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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------------------
Date of Report (Date of earliest event reported): September 30, 1998
NATROL, INC.
(Exact name of Registrant as specified in charter)
Delaware 000-24567 95-3560780
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
21411 Prairie Street, Chatsworth, CA 91311
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(Address of principal executive offices) (Zip Code)
(818) 739-6000
--------------
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition of Assets.
On September 30, 1998, Natrol, Inc. (the "Registrant"), through its
wholly-owned subsidiary Natrol Acquisition Corp. (the "Acquisition Sub," and,
together with the Registrant, the "Company"), acquired substantially all of the
assets and properties (collectively, the "Acquired Assets") of Laci Le Beau
Corporation, Shay Lee Corporation, and The Nutrition Products Trust of 1995
(collectively, the "Laci Le Beau Entities") pursuant to an Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of September 18, 1998 by and
among the Acquisition Sub, the Registrant, the Laci Le Beau Entities, and the
founders of the Laci Le Beau Entities. A copy of the Asset Purchase Agreement is
attached as Exhibit 2.1 hereto and is expressly incorporated by reference
herein.
The Laci Le Beau Entities are based in Fresno, California, and are
engaged in the business of developing, formulating, manufacturing and
distributing nutritional and dietary supplement products, including diet
supplement and herbal teas.
The Company paid an aggregate of $7.5 million in cash for the Acquired
Assets. The amount of consideration for the acquisition was determined through
arm's length negotiations between the parties. The Company used proceeds from
the Registrant's initial public offering of common stock which was completed in
July 1998 to pay the consideration for the acquisition.
The Acquired Assets include certain tangible and intangible assets of
the Laci Le Beau Entities, including equipment, inventory, contract rights,
intellectual property rights, and goodwill. The Acquired Assets are described
more fully in the Asset Purchase Agreement. The Company intends to use the
Acquired Assets for purposes that are consistent with the historical use of such
assets by the Laci Le Beau Entities.
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Item 7. Financial Statements, Pro forma Financial Information and Exhibits.
At the time of the filing of this Form 8-K, it is impracticable for the
Registrant to provide financial information relating to the acquisition of the
Acquired Assets from the Laci Le Beau Entities. Such required financial
information will be filed by amendment not later than December 14, 1998, in
accordance with Item 7, paragraphs (a)(4) and (b)(2) of Form 8-K.
(c) Exhibits
2.1 Asset Purchase Agreement dated as of September 18,
1998 (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request).
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Name
- ------- ----
<S> <C>
2.1 Asset Purchase Agreement dated as of September 18,
1998 (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request).
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
NATROL, INC.
Dated: October 8, 1998 By: /s/ Dennis R. Jolicoeur
------------------------
Name: Dennis R. Jolicoeur
Title: Executive Vice President and
Chief Financial Officer
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and among
NATROL ACQUISITION CORP.,
a wholly owned subsidiary of NATROL, INC.,
as Buyer,
LACI LE BEAU CORPORATION, and
SHAY LEE CORPORATION,
as Sellers
and
FREDERICK L. STINE,
SAM J. ROBERSON, and
DEBORAH L. BARNES,
TRUSTEES OF
THE NUTRITION PRODUCTS TRUST OF 1995,
as Seller
and
EARL ROBERSON
and
HELEN ROBERSON
as Founders
Dated as of September 18, 1998
<PAGE>
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS
Page
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF ASSETS.....................................................................1
1.1 Sale of Assets..................................................................................1
1.2 No Assumption of Any Liabilities or Obligations.................................................4
1.3 Purchase Price and Payment; Adjustments.........................................................4
1.4 Place of Closing; Closing Date..................................................................5
1.5 Transfer of Subject Assets......................................................................5
1.6 Delivery of Records and Contracts...............................................................5
1.7 Further Assurances..............................................................................6
1.8 Allocation of Purchase Price....................................................................6
1.9 Employees, Wages and Benefits...................................................................6
1.10 Leases..........................................................................................7
1.11 Non-competition Agreements......................................................................7
1.12 Customer Returns................................................................................7
1.13 Current Litigation and Insurance Arrangements...................................................8
1.14 Consulting Arrangements.........................................................................8
1.15 Post-Closing Financial Statements...............................................................9
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS AND FOUNDERS .........................................9
2.1 Making of Representations and Warranties........................................................9
2.2 Organization and Qualification; Capital Stock...................................................9
2.3 Authority......................................................................................10
2.4 Title to Properties; Liens; Condition of Properties............................................11
2.5 Financial Statements and Matters...............................................................12
2.6 Absence of Undisclosed Liabilities.............................................................12
2.7 Absence of Certain Developments................................................................12
2.8 Ordinary Course................................................................................13
2.9 Inventories....................................................................................13
2.10 Tax Matters....................................................................................13
2.11 Certain Contracts and Arrangements.............................................................14
2.12 Intellectual Property Rights...................................................................15
2.13 Litigation.....................................................................................16
2.14 Employee Benefit Plans.........................................................................16
2.15 Labor Laws.....................................................................................16
2.16 List of Certain Employees and Suppliers........................................................17
2.17 Hazardous Waste, Etc...........................................................................17
2.18 Business; Compliance with Laws.................................................................17
2.19 Investment Banking; Brokerage..................................................................17
2.20 Insurance......................................................................................17
2.21 Transactions with Affiliates...................................................................18
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
2.22 Customers and Distributors.....................................................................18
2.23 Disclosure.....................................................................................18
SECTION 3. COVENANTS OF SELLERS...........................................................................18
3.1 Making of Covenants and Agreements.............................................................18
3.2 Conduct of Business............................................................................18
3.3 Consummation of Agreement......................................................................19
3.4 Breach of Representations and Warranties.......................................................19
3.5 Non-Use of Trade Names, etc....................................................................20
3.6 Collection of Assets...........................................................................20
3.7 Required Permits...............................................................................20
3.8 Consents and Waivers...........................................................................20
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................21
4.1 Making of Representations and Warranties.......................................................21
4.2 Organization of Buyer..........................................................................21
4.3 Authority of Buyer.............................................................................21
4.4 Litigation.....................................................................................21
4.5 Finder's Fees..................................................................................22
4.6 Reliance.......................................................................................22
SECTION 5. CONDITIONS TO BUYER'S OBLIGATION...............................................................22
5.1 Representations; Warranties; Covenants.........................................................22
5.2 No Material Change.............................................................................22
5.3 Certificate from Officers......................................................................22
5.4 Approval of Buyer's Counsel....................................................................22
5.5 Escrow Agreement...............................................................................22
5.6 No Litigation..................................................................................22
5.7 Consents.......................................................................................23
5.8 Leases.........................................................................................23
5.9 Due Diligence..................................................................................23
5.10 Non-Competition Agreements.....................................................................23
5.11 Insurance......................................................................................23
SECTION 6. SURVIVAL OF WARRANTIES.........................................................................23
6.1 Survival of Warranties.........................................................................23
SECTION 7. INDEMNIFICATION................................................................................24
7.1 Indemnification by Sellers and Founders........................................................24
7.2 Indemnification by Buyer.......................................................................26
7.3 Notice; Defense of Claims......................................................................27
7.4 Sole Remedy....................................................................................28
7.5 Satisfaction of Indemnification Obligations....................................................28
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
7.6 Insurance Proceeds.............................................................................29
SECTION 8. MISCELLANEOUS..................................................................................29
8.1 Law Governing..................................................................................29
8.2 Notices........................................................................................29
8.3 Prior Agreements Superseded....................................................................30
8.4 Assignability..................................................................................30
8.5 Captions and Gender............................................................................30
8.6 Certain Definitions............................................................................30
8.7 Execution in Counterparts......................................................................30
8.8 Amendments; Waivers............................................................................31
8.9 Severability...................................................................................31
8.10 Publicity and Disclosures......................................................................31
8.11 Arbitration....................................................................................31
8.12 Expenses.......................................................................................31
8.13 Limitation on Liability........................................................................31
</TABLE>
(iii)
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibits
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<S> <C> <C>
Exhibit 1.3 - Form of Escrow Agreement
Exhibit 1.11 - Form of Non-Competition Agreement
Schedules
---------
Schedule 1.1(a)(i) - Intellectual Property Rights
Schedule 1.1(a)(ii) - Contracts
Schedule 1.1(a)(iii) - Certificates
Schedule 1.1(a)(v) - Equipment
Schedule 1.1(a)(vi) - Marketing Contracts
Schedule 1.1(b) - Excluded Assets
Schedule 1.2 - Assumed Liabilities
Schedule 1.8 - Allocation of Purchase Price
Schedule 1.11 - Individuals to enter into Non-Competition Agreements
Schedule 2.2 - Issued and Outstanding Capital Stock of each Seller;
Subsidiaries
Schedule 2.4 - Real Property
Schedule 2.5 - Financial Statements
Schedule 2.10 - Tax Matters
Schedule 2.11 - Certain Contracts and Arrangements
Schedule 2.12 - Intellectual Property
Schedule 2.13 - Litigation
Schedule 2.14 - Employee Benefit Plans
Schedule 2.15 - Labor Laws
Schedule 2.16 - List of Certain Employees and Suppliers
Schedule 2.18 - Changes in Laws; Required Permits
Schedule 2.19 - Investment Banking; Brokerage
Schedule 2.20 - Insurance
Schedule 2.21 - Transactions with Affiliates
Schedule 2.22 - Customers and Distributors
</TABLE>
(iv)
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of September 18, 1998 by and among
Natrol Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Natrol, Inc. ("Buyer"), Laci Le Beau Corporation, a California corporation
("Laci Le Beau"), Shay Lee Corporation, a California corporation ("Shay Lee"),
and Frederick L. Stine, Sam J. Roberson and Deborah L. Barnes (individually a
"Trustee" and collectively "Trustees"), as trustees of The Nutrition Products
Trust of 1995, an irrevocable trust formed under California law ("NPT") (NPT,
Laci Le Beau and Shay Lee are hereinafter referred to collectively as,
"Sellers"), and Earl Roberson and Helen Roberson (individually a "Founder" and
collectively "Founders").
W I T N E S S E T H
WHEREAS, Sellers are engaged in the business of developing,
formulating, manufacturing, marketing and distributing health foods and
nutritional and dietary supplement products (the "Laci Le Beau Business");
WHEREAS, subject to the terms and conditions hereof, the corporate
Sellers and the Trustees, who are the holders of all of the issued and
outstanding shares of capital stock of the corporate Sellers and the owners of
certain assets operated as part of the Laci Le Beau Business, desire to sell the
Laci Le Beau Business and certain of Sellers' properties and assets; and
WHEREAS, the Founders, as grantors and beneficiaries of NPT, desire to
facilitate the sale of the Laci Le Beau Business and said assets by making the
representations, warranties and agreements set forth herein; and
WHEREAS, subject to the terms and conditions hereof, Buyer desires to
purchase the Laci Le Beau Business and said assets of Sellers for the
consideration specified herein;
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets.
(a) Subject to the provisions of this Agreement, at the
Closing (as defined in Section 1.4 hereof) each Seller shall sell, transfer and
assign to Buyer and Buyer shall acquire all right, title and interest in and to
the Laci Le Beau Business together with certain of the properties and assets of
Sellers used or held in connection with the operation of the Laci Le Beau
Business (except as hereinafter provided in Section 1.1(b)), including without
limitation, the following assets of each Seller:
(i) all goodwill and intellectual property rights, including
trade secrets, proprietary information, designs, styles, technologies,
inventions, know-how, formulae, processes, procedures, research
records, test information, software and software documentation, source
and object code, algorithms, promotional materials, customer lists,
supplier and dealer lists, market surveys, marketing know-how and
manufacturing, research and technical information, trade names,
including but not limited to the names "Laci Le Beau," "Neal's Discount
Health Products," "Cottonwood Creek Foods," "Cottonwood Creek", "Shay
Lee," "La Jean Health Products," "Natural Products," "Nutrition
Products," "Super Dieter's Tea," "Super Dieter's," "Super Charge,"
"Mega Super Charge," "Powertime," "Diet Now," "Gingko 1000," "Slimmer
Now," "Serena Calm," "Friendly Flora," "Tummy Care," "Throat Care,"
"Heavenly Nights," "True Care," "Super Diet Now," "New Super Diet Now,"
"Peacetime," "Guarana Plus," and "Energi-2000" and all related and
associated logos and trademarks and all licenses to or from third
parties with respect thereto, copyrights and copyright registrations,
service marks and trademarks (including applications and registrations
therefor), patents and patent applications (including without
limitation the trade names, copyrights and copyright registrations,
service mark and trademark registrations and applications and patents
and patent applications described in Schedule 1.1(a)(i)), and all
licenses to or from third parties with respect to the foregoing or
rights related thereto, in each case which is used or held for use in
the Laci Le Beau Business, and all documentation and media
constituting, describing or relating to the foregoing, including
without limitation, manuals, memoranda and records, certificates of
registration for all registered trademarks and renewals thereof,
applications for trademark registration pending and other documentation
upon which Sellers rely in claiming title to the intellectual property
transferred hereby (collectively, the "Intellectual Property Rights");
(ii) all rights and interests in and to the orders,
commitments, contracts and agreements of the Laci Le Beau Business, all
of which are listed on Schedule 1.1(a)(ii) (the "Contracts");
(iii) all right, title and interest in and to all franchises,
licenses, permits, certifications, approvals and authorizations
relating to the Laci Le Beau Business all of which are listed on
Schedule 1.1(a)(iii) (the "Certificates");
(iv) all inventory, stock in trade, work-in-progress, finished
goods, product packaging and raw materials (collectively, the
"Inventory");
(v) all equipment, tools, spare parts, fixtures and other
tangible assets related to or used in connection with the Laci Le Beau
Business, all of which are listed on Schedule 1.1(a)(v) (collectively,
the "Equipment"); and
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(vi) all rights under contracts or agreements with
representatives marketing and selling the products and services of the
Laci Le Beau Business, all of which are listed on Schedule 1.1(a)(vi)
(collectively "Marketing Contracts");
(vii) all rights and benefits of Sellers in and to all
prepayments, deposits and refunds related to the Laci Le Beau Business
(including vendor or supplier incentives earned but not collected), all
third party warranties and guarantees relating to the Subject Assets,
and all indemnification rights against third parties related to the
Subject Assets;
(viii) copies in a computer readable form satisfactory to the
Buyer of customer lists, customer records and histories, customer
invoices, lists of suppliers and vendors and all records relating
thereto, market research information, advertising matter, catalogues,
photographs, sales materials, purchasing materials, media materials,
files, data, media materials and all records with respect to the Laci
Le Beau Business; and
(ix) all other assets and properties of every nature
whatsoever tangible and intangible, and wherever located, used or held
for use in connection with the Laci Le Beau Business.
The assets, property and business of Sellers being sold to and
purchased by Buyer under this Section 1.1(a) are hereinafter sometimes referred
to as the "Subject Assets."
(b) Notwithstanding the foregoing, there shall be excluded
from such purchase and sale the following property and assets of each Seller:
(i) all cash, bank deposits, bank accounts and accounts
receivable in existence as of the Closing Date (as defined in Section
1.4 hereof);
(ii) corporate franchise, stock record books, and corporate
record books containing minutes of meetings of directors and
stockholders (collectively, the "Corporate Records"); provided,
however, that each Seller shall make available to Buyer and its counsel
prior to the Closing true and correct copies of each of the foregoing;
(iii) original and paper copies of the documents listed above
in (a)(ix); provided, however, that each Seller shall (x) make such
documents available to Buyer or its accountants, counsel or other
representatives, after the Closing as reasonably required by the Buyer,
(y) maintain such documents for a period of at least five (5) years in
a reasonable fashion and (z) give Buyer not less than thirty (30) days
notice of any intention to dispose of any or all of such documents;
upon such notice, Buyer shall have the option to reproduce or take
delivery of any or all of such documents free and clear of any claim of
ownership by Sellers; and
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(iv) the limited license to use "Laci Le Beau" in the name of
Laci Le Beau Corporation; provided, that, such license shall (x) be
limited to use in connection with the Current Litigation as defined
below, (y) not extend to the conduct of any business and (z) cease upon
the later of the termination of the Current Litigation or July 23,
2000.
The assets, property and business of Sellers which are excluded from
the Subject Assets under this Section 1.1(b) are hereinafter sometimes referred
to as "Excluded Assets."
1.2 No Assumption of Any Liabilities or Obligations. Except as set
forth on Schedule 1.2, Buyer shall not assume or be bound by any obligations or
liabilities of Sellers or any affiliate of Sellers of any kind or nature, known,
unknown, accrued, absolute, contingent or otherwise, whatsoever (the
"Excluded Liabilities"). Consistent with the foregoing, and without limitation,
Sellers shall retain and be responsible for and shall pay, as the same are
incurred, any and all losses, damages, obligations, liens, assessments,
judgments, fines, costs and expenses, liabilities and claims, including, without
limitation, interest, penalties and reasonable fees of counsel and experts of
every kind or nature whatsoever, made by or owed to any person to the extent any
of the foregoing relates to (i) the Laci Le Beau Business or (ii) the Excluded
Assets which arise in connection with or on the basis of events, acts,
circumstances, omissions, conditions or any other state of facts occurring or in
existence on or prior to the Closing (including, without limitation, any Claim
relating to or associated with product liability or warranty matters,
environmental matters, tax matters, employee, labor and union matters, pension
and benefits matters, any failure to comply with applicable laws and/or
permitting or licensing requirements, any failure to manufacture, test and
certify products in accordance with applicable law, personal injury and property
damage matters and worker health and safety matters and the litigation described
in Schedule 2.13, including any amended pleadings or any action, suit or
proceeding brought in any court or tribunal by the same or related claimants,
based on the same or similar set of facts as those alleged in such litigation
(the "Current Litigation") (all of the foregoing described in this Section 1.2
being a "Claim" or the "Claims"). Consistent with the foregoing, each Seller
agrees as provided in Section 7 of this Agreement to indemnify and hold Buyer
and its affiliates harmless from and against any and all Claims that Sellers are
responsible for as described in this Section 1.2.
1.3 Purchase Price and Payment; Adjustments.
(a) In consideration of the sale by Sellers to Buyer of the
Subject Assets, subject to the satisfaction of all of the conditions contained
herein, Buyer agrees that at the Closing (i) it will deliver to Sellers the Cash
Payment Amount (as defined below) by bank cashiers check or by wire transfer of
immediately available funds to such account(s) as Sellers shall have indicated
in writing to Buyer not less than three (3) business days prior to the date of
Closing, and (ii) it will deliver to an escrow agent (the "Escrow Agent"), as
designated in an escrow agreement by and among Buyer, Sellers and the Escrow
Agent, substantially in the form attached hereto as Exhibit 1.3 (the "Escrow
Agreement"), two hundred fifty thousand dollars ($250,000) (the "Escrow
Amount"), to be held by the Escrow Agent pursuant to and
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in accordance with the terms of the Escrow Agreement for purposes of
indemnification claims under Section 7.1 hereof. The Cash Payment Amount shall
equal seven million two hundred fifty thousand ($7,250,000) less the Inventory
Adjustment Amount (as calculated in the manner described below), if any.
(b) Buyer and/or its representatives, in the presence of
Sellers and/or their representatives, shall conduct a physical count and
valuation of the Inventory. Such physical count shall take place at a time
mutually agreed upon by the parties, prior to the Closing Date. Such valuation
shall be conducted in accordance with generally accepted accounting principles
on a basis consistent with that historically used in the Laci Le Beau Business,
provided that: (i) inventory will be valued at cost; (ii) only finished goods
with an expiration date of at least one year following the Closing Date will be
valued; (iii) only raw materials with a shelf life of two years or more will be
valued; and (iv) packaging materials that do not meet current product labeling
standards will not be valued. The results of the physical count and valuation
shall be reported in writing to Sellers promptly following completion and, in
any event, prior to the Closing, and shall, in the absence of manifest error, be
final and binding on the parties. In the event that such valuation reflects that
the Inventory value is less than $2,145,075, then the Inventory Adjustment
Amount shall equal the difference between $2,319,000 and the Inventory value.
1.4 Place of Closing; Closing Date. The closing of the purchase and
sale provided for in this Agreement (the "Closing") shall be held at the offices
of the Buyer at 21411 Prairie Street, Chatsworth, CA 91311, on or about
September 30, 1998, or at such other place or earlier or later date as may be
fixed by mutual agreement of Buyer and Sellers (the "Closing Date").
1.5 Transfer of Subject Assets. At the Closing, Sellers shall deliver
or cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all of the Subject Assets. Such instruments of
transfer (a) shall be in the form which is usual and customary for transferring
the type of property involved under the laws of the jurisdictions applicable to
such transfers, (b) shall be in form and substance satisfactory to Buyer and its
counsel, (c) shall effectively vest in Buyer good title to all of the Subject
Assets free and clear of all mortgages, pledges, security interests, charges,
liens, restrictions and encumbrances of any kind, except for liens for taxes not
yet due and payable (collectively, "Liens"), and (d) where applicable, shall be
accompanied by evidence of the discharge of all liens and encumbrances against
the Subject Assets.
1.6 Delivery of Records and Contracts. At the Closing, each Seller
shall deliver or cause to be delivered to Buyer all of the Contracts. Each
Seller shall also deliver to Buyer at the Closing, all of such Seller's business
records, books and other data relating to the assets, business and operations of
the Laci Le Beau Business, to the extent the same constitute part of the Subject
Assets.
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1.7 Further Assurances. Each Seller from time to time after the Closing
at the request of Buyer and without further consideration shall (a) execute and
deliver further instruments of transfer and assignment (in addition to those
delivered under Section 1.5) and take such other actions as Buyer may reasonably
require to more effectively transfer and assign to, and vest in, Buyer each of
the Subject Assets; (b) cooperate with and provide assistance to Buyer in taking
possession of the Subject Assets; and (c) cooperate with and assist Buyer in
applying for registration of any unregistered Intellectual Property.
1.8 Allocation of Purchase Price. The purchase price payable by Buyer
pursuant to Section 1.3 shall represent payment for the Subject Assets in the
amounts set forth on Schedule 1.8 hereto. The amounts reflected in said Schedule
shall represent the fair market values of the Subject Assets at the Closing, to
the best of the knowledge and belief of the parties hereto. At or as soon as
practicable after the Closing, Buyer and Sellers shall execute an IRS Form 8594
in accordance with the allocation set forth in said Schedule and in compliance
with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the rules and regulations thereunder. All tax returns and reports filed by
Buyer and Sellers with respect to the transactions contemplated by this
Agreement shall be consistent with such Schedule.
1.9 Employees, Wages and Benefits.
(a) Sellers shall terminate all employees of the Laci Le Beau
Business and shall be responsible for making all severance payments to such
employees to which such employees may be entitled in respect of such
terminations. Buyer shall not assume or have any obligations or liabilities with
respect to such employees or such terminations.
(b) Buyer specifically reserves to itself the right to employ
or reject any of Sellers' employees or other applicants in its sole and absolute
discretion. Each Seller acknowledges and agrees that Buyer may interview and
discuss employment terms and issues with its employees. Nothing in this
Agreement shall be construed as a commitment or obligation of Buyer to accept
for employment, or otherwise continue the employment of, any of Sellers'
employees.
(c) Each Seller shall pay all wages, salaries, commissions,
and the cost of all fringe benefits, including accrued vacation pay to the
Closing Date, to which each employee of the Laci Le Beau Business employed by it
shall be entitled which shall have become due by reason of his or her employment
through the day on which such employee is terminated, and such Seller shall
collect and pay all taxes in respect of such wages, salaries, commissions and
benefits.
(d) Each Seller acknowledges and agrees that Buyer is not
assuming and shall not have any obligations or liabilities under, any benefit
plan maintained by or for the benefit of employees of, the Laci Le Beau
Business, including without limitation obligations for severance pay benefits or
vacation pay for vacation time accrued but not taken as of the Closing Date.
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1.10 Leases. As a material inducement to and a condition precedent to
this Agreement on the part of the Buyer, (i) Sellers and Founders will cause to
be executed and delivered at the Closing (a) a Lease between The Earl J. and
Helen J. Roberson Trust of 1995, a California trust, as Landlord, and the Buyer,
as tenant, for space at 5533/5539 W. San Madele, Fresno, California and
5658/5670 W. San Madele, Fresno, California in the form mutually satisfactory to
the parties and (b) a Lease between NPT as Landlord, and Buyer as tenant, for
space at 5560 W. San Madele, Fresno, California, and (ii) Sellers will obtain
prior to the Closing, the consent, in a form reasonably satisfactory to Buyer,
of each landlord or lessor under the following leases: (a) Lease between Jack
Papazian as Landlord, and Laci Le Beau as Tenant, for space at 3350 West Sussex,
Fresno, California, and (b) Lease between W.A. Wontel, as Landlord, and the Laci
Le Beau as Tenant, for the space at 5464 North Mission, Fresno, California. Such
transfer of leased real property to Buyer shall not give any landlord or lessor
under any of such leases any remedy, including without limitation, any right to
declare a default under any lease.
1.11 Non-competition Agreements. As a material inducement to and a
condition precedent to this Agreement on the part of the Buyer, the Sellers
shall each enter into and shall use their best efforts to cause Earl Roberson,
Helen Roberson and Frederick L. Stine to enter into, and shall deliver to Buyer
at the Closing Non-Competition Agreements in the form attached hereto as Exhibit
1.11 (the "Non-Competition Agreements").
1.12 Customer Returns. If a customer of the Laci Le Beau Business makes
a bona fide claim for the return of any product sold by the Sellers on or before
the Closing Date and either the replacement of such product or a refund of the
purchase price of such product, and such claim is based upon any matter other
than the willful action or inaction of the Buyer or a change by Buyer in
Sellers' policies concerning the returned product, then Buyer may at its option
either: (i) replace such product; or (ii) credit to such customer's account an
amount up to the purchase price thereof.
(a) During the first six month period following the Closing Date, the
cost of any such customer returns will be dealt with as follows:
(i) in the event Buyer has replaced the returned product,
Buyer will invoice Seller, and Seller will promptly pay, an amount
equal to the difference between: (a) Buyer's selling price of the
replacement product plus the cost of packing and shipping, if any, and
(b) if the product returned to the Buyer is reasonably determined by
the Buyer, in the exercise of its reasonable discretion consistent with
its quality control and customer returns policies, to be good and
saleable, the value of such product determined at its original cost
(the "Salvage Value"); or
(ii) in the event Buyer has issued a credit to such customer's
account, Buyer will notify Sellers of the amount of such credit and
Sellers will allow such credit against any outstanding account
receivable of such customer retained by Sellers as an Excluded Asset.
In such case, Buyer will promptly remit to Seller the Salvage Value, if
any, of
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the returned product. If such customer has no outstanding account
receivable with Sellers, or if the account receivable of such customer
is insufficient to absorb the full amount of credit issued by Buyer,
Sellers will notify Buyer as to the amount of such credit Buyer must
grant such customer on Buyer's books, and shall promptly remit to
Buyer an amount necessary to make the Buyer whole for issuing such
credit on its books, less the Salvage Value, if any.
(b) During the second six month period following the Closing Date, the
cost of customer returns will be determined and paid in the same manner as
provided in Section 1.12 (a) (i) and (ii), except that the Buyer will not be
entitled to invoice the Sellers for any amount with respect to customer returns
during such six month period unless the aggregate of all such customer returns
costs together with other Claims of the Buyer as provided for in Section
7.1(b)(i) exceeds the $25,000 threshold in Section 7.1(b)(i).
The Sellers shall have the right, upon reasonable notice, to inspect any product
returned to the Buyer.
1.13 Current Litigation and Insurance Arrangements.
(a) In connection with any proceeding that is part of the
Current Litigation, Sellers agree that in addition to any other agreement set
forth herein, they will: (i) maintain the corporate existence of any named
defendant in the Current Litigation controlled by any of them in such manner as
to provide a defense to any claim of successor liability of the Buyer for the
Current Litigation; (ii) so long as any aspect of the Current Litigation is
pending, continue to vigorously defend such litigation, including providing a
defense to the Buyer in any effort to join the Buyer in such litigation as
successor to any Seller; and (iii) in the event any settlement is reached with
respect to the Current Litigation, cause any release obtained from any plaintiff
to extend to the Buyer.
(b) Sellers have and will maintain until at least July 23,
2000, product liability insurance on an occurrence basis and providing coverage
in an amount not less than $5,000,000 in the aggregate for claims based on
products sold by the Laci Le Beau Business prior to the Closing Date (the
"Insurance Policy"). The Insurance Policy shall (i) name Buyer as an additional
insured thereunder and (ii) if applicable, contain a loss payable clause or
endorsement, reasonably satisfactory in form and substance to Buyer, that names
Buyer as the loss payee thereunder for any covered loss, to the extent of its
interest. The Insurance Policy shall not be amended, modified or canceled
without the consent of Buyer.
1.14 Consulting Arrrangements. As a material inducement to Buyer to
enter into this Agreement, both Frederick L. Stine and Earl Roberson hereby
agree to provide to Buyer for 90 days after the Closing Date, consulting
services consistent with the working time, attention, skill and energies devoted
by such individuals to the Laci Le Beau Business in the year prior to the
Closing Date.
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1.15 Post-Closing Financial Statements. Sellers shall deliver to Buyer
by no later than October 15, 1998, an unaudited combined balance sheet of
Sellers reflecting the Laci Le Beau Business as a whole as of September 30, 1998
and combined statements of income, retained earnings and cash flows of Sellers
for the same period, with appropriate footnotes (collectively, the "Post-Closing
Financial Statements"). Such Financial Statements shall take into account the
physical count and valuation of the Inventory described in Section 1.3 hereof
and otherwise shall be prepared in conformity with generally accepted accounting
principles applied on a consistent basis, will be complete, correct and
consistent in all material respects with the books and records of Sellers and
will fairly and accurately present the financial position of Sellers as of such
date and the results of operations and cash flows of Sellers for the periods
shown therein.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS AND FOUNDERS
2.1 Making of Representations and Warranties. Each of Sellers and each
of the Founders jointly and severally hereby make to Buyer the representations
and warranties contained in this Section 2, provided that the representations
and warranties of the Trustees are subject to the provisions of Section 8.13
hereof. For the purposes of this Section 2, references to the "knowledge" or
"best knowledge" of any Seller shall be deemed to include such knowledge as any
executive officer of such Seller actually has or reasonably ought to have in the
prudent exercise of his or her duties.
2.2 Organization and Qualification; Capital Stock. Each Seller (other
than the Trustees) is a corporation duly organized, validly existing and in good
standing under the laws of the State of California with full power and authority
to own or lease its properties and to conduct its business in the manner and in
the places where such properties are owned or leased or such business is
conducted by it. Each Seller (other than NPT) is qualified to do business as a
foreign corporation in any jurisdiction in which such qualification is
necessary, except where the failure to be so qualified would not have a material
adverse effect on such Seller or the Laci Le Beau Business. All of the issued
and outstanding capital stock of each Seller (other than NPT) is owned
beneficially and of record as set forth in Schedule 2.2, free and clear of any
lien, restrictions or encumbrances, and there are no outstanding options,
warrants, rights, commitments, pre-emptive rights or agreements of any kind for
the issuance or sale of, or outstanding securities convertible into, any
additional shares of capital stock of any class of such Seller. NPT is a trust
formed under the laws of the State of California with full power and authority
to own or lease its properties and to conduct its business in the manner and in
the places where such properties are owned or leased or such business is
conducted by it.
Except as set forth in Schedule 2.2, no Seller has any subsidiaries or
own any securities issued by any other business organization or governmental
authority or any direct or indirect interest in or control over any corporation,
partnership, joint venture or entity of any kind relating to the business
conducted by Sellers.
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2.3 Authority.
(a) Each Seller (other than NPT) has full corporate power and
authority to execute, deliver and perform this Agreement and each other
agreement or instrument contemplated hereby and the execution and delivery of
this Agreement and each other agreement or instrument contemplated hereby and
the performance of all obligations hereunder and thereunder have been duly
authorized by all necessary action of such Seller. This Agreement and each other
agreement, document and instrument executed by each Seller pursuant to or in
connection with this Agreement constitutes, or when executed and delivered will
constitute, the valid and binding obligation of such Seller, enforceable in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other rights affecting creditors' rights generally,
and general equitable principles. The execution, delivery and performance by
each Seller of this Agreement and each other agreement, document and instrument
contemplated hereby:
(i) do not and will not violate any provision of the Articles
of Incorporation or By-laws of such Seller, each as amended or restated
to date;
(ii) do not and will not violate any law or regulation
applicable to such Seller or require such Seller to obtain any
approval, authorization, declaration, consent or waiver of, or make any
filing with or give notice to, any person, entity or public or
governmental authority that has not been obtained, made or given; and
(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under, require a consent under
or give rise to a right of termination of any indenture or loan or
credit agreement or any other agreement, contract, instrument,
mortgage, lien, lease, permit, license, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to
which such Seller is a party or by which such Seller or its property is
bound or affected, or result in the creation or imposition of any Lien
on any of the Subject Assets.
(b) The Trustees and each Founder in each case have the full right,
authority, power and capacity to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of them or
it pursuant to or contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby. This Agreement and each agreement,
document and instrument executed and delivered by the Trustees and each Founder
pursuant to or contemplated by this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of such Trustees or
such Founder, as the case may be, enforceable in accordance with their
respective terms, except as the same may be limited by bankruptcy, insolvency or
reorganization laws, or other laws relating to or affecting the availability of
the remedy of specific performance or equitable principles of general
application. The execution, delivery and performance by each Trustee and each
Founder of this Agreement and each such agreement, document and instrument:
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(i) do not and will not violate any laws of the United States
or any state or other jurisdiction applicable to such Trustee or such
Founder, as the case may be, or require such Trustee or such Founder,
as the case may be, to obtain any approval, consent or waiver of, or
make any filing with, any person or entity (governmental or otherwise)
that has not been obtained, made or given; and
(ii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right
of termination of any indenture or loan or credit agreement or any
other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which such Trustee or such Founder, as the case
may be, is a party or by which the property of such Trustee or such
Founder, as the case may be, is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the Subject Assets.
2.4 Title to Properties; Liens; Condition of Properties.
(a) The Subject Assets do not include any real property.
Schedule 2.4 sets forth the addresses and uses of all real property that each
Seller leases or subleases. Sellers own all of the Subject Assets and Sellers
have and are conveying to Buyer hereunder good title to all of their personal
property, tangible and intangible, included in the Subject Assets. None of
such property or assets of Sellers, tangible or intangible, is subject to any
Lien. No financing statement under the Uniform Commercial Code with respect to
any of the Subject Assets is active in any jurisdiction, and no Seller has
signed any such active financing statement or any security agreement authorizing
any secured party thereunder to file any such financing statement. The Subject
Assets and the Excluded Assets listed on Schedule 1.1(b) are all of the assets
used in the operation of the Laci Le Beau Business as the same has been operated
prior to the date hereof. The Subject Assets (i) are in working order
(reasonable wear and tear excepted), (ii) have been and shall through the
Closing be maintained in a manner consistent with the past maintenance practices
of Sellers, and (iii) to the best knowledge of each Seller, conform with all
applicable state and federal statutes, ordinances, regulations and laws.
(b) Upon delivery to Buyer of the instruments of transfer
referred to in Section 1.5 hereof, Buyer will receive good and valid title to
all of the Subject Assets, free and clear of all Liens.
(c) All leases of real or personal property to which any
Seller is a party are fully effective and afford such Seller peaceful and
undisturbed possession of the subject matter of the lease. To its best
knowledge, no Seller is in violation of any zoning, building or safety
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its leased or subleased properties, which violation would have
a material adverse effect on the assets, liabilities, financial condition,
business, results of operations or prospects of such Seller, nor has it received
any notice of any such violation. There are no defaults by any Seller
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or to the best knowledge of any Seller, by any other party, which might curtail
in any material respect the present use of such Seller's property. The
performance by Sellers of this Agreement will not result in the termination of,
or in any increase of any amounts payable under, any lease listed on Schedule
2.4.
2.5 Financial Statements and Matters. Sellers have delivered to Buyer
the following financial statements, copies of which are attached hereto as
Schedule 2.5:
(a) (i) combined balance sheets of Sellers reflecting the Laci
Le Beau Business as a whole for annual periods ending on December 31, 1996 and
December 31, 1997 and (ii) combined statements of income, retained earnings and
cash flows of Sellers for the same periods, with appropriate footnotes.
(b) an unaudited combined balance sheet of Sellers reflecting
the Laci Le Beau Business as a whole as of June 30, 1998 (herein the "Base
Balance Sheet") and combined statements of income, retained earnings and cash
flows of Sellers for the same period, with appropriate footnotes, certified by
Sellers' chief financial officer.
Such financial statements referred to in Section 2.5 were prepared in conformity
with generally accepted accounting principles applied on a consistent basis, are
complete, correct and consistent in all material respects with the books and
records of Sellers and fairly and accurately present the financial position of
Sellers as of the dates thereof and the results of operations and cash flows of
Sellers for the periods shown therein.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Base Balance Sheet, no Seller, to the best
of Sellers' knowledge, has or is subject to any material liability or obligation
of any nature, whether accrued, absolute, contingent or otherwise.
2.7 Absence of Certain Developments. Since the date of the Base Balance
Sheet, there has not been any: (i) material adverse change in the financial
condition of any Seller or in the assets, liabilities, condition (financial or
other), business, results of operations or prospects of any Seller or the Laci
Le Beau Business, (ii) declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of any Seller, (iii) waiver of any
material right of any Seller or cancellation of any material debt or claim held
by any Seller which would affect the Laci Le Beau Business or the Subject
Assets, (iv) loss, destruction or damage to any property which is material to
the assets, liabilities, properties, business or prospects of any Seller,
whether or not insured, (v) acquisition or disposition of any assets or other
transaction by any Seller other than in the ordinary course of business, (vi)
transaction or agreement involving any Seller and any officer, director,
employee or shareholder of any Seller, (vii) material increase, direct or
indirect, in the compensation paid or payable to any officer, director, employee
or agent of any Seller or any establishment or creation of any material
employment or severance agreement or employee benefit plan, (viii) material loss
of personnel of any
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Seller, material change in the terms and conditions of the employment of any
Seller's key personnel or any labor trouble involving any Seller, (ix)
arrangements relating to any royalty, dividend or similar payment based on the
sales volume of any Seller, whether as part of the terms of such Seller's
capital stock or by any separate agreement, (x) material agreement with respect
to the endorsement of any Seller's products, (xi) loss or any development that
could result in a loss of any significant customer, account or employee of any
Seller, (xii) incurrence of material indebtedness or lien, (xiii) transaction
not occurring in the ordinary course of business, or (xiv) any agreement with
respect to any of the foregoing actions.
2.8 Ordinary Course. Since the date of the Base Balance Sheet, each
Seller has conducted the Laci Le Beau Business only in the ordinary course and
consistent with its prior practices.
2.9 Inventories. Each Seller's inventory items are of a quality and
quantity salable in the ordinary course of its business and such Seller
maintains adequate inventory reserves. The inventories stated in the Base
Balance Sheet reflect the normal inventory valuation policies of such Seller and
are based on and consistent with such Seller's inventory records, and in the
reasonable judgment of such Seller are properly valued. Since the date of the
Base Balance Sheet, no inventory items have been sold or disposed of except
through sales in the ordinary course of business, on the whole, at profit
margins consistent with the Sellers' experience in prior years.
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached hereto,
each Seller has filed all federal, state, local and foreign income, excise and
franchise tax returns, real estate and personal property tax returns, sales and
use tax returns and other tax returns required to be filed by it where the
failure to file such returns would have a material adverse effect on the assets,
liabilities, financial condition, business, results of operations or prospects
of such Seller and has paid all taxes owing by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5 above or which
will not have a material adverse effect on the assets, liabilities, financial
condition, business, results of operations or prospects of such Seller. The
provision for taxes on the Base Balance Sheet is sufficient as of its date for
the payment of all accrued and unpaid federal, state, county and local taxes of
any nature of each Seller, and any applicable taxes owing to any foreign
jurisdiction, whether or not assessed or disputed. All taxes and other
assessments and levies which each Seller is required to withhold or collect have
been withheld and collected and have been paid over to the proper governmental
authorities except where the failure to withhold or collect and pay over would
not have a material adverse effect on the assets, liabilities, financial
condition, business, results of operations or prospects of such Seller. With
regard to the federal income tax returns of each Seller, except as set forth on
Schedule 2.10, no Seller has ever received notice of any audit or of any
proposed deficiencies from the Internal Revenue Service (the "IRS"). There are
in effect no waivers of applicable statutes of limitations with respect to any
taxes owed by any Seller for any year. Neither the IRS nor any other taxing
authority is now asserting or, to
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the best knowledge of any Seller, threatening to assert against any Seller any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith.
2.11 Certain Contracts and Arrangements. Except as set forth in
Schedule 2.11 hereto (with true and correct copies delivered to the Buyer), no
Seller is a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining
or the like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation
of any Seller to pay to any third party $25,000 or more with respect to any
single such contract or agreement;
(c) any contract or agreement for the sale, license, lease or
disposition of products in excess of $50,000;
(d) any contract containing covenants directly or explicitly
limiting the freedom of any Seller to compete in any line of business or with
any person or entity;
(e) any material license agreement (as licensor or licensee);
(f) any contract or agreement for the purchase of any
leasehold improvements, equipment or fixed assets for a price in excess of
$50,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $50,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any material endorsement or any other material
advertising, promotional or marketing agreement;
(j) any material employment contracts, or material agreements
with officers, directors, employees or shareholders of any Seller or persons or
organizations related to or affiliated with any such persons;
(k) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of any Seller, including
without limitation any agreement with any shareholder of any Seller which
includes without limitation, anti-dilution rights, registration rights, voting
arrangements, operating covenants or similar provisions;
(l) any pension, profit sharing, retirement or stock options
plans;
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(m) any royalty, dividend or similar arrangement based on the
sales volume of any Seller;
(n) any acquisition, merger or similar agreement;
(o) any material contract with a governmental body under which
any Seller may have an obligation for renegotiation;
(p) any agreement with any shareholder of any Seller or any
affiliate of any shareholder; or
(q) any other material contract not executed in the ordinary
course of business.
All of Sellers' contracts and commitments are in full force and effect
and no Seller, or, to the knowledge of Sellers, any other party is in default
thereunder (or, to the knowledge of Sellers, has any event occurred which with
notice, lapse of time or both would constitute a default thereunder), except to
the extent that any such default would not have a material adverse effect on the
assets, liabilities, financial condition, business, results of operations or
prospects of any Seller, and no Seller has received notice of any alleged
default under any such contract, agreement, understanding or commitment.
2.12 Intellectual Property Rights.
(a) Set forth on Schedule 2.12 is a list, including the name
of the registered owner, the applicant, or owner/user, as the case may be, and
brief description of (i) all registered trademarks owned by Sellers used in the
Laci Le Beau Business, (ii) all trademarks for which Sellers have made
applications for registration used in the Laci Le Beau Business, and (iii) any
trademarks in use by Sellers for which no registration has been applied for used
in the Laci Le Beau Business. Sellers have exclusive ownership of, with the
exclusive right to use, sell, license, dispose of, and bring actions for
infringement of, the trademarks set forth on Schedule 2.12.
(b) To its actual knowledge, each Seller has exclusive
ownership of or an enforceable right to use and bring actions for infringement
in connection with all Intellectual Property Rights used to conduct such
Seller's business as presently conducted, including without limitation, the
trademarks and tradenames set forth on Schedule 1.1(a)(i).
(c) The use of the Intellectual Property Rights and, to
Sellers' knowledge, the business of each Seller as presently conducted and the
manufacturing and marketing of the products of the such Seller, do not violate
any agreements which such Seller has with any third party or infringe any
patent, trademark, copyright or trade secret or, any other Intellectual Property
Rights of any third party.
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(d) No claim is pending or, to the best knowledge of Sellers,
threatened against any Seller nor has any Seller received any notice or claim
from any person asserting that any of Sellers' present or contemplated
activities infringe or may infringe any Intellectual Property Rights of such
person, and no Seller is aware of any infringement by any other person of any
rights of Sellers under any Intellectual Property Rights.
Schedule 1.1(a)(i) contains a list and brief description of all
Intellectual Property Rights owned by or registered in the name of any Seller or
of which any Seller is the licensor or a licensee of a material right or in
which any Seller has any material right.
2.13 Litigation. Except as set forth in Schedule 2.13, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of Sellers and Founders threatened against any Seller or affecting any
of its properties or assets, products sold or advertised for sale by Sellers or
against any officer, director or key employee of such Seller in his or her
capacity as an officer, director or employee of such Seller, which litigation,
proceeding or investigation is reasonably likely to have a material adverse
effect on the assets, liabilities, financial condition, business, results of
operations or prospects of such Seller, or which may call into question the
validity or hinder the enforceability of this Agreement or any other agreements
or transactions contemplated hereby; nor to the best knowledge of such Seller
has there occurred any event nor does there exist any condition on the basis of
which any such litigation, proceeding or investigation might be properly
instituted or commenced.
2.14 Employee Benefit Plans. No Seller maintains or contributes to any
employee benefit plan, stock option, bonus or incentive plan, severance pay
policy or agreement, deferred compensation agreement, or any similar plan or
agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans
identified in Schedule 2.14. The terms and operation of each Employee Benefit
Plan comply in all material respects with all applicable laws and regulations
relating to such Employee Benefit Plans. There are no unfunded obligations of
any Seller under any retirement, pension, profit-sharing, deferred compensation
plan or similar program. No Seller is required to make any payments or
contributions to any Employee Benefit Plan pursuant to any collective bargaining
agreement or, to the knowledge of Sellers, any applicable labor relations law.
Except as set forth in Schedule 2.14, no Seller has ever maintained or
contributed to any Employee Benefit Plan providing or promising any health or
other nonpension benefits to terminated employees.
2.15 Labor Laws. Sellers, in the aggregate, employ 18 full-time
employees and two part-time employees and each Seller generally enjoys good
employer-employee relationships. No Seller is delinquent in payments to any of
its employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it as of the date hereof or amounts
required to be reimbursed to such employees. To its actual knowledge, except as
set forth in Schedule 2.15, each Seller is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, terms and conditions of employment, and wages and
hours. There are no charges of employment discrimination or unfair labor
practices or strikes, slowdowns, stoppages of work
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or any other concerted interference with normal operations existing, pending or,
to the best knowledge of Sellers, threatened against or involving any Seller.
2.16 List of Certain Employees and Suppliers. Schedule 2.16(a) contains
a list of all managers, employees and consultants of each Seller who,
individually, have received compensation from such Seller for the last two
fiscal years of such Seller in excess of $75,000. In each case such Schedule
includes the current job title and aggregate annual compensation of each such
individual. Schedule 2.16(b) sets forth a list of all suppliers of each Seller
to whom during the last two fiscal years such Seller made payments aggregating
$50,000 or more, showing, with respect to each, the name, address and dollar
volume involved. To the knowledge of Sellers, no supplier has any plan or
intention to terminate or reduce its business with any Seller or to materially
and adversely modify its relationship with any Seller.
2.17 Hazardous Waste, Etc. To the knowledge of Sellers, no hazardous
wastes, substances or materials or oil or petroleum products have been
generated, transported, used, disposed, stored or treated by any Seller and no
hazardous wastes, substances or materials, or oil or petroleum products have
been released, discharged, disposed, transported, placed or otherwise caused to
enter the soil or water in, under or upon any real property owned, leased or
operated by any Seller.
2.18 Business; Compliance with Laws. Each Seller has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently or
contemplated to be conducted. Each Seller is, and for the past five (5) years
has been, in compliance in all material respects with all laws and regulations
administered by or promulgated by the Federal Trade Commission and the Food and
Drug Administration and, to the actual knowledge of Sellers, such Seller, is and
for the past five (5) years has been in compliance with all other federal,
state, local and foreign laws and regulations. Except as disclosed in Schedule
2.18, no Seller is aware of any changes or proposed changes in such laws or
regulations which would, with the passage of time, result in the Laci Le Beau
Business not being in compliance with such laws or regulations.
Set forth on Schedule 2.18 is a list of all franchises, permits,
licenses, and other rights and privileges which are necessary for Buyer to
continue to conduct the Laci Le Beau Business as it is presently or contemplated
to be conducted (collectively, the "Required Permits").
2.19 Investment Banking; Brokerage. Except as set forth on Schedule
2.19, there are no claims for investment banking fees, brokerage commissions,
finder's fees or similar compensation (exclusive of professional fees to lawyers
and accountants) in connection with the transactions contemplated by this
Agreement payable by any Seller or based on any arrangement or agreement made by
or on behalf of any Seller.
2.20 Insurance. Each Seller has fire, casualty, product liability and
business interruption and other insurance policies, with extended coverage,
which Sellers and Founder believe are sufficient in amount to allow them to
replace any of its material properties which
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might be damaged or destroyed or sufficient to cover liabilities to which each
of them may reasonably become subject, subject to the limitations set forth in
Schedule 2.20. To Sellers' knowledge, there is no default or event which could
give rise to a default under any such policy.
2.21 Transactions with Affiliates. Except as set forth on Schedule
2.21, there are no loans, leases, contracts or other transactions between any
Seller and any officer, director or stockholder of any Seller or any family
member or affiliate of the foregoing persons.
2.22 Customers and Distributors. Schedule 2.22 sets forth (i) each
representative and distributor of each Seller at the date hereof (whether
pursuant to a commission, royalty or other arrangement), and each customer,
distributor and/or broker of each Seller who accounted for more than 5% of the
sales of such Seller for the twelve (12) months ended August 31, 1998 and August
31, 1997 (collectively, the "Customers, Distributors and Brokers"); and (ii) the
dollar amount of commissions paid to each broker of Sellers during the twelve
(12) months ended August 31, 1998. The relationships of each Seller with its
Customers, Distributors, and Brokers are generally good commercial working
relationships. Except as set forth in Schedule 2.22, no Customer, Distributor or
Broker of any Seller has canceled or otherwise terminated its relationship with
such Seller, or has during the last twelve months decreased materially its
services, supplies or materials to such Seller or its usage or purchases of the
services or products of such Seller. No Customer, Distributor or Broker has, to
the knowledge of Sellers, any plan or intention to terminate, to cancel or
otherwise materially and adversely modify its relationship with any Seller or to
decrease materially or limit its services, supplies or materials to any Seller
or its usage, purchase or distribution of the services or products of any
Seller.
2.23 Disclosure. The representations and warranties made or contained
in this Agreement and the schedules hereto when taken together, do not and shall
not contain any untrue statement of a material fact and do not and shall not
omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or other material not misleading
in light of the circumstances in which they were made or delivered. To the best
knowledge of the Sellers and Founders, there have been no events or
transactions, or information which has come to the attention of the management
of any Seller, having a direct impact on any Seller or its assets, liabilities,
financial condition, business, results of operations or prospects which, in the
reasonable judgment of such management, could be expected to have a material
adverse effect on the assets, liabilities, financial condition, business,
results of operations or prospects of such Seller.
SECTION 3. COVENANTS OF SELLERS.
3.1 Making of Covenants and Agreements. Each Seller and each Founder
hereby covenant and agree as set forth in this Section 3.
3.2 Conduct of Business. Between the date of this Agreement and the
Closing Date, Sellers will, unless otherwise agreed by Buyer:
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(a) Conduct the Laci Le Beau Business only in the ordinary
course and refrain from changing or introducing any method of management or
operations except in the ordinary course of business and consistent with prior
practices;
(b) Refrain from making any purchase, sale, lease or
disposition of any product, asset or property other than in the ordinary course
of business, from purchasing any capital asset costing more than $10,000 and
from mortgaging, pledging, subjecting to a lien or otherwise encumbering any of
their properties or assets other than in the ordinary course of business;
(c) Refrain from making any change in the compensation payable
or to become payable to any of Sellers' officers, employees, agents or
independent contractors other than increases in the ordinary course of business
consistent with past practices, or granting any severance or termination pay to,
or entering into or amending any employment, severance or other agreement or
arrangement with, any of Sellers' directors, officers, independent contractors
or employees;
(d) Refrain from modifying, amending or terminating any of
their contracts except in the ordinary course of business, or waiving, releasing
or assigning any material rights or claims;
(e) Use commercially reasonable efforts to prevent any change
with respect to its management and to keep intact Sellers' business
organization, to keep available their present officers, employees and
independent contractors and to preserve the goodwill of all suppliers,
customers, independent contractors and others having business relations with
Sellers and refrain from amending any independent contract agreement except as
Buyer may otherwise consent;
(f) Permit Buyer and its authorized representatives to have
full access to all its properties, assets, records, tax returns, contracts and
documents and furnish to Buyer or its authorized representatives such financial
and other information with respect to its business or properties as Buyer may
from time to time reasonably request;
3.3 Consummation of Agreement. Sellers and Founders shall use their
respective best efforts to perform and fulfill all conditions and obligations on
their parts to be performed and fulfilled under this Agreement, to the end that
the transactions contemplated by this Agreement shall be fully carried out.
3.4 Breach of Representations and Warranties. Promptly upon the
occurrence of, or promptly upon becoming aware of the impending or threatened
occurrence of any event which would cause or constitute a breach, or would
with the giving of notice, the passage of time or both constitute a breach of
(a) any of the representations and warranties of any Seller contained in or
referred to in this Agreement or in any Schedule referred to in this Agreement,
(b) any other provision of this Agreement, or (c) any other agreement executed
and delivered in
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connection with this Agreement, Sellers shall give detailed written notice
thereof to Buyer and shall use their best efforts to prevent or promptly remedy
the same.
3.5 Non-Use of Trade Names, etc. After the Closing Date, except as
provided for in Section 1.1(b)(iv) hereof, no Seller, or any person controlling,
controlled by or under common control with any of them will for any reason,
directly or indirectly, for itself or any other person, (a) use any Intellectual
Property Rights transferred pursuant to this Agreement, or (b) use or disclose
any Intellectual Property Rights or any trade secrets, confidential information,
know-how, proprietary information or other intellectual property described in
Section 1.1(a)(i) hereof and transferred pursuant to this Agreement or otherwise
arising in connection with the operation of the Laci Le Beau Business, except
that Sellers may disclose such information to Buyer in connection with the
operation of the Laci Le Beau Business by Buyer after the Closing Date. On the
Closing Date, each Seller (other than the Trustees and Laci Le Beau) shall take
any and all steps necessary to amend its Certificate of Incorporation to change
its corporate name to a name which does not include the name "Laci Le Beau,"
"Neal's Discount Health Products," "Cottonwood Creek Foods," "Shay Lee," "La
Jean Health Products," "Nutrition Products" and "Natural Products" or any
related name. As soon as practicable after the limited license to use "Laci Le
Beau" in the name of Laci Le Beau Corporation ceases as contemplated in Section
1.1(b)(iv) hereof, Laci Le Beau shall take any and all steps necessary to amend
its Certificate of Incorporation to change its corporate name to a name which
does not include any of the foregoing names.
3.6 Collection of Assets. Subsequent to the Closing, Buyer and its
assignees shall have the right and authority to collect all Receivables and
other items transferred and assigned by Sellers hereunder and to endorse with
the name of any Seller or any of their affiliates any checks received on account
of such receivables or other items, and Sellers agree that they will promptly
transfer or deliver to Buyer and its assignees from time to time, any cash or
other property that it may receive on or after the Closing with respect to any
of the Receivables or any other claims, contracts, licenses, leases,
commitments, sales orders, purchase orders, or any other items included in the
assets transferred to Buyer pursuant to this Agreement.
3.7 Required Permits. At or prior to the Closing, Sellers shall deliver
to Buyer any Required Permits that they are permitted to transfer. Sellers shall
cooperate with and assist Buyer in applying for and obtaining any Required
Permits not permitted to be transferred.
3.8 Consents and Waivers. Each Seller shall obtain all consents or
waivers necessary to execute this Agreement and the other agreements and
documents contemplated herein and to carry out the transactions contemplated
hereby and thereby and shall deliver evidence thereof to Buyer. All corporate
and other action and governmental filings necessary to effectuate the terms of
this Agreement and other agreements and instruments executed and delivered by
any Seller in connection herewith shall be made or taken.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Making of Representations and Warranties. As a material inducement
to Sellers to enter into this Agreement and consummate the transactions
contemplated hereby, Buyer hereby makes the representations and warranties to
Sellers contained in this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware with full
corporate power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by it. Buyer is qualified to do business as
a foreign corporation in each jurisdiction in which such qualification is
necessary, except where the failure to be so qualified would not have a material
adverse effect on Buyer.
4.3 Authority of Buyer. Buyer has full corporate power and authority to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Buyer pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Buyer of this Agreement and each such other agreement, document
and instrument have been duly authorized by all necessary action of Buyer and no
other action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitutes, or when executed and
delivered will constitute, the valid and binding obligation of Buyer enforceable
in accordance with its terms. The execution, delivery and performance by Buyer
of this Agreement and each agreement, document and instrument contemplated
hereby:
(i) do not and will not violate any provision of the certificate of
incorporation or by-laws of Buyer;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to Buyer or require
Buyer to obtain any approval, consent or waiver of, or make
any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made; and
(iii) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right
of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award, whether
written or oral, to which Buyer is bound or affected.
4.4 Litigation. There is no litigation pending or, to the best
knowledge of Buyer, threatened against Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
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4.5 Finder's Fees. Buyer has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
4.6 Reliance. Buyer is relying on each of the representations and
warranties of each Seller contained in this Agreement.
SECTION 5. CONDITIONS TO BUYER'S OBLIGATION.
The obligation of Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the following conditions precedent:
5.1 Representations; Warranties; Covenants. Each of the
representations and warranties of Sellers and Founders contained in Section 2
shall be true and correct as though made on and as of the Closing; and Sellers
and Founders shall, on or before the Closing, have performed all of their
respective obligations hereunder which by the terms hereof are to be performed
on or before the Closing.
5.2 No Material Change. There shall have been no material adverse
change in the financial condition, prospects, properties, assets, liabilities,
business or operations of any Seller since the date hereof, whether or not in
the ordinary course of business.
5.3 Certificate from Officers. Sellers shall have delivered to
Buyer a certificate of each Seller's President dated as of the Closing to the
effect that the statements set forth in Sections 5.1 and 5.2 above are true and
correct.
5.4 Approval of Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates, opinions, and documents in form satisfactory to such
counsel, as Buyer may reasonably require from Sellers and Founders to evidence
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of Sellers
and Founders and the fulfillment of their respective covenants.
5.5 Escrow Agreement. Each Seller and Founder, Buyer and the Escrow
Agent shall have executed and delivered the Escrow Agreement, substantially in
the form attached hereto as Exhibit 1.3(b).
5.6 No Litigation. There shall have been no determination by Buyer,
acting in good faith, that the consummation of the transactions contemplated by
this Agreement has become
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inadvisable or impracticable by reason of the institution or threat by any
person or any federal, state or other governmental authority of litigation,
proceedings or other action against Buyer, any Seller or Founder or any material
adverse change in the laws or regulations applicable to Sellers.
5.7 Consents. Sellers shall have made all filings with and
notifications of governmental authorities, regulatory agencies and other
entities required to be made by Seller in connection with the execution and
delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the Laci Le Beau Business by Buyer
subsequent to the Closing; and Sellers and Buyer shall have received all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to Buyer, from all third parties in connection with the execution
and performance of this Agreement and the transactions contemplated hereby,
including without limitation, the Required Permits.
5.8 Leases. The transactions described in Section 1.10 hereof
relating to certain leaseholds shall have been consummated prior to the Closing
to the reasonable satisfaction of Buyer.
5.9 Due Diligence. Buyer shall be satisfied, in its sole
discretion, with the results of its legal, accounting, business and other due
diligence review of Sellers and the Subject Assets.
5.10 Non-Competition Agreements. Each Seller shall have executed and
delivered to Buyer a Non-Competition Agreement in substantially the form of
Exhibit 1.11 attached hereto.
5.11 Insurance. Sellers shall have paid that portion of the premium
that would be due on the first anniversary of the Insurance Policy relating to
the prior occurrence period.
SECTION 6. SURVIVAL OF WARRANTIES.
6.1 Survival of Warranties. All representations, warranties,
agreements, covenants and obligations herein or in any Schedule or exhibit to
this Agreement or any certificate or other document specifically required to be
delivered under this Agreement by any party incident to the transactions
contemplated hereby are material, shall be deemed to have been relied upon by
the parties receiving the same and shall survive the Closing for a period of two
and one-half (2.5) years (subject to the provisions of Sections 7.1 and 7.2
hereof) regardless of any investigation and shall not merge into the performance
of any obligation by any party hereto.
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SECTION 7. INDEMNIFICATION.
7.1 Indemnification by Sellers and Founders.
(a) Each Seller and each Founder, jointly and severally
(subject to subsection (b) of this Section 7.1), agrees to defend, indemnify and
hold Buyer, its parent and its and their respective subsidiaries and affiliates
and persons serving as officers, directors, partners or employees thereof
(individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any and all Claims (as defined
in Section 1.2 hereof), and any diminution in value of the Laci Le Beau Business
or the Subject Assets, whether or not arising out of third-party claims and
including all reasonable amounts paid in investigation, defense or settlement
of the foregoing, which may be sustained or suffered by any of them based
upon, arising out of, by reason of or otherwise in respect of or in
connection with:
(i) any inaccuracy in or breach of any representation
or warranty made by any Seller or Founder in this Agreement, or in any
Schedule or exhibit to this Agreement or any certificate or other
document delivered in connection with the consummation of the
transactions contemplated by this Agreement (collectively,
"Representation and Warranty Claims of Buyer");
(ii) any breach of any covenant or agreement made by
any Seller in this Agreement or in any Schedule or exhibit to this
Agreement or any certificate or other document delivered in connection
with the consummation of the transactions contemplated by this
Agreement; including without limitation the agreement of Sellers to pay
the Excluded Liabilities;
(iii) any Claim relating to the business or
operations of any Seller other than the Laci Le Beau Business;
(iv) any Claim relating to the operations and assets
of the Laci Le Beau Business which arises in connection with or on the
basis of events, acts, omissions, conditions or any other state of
facts occurring or existing on or prior to the Closing Date (including,
in each case, without limitation, any Claim relating to or associated
with the products or services of the Laci Le Beau Business sold or
provided on or prior to the Closing Date, tax matters, pension and
benefits matters, any failure to comply with applicable laws and/or
permitting or licensing requirements, and environmental and worker
health and safety matters and any Claim arising out of the joinder or
attempted joinder of the Buyer, whether as successor, or otherwise, in
the Current Litigation); and
(v) any liability of any Seller.
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The rights of Buyer Indemnified Parties to recover
indemnification in respect of any Claim arising under clause (ii), (iii), (iv),
or (v) of this Section 7.1(a) shall not be limited by the fact that such Claim
may not constitute a Representation and Warranty Claim of Buyer.
(b) The rights of Buyer Indemnified Parties to recover
indemnification under this Section 7.1 shall be subject to the following
limitations:
(i) No indemnification shall be payable by any Seller
with respect to Representation and Warranty Claims of Buyer or Claims
arising under Section 7.1(a)(ii) or Section 1.12(b) unless the total of
all amounts payable pursuant to this Section 7.1 shall exceed $25,000
in the aggregate, whereupon the total amount of such Claims shall be
recoverable in accordance with the terms thereof; provided, however,
that such $25,000 limitation shall not apply with respect to Claims
involving fraud or intentional misrepresentation;
(ii) All rights to indemnification with respect to
Representation and Warranty Claims of Buyer shall expire on the date
which is two and one-half (2.5) years after the Closing Date, except
that Representation and Warranty Claims of Buyer relating to or
involving fraud, intentional misrepresentation or tax matters shall
survive until and shall expire on the date three months after the
termination of the applicable statute of limitations relating thereto.
Notwithstanding the preceding sentence, if on or prior to the date
which is two and one-half (2.5) years after the Closing Date a specific
state of facts shall have become known which may give rise to a claim
for indemnification under Section 7.1(a)(i) and a Buyer Indemnified
Party shall have given written notice of such facts known by such Buyer
Indemnified Party at such time to Sellers and Founders, then the right
to indemnification with respect thereto shall remain in effect without
regard to when such matter shall be finally determined and disposed of.
All rights to indemnification under this Section 7.1 with respect to
claims arising under Section 7.1(a)(ii), 7.1(a)(iii), 7.1(a)(iv) and
7.1(a)(v) shall, except as they may otherwise be extended, survive
until and shall expire on the date three months after the termination
of the applicable statute of limitations relating to any Claim covered
by such indemnification right. The limitations herein with respect to
Representation and Warranty Claims of Buyer and claims arising under
Sections 7.1(a)(ii), 7.1(a)(iii), 7.1(a)(iv) shall not limit the rights
of any Buyer Indemnified Party with respect to any other claims under
this Section 7.1; and
(iii) Notwithstanding anything contained in this
Section 7.1 to the contrary, no Seller or Founder shall be required to
indemnify Buyer Indemnified Parties with respect to Representation and
Warranty Claims of Buyer or Claims arising under Sections 7.1(a) in an
aggregate amount in excess of $5,000,000 (the "Indemnity Cap"), except
with respect to claims relating to or involving fraud, intentional
misrepresentation, tax matters or any Claim arising pursuant to Section
1.13 or Section 2.13, as to which no such limit shall apply.
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7.2 Indemnification by Buyer.
(a) Buyer (subject to subsection (b) of this Section 7.2)
agrees to defend, indemnify and hold each Seller and its subsidiaries and
affiliates and persons serving as officers, directors, partners or employees
thereof (individually a "Seller Indemnified Party" and collectively the "Seller
Indemnified Parties") harmless from and against any and all Claims (as defined
in Section 1.2 hereof), whether or not arising out of third-party claims and
including all reasonable amounts paid in investigation, defense or settlement of
the foregoing, which may be sustained or suffered by any of them based upon,
arising out of, by reason of or otherwise in respect of or in connection with:
(i) any inaccuracy in or breach of any representation
or warranty made by Buyer in this Agreement or in any Schedule or
exhibit to this Agreement or any certificate or other document
delivered in connection with the consummation of the transactions
contemplated by this Agreement (collectively, "Representation and
Warranty Claims of Seller"); and
(ii) any breach of any covenant or agreement made by
Buyer in this Agreement or in any Schedule or exhibit to this Agreement
or any certificate or other document delivered in connection with the
consummation of the transactions contemplated by this Agreement.
The rights of Seller Indemnified Parties to recover indemnification in
respect of any Claim arising under clause (ii) of this Section 7.2(a)
shall not be limited by the fact that such Claim may not constitute a
Representation and Warranty Claim of Seller.
(b) The rights of Seller Indemnified Parties to recover
indemnification under this Section 7.2 shall be subject to the following
limitations:
(i) No indemnification shall be payable by Buyer with
respect to Representation and Warranty Claims of Seller or Claims
arising under Section 7.2(a)(ii) unless the total of all amounts
payable pursuant to this Section 7.2 shall exceed $25,000 in the
aggregate, whereupon the total amount of such Claims shall be
recoverable in accordance with the terms thereof; provided, however,
that such $25,000 limitation shall not apply with respect to Claims
involving fraud or intentional misrepresentation;
(ii) All rights to indemnification with respect to
Representation and Warranty Claims of Seller shall expire on the date
which is two and one-half (2.5) years after the Closing Date, except
that Representation and Warranty Claims of Seller relating to or
involving fraud, intentional misrepresentation or product liability
matters shall survive until and shall expire on the date three months
after the termination of the applicable statute of limitations relating
thereto. Notwithstanding the preceding sentence, if on or prior to the
date which is two and one-half (2.5) years after the Closing Date a
specific state of facts shall have become known which may give rise to
a
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claim for indemnification under Section 7.2(a)(i) and a Seller
Indemnified Party shall have given written notice of such facts known
by such Seller Indemnified Party at such time to Buyer, then the right
to indemnification with respect thereto shall remain in effect without
regard to when such matter shall be finally determined and disposed of.
All rights to indemnification under this Section 7.2 with respect to
Claims arising under Section 7.2(a)(i) except as they may otherwise be
extended, survive until and shall expire on the date three months after
the termination of the applicable statute of limitations relating to
any Claim covered by such indemnification right. The limitations herein
with respect to Representation and Warranty Claims of Seller and Claims
arising under Section 7.2(a)(ii) shall not limit the rights of any
Seller Indemnified Party with respect to any other claims under this
Section 7.2; and
(iii) Notwithstanding anything contained in this
Section 7.2 to the contrary, Buyer shall not be required to indemnify
Seller Indemnified Parties with respect to Representation and Warranty
Claims of Seller or Claims arising under Section 7.2(a)(ii) in an
aggregate amount in excess of the Indemnity Cap, except with respect to
claims relating to or involving fraud or intentional misrepresentation,
as to which no such limit shall apply.
7.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified
party of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted.
(b) Third Party Claims. With respect to third party claims, if
within 20 days after receiving the notice described in clause (a) above the
indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense and (ii) provides reasonable assurance to the indemnified party that
such claim will be promptly paid in full if required, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent of
the indemnified party which consent shall not be unreasonably withheld) and the
indemnifying party shall not be required to make any payment with respect to
such claim, liability or expense as long as the indemnifying party is conducting
a good faith and diligent defense at its own expense or the payment is required
in accordance with any settlement or adjudication in accordance with the
provisions of this Section 7.3; provided, however, that the assumption of
defense of any such matters by the indemnifying party shall
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relate solely to the claim, liability or expense that is subject or potentially
subject to indemnification. The indemnifying party shall have the right, with
the consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the indemnifying parties'
obligation to indemnify the indemnified party therefor will be fully satisfied
and such settlement does not involve the establishment of any obligations or
limitations applicable to the indemnified party. The indemnifying party shall
keep the indemnified party apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
the indemnified party with all documents and information that the indemnified
party shall reasonably request and shall consult with the indemnified party
prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, the indemnified party shall at all times
have the right to fully participate in such defense at its own expense directly
or through counsel; provided, however, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the indemnified party shall be paid by the indemnifying party. If no such
notice of intent to dispute and defend is given by the indemnifying party, or if
such diligent good faith defense is not being or ceases to be conducted, the
indemnified party shall, at the expense of the indemnifying party, undertake the
defense of (with counsel selected by the indemnified party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party
claims, if within 20 days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice. If the
indemnifying party provides written notice to the indemnified party within such
20-day period that it contests such indemnity, the matter shall be resolved by
arbitration in accordance with Section 8.11 hereof.
7.4 Sole Remedy. The parties agree that the rights to indemnification
under this Section 7 shall be exclusive of all rights of indemnification or
other remedies that any Seller Indemnified Party or Buyer Indemnified Party
would otherwise have in connection with the transactions contemplated by this
Agreement, except for Claims relating to or involving fraud, intentional
misrepresentation or the breach of Section 3.3 or Section 3.4 hereof.
7.5 Satisfaction of Indemnification Obligations. In order to satisfy
the indemnification obligations set forth in Section 7.1 above, a Buyer
Indemnified Party shall have the right (in addition to collecting directly from
the Sellers) to proceed directly against the Escrow Amount as further set forth
in the Escrow Agreement.
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7.6 Insurance Proceeds. The amount of any Claim for which
indemnification may be sought under this Section 7 shall be reduced by the
amount of any insurance proceeds received in respect of such Claim by the party
seeking indemnification.
SECTION 8. MISCELLANEOUS.
8.1 Law Governing. This Agreement shall be construed under and governed
by the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.
8.2 Notices. All communications, notices and consents provided for
herein shall be in writing and be given in person, by facsimile (with request
for assurance of receipt in a manner typical with respect to such
communications) or by mail, and shall become effective (x) on delivery if given
in person, (y) on the date of transmission if sent by facsimile, or (z) four
business days after being deposited in the United States mails, with proper
postage, for first-class registered or certified mail, prepaid.
Notices shall be addressed as follows:
If to Buyer, to:
----------------
Natrol, Inc.
21411 Prairie Street
Chatsworth, CA 91311
Attn: President
Fax: (818) 739-6001
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: John R. LeClaire, P.C.
Fax: (617) 523-1231
If to Sellers or Founders:
Laci Le Beau Corporation
P.O. Box 9922
Fresno, CA 93794
Attn: Earl and Helen Roberson
Fax: (209) 276-2918
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provided, however, that if any party shall have designated a different address
by notice to the others in accordance with this Section 8.2, then to the last
address so designated.
8.3 Prior Agreements Superseded. This Agreement supersedes all prior
understandings and agreements among the parties relating to the subject matter
hereof, including without limitation the letter of intent dated August 20, 1997
among Buyer and Sellers and the Letter of Intent dated August 24, 1998 among
Buyer and Sellers.
8.4 Assignability. This Agreement shall not be assignable by any party,
except by Buyer to an affiliate of Buyer (which assignment shall not relieve
Buyer of any of its obligations hereunder), without the prior written consent of
the other parties hereto. This Agreement (including without limitation the
provisions of Section 8) shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective successors,
heirs, executors, administrators and permitted assigns.
8.5 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
8.6 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of a person, whether through the ownership
of stock, as trustee, partner or executor, by contract or credit
arrangement or otherwise;
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization; and
(d) "subsidiary" of a person means any corporation more than
50 percent of whose outstanding voting securities, or any partnership,
joint venture or other entity more than 50 percent of whose total
equity interest, is directly or indirectly owned by such person.
8.7 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
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8.8 Amendments; Waivers. This Agreement may not be amended or modified
except by a writing duly and validly executed by each party hereto. Compliance
with any condition or covenant set forth herein may not be waived except by a
writing duly and validly executed by the party or parties to be bound. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, or any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.
8.9 Severability. Each of the provisions contained in this Agreement
shall be severable and the unenforceability of one shall not affect the
enforceability of any other provision or the remainder of this Agreement.
8.10 Publicity and Disclosures. Except as required by law (including
any disclosure requirements under any securities laws or rules of any stock
exchange or quotation system), neither Buyer, on the one hand, or Sellers, on
the other hand, shall make any public disclosure regarding the proposed
transaction without the prior written consent of Sellers or the Buyer,
respectively, which consent shall not be unreasonably withheld.
8.11 Arbitration. Except with respect to matters as to which injunctive
relief is being sought, any dispute arising out of or relating to this Agreement
that has not been settled within thirty (30) days by good faith negotiation
between the parties to this Agreement shall be submitted to J.A.M.S./Endispute
for final and binding arbitration on an expedited basis pursuant to its
arbitration rules and regulations. Any such arbitration shall be conducted in
Los Angeles, California.
8.12 Expenses. Buyer, Sellers and Founders shall each bear their own
expenses in connection with the transactions contemplated hereby. In particular,
all expenses of Sellers in connection with the negotiation and performance of
this Agreement and the transactions contemplated hereby and all transfer, excise
or other taxes payable by any party to this Agreement to any jurisdiction by
reason of the sale and transfer of the Subject Assets pursuant to this
Agreement, if any (excluding any such taxes arising solely from the identity or
location of Buyer or any affiliate of Buyer), shall be paid by Sellers out of
the proceeds of the sale of the Subject Assets, and, no such expenses shall be
payable by Buyer or any affiliate of Buyer provided however that Buyer shall be
responsible for payment of the California Sales Tax on the transfer of machinery
and equipment of the Laci Le Beau Business from Sellers to Buyer, calculated at
the rate of 7.75% of that portion of the Purchase Price allocated to such
machinery and equipment pursuant to Section 1.8 hereof.
8.13 Limitation on Liability. NPT is an irrevocable trust formed under
the laws of the State of California. The parties hereto agree that this
Agreement has been executed by the Trustees in their capacity as trustees of NPT
and not as individuals. Buyer agrees it will look solely to the assets of NPT to
enforce any agreement or obligation of the Trustees arising under this
Agreement, and not to the individual assets of any Trustee.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
BUYER:
------
NATROL ACQUISITION CORP.
By:/s/ Elliott Balbert
------------------------------------
Name: Elliott Balbert
Title: President/CEO
SELLERS:
--------
LACI LE BEAU CORPORATION
By:/s/ Earl Roberson
------------------------------------
Name: Earl Roberson
Title: President
SHAY LEE CORPORATION
By:/s/ Earl Roberson
------------------------------------
Name: Earl Roberson
Title: President
<PAGE>
FOUNDERS:
/s/ Earl Roberson
------------------------------------
Earl Roberson, individually
/s/ Helen Roberson
------------------------------------
Helen Roberson, individually
TRUSTEES:
/s/ Frederick L. Stine
------------------------------------
Frederick L. Stine, as Trustee of
the Nutrition Products Trust of 1995
/s/ Sam J. Roberson
------------------------------------
Sam J. Roberson, as Trustee of the
Nutrition Products Trust of 1995
/s/ Deborah L. Barnes
------------------------------------
Deborah L. Barnes, as Trustee of the
Nutrition Products Trust of 1995
