STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement
("Agreement") is by and between Organik Technologies, Inc., a Washington
corporation ("Organik"), and Emerald Apparel, Inc., a Nevada corporation (the
"Company");
WITNESSETH, THAT WHEREAS:
A. Organik has been engaged in the design, manufacturing, and marketing of
casual clothing from its ORGANIK-TM- family of all natural shrink-free, 100%
cotton knit fabrics;
B. Organik has in recent months suffered a series of financial reversals
and is presently without any significant orders for its ORGANIK garment products
and without the financial resources necessary to continue its operations;
C. Organik's Chief Executive Officer, Chief Financial Officer and Vice-
Chairman of the Board have recently resigned and have ceased supplying
management services to Organik;
D. The Company has proposed to Organik that Organik acquire (the
"Acquisition") all of the outstanding shares (the "Shares") of the Company's
capital stock in exchange for shares of common stock of Organik, subject to
certain conditions, which includes the obtaining by the Company of several
million dollars of garment orders to assure at least some immediate ongoing
operations by the combined companies;
E. The stockholders of Emerald, A. J. Salomon ("Salomon") and Barry Watson
("Watson") (together, the "Stockholders"), and Dean Sanders ("Sanders") have
substantial management experience and contacts in the retail apparel industry
and upon consummation of the Acquisition would serve as the management of
Organik as well as of the Company;
F. Through his company, Tuscan, Inc. ("Tuscan"), Watson has provided
emergency management services to Organik during the month of July, 1996 in order
to give the Stockholders an opportunity to do "due diligence" on Organik on
behalf of the Company and Organik an opportunity to do "due diligence" on the
Stockholders, both of which have been accomplished, Organik having obtained an
opinion of an investment banking firm, National Securities Corporation
("National") that the terms of the proposed acquisition of the Company by
Organik are fair to all of the current Organik shareholders;
G. The parties now desire to proceed with the Acquisition on the terms and
conditions set forth herein;
NOW THEREFORE, in and for consideration of the mutual covenants contained
herein, the parties do hereby agree as follows:
1. Subject to the terms and conditions hereof, Organik shall purchase from
the Stockholders, and the Stockholders shall sell to Organik, all of the Shares.
In consideration for the purchase of the Shares by Organik, Organik shall issue
and deliver to the Stockholders at the closing of the Acquisition (the
"Closing") certificates representing 2,000,000 shares of common stock of
Organik (the "Organik Shares") from authorized but theretofore unissued shares
of common stock of Organik, which stock certificates shall be registered in such
names as the Stockholders may designate (the "Designees"). In addition, Organik
shall reserve from authorized but theretofore unissued shares of its common
stock, which reservation shall be exclusively for issuance to such persons as
the Stockholders may then designate (the "New Designees") an additional
3,000,000 shares of Organik common stock (the "Organik Contingent Shares") which
shall be issued and delivered to the New Designees if but only if the following
conditions are met:
(a) Up to 1,000,000 Organik Contingent Shares shall be issued at the
rate of 4 shares for each dollar of net income before taxes ("Net Income
Before Taxes") between $0 and $250,000 earned during Organik's fiscal year
ended July 31, 1997;
(b) Up to an additional 1,000,000 Organik Contingent Shares shall be
issued at the rate of 4 shares for each dollar of Net Income Before Taxes
between $250,000 and $500,000 earned during Organik's fiscal year ended
July 31, 1998; and
(c) Up to an additional 1,000,000 Organik Contingent Shares shall be
issued at the rate of 4 shares for each dollar of Net Income Before Taxes
between $500,000 and $750,000 earned during Organik's fiscal year ended
July 31, 1999.
For purposes hereof, "Net Income Before Taxes" shall mean that amount
included in that line item on Organik's financial statements for the fiscal year
in question prepared in accordance with generally accepted accounting principles
and audited by Organik's accountants. These financial statements shall be the
same ones that shall appear in Organik's Annual Report on Form 10K-SB for such
year filed with the Securities Exchange Commission, or such successor report as
may then be filed by Organik. The Organik Contingent Shares issuable hereunder,
if any, shall be issued within 10 days following the receipt by Organik of the
audited financial statements indicating that the Organik Contingent Shares are
so issuable. The certificates representing the Organik Shares and the Organik
Contingent Shares shall be registered in the names of the individual Designees
and New Designees, respectively. In the event that the shares of Organik common
stock shall be split (including a reverse stock split) or there shall be issued
a stock dividend to all Organik shareholders, the number of Organik Contingent
Shares issuable hereunder thereafter shall be proportionately adjusted upwards
or downwards, as the case may be, to reflect the stock split or dividend.
2. As an inducement to Organik to make the Acquisition, the Company hereby
represents and warrants to Organik as follows, which representations and
warranties shall be true and correct at the date hereof and at the date of the
Closing:
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(a) The initial issuance of the Shares to the Stockholders by the
Company was duly authorized by all necessary corporate action, and the Shares in
the hands of the Stockholders are validly issued, fully paid and nonassessable.
(b) The original issuance of the Shares to the Stockholders, the
entering into of this Agreement and the sale of the Shares to Organik hereunder,
did and will not violate or breach any provisions of the Company's Articles of
Incorporation or By-Laws or any agreement, purchase order, or other document or
instrument, or any court or regulatory order, to which the Company or any of the
Stockholders or Sanders is a party or subject, or to which they or any of their
properties are bound.
(c) The Shares are the only shares of capital stock that the Company
presently has outstanding. The Company has no other types of capital stock
authorized to be outstanding, nor are there outstanding any options, warrants or
rights to purchase capital stock of the Company, nor any commitments therefor to
any person. The Stockholders are the sole owners of the Shares, which they own
free and clear of liens and encumbrances of any type whatsoever, and upon
assignment of the Shares to Organik in the Acquisition, Organik shall acquire
good and marketable title to the Shares free and clear of any and all liens and
encumbrances of any type whatsoever.
(e) The Company, which is newly formed and has never had any
operations, has, and shall have at the closing, no indebtedness of any type
whatsoever, including no obligations for back wages or salaries, no fees to
professionals, and no obligations to trade creditors.
(f) The Company has furnished Organik with copies of all of its
corporate books and records, including its minute books and stock records, as
well as copies of any agreements, contracts, leases or other documents or
instruments to which it is a party or to which any of its properties is subject.
Similarly, the Company acknowledges that Organik has made available to the
Company and the Stockholders, through Tuscan and otherwise, all of Organik's
books, records and personnel, to supplement the information contained in
Organik's public filings with the Securities and Exchange Commission ("SEC").
(g) The Company has the ability to obtain, and shortly following the
Closing will obtain, orders for the manufacture and delivery of approximately
$3,000,000 in fleece, knit shirts and shorts apparel items from major U. S.
retailers, and the Company has or will arrange for production and financing for
all such orders booked. These orders and the financial benefits thereunder will
be owned solely by the Company.
(h) Between the signing of this Agreement and the Closing, the Company
shall be operated in the ordinary course, and there shall not have occurred, nor
shall Organik become aware of, any event which shall result in any material
adverse change in the operations, financial condition or prospects of the
Company.
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3. As an inducement to the Stockholders and the Company to proceed with the
Acquisition, Organik represents and warrants to the Stockholders and the Company
as follows, which representations and warranties shall be true and correct at
the date hereof and at the date of the Closing:
(a) The entering into of this Agreement and the issuance of the
Organik Shares and the Organik Contingent Shares hereunder is duly authorized by
all necessary corporate action, and if and when issued pursuant to the terms
hereof, the Organik Shares and the Organik Contingent Shares in the hands of the
Designees and the New Designees, respectively, shall be validly issued, fully
paid and nonassessable.
(b) The entering into of this Agreement and the issuance of the
Organik Shares and the Organik Contingent Shares to the Designees and the New
Designees, respectively, hereunder will not violate or breach any provisions of
Organik's Articles of Incorporation or By-Laws or any agreement, purchase order,
or other document or instrument, or any court or regulatory order, to which
Organik is a party or subject, or to which it or any of its properties are
bound.
(c) The financial and other information concerning Organik contained
in Organik's public filings with the SEC, copies of which have been furnished to
the Stockholders and to the Company, are accurate and complete as of the dates
so filed. Organik has made available to the Company and the Stockholders,
through Tuscan and otherwise, all of its books, records and personnel, to
supplement the information contained in Organik's public filings with the SEC.
(d) Between the signing of this Agreement and the Closing, Organik
shall be operated in the ordinary course, and there shall not have occurred, nor
shall the Stockholders or the Company become aware of, any event which shall
result in any material adverse change in the operations, financial condition or
prospects of Organik.
(e) The Board of Directors of Organik has received and reviewed, and
the decision of Organik to proceed with the Acquisition is based upon, among
other things, an opinion from National, which is an investment banking firm
having corporate finance personnel with substantial experience in the area of
mergers and acquisitions, that the terms of the Acquisition are fair to all of
the current shareholders of Organik.
4. Organik agrees that at or prior to the Closing the official By-Laws of
Organik shall be amended so that the number of Organik's Directors shall be
increased by such number that when added to the number of vacancies then
existing shall result in there being three vacancies on the Board, and the three
vacancies thereby resulting shall be filled by Watson, Salomon and Sanders.
Organik further agrees that at or prior to the Closing the positions of
President, who shall function as Organik's Chief Executive Officer and of
Secretary-Treasurer, who shall function as Organik's Chief Financial Officer,
shall be filled by Watson and Salomon, respectively. The Company represents and
warrants that, subject to any action to the contrary by the Board of
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Directors or shareholders of Organik, Watson, Sanders and Salomon will continue
to serve as managers of Organik and the Company for at least 12 months following
the Closing hereunder.
5. It shall be a condition to Organik's proceeding with the Closing that
all of the representations and warranties of the Company hereunder shall be then
true and correct and that the Company shall not be in breach of any of its
covenants herein. Similarly, it shall be a condition to the Company's
proceeding with the Closing that all of the representations and warranties of
Organik hereunder shall be then true and correct and that Organik shall not be
in breach of any of its covenants herein. The representations, warranties and
obligations of the parties herein shall survive the Closing and continue
thereafter to bind the parties hereto.
6. At the Closing hereunder, the Company shall deliver to Organik stock
certificates representing the Shares, and assignments thereof properly signed by
the Stockholders, in form satisfactory to Organik, and Organik shall deliver to
the Stockholders certificates representing the Organik Shares registered in the
names of the respective Designees.
7. The Company represents and warrants to, and covenants with, Organik that
each of the Designees is acquiring the Organik Shares, and the New Designees
will acquire the Organik Contingent Shares, for his own account and without a
view toward distribution thereof to the public. Organik represents and warrants
to, and covenants with, the Company that it is acquiring the Shares for its own
account and without a view toward distribution thereof to the public. The
parties acknowledge that neither the Shares, the Organik Shares, nor the Organik
Contingent Shares are registered under state or federal securities laws and may
not be offered, sold or transferred for value without either registration under
such laws or the furnishing of an opinion of counsel, concurred in by counsel
for Organik, that to do so would not violate the registration provisions of such
laws. The parties also acknowledge that there exists no obligation on the part
of either Organik or the Company to register any of such shares either now or in
the future. The parties agree that an appropriate legend reflecting the above
restrictions may be placed on the stock certificates representing the Shares,
the Organik Shares and the Organik Contingent Shares and that a stop-transfer
order against transfer of the respective shares except upon a showing of
compliance with these restrictions may be placed on the official stock transfer
records of Organik and the Company, as appropriate.
8. This Agreement shall: (a) be governed by and construed in accordance
with the local laws of the State of Washington, without giving effect to
principles of conflicts or choice of laws; (b) not be amended, modified or
waived except in writing signed by the party to be bound, the waiver of any part
hereof or at any given time not constituting a waiver of any other part nor for
any other time; (c) constitute the entire agreement of the parties, and
supersede any and all prior agreements, with respect to the subject matter
hereof; (d) inure to the benefit of and be binding upon the parties hereto,
their heirs, personal representatives, successors and assigns; (e) be capable of
being signed in counterparts, (f) be severable, so that if any provision hereof
shall be
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deemed invalid or unenforceable for any reason, all other provisions shall
remain in full force and effect and binding upon the parties; and (g) be
enforceable by action in any court of competent jurisdiction in law or in
equity, the prevailing party being entitled to an award of attorneys fees and
other costs from the losing party.
IN WITNESS WHEREOF, the parties have signed this Agreement by the following
persons, each duly authorized thereto by his Board of Directors, on this 15th
day of August, 1996.
COMPANY: ORGANIK:
Emerald Apparel, Inc. Organik Technologies, Inc.
By: Barry Watson By: John Gilbert
---------------------------- -----------------------
(Barry Watson) (John Gilbert)
President Secretary
And by: A. J. Salomon
------------------------
(A. J. Salomon)
Secretary-Treasurer
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