiary, and no union or labor organization has been certified or recognized
as the representative of any employees of the Company or Subsidiary or persons
who provide services to Company or any Subsidiary or, to Sellers' knowledge, is
seeking such certification or recognition or is attempting to organize any of
the employees of the Company or any Subsidiary or persons who provide services
to Company or any Subsidiary. There is not occurring or, to Sellers' knowledge
without inquiry or investigation, threatened, any strike, slow down, picket,
work
18
stoppage or other concerted action by any union or other group of employees
or other Persons against Company, any Subsidiary or their premises or products.
4.26 Affiliations. Except as disclosed on Schedule 4.26, and except
------------ -------------
for the ownership of less than 5% of the securities of a public company, no
Seller, nor any officer, director or key employee of, or other person providing
services to, the Company or any Subsidiary or any associate or Affiliate (as
defined herein) of the Company or any Subsidiary or any of such Persons has,
directly or indirectly, (a) an interest in any Person that (i) furnishes or
sells, or proposes to furnish or sell, services or products that are furnished
or sold by the Company or any Subsidiary, or (ii) purchases from or sells or
furnishes to, proposes to purchase from or sell or furnish to, the Company or
any Subsidiary any goods or services, or (b) a beneficial interest in any
contract or agreement to which either of the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of the assets of the
Company or any Subsidiary are bound or affected, or (c) any claim against the
Company or any Subsidiary or any of their assets which could materially and
adversely affect the Company's or any Subsidiary's assets, the Company's or any
Subsidiary's title to or its right to use its assets, or the Company's or any
Subsidiary's right to conduct its business following the Closing. Except as
disclosed on Schedule 4.26, none of the assets of the Company or any Subsidiary
-------------
include any receivables from any officer, director, shareholder or employee of,
or other person providing services to, the Company or any Subsidiary.
"Affiliate" shall mean any other Person directly or indirectly controlling or
---------
controlled by or under common control with such specified Person. For purposes
of this definition, "control" means the power to direct the management and
policies of another Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise. A "Person" shall mean
------
an individual, corporation, partnership, joint venture, trust or unincorporated
organization or association or other form of business enterprise or a
Governmental Entity.
4.27 Principal Customers and Suppliers
---------------------------------
(a) Schedule 4.27(a) contains a true and complete list of the
----------------
name and address of each customer that is a party to a Contract or which is
among the ten largest customers of the Company and any Subsidiary as measured by
the Company's and each Subsidiary's consolidated sales of goods or services
during the twelve months ended on July 31, 1999. In the last 12 months, no such
customer (i) has canceled, suspended or otherwise terminated its relationship
with the Company or any Subsidiary, (ii) has advised the Company or any
Subsidiary of its intention to cancel, suspend or otherwise terminate its
relationship with the Company or any Subsidiary, to materially decrease its
purchases from the Company or any Subsidiary or to materially and adversely
change the terms upon which it purchases products from the Company or any
Subsidiary, or (iii) to the Sellers' knowledge without inquiry or investigation,
could reasonably be expected to cancel, suspend or terminate its relationship
with the Company or any Subsidiary, to materially decrease its purchases from
the Company or any Subsidiary or to materially and adversely change the terms
upon which it purchases products from the Company or any Subsidiary as a result
of the consummation of the transactions contemplated by this Agreement or
otherwise.
(b) Schedule 4.27(b) contains a true and complete list of each
----------------
supplier that is a party to a Contract or from whom the Company or any
Subsidiary purchased a material portion of the Company's and any Subsidiary's
consolidated purchases
19
of goods or services during the twelve months ended on July 31, 1999. In the
last 12 months, no such supplier (i) has canceled, suspended or otherwise
terminated its relationship with the Company or any Subsidiary, (ii) has advised
the Company or any Subsidiary of its intention to cancel, suspend or otherwise
terminate its relationship with the Company or any Subsidiary, to materially
increase its pricing for the Company or any Subsidiary, to materially curtail
its accommodations, sales or services to the Company or any Subsidiary or to
materially and adversely change the terms upon which it sells products to the
Company or any Subsidiary, or (iii) to the Sellers' knowledge without inquiry or
investigation could reasonably be expected to cancel, suspend or terminate its
relationship with the Company or any Subsidiary, to materially increase its
pricing for the Company or any Subsidiary, to materially curtail its
accommodations, sales or services to the Company or any Subsidiary or to
materially and adversely change the terms upon which it sells products to the
Company or any Subsidiary as a result of the consummation of the transactions
contemplated by this Agreement or otherwise. There are no current restrictions
or, to the Sellers' knowledge without inquiry or investigation threatened or
reasonably anticipated restrictions, on the supply of goods and services to the
Company or any Subsidiary that have, or will have, a Material Adverse Effect.
4.28 Compliance with Law. Except as described on Schedule 4.28, the
------------------- -------------
Company and each Subsidiary is in material compliance with all Legal
Requirements.
4.29 Product Liability and Product Warranty. There are no and have
--------------------------------------
never been any warranties granted or made with respect to products sold, or
services rendered, by the Company or any Subsidiary.
4.30 Corporate Records. The copies or originals of the Articles of
-----------------
Incorporation, Bylaws, minute books and stock records of the Company and each
Subsidiary previously delivered to Purchaser are true, complete and correct in
all material respects.
4.31 Hazardous Materials. For purposes of this Section 4.31, the term
-------------------
"Real Property" shall include any real property previously owned or leased by
-------------
the Company or any Subsidiary or in which the Company or any Subsidiary had any
rights. Except as set forth on Schedule 4.31:
-------------
(a) No flammable, ignitable, corrosive, reactive, radioactive or
explosive substance or material, petroleum or its byproducts or breakdown
products, hazardous waste, toxic substance or related material or any other
substance or material defined or designated as a hazardous or toxic substance,
material or waste by any Legal Requirement ("Hazardous Material") (i) has been
------------------
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released or disposed of on or under any real property
currently or previously owned or leased by the Company or any Subsidiary or is
presently located on or under any of the Real Property (or to Sellers'
knowledge, any property adjoining any Real Property) in violation of any Legal
Requirement, (ii) to the Sellers' knowledge, has been released, placed, stored,
generated, used, manufactured, treated, deposited, spilled, discharged, released
or disposed of by or on behalf of the Company or any Subsidiary at any other
site, (iii) is presently maintained, used, generated, or permitted to remain in
place by the Company or any Subsidiary in violation of any Legal Requirement,
(iv) is required by any Legal Requirement to be eliminated, removed, treated or
mitigated by the Company or any Subsidiary, or (v) is of a type, location,
material, nature
20
or condition which requires notification to any third party by the Company or
any Subsidiary under any Legal Requirement or common law;
(b) No notice, citation, summons or order has been received by
the Company, any Subsidiary or any Seller, no notice has been given by the
Company or any Subsidiary and no complaint has been filed, no penalty has been
assessed and no investigation or review is pending or, to the knowledge of the
Company, any Subsidiary or Sellers threatened by any Governmental Entity, with
respect to (i) any alleged violation by the Company or Subsidiary of any Legal
Requirement related to Hazardous Materials, or (ii) any alleged failure by the
Company or any Subsidiary to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with its
business or properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on behalf of the
Company or any Subsidiary of any Hazardous Material; and
(c) Neither the Company nor any Subsidiary has received any
request for information, notice of claim, demand or notification that it is or
that indicates that it may be a "potentially responsible party" with respect to
any investigation or remediation of any threatened or actual release of any
Hazardous Material. No above-ground or underground storage tanks, whether or not
in use, are or have ever been located at any of the Real Property. No notice has
been received by either the Company or any Subsidiary with respect to the
listing or proposed listing of any property currently or previously owned,
operated or leased by the Company or any Subsidiary on any federal or state list
of sites requiring investigation or cleanup. There have been no environmental
inspections, investigations, studies, tests, reviews or other analysis conducted
on behalf of the Company, any Subsidiary or any Seller in relation to any of the
Real Property. Neither the Company nor any Subsidiary has released, transported
or arranged for the transportation of any Hazardous Material from any property
currently or previously owned, operated or leased by the Company or Subsidiary
in violation of any Legal Requirement. The Company and each Subsidiary has
complied with all Legal Requirements relating to the use, possession,
generation, treatment, storage, recycling, transportation, release and disposal
of Hazardous Materials.
4.32 Year 2000 Compliance. Except as set forth in Schedule 4.32, the
-------------------- -------------
Company's and each Subsidiary's computer software, firmware and hardware
(whether general or specific purpose) and other similar or related items of
automated, computerized and/or software systems that are used or relied on by
the Company or any Subsidiary in the conduct of their business (collectively,
the "Information Technology") is designed to be used prior to, during and after
----------------------
the calendar year 2000 A.D., and the Information Technology used during each
such time period will accurately receive, provide and process (including, but
not limited to, calculating, comparing and sequencing) date and time data from,
into and between the twentieth and twenty-first centuries (including, but not
limited to, the years 1999 and 2000) and leap year calculations and will not
malfunction, cease to function or provide invalid or incorrect results as a
result of date and time data, to the extent that other information technology,
used in combination with the Company's or each Subsidiary's Information
Technology, properly exchanges date and time data with it.
4.33 Brokers' Fees. No broker, finder or similar agent has been
-------------
employed by or on behalf of the Company or any Subsidiary or any Seller in
connection with this
21
Agreement or the transactions contemplated hereby, and neither the Company, nor
any Subsidiary nor any Seller has entered into any agreement, arrangement or
understanding of any kind with any Person for the payment of any brokerage
commission, finder's fee or any similar compensation in connection with this
Agreement or the transactions contemplated hereby.
4.34 Disclosure. No representation or warranty of the Company or any
----------
Seller in this Agreement or any of the Other Agreements, and no information
contained in any Schedule or other writing delivered pursuant to this Agreement
or at the Closing, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to make the
statements herein or therein not misleading. Except as provided herein, Sellers
have delivered to Purchaser true, correct and complete copies of all documents,
and any and all amendments to any such documents, referred to in this Agreement
or in any Schedule delivered to Purchaser pursuant to this Agreement.
4.35 Right of Prepayment. Purchaser shall have the right to pre-pay
-------------------
any Indebtedness existing as of the Closing Date.
4.36 No Third Party Approval Required. No approval, authorization,
--------------------------------
consent, order or other action of or filing with any Person or Governmental
Entity is required in connection with the execution and delivery of this
Agreement or the consummation by Sellers of the transactions described in this
Agreement, except to the extent that the parties may be required to file reports
in accordance with the applicable federal or state securities laws or to the
extent such consents have been obtained.
5. Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants to Sellers, and covenants and agrees, as of the date
hereof and as of the Closing Date as follows:
5.1 Organization and Good Standing. Purchaser has been duly
------------------------------
organized and is validly existing as a corporation in good standing under the
laws of the State of California with full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
5.2 Execution and Delivery. This Agreement and the Other Agreements
----------------------
to which it is a party have been duly authorized by all necessary action on the
part of Purchaser, has been duly executed and delivered by Purchaser and
constitutes the legal, valid and binding agreement of Purchaser enforceable
against Purchaser in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or result in a breach or violation of any term or provision
of, or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any Person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which the Purchaser is a party or by which the Purchaser is bound or affected or
to which any of the property or assets of the Purchaser is bound or affected,
(b) result in the violation of the provisions of the Articles of Incorporation
or
22
Bylaws of the Purchaser or any Legal Requirement, or (c) result in the creation
or imposition of any Lien upon any property or asset of the Purchaser.
5.4 Investment Intent. Purchaser is acquiring the Shares for
-----------------
investment purposes only, for its own account and not as a nominee or agent for
any other Person, and not with a view to or for resale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended.
5.5 Brokers' Fees. No broker, finder or similar agent has been
-------------
employed by or on behalf of Purchaser in connection with this Agreement or the
transactions contemplated hereby, and Purchaser has not entered into any
agreement, arrangement or understanding of any kind with any Person for the
payment of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
5.6 Approval. The Purchaser's Board of Directors has approved the
--------
execution of this Agreement and the transactions contemplated hereby.
5.7 No Third Party Approval Required. No approval, authorization,
--------------------------------
consent, order or other action of or filing with any Person or Governmental
Entity is required in connection with the execution and delivery of this
Agreement or the consummation by Purchaser of the transactions described in this
Agreement, except to the extent that the parties may be required to file reports
in accordance with the applicable federal or state securities laws or to the
extent such consents have been obtained.
6. Conditions Precedent to Closing. Notwithstanding anything contained
-------------------------------
in this Section 6, the conditions precedent set forth in this Section 6 shall be
deemed to have been satisfied upon the Closing.
6.1 Conditions of Purchaser and Sellers. Notwithstanding any other
-----------------------------------
provision of this Agreement, the respective obligations of Purchaser and Sellers
to consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions, each
of which may be waived by Purchaser and Seller in each party's sole discretion:
(a) Purchaser, Company and Sellers shall have received all
consents and approvals (including, but not limited to regulatory approvals)
required to be obtained in connection with the consummation of the transactions
contemplated hereunder;
(b) Xxxx XxXxxxxx and Xxxx Xxxxxx shall have entered into a
Noncompetition Agreement with Purchaser and the Company which restricts
competition for a period of one year in substantially the form of Exhibit E
---------
hereto; and
(c) The Representative shall have entered into the Escrow
Agreement with the Purchaser and the Escrow Agent and the Sellers have entered
into the Environmental Agreement.
6.2 Conditions of Purchaser. Notwithstanding any other provision of
-----------------------
this Agreement, the obligations of Purchaser to consummate the transactions
contemplated
23
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions, each of which may be waived by Purchaser in its sole
discretion:
(a) The representations and warranties of Sellers contained in
this Agreement and in all agreements, documents and instruments executed and
delivered pursuant hereto or in connection with the Closing shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date as though made on and as of the Closing Date, and Sellers shall have
performed in all material respects the agreements and obligations necessary to
be performed by each of them under this Agreement prior to the Closing Date;
(b) Purchaser shall have received from Sellers a closing
certificate dated the Closing Date certifying each of the matters set forth in
Section 6.2(a);
(c) Purchaser shall have received copies of the Articles of
Incorporation and Bylaws as in effect on the Closing Date for the Company and
each Subsidiary and the resolutions of the Company's Board of Directors
authorizing the execution, delivery and performance by the Company of each of
the agreements referenced herein to which the Company is a party, each certified
by the Secretary of the Company in a certificate dated the Closing Date;
(d) Purchaser shall have received from White and Xxxxxxxx LLP,
counsel for Sellers and the Company, a written opinion dated the Closing Date
and addressed to Purchaser, in substantially the form attached as Exhibit F
---------
hereto, and including a provision that Purchaser's lenders are able to rely
thereon;
(e) Purchaser shall have concluded (through its representatives,
accountants, counsel and other experts) an investigation of the business,
condition (financial and other), properties, accounting, taxes, insurance,
assets, prospects, operations and affairs of the Company and each Subsidiary;
(f) Purchaser shall have completed an environmental
investigation of the Real Property, and the results thereof shall be reasonably
satisfactory to Purchaser;
(g) The Company shall provide to Purchaser evidence of the
release, whether by exercise or extinguishment, of all holders of Options of
their rights in connection therewith and all Liens indicated on Schedule 4.9(a);
---------------
(h) Purchaser shall have received (i) an ALTA form of
preliminary title report (the "Title Report") for the Real Property issued by
------------
Chicago Title Company and legible copies of all documents of record listed in
the Title Report to be paid for by Purchaser and (ii) a survey of the Real
Property conforming to the ALTA Minimum Standard Detail Requirements for Land
Title Surveys 1997 to be obtained and paid for by Purchaser, and the results
thereof shall be reasonably satisfactory to Purchaser in its sole discretion;
(i) Each of the members of the Company's and each of the
Subsidiary's Board of Directors and each officer of Company and its Subsidiaries
shall have
24
tendered their resignations (to be effective as of the Closing Date) and
Purchaser shall have received a copy thereof;
(j) Purchaser shall have received evidence reasonably
satisfactory to it in its sole discretion that Sellers have caused the Company
and each Subsidiary to cancel the authority of each Person listed on Schedule
--------
4.15 (or as otherwise reasonably requested by Purchaser) to draw checks on or
----
cause any of the bank accounts maintained by the Company or any Subsidiary;
(k) No act, event or condition shall have occurred prior to the
date hereof which has had a Material Adverse Effect.
6.3 Conditions of Sellers. Notwithstanding any other provision of
---------------------
this Agreement, the obligations of Sellers to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions, each of which may be waived by Sellers in
their sole discretion:
(a) The representations and warranties of Purchaser contained in
this Agreement and in all agreements, documents and instruments executed and
delivered pursuant hereto or in connection with the Closing shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date as though made on and as of the Closing Date, and Purchaser shall have
performed in all material respects the agreements and obligations necessary to
be performed by it under this Agreement prior to the Closing Date;
(b) Sellers shall have received from Purchaser a closing
certificate dated the Closing Date certifying each of the matters set forth in
Section 6.3(a); and
(c) Sellers shall have received copies of Purchaser's Articles
of Incorporation and Bylaws as in effect on the Closing Date and the resolutions
of Purchaser's Board of Directors authorizing the execution, delivery and
performance by Purchaser of the Agreement and each of the agreements referenced
herein to which Purchaser is a party, each certified by the Secretary of
Purchaser in a certificate dated the Closing Date.
7. Indemnification.
---------------
7.1 Survival Provisions.
-------------------
(a) The representations and warranties, covenants and agreements
of the parties hereto contained in this Agreement shall survive the Closing and
the consummation of the transactions contemplated hereby (and any examination,
or knowledge of, or investigation by or on behalf of any party hereto).
(b) Claims for indemnification pursuant to this Section 7 must
be made by delivery of written notice to the party against whom the
indemnification claim is made, setting forth in general terms the basis for the
indemnification claim, no later than April 30, 2000 (the "Claims Period");
-------------
provided, however, that claims for indemnification for Damages arising from any
-------- -------
breach of the covenants, representations and warranties contained in Sections
4.1 (Capitalization; Shareholders List) and 4.4 (Execution and Delivery) or to
the
25
extent any covenant, representation or warranty was given fraudulently may be
made at any time and shall not be subject to the Claims Period limitation.
7.2 Indemnification.
---------------
(a) Subject to Sections 7.3 and 7.5, Sellers jointly hereby
covenant and agree to defend, indemnify and hold harmless Purchaser, the Company
and each of their respective Affiliates including, without limitation, each of
their respective stockholders, officers, directors, employees, agents and
representatives (collectively, the "Purchaser Indemnitees") from and against any
---------------------
and all claims, actions, losses, obligations, costs, expenses, settlement
payments, awards, damages, judgments, fines, penalties and other liabilities of
any kind or nature whatsoever, including without limitation reasonable
attorneys', accountants' and experts' fees (collectively, "Damages") arising out
-------
of or resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by Sellers in this Agreement or in any writing delivered pursuant
to this Agreement or at the Closing; or (ii) the failure of Sellers to perform
or observe any covenant, agreement or condition to be performed or observed by
Sellers pursuant to this Agreement or any agreement delivered pursuant to this
Agreement or at the Closing.
(b) Purchaser hereby covenants and agrees to defend, indemnify
and hold harmless the Sellers and each of their respective Affiliates including,
without limitation, each of their respective partners, stockholders, officers,
directors, employees, agents and representatives (collectively, the "Seller
------
Indemnitees") from and against any and all Damages arising out of or resulting
-----------
from: (i) any inaccuracy in or breach of any representation or warranty made by
Purchaser in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; (ii) the failure by Purchaser to perform or observe
any covenant, agreement or condition to be performed or observed by Purchaser
pursuant to this Agreement or any agreement delivered pursuant to this Agreement
or at the Closing, and (iii) any Damages arising from the operation of the
business conducted by the Company or the Subsidiaries after the Closing Date.
7.3 Limitations on Indemnification.
------------------------------
(a) Sellers' indemnification obligations in Section 7.2(a) shall
not exceed (i) an aggregate amount equal to the $1,000,000 placed in the Escrow
Account plus interest on such amount (the "Cap Amount"), (ii) the obligations
----------
set forth in the Environmental Agreement, plus (iii) the obligation of Sellers,
if any, to pay Purchaser an adjustment in the Purchase Price provided for in
Section 2.4(b) hereof to the extent such adjustment exceeds $150,000.
--------------
(b) Notwithstanding any other provision of this Section 7 to the
contrary, any Damages incurred by any Purchaser Indemnitee shall not be subject
to the Cap Amount to the extent they arise from (i) a breach of any of the
representations and warranties contained in Section 4.1 (Capitalization;
-----------
Shareholders List) or Section 4.4 (Execution and Delivery), and (ii) a breach of
any representation or warranty which was given fraudulently.
26
(c) Notwithstanding the other provisions of this Section 7, (i)
Sellers' indemnification obligations with respect to any representations and
warranties pertaining to Newark or Xxxxx, without respect to matters arising
prior to the Company's acquisition of such entities, shall be reduced by an
amount equal to any amount received by any Purchaser Indemnitee after the
Closing from the former shareholders of Newark and Xxxxx with respect to the
subject matter of such representation and warranty and (ii) Purchaser shall make
a claim against the former shareholders of Xxxxx and Newark to the extent
Purchaser determines such claims are covered by the indemnification provisions
in the Stock Purchase Agreement dated March 10, 1998 (the "Xxxxx/Newark
------------
Agreement") among such former shareholders and the Company; provided, however,
---------
that if Purchaser makes a claim against such former shareholders and such former
shareholders either fail to respond or dispute such claim within 10 business
days thereof, Purchaser shall have the right to proceed against the Sellers
under this Section 7; provided further, however, that in any event if the end of
such 10 business day period extends beyond April 30, 2000 Purchaser shall have
the right to make any such claim against the Sellers prior to the expiration of
the Escrow Account. The Company, hereby assigns to the Sellers, without
representation, warranty or recourse, the rights of Company to indemnification
under the Xxxxx/Newark Agreement but only to the extent any Purchaser Indemnitee
recovers any Damages from Sellers with respect to any claim for which the
Company is entitled to indemnification under the Xxxxx/Newark Agreement. The
former shareholders of Xxxxx and Newark hereby consent to such assignment. In
connection with such assignment, with respect to such claims, Purchaser shall
provide access to its books and records to Sellers during normal business hours.
(d) Notwithstanding the terms of Section 7.2 (a), Sellers shall
not be liable for the first $50,000 in aggregate Damages sustained by Purchaser
pursuant to Section 7.2(a)(i) (the "Basket"); provided, however, that the Basket
------
shall not be available to Sellers with respect to (i) the matters under the
Environmental Agreement, (ii) breaches of representations and warranties in
Sections 4.1 (Capitalization; Shareholder List) or 4.4 (Execution and Delivery),
or (iii) the adjustments to the estimated Purchase Price set forth in Section
2.4 hereof.
7.4 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to Section
7.2 (an "Indemnified Party") receives notice of the assertion by any third party
-----------------
of any claim or of the commencement by any such third party of any Action (any
such claim or Action being referred to herein as an "Indemnifiable Claim") with
-------------------
respect to which another party hereto (an "Indemnifying Party") is or may be
------------------
obligated to provide indemnification, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (the "Claim Notice") of the
------------
Indemnifiable Claim; provided, that the failure to provide such notice shall not
--------
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted or were caused by such failure.
(b) The Indemnifying Party shall have 30 days after receipt of
the Claim Notice (unless the claim or Action requires a response before the
expiration of such 30-day period, in which case the Indemnifying Party shall
have until the date that is 10 days before the required response date) to
acknowledge responsibility and undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense
27
thereof, and the Indemnified Party shall cooperate with the Indemnifying Party
in connection therewith; provided, that (i) the Indemnifying Party shall permit
--------
the Indemnified Party to participate in such settlement or defense through
counsel chosen by the Indemnified Party, provided that the fees and expenses of
--------
such counsel shall not be borne by the Indemnifying Party, and (ii) the
Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent if the settlement requires the Indemnified Party to
admit wrongdoing, pay any fines or refrain from any action. So long as the
Indemnifying Party is vigorously contesting any such Indemnifiable Claim in good
faith, the Indemnified Party shall not pay or settle such claim without the
Indemnifying Party's consent, which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within 30 days after receipt of the Claim Notice (or before the date that
is 10 days before the required response date, if the claim or Action requires a
response before the expiration of such 30 day period), that it acknowledges
responsibility and elects to undertake the defense of the Indemnifiable Claim
described therein, the Indemnified Party shall have the right to contest, settle
or compromise the Indemnifiable Claim in the exercise of its reasonable
discretion; provided, that the Indemnified Party shall notify the Indemnifying
--------
Party of any compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 7.4 to the contrary
notwithstanding, Sellers shall not be entitled to assume the defense for any
Indemnifiable Claim (and shall be liable for the reasonable fees and expenses
incurred by the Indemnified Party in defending such claim) if the Indemnifiable
Claim seeks (i) an order, injunction or other equitable relief or relief for
other than money damages against Purchaser which Purchaser determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages and which, if successful, would adversely affect the business,
properties or prospects of the Company; provided, however, if such equitable
-------- -------
relief portion of the Indemnifiable Claim can be so separated from that for
money damages, Sellers shall be entitled to assume the defense of the portion
relating to money damages or (ii) recovery of monetary damages in excess of the
funds in the Escrow Account.
7.5 Limitations. Except with respect to items set forth in Section
-----------
7.3(b)(i) and (ii), each Seller's indemnification obligations shall be limited
to (a) the funds to be applied pursuant to the Environmental Agreement, (b) an
amount equal to his/her/its Percentage Ownership of the funds held in the Escrow
Account and (c) Seller's obligation to pay Purchaser an adjustment in the
Purchase Price provided for in Section 2.4(b) hereof to the extent such
adjustment exceeds $150,000.
7.6 Representative. Notwithstanding any other provision contained
--------------
herein, the Representative shall be given and shall give all notices, take all
actions, and make all decisions under Section 7.1 through Section 7.5 hereof on
behalf of the Sellers and all such notices, actions and decisions shall be
binding upon all Sellers.
7.7 Other Agreements. The provisions of Sections 7.1 through 7.6
----------------
shall not apply to any breaches of a non-competition agreement, non-disclosure
agreement or employment agreement executed by a Seller; provided, however, that
any payments due by Purchaser to any such Seller hereunder shall be offset
against any amounts owed by such Seller hereunder, including any of such
28
Seller's pro-rata share of the amounts in the Escrow Account, to Purchaser under
such documents.
8. Termination.
-----------
8.1 Grounds for Termination. This Agreement may be terminated at any
------------------------
time prior to the Closing:
(a) by mutual written agreement of the Sellers and Purchaser;
(b) by either (i) the Purchaser or (ii) Sellers, if the Closing
shall not have been consummated on or before September 15, 1999; provided that
the right to terminate this Agreement under this Subsection 8.1(a) shall not be
available to any party whose failure or whose Affiliate's failure to perform any
material covenant or obligation under this Agreement is the cause of such delay;
(c) by either (i) the Purchaser or (ii) Sellers, if there shall
be any law or regulation that makes consummation of the transactions
contemplated hereby illegal or otherwise prohibited or if consummation of the
transactions contemplated hereby would violate any nonappealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction;
(d) by the Purchaser, provided the Purchaser is not then in
breach of any of its obligations hereunder, if either (i) Sellers fail to
perform any covenant in this Agreement when performance thereof is due and does
not cure the failure within 20 business days after the Purchaser delivers
written notice thereof, or (ii) any other condition in Section 6.1 or Section
6.2 has not been satisfied and is not capable of being satisfied prior to the
date specified in Section 8.1(b); or
(e) by Sellers, provided that Sellers are not then in breach of
any of their obligations hereunder, if (i) the Purchaser fails to perform any
covenant of this Agreement when performance thereof is due and does not cure the
failure within 20 business days after notice by Sellers thereof, or (ii) any
condition in Section 6.1 or Section 6.3 has not been satisfied and is not
capable of being satisfied prior to the date specified in Section 8.1(b).
The party desiring to terminate this Agreement pursuant to this
Section 8.1 shall give written notice of such termination to the other party.
8.2 Effect of Termination. If this Agreement is terminated as
----------------------
permitted by Section 8.1, such termination shall be without liability (subject
to Section 9.3) of any party (or any shareholder, director, officer, employee,
agent, consultant or representative of such party) to any other party to this
Agreement. The provisions of Sections 7 and 9 shall survive any termination of
this Agreement. Additionally, following such termination, without the prior
written consent of Company, Purchaser shall not solicit for employment any
employee of Company and its Subsidiaries until July 13, 2001.
29
9. General Provisions.
------------------
9.1 Notices. All notices and other communications under or in
-------
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three days after being mailed, or (c) if given by telecopy, upon confirmation
of transmission by telecopy, in each case to the parties at the following
addresses:
(a) If to Purchaser, addressed to:
Xxxxx Nurseries, Inc.
00000 Xxxxxxx Xxxx
Xxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx
With a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
(b) If to Sellers, addressed to the persons and entities
whose names and addresses are set forth on Exhibit "A"
With a copy to:
White and Xxxxxxxx LLP
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
(c) If to the Representative,
addressed to:
Xxxx Xxxxxx
0000 Xxxx Xxxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Telecopy: (___) ________
30
With a copy to:
White and Xxxxxxxx LLP
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
9.2 Severability. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable such term or provision in any
other jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or enforceable.
9.3 Expenses. Each party will bear the costs of its agents,
--------
attorneys, accountants, investment bankers, travel, lodging and entertainment
and associated expenses except as provided in this Agreement. Notwithstanding
the foregoing, Sellers shall be responsible for all of Sellers' and the
Company's (but not Purchaser's) costs, legal, audit, tax and other costs related
to the sale of the Shares (including without limitation with respect to this
Agreement, the Environmental Agreement, the Escrow Agreement and all related
matters). However, if the transactions contemplated by this Agreement fail to
close for any reason other than (a) lack of Purchaser's satisfaction with its
confirmatory due diligence, (b) a breach by Sellers, or (c) the Sellers' failure
to satisfy the closing conditions specified in Section 6.2, then Purchaser shall
reimburse Company for legal, accounting, banking, advisory and other fees, costs
and out of pocket expenses incurred with respect to the negotiation, execution
and delivery of this Agreement, related financing matters and all other
transactions contemplated hereunder and thereunder for up to $100,000.
9.4 Public Announcements. After the Closing, Purchaser shall be
--------------------
permitted to issue a press release or otherwise make any public statement with
respect to the transactions contemplated by this Agreement.
9.5 Third Party Rights. Notwithstanding any other provision of this
------------------
Agreement, and except as expressly provided in Section 7 hereof, this Agreement
shall not create benefits on behalf of any other Person not a party to this
Agreement (including without limitation any broker or finder), and this
Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns.
9.6 Entire Agreement. This Agreement, including the annexes and
----------------
schedules attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto with respect of its subject matter
and supersedes all prior and contemporaneous agreements and understandings, oral
and written, between the parties with respect to such subject matter, including
without limitation the Letter of Intent.
9.7 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and obligations
hereunder shall not be assignable by any party,
31
including each Seller other than upon the death of such Seller, without the
written consent of the other parties and any such purported assignment by any
party without such consent shall be void, except that any or all rights of
Purchaser to receive the performance of the obligations of Sellers hereunder and
rights to assert claims against Sellers in respect of any inaccuracy in or
breach of any representations, warranties or covenants of Sellers hereunder, may
be assigned by Purchaser to any Affiliate(s) or owner(s) of Purchaser.
9.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, including electronically transmitted counterparts, each of which
shall be deemed an original, but all such counterparts together shall constitute
but one and the same Agreement.
9.9 Recitals, Schedules and Annexes. The recitals, schedules,
-------------------------------
exhibits and annexes to this Agreement are incorporated herein and made a part
hereof as if fully set forth at length herein.
9.10 Construction. The article, section and subsection headings used
------------
herein are inserted for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular or plural, shall be
deemed to include the others whenever and wherever the context so requires.
9.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.
9.12 Attorneys' Fees. In the event of any dispute related to or based
---------------
upon this Agreement, the prevailing party shall be entitled to recover from the
other party its reasonable attorneys' fees and costs.
9.13 Arbitration.
-----------
(a) Any controversy, claim or dispute involving the parties (or
their affiliated persons) directly or indirectly concerning this Agreement or
the subject matter hereof, including, without limitation, any issues and matters
arising under the federal and state securities laws and questions concerning the
scope and applicability of this Section 9.13 shall be finally settled by
arbitration held in Chicago, Illinois by one arbitrator in accordance with the
rules of commercial arbitration then followed by the American Arbitration
Association or any successor to the functions thereof. The arbitrator shall
apply New York law in the resolution of all controversies, claims and disputes
and shall have the right and authority to determine how his or her decision or
determination as to each issue or matter in dispute may be implemented or
enforced. Any decision or award of the arbitrator shall be final and conclusive
on the parties to this Agreement and their respective Affiliates, and there
shall be no appeal therefrom other than from gross negligence or willful
misconduct.
(b) The parties hereto agree that any action to compel
arbitration pursuant to this Agreement may be brought in the appropriate New
York court and in connection with such action to compel the laws of the State of
New York shall control. Application may also be made to such court for
confirmation of any decision or award of the arbitrator, for an order of the
enforcement and for any other remedies which may be necessary to effectuate such
32
decision or award. The parties hereto hereby consent to the jurisdiction of the
arbitrator and of such court and waive any objection to the jurisdiction of such
arbitrator and court.
(c) Notwithstanding the foregoing provisions of this Section
9.13, nothing contained herein shall require arbitration of any issue arising
under this Agreement for which injunctive relief is successfully sought by any
party hereto. Any action, suit or other proceeding initiated by any Seller or
Purchaser against any other party pursuant to this clause (c) may be brought in
any Federal or state court in the State of Illinois having jurisdiction over the
subject matter thereof as the party bringing such action, suit or proceeding
shall elect. Each Seller and Purchaser hereby submit themselves to the
jurisdiction of any such court and agree that service of process on them in any
such action, suit or proceeding may be effected by the means by which notices
are to be given to it under this Agreement.
[Signature Page Follows]
33
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.
"Purchaser"
XXXXX NURSERIES, INC.,
a California corporation
By:_____________________
Its:____________________
[Signature Page Continues]
34
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
"Sellers"
_______________________________
Xxxxxxx Xxxxxxx
_______________________________
Xxxxxxxx Xxxxxxxx
_______________________________
Westerlee Holdings, Ltd.
_______________________________
Canaan Ventures II Offshore C.V.
______________________________________
Xxxx X. XxXxxxxx
______________________________________
Geradus de Wit
______________________________________
Xxxxxxxx Xxxxxxxxx
______________________________________
Canaan Ventures II Limited Partnership
______________________________________
IPP93,L.P.
______________________________________
Xxxx Xxxxxx
______________________________________
Xxxxxxxx Xxxxxxx
00
